Sat, 03 Dec 2022

BERLIN, MD / ACCESSWIRE / November 23, 2022 / Calvin B. Taylor Bankshares, Inc. (the 'Company') (OTCQX:TYCB), parent company of Calvin B. Taylor Bank, today reported net income of $3.71 million for the third quarter ended September 30, 2022 ('3Q22'), as compared to $2.67 million for the third quarter ended September 30, 2021 ('3Q21') and $2.68 million for the second quarter ended June 30, 2022 ('2Q22'). Net income for the nine months ended September 30, 2022 was $8.68 million, as compared to $7.34 million for the nine months ended September 30, 2021. President and Chief Executive Officer Raymond M. Thompson commented, 'Earnings this quarter exceeded forecast following a strong summer season in our local markets and ongoing tightening of Federal Reserve monetary policy. Strong loan demand combined with an additional 150 basis point increase in the fed funds rate during the quarter resulted in a 24% increase in net interest income as compared to the 3rd quarter last year. The company's asset mix remains well allocated for earnings maximization entering the fourth quarter of 2022 and beyond. While the pace of asset growth has slowed compared to prior years, the company continued to grow organically as evidenced by a 16% increase in average assets in 2022. Credit quality metrics remain strong, however we will remain vigilant and adjust credit underwriting as warranted by economic conditions over the next twelve months.' Highlights of the company's financial results are noted below and included in the following tables.

  • Organic loan growth, excluding Paycheck Protection Program ('PPP') loans, was $59.7 million, or 13.9% since December 31, 2021. Annualized loan growth, excluding PPP loans, was 15.2% since September 30, 2021.
  • Annualized deposit growth was 3.9% since September 30, 2021 despite industry trends of deposit outflows. Average deposits were 18.3% higher during the 9 months ended September 30, 2022, as compared to the same period last year.
  • Higher yields on securities and fed funds sold resulted in a $1.4 million, or 24.4%, increase in net interest income in 3Q22 as compared to the previous quarter. Net interest income for the nine months ended September 30, 2022 increased $2.7 million, or 16.8%, as compared to the nine months ended September 30, 2021, due to higher revenue from loans, securities, and fed funds sold.
  • The provision for loan losses increased $150 thousand for the nine months ended September 30, 2022, as compared to same period last year. Higher provision expense in 2022 was primarily attributable to loan growth and not related to loan charge-offs or changes in the credit quality of the loan portfolio.
  • Net interest margin increased to 3.14% in 3Q22, as compared to 2.76% in 3Q21 and 2.82% in 2Q22. Loan growth accompanied by rising yields on securities and fed funds sold increased net interest margin by 11.3% in 3Q22 as compared to 2Q22.
  • Net income growth outpaced average asset growth, which increased Return on Average Assets ('ROA') to 1.56% in 3Q22, as compared to 1.22% 3Q21 and 1.16% in 2Q22.
  • Dividends per share for the nine months ended September 30, 2022 increased 6.9%, as compared to the same period in 2021.

Quarterly Results of Operations

Loan interest revenue, including fees, increased to $5.49 million in 3Q22, as compared to $5.48 million in 3Q21 and $5.31 million in 2Q22, as the result of continued organic loan growth and higher interest revenue on variable rate loans. Average loan balances increased by 2.4% in 3Q22 compared to 2Q22 and were 8.3% higher compared to 3Q21. Higher loan interest revenue attributable to organic loan growth was partially offset by a decrease in PPP loan interest revenue, including fees. PPP loan interest revenue, including fees, was $7 thousand in 3Q22, as compared to $852 thousand in 3Q21 and $148 thousand in 2Q22. The outstanding balance of PPP loans as of September 30, 2022 was $5 thousand. Loan yields were 4.45% in 3Q22, as compared to 4.81% in 3Q21 and 4.45% in 2Q22. PPP loan fees recognized in 3Q21 resulted in higher yields on loans during that period.

Net interest income increased to $7.2 million in 3Q22, as compared to $5.8 million in 3Q21 and $6.2 million in 2Q22. Increases in the average balances of loans and debt securities combined with higher yields on fed funds sold and debt securities in 3Q22 resulted in higher net interest income. Deposit costs increased in 3Q22, as compared to 3Q21 and 2Q22, due to deposit rate increases and higher average balances in 3Q22. Interesting-bearing deposit costs increased from 0.17% in 2Q22 to 0.29% in 3Q22. Net interest margin increased to 3.14% in 3Q22, as compared to 2.76% in 3Q21 and 2.82% in 2Q22. Growth in interest revenue outpaced the growth in average earning assets during the same period thus increasing net interest margin.

The provision for loan losses was $50 thousand in 3Q22, as compared to $150 thousand recorded in 2Q22, while no provision was recorded in 3Q21. Net charge offs were $30 thousand in 3Q22 and $17 thousand in 2Q22, and primarily relate to overdraft deposit accounts and consumer loans. Higher provision expense in 2Q22 was primarily attributable to loan growth and not related to loan charge-offs or changes in the credit quality of the loan portfolio. Government economic stimulus payments, PPP loans, foreclosure moratoriums, and increasing residential real estate prices have mitigated charge offs subsequent to the COVID-19 pandemic. However, uncertainty about borrowers' ability to repay absent government stimulus programs and rapid increases in real estate values have prevented a reduction in the allowance for loan losses at this time.

Noninterest income was $1.2 million in 3Q22, as compared to $1.0 million in 3Q21 and $895 thousand in 2Q22. The increase in noninterest income in 3Q22, as compared to 3Q21 and 2Q22, is attributable to income from death proceeds of bank owned life insurance policies of $133 thousand recognized in 3Q22. While income from increases in cash surrender value of bank owned life insurance is generally consistent and recurring income, the income from death proceeds is not, and occurs upon the death of an insured employee or former employee. Bank owned life insurance investments are used to recover present and long-term costs of employee benefits and compensation. Noninterest income from debit card interchange and overdraft fees also increased in 3Q22, as compared to 3Q21 and 2Q22.

Noninterest expense increased to $3.40 million in 3Q22, as compared to $3.18 million in 3Q21, which is attributable to an increase in salaries and employee benefits expenses. Other categories of noninterest expense have also increased due to vendor price increases associated with current inflation trends including higher labor costs. The increases in net interest income far exceeded increases in noninterest expense during 3Q22, which caused the efficiency ratio to decrease from 46.81% in 3Q21 to 40.76% in 3Q22. Noninterest expense increased 0.9% in 3Q22, as compared to 2Q22, which was also attributable to higher employee benefits expense. Net interest income increased 15.2% in 3Q22, as compared to 2Q22, also resulting in a decrease in the efficiency ratio from 47.51% in 2Q22 to 40.76% in 3Q22.

Net income increased 38.7% to $3.7 million in 3Q22, as compared to $2.7 million in 3Q21, and was primarily attributable to a 24.4% increase in net interest income and 15.4% increase in noninterest income. Sustained growth in deposits in the last 12 months associated with the COVID-19 pandemic resulted in an increase in average assets of 7.8% in 3Q22, as compared to 3Q21. Net income growth outpaced the growth in average assets, which resulted in the ROA increasing from 1.22% 3Q21 to 1.56% in 3Q22. Return on Average Stockholders' Equity ('ROE') increased from 10.84% in 3Q21 to 15.52% in 3Q22 due to a decrease in average equity of 3.1%, as compared to a 38.7% increase in net income. The decrease in average equity is due to an increase in unrealized losses, net of income taxes, on available for sale debt securities that resulted from a rapid increase in market interest rates in 2022. Dividends declared were $0.33 per share in 3Q22 compared to $0.29 per share in 3Q21, which resulted in dividend payout ratios of 24.6% for 3Q22 and 30.0% for 3Q21. Compared to the prior quarter, net income in 3Q22 increased $1.0 million, or 38.2%, and was due to a 15.2% increase in net interest income and 33.0% increase in noninterest income. ROA increased from 1.16% in 2Q22 to 1.56% in 3Q22 and ROE increased from 11.30% in 2Q22 to 15.52% in 3Q22.

Year to Date Results of Operations

Loan interest revenue, including fees, was $15.6 million for the nine months ended September 30, 2022, as compared to $15.4 million for the nine months ended September 30, 2021, which is the result of continued organic loan growth and higher interest revenue on variable rate loans. Loan interest revenue, including fees, increased despite a $1.3 million decrease in PPP loan interest revenue, including fees, for the nine months ended September 30, 2022, as compared to same period last year.

Net interest income increased to $18.6 million for the nine months ended September 30, 2022, as compared to $16.0 million for the nine months ended September 30, 2021. Increases in the average balances of loans, debt securities and fed funds sold combined with higher yields on those asset classes resulted in higher net interest income. Deposit costs increased $273 thousand in the nine months ended September 30, 2022, as compared the same period in 2021, due primarily to higher average balances of interest-bearing deposits and to a lesser extent increases in deposit rates. Net interest margins for the nine months ended September 30, 2022 and September 30, 2021 were relatively the same at 2.82% and 2.84%, respectively. Average deposits for the nine months ended September 30, 2022 increased by $127.3 million, or 18.3%,when compared to the same period in 2021. Net interest income increased by a similar percentage of 16.8% during the same period thus causing the net interest margin to be relatively unchanged.

Provision for loan losses was $275 thousand for the nine months ended September 30, 2022, as compared to $125 thousand for the nine months ended September 30, 2021. Net charge offs were $68 thousand in nine months ended September 30, 2022, which primarily relate to overdraft deposit accounts and consumer loans, as compared to net recoveries of $49 thousand in the same period in 2021. The net recovery in 2021 was the result of nonaccrual interest paid of $75 thousand recognized upon full collection of the outstanding loan principal. Higher provision expense in the nine months ended September 30, 2022 was primarily attributable to loan growth and not related to loan charge-offs or changes in the credit quality of the loan portfolio. Government economic stimulus payments, PPP loans, foreclosure moratoriums, and increasing residential real estate prices have mitigated charge offs subsequent to the COVID-19 pandemic. However, uncertainty about borrowers' ability to repay absent government stimulus programs and rapid increases in real estate values have prevented a reduction in the allowance for loan losses at this time.

Noninterest income of $3.1 million for the nine months ended September 30, 2022, was relatively unchanged compared to the same period in 2021. Noninterest income from death proceeds of bank owned life insurance policies decreased by $210 thousand in the nine months ended September 30, 2022, compared to the same period in 2021. While income from the increase in cash surrender value of bank owned life insurance is generally consistent and recurring income, the income from death proceeds is not, and occurs upon the death of an insured employee or former employee. Bank owned life insurance investments recover present and long-term costs of employee benefits and compensation. Increases in debit card interchange fees, merchant payment processing fees, and overdraft fees fully offset the decrease in noninterest income associated with bank owned life insurance death proceeds.

Noninterest expense increased 7.4% from $9.4 million for the nine months ended September 30, 2021 to $10.0 million for the nine months ended September 30, 2022, and was primarily attributable to an increase in marketing expenses and a decrease in salaries expense deferred for loan origination activities. Significant PPP loan origination activity in the nine months ended September 30, 2021 resulted in a higher percentage of salaries expense deferred for loan origination activities. A decrease in employee benefits costs of $208 thousand, or 17.3%, partially offset the increases in noninterest expense related to marketing and loan origination activities. Increases in net interest income exceeded the increases in noninterest expense, which caused the efficiency ratio to decrease from 49.1% for the nine months ended September 30, 2021 to 46.2% for the nine months ended September 30, 2022.

Net income increased 18.3% to $8.7 million for the nine months ended September 30, 2022, as compared to $7.3 million for the nine months ended September 30, 2021, and was primarily attributable to a 16.8% increase in net interest income. Sustained growth in deposits in the last 12 months associated with the COVID-19 pandemic resulted in an increase in average assets of 16.3% for the nine months ended September 30, 2022, as compared to the same period in 2021. Net income growth slightly outpaced the growth in average assets, which resulted in the ROA increasing to 1.25% for the nine months ended September 30, 2022, as compared to 1.23% for the same period in 2021. ROE increased from 10.1% in the nine months ended September 30, 2021 to 12.0% in the nine months ended September 30, 2022 due to a decrease in average equity of 0.7%, as compared to an 18.3% increase in net income. The decrease in average equity is due to an increase in unrealized losses, net of incomes taxes, on available for sale debt securities that resulted from a rapid increase in market interest rates in 2022. Dividends declared were $0.93 per share in nine months ended September 30, 2022 compared to $0.87 per share for the same period in 2021, an increase of 6.9%. Dividend payout ratios were 29.6% for the nine months ended September 30, 2022 and 32.8% for the nine months ended September 30, 2021.

Financial Condition

Total assets were $932.6 million as of September 30, 2022, an increase of 2.0%, as compared to total assets of $914.0 million as of September 30, 2021. Asset growth has recently slowed compared to growth experienced during and immediately after the COVID-19 pandemic. Growth during the COVID-19 pandemic was primarily the result of customer behavior changes and government economic stimulus programs, which resulted in a significant increase in customer deposits and total assets. Rapid increases in market interest rates increased unrealized losses, net of income taxes, on available for sale debt securities since September 30, 2021 by $15.2 million, which reduced total assets.

Deposits have increased 3.9% to $839.6 million as of September 30, 2022, as compared to $807.9 million as of September 30, 2021. The $31.7 million increase in deposits during this period relate entirely to increases in interest-bearing deposit accounts. Seasonal deposit increases associated with the summer tourism season were strong during 3Q22, but decreases in temporary large dollar deposits resulted in a modest increase in deposits of $12.2 million since June 30, 2022.

Total loans as of September 30, 2022 were $488.5 million, as compared to $445.8 million as of September 30, 2021, which represents growth of $42.7 million, or 9.6% in the last twelve months. Loan growth, excluding PPP loans, was $64.4 million, or 15.2%, since September 30, 2021 and is the result of strong commercial and residential real estate loan demand in our markets. Repayments of PPP loans resulted in a $21.7 million decrease in PPP loans since September 30, 2021, which relate to ongoing repayments by the Small Business Administration as customers receive forgiveness of their PPP loans. Loans increased $56.7 million, or 12.3% since December 31, 2021, which is the result of $59.7 million of continued organic loan growth and a $6.0 million decrease in PPP loans. PPP loans, net of unamortized loan fees, were $5 thousand as of September 30, 2022, as compared to $21.7 million as of September 30, 2021 and $6.0 million as of December 31, 2021. The loans to deposits ratio as of September 30, 2022 was 58.2%, as compared to 55.2% as of September 30, 2021 and 54.1% as of December 31, 2021.

Nonaccrual loans and loans past due 30 days or more totaled $1.3 million as of September 30, 2022, as compared to $1.7 million as of September 30, 2021 and $2.1 million as of December 31, 2021. All nonaccrual loans and loans past due 30 days or more as of September 30, 2022 were loans secured by residential mortgages. The allowance for loan losses was $2.2 million as of September 30, 2022 and represents 0.45% of total loans.

Average assets grew by 16.3% to $925.3 million for the nine months ended September 30, 2022, as compared to $795.9 million for the nine months ended September 30, 2021. Significant average asset growth was primarily the result of customer behavior changes and government economic stimulus programs related to the COVID-19 pandemic, which resulted in a significant increase in average deposits. Average deposits increased 18.3% for the nine months ended September 30, 2022, as compared to same period in 2021. Average loans grew $19.6 million, or 4.4%, to $470.3 million for the nine months ended September 30, 2022, as compared to $450.7 million for the nine months ended September 30, 2021. Growth in average loans occurred despite a decrease of $34.4 million in the average balance of PPP loans for the nine months ended September 30, 2022, as compared to the same period in 2021. The average balance of other loan categories increased $54.0 million as commercial and residential real estate loan demand continued. The average loans to average deposits ratio decreased to 57.1% for the nine months ended September 30, 2022, as compared to 64.7% for the same period in 2021, and relates to significant growth in average deposits associated with the COVID-19 pandemic.

Calvin B. Taylor Bankshares, Inc. & Subsidiary
Financial Highlights

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

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

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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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