Cashmere Valley Bank Reports Quarterly Earnings of $7.7 Million

CASHMERE, WA / ACCESSWIRE / April 18, 2023 / Cashmere Valley Bank (OTCQX:CSHX) ("Bank"), announced quarterly earnings of $7.7 million for the quarter ended March 31, 2023. Diluted earnings per share were $1.99, representing an increase of $0.43 per share, or 27.6%.

"We are proud to report our first quarter earnings and the improvement these earnings represent," said Greg Oakes, President and CEO. "The benefit of higher rates on our net interest margin is significant. The downside of higher rates is that deposit competition and our costs to retain deposits is starting to increase at a rapid pace. We continue to deploy strategies to attract and retain deposits. In addition, we are continuing to try to unwind the level of unrealized loss in our securities portfolio."

Q1 Highlights
The Bank reported the following statement of condition highlights as of March 31, 2023:

• As of March 31, 2023, gross loans totaled $1.016 billion, representing an increase from March 31, 2022 of $44.5 million.
• Deposit balances totaled $1.84 billion as of March 31, 2023. Deposit balances decreased $120.9 million, or 6.2%, from March 31, 2022. Non-interest deposits totaled $425.5 million as of March 31, 2023, which represents 23.1% of total deposits.

Cash, Cash Equivalents and Restricted Cash
Total cash, cash equivalents and restricted cash were $110.5 million at March 31, 2023, compared to $87.6 million at March 31, 2022. The $22.8 million increase was primarily due to efforts to retain higher cash balances as rates paid to the Bank on overnight funds have increased significantly from one year ago. Rates have increased from 0.40% to 4.90% from March 31, 2022 to March 31, 2023. Available borrowing lines from the Federal Home Loan Bank and the Federal Reserve total approximately $347 million. As of March 31, 2023, the Bank had full borrowing capacity as no advances had been made.

Investments
The investment portfolio totaled $836.3 at March 31, 2023, a decrease of $224.5 million from March 31, 2022. As of March 31, 2023, available for sale securities totaled $691.9 million and held to maturity securities totaled $144.4 million. For the quarter ended March 31, 2023, securities earned 3.17% as compared to 1.99% one year ago. The increase in the earnings rate is attributable to increasing yields on floating rate securities in combination with higher rates on new securities purchases.

As of March 31, 2023, unrealized losses on available for sale securities totaled $76.7 million. Additionally, there was a $7.1 million unrealized loss on held to maturity securities. To conform with generally accepted accounting principles, held to maturity securities are recorded on the balance sheet at amortized cost. The unrealized loss on held to maturity securities was not recorded on the balance sheet. As of March 31, 2022, the unrealized loss on available for sale securities totaled $52.7 million and there was no loss on held to maturity securities.

Loans and Credit Quality
Gross loans totaled $1.016 billion as of March 31, 2023, which is an increase of $44.5 million from March 31, 2022. Since March 31, 2022, loan growth was reported for purchased auto dealer loans of $39.2 million, equipment finance loans of $16.6 million, and multi-family loans of $23.8 million. Decreases in loan balances were noted for commercial real estate loans of $25.6 million and municipal loans of $9.5 million.

The Bank adopted the Current Expected Credit Losses (CECL) Methodology on January 1, 2023. As part of the adoption the Bank lowered the Allowance for Credit Losses on Loans balance by $1.1 million and increased the unfunded commitment reserve by $2.1 million. According to generally accepted accounting principles (GAAP) the changes to reserve amounts were applied against capital net of tax rather than through earnings. The allowance for credit losses on loans (ACL) was 1.26% of gross loans as compared to 1.41% one year ago. During the first quarter of 2023, provision expense of $605,000 was recorded, and the allowance totaled $12.8 million.

Credit quality remains exceptionally strong with non-performing loans representing 0.15% of gross loans as of March 31, 2023. This is a slight increase from 0.03% as of March 31, 2022.

Deposits
Deposits totaled $1.84 billion at March 31, 2023. The average cost of deposits increased 36 basis points to 0.63% for the quarter ended March 31, 2023 as compared to 0.27% for the quarter ended March 31, 2022.

Equity
Tier 1 capital remains strong. Tier 1 capital increased to $238.0 million as of March 31, 2023 an increase from $217.9 at March 31, 2022. The increase is due to earnings less dividends paid during the first quarter. The first quarter dividend was paid February 13, 2023 at a rate of $0.85 per share.

As of March 31, 2023, GAAP capital reflects a decrease of $11.0 million from March 31, 2022. The decrease was a result of market value changes in securities as a result of the increase in the treasury yield curve, which was partially offset by earnings.

Earnings

Net Interest Income
Net interest income totaled $17.3 million in the first quarter of 2023, compared to $13.6 million in the same quarter a year ago. The increase from the prior quarter was attributable to an improvement in yields on earning assets of 108 basis points as compared to an increase of 36 basis points in deposit expenses.

Loan interest income increased $1.8 million over the same quarter one year ago as the average yield on loans increased from 3.91% to 4.40%.

Interest income on available for sale and held to maturity securities increased $1.7 million from one year ago as the average yield on securities increased from 1.99% to 3.17%.

Interest income from deposits with other financial institutions increased $1.4 million as the average yield on interest bearing accounts increased from 0.18% to 4.63%.

The net interest margin was 3.42% for the first quarter of 2023, compared to 2.58% during the first quarter of 2022.

Non-Interest Income
Non-interest income totaled $4.5 million in the first quarter of 2023 as compared to $4.5 million in the first quarter of 2022. As mortgage purchases and refinances have slowed, income from mortgage banking operations decreased to $312,000 in the first quarter of 2023 as compared to $755,000 in the first quarter of 2022. Income from insurance commission and fees increased to $1.9 million from $1.7 million in the first quarter of 2022. Net interchange income has increased significantly from $654,000 in the first quarter of 2022 to $1,360,000 in the first quarter of 2023. While interchange volume has increased, the bulk of the increase was due to improved interchange pricing. Price improvements were negotiated for higher interchange income as well as reductions in costs incurred for processing debit card transactions.

Non-Interest Expense
Non-interest expense totaled $11.8 million in the first quarter of 2023 as compared to $11.0 million in the first quarter of 2022.

The primary driver of the increase in non-interest expense has been the increase in salaries and benefits. As compared to the same period one year ago, wages and benefits expense increased $670,000 or 10.5%. Wages and health care premiums are up substantially in an effort to attract and retain employees.

The Bank's efficiency ratio was 54.0% in the first quarter of 2023 as compared to 61.0% in the first quarter of 2022.

About Cashmere Valley Bank
Cashmere Valley Bank was established September 24, 1932 and now has 11 retail offices in Chelan, Douglas, Kittitas and Yakima Counties and a municipal lending office in King County. The Bank provides business and personal banking, commercial lending, insurance services through its wholly owned subsidiary Mitchell, Reed & Schmitten Insurance, investment services, mortgage services, equipment lease financing, auto and marine dealer financing and municipal lending. The success of Cashmere Valley Bank is the result of maintaining a high level of personal service and controlling expenses so our fees and charges offer our customers the best value available. We remain committed to those principles that we feel are best summarized as, "the little Bank with the big circle of friends."

Forward-Looking Statements
This release may contain certain forward-looking statements that are based on management's current expectations regarding economic, legislative, and regulatory issues that may impact the Bank's earnings in future periods. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words "believe," "expect," "intend," "anticipate," "estimate," "will," "would," "should," "could" or "may." Factors that could cause future results to vary materially from current management expectations include, but are not limited to, general economic conditions, economic uncertainty in the United States and abroad, changes in interest rates, deposit flows, real estate values, costs or effects of acquisitions, competition, changes in accounting principles, policies or guidelines, legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting the Bank's operations. The Bank undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.

MEDIA CONTACT
Greg Oakes, CEO, (509) 782-2092 or
Mike Lundstrom, CFO, (509) 782-5495

SOURCE: Cashmere Valley Bank