Cashmere Valley Bank Reports Record Annual Earnings of $29.0 Million

CASHMERE, WA / ACCESSWIRE / January 18, 2022 / Cashmere Valley Bank (OTCQX:CSHX) ("Bank"), announced annual earnings of $29.0 million for the year ended December 31, 2021. Diluted earnings per share was $7.39, representing an increase of $0.97 per share, or 15.1%. Earnings per share growth of 15.1% marks consecutive years with double digit earnings per share growth.

As of December 31, 2021, deposit balances totaled $1.9 billion. Deposit balances increased approximately $216.6 million from December 31, 2020 representing a 12.6% increase, which also makes consecutive years with double-digit growth.

On January 18, 2022 the Bank's Board of Director's declared a semi-annual dividend payment of $0.85 per share to shareholders of record on January 28, 2022. The dividend will be paid on February 7, 2022.

"2021 was an outstanding year for Cashmere Valley Bank" said Greg Oakes, President and CEO. "Though the interest rate environment and personnel expenses provided challenges, the Bank was able to attain significant income growth and achieve record earnings. The one-time nature of Payment Protection Program loan income will provide challenges going forward to repeat these results especially if the labor market continues at its current trajectory."

2021 Highlights

Net income increased 13.8% to $29.0 million for the year ended December 31, 2021 versus $25.5 million for fiscal year 2020.

Diluted earnings per share increased 15.1% to $7.39 per share. Earnings per share improved as a result of increased earnings in combination with a reduced share count due to the Bank's second quarter share repurchase. The total number of shares repurchased in 2021 was 98,223. The repurchase increased diluted earnings per share $0.12 for the year ended December 31, 2021.

Return on equity increased 65 basis points 12.24% from 11.59%.

Return on assets decreased five basis points to 1.36%. Significant asset growth in combination with declining asset yields contributed to the decrease.

The Bank's net interest margin declined to 2.60% from 2.71% a year ago. Margin compression was due to significant deposit growth which has increased the Bank's lower yielding securities portfolio. The margin was also affected because cash balances remained high throughout the year and yields on cash were near zero in 2021.

The efficiency ratio increased slightly to 55.6% from 54.2% during the same time period one year ago. The efficiency ratio increased as a result of increasing costs, largely in salaries and benefits.

Pandemic Response Update

• Payment Protection Program (PPP) loan balances decreased from $53.5 million on December 31, 2020 to $10.0 million on December 31, 2021.
• Income from PPP loans increased by $2.8 million in 2021 as compared to 2020. PPP loan income increased due to a significant increase in PPP forgiveness.
• As of December 31, 2021, the Bank had approximately $440,000 in PPP fees to record into income upon forgiveness from SBA.

Cash, Cash Equivalents and Restricted Cash

Cash balances decreased to $114.0 million at December 31, 2021 from $135.7 million as of December 31, 2020. Cash was reduced as the Bank put its deposits to work in the loan portfolio and available for sale securities.

Available for Sale Securities

• Balances on available for sale securities increased 28.8% during 2021 to $1.1 billion.
• The book value of municipal securities increased $117.2 million, collateralized mortgage obligations (CMO's) increased $111.1 million, corporate securities increased $28.1 million and treasury securities increased $27.3 million.
• As of December 31, 2021, the average portfolio yield was 1.94% which represented a decrease from December 31, 2020 of two basis points.
• As of December 31, 2021, non-governmental securities had a book value of $150.6 million. This was an increase from $34.0 million at December 31, 2020.

Loans and Credit Quality

• December 31, 2021 gross loans totaled $940.8 million representing a decrease of $10.2 million or 1.1% from December 31, 2020.
• Excluding PPP loans, net loan growth was $33.3 million during 2021. Commercial real estate loans increased $20.3 million, construction loans increased $17.2 million and equipment finance loans increased $11.4 million.
• The allowance for loan and lease losses (ALLL) was 1.46%, which represented a two-basis point increase from December 31, 2020.
• The Bank did not record any provisions for loan losses during 2021. Activity through the ALLL represented only nominal charge-off and recovery activity which increased the ALLL by $44,000.
• Non-performing loans totaled $404,000 as of December 31, 2021, representing .04% of gross loans.

Deposits

Total deposits showed continued strength with a second consecutive year of double-digit growth as they increased $216.6 million or 12.6%. Non-interest bearing checking accounts increased to $432.6 million, an increase of $67.0 million or 18.3%. Savings, money market and interest bearing checking accounts increased $180.1 million or 14.9%. Certificates of deposit balances decreased $30.4 million or 13.0%.

Capital

As of December 31, 2021, shareholder's equity totaled $239.2 million, a modest increase from $238.7 million at December 31, 2020. The Bank repurchased $6.9 million in stock in 2021 and paid cash dividends of $6.1 million. Capital also decreased $16.1 million due to a decrease in the Bank's unrealized gain on available for sale investment securities which was primarily due to an increase in treasury rates during 2021. These reductions in capital were offset by the Bank's year-to-date earnings.

A total of $13.0 million was returned to shareholders in the form of dividends and a share repurchase in 2021, while $13.5 million was paid to shareholders in the form of regular and special dividends during 2020.

Earnings

Net Interest Income

Net interest income totaled $52.7 million for the year ended December 31, 2021 as compared to $46.7 million for the year ended December 31, 2020. The increase of $6.0 million represented an increase of 12.9%. Interest income on PPP loans increased $2.8 million in 2021 as compared to 2020. Increase in PPP income was driven by forgiveness on PPP loans during 2021. Interest income also increased due to the expansion in balances of available for sale securities. Interest income on available for sale securities increased $3.6 million in fiscal year 2021 as compared to 2020. Interest expense decreased $1,741,000 or 25.3% from the prior year. The majority of the decrease was realized in time deposits. The Bank's cost of funds decreased from 0.55% in 2020 to 0.35% in 2021.

Non-Interest Income

Non-interest income decreased $1.1 million, 5.3% as compared to 2020. 2020 was a banner year in mortgage banking due to an extremely high level of mortgage refinances. Mortgage banking revenue decline from $7.6 million to $5.5 million in 2021. Debit card interchange income increased to $3.9 million from $2.2 million as a result of a vendor switch and a $1.1 million non-recurring event.

Non-Interest Expense

Non-interest expense increased $3.6 million or 10.2% in 2021. The Bank was not exempt from labor market challenges throughout 2021. Our regional labor market presented challenges as salaries and benefits expenses increased $2.2 million or 10.8%. Non-interest expenses outside of salaries and benefits increased $1.4 million or 9.4%. Professional and legal fees increased $491,000 largely as a result of consulting fees related to the Bank's core processing renewal negotiation. These fees will be amortized over the life of the seven-year contract and total $310,000 annually.

The provision for loans losses increased $81,000 in 2021 due to charge off and recovery activity. In 2020, provision expense totaled $3.2 million due to concerns related to COVID.

Federal income tax expense increased approximately $930,000 from the prior year due to an increase in earnings and a small increase in the Bank's effective tax rate. The Bank's effective tax rate was 14.6% for 2021 as compared to 13.6% in 2020.

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.

CONTACT:

Greg Oakes, CEO
[phone]
Mike Lundstrom, CFO
[phone]

Consolidated Balance Sheets (UNAUDITED)
(Dollars in Thousands)
Cashmere Valley Bank and Subsidiary
		December 31, 2021				September 30, 2021				December 31, 2020
Assets
Cash and Cash Equivalent:
Cash & due from banks		$	22,450			$	26,878			$	27,258
Interest bearing deposits			81,399				56,910				97,466
Fed funds sold			10,155				8,352				10,990
Total Cash and Cash Equivalent			114,004				92,140				135,714
Securities available for sale			1,103,232				1,086,559				856,327
Federal Home Loan Bank stock, at cost			2,393				2,393				1,982
Loans held for sale			1,148				356				1,470
Loans			940,802				946,843				950,970
Allowance for credit losses			(13,774	)			(13,760	)			(13,730	)
Net loans			927,028				933,083				937,240
Premises and equipment			17,058				17,061				16,381
Accrued interest receivable			8,553				8,851				7,829
Bank Owned Life Insurance			26,485				26,313				15,908
Goodwill			7,576				7,518				7,182
Intangibles			4,285				2,044				1,564
Mortgage servicing rights			2,802				2,759				2,856
Other assets			9,738				10,187				9,835
Total assets		$	2,224,302			$	2,189,264			$	1,994,288
Liabilities and Shareholders' Equity
Liabilities
Deposits:
Non-interest bearing demand		$	432,621			$	443,846			$	365,645
Savings and interest-bearing demand			1,301,169				1,257,270				1,121,111
Time			202,787				209,088				233,215
Total deposits			1,936,577				1,910,204				1,719,971
Accrued interest payable			403				437				612
Short-term borrowings			34,504				29,344				16,395
Other liabilities			13,721				13,976				18,631
Total liabilities			1,985,205				1,953,961				1,755,609
Shareholders' Equity
Common stock (no par value); authorized 10,000,000 shares;
Issued and outstanding: 12/31/2021 -- 3,880,811 ; 9/30/2021 -- 3,880,786 ; 12/31/2020 -- 3,972,149			4,186				4,150				3,723
Treasury stock			(16,784	)			(16,784	)			(9,908	)
Retained Earnings			240,439				233,608				217,487
Accumulated other comprehensive income			11,256				14,329				27,377
Total shareholders' equity			239,097				235,303				238,679
Total liabilities and shareholders' equity		$	2,224,302			$	2,189,264			$	1,994,288

Year-to-Date Consolidated Statements of Income (UNAUDITED)
(Dollars in Thousands)
Cashmere Valley Bank & Subsidiary
		For the twelve months ended,
		December 31, 2021				December 31, 2020
Interest Income
Loans		$	39,151			$	38,119
Fed funds sold and deposits at other financial institutions			106				412
Securities available for sale:
Taxable			12,041				9,368
Tax-exempt			6,595				5,711
Total interest income			57,893				53,610
Interest Expense
Deposits			5,094				6,847
Short-term borrowings			50				38
Total interest expense			5,144				6,885
Net interest income			52,749				46,725
Provision for Credit Losses			81				3,174
Net interest income after provision for credit losses			52,668				43,551
Non-Interest Income
Service charges on deposit accounts			1,634				1,247
Mortgage banking operations			5,531				7,621
Net gain (loss) on sales of securities available for sale			1				2,520
Brokerage commissions			1,327				1,002
Insurance commissions and fees			5,368				4,616
Net interchange income (expense)			3,948				2,246
BOLI cash value			578				461
Dividends from correspondent banks			74				66
Other			1,439				1,237
Total non-interest income			19,900				21,016
Non-Interest Expense
Salaries and employee benefits			22,120				19,969
Occupancy and equipment			3,123				2,997
Audits and examinations			433				479
State and local business and occupation taxes			1,032				952
FDIC insurance & WA state assessments			627				472
Legal and professional fees			991				500
Check losses and charge-offs			540				413
Low income housing investment losses			588				688
Data processing			4,637				4,636
Product delivery			1,126				1,030
Other			3,369				2,891
Total non-interest expense			38,586				35,027
Income before income taxes			33,982				29,540
Income Taxes			4,949				4,019
Net income		$	29,033			$	25,521
Earnings Per Share
Basic		$	7.42			$	6.43
Diluted		$	7.39			$	6.42

Quarterly Consolidated Statements of Income (UNAUDITED)
(Dollars in Thousands)
Cashmere Valley Bank & Subsidiary
		For the quarters ended,
		December 31, 2021				September 30, 2021				December 31, 2020
Interest Income
Loans		$	9,794			$	9,779			$	9,761
Fed funds sold and deposits at other financial institutions			26				32				28
Securities available for sale:
Taxable			3,481				3,143				2,259
Tax-exempt			1,652				1,646				1,617
Total interest income			14,953				14,600				13,665
Interest Expense
Deposits			1,110				1,206				1,515
Short-term borrowings			16				14				9
Total interest expense			1,126				1,220				1,524
Net interest income			13,827				13,380				12,141
Provision for Credit Losses			36				41				321
Net interest income after provision for credit losses			13,791				13,339				11,820
Non-Interest Income
Service charges on deposit accounts			486				466				327
Mortgage banking operations			1,237				1,050				2,110
Net gain (loss) on sales of securities available for sale			(19	)			-				-
Brokerage commissions			453				290				202
Insurance commissions and fees			1,459				1,393				1,182
Net interchange income (expense)			655				1,801				587
BOLI cash value			172				176				117
Dividends from correspondent banks			19				18				15
Other			329				332				332
Total non-interest income			4,791				5,526				4,872
Non-Interest Expense
Salaries and employee benefits			6,128				5,429				4,951
Occupancy and equipment			770				852				799
Audits and examinations			20				87				76
State and local business and occupation taxes			277				275				239
FDIC insurance & WA state assessments			167				166				139
Legal and professional fees			293				258				98
Check losses and charge-offs			121				87				99
Low income housing investment losses			144				144				134
Data processing			1,213				1,160				1,155
Product delivery			322				287				255
Other			929				907				788
Total non-interest expense			10,384				9,652				8,733
Income before income taxes			8,198				9,213				7,959
Income Taxes			1,367				1,226				967
Net income		$	6,831			$	7,987			$	6,992
Earnings Per Share
Basic		$	1.76			$	2.06			$	1.76
Diluted		$	1.75			$	2.05			$	1.76

SOURCE: Cashmere Valley Bank

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