Community Heritage Financial, Inc. (OTC PK: CMHF), the parent company of Middletown Valley Bank, reported net income of $1.4 million, or $0.48 per diluted share, for the three months ended March 31, 2024, representing an increase of $483 thousand or 52.3%, compared to net income of $923 thousand, or $0.32 per diluted share, for the three months ended December 31, 2023. Net income for the first quarter of 2024 was flat when compared to the $1.4 million, or $0.48 per diluted share, earned during the three months ended March 31, 2023.
Balance Sheet and Asset Quality
Total assets were $1,064.4 million as of March 31, 2024, representing an increase of $75.8 million since December 31, 2023, and an increase of $127.8 million since March 31, 2023. Asset growth during both periods included advances under the Bank Term Funding Program (“BTFP”) available through the Federal Reserve Bank (“FRB”) totaling $50.0 million. The advances offer the opportunity of a positive arbitrage between the weighted average advance rate of 4.82% and the earnings rate offered by the FRB of 5.40%. The advances were drawn in mid-January 2024, mature in mid-January 2025 and can be repaid anytime without penalty. Asset growth was further fueled by growth in deposits of $26.2 million and $87.1 million since December 31, 2023 and March 31, 2023, respectively. Loans grew to $830.6 million as of March 31, 2024, an increase of $17.7 million, or 8.7% annualized, from December 31, 2023, and $73.0 million, or 9.6%, from March 31, 2023. Asset quality remained strong with non-performing assets to total assets of 0.17% on March 31, 2024, compared to 0.18% on December 31, 2023. The ratio of net charge-offs to average total loans was zero percent for the quarter ended March 31, 2024.
Quarterly Highlights – Q1 2024 vs. Q4 2023
- Loans increased $17.7 million during the first quarter of 2024 to $830.6 million as of March 31, 2024. Net growth in non-owner occupied commercial real estate, residential real estate, and commercial and industrial loans totaled $11.1 million, $4.4 million and $2.0 million, respectively.
- Deposits increased $26.2 million in the first quarter of 2024 to $902.9 million as of March 31, 2024. A decline of $12.7 million in non-interest-bearing transaction accounts and $1.7 million in time deposits was offset by increases of $37.7 million and $4.1 million in NOW and Money Market balances, respectively. Growth in NOW account balances included $40.7 million in balances sold in December, 2023 and reacquired in January, 2024.
- The net interest margin (“NIM”) increased from 2.71% during the fourth quarter of 2023 to 2.80% during the first quarter of 2024. The first quarter saw an improvement in the yield on interest-earning assets from 4.78% during the fourth quarter of 2023 to 4.97% during the first quarter of 2024 as new loan volume was originated with higher interest rates. While the cost of interest-bearing liabilities increased twelve basis points from quarter-to-quarter, the increase was driven by the cost of the $50.0 million in BTFP advances with a weighted average rate of 4.82%. The cost of total deposits, including non-interest-bearing deposits, increased two basis points, from 2.09% during the fourth quarter of 2023 to 2.11% during the first quarter of 2024. As a result of the improvement in the yield on interest-earning assets and continued stabilization of the cost of the Company’s core funding source, total deposits, net interest income increased $452 thousand, or 6.7% during the first quarter compared to the fourth quarter.
- Earnings on bank-owned life insurance increased from $96 thousand during the fourth quarter to $212 thousand during the first quarter with the receipt of insurance proceeds of $138 thousand.
- Mortgage banking revenue declined $35 thousand, from $255 thousand in the fourth quarter to $220 thousand in the first quarter, as higher interest rates continued to depress mortgage origination volume.
- The allowance for loan credit losses to loans ratio (“ACL”) was 0.97% on March 31, 2024 compared to 0.95% on December 31, 2023. The provision for credit losses totaled $267 thousand in the first quarter compared to $275 thousand in the fourth quarter.
Quarterly Highlights – Q1 2024 vs. Q1 2023
- Tangible book value per share increased $1.51 to $24.35 as of March 31, 2024, compared to $22.84 as of March 31, 2023. 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 $789 thousand.
- Loans of $830.6 million as of March 31, 2024 grew $73.0 million or 9.6% compared to March 31, 2023. Residential real estate, construction and land development, commercial and industrial and farmland loans grew $44.1 million, $12.3 million, $12.1 million and $4.8 million, respectively.
- Total deposits on March 31, 2024 were $902.9 million, an increase of $87.1 million or 10.7% compared to $815.8 million as of March 31, 2023. As of March 31, 2024, brokered deposits totaled $10.0 million. There were no brokered deposits on March 31, 2023.
- The NIM for the first quarter of 2024 was 2.80%, compared to 3.08% for the first quarter of 2023. Beginning in the first quarter of 2022, the FRB began increasing short-term interest rates to combat inflation. These actions increased the Company’s funding costs and pressured its net interest margin. The NIM reached a low point of 2.61% during the second quarter of 2023, with the last rate increase initiated by the FRB occurring in July, 2023, and has since recovered to 2.80%.
- The ACL was .97% as of March 31, 2024 compared to 1.04% as of March 31, 2023. The provision for credit losses totaled $267 thousand in the first quarter of 2024 compared to a recovery of $440 thousand in the first quarter of 2023. The change in the ACL reflects improving GDP and unemployment forecasts included in the Company’s allowance for credit loss model since adoption of the current expected credit loss methodology effective January 1, 2023.
- Non-interest income totaled $974 thousand for the first quarter of 2024 compared to $713 thousand for the first quarter of 2023. The first quarter of 2024 included a one-time receipt of bank-owned life insurance proceeds of $138 thousand and an increase of $44 thousand related to commercial cash management services.
- Non-interest expense decreased $156 thousand in the first quarter of 2024 compared to the same quarter in 2023, with a decrease in salaries and employee benefits accounting for $229 thousand of the total decrease. In addition, occupancy and equipment costs decreased $128 thousand. Legal and professional fees increased $103 thousand as the Company continued preparing for the requirements of FDICIA effective in 2025.
Dividend
A dividend of $0.06 per share was declared by the Board of Directors on April 19, 2024, for stockholders of record as of May 3, 2024, and payable on May 10, 2024.
