DOYLESTOWN, PA — HV Bancorp, Inc. (Nasdaq Capital Market: HVBC), the holding company of Huntingdon Valley Bank, recently reported operating results for the Company for the year ended December 31, 2022. Net income for the year ended December 31, 2022, was $2.2 million ($1.12 per basic share and $1.06 per diluted share) versus net income of $4.1 million ($2.04 per basic share and $1.98 per diluted share), for the year ended December 31, 2021. For 2022, net interest income increased to $18.8 million and net interest margin continues to improve, increasing to 3.42% for the year ended December 31, 2022 compared to 2021.
Travis J. Thompson, Esq., Chairman & CEO, commented, “We are pleased to announce our business banking initiative continues to grow with net interest income increasing 30% year over year, all while expanding our net interest margin 25% over that same period. This additional income helped off-set the cyclical nature of our non-interest income, which is currently lower due to the declining mortgage market, and also off-set the one-time merger expenses booked in the 4th quarter of 2022.”
Additionally, Mr. Thompson stated, “We are further pleased to report that HV Bancorp, Inc. has received shareholder approval at our February 15th, 2023 Special Meeting to move forward with the planned merger with FCCB. Our shareholders voted overwhelmingly in favor of the merger with greater than 99% of the votes cast voting in favor of the proposed transaction.”
As previously announced, on October 18, 2022, the Company, the Bank, Citizens Financial Services, Inc. (“Citizens Financial”), First Citizens Community Bank (“FCCB”) and CZFS Acquisition Company, LLC entered into a merger agreement that provides that the Company will merge with and into Citizens Financial, with Citizens Financial remaining as the surviving corporation (the “Merger”). Following the Merger, the Bank will merge with and into FCCB, with FCCB remaining as the surviving bank.
At the effective time of the Merger, each outstanding share of Company common stock will be converted into the right to receive, at the election of such holder, either (i) 0.4000 shares of Citizens Financial common stock, or (ii) $30.50 in cash, together with cash in lieu of fractional shares, if any. All such elections are subject to adjustment on a pro rata basis, so that 80% of the aggregate merger consideration paid to the Company shareholders will be the stock consideration and the remaining 20% will be the cash consideration.
The Merger is expected to be completed in the first half of 2023.
Highlights for the year ended December 31, 2022 include:
- For 2022, net interest income was $18.8 million compared to $14.5 million in 2021, an increase of 30.0%.
- Net interest margin continues to improve, increasing from 2.57% for the year ended December 31, 2021, to 3.42% for the year ended December 31, 2022.
- Non-interest income decreased by $5.5 million for the year ended December 31, 2022 from 2021 as a result of $8.4 million in decreased gain on sale of mortgage loans from reduced origination volume, which was the result of the rising interest rate environment combined with limited housing inventory. Offsetting the decrease in gains on sale of loans for the year ended December 31, 2022 was a $1.0 million gain on sale of mortgage servicing rights, net.
- Asset quality improved as non-performing loans decreased to $3.1 million, or 0.64% of total loans, at December 31, 2022 from $3.8 million, or 1.14% of total loans, at December 31, 2021.
Balance Sheet: December 31, 2022, compared to December 31, 2021
Total assets increased $55.7 million to $615.8 million at December 31, 2022, from $560.1 million at December 31, 2021. The increase was primarily the result of increases of $143.8 million in loans receivable, net, $40.9 million in investment securities, $3.7 million in bank-owned life insurance and $1.1 million in other assets, which were offset by decreases of $104.5 million in cash and cash equivalents, $25.3 million in loans held-for-sale and $3.2 million in mortgage servicing rights. During the quarter ended June 30, 2022, the Company transferred available-for-sale securities to the held-to maturity category with an amortized cost of approximately $29.8 million at December 31, 2022.
Total liabilities increased $56.2 million to $573.7 million at December 31, 2022, from $517.5 million at December 31, 2021. The increase in total liabilities was primarily from a $61.2 million net increase in deposits offset by decreases of $3.1 million in advances from the Federal Reserve’s Paycheck Protection Program liquidity facility (“PPPLF”), $1.4 million in other liabilities and $796,000 in the operating lease liabilities. Deposits increased $61.2 million to $525.2 million at December 31, 2022, from $464.0 million at December 31, 2021. The Company’s core deposits (consisting of demand deposits, money market, passbook and statement and checking accounts) increased $26.4 million to $458.2 million at December 31, 2022 from $431.8 million at December 31, 2021. Certificates of deposit increased $34.8 million to $67.0 million at December 31, 2022 from $32.2 million at December 31, 2021.
Total shareholders’ equity decreased $543,000 to $42.1 million at December 31, 2022, compared to $42.6 million at December 31, 2021. This decrease was primarily because of comprehensive losses of $3.1 million due to the fair value adjustments, net of deferred tax, on the investment securities available-for-sale portfolio, which reflects recent increases in market interest rates and $372,000 in treasury stock repurchases primarily as part of the stock repurchase plan. Offsetting these decreases was net income of $2.2 million for the year ended December 31, 2022, share based compensation expense of $535,000, ESOP shares committed to be released of $46,000 and a stock option exercise of $136,000.
Income Statement: For the year ended December 31, 2022, compared to December 31, 2021
Net Interest Income:
Commensurate with the growth in net interest-earning assets, net interest income increased $4.3 million to $18.8 million for the year ended December 31, 2022, from $14.5 million for the year ended December 31, 2021. The Company’s net interest-earning assets increased $9.0 million to $114.9 million for the year ended December 31, 2022, from $105.9 million for the year ended December 31, 2021.
Provision for loan losses:
Provision for loan losses increased by $982,000 to $1.5 million for the year ended December 31, 2022, from $553,000 during the year ended December 31, 2021. During the year ended December 31, 2022 and 2021, net charge-offs of $316,000 and $202,000 were recorded.
Non-Interest Income:
Non-interest income was $7.9 million for the year ended December 31, 2022 compared to $13.4 million for the year ended December 31, 2021. The decrease in non-interest income of $5.5 million was primarily due to a $8.4 million decrease in the gain on sale of loans, net offset by a $1.0 million gain on sale of mortgage servicing rights, net, $730,000 decrease in the change in fair value of loans held-for-sale, and a $426,000 decrease in loss on derivative instruments. Included in other income for the year ended December 31, 2022, was a $352,000 gain on settlement of bank-owned life insurance.
Non-Interest Expense:
Total non-interest expense was $22.4 million for the year ended December 31, 2022, compared to $21.9 million for the year ended December 31, 2021. For the year ended December 31, 2022, the increase of $526,000 was primarily a result of $630,000 increase in other expenses and $191,000 increase in professional fees offset by a decrease of $163,000 in data processing related operations expense, and $148,000 in salaries and employee benefits expense. Included in other expenses for the year ended December 31, 2022 was $495,000 in expenses related to the Merger.
Income Taxes:
Income tax expense was $575,000 for the year ended December 31 2022 compared to $1.5 million during fiscal year 2021. The decrease in income tax expense for the year ended December 31, 2022, compared to a year ago was a result of a decrease in income before taxes and tax exempt bank-owned life insurance death benefits.
Net Income & Book Value:
Net income decreased $1.9 million to $2.2 million, approximately $1.12 per basic share and $1.06 per diluted share for the year ended December 31, 2022, as compared to $4.1 million, or approximately $2.04 per basic share and $1.98 per diluted share for the year ended December 31, 2021. Book value per share decreased to $18.77 at December 31, 2022, from $19.64 at December 31, 2021, largely as a result of the drop in fair value of the investment securities classified as available for sale (AFS). The drop in value of the AFS portfolio was the result of increases in market interest rates and is recorded in accumulated other comprehensive income.
Asset quality:
At December 31, 2022, the Company’s non-performing assets totaled $3.1 million, or 0.50% of total assets, compared to $3.8 million or 0.67% of total assets at December 31, 2021. There was $59,000 in other real estate owned (“OREO”) included in the non-performing assets at December 31, 2022 compared to no OREO at December 31, 2021. Total non-performing loans decreased to $3.0 million, or 0.64% of total loans, at December 31, 2022 from $3.8 million, or 1.14% of total loans, at December 31, 2021 as a result of non-performing loan decreases of $1.2 million in one construction loan, decreases of $279,000 in medical education loans and a $95,000 decrease in commercial business loans offset by a $821,000 increase in one-to four-family residential real estate loans compared to December 31, 2021.
The allowance for loan losses totaled $3.6 million, or 0.76% of total loans and 118.54% of total non-performing loans at December 31, 2022, as compared to $2.4 million, or 0.72% of total loans and 63.10% of total non-performing loans at December 31, 2021.
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