CNB Community Bancorp, Inc., Reports Third Quarter 2023 Results
CNB Community Bancorp, Inc. (OTCQX: CNBB), the parent company of County National Bank, today announced earnings for the three and nine months ended September 30, 2023. Earnings during the third quarter of 2023 totaled $2.6 million, a decrease of $1.3 million or 33.3% compared to the $3.9 million earned during the three months ended September 30, 2022. Basic earnings per share for CNB Community Bancorp, Inc. (the “Company”) decreased to $1.23 during the three months ended September 30, 2023, down $0.61 from $1.84 during the third quarter of 2022. For the nine months ended September 30, 2023, the Company reported net income of $8.1 million, a decrease of $1.0 million, or 11.0%, from the $9.1 million earned during the nine months ended September 30, 2022. Basic earnings per share decreased to $3.74 during the nine months ended September 30, 2023, down $0.49 from $4.23 during the first nine months of 2022.
The annualized return on average assets (ROA) decreased to 0.88% for the three months ended September 30, 2023, down 49 basis points or 35.8% from 1.37% for the three months ended September 30, 2022. The annualized return on average equity (ROE) decreased to 10.68% for the current quarter, down from 18.41% for the third quarter of 2022. ROA decreased from 1.05% during the nine months ended September 30, 2022, compared to 0.91% during the nine months ended September 30, 2023. ROE was 11.16% during the first nine months of 2023, down from 14.74% during the nine-month period ended September 30, 2022. Book value per share increased to $43.45 at September 30, 2023, up $3.72 or 9.4% from $39.73 at September 30, 2022.Joseph R. Williams, President and Chief Executive Officer of CNB Community Bancorp, Inc. and County National Bank, remarked, “During the quarter our team expanded to Kalamazoo County with the addition of three great bankers with significant ties to that region. Furthermore, CNB was able to meaningfully increase deposits in the third quarter with growth within our existing client base and new client acquisitions. CNB has robust liquidity and strong capital levels, and maintains a solid credit risk profile; however, I acknowledge that the economic environment is elevated in its uncertainty, inclusive of higher interest rates and market disruptions such as domestic labor strife, government brinkmanship and rising international conflict. These issues have potential to impact both our funding costs and lending activity; however, we are well-aligned to navigate current market conditions as we position CNB for sustained long-term profitability.”
Financial Highlights
- Total assets increased $88.9 million, or 8.0%, to $1.20 billion from September 30, 2022 and $39.4 million, or 3.4% from December 31, 2022.
- Net loans increased $59.3 million, or 6.9%, to $922.2 million at September 30, 2023 compared to $862.9 million at September 30, 2022 and $42.1 million, or 4.8%, from December 31, 2022.
- Total deposits increased $80.6 million, or 7.9%, to $1.10 billion at September 30, 2023 from $1.02 billion at September 30, 2022 and $33.8 million, or 3.2% from December 31, 2022.
- Book value per share increased $3.72, or 9.4%, to $43.45 at September 30, 2023, up from $39.73 at September 30, 2022 and $2.68 from $40.77 at December 31, 2022.
- Total equity increased $8.6 million to $93.9 million from September 30, 2022.
- Net income decreased $1.3 million, or 33.3%, to $2.6 million for the three-month period ended September 30, 2023 and basic EPS decreased $0.61, or 33.2%, to $1.23 from $1.84 in the third quarter of 2022.
- Net interest income in the third quarter of 2023 decreased $521,000 to $10.2 million compared to the third quarter of 2022.
- Pre-tax, pre-provision income decreased $1.9 million to $3.3 million in the third quarter of 2023, compared to $5.2 million in the third quarter of 2022.
Balance Sheet Review
The Company’s assets totaled $1.20 billion at September 30, 2023 compared to $1.17 billion at December 31, 2022, and $1.12 billion at September 30, 2022. The increase in assets from year-end 2022 reflected more impact from developing new customer deposits while the year-over-year increase was predominately related to the significant increase in loans being offset by a decrease in cash from customers leveraging their funds.
Net loans totaled $922.2 million at September 30, 2023, compared to $880.1 million at December 31, 2022 and $862.9 million at September 30, 2022. The loan portfolio at September 30, 2023 included: $489.0 million in commercial real estate loans, $245.4 million in commercial loans, $159.7 in residential real estate loans, and $41.4 million in consumer loans.
Nonperforming assets (which are comprised entirely of nonperforming loans) at September 30, 2023 were $2.2 million compared to $2.7 million at December 31, 2022 and $1.6 million at September 30, 2022. Nonperforming assets as a percentage of total assets decreased to 0.19% at September 30, 2023 from 0.23% at December 31, 2022 and increased from 0.14% at September 30, 2022.
Nonperforming loans at September 30, 2023 were $2.2 million, a decrease of $268,000 from the $2.5 million at December 31, 2022 while increasing $627,000 from the $1.6 million balance at September 30, 2022. Nonperforming loans as a percentage of total loans decreased to 0.24% at September 30, 2023, compared to 0.28% at December 31, 2022 and increased from 0.18% at September 30, 2022. The fluctuation in nonperforming loans and assets were not particular to any material credit relationships.
During the third quarter of 2023, there was a provision expense of $35,000, which is compared to a provision of $235,000 recorded during the third quarter of 2022 and $235,000 provision in the fourth quarter of 2022. Net charge-offs totaled $148,000 during the third quarter of 2023 compared to net recoveries of $5,000 in the fourth quarter of 2022 and net charge-offs of $12,000 in the third quarter of 2022.
Net charge-offs as a percentage of average loans remained at 0.00% for third quarter of 2023, which was consistent with the 0.00% from the third and fourth quarters of 2022. The allowance for credit losses totaled
$13.1 million at September 30, 2023 compared to $12.9 million at December 31, 2022 and $12.7 million at September 30, 2022. The allowance for credit losses as a percentage of total loans decreased from 1.44% at December 31, 2022 and 1.45% at September 30, 2022 to 1.40% at September 30, 2023. The consistency in the required allowance for credit losses in 2023 is directly attributable to the increase in the loan portfolio and overall impact of economic conditions with consideration of factors that include the overall interest rate environment and international strife. The decrease year-over-year is indicative of the transition to the Current Expected Credit Loss methodology for the allowance for credit losses in the first quarter of 2023. The allowance will continue to be adjusted based upon the current and forward-looking issues identified for the portfolio.
Total investment securities, exclusive of the Federal Home Loan Bank of Indianapolis, Federal Reserve Bank and other stock without readily determined fair value, aggregated to $125.5 million at September 30, 2023, an increase of 1.9% from $123.1 million at December 31, 2022 and an increase of 2.8% from $122.1 million at September 30, 2022. While continued growth of the loan portfolio remains the primary focus for Bank management, the Bank will continue to manage the securities portfolio through prudent investment in securities that align with the Bank’s investment criteria when excess cash is available.
Noninterest bearing deposits have decreased by $34.4 million (12.6%) from $273.7 million at December 31, 2022 and decreased $35.9 million (13.0%) from $275.1 million one year ago. Interest bearing deposits have increased from $789.6 million at December 31, 2022 and from $741.4 million at September 30, 2022 to $857.8 million at September 30, 2023. Deposits are being impacted by the changing rate environment as the competition from higher yielding non-depository investment vehicles has significantly increased within the markets for consumer, commercial, and public fund deposits. The results have been a reallocation of deposits that manifests in a reduction in noninterest bearing deposits somewhat mitigated by ongoing efforts of our employees in retaining existing customers as well as expanding relationships within the communities that the Bank serves.
Total shareholders’ equity increased by $5.8 million (6.6%) from $88.1 million at December 31, 2022 and $8.6 million (10.1%) from $85.4 million one year ago. The $5.8 million increase was mainly related to earnings year- to-date of $8.1 million, partially offset by a total of $0.87 per share in cash dividends totaling $1.9 million and a$400,000 reduction in other comprehensive income from temporary market value adjustments to the securities portfolio. On a year-over-year basis, the increase of $8.6 million in equity was predominately related to income of $11.2 million and an increase in common stock from vesting of restricted shares of $483,000, partially offset by $3.0 million in dividends paid as well as a $144,000 reduction in OCI from temporary market value adjustments to the securities portfolio.
Net Interest Income and Net Interest Margin
Net interest income was $10.2 million for the quarter ended September 30, 2023, down $521,000, or 4.8%, from $10.8 million during the third quarter of 2022 and, for the nine months ended September 30, 2023, net interest income increased $1.0 million (3.4%) to $30.3 million from $29.3 million for the nine months ended September 30, 2022. Interest income for the third quarter of 2023 increased $3.3 million (28.7%) to $14.8 million from $11.5 million for the third quarter of 2022 and, for the nine months ended September 30, 2023, interest income increased $10.7 million (34.1%) to $42.1 million from $31.4 million for the nine months ended September 30, 2022. The increase in interest income was partially due to increases across multiple assets including commercial loans, commercial real estate, residential real estate and cash as a result of the actions of the Federal Open Market Committee (“FOMC”) increase of its rate by 500 basis points beginning in late March of 2022. Interest expense for the third quarter of 2023 increased $3.8 million (482.1) to $4.6 million from $787,000 for the third quarter of 2022 and for the nine months ended September 30, 2023, increased $9.6 million (457.0%) to $11.7 million from $2.1 million for the nine months ended September 30, 2022, which was, also, resultant from the FOMC rate increases as some deposits transitioned to interest-bearing accounts and the overall rates paid across deposit accounts increased.
Net interest margin is net interest income expressed as a percentage of average interest-earning assets. For the quarter ended September 30, 2023, the net interest margin on a fully taxable equivalent basis decreased to 3.60% from 3.95% for the quarter ended September 30, 2022 and for the nine months ended September 30, 2023 increased to 3.62% from 3.49% for the nine months ended September 30, 2022. Much of the change in margin has been a product of the market rates on all interest-earning assets having increased since the end of the first quarter of 2022; however, recent FOMC increases have caused more pressure on the funding for these assets than benefit to yields on the assets.
Noninterest Income/Expense
During the three months ended September 30, 2023, noninterest income totaled $2.0 million, a decrease of $436,000 (18.2%) from the three months ended September 30, 2022 and was $5.9 million, a decrease of $146,000 (2.4%), for the nine months ended September 30, 2023. From a quarter-over-quarter perspective, the decrease in noninterest income is predominately related to a one-time gain on sale of a building in the third quarter of 2022 of approximately $420,000. On a year-over-year basis, the decrease in noninterest income was primarily related to the aforementioned one-time gain on the sale of a building partially offset by an increase in Wealth Management income and service charges on deposit accounts.
Noninterest expense totaled $8.9 million during the three months ended September 30, 2023 an increase of $937,000 (11.7%) from the third quarter of 2022 and $2.5 million (10.8%) from $23.1 million for the nine months ended September 30, 2022 to $25.6 million for the same period in 2023. The largest components of the quarter-over-quarter and year-over-year increases, respectively, are in data communication costs associated with the transition to an outsourced Information Technology Department of $306,000 and $770,000; occupancy and equipment expense associated with the renovation of, and addition to, CNB’s building infrastructure of $167,000 and $289,000; and salary expense associated with additional employees, wage increases, insurance expense and training of $282,000 and $1.3 million.
About CNB Community Bancorp Inc.
CNB Community Bancorp, Inc. (OTCQX:CNBB) is a one-bank holding company formed in 2005. Its subsidiary bank, County National Bank, is a nationally chartered full-service bank, which has served its local communities since its founding in 1934. CNB Community Bancorp, Inc. is headquartered in Hillsdale, Michigan and through its subsidiary bank offers banking products along with investment management and trust services to communities located throughout Southern Michigan.
Investor Contact: Erik A. Lawson, CFO erik.lawson@cnbb.bank 517-439-6115
Media Contacts: Craig S. Connor, Chairman of the Board; Joseph R. Williams, President & CEO
Safe Harbor Statement
This news release and other releases and reports issued by the Company may contain "forward-looking statements." The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company is including this statement for purposes of taking advantage of the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
