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

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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 1^st quarter of 2023 as compared to the 1^st quarter of 2022 and increased 7.7% compared to the 4^th quarter of 2022.
Net interest income increased by $2.1 million, or 40.6%, in the 1^st 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 1^st quarter of 2022 and 3.44% in 4^th quarter of 2022.
Organic loan growth continued in the 1^st 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 1^st 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 1^st 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 1^st quarter of 2022, and increased 7.7% as compared to 4^th quarter 2022. The Company’s net interest margin in the 1^st quarter of 2023 improved significantly to 3.51%, as compared to 2.50% in the same quarter last year. While deposits decreased during the 1^st 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 1^st 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.