Community Heritage Financial, Inc. Reports Earnings for the Fourth Quarter of 2022

MIDDLETOWN, Md., Jan. 26, 2023 /PRNewswire/ — Community Heritage Financial, Inc. (the “Company”) (OTC PK: CMHF), the parent company of Middletown Valley Bank (“MVB” or the “Bank”), announced today that for 2022 the Company achieved the highest annual net income in the history of the Company. For the year ended December 31, 2022 the Company earned net income of $6.86 million or $2.85 per share, an increase of $840 thousand or 14.0% compared to net income of $6.02 million or $2.67 per share for the year ended December 31, 2021. Fourth quarter 2022 net income was $1.44 million or $0.50 per share, a decrease of $76 thousand compared to third quarter 2022 net income of $1.52 million and an increase of $187 thousand compared to $1.26 million for the fourth quarter of 2021.

Total assets as of December 31, 2022 totaled $930.1 million, an increase of $20.4 million compared to $909.7 million as of September 30, 2022 and up $112.2 for the year compared to December 31, 2021 total assets of $817.9 million. Outstanding core loan balances grew to $748.5 million as of December 31, 2022, an increase of $21.2 million compared to $727.3 million as of September 30, 2022 and were up $151.2 million (excluding PPP loans) from December 31, 2021. Core deposits grew by $61.1 million for the quarter from $778.3 million as of September 30, 2022 to $839.4 million as of December 31, 2022.  Several key relationship customers added material deposit dollars to the Bank in the fourth quarter, which contributed to the volume of growth for the quarter.  As a result of the strong deposit growth for the quarter, the Bank paid down all short-term debt on the balance sheet, $53 million as of September 30, 2022, to a zero balance as of December 31, 2022.  As of December 31, 2022 the Bank had no outstanding wholesale funding (brokered deposits or borrowings) remaining on the balance sheet.

Earnings for the fourth quarter continued to be impacted by increased funding costs related to additional Fed rate increases during the quarter. Interest expense increased from $1.3 million in the third quarter of 2022 to $2.4 million in the fourth quarter of 2022.  The increased funding cost was partially offset by increased interest income, going from $8.4 million in the third quarter to $9.4 million in the fourth quarter due to the loan growth as noted previously along with the upward repricing of a segment of the variable rate loan portfolio.  Revenue related to mortgage loan activity and salary expenses were impacted during the fourth quarter due to a one-time reclassification. Operating expenses were stable and decreased slightly from $5.7 million in the third quarter to $5.4 million in the fourth quarter of 2022. Due to improved metrics in the current incurred loss model, there was a recovery of loan loss provision expense of $197 thousand for the fourth quarter of 2022 compared to an expense of $424 thousand in the third quarter of 2022.  Book income tax expense decreased from $666 thousand in the third quarter to $469 thousand in the fourth quarter of 2022.  Income tax expense decreased in the fourth quarter due to reduced pretax income and year end deferred tax adjustments.

Quarterly Highlights – 4Q22 vs 3Q22

• Tangible book value per share decreased by $0.26 from $22.79 per share as of September 30, 2022 to $22.53 as of December 31, 2022. The slight decrease in tangible book value resulted from the completion of the common stock equity raise in October 2022, which added 649,526 shares of common stock and $12.3 million in additional paid in capital to the Company’s equity during the quarter. An additional 5,127 shares of common stock were issued during the quarter through equity-based compensation plans.

• Gross loans increased by $21.2 million for the fourth quarter of 2022 compared to the third quarter of 2022. Most of the growth came from the residential mortgage portfolio with slightly over $19 million in net growth for the quarter. Net growth in the commercial portfolio was offset by several expected payoffs and participation related paydowns during the fourth quarter. All PPP loan forgiveness was completed during the second quarter of 2022 and there were no loan balances, interest income or fee income included in third or fourth quarter 2022 results related to the PPP loan program.

• Overall deposits increased $61.1 million for the fourth quarter of 2022 to $839.4 million as of December 31, 2022, up from $778.3 million as of September 30, 2022. Several key deposit relationships added substantial balances during the quarter, which accounted for a portion of the strong growth. The growth allowed the Bank to pay down all wholesale funding on the balance sheet during the quarter, including $10 million in brokered deposits and $53 million in short-term FHLB and overnight Fed Fund borrowings. As of December 31, 2022 the Bank had no wholesale funding remaining on the balance sheet.

• Net interest margin continued to be impacted by additional Fed rate increases and increased market rate competition for deposits during the fourth quarter. Strong earning asset growth and upward repricing have remained on course to drive revenue expansion; however, the rapid increase in short-term funding rates has caused margin compression. Net interest margin fell 20 basis points from 3.35% in the third quarter of 2022 to 3.15% in the fourth quarter of 2022, resulting in net interest income to drop from $7.1 million in the third quarter of 2022 to $7.0 million for the fourth quarter.

• The allowance for loan losses to total loans ratio was 0.98% at December 31, 2022, down 0.05% from 1.03% as of September 30, 2022. Improved economic and credit metrics within the currently used incurred loss model allowed for the reduction in the reserve ratio and a recovery of provision expense for the quarter.

Quarterly Highlights – 4Q22 vs 4Q21

• Tangible book value per share decreased $2.03 to $22.53 as of December 31, 2022 compared to $24.56 as of December 31, 2021. Most of the tangible book value decrease on a year-over-year basis was due to an increase in the accumulated other comprehensive loss to $9.5 million as of December 31, 2022 compared to a loss of $893 thousand as of December 31, 2021. The decrease in tangible book value per share on a year-over-year basis was also impacted by the increased shares outstanding of 654,653 (649,526 from the common stock raise and 5,127 from equity-based compensation plans).

• Gross loans of $748.5 million as of December 31, 2022 were up $137.9 million or 22.6% compared to December 31, 2021. Actual core growth including the full forgiveness of PPP loans of $13.3 million as of December 31, 2022 was $151.2 million or 24.8% for 2022.

• Total deposits at December 31, 2022 were $839.4 million, an increase of $102.7 million or 13.9% compared to $736.7 million as of December 31, 2021. As of December 31, 2022 there were no brokered deposits on the Bank balance sheet compared to $246 thousand as of December 31, 2021.

• Net interest margin for the fourth quarter of 2022 was 3.15% at the Bank level compared to 3.22% for the fourth quarter of 2021. Increased funding costs, as noted previously, along with no PPP related interest and fee income for the fourth quarter of 2022 compared to PPP interest and fee income of $255 thousand for the fourth quarter of 2021 accounted for the variance. PPP interest and fee income for the full year of 2022 was $416 thousand compared to $2.8 million for the full year of 2021.

• Due to improved credit and economic metrics, there was a recovery of $197 thousand in loan loss provision expense for the fourth quarter of 2022 compared to an expense of $426 thousand for the fourth quarter of 2021. Provision expense for the year ended December 31, 2022 was $813 thousand compared to $3.1 million for the year ended December 31, 2021. Full year results for 2021 included an isolated $4.5 million loan charge-off during the second quarter. Per the credit metrics noted previously, there were only $7 thousand in total charge-offs recorded for the year in 2022.

• Non-interest income totaled $98 thousand for the fourth quarter of 2022 due to lower refinance and secondary mortgage activity compared to the fourth quarter of 2021 and due to the reclassification previously noted. The $98 thousand compares to $1.3 million in non-interest income for the fourth quarter of 2021. Service charge, insurance and other non-interest income for the quarter showed gains over fourth quarter results in 2021.

• Non-interest expense for the fourth quarter of 2022 was $5.4 million, an increase of $100 thousand or 1.9% compared to $5.3 million for the fourth quarter of 2021. Full year 2022 non-interest expense was $21.1 million an increase of $1.2 million or 6.2% compared to full year 2021 expense of $19.9 million. Inflation driven operating cost increases along with increased employee costs due to labor market competition and increased data processing fees related to volume and infrastructure improvements made up most of the year-over-year variance.

Dividend

A dividend of $0.06 per share was declared by the Board of Directors on January 20, 2023, for stockholders of record as of February 3, 2023, and payable on February 10, 2023. The $0.06 dividend per share represents a 50% increase from the previous quarterly dividend of $0.04 per share.

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