Community Heritage Financial, Inc. Reports Earnings for the Year Ended 2023

MIDDLETOWN, Md., Jan. 29, 2024 /PRNewswire/ — Community Heritage Financial, Inc. (the “Company” or “CHF”) (OTC PK: CMHF), the parent company of Middletown Valley Bank (“MVB” or the “Bank”), announced today that the Company earned net income of $4.3 million or $1.47 per diluted share for the year ended December 31, 2023, a decrease of $2.6 million or 37.3%, compared to net income of $6.9 million or $2.84 per diluted share for the year ended December 31, 2022. Fourth quarter 2023 net income was $923,000 or $.32 per diluted share, a decrease of $443,000 compared to third quarter 2023 net income of $1.4 million and a decrease of $521,000 compared to $1.4 million for the fourth quarter of 2022.

Balance Sheet and Asset Quality

Despite continuation of the challenges of a volatile interest rate environment and uncertain economic conditions during 2023, the Company posted strong growth with total assets increasing 6.3% from $930.1 million on December 31, 2022 to $988.6 million on December 31, 2023.  Loans grew to $812.9 million as of December 31, 2023, an increase of $64.5 million or 8.6% from December 31, 2022.  Total deposits grew $37.2 million or 4.4% during the year to $876.7 million on December 31, 2023.   Asset quality remained strong with non-performing assets to total assets of .18% on December 31, 2023, compared to .19% on December 31, 2022.  The ratio of net charge-offs to average total loans was zero percent for each of the years ended 2023 and 2022.

Results from Operations

The volatile interest rate environment challenged earnings during 2023 as the Federal Reserve continued its efforts to rein in inflation.  Net income totaled $4.3 million in 2023, representing a decline of $2.6 million compared to 2022.  Additional rate increases by the Federal Reserve totaling 100 basis points during the year forced funding costs higher and pressured the Company’s net interest margin as deposit rates increased and depositors migrated excess liquidity to higher yielding products.  The Company’s cost of interest-bearing liabilities increased from .94% in 2022 to 2.71% in 2023.  As a result, interest expense increased $12.5 million, from $4.9 million during 2022 to $17.4 million during 2023.  The increased funding cost was partially offset by an increase in interest income from $32.4 million in 2022 to $43.5 million in 2023 resulting from loan growth and the upward repricing of the Company’s variable rate loan portfolio.  As a result, the Company’s net interest margin declined from 3.21% in 2022 to 2.76% in 2023.  Revenue related to mortgage banking activity declined $921,000 during 2023 compared to 2022 as an increase in mortgage rates dampened activity.  Operating expenses increased $3.2 million in 2023 compared to 2022, $2.0 million of which was an increase in salaries and employee benefits expense.  Merit, promotional and equity adjustments and costs associated with new hire positions accounted for $549,000 of the increase in salaries and employee benefits expense.  In addition, the Company experienced an increase in healthcare insurance of $355,000 as claims activity was higher than historical levels, an increase in other benefits costs of $163,000, and a decrease in the deferral of loan origination cost of $135,000 as a result of lower loan origination volumes.  The Company also incurred one-time salary and benefit costs of approximately $380,000 during 2023 related to management transition and staffing structural changes.  Occupancy and equipment expense increased from $3.1 million in 2022 to $3.6 million in 2023 as the Company prepared for the opening of a new, limited-service branch facility in 2024, enhanced technology security features of its data processing and electronic banking systems, and recorded (i) $135,000 in costs associated with the early termination of an office lease and (ii) a $101,000 write-down to market value of a vacant parcel of land immediately adjacent to a branch facility.  Legal and professional fees grew $218,000 in 2023 compared to 2022 as the Company prepared for FDICIA requirements, which become effective after reaching $1.0 billion in assets.  Pressure on the net interest margin, reduced revenue associated with mortgage banking activity and increased operating costs were partially offset by a $747,000 recapture of the provision for credit losses, including the provision for unfunded loan commitments and securities held to maturity.  Due to a more favorable forecast of economic conditions and the reduced probability of a recession, the calculated allowance for loan credit losses to loans ratio fell from 1.06% on January 1, 2023 post CECL adoption to .95% on December 31, 2023.

Quarterly Highlights – Q4 2023 vs. Q3 2023

Loans increased $14.9 million during the fourth quarter of 2023 compared to the third quarter of 2023.  Net growth in residential real estate, owner occupied commercial real estate, and commercial and industrial loans totaled $6.6 million, $5.2 and $4.8 million, respectively.  Non-owner occupied commercial real estate loans declined $2.6 million.
Deposits declined $12.4 million in the fourth quarter of 2023 to $876.7 million as of December 31, 2023, down from $889.0 million as of September 30, 2023.  A decline of $25.6 million in interest-bearing transaction accounts was offset by increases of $11.8 million and $1.5 million in DDA and time deposit balances, respectively.
The net interest margin increased from 2.62% during the third quarter 2023 to 2.71% during the fourth quarter.  The fourth quarter saw a slowing in the rate of increase in cost of funds, primarily interest-bearing deposits.  As a result, net interest income grew $459,000.
Mortgage banking revenue declined $111,000, from $366,000 in the third quarter to $255,000 in the fourth quarter.  Mortgage banking activity is highly sensitive to movement in interest rates and somewhat cyclical in nature.
The allowance for loan credit losses to loans ratio was 0.95% on December 31, 2023 compared to 0.92% on September 30, 2023.  The provision for credit losses totaled $275,000 in the fourth quarter compared to a recapture of $843,000 in the third quarter.

Quarterly Highlights – Q4 2023 vs. Q4 2022

Tangible book value per share increased $1.35 to $23.88 as of December 31, 2023, compared to $22.53 as of December 31, 2022.  The increase on a year-over-year basis was due to earnings, net of dividends and a decrease in the accumulated other comprehensive loss of $1.4 million. 
Loans of $812.9 million as of December 31, 2023 grew $64.5 million or 8.6% compared to December 31, 2022.  Residential real estate, construction and land development and owner occupied commercial real estate loans grew $48.6 million, $19.1 million and $18.3 million, respectively.  Commercial and industrial loans declined $21.5 million.
Total deposits on December 31, 2023 were $876.7 million, an increase of $37.2 million or 4.4% compared to $839.4 million as of December 31, 2022.  As of December 31, 2023, brokered deposits totaled $10.0 million.  There were no brokered deposits on December 31, 2022.    
The net interest margin for the fourth quarter of 2023 was 2.71%, compared to 3.05% for the fourth quarter of 2022.  Increased funding costs, as noted previously, pressured the margin in 2023.
Non-interest income totaled $909,000 for the fourth quarter of 2023 compared to $98,000 for the fourth quarter of 2022.  Fourth quarter 2022 non-interest income included a one-time reclassification impacting mortgage banking revenue and salaries and employee benefits. 
Non-interest expense increased $817,000 in the fourth quarter 2023 compared to the same quarter in 2022, with an increase in salaries and employee benefits accounting for $685,000 of the total increase.  As noted previously, fourth quarter 2022 salaries and employee benefits expense was impacted by a one-time reclassification.

Dividend

A dividend of $0.06 per share was declared by the Board of Directors on January 19, 2024, for stockholders of record as of February 2, 2024, and payable on February 9, 2024.

Forward-Looking Statements

This press release may contain forward-looking statements with respect to the Company’s financial condition, results of operations and business.  Forward-looking statements can be identified by words such as “expects”, “anticipates”, “believes”, “estimates”, “projects”, “continue”, “plans”, “intends”, the negative of these words and other comparable terminology.  These forward-looking statements may be included in comments regarding future financial performance, expected levels of future revenue and expenses such as credit losses, growth strategies, new business initiatives and anticipated trends impacting performance.  Forward-looking statements are not historical facts nor an assurance of future performance.  While we believe the expectations of forward-looking statements to be reasonable, actual results may differ materially as forward-looking statements are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and often outside of the control of the Company.  Therefore, users should not rely on forward-looking statements.

Non-GAAP Financial Measures

The Company may include certain non-GAAP financial measures in this press release.  The Company believes these financial measures provide information useful to investors in understanding the Company’s performance and performance trends to facilitate comparisons with the performance of others in the industry.  These non-GAAP financial measures should not be considered an alternative to GAAP and users should recognize the non-GAAP financial measures presented by the Company might not be comparable to measures of other companies with similar titles.

Community Heritage Financial, Inc.
Robert E. (BJ) Goetz, Jr.
President & Chief Executive Officer
301-371-3055

Community Heritage Financial , Inc. and Subsidiaries

Balance Sheets (unaudited)

As of Period End

12/31/2023

9/30/2023

6/30/2023

3/31/2023

12/31/2022

ASSETS

Cash and due from banks

$   16,664,061

$   36,448,539

$   14,946,927

$   12,820,683

$   15,393,207

Securities available for sale, at fair value

40,927,086

39,917,313

41,460,794

43,142,854

39,510,486

Securities held to maturity

96,111,626

97,217,237

98,496,558

99,914,183

101,005,393

Less allowance for credit losses

103,949

147,457

163,259

155,381

Total securities held to maturity

96,007,677

97,069,780

98,333,299

99,758,802

101,005,393

Total securities

136,934,763

136,987,093

139,794,093

142,901,656

140,515,879

Equity securities, at cost

1,363,600

1,363,600

1,527,600

1,740,100

406,400

Loans

812,932,872

798,035,073

796,931,525

757,611,496

748,450,525

Less allowance for loan credit losses

7,742,297

7,337,327

8,112,952

7,855,981

7,330,436

Loans, net

805,190,575

790,697,746

788,818,573

749,755,515

741,120,089

Loans held for sale

1,651,118

2,879,397

1,923,566

1,703,221

4,725,495

Premises and equipment

6,329,832

6,639,595

6,805,822

6,974,776

7,053,532

Right of use asset

2,380,555

2,498,508

2,615,519

2,731,604

2,841,736

Accrued interest receivable

2,972,952

2,733,565

2,512,795

2,405,851

2,616,879

Deferred tax assets

4,766,376

5,289,000

5,314,018

5,264,879

5,277,275

Bank owned life insurance

7,172,917

6,943,992

6,927,341

6,875,378

6,817,058

Goodwill

1,656,507

1,656,507

1,656,507

1,656,507

1,656,507

Other assets

1,544,870

1,556,491

1,502,676

1,789,682

1,708,412

Total Assets

$ 988,628,126

$ 995,694,033

$ 974,345,437

$ 936,619,852

$ 930,132,469

LIABILITIES and SHAREHOLDERS’ EQUITY

Liabilities

Deposits

    Non-interest-bearing demand

$ 260,204,859

$ 248,440,805

$ 244,342,167

$ 250,702,470

$ 276,829,209

    Interest-bearing

616,461,031

640,593,734

606,528,210

565,130,161

562,601,082

        Total deposits

876,665,890

889,034,539

850,870,377

815,832,631

839,430,291

FHLB advances and other borrowings

18,000,000

15,000,000

32,000,000

30,000,000

Subordinated debt, net

14,932,727

14,910,303

14,887,879

14,865,455

14,843,030

Lease liabilities

2,450,133

2,565,151

2,678,348

2,789,614

2,908,707

Accrued interest payable

368,085

526,354

273,753

440,611

236,624

Other liabilities

5,024,871

4,644,608

5,540,871

4,661,833

5,572,659

    Total Liabilities

917,441,706

926,680,955

906,251,228

868,590,144

862,991,311

Shareholders’ Equity

Common stock

29,117

29,060

29,060

29,060

29,060

Additional paid in capital

41,052,291

41,035,733

40,949,900

40,895,863

40,861,802

Retained earnings

38,669,620

37,921,329

36,729,931

36,287,937

35,757,761

Accumulated other comprehensive income (loss)

(8,564,608)

(9,973,044)

(9,614,682)

(9,183,152)

(9,507,465)

    Total Shareholders’ Equity

71,186,420

69,013,078

68,094,209

68,029,708

67,141,158

Total Liabilities and Shareholders’ Equity

$ 988,628,126

$ 995,694,033

$ 974,345,437

$ 936,619,852

$ 930,132,469

Community Heritage Financial , Inc. and Subsidiaries

Selected Financial Data (unaudited)

As of Period End

12/31/2023

9/30/2023

6/30/2023

3/31/2023

12/31/2022

Per Share Data

Common shares outstanding at period end

2,911,670

2,905,973

2,905,973

2,905,973

2,905,973

Book value per share

$            24.45

$            23.75

$            23.43

$            23.41

$            23.10

Tangible book value per share

$            23.88

$            23.18

$            22.86

$            22.84

$            22.53

Capital (bank consolidated only unless noted otherwise)

Common equity tier 1 (CET1) capital

12.02 %

12.15 %

11.95 %

12.30 %

12.27 %

Tier 1 capital

12.02 %

12.15 %

11.95 %

12.30 %

12.27 %

Total risk based capital

13.10 %

13.21 %

13.12 %

13.47 %

13.39 %

Tier 1 leverage ratio

9.10 %

9.34 %

9.52 %

9.57 %

9.53 %

Tangible common equity to tangible assets (CHF)

7.04 %

6.78 %

6.83 %

7.10 %

7.05 %

Asset Quality Data

Non-accrual loans

$     1,823,212

$     1,882,614

$     1,929,248

$     2,082,556

$     1,727,642

Non-performing assets

$     1,823,212

$     1,882,614

$     1,929,248

$     2,082,556

$     1,727,642

Non-performing loans to loans

0.22 %

0.24 %

0.24 %

0.27 %

0.23 %

Non-performing assets to total assets

0.18 %

0.19 %

0.20 %

0.22 %

0.19 %

Allowance for loan credit losses to loans

0.95 %

0.92 %

1.02 %

1.04 %

0.98 %

Other Data

Loans to deposits ratio 

92.73 %

89.76 %

93.66 %

92.86 %

89.16 %

Community Heritage Financial , Inc. and Subsidiaries

Statements of Income (unaudited)

Three Months Ended

Percent

Year Ended

Percent

12/31/2023

12/31/2022

Change

12/31/2023

12/31/2022

Change

Interest Income

Loans, including fees

$   10,659,287

$     8,506,375

25.31 %

$   39,596,782

$   29,365,769

34.84 %

Securities

754,731

727,876

3.69 %

3,020,444

2,804,729

7.69 %

Fed funds sold and other

496,210

125,813

294.40 %

890,774

200,851

343.50 %

Total interest income

11,910,228

9,360,064

27.25 %

43,508,000

32,371,349

34.40 %

Interest Expense

Deposits

4,755,804

1,770,167

168.66 %

15,510,740

3,437,720

351.19 %

Borrowed funds

160,901

366,438

-56.09 %

925,582

522,598

77.11 %

Subordinated debt

238,049

238,049

0.00 %

952,197

952,197

0.00 %

Total interest expense

5,154,754

2,374,654

117.07 %

17,388,519

4,912,515

253.96 %

Net interest income

6,755,474

6,985,410

-3.29 %

26,119,481

27,458,834

-4.88 %

Provision for credit losses

275,339

(196,987)

-239.78 %

(747,330)

812,855

-191.94 %

Net interest income after provision for credit losses

6,480,135

7,182,397

-9.78 %

26,866,811

26,645,979

0.83 %

Non-interest income

Service charges on deposits

209,331

190,655

9.80 %

786,938

747,100

5.33 %

Earnings on bank owned life insurance

95,633

61,933

54.41 %

197,694

58,826

236.07 %

Gain on sale of fixed assets

48,940

Na

19,907

65,448

-69.58 %

Gain on sale of mortgage loans

254,867

(461,671)

-155.21 %

1,153,123

2,074,227

-44.41 %

Other

349,211

257,808

35.45 %

1,108,393

983,348

12.72 %

Total non-interest income

909,042

97,665

830.78 %

3,266,055

3,928,949

-16.87 %

Non-interest expense

Salaries and employee benefits

3,536,962

2,784,132

27.04 %

14,133,013

12,098,456

16.82 %

Occupancy and equipment

948,591

808,870

17.27 %

3,598,439

3,110,087

15.70 %

Legal and professional fees

206,178

181,490

13.60 %

928,984

710,697

30.71 %

Advertising

77,100

134,085

-42.50 %

301,300

276,520

8.96 %

Data processing

752,980

803,583

-6.30 %

2,860,788

2,661,680

7.48 %

FDIC insurance 

190,695

154,074

23.77 %

639,080

570,508

12.02 %

Loss on sale of fixed assets

Na

3,058

Na

Other intangible amortization

Na

695

Na

Other

471,476

500,523

-5.80 %

1,986,239

1,828,549

8.62 %

Total non-interest expense

6,183,982

5,366,757

15.23 %

24,450,901

21,257,192

15.02 %

Income before income taxes

1,205,195

1,913,305

-37.01 %

5,681,965

9,317,736

-39.02 %

Income tax expense

282,204

469,282

-39.86 %

1,386,803

2,462,232

-43.68 %

Net income

$        922,991

$     1,444,023

-36.08 %

$     4,295,162

$     6,855,504

-37.35 %

Community Heritage Financial , Inc. and Subsidiaries

Per Share Data (unaudited)

Three Months Ended

Percent

Year Ended

Percent

12/31/2023

12/31/2022

Change

12/31/2023

12/31/2022

Change

Earnings per common share

Basic

$              0.32

$              0.50

-36.59 %

$              1.48

$              2.85

-48.16 %

Diluted

$              0.32

$              0.50

-36.85 %

$              1.47

$              2.84

-48.37 %

Common shares outstanding at period end

2,911,670

2,905,973

0.20 %

2,911,670

2,905,973

0.20 %

Average common shares outstanding

Basic

2,911,254

2,874,980

1.26 %

2,907,304

2,408,516

20.71 %

Diluted

2,923,057

2,874,980

1.67 %

2,928,985

2,410,177

21.53 %

Cash dividends per common share

$              0.06

$              0.04

50.00 %

$              0.24

$              0.16

50.00 %

Community Heritage Financial , Inc. and Subsidiaries

Selected Financial Performance Ratios (unaudited)

Three Months Ended

Year Ended

12/31/2023

12/31/2022

12/31/2023

12/31/2022

Return on average assets

0.36 %

0.62 %

0.44 %

0.78 %

Return on average equity

5.30 %

8.69 %

6.22 %

11.99 %

Net interest margin 

2.71 %

3.05 %

2.76 %

3.21 %

Yield on interest-earning assets

4.78 %

4.08 %

4.60 %

3.78 %

Cost of interest-bearing liabilities

2.99 %

1.65 %

2.71 %

0.94 %

Net loan charge-offs to average loans

0.00 %

0.00 %

0.00 %

0.00 %

Community Heritage Financial , Inc. and Subsidiaries

Statements of Income – Five Quarters (unaudited)

Three Months Ended

12/31/2023

9/30/2023

6/30/2023

3/31/2023

12/31/2022

Interest Income

Loans, including fees

$   10,659,287

$   10,139,353

$     9,453,437

$     9,344,705

$     8,506,375

Securities

754,731

763,606

767,524

734,583

727,876

Fed funds sold and other

496,210

203,553

81,306

109,705

125,813

Total interest income

11,910,228

11,106,512

10,302,267

10,188,993

9,360,064

Interest Expense

Deposits

4,755,804

4,369,856

3,459,747

2,925,333

1,770,167

Borrowed funds

160,901

201,754

482,469

80,458

366,438

Subordinated debt

238,049

238,050

238,049

238,049

238,049

Total interest expense

5,154,754

4,809,660

4,180,265

3,243,840

2,374,654

Net interest income

6,755,474

6,296,852

6,122,002

6,945,153

6,985,410

Provision for credit losses

275,339

(842,717)

260,439

(440,391)

(196,987)

Net interest income after provision for credit losses

6,480,135

7,139,569

5,861,563

7,385,544

7,182,397

Non-interest income

Service charges on deposits

209,331

202,779

187,426

187,402

190,655

Earnings on bank owned life insurance

95,633

8,360

43,672

50,029

61,933

Gain on sale of fixed assets

19,907

48,940

Mortgage banking revenue

254,867

365,860

302,911

229,485

(461,671)

Other

349,211

244,074

269,503

245,605

257,808

Total non-interest income

909,042

840,980

803,512

712,521

97,665

Non-interest expense

Salaries and employee benefits

3,536,962

3,736,317

3,286,113

3,573,621

2,784,132

Occupancy and equipment

948,591

842,651

815,251

991,946

808,870

Legal and professional fees

206,178

242,671

294,626

185,509

181,490

Advertising

77,100

57,855

87,070

79,275

134,085

Data processing

752,980

618,593

688,229

800,986

803,583

FDIC insurance 

190,695

163,731

130,622

154,032

154,074

Loss on sale of fixed assets

3,058

Other intangible amortization

Other 

471,476

485,493

566,953

462,317

500,523

Total non-interest expense

6,183,982

6,147,311

5,868,864

6,250,744

5,366,757

Income before income taxes

1,205,195

1,833,238

796,211

1,847,321

1,913,305

Income tax expense

282,204

467,482

179,858

457,259

469,282

Net income

$        922,991

$     1,365,756

$        616,353

$     1,390,062

$     1,444,023

Community Heritage Financial , Inc. and Subsidiaries

Selected Financial Performance Ratios (unaudited)

Three Months Ended

12/31/2023

9/30/2023

6/30/2023

3/31/2023

12/31/2022

Return on average assets

0.36 %

0.55 %

0.26 %

0.60 %

0.78 %

Return on average equity

5.32 %

7.95 %

3.59 %

8.25 %

11.99 %

Net interest margin 

2.71 %

2.62 %

2.61 %

3.08 %

3.05 %

Yield on interest-earning assets 

4.78 %

4.57 %

4.43 %

4.52 %

4.08 %

Cost of interest-bearing liabilities 

2.99 %

2.91 %

2.67 %

2.22 %

1.65 %

Net loan charge-offs to average loans

0.00 %

0.00 %

0.00 %

0.00 %

0.00 %

Community Heritage Financial , Inc. and Subsidiaries

Loan Composition (unaudited)

As of Period End

12/31/2023

9/30/2023

6/30/2023

3/31/2023

12/31/2022

Commercial real estate:

Construction and land development

$   89,525,228

$   89,980,412

$   88,750,860

$   76,516,440

$   70,396,959

Multifamily

21,784,953

22,599,598

22,862,108

22,904,007

23,679,358

Farmland

30,821,848

28,785,156

28,611,754

25,698,329

25,690,199

Other:

Owner occupied

136,628,801

131,398,708

130,090,900

133,831,920

118,316,075

Non-owner occupied

119,979,964

122,587,639

129,674,501

134,387,213

123,793,254

Residential, including home equity

280,523,837

273,884,529

265,131,928

240,905,733

231,904,389

Commercial and industrial

128,933,413

124,154,237

127,334,140

118,840,144

150,421,114

Consumer

1,203,039

1,209,100

1,143,316

1,294,966

1,160,983

Gross loans

809,401,083

794,599,379

793,599,507

754,378,752

745,362,331

Net deferred loan costs

3,531,789

3,435,694

3,332,018

3,232,744

3,088,194

Loans

$ 812,932,872

$ 798,035,073

$ 796,931,525

$ 757,611,496

$ 748,450,525

SOURCE Community Heritage Financial, Inc.

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