The annualized return on average assets (“ROA”) increased to 0.96% for the three months ended June 30, 2024, up nine basis points from 0.87% for the three months ended June 30, 2023. The annualized return on average equity (“ROE”) increased to 11.98% for the current quarter, up from 11.18% for the second quarter of 2023. ROA remained comparable at 0.92% for the six months ended June 30, 2024, down a single basis point from the 0.93% during the first six months of 2023. ROE was 11.73% during the first half of 2024, down from 12.17% during the six-month period ended June 30, 2023. Book value per share increased to $46.14 at June 30, 2024, up $3.44 from $42.70 at June 30, 2023.
Financial Highlights
- Total assets increased $70.9 million, or 6.0%, to $1.24 billion from June 30, 2023, and decreased slightly by $2.7 million, or 0.2% from December 31, 2023.
- Net loans increased $102.5 million, or 11.3%, to $1.01 billion at June 30, 2024, compared to $906.7 million at June 30, 2023, and increased $54.6 million, or 5.7%, from December 31, 2023.
- Total deposits decreased $21.2 million, or 2.0%, to $1.05 billion at June 30, 2024, from $1.07 billion at June 30, 2023, and decreased $27.7 million, or 2.6% from December 31, 2023.
- Book value per share increased $3.44, or 8.1%, to $46.14 at June 30, 2024, up from $42.70 at June 30, 2023, and up $2.23 from $43.91 at December 31, 2023.
- Total equity increased $8.1 million to $100.4 million from June 30, 2023.
- Net income increased $395,000, 15.5%, to $2.9 million in the second quarter of 2024 and basic EPS increased $0.17, or 14.4%, to $1.35 from $1.18 in the second quarter of 2023.
- Net interest income for the second quarter of 2024 increased $947,000 to $10.9 million from the second quarter of 2023.
- Pre-tax, pre-provision income increased to $3.8 million in the second quarter of 2024 from $3.4 in the second quarter of 2023 or 13.6%.
Balance Sheet Review
The Company’s assets totaled $1.24 billion and $1.25 billion at June 30, 2024 and December 31, 2023, respectively, compared to $1.17 billion at June 30, 2023. The change in composition of assets was predominately related to the fluctuation in investable assets as funding of the asset side of the balance sheet has varied and cash continues to be repositioned to new credits.
Net loans totaled $1.01 billion at June 30, 2024, compared to $954.6 million at December 31, 2023, and $906.7 million at June 30, 2023. The loan portfolio at June 30, 2024 included: $567.3 million in commercial real estate loans, $247.2 million in commercial loans, $167.3 in residential real estate loans, and $40.4 million in consumer loans.
Nonperforming assets (which are comprised entirely of nonperforming loans) at June 30, 2024 were $7.0 million compared to $6.2 million at December 31, 2023 and $2.9 million at June 30, 2023. Nonperforming assets as a percentage of total assets were 0.56% at June 30, 2024, 0.50% at December 31, 2023, and 0.24% at June 30, 2023.
Nonperforming loans at June 30, 2024 were $7.0 million, an increase of $788,000, or 12.7%, from the $6.2 million balance at December 31, 2023, and an increase of $4.1 million, or 144.5%, from the $2.9 million balance at June 30, 2023. Nonperforming loans as a percentage of total loans increased to 0.69% at June 30, 2024, compared to 0.64% at December 31, 2023, and 0.31% at June 30, 2023. The fluctuation in nonperforming credits was largely due to two relationships that totaled approximately $4.3 million that have been added to the totals over the last nine months. One of these relationships is an agricultural credit of which a number of acres are in the process of being sold while the larger relationship, which is involved in infrastructure development, is currently in compliance with a forbearance agreement.
During the second quarter of 2024, a provision for credit losses of $150,000 was recorded, which is a decrease of $25,000 from a provision of $175,000 recorded during the second quarter of 2023. Net charge-offs totaled $50,000 during the second quarter of 2024 compared to net recoveries of $25,000 in the second quarter of 2023. Net charge-offs (annualized) as a percentage of average loans was 0.02% for second quarter of 2024, which was an increase from the net recoveries of 0.01% in the second quarter of 2023. The allowance for credit losses totaled $13.4 million at June 30, 2024 compared to $13.0 million at December 31, 2023, and $13.5 million at June 30, 2023. The allowance for credit losses as a percentage of total loans was 1.31% at June 30, 2024, which is a decrease from 1.34% as of December 31, 2023, and 1.47% at June 30, 2023. The change in the allowance was primarily due to specific reserves being less impactful due to credits subject to a specific reserve calculation being well collateralized. Further, there were smaller increases in the general reserve based upon improvements in both qualitative and quantitative factors. 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 $160.9 million at June 30, 2024, a decrease of 8.0% from $174.8 million at December 31, 2023, and an increase of 27.9% from $125.8 million at June 30, 2023. 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 have decreased by $555,000 (0.2%) from $224.5 million at December 31, 2023, and $26.1 million (10.4%) from $250.1 million one year ago. Interest bearing deposits have decreased from $848.8 million at December 31, 2023, and increased from $816.8 million at June 30, 2023 to $821.7 million at June 30, 2024. The fluctuation and shift in the make-up of deposits is resultant from multiple factors including the ongoing efforts by our employees, the rate environment and the needs of our clients. The expectation remains that competition and the rate environment will further impact the amount and type of deposits within the balance sheet.
The Company’s outstanding borrowings increased by $33.3 million to $88.5 million at June 30, 2024 compared to $55.2 million at December 31, 2023 and by $82.6 million from $5.9 million at June 30, 2023. The increase from year-end 2023 was due to short-term funding of CNB’s strong loan growth in the first six months of 2024 while the year-over-year increase was a combination of the short-term funding with $50 million in longer term borrowings from the Federal Home Loan Bank of Indianapolis completed by the Bank in the fourth quarter of 2023 as a result of the Bank leveraging a portion of its balance sheet.
Total shareholders’ equity increased by $4.8 million (5.0%) from $95.6 million at December 31, 2023, and $8.1 million (8.8%) from $92.3 million one year ago. The $4.8 million increase was mainly related to earnings year-to-date during 2024 of $5.7 million as well as an increase in comprehensive income from temporary market value adjustments to the securities portfolio of $439,000, partially offset by two $0.29 per share cash dividends totaling approximately $1.3 million. On a year-over-year basis, the increase of $8.1 million in equity was predominately related to income of $10.9 million and an increase in common stock from vesting of restricted shares of $548,000, partially offset by $3.0 million in dividends paid as well as a $276,000 decrease in OCI from temporary market value adjustments to the securities portfolio.
Net Interest Income and Net Interest Margin
Net interest income was $10.9 million for the quarter ended June 30, 2024, up $947,000, or 9.5%, from $10.0 million during the second quarter of 2023, and for the six months ended June 30, 2024, net interest income increased $1.4 million (6.8%) to $21.5 million from $20.1 million for the six months ended June 30, 2023.
Interest income for the second quarter of 2024 increased $2.2 million (15.8%) to $16.1 million from $13.9 million for the second quarter of 2023 and for the six months ended June 30, 2024, interest income increased $5.1 million (18.7%) to $32.3 million from $27.2 million for the six months ended June 30, 2023, due to growth across multiple assets including commercial real estate and residential real estate. Alongside the impact of loan growth on interest income was the ongoing high interest rate environment as the Federal Open Market Committee (“FOMC”) maintained its overnight rate, which it began increasing in late March of 2023. Interest expense for the second quarter of 2024 increase $1.3 million (33.3%) to $5.2 million from $3.9 million for the second quarter of 2023 and, for the six months ended June 30, 2024, increased $3.7 million (52.1%) to $10.8 million from $7.1 million for the six months ended June 30, 2023, which was mainly a result of the aforementioned FOMC rate environment and the upward pressure on all deposit rates resultant from those increases.
Net interest margin is net interest income expressed as a percentage of average interest-earning assets. For the quarter ended June 30, 2024, the net interest margin on a fully taxable equivalent basis increased to 3.74% from 3.60% and for the six months ended June 30, 2024, increased to 3.65% from 3.64% for the six months ended June 30, 2023. Much of the change in margin has been a product of the market rates on new interest-earning assets having increased since the end of the second quarter of 2023; however, the FOMC increases have caused pressure on the funding for these assets somewhat offsetting the expected rise in margin from those higher yielding assets.
Noninterest Income/Expense
During the three months ended June 30, 2024, noninterest income totaled $2.0 million, an increase of $78,000 (4.0%) from the three months ended June 30, 2023 and was $4.0 million, an increase of $52,000 (1.3%), for the six months ended June 30, 2024 from the six months ended June 30, 2023. From a quarter-over-quarter and year-over-year comparison, the increase of $78,000 and $52,000 was predominately driven by an increase in Wealth Management fees. On a year-over-year basis, the Wealth Management increase was aided by smaller increases in gain on sale of loans and deposit account service charges that were somewhat offset by a reduction in income due to the non-recurring nature of a 2023 branch location sale that netted a gain on sale of assets of $212,000.
Noninterest expense totaled $9.1 million during the three months ended June 30, 2024, an increase of $570,000 (6.7%) from the second quarter of 2023 and there was an increase of $1.5 million (9.0%) from $16.6 million for the six months ended June 30, 2023, to $18.1 million for the same period in 2024. The largest components of the increase in quarter-over-quarter noninterest expense were increases in salaries and employee benefits of $244,000 related to an increase in the number of employees as well as additional benefits expense from insurance and incentives combined with $215,000 in data communications expense related to the outsourcing of a significant portion of IT operations that was completed in the second half of 2023. For the first half of 2024, salaries and employee benefits increased $584,000, data communications increased $580,000, marketing and public relations increased $170,000, and occupancy and equipment expense increased $145,000 from the first half of 2023. These increases were primarily due to the aforementioned increases in the number of employees, increasing salaries and benefits, outsourcing of a portion of the IT function, increases in occupancy related
activity, and marketing related to overall activity including CNB’s move into the Kalamazoo market.
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.