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Calvin B. Taylor Bankshares, Inc. Reports First Quarter 2023 Financial Results

BERLIN, MD / ACCESSWIRE / June 2, 2023 / Calvin B. Taylor Bankshares, Inc. (the "Company") (OTCQX:TYCB), the holding company of Calvin B. Taylor Bank (the "Bank"), today reported unaudited financial results for the first quarter ended March 31, 2023. Highlights of the Company's financial results are noted below.

  • Quarterly net income increased 45.4% to $3.33 million for the 1st quarter of 2023 as compared to the 1st quarter of 2022 and increased 7.7% compared to the 4th quarter of 2022.
  • Net interest income increased by $2.1 million, or 40.6%, in the 1st quarter of 2023 as compared to the same quarter in 2022.
  • Net interest margin increased to 3.51% in the first quarter of 2023, as compared to 2.50% in the 1st quarter of 2022 and 3.44% in 4th quarter of 2022.
  • Organic loan growth continued in the 1st quarter of 2023 with loans growing $33.6 million, or 6.5%, since December 31, 2022. Loans have increased $82.2 million, or 17.7%, in the twelve months ended March 31, 2023.
  • Following several years of significant growth, deposits decreased by $17.7 million or 2.2% in the previous 12 months which resulted in total assets decreasing by $14.7 million, or 1.6% since March 31, 2022.
  • Deposits decreased by $20.2 million or 2.5% since December 31, 2022 as a result of seasonal deposit decreases and outflows of other deposits that are earning higher interest rates currently offered by short term government bond investments. The Company did not experience any significant outflow of uninsured deposits during the 1st quarter of 2023.
  • On-balance sheet liquidity, as measured by cash and unencumbered available for sale debt securities, remains strong as of March 31, 2023 and equaled 30.3% of total deposits.
  • Noncore funding sources including Federal Home Loan Bank borrowings, brokered deposits, and the recently created Federal Reserve Bank Term Funding Program were not utilized in the 1st quarter of 2023.
  • On January 1, 2023 the Company adopted the current expected credit losses ("CECL") model pursuant to ASU 2016-13 which resulted in an increase in the Allowance for Credit Losses of $826 thousand and a reduction in stockholders equity of $613 thousand, net of income taxes.

President and Chief Executive Officer Raymond M. Thompson remarked, "The cumulative impact of aggressive interest rate increases by the Federal Reserve over the past 12 months, and continued organic loan growth provided for strong 1st quarter performance in 2023. Net income for the 1st quarter of 2023 increased $1.0 million or 45.4% compared to the 1st quarter of 2022, and increased 7.7% as compared to 4th quarter 2022. The Company's net interest margin in the 1st quarter of 2023 improved significantly to 3.51%, as compared to 2.50% in the same quarter last year. While deposits decreased during the 1st quarter of 2023, the deposit outflow was normal and customary for this time of year, and not related to the turmoil that emerged in the banking industry in March of this year. To this point, it is noteworthy that on-balance sheet liquidity, as measured by cash and unencumbered available for sale debt securities equaled 30.3% of total deposits at March 31, 2023. As a testament to our conservative risk management practices and customer confidence, core deposits remained stable, and the Bank had no need to access non-core funding sources and other government programs to bolster liquidity during the period. While volatile deposit flow that occurred in the banking industry in the 1st quarter of 2023 has abated, we continue to monitor this recent development closely. We remain highly liquid, well-capitalized, and ready to meet the loan and deposit needs of our customers and prospects as the year progresses."

Quarterly Results of Operations

Quarterly net income was $3.33 million for the first quarter ended March 31, 2023 ("1Q23"), as compared to $2.29 million for the first quarter ended March 31, 2021 ("1Q22") and $3.09 million for the fourth quarter ended December 31, 2021 ("4Q22"). A summary of the quarterly results of operations are included in the table and comments that follow.

For the Quarters Ended
Results of Operations Mar 31, 2023 Mar 31, 2022 Dec 31, 2022 Prior Year Prior Quarter
Net interest income
$ 7,416,275 $ 5,272,960 $ 7,757,754 40.6 % -4.4 %
Provision for credit losses
$ 180,000 $ 75,000 $ (170,000 ) 140.0 % -205.9 %
Noninterest income
$ 951,000 $ 1,039,798 $ 342,840 -8.5 % 177.4 %
Noninterest expense
$ 3,810,439 $ 3,274,382 $ 4,249,788 16.4 % -10.3 %
Net income
$ 3,328,336 $ 2,288,876 $ 3,089,306 45.4 % 7.7 %
Yield on earning assets
4.06 % 2.60 % 3.77 % 56.2 % 7.7 %
Cost of interest-bearing deposits
0.88 % 0.16 % 0.55 % 450.0 % 60.0 %
Net interest margin
3.51 % 2.50 % 3.44 % 40.4 % 2.0 %
Return on average assets (annualized)
1.49 % 1.02 % 1.33 % 46.1 % 12.0 %
Return on average equity (annualized)
13.76 % 9.29 % 13.31 % 48.1 % 3.4 %
Efficiency ratio
45.54 % 51.87 % 48.53 % -12.2 % -6.2 %

Net interest income increased $2.1 million or 40.6% in 1Q23, as compared to 1Q22, which is attributable to organic loan growth and higher yields on debt securities and fed funds sold. The Federal Reserve Bank has increased fed funds rates 500 bps since March 31, 2022, which has increased yields on debt securities and fed funds sold from 0.64% in 1Q22 to 2.98% in 1Q23. Interest revenue from debt securities and fed funds sold has increased $1.8 million in 1Q23, as compared to 1Q22, while average balances decreased by 19.6% in the same period. Costs of interest-bearing deposits increased 72 bps during the same period. Net interest income decreased $342 thousand or 4.4% in 1Q23, as compared to 4Q22, which is primarily attributable to a $39.2 million or 4.2% decrease in interest-earning assets. Yields on earning-assets increased in 1Q23, as compared to 4Q22, as the Federal Reserve increased fed funds rates an additional 125 bps since December 14, 2022.

On January 1, 2023 the Company adopted the current expected credit losses ("CECL") model pursuant to ASU 2016-13. The estimate of expected credit losses considers historical information, current information, and supportable forecasts, including estimates of prepayments. The Company utilizes key economic indicators including but not limited to real GDP, unemployment, and interest rates for its reasonable and supportable forecasting of current expected credit losses. To further adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation, the Company currently considers the following qualitative adjustment factors: credit concentration risk, loan review processes, and flood risk. The impact of adopting ASU 2016-13 resulted in an increase in the Allowance for Credit Losses of $826 thousand and a reduction in stockholders equity of $613 thousand, net of income taxes. The provision for credit losses of $180 thousand recorded in 1Q23 was primarily the result of growth in the loan portfolio during the same period. No significant changes in the economic indicators and related forecasts utilized in the CECL model were noted in 1Q23. The provision for credit losses of ($170) thousand recorded in 4Q22 was primarily the result of the resolution of a longstanding nonaccrual loan in that period.

Noninterest income decreased in 1Q23 by $89 thousand or 8.5%, as compared to 1Q22, due to a $272 thousand decrease in income from death proceeds of bank owned life insurance policies. No income was recognized in 1Q23 related to death proceeds of bank owned life insurance policies. Increases in other sources of noninterest income including service charges on deposits and debit card interchange fees partially offset the decrease from bank owned life insurance. Noninterest income increased in 1Q23 by $608 thousand or 177.4%, as compared to 4Q22, due to a decrease in realized losses on available for sale debt securities. Realized losses of $65 thousand were recorded in 4Q22 related to restructuring of the debt securities portfolio to sell lower-yielding securities and purchase new securities at substantially higher yields to maximize future interest revenue.

Current quarter noninterest expense increased by $536 thousand or 16.4%, as compared to 1Q22, and is a result of increases in both employee salaries and benefits expenses. Higher salaries expense relates to the fulfillment of open positions and higher salaries paid to remain competitive in the current labor market. Employee health insurance is provided through a partially self-funded plan and claims incurred by the plan were higher in 1Q23, as compared to 1Q22, resulting in the increase in employee benefits costs. Noninterest expense decreased in 1Q23 by $439 thousand or 10.3%, as compared to 4Q22, which primarily relates to higher salaries and benefits expense associated with yearend bonuses and 401K profit sharing contributions recorded in 4Q22.

Quarterly per share data and repurchases of stock by the Company for each period is included in the following table. The stock repurchase plan previously adopted by the Board of Directors remains in place and as of March 31, 2023 has 57,768 shares available to be repurchased. The amount and timing of future stock repurchases will depend upon several factors including regulatory capital requirements, market value of the Company's stock, general market and economic conditions, liquidity, and other relevant considerations, as determined by the Company.

As for the Quarters Ended % Change
Per Share Data Mar 31, 2023 Mar 31, 2022 Dec 31, 2022 Prior Year Prior Quarter
Net income
$ 1.21 $ 0.83 $ 1.12 45.5 % 7.7 %
Dividends
$ 0.33 $ 0.29 $ 0.33 13.8 % 0.0 %
Dividend payout ratio
24.88 % 36.18 % 29.48 % -31.2 % -15.6 %
Book value
$ 35.55 $ 34.24 $ 34.15 3.8 % 4.1 %
Book value excluding OCI
$ 39.82 $ 36.69 $ 39.17 8.5 % 1.7 %
Market value
$ 40.00 $ 37.20 $ 42.03 7.5 % -4.8 %
Number of shares repurchased
814 - - - -
Repurchase amount
$ 32,153 $ - $ - - -
Average repurchase price
$ 39.50 $ - $ - - -

Financial Condition

Recent disruption in the banking industry has highlighted the importance of deposit insurance, core deposits, liquidity and capital. The Company relies mostly on core deposits, as defined by bank regulators, which are gathered from customers in local markets. The Company and the Bank remain well-capitalized according to regulatory capital standards and exceed the threshold to be considered well-capitalized (Community Bank Leverage Ratio) by 35% as of March 31, 2023. The Company's financial condition at quarter end is summarized in the table and comments that follow.

At or for the Quarters Ended % Change
Financial Condition Mar 31, 2023 Mar 31, 2022 Dec 31, 2022 Prior Year Prior Quarter
Assets
$ 890,558,115 $ 905,246,571 $ 905,940,143 -1.6 % -1.7 %
Cash + unencumbered debt securities
$ 238,800,312 $ 354,463,186 $ 286,951,339 -32.6 % -16.8 %
Loans
$ 546,597,618 $ 464,355,936 $ 513,025,696 17.7 % 6.5 %
Deposits
$ 788,783,378 $ 806,461,546 $ 809,008,459 -2.2 % -2.5 %
Interest-bearing deposits
$ 540,503,806 $ 527,563,420 $ 543,202,520 2.5 % -0.5 %
Stockholders' equity
$ 98,054,616 $ 94,533,066 $ 94,224,247 3.7 % 4.1 %
Common stock - shares outstanding
2,758,226 2,760,760 2,759,040 -0.1 % 0.0 %
Stockholders' equity / assets
11.01 % 10.44 % 10.40 % 5.5 % 5.9 %
Average assets
$ 893,321,241 $ 899,241,663 $ 931,189,951 -0.7 % -4.1 %
Average loans
$ 525,432,365 $ 442,185,321 $ 498,911,981 18.8 % 5.3 %
Average deposits
$ 791,613,398 $ 796,738,068 $ 833,783,684 -0.6 % -5.1 %
Average stockholders' equity
$ 96,785,131 $ 98,602,948 $ 92,830,965 -1.8 % 4.3 %
Average stockholders' equity / average assets
10.83 % 10.97 % 9.97 % -1.2 % 8.7 %
Tier 1 capital to average assets (leverage ratio)
12.12 % 11.23 % 11.42 % 7.9 % 6.1 %

Following several years of significant growth, deposits decreased by $17.7 million or 2.2% in the previous 12 months which resulted in total assets decreasing by $14.7 million, or 1.6% since March 31, 2022. Significant increases in short term interest rates have encourage certain depositors to invest excess cash into short term government bonds resulting in a decrease in deposits. During the first quarter of 2023, deposits decreased by $20.2 million or 2.5% as a result of seasonal deposit decreases and outflows of other deposits seeking higher yields from short term government bonds. The Bank operates with a high level of core deposits. Core deposits are defined by banking regulators as checking, money market, and savings accounts plus any time deposits less than $250,000. Recent bank failures have increased the focus on concentrations of uninsured deposits. All deposit accounts with a balance in excess of the FDIC insurance limit of $250,000 are disclosed on quarterly regulatory reports filed with bank regulators. As of March 31, 2023, the Bank had deposit accounts with balances in excess of $250,000 totaling $229.0 million which represents 29.0% of total deposits. The Company did not experience any significant outflow of uninsured deposits during the 1st quarter of 2023. The Bank is a member of the IntraFi Network which enables large depositors with access to multi-million dollar FDIC insurance for funds placed into the network and provides an equal amount of reciprocal deposits under FDIC insurance limits to the bank. Recent events in the banking industry led to an increase in usage of the IntraFi Network by existing and new customers. Reciprocal deposits from the IntraFi Network increased by 11.9% to $93.9 million as of March 31, 2023, as compared to $82.8 million as of December 31, 2022.

On-balance sheet liquidity, as measured by cash and unencumbered available for sale debt securities, remains strong as of March 31, 2023 and equaled 30.3% of total deposits. Selected liquidity metrics are summarized in the table below.

At or for the Quarters Ended % Change
Liquidity Mar 31, 2023 Mar 31, 2022 Dec 31, 2022 Prior Year Prior Quarter
Cash + unencumbered debt securities / deposits
30.27 % 43.95 % 35.47 % -31.1 % -14.6 %
Debt securities pledged / total debt securities
10.85 % 9.41 % 11.28 % 15.3 % -3.8 %
Loans / deposits
69.30 % 57.58 % 63.41 % 20.3 % 9.3 %
Average loans / average deposits
66.37 % 55.50 % 59.84 % 19.6 % 10.9 %
Core deposits / total assets
88.22 % 88.61 % 88.99 % -0.4 % -0.9 %
Deposits > $250,000 / total deposits
29.02 % 35.69 % 32.00 % -18.7 % -9.3 %

Noncore funding sources are available to the Bank but are intended for contingency funding needs and not to pursue growth. As of March 31, 2023, the Bank has the ability to borrow up to $207.9 million from the Federal Home Loan Bank ("FHLB") that would require pledging of loans and/or debt securities as collateral. Debt securities currently pledged are related to FHLB Letters of Credit used to collateralize public deposits.

Loans and Asset Quality

Increasing interest rates, economic uncertainty and other factors have impacted current loan demand as compared to demand experienced in the previous 12 months. Conversely, funding of previously committed construction loans, localized demand for commercial and residential real estate loans, and seasonal borrowings during 1Q23 resulted in continued organic loan growth with loans increasing $33.6 million or 6.5% since December 31, 2022. Loan growth of $82.2 million or 17.7% in the previous 12 months was the result of strong demand for local real estate and borrowers seeking to lock in lower interest rates as the Federal Reserve engaged in aggressive interest rate increases during the same period. Growth in the loan portfolio during the rising interest rate environment over the last 12 months along with variable rate loans within the portfolio has expanded the yield on loans from 4.33% in 1Q22 (excluding SBA PPP loans) to 4.73% in 1Q23. Loan yields increased 12 bps in 1Q23 as compared to 4Q22.

Loan performance has remained strong over the past 12 months as local economic conditions have remained stable. Inflation and higher interest rates have not resulted in a deterioration of credit quality as of March 31, 2023. The increase the allowance for credit losses from 0.44% of total loans as of December 31, 2022 to 0.66% of total loans as of March 31, 2023 was primarily related to the adoption the current expected credit losses ("CECL") model pursuant to ASU 2016-13 on January 1, 2023. The adoption of the CECL model resulted in an increase in the allowance for credit losses of $826 thousand. Selected asset quality metrics are summarized in the table below.

At or for the Quarters Ended % Change
Asset Quality Mar 31, 2023 Mar 31, 2022 Dec 31, 2022 Prior Year Prior Quarter
Allowance for credit losses / total loans
0.66 % 0.44 % 0.51 % 49.0 % 28.7 %
Net charge-offs (recoveries) / average loans
0.01 % 0.00 % -0.12 % 20.9 % -104.9 %
Loans past due 30 days or more / total loans
0.20 % 0.42 % 0.46 % -52.8 % -56.5 %
Non-accrual loans / total loans
0.02 % 0.05 % 0.02 % -67.9 % -10.6 %

Financial Statements

Consolidated balance sheets at quarter end and consolidated income statements for the quarters ended are presented below.

Calvin B. Taylor Bankshares, Inc. and Subsidiary
Consolidated Balance Sheets

(unaudited) (unaudited)
March 31,
2023
December 31,
2022
March 31,
2022
Assets
Cash and cash equivalents
Cash and due from banks
$ 11,479,055 $ 9,060,252 $ 11,076,452
Federal funds sold and interest bearing deposits
75,657,909 133,316,028 210,292,063
Total cash and cash equivalents
87,136,964 142,376,280 221,368,515
Time deposits in other financial institutions
225,020 1,225,953 2,476,920
Debt securities available for sale, at fair value
175,247,348 167,934,059 149,860,671
Debt securities held to maturity, at amortized cost
42,196,397 39,110,156 28,376,618
Equity securities, at cost
748,833 748,833 748,833
Restricted stock, at cost
470,700 469,500 463,700
Loans
546,597,618 513,025,696 464,355,936
Less: allowance for credit losses
(3,599,605 ) (2,624,369 ) (2,052,567 )
Net loans
542,998,013 510,401,327 462,303,369
Accrued interest receivable
2,022,783 2,036,468 1,609,199
Debt securities sold receivable
- 1,789,635 -
Prepaid expenses
615,116 730,891 486,050
Other real estate owned
- - -
Premises and equipment, net
12,743,683 12,751,025 12,822,077
Computer software, net
215,704 238,009 314,486
Deferred income taxes, net
3,986,823 4,467,476 2,079,257
Bank owned life insurance and annuities
21,538,025 21,398,096 21,491,536
Other assets
412,706 262,435 845,340
Total assets
$ 890,558,115 $ 905,940,143 $ 905,246,571
Liabilities and Stockholders' Equity
Deposits
Noninterest-bearing
$ 248,279,572 $ 265,805,939 $ 278,898,126
Interest-bearing
540,503,806 543,202,520 527,563,420
Total deposits
788,783,378 809,008,459 806,461,546
Accrued interest payable
122,695 75,438 26,202
Dividends payable
910,215 910,483 828,228
Securities purchase payable
- - 1,922,575
Accrued expenses
331,830 703,052 274,570
Non-qualified deferred compensation
775,274 654,674 636,316
Other liabilities
1,580,107 363,790 564,068
Total liabilities
792,503,499 811,715,896 810,713,505
Stockholders' equity
Common stock, par value $1 per share;
authorized 10,000,000 shares; issued and outstanding
2,758,226 2,759,040 2,760,760
Additional paid-in capital
2,306,117 2,337,456 2,398,533
Retained earnings
104,768,378 102,963,224 96,131,635
Accumulated other comprehensive (loss), net of tax
(11,778,105 ) (13,835,473 ) (6,757,862 )
Total stockholders' equity
98,054,616 94,224,247 94,533,066
Total liabilities and stockholders' equity
$ 890,558,115 $ 905,940,143 $ 905,246,571

Calvin B. Taylor Bankshares, Inc. and Subsidiary
Consolidated Statements of Income (unaudited)

For the three months ended
March 31, 2023 March 31, 2022
Interest income
Loans, including fees
$ 6,128,458 $ 4,829,421
U. S. Treasury and government agency debt securities
465,694 141,407
Mortgage-backed debt securities
654,171 327,605
State and municipal debt securities
107,588 79,636
Federal funds sold and interest-bearing deposits
1,218,827 95,490
Time deposits in other financial institutions
2,687 12,161
Total interest income
8,577,425 5,485,720
Interest expense
Deposits
1,161,150 212,760
Net interest income
7,416,275 5,272,960
Provision for credit losses
180,000 75,000
Net interest income after provision for credit losses
7,236,275 5,197,960
Noninterest income
Debit card and ATM
373,065 345,659
Service charges on deposit accounts
248,613 215,453
Merchant payment processing
60,947 56,317
Income from bank owned life insurance and annuities
141,265 73,279
Income from bank owned life insurance death proceeds
- 272,111
Dividends
7,522 3,310
Gain (loss) on disposition of investment securities
(695 ) 645
Miscellaneous
120,283 73,024
Total noninterest income
951,000 1,039,798
Noninterest expenses
Salaries
1,499,361 1,359,240
Employee benefits
466,619 338,327
Occupancy
253,465 240,760
Furniture and equipment
206,631 220,793
Data processing
247,681 213,985
Debit card and ATM
199,299 141,123
Marketing
130,385 86,536
Directors fees
78,150 80,150
Telecommunication services
63,957 86,663
Deposit insurance premiums
105,871 59,543
Other operating
559,020 447,262
Total noninterest expenses
3,810,439 3,274,382
Income before income taxes
4,376,836 2,963,376
Income taxes
1,048,500 674,500
Net income
$ 3,328,336 $ 2,288,876
Earnings per common share - basic and diluted
$ 1.21 $ 0.83

###

About Calvin B. Taylor Banking Company
Calvin B. Taylor Banking Company, the bank subsidiary of Calvin B. Taylor Bankshares, Inc. (OTCQX: TYCB), founded in 1890, offers a wide range of loan, deposit, and ancillary banking services through both physical and digital delivery channels. The Company has 12 banking locations within the eastern coastal area of the Delmarva Peninsula including Worcester County, Maryland, Sussex County, Delaware and Accomack County, Virginia.

Contact
M. Dean Lewis, Senior Vice President and Chief Financial Officer
410-641-1700, taylorbank.com

SOURCE: Calvin B. Taylor Bankshares, Inc.



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