Cashmere Valley Bank Reports Year-to-Date Earnings of $13.1 Million, Gross Loans at All Time High

CASHMERE, WA / ACCESSWIRE / July 18, 2023 / Cashmere Valley Bank (OTCQX:CSHX) ("Bank"), announced quarterly earnings of $5.4 million for the quarter ended June 30, 2023. Year-to-date earnings totaled $13.1 million as compared to $7.4 million for the six months ended June 30, 2022. Year-to-date diluted earnings per share were $3.37, representing an increase of $1.46 per share, or 77.1%. In the first six months of 2023, losses on securities sold totaled $2.3 million as compared $7.3 million in 2022.

As of June 30, 2023, deposit balances totaled $1.799 billion, a decrease of $101.2 million from
December 31, 2022, which represented a 5.3% decrease. For the second quarter, deposit balances fell by $42.3 million, or 2.3%.

"The banking environment continues to be a challenging one," said Greg Oakes, President and CEO. "While the economy and rate volatility are difficult to manage, we are very pleased with our financial results. Deposit outflows have slowed for the time being and our net interest margin appears to be stabilizing. Growing our GAAP capital was our primary focus one year ago and we have significantly increased our capital levels. Currently, we are diligently managing our net interest margin and on hand liquidity, but at this point those metrics are strong."

Q2 Highlights

The Bank reported the following statement of condition highlights as of June 30, 2023:

• On July 18, 2023, the Bank's Board of Directors declared a dividend of $0.85 per share. The dividend will be payable on August 7, 2023 for shareholders of record on July 28, 2023.
• As of June 30, 2023, gross loans totaled $1.026 billion representing an increase from June 30, 2022 of $17.1 million.
• The Bank's return on assets increased to 1.30% from 0.68% primarily due to the aforementioned security sales and increases in net interest income.
• The Bank's return on equity was 15.21% as compared to 7.51% one year ago.

Cash, Cash Equivalents and Restricted Cash

Total cash, cash equivalents and restricted cash were $121.3 million at June 30, 2023, compared to $136.5 million at June 30, 2022. The Bank has made a concerted effort to maintain large cash balances through security sales and paydowns without full reinvestment of principal.

Investments

The book value of the Bank's investment portfolio totaled $850.9 million at June 30, 2023, a decrease of $163.2 million from June 30, 2022. As of June 30, 2023, $142.8 million in securities were classified as held-to-maturity as compared to $139.6 million as of June 30, 2022. Yields on securities have significantly increased from 2.07% for the first six months of 2022 to 3.25% for the first six months of 2023. Yields have increased due to new purchases and floating rate securities repricing upwards.

During the quarter, the Bank sold securities for $34.3 million resulting in a $1.9 million loss. The sale was executed as favorable pricing existed on some tax-exempt municipal securities. The sales resulted in additional cash on hand and also increased the yield on earning assets.

Loans and Credit Quality

Gross loans reached an all-time high of $1.026 billion as of June 30, 2023, which represents an increase of $20.5 million from December 31, 2022 and an increase of $17.1 million from June 30, 2022. During 2023, loan growth has come primarily from multi-family loans, municipal loans and construction and land development loans. While loan pricing has increased we continue to see moderate demand from our customer base.

As of June 30, 2023, the allowance for credit losses on loans (ACL) was 1.22% of gross loans as compared to 1.36% one year ago. The Bank has allocated $1,085,000 to the loan loss provisions through the second quarter of 2023 as compared to $106,000 through the second quarter of 2022. The reduction in allowance percentage was primarily attributable to the required implementation of Current Expected Credit Loss Model, effective January 1, 2023.

Credit quality remains exceptionally strong with non-performing loans representing 0.14% of gross loans as of June 30, 2023. This is a slight increase from 0.04% as of June 30, 2022.

Deposits

Total deposits decreased by $164.9 million, or 8.4%, from June 30, 2022. From March 31, 2023 to June 30, 2023 total deposits decreased $42.3 million, or 2.3%. Non-interest deposits totaled $415.2 million as of June 30, 2023, which represents 23.1% of total deposits. The average cost of deposits increased 64 basis points to 0.91% as compared to the six months ended June 30, 2022.

Construction on the Union Gap facility is nearing completion. The Bank anticipates opening that location sometime during the third quarter. The branch will house traditional banking services along with a mortgage lender and MRS Insurance personnel.

Equity

Tier 1 capital remains strong. Tier 1 capital increased to $243.5 million from $219.5 at June 30, 2023, due to earnings less dividends paid during 2023.

GAAP capital reflected an increase of $22.6 million from June 30, 2022, and an increase of $24.0 million from December 31, 2022. The Bank entered into three swaps with notional value of $125 million during 2023 that effectively turn some of the Bank's fixed rate securities into floating rate securities. An unrealized gain of $1.3 million existed on those swaps as of June 30, 2023. As of June 30, 2023, the Bank's GAAP capital to assets ratio was 9.07% as compared to 7.36% one year ago.

Earnings

Net Interest Income

For the six months ended June 30, 2023, net interest income totaled $32.9 million compared to $28.2 million in the same period one year ago. The increase from the prior quarter was a result of increasing loan income of $3.5 million, securities income of $3.3 million and from higher rates paid on cash balances with other institutions totaling $2.2 million. Interest income has increased as a result of the increasing yield curve, which positively affects variable rate assets and also causes higher rates on new loans, securities and cash.

For the quarter ended June 30, 2023, net interest income increased $974,000 over the prior year, however net interest income decreased $1.7 million over the quarter ended March 31, 2023. The decrease from the prior quarter was due to increasing cost of funds on deposits, which increased approximately $2.0 million quarter over quarter.

The net interest margin was 3.30% for the first six months of 2023, compared to 2.67% during the first six months of 2022. The improvement in net interest income is attributable to higher yields on earning assets.

Non-Interest Income

Non-interest income totaled $7.4 million in the first six months of 2023 as compared to $2.0 million in the first six months of 2022. Losses on securities sales represented $7.3 million of the reduction in income in 2022. The Bank has realized $2.3 million in losses through the first six months of 2023, a reduction of $5.0 million. As mortgage refinances have slowed, income from mortgage banking operations has decreased to $676,000 in the first six months of 2023 as compared to $1,423,000 in the first six months of 2022. Income from insurance commission and fees increased to $3.88 million from $3.54 million in the first six months of 2022.

Non-Interest Expense

Non-interest expense totaled $23.3 million in the first six months of 2023, as compared to $21.6 million in the first six months of 2022.

Increases in salary and benefits were primarily responsible for the increase in non-interest expense. As compared to the same period one year ago, wages and benefits expense increased $1.1 million, or 8.5%.

Data processing costs have also increased 15.8%, or $415,000, from the prior year and occupancy costs have increased $324,000.

The Bank's efficiency ratio was 57.8% in the first six months of 2023 as compared to 71.5% in the first six months 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.

Consolidated Balance Sheets (UNAUDITED)
(Dollars in Thousands)
Cashmere Valley Bank and Subsidiary

Year-to-Date Consolidated Statements of Income (UNAUDITED)
(Dollars in Thousands)
Cashmere Valley Bank & Subsidiary

Quarterly Consolidated Statements of Income (UNAUDITED)
(Dollars in Thousands)
Cashmere Valley Bank & Subsidiary

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

SOURCE: Cashmere Valley Bank