Cashmere Valley Bank Reports Record Quarterly Earnings of $8.9 Million

CASHMERE, WA / ACCESSWIRE / October 18, 2022 / Cashmere Valley Bank (OTCQX:CSHX) (“Bank”), announced quarterly earnings of $8.9 million for the quarter ended September 30, 2022. Year-to-date earnings total $16.3 million as compared to $22.2 million for the nine months ended September 30, 2021. Year-to-date diluted earnings per share were $4.19, representing a decrease of $1.45 per share, or 25.6%. The primary driver for the decrease in year-to-date earnings per share was realized losses on sales of securities during the second quarter. Losses on securities sold totaled $7.2 million year-to-date.

As of September 30, 2022, deposit balances totaled $1.98 billion, an increase of $20.0 million from June 30, 2022, representing a 1.0% increase.

“We are proud of our record quarterly earnings,” said Greg Oakes, President and CEO. “The rapid rise in the Fed Funds rates, the prime rate and treasury rates provides challenges to us, but we were able to receive some benefit as some of our assets repriced into higher yields. We are wary of the economy as rates continue to rise into an economy where many economists are predicting a recession in the near future. Our goal is to be prepared for any direction the economy takes us.”

Q3 Highlights

The Bank reported the following statement of condition highlights as of September 30, 2022:

As of September 30, 2022, gross loans totaled $1.008 billion representing a slight decrease from June 30, 2022. As compared to one year ago gross loans have increased $61.4 million.The Bank’s year-to-date return on assets decreased to 1.00% from 1.41% primarily due to the aforementioned security sales.The Bank’s return on equity was 11.66% as compared to 12.53% one year ago. While net income has decreased year-over-year, the reduction in capital due to unrealized gains and losses in the available for sale securities portfolio has helped to minimize the impact to return on equity.For the quarter ended September 30, 2022 the Bank’s return on assets was 1.61% and the Bank’s return on equity was 21.58%.

Cash, Cash Equivalents and Restricted Cash

Total cash, cash equivalents and restricted cash were $182.3 million at September 30, 2022, compared to $92.1 million at September 30, 2021. Cash is maintained at a higher level as the rates earned on overnight funds have increased to 3.15% from 0.15% as of September 30, 2021.

Investments

The investment portfolio totaled $889.4 million at September 30, 2022, a decrease of $197.2 million from September 30, 2021. A significant reduction of $117.3 million in the unrealized gain and loss on available for securities was the principle reason for the reduction. Additionally, the Bank has strategically unwound the portfolio through sales and principal paydowns that have only been partially reinvested into securities.

As of September 30, 2022, $145.3 million in securities were classified as held-to-maturity as compared to none as of September 30, 2021. New securities purchases during the third quarter totaled $17.6 million. Securities sales and movement of securities into a held-to-maturity status were executed in part to help minimize the impact of continued increases in the treasury yield curve and to shorten the overall duration of the investment portfolio. Each quarter all securities are evaluated for impairment. As of September 30, 2022, no securities were determined to be other than temporarily impaired.

Loans and Credit Quality

Gross loans totaled $1.008 billion as of September 30, 2022 a decrease of $709,000 from June 30, 2022 and an increase of $61.5 million from September 30, 2021. Equipment Finance, Construction and Auto Finance loans have been mainly responsible for increasing loan balances.

As of September 30, 2022, the allowance for loans and lease losses (ALLL) was 1.37% of gross loans as compared to 1.45% one year ago. The Bank allocated $387,000 to the loan loss provisions during the third quarter of 2022 and the allowance totals $13.8 million. Increasing loan balances during the prior twelve months have effectively utilized the Bank’s unallocated loan loss provision that existed as of September 30, 2021.

Credit quality remains exceptionally strong with non-performing loans representing 0.10% of gross loans as of September 30, 2022.

Deposits

As of September 30, 2022, total deposits increased by $73.5 million or 3.8% from September 30, 2021. From June 30, 2022 to September 30, 2022 total deposits increased $20.0 million or 1.0%. Non-interest deposits totaled $494.3 million as of September 30, 2022, which represents 24.9% of total deposits. The average cost of deposits decreased 10 basis points to 0.27% as compared to the nine months ended September 30, 2021.

Equity

Tier 1 capital remains strong. Tier 1 capital increased to $225.2 million from $219.5 at June 30, 2022 due to earnings less dividends paid during the third quarter. Regulatory capital remains well capitalized.

GAAP capital reflected a decrease of $92.5 million from September 30, 2021 and a decrease of $16.9 million from June 30, 2022. The decrease was a result of market value changes in securities due to the increase in the treasury yield curve.

Earnings

Net Interest Income

Net interest income totaled $16.3 million during the third quarter of 2022, compared to $14.6 million in the prior quarter and $13.4 million in the same quarter a year ago. The increase from the prior quarter was a result of increasing interest-bearing deposits at other financial institutions and fed funds sold income of $603,000, securities income of $565,000 and loan income of $473,000. As compared to the same quarter one year ago, the increase was the result of higher income from securities in the amount of $1,438,000, cash held with other financial institutions totaling $758,000 and loan income $513,000.

The net interest margin was 2.79% for the first nine months of 2022, compared to 2.60% during the first nine months of 2021. Margin expansion is due to increasing loan balances in combination with increasing yields on new loans, securities and cash held at other financial institutions. Adjustable rate loans and securities are also consistently repricing into higher rates.

Non-Interest Income

Non-interest income totaled $7.1 million in the first nine months of 2022 as compared to $15.1 million in the first nine months of 2021. Losses on securities sales represented $7.2 million of the reduction in income. As mortgage refinances have slowed, income from mortgage banking operations has decreased from $4.3 million through September 30, 2021 to $1.9 million in the first nine months of 2022. Income from insurance commissions and fees increased to $5,461,000 from $3,910,000 million in the first nine months of 2021 due to the purchase of two insurance agencies along with organic growth.

Non-Interest Expense

Non-interest expense totaled $32.3 million in the first nine months of 2022 as compared to $28.2 million in the first nine months of 2021. The increase of $4,062,000 represented a 14.4% increase. The Bank continues to manage costs prudently, however, employee costs along with other inflation impacted areas continue to see increasing costs.

Increases in salary and benefits contributed most to the increase in non-interest expense. As compared to the same period one year ago, wages and benefits expense increased $2.6 million or 16.5%. Wages and health care premiums are up substantially in an effort to attract and retain employees.

Data processing costs have also increased 18.6% or $638,000 from the prior year.

The Bank’s efficiency ratio was 68.4% in the first nine months of 2022 as compared to 54.7% in the first nine months of 2021. The efficiency ratio was adversely impacted by the sale of securities at a loss. For the quarter ended September 30, 2022, the Bank’s efficiency ratio was 51.3%.

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

September 30, 2022 June 30, 2022 September 30, 2021

Assets

Cash and Cash Equivalent:

Cash & due from banks

$25,210 $24,750 $26,878

Interest bearing deposits

146,529 101,080 56,910

Fed funds sold

10,590 10,634 8,352 Total Cash and Cash Equivalent 182,329 136,464 92,140

Securities available for sale

744,137 804,607 1,086,559

Securities held to maturity

145,252 139,637 —

Federal Home Loan Bank stock, at cost

2,669 2,669 2,393

Loans held for sale

288 978 660

Loans

1,008,014 1,008,723 946,539

Allowance for credit losses

(13,808) (13,686) (13,760)

Net loans

994,206 995,037 932,779

Premises and equipment

16,942 16,824 17,061

Accrued interest receivable

8,894 8,442 8,851

Bank Owned Life Insurance

27,004 26,823 26,313

Goodwill

7,576 7,576 7,518

Intangibles

3,883 3,969 2,044

Mortgage servicing rights

2,707 2,732 2,759

Other assets

31,145 25,501 10,187

Total assets

$2,167,032 $2,171,259 $2,189,264

Liabilities and Shareholders’ Equity

Liabilities

Deposits:

Non-interest bearing demand

$494,334 $459,975 $443,846

Savings and interest-bearing demand

1,308,611 1,315,476 1,257,270

Time

180,769 188,298 209,088

Total deposits

1,983,714 1,963,749 1,910,204

Accrued interest payable

281 334 437

Short-term borrowings

28,674 36,213 29,344

Other liabilities

11,511 11,227 13,976

Total liabilities

2,024,180 2,011,523 1,953,961

Shareholders’ Equity

Common stock (no par value); authorized 10,000,000 shares;

Issued and outstanding: 9/30/2022 — 3,883,946 ;
6/30/2022 — 3,883,816 ; 9/30/2021 — 3,880,786

— — —

Additional paid-in capital

4,475 4,432 4,150

Treasury stock

(16,784) (16,784) (16,784)

Retained Earnings

250,150 244,560 233,608

Other comprehensive income

(94,989) (72,472) 14,329

Total shareholders’ equity

142,852 159,736 235,303

Total liabilities and shareholders’ equity

$2,167,032 $2,171,259 $2,189,264

Year-to-Date Consolidated Statements of Income (UNAUDITED)

(Dollars in Thousands)

Cashmere Valley Bank & Subsidiary

For the nine months ended,

September 30, 2022 September 30, 2021

Interest Income

Loans

$29,308 $29,357

Fed funds sold and deposits at other financial institutions

1,009 80

Securities available for sale:

Taxable

11,624 8,559

Tax-exempt

4,554 4,944

Securities held to maturity

1,101 —

Total interest income

47,596 42,940

Interest Expense

Deposits

3,058 3,984

Short-term borrowings

51 33

Total interest expense

3,109 4,017

Net interest income

44,487 38,923

Provision for Credit Losses

493 45

Net interest income after provision for credit losses

43,994 38,878

Non-Interest Income

Service charges on deposit accounts

1,572 1,147

Mortgage banking operations

1,898 4,294

Net gain (loss) on sales of securities available for sale

(7,160) 21

Brokerage commissions

861 875

Insurance commissions and fees

5,461 3,910

Net interchange income (expense)

2,793 3,293

BOLI cash value

519 406

Dividends from correspondent banks

63 55

Other

1,050 1,110

Total non-interest income

7,057 15,111

Non-Interest Expense

Salaries and employee benefits

18,623 15,991

Occupancy and equipment

2,402 2,353

Audits and examinations

443 413

State and local business and occupation taxes

888 755

FDIC insurance & WA state assessments

516 460

Legal and professional fees

586 697

Check losses and charge-offs

386 419

Low income housing investment losses

505 444

Data processing

4,062 3,424

Product delivery

913 804

Other

2,942 2,444

Total non-interest expense

32,266 28,204

Income before income taxes

18,785 25,785

Income Taxes

2,474 3,583

Net income

$16,311 $22,202

Earnings Per Share

Basic

$4.20 $5.66

Diluted

$4.19 $5.64

Quarterly Consolidated Statements of Income (UNAUDITED)

(Dollars in Thousands)

Cashmere Valley Bank & Subsidiary

For the quarters ended,

September 30, 2022 June 30, 2022 September 30, 2021

Interest Income

Loans

$10,292 $9,819 $9,779

Fed funds sold and deposits at other financial institutions

790 187 32

Securities available for sale:

Taxable

4,182 3,697 3,143

Tax-exempt

1,307 1,602 1,646

Securities held to maturty

738 363 —

Total interest income

17,309 15,668 14,600

Interest Expense

Deposits

1,015 1,014 1,206

Short-term borrowings

17 18 14

Total interest expense

1,032 1,032 1,220

Net interest income

16,277 14,636 13,380

Provision for Credit Losses

387 59 41

Net interest income after provision for credit losses

15,890 14,577 13,339

Non-Interest Income

Service charges on deposit accounts

566 515 466

Mortgage banking operations

475 668 1,050

Net gain (loss) on sales of securities available for sale

111 (7,407) –

Brokerage commissions

285 299 290

Insurance commissions and fees

1,920 1,868 1,393

Net interchange income (expense)

1,082 1,057 1,801

BOLI cash value

180 170 176

Dividends from correspondent banks

20 18 18

Other

432 306 331

Total non-interest income

5,071 (2,506) 5,525

Non-Interest Expense

Salaries and employee benefits

6,210 6,007 5,429

Occupancy and equipment

779 717 852

Audits and examinations

94 156 87

State and local business and occupation taxes

324 285 275

FDIC insurance & WA state assessments

175 169 166

Legal and professional fees

162 215 258

Check losses and charge-offs

140 113 87

Low income housing investment losses

152 209 144

Data processing

1,438 1,340 1,160

Product delivery

300 290 287

Other

910 1,054 906

Total non-interest expense

10,684 10,555 9,651

Income before income taxes

10,277 1,516 9,213

Income Taxes

1,386 175 1,226

Net income

$8,891 $1,341 $7,987

Earnings Per Share

Basic

$2.29 $0.35 $2.06

Diluted

$2.29 $0.34 $2.05

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

SOURCE: Cashmere Valley Bank

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