Traditions Bancorp, Inc. Reports First Quarter 2023 Earnings

YORK, Pa., April 27, 2023

"Traditions Bancorp had a satisfactory start to 2023 amid an uncertain economic environment and turmoil within the banking industry," stated Eugene J. Draganosky, Chief Executive Officer. "We took a measured approach to earning asset generation by increasing our commercial loan portfolio and slowing growth of residential mortgage loans held on our balance sheet. Loan growth was primarily funded by core deposits and supplemented by wholesale funding channels. While we have not utilized the Federal Reserve's Bank Term Funding Program, it is a tool we could deploy in short order if necessary. Fortunately, our liquidity position is strong, and our deposit base remains stable. The hallmarks of our organization remain prudent risk management, pristine credit quality, and an unwavering commitment to our culture."

Quarterly Highlights – First Quarter 2023 versus First Quarter 2022

• Loans grew by $94.6 million, or 18%, over 1Q22.
• Deposits increased by $30.1 million, or 4%, over the last 12 months. All growth came in the first quarter of 2023.
• Net interest margin expanded to 3.45% in 1Q23 compared to 3.33% in 1Q22, driven by growth in commercial and adjustable-rate residential mortgage loans, the positive impact of short-term interest rate increases on the loan portfolio's yield, and a 1.65% cost of funds for the quarter.
• Gains on the sale of mortgages were $1.0 million for 1Q23, declining from $1.8 million in 1Q22. However, gains were up $0.6 million from 4Q22.
• The mortgage pipeline decreased to $10.0 million from $16.8 million in the linked quarter and $56.8 million on March 31, 2022. Residential mortgage loans sold in 1Q23 were $35.5 million compared to $41.3 million in the linked quarter and $55.2 million for 1Q22. Elevated market rates and limited home inventories continue to impact mortgage banking revenue.
• On April 19, 2022, the company announced regular quarterly cash dividends and paid eight cents per common share on May 13, August 15, November 14, 2022, and on February 13, 2023. A first-quarter cash dividend of eight cents per common share was declared on April 20, 2023, and is payable on May 15, 2023, to shareholders of record at the close of business on May 5, 2023.
• As part of its Share Repurchase Plan announced on March 24, 2022, the company repurchased 5,000 shares during the first quarter. The total number of shares repurchased since the program's inception was 79,517 at a cost of $1.7 million or $21.97 per share.
• Net interest income increased $0.8 million, or 14%, driven by growth in commercial and residential mortgage loans, the Federal Reserve Bank's short-term interest rate increases, and a relatively low, but rising, cost of funds.
• Other expense has increased 3% from $6.1 million in 1Q22 to $6.3 million in 1Q23, primarily driven by inflation and other rising costs.
• As of March 31, 2023, the bank had a negative provision of $229 thousand, due mainly to net recoveries of $148 thousand in 1Q23.

Credit Quality and Capital Insights:

• Nonaccrual loans, concentrated in several residential mortgages, increased in 1Q23, from $2.3 million in 4Q22 to $2.8 million in the current quarter.
• Non-performing assets to total assets increased from 0.30% in the linked quarter to 0.35% in the current quarter. There was no foreclosed other real estate.
• Delinquencies greater than 30 days were 0.49% of total loans as of March 31, 2023, down from 0.65% as of December 31, 2022.
• The Allowance for Credit Losses (ACL) was reported under CECL for the first time in 1Q23. The CECL adjustment was a $2.8 million net of tax increase to retained earnings. While future recessionary concerns are influencing our CECL qualitative adjustments, the ACL is heavily weighted on historical losses which have been minimal for many years. The bank's ACL ratio was 0.52% as of March 31, 2023, down from the ALLL-to-total loans ratio of 1.20% as of December 31, 2022. Despite the reduction, the March 31, 2023, ACL covered non-performing loans over 1.15 times.
• The bank remains well capitalized.