CNB Community Bancorp, Inc. Reports 2023 Results

CNB Community Bancorp, Inc. (OTCQX: CNBB), the parent company of County National Bank, today announced earnings for the three months and twelve months ended December 31, 2023. Earnings during the fourth quarter of 2023 totaled $2.5 million, a decrease of $603,000 from the $3.1 million earned during the three months ended December 31, 2022. Basic earnings per share decreased to $1.17 during the three months ended December 31, 2023, down $0.28 from $1.45 during the fourth quarter of 2022. For the year ended December 31, 2023, CNB Community Bancorp, Inc. (the “Company”) reported net income of $10.6 million, a decrease of $1.6 million, or 13.1%, from the $12.2 million earned during the year ended December 31, 2022. Basic earnings per share decreased to $4.91 during the year ended December 31, 2023, down $0.77 from $5.68 during 2022.

The annualized return on average assets (ROA) decreased to 0.83% for the three months ended December 31,2023, down 27 basis points or 24.5% from 1.10% for the three months ended December 31, 2022. The annualized return on average equity (ROE) decreased to 10.63% for the current quarter, down from 14.31% for the fourth quarter of 2022. ROA decreased to 0.89% from the 1.06% for the year ended December 31, 2022. ROE decreased to 11.55% for 2023, down from 14.63% during the year ended December 31, 2022. Book value per share increased to $43.91 at December 31, 2023, up $3.14, or 7.7%, from $40.77 at December 31, 2022.

Joseph R. Williams, President and Chief Executive Officer of CNB Community Bancorp, Inc. and County National Bank, stated, “Although we did not match our record year in 2022, we continue to invest in growing our brand and developing our people, while taking the long-term view of growing our franchise value. A great example of this occurred in 2023 with our investment in the Kalamazoo market as CNB is bringing that same community-oriented banking approach to Kalamazoo County that has been the basis for our operations in Hillsdale, Lenawee, Jackson, and Calhoun counties since 1934. Furthermore, the Company results demonstrate that this model works as CNB surpassed $1.25 billion in assets in 2023 and improved our Net Interest Margin to 3.62%.”

Financial Highlights

• Total assets increased year-over-year $80.7 million, or 6.9%, to $1.25 billion.
• Net loans increased $74.5 million, or 8.5%, to $954.6 million at December 31, 2023 compared to $880.1 million at December 31, 2022.
• Total deposits increased approximately $10.1 million, or 0.9%, to $1.07 billion at December 31, 2023.
• Book value per share increased $3.14, or 7.7%, to $43.91 at December 31, 2023, up from $40.77 at December 31, 2022.
• Total equity increased $7.5 million to $95.6 million.
• Net income decreased $603,000, 19.3%, to $2.5 million for the three-month period ended December 31, 2023 and basic EPS decreased $0.28, or 19.8%, to $1.17 from $1.45 in the fourth quarter of 2022.
• Net interest income for the fourth quarter of 2023 decreased $221,000 to $10.3 million while for the twelve months ended December 31, 2023 net interest income increased $826,000 or 2.1%.
• Pre-tax, pre-provision income decreased approximately $944,000 to $3.2 million in the fourth quarter of 2023, compared to $4.1 million in the fourth quarter of 2022. For 2023, pre-tax, preprovision income was $13.8 million, compared to $16.4 million for 2022, a decrease of 15.6%.

Balance Sheet Review
The Company’s assets totaled $1.25 billion at December 31, 2023 compared to $1.17 billion at December 31, 2022. The increase in assets was predominately related to the significant increase in loans and debt securities being somewhat offset by a decrease in cash from customers leveraging their funds.

Net loans totaled $954.6 million at December 31, 2023, compared to $880.1 million at December 31, 2022. The loan portfolio at December 31, 2023 included: $515.9 million in commercial real estate loans, $243.4 million in commercial loans, $167.3 million in residential real estate loans, and $40.8 million in consumer loans.

Nonperforming assets (which are comprised of nonperforming loans and OREO) at December 31, 2023 were $6.2 million compared to $2.7 million at December 31, 2022. Nonperforming assets as a percentage of total assets increased to 0.50% at December 31, 2023 from 0.23% at December 31, 2022. There were no OREO properties at December 31, 2023 compared to $166,000 at December 31, 2022.

Nonperforming loans at December 31, 2023 were $6.2 million, an increase of $3.7 million, or 149.2%, from the $2.5 million balance at December 31, 2022. Nonperforming loans as a percentage of total loans increased to 0.64% at December 31, 2023, as compared to 0.28% at December 31, 2022. The increase in nonperforming loans and assets were not particular to a specific industry or geographic area but rather a couple of larger credit relationships are being worked out and, as such, have been reclassified.

During the quarter ended December 31, 2023, the Bank did not record a provision for credit losses, which is a decrease of $230,000 from the provision recorded during the quarter ended December 31, 2022. Net chargeoffs totaled $119,000 during the three months ended December 31, 2023 compared to net charge-offs of $5,000 during the same period in 2022. For the twelve months ended December 31, 2023, the provision was $600,000 compared to $1.1 million for the twelve months ended December 31, 2022. Net charge-offs totaled $238,000 during the twelve months ended December 31, 2023 compared to net charge-offs of $20,000 during the same period in 2022. The increase in charge-offs was not related to a specific industry or geographic region but predominately involved a couple of one-off credit relationships that were considered to be uncollectable.

Net charge-offs as a percentage of average loans was 0.03% for the year ended December 31, 2023 compared to 0.00% at December 31, 2022. The allowance for credit losses totaled $13.0 million at December 31, 2023 and $12.9 million at December 31, 2022. The allowance for credit losses as a percentage of total loans decreased from 1.44% at December 31, 2022 to 1.34% at December 31, 2023. The decrease in the required allowance for credit losses is a byproduct of improving risk factors across the entire portfolio along with strong collateral positions on credits evaluated individually for impairment. 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 $174.8 million at December 31, 2023, up 42.0% from $123.1 million at December 31, 2022. This increase was largely a result of budgeted purchases combined with a significant investment in securities that are predominately supported by the US government, purchased at the end of 2023. These purchases were partially offset by maturities of municipals, US Treasury securities, and certificate of deposits combined with amortization of purchase premiums and paydowns of mortgage-backed securities. 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 as of December 31, 2023 have decreased by $49.2 million from $273.7 million at December 31, 2022. Interest bearing deposits have increased from $789.6 million at December 31, 2022 to $848.8 million at December 31, 2023. Deposits are being impacted by the changing rate environment as the competition from higher yielding non-depository investment vehicles continues 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.

The Company’s outstanding borrowings decreased at the holding company level by $1.4 million in 2023 as it continues to pay down its senior debt. County National Bank increased its Federal Home Loan Bank of Indianapolis borrowings to $50 million from zero in 2023 as part the aforementioned addition of securities to its balance sheet at the end of 2023.

Total shareholders’ equity increased $7.5 million from $88.1 million at December 31, 2022 to $95.6 million at December 31, 2023. The $7.5 million increase was mainly related to earnings during 2023 of $10.6 million and $548,000 of equity compensation which were partially offset by a decrease in accumulated other comprehensive income of $718,000 from temporary market value adjustments to the securities portfolio and impact from the Company’s hedge along with a $1.36 per share cash dividend totaling $3.0 million. Total shares outstanding at December 31, 2023 were 2,204,695.

Net Interest Income and Net Interest Margin
Net interest income was $10.3 million for the quarter ended December 31, 2023, down $221,000, or 2.1%, from $10.5 million during the fourth quarter of 2022 and, for the year ended December 31, 2023, net interest income increased $826,000 (2.1%) to $40.6 million from $39.8 million for the year ended December 31, 2022. Interest income for the fourth quarter of 2023 increased $3.1 million (25.5%) to $15.3 million from $12.2 million for the fourth quarter of 2022 and, for the year ended December 31, 2023, interest income increased $13.8 million (31.7%) to $57.3 million from $43.5 million for the year ended December 31, 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 fourth quarter of 2023 increased $3.3 million (203.6%) to $4.9 million from $1.6 million for the fourth quarter of 2022 and for the year ended December 31, 2023, increased $13.0 million (350.5%) to $16.7 million from $3.7 million for the year ended December 31, 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 December 31, 2023, the net interest margin on a fully taxable equivalent basis decreased to 3.68% from 3.93% for the quarter ended December 31, 2022 and for the year ended December 31, 2023 increased to 3.62% from 3.60% for the year ended December 31, 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 December 31, 2023, noninterest income totaled $1.8 million, a decrease of $52,000 (2.8%) from the three months ended December 31, 2022, and was $7.7 million, a decrease of $198,000 (2.5%), for the year ended December 31, 2023 from $7.9 million for the year ended December 31, 2022. Both quarter-over-quarter and year-over-year variances were due to immaterial fluctuations across multiple noninterest bearing accounts.

Noninterest expense totaled $9.0 million during the three months ended December 31, 2023 an increase of $671,000 (8.1%) from the fourth quarter of 2022 and an increase of $3.1 million (10.1%) from $31.4 million for the year ended December 31, 2022 to $34.5 million for the same period in 2023. The largest two components of the quarter-over-quarter and year-over-year increases were an increase in salaries and benefit expense of $672,000 and $1.9 million, respectively, from additional personnel related to growth and an increase of $294,000 and $755,000, respectively, related to Data Communications resultant from the outsourcing of a significant portion of the Company’s Information Technology function.

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.