Cashmere Valley Bank Reports Quarterly Earnings of $7.2 Million, Opening of Union Gap Branch

CASHMERE, WA / ACCESSWIRE / October 17, 2023 / Cashmere Valley Bank (OTCQX:CSHX) ("Bank"), announced quarterly earnings of $7.2 million for the quarter ended September 30, 2023. Year-to-date earnings totaled $20.3 million as compared to $16.3 million for the nine months ended September 30, 2022. Year-to-date diluted earnings per share were $5.22, representing an increase of $1.07 per share, or 25.9%. Third quarter earnings per share totaled $1.85, which represented a decrease of 19.3% from $2.29 per diluted share in 2022.

As of September 30, 2023, deposit balances totaled $1.797 billion, a decrease of $103.3 million, or a 5.4% decrease from December 31, 2022. For the third quarter, deposit balances declined by $2.0 million, or 0.1%. Non-interest deposits totaled $441.6 million, which represented 24.6% of total deposits.

"Our focus on retaining customer deposits is paying off. Deposit balances and rates paid for deposits stabilized in third quarter. Thus, our cost of funds continues to increase but not at a pace many of our competitors are seeing," said Greg Oakes, President and CEO. "We are proud to announce the opening of our Union Gap location. We feel that Union Gap is in a prime and growing location with a mixture of businesses and residential housing. We have high hopes for that location's future."

Q3 Highlights

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

• As of September 30, 2023, gross loans totaled $1.026 billion, representing an increase from December 31, 2022 of $20.3 million. Gross loans remained flat during the third quarter.

• For the third quarter return on assets was 1.42%. The Bank's return on assets year-to-date increased to 1.34% from 0.99% from one year ago. Return on assets improved primarily due to increases in net interest income and a decline in realized losses on security sales.

• The Bank's year-to-date return on equity was 15.33% as compared to 11.65% one year ago. For the third quarter return on equity was 15.55%

Cash, Cash Equivalents and Restricted Cash

Total cash, cash equivalents and restricted cash totaled $134.8 million at September 30, 2023, compared to $180.3 million at December 31, 2022. The Bank has made a concerted effort to maintain large cash balances through security sales and paydowns without full reinvestment of principal. Interest rates on overnight cash held at the Fed have increased to 5.4%.

Investments

The book value of the Bank's investment portfolio totaled $835.3 million at September 30, 2023, a decrease of $73.7 million from December 31, 2022. As of September 30, 2023, $141.3 million in securities were classified as held-to-maturity as compared to $146.4 million as of December 31, 2022. Yields on securities have significantly increased from 2.20% for the first nine months of 2022 to 3.34% for the first nine months of 2023. Yields are higher due to increasing rates on new purchases and floating rate securities repricing upwards.

During the quarter there were no sales of available for sale securities.

Loans and Credit Quality

Gross loans were virtually unchanged from the prior quarter and totaled $1.026 billion. Gross loans have increased $20.3 million from December 31, 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 to low demand from our customer base.

As of September 30, 2023, the allowance for credit losses on loans (ACL) was 1.29% of gross loans as compared to 1.37% one year ago. The Bank has allocated $1,828,000 to the loan loss provisions through the third quarter of 2023 as compared to $493,000 through the third 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 0.23% of gross loans as of September 30, 2023, as compared to 0.10% as of September 30, 2022.

Deposits

Total deposits decreased slightly by $2.0 million from June 30, 2023 to September 30, 2023. The average cost of deposits increased 15 basis points to 1.06% as compared to the prior quarter.

Construction on the Union Gap facility was completed and opened effective September 11, 2023. The Summitview location in Yakima closed on September 8, 2023 and personnel were relocated to Union Gap. Union Gap houses traditional banking services along with a mortgage lender and MRS Insurance personnel.

Equity

Tier 1 capital remains strong. Tier 1 capital increased to $247.5 million from $243.5 at June 30, 2023, due to earnings less dividends paid during 2023.

GAAP capital reflected an increase of $35.4 million from September 30, 2022, and an increase of $19.8 million from December 31, 2022. The Bank entered into three swaps with notional value of $125.0 million during 2023 that effectively turn some of the Bank's fixed rate securities into floating rate securities. An unrealized gain of $3.6 million after tax existed on those swaps as of September 30, 2023. At period end, the Bank's GAAP capital to assets ratio was 8.92% as compared to 6.59% one year ago.

Earnings

Net Interest Income

For the nine months ended September 30, 2023, net interest income totaled $49.2 million compared to $44.5 million in the same period one year ago. Growth from the prior year was a result of increasing loan income of $5.3 million, securities income of $4.5 million and from higher rates paid on cash balances with other institutions totaling $2.9 million. Interest income has increased as a result of the rising yield curve, which positively affects variable rate assets and also has increased rates on new loans, securities and cash.

Net interest income increased $645,000 over the prior quarter. Net interest income decreased by $22,000 from the same quarter one year ago.

Interest expense increased from the prior quarter by $550,000.

The net interest margin was 3.29% for the first nine months of 2023, compared to 2.79% during the first nine months of 2022. The improvement in net interest income is attributable to higher yields on earning assets which have changed faster than rates paid on deposits.

Non-Interest Income

Non-interest income totaled $12.2 million in the first nine months of 2023 as compared to $7.1 million in the first nine months of 2022. Losses on securities sales represented $7.2 million in the first nine months of 2022. In 2023, losses on available for sale securities sales were reduced by $4.9 million to $2.3 million. As residential mortgage purchases and refinances have slowed, income from mortgage banking operations has decreased to $1,140,000 in the first nine months of 2023 as compared to $1,898,000 in the first nine months of 2022. Net interchange income has increased significantly to $3.7 million, which represents an increase of $907,000 from the prior year. Income from insurance commission and fees increased to $5.7 million from $5.5 million in the first nine months of 2022.

Non-Interest Expense

Non-interest expense totaled $34.8 million in the first nine months of 2023 as compared to $32.3 million in the first nine 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 $1.2 million, or 6.6%.

Data processing costs have also increased 15.6%, or $634,000 from the prior year, and occupancy costs have increased $586,000.

The Bank's efficiency ratio was 56.8% in the first nine months of 2023 as compared to 62.6% in the first nine 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 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

Consolidated Balance Sheets (UNAUDITED) (Dollars in Thousands) Cashmere Valley Bank and Subsidiary
		September 30, 2023				June 30, 2023				September 30, 2022
Assets
Cash and Cash Equivalent:
Cash & due from banks		$	26,859			$	26,674			$	25,215
Interest bearing deposits			105,325				91,422				146,529
Fed funds sold			2,662				3,179				10,590
Total Cash and Cash Equivalent			134,846				121,275				182,334
Securities available for sale			600,278				627,646				744,137
Securities held to maturity, net of allowance for credit losses of $21, $22 and $0, respectively			141,258				142,796				145,252
Federal Home Loan Bank stock, at cost			2,505				2,505				2,669
Loans held for sale			1,223				165				288
Loans			1,026,040				1,026,191				1,008,014
Allowance for credit losses			(13,252)				(12,540)				(13,808)
Net loans			1,012,788				1,013,651				994,206
Premises and equipment			21,061				20,749				16,942
Accrued interest receivable			8,734				8,081				8,894
Other real estate and foreclosed assets			97				97				--
Bank Owned Life Insurance			26,628				26,447				27,004
Goodwill			7,576				7,576				7,576
Intangibles			3,557				3,633				3,883
Mortgage servicing rights			2,567				2,587				2,707
Net deferred tax assets			23,735				21,634				22,027
Other assets			12,302				9,890				9,113
Total assets		$	1,999,155			$	2,008,732			$	2,167,032
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Non-interest bearing demand		$	441,561			$	415,164			$	494,334
Savings and interest-bearing demand			1,008,861				1,023,585				1,308,611
Time			346,346				360,056				180,769
Total deposits			1,796,768				1,798,805				1,983,714
Accrued interest payable			1,476				1,526				281
Short-term borrowings			8,267				13,350				28,674
Other liabilities			14,243				12,697				11,511
Total liabilities			1,820,754				1,826,378				2,024,180
Shareholders' Equity
Common stock (no par value); authorized 10,000,000 shares;
Issued and outstanding: 9/30/2023 -- 3,883,981 ; 6/30/2023 -- 3,883,981 ; 9/30/2022 -- 3,883,946			--				--				--
Additional paid-in capital			4,782				4,721				4,475
Treasury stock			(16,784)				(16,784)				(16,784)
Retained Earnings			272,400				268,517				250,150
Other comprehensive income			(82,171)				(74,266)				(94,989)
Total Cashmere Valley Bank shareholders' equity			178,227				182,188				142,852
Noncontrolling interests			174				166				--
Total shareholders' equity			178,401				182,354				142,852
Total liabilities and shareholders' equity		$	1,999,155			$	2,008,732			$	2,167,032

Year-to-Date Consolidated Statements of Income (UNAUDITED) (Dollars in Thousands) Cashmere Valley Bank & Subsidiary
		For the nine months ended,
		September 30, 2023				September 30, 2022
Interest Income
Loans		$	34,626			$	29,308
Fed funds sold and deposits at other financial institutions			3,906				1,009
Securities available for sale:
Taxable			17,797				11,624
Tax-exempt			1,529				4,554
Securities held to maturity:
Taxable			2,364				1,084
Tax-exempt			138				17
Total interest income			60,360				47,596
Interest Expense
Deposits			11,096				3,058
Short-term borrowings			108				51
Total interest expense			11,204				3,109
Net interest income			49,156				44,487
Provision for Credit Losses			1,828				493
Net interest income after provision for credit losses			47,328				43,994
Non-Interest Income
Service charges on deposit accounts			1,656				1,572
Mortgage banking operations			1,140				1,898
Net gain (loss) on sales of securities available for sale			(2,258	)			(7,160	)
Brokerage commissions			767				861
Insurance commissions and fees			5,713				5,461
Net interchange income (expense)			3,700				2,793
BOLI cash value			523				519
Dividends from correspondent banks			66				63
Other			867				1,050
Total non-interest income			12,174				7,057
Non-Interest Expense
Salaries and employee benefits			19,847				18,623
Occupancy and equipment			2,988				2,402
Audits and examinations			353				443
State and local business and occupation taxes			1,001				888
FDIC insurance & WA state assessments			788				516
Legal and professional fees			740				586
Check losses and charge-offs			454				386
Low income housing investment losses			479				505
Data processing			4,696				4,062
Product delivery			931				913
Other			2,552				2,942
Total non-interest expense			34,829				32,266
Income before income taxes			24,673				18,785
Income Taxes			4,356				2,474
Net income		$	20,317			$	16,311
Net income attributable to noncontrolling interest			23				--
Net income attributable to Cashmere Valley Bank			20,294				16,311
Earnings Per Share
Basic		$	5.23			$	4.20
Diluted		$	5.22			$	4.19

Quarterly Consolidated Statements of Income (UNAUDITED) (Dollars in Thousands) Cashmere Valley Bank & Subsidiary
		For the quarters ended,
		September 30, 2023				June 30, 2023				September 30, 2022
Interest Income
Loans		$	12,115			$	11,559			$	10,292
Fed funds sold and deposits at other financial institutions			1,448				990				790
Securities available for sale:
Taxable			6,254				5,975				4,182
Tax-exempt			372				467				1,307
Securities held to maturity:
Taxable			778				781				727
Tax-exempt			46				46				11
Total interest income			21,013				19,818				17,309
Interest Expense
Deposits			4,709				4,156				1,015
Short-term borrowings			49				52				17
Total interest expense			4,758				4,208				1,032
Net interest income			16,255				15,610				16,277
Provision for Credit Losses			743				480				387
Net interest income after provision for credit losses			15,512				15,130				15,890
Non-Interest Income
Service charges on deposit accounts			553				562				566
Mortgage banking operations			465				364				475
Net gain (loss) on sales of securities available for sale			-				(1,893)				111
Brokerage commissions			247				250				285
Insurance commissions and fees			1,830				2,020				1,920
Net interchange income (expense)			1,188				1,152				1,082
BOLI cash value			180				172				180
Dividends from correspondent banks			19				20				20
Other			298				283				432
Total non-interest income			4,780				2,930				5,071
Non-Interest Expense
Salaries and employee benefits			6,374				6,399				6,210
Occupancy and equipment			1,041				1,019				779
Audits and examinations			157				106				94
State and local business and occupation taxes			346				332				324
FDIC insurance & WA state assessments			265				358				175
Legal and professional fees			232				262				162
Check losses and charge-offs			185				152				140
Low income housing investment losses			153				171				152
Data processing			1,657				1,500				1,438
Product delivery			301				316				300
Other			817				929				910
Total non-interest expense			11,528				11,544				10,684
Income before income taxes			8,764				6,516				10,277
Income Taxes			1,574				1,113				1,386
Net income		$	7,190			$	5,403			$	8,891
Net income attributable to noncontrolling interest			7				9				--
Net income attributable to Cashmere Valley Bank		$	7,183			$	5,394			$	8,891
Earnings Per Share
Basic		$	1.85			$	1.39			$	2.29
Diluted		$	1.85			$	1.39			$	2.29

SOURCE: Cashmere Valley Bank

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