Critical Accounting Policies and Estimates
The accounting policies of the Company conform with
Allowance for Credit Losses
The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off in the future. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term, as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors. These evaluations are conducted at least quarterly and more frequently if deemed necessary. Additionally, all commercial loans within the portfolio are subject to internal risk grading. Risk grades are generally assigned by the primary lending officer and are periodically evaluated by the Company's internal loan review process.
In evaluating the appropriateness of its allowance for credit losses, the Company stratifies the loan portfolio into six major groupings. The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods:
Portfolio Segment Measurement Method Commercial and industrial Migration Commercial real estate: 1-4 family Migration Hotels Migration Multi-family Migration Non Residential Non-Owner Occupied Migration Non Residential Owner Occupied Migration Residential real estate Vintage Home equity Vintage Consumer Vintage
Migration is an analysis that tracks a closed pool of loans for a configurable period of time and calculates a loss ratio on only those loans in the pool at the start date based on outstanding balance. Vintage is a predictive loss model that includes a reasonable approximation of probable and estimable future losses by tracking each loan's net losses over the life of the loan as compared to its original balance. For demand deposit overdrafts, the allowance for credit losses is measured using the historical loss rate. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. When management determines that foreclosure is probable, the expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
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Expected credit losses are estimated over the contractual term of the loan, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals, and modifications unless either of the following applies: management has a reasonable expectation at the reporting date that a troubled-debt restructuring will be executed with an individual borrower or the extension or renewal options are included in the original or modified contract at the reporting date and are not unconditionally cancellable by the Company.
The Company uses a number of economic variables in its scenarios to estimate the
allowance for credit losses, with the most significant drivers being an
unemployment rate forecast and qualitative adjustments. In the
Based on sensitivity analysis of all portfolios, a 0.0050% change (slight
improvement or decline on bank's scale) in all 11 qualitative risk factors
(where assigned) would have a
Income Taxes
The Company is subject to federal and state income taxes in the jurisdictions in
which it conducts business. In computing the provision for income taxes,
management must make judgments regarding interpretation of laws in those
jurisdictions. Because the application of tax laws and regulations for many
types of transactions is susceptible to varying interpretations, amounts
reported in the financial statements could be changed at a later date upon final
determinations by taxing authorities. On a quarterly basis, the Company
estimates its annual effective tax rate for the year and uses that rate to
provide for income taxes on a year-to-date basis. The amount of unrecognized tax
benefits could change over the next twelve months as a result of various
factors. However, management cannot currently estimate the range of possible
change. The Company is currently open to audit under the statute of limitations
by the Internal Revenue Service and various state taxing authorities for the
years ended
The effective tax rate is calculated by taking the statutory rate and adjusting for permanent and discrete items. The discrete items can vary between periods but historically have remained consistent.
Financial Summary
Six months ended
The Company's financial performance is summarized in the following table:
Six months endedJune 30, 2022 2021
Net income available to common shareholders (in thousands)
$ 2.92 $ 2.66 Earnings per common share, diluted$ 2.92 $ 2.66 Dividend payout ratio 41.1 % 43.6 % ROA* 1.47 % 1.44 % ROE* 13.6 % 11.9 % ROATCE* 16.6 % 14.3 % Average equity to average assets ratio 10.8 % 12.1 % 36
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Table of Contents *ROA (Return on Average Assets) is a measure of the effectiveness of asset utilization. ROE (Return on Average Equity) is a measure of the return on shareholders' investment. ROATCE (Return on Average Tangible Common Equity) is a measure of the return on shareholders' equity, less intangible assets.
The Company's net interest income for the six months ended
Financial Summary
Three months ended
The Company's financial performance is summarized in the following table:
Three months endedJune 30, 2022 2021
Net income available to common shareholders (in thousands)
$ 1.51 $ 1.41 Earnings per common share, diluted$ 1.51 $ 1.41 Dividend payout ratio 39.8 % 41.2 % ROA* 1.51 % 1.49 % ROE* 14.7 % 12.6 % ROATCE* 18.1 % 15.2 % Average equity to average assets ratio 10.3 % 11.8 %
*ROA (Return on Average Assets) is a measure of the effectiveness of asset utilization. ROE (Return on Average Equity) is a measure of the return on shareholders' investment. ROATCE (Return on Average Tangible Common Equity) is a measure of the return on shareholders' equity, less intangible assets.
The Company's net interest income for the three months ended
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