MALN BANC The purpose of this analysis is to provide the reader with information relevant to understanding and assessing the Company's results of operations for the periods presented herein and financial condition as ofMarch 31, 2022 andSeptember 30, 2021 . In order to fully understand this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing elsewhere in this report.
Forward-Looking Statements
This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company and its subsidiaries, including statements preceded by, followed by or that include words or phrases such as "believes," "expects," "anticipates," "plans," "trend," "objective," "continue," "remain," "pattern" or similar expressions or future or conditional verbs such as "will," "would," "should," "could," "might," "can," "may" or similar expressions. The statements contained herein that are not historical facts are forward-looking statements based on management's experience and beliefs concerning current conditions and future developments and their potential effects on the Company, including, without limitation, plans, strategies and goals, and statements about the Company's expectations regarding revenue and asset growth, financial performance and profitability, loan and deposit growth, yields and returns, loan diversification and credit management, and shareholder value creation. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. The Company cautions readers that a number of important factors could cause actual results to differ materially from those expressed in, or implied or projected by, such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: the effects of, and changes in, trade, monetary and fiscal policies and laws, including changes in interest rate policies of theBoard of Governors of theFederal Reserve System ; inflation, interest rate, market and monetary fluctuations; the impact of competition and the acceptance of the Company's products and services by new and existing customers; the impact of changes in financial services policies, laws and regulations; technological changes; any undersupply or oversupply of inventory and deterioration in values of real estate in the markets in which the Company operates, both residential and commercial; changes in the value of real estate held for sale; the effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, theSEC , thePublic Company Accounting Oversight Board , the FASB or other accounting standards setters; possible other-than-temporary impairment of securities held by the Company; the effects of the Company's lack of a widely-diversified loan portfolio, including the risks of geographic and industry concentrations; ability to attract deposits and other sources of liquidity; changes in the competitive environment among financial and bank holding companies and other financial service providers and banks; unanticipated or prolonged litigation or other matters before regulatory agencies, whether currently existing or commencing in the future, that delay the occurrence or non-occurance of events or results in elevated expenses or unexpected outcomes; changes in the interest rate environment may reduce interest margins or the fair value of financial instruments, or increase the cost of our subordinated debt securities; unexpected loss of key personnel and future to attract and retain talent; prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions may vary substantially from period to period; general economic conditions and real estate valuations may be less favorable than expected; political developments, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; legislative or regulatory changes or actions may adversely affect the businesses in which the Company is engaged; changes and trends in the securities markets may adversely impact the Company; difficulties in integrating any businesses that we may acquire, which may increase our expenses and delay the achievement of any benefits that we may expect from such acquisitions; the impact of reputational risk created by the developments discussed above on such matters as business generation and retention, funding and liquidity could be significant; the outcome of any regulatory or legal investigations and proceedings may not be anticipated; and the Company's ability to manage the risk involved in the foregoing. Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company's 2021 Annual Report filed with theSEC and available at theSEC's Internet site (http://www.sec.gov). Further, given its ongoing and dynamic nature, it is difficult to predict the full and continuing impact of the COVID-19 outbreak, including the outbreak of its variants, on the Company's business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus and its variants can be controlled and abated and when and how the economy may be fully reopened, and for how long it will remain as such. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we are subject to the following risks, any of which could continue to have a material, adverse effect on our business, financial condition, liquidity, and results of operations: the demand for our products and services may decline, making it difficult to grow assets and income; if the economy is unable to continue to substantially reopen, and there are high levels of unemployment for an extended period of time, inflation continues to expand, or there are continued disruptions in global and domestic supply chains, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income; collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase; our allowance for loan losses may increase if borrowers experience financial difficulties, which will adversely affect net income; the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us; due to fluctuation in interest rates, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing -44- -------------------------------------------------------------------------------- liabilities, reducing net interest margin and spread and reducing net income; cyber security risks are increased as the result of an increase in the number of employees working remotely; andFDIC premiums may increase if the agency experiences additional resolution costs. The Company undertakes no obligation to revise or publicly release any revision or update to these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made, unless required by law. Critical Accounting Policies The accounting and reporting policies followed by the Company conform, in all material respects, to GAAP. In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and for the periods indicated in the statements of operations. Actual results could differ significantly from those estimates. The Company's accounting policies are fundamental to understanding Management's Discussion and Analysis ("MD&A") of financial condition and results of operations. The Company has identified the determination of the ALLL, loans held for sale, OREO, fair value measurements, the evaluation of deferred tax assets, the other-than-temporary impairment evaluation of securities, and the valuation of our derivative positions to be critical because management must make subjective and/or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available. Additional information on these policies can be found in the Company's 2021 Annual Report and Note 2 of the Notes to the Unaudited Consolidated Financial Statements. There have been no significant changes to the Company's Critical Accounting Policies as described in its 2021 Annual Report.
Paycheck Protection Program
The CARES Act established the PPP, an expansion of the EIDL, administrated directly by the SBA.
The Company started accepting and processing applications for loans under the PPP in earlyApril 2020 , when the program was officially launched by theSBA and Treasury Department under the CARES Act. The Company sold the entirety of its PPP loan portfolio inDecember 2020 and have not participated directly in new activity after the sale. Liquidity Sources
Management has reviewed all primary and secondary sources of liquidity in
preparation for any unforeseen funding needs due to the COVID-19 pandemic and
prioritized such sources based on available capacity, term flexibility, and
cost. As of
Capital Strength
The Company's capital ratios continued to exceed the highest required regulatory benchmark levels. As ofMarch 31, 2022 , common equity Tier 1 capital ratio was 16.38 percent, Tier 1 leverage ratio was 12.83 percent, Tier 1 risk-based capital ratio was 16.38 percent and the total risk-based capital ratio was 20.27 percent.
Deferral and Modification Requests
The CARES Act provided guidance around the modification of loans as a result of the COVID-19 pandemic, which outlined, among other criteria, that short-term modifications made on a good faith basis to borrowers who were current as defined under the CARES Act prior to any relief, are not TDRs. This includes short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers are considered current under the CARES Act and related regulatory guidance if they are less than 30 days past due on their contractual payments at the time a modification program is implemented. As ofDecember 31, 2021 , the Company had four COVID-19 modified loans totaling$42.3 million , representing 5.23 percent of loans outstanding. The COVID-19 loan modifications do not classify as TDRs as they fall under Section 4013 of the CARES Act, as amended, and further details regarding these modifications are provided in the table below. For loans subject to the program, each borrower is required to resume making regularly scheduled loan payments at the end of the modification period and the deferred amounts will be moved to the end of the loan term. -45- -------------------------------------------------------------------------------- March 31 ,2022 Gross Percentage of Loan Modified Loans March 31 Gross Loans Number of Loans Exposure ,2022 on Modified (Dollars in thousands) Residential mortgage - $ - $ 177,669 0.00 % Construction and Development: Residential and commercial - - 25,558 0.00 % Land loans - - 4,603 0.00 %Total Construction and - Development - 30,161 0.00 % Commercial: Commercial real estate 4 42,321 400,974 5.24 % Farmland - - 15,624 0.00 % Multi-family - - 54,789 0.00 % Commercial and industrial - - 101,354 0.00 % Other - - 7,977 0.00 % Total Commercial 4 42,321 580,718 5.24 % Consumer: Home equity lines of credit - - 12,283 0.00 % Second mortgages - - 4,969 0.00 % Other - - 2,237 0.00 % Total Consumer - - 19,489 0.00 % Total loans 4$ 42,321 $ 808,037 5.24 % September 30, 2021 Percentage of Loan Modified Gross Loans Gross Loans Number of Loans Exposure September 30, 2021 on Modified (Dollars in thousands) Residential mortgage 2 $ 667 $ 198,710 0.07 % Construction and Development: Residential and commercial - - 61,492 0.00 % Land loans - - 2,204 0.00 %Total Construction and - Development - 63,696 0.00 % Commercial: Commercial real estate 6 60,567 426,915 6.63 % Farmland - - 10,297 0.00 % Multi-family - - 66,332 0.00 % Commercial and industrial - - 115,246 0.00 % Other - - 10,954 0.00 % Total Commercial 6 60,567 629,744 6.63 % Consumer: Home equity lines of credit - - 13,491 0.00 % Second mortgages - - 5,884 0.00 % Other - - 2,299 0.00 % Total Consumer - - 21,674 0.00 % Total loans 8$ 61,234 $ 913,824 6.70 % -46-
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March 31 ,2022
Gross Percentage of
Loan Modified Loans March 31 Gross Loans
Number of Loans Exposure ,2022 on Modified
(Dollars in thousands)
Residential mortgage - $ - $ 177,669 0.00 %
Construction and
Development:
Residential and commercial - - 25,558 0.00 %
Land loans - - 4,603 0.00 %
Total Construction and -
Development - 30,161 0.00 %
Commercial:
Commercial real estate 4 42,321 400,974 5.24 %
Farmland - - 15,624 0.00 %
Multi-family - - 54,789 0.00 %
Commercial and industrial - - 101,354 0.00 %
Other - - 7,977 0.00 %
Total Commercial 4 42,321 580,718 5.24 %
Consumer:
Home equity lines of credit - - 12,283 0.00 %
Second mortgages - - 4,969 0.00 %
Other - - 2,237 0.00 %
Total Consumer - - 19,489 0.00 %
Total loans 4 $ 42,321 $ 808,037 5.24 %
September 30, 2021
Percentage of
Loan Modified Gross Loans Gross Loans
Number of Loans Exposure September 30, 2021 on Modified
(Dollars in thousands)
Residential mortgage 2 $ 667 $ 198,710 0.07 %
Construction and
Development:
Residential and commercial - - 61,492 0.00 %
Land loans - - 2,204 0.00 %
Total Construction and -
Development - 63,696 0.00 %
Commercial:
Commercial real estate 6 60,567 426,915 6.63 %
Farmland - - 10,297 0.00 %
Multi-family - - 66,332 0.00 %
Commercial and industrial - - 115,246 0.00 %
Other - - 10,954 0.00 %
Total Commercial 6 60,567 629,744 6.63 %
Consumer:
Home equity lines of credit - - 13,491 0.00 %
Second mortgages - - 5,884 0.00 %
Other - - 2,299 0.00 %
Total Consumer - - 21,674 0.00 %
Total loans 8 $ 61,234 $ 913,824 6.70 %
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Certain industries included within commercial real estate loans are widely
expected to be particularly impacted by social distancing, quarantines, and the
economic impact of the COVID-19 pandemic, including the following:
March 31, 2022 September 30, 2021
Percentage Percentage
Loan of Gross Loan of Gross
Modified Loans on Modified Loans on
Number of Loans Exposure Modified Number of Loans Exposure Modified
(Dollars in thousands) (Dollars in thousands)
Industries:
Hotel 4 $ 42,321 5.24 % 6 $ 60,567 6.63 %
Retail - - 0.00 % - - 0.00 %
Office/Medical Office - - 0.00 % - - 0.00 %
Fitness Centers - - 0.00 % - - 0.00 %
Restaurants and food service - - 0.00 % - - 0.00 %
Other - - 0.00 % - - 0.00 %
Total Outstanding Exposure 4 $ 42,321 5.24 % 6 $ 60,567 6.63 %
Results of Operations
Net income available to common shareholders for the three months ended March 31,
2022 amounted to $522,000 , or $0.07 per fully diluted common share, a decrease
of $1.7 million , or 76.5 percent, as compared with net income of $2.2 million ,
or $0.30 per common share, for the three months ended March 31, 2021 . This
decrease in net income and diluted earnings per share was primarily due to an
increase in other expense for the quarter ended March 31, 2022 , in which other
expense increased $1.8 million or 35.2 percent, to $6.8 million when compared to
the quarter ended March 31, 2021 . The increase was primarily due to an increase
of $1.7 million in other operating expenses, resulting from a $1.7 million
valuation allowance recorded on loans held for sale. The valuation allowance
adjustment consists of approximately $395,000 in reduced value and approximately
$1.3 million in real estate tax expense.The annualized return on average assets
was 0.18 percent for the three months ended March 31, 2022 , compared to
annualized return on average assets of 0.73 percent for three months ended March
31, 2021 . The annualized return on average shareholders' equity was 1.43 percent
for the three month period ended March 31, 2022 , compared to 6.14 percent in
annualized return on average shareholders' equity for the three months ended
March 31, 2021 .
Net income available to common shareholders for the six months ended March 31,
2022 amounted to $2.5 million , or $0.34 per fully diluted common share, a
decrease of $2.0 million or 43.5 percent, as compared with net income of $4.5
million or $0.60 per fully diluted common share, for the six months ended March
31, 2021 . This decrease in net income and diluted earnings per share was
primarily due to an increase in other operating expenses and professional fees.
The increase in other operating expenses resulted from a $1.7 million valuation
allowance recorded on loans held for sale as stated above. The increase in
professional fees was primarily due to increases in legal fees related to loan
workouts and reporting and disclosure matters related to nonperforming loans.
Net Interest Income and Margin
Net interest income is the difference between the interest earned on the portfolio of earning assets (principally loans and investments) and the interest paid for deposits and borrowings, which support these assets.
-48-
--------------------------------------------------------------------------------Net Interest Income
The following table presents the components of net interest income for the
periods indicated:
For the Three Months Ended March 31, For the Six Months Ended March 31,
Increase Percent Increase Percent
2022 2021 (Decrease) Change 2022 2021 (Decrease) Change
(Dollars in thousands)
Interest income:
Loans, including fees $ 7,628 $ 9,069 $ (1,441 ) (15.89 )% $ 15,856 $ 19,145 $ (3,289 ) (17.18 )%
Investment securities 585 344 241 70.06 1,076 715 361 50.49
Interest-bearing cash accounts 16 7 9 128.57 29 15 14 93.33
Dividends, restricted stock 75 119 (44 ) (36.97 ) 166 260 (94 ) (36.15 )
Total interest income 8,304 9,539 (1,235 ) (12.95 ) 17,127 20,135 (3,008 ) (14.94 )
Interest expense:
Deposits 828 1,805 (977 ) (54.13 ) 1,873 4,062 (2,189 ) (53.89 )
Short-term borrowings - 3 (3 ) (100.00 ) - 48 (48 ) (100.00 )
Long-term borrowings 183 546 (363 ) (66.48 ) 420 1,153 (733 ) (63.57 )
Subordinated debt 339 383 (44 ) (11.49 ) 722 766 (44 ) (5.74 )
Total interest expense 1,350 2,737 (1,387 ) (50.68 ) 3,015 6,029 (3,014 ) (49.99 )
Net interest income $ 6,954 $ 6,802 $ 152 2.23 % $ 14,112 $ 14,106 $ 6 0.04 %
Net interest income was $7.0 million for the quarter ended March 31, 2022 , an
increase of $152,000 , or 2.2 percent, from $6.8 million for the quarter ended
March 31, 2021 . The increase was driven by a decrease in interest paid on
deposits and borrowings of $1.4 million , partially offset by decreased interest
income of $1.2 million , primarily related a decline in average to loans. The
average yield on interest-earning assets declined 21 basis points for the
quarter ended March 31, 2022 , to 3.35 percent, when compared to the same period
in 2021 primarily due to the decrease in average loan balances and average yield
on loans. The average rate on interest-bearing liabilities fell 49 basis points
to 0.59 percent compared to the quarter ended March 31, 2021 , due to decreases
in market rates of interest. Net interest margin increased to 2.81 percent for
the quarter ended March 31, 2022 , from 2.54 percent for the same period in 2021.
The margin improvement in the current period, in large part reflected the
decline in interest-bearing liabilities partially offset by the decline in yield
earned on interest-earning assets.
Net interest income was $14.1 million for the six months ended March 31, 2022 ,
and a slight increase compared to the six months ended March 31, 2021 .
Consistent with the quarter, the slight increase was primarily driven by a
reduction in interest expense as the cost of interest-bearing deposits decreased
by 50 basis points compared to the six months ended March 31, 2021 . The cost of
interest-bearing liabilities decreased by 55 basis points compared to the six
months ended March 31, 2021 . This was offset by a decrease in the average yield
on interest-earning assets, which declined 30 basis points for the six months
ended March 31, 2022 , to 3.39 percent, when compared to the same period in
2021. The decrease in interest-earning assets was primarily due to the decrease
in loan balances and the average yield on loans.
Interest Income
For the quarters endedMarch 31, 2022 , andMarch 31, 2021 , total interest income was$8.3 million and$9.5 million , respectively. The average yield on interest-earning assets declined 21 basis points for the quarter endedMarch 31, 2022 , to 3.35 percent when compared to the same period in 2021. Total interest income fell for the quarter endedMarch 31, 2022 , compared to the quarter endedMarch 31, 2021 , primarily due to the decrease in average loan balances and average yield on loans. For the six months endedMarch 31, 2022 , andMarch 31, 2021 , total interest income was$17.1 million and$20.1 million , respectively. The average yield on interest-earning assets declined 30 basis points for the six months endedMarch 31, 2022 , to 3.39 percent when compared to the same period in 2021. Total interest income fell for the six months endedMarch 31, 2022 , compared to the same period in 2021, primarily due to the decrease in average loan balances and average yield on loans.
Interest Expense
For the quarter ended
-49-
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For the six months ended March 31, 2022 , interest expense decreased by $3.0
million , or 50.0 percent, to $3.0 million , compared to $6.0 million for the six
months ended March 31, 2021 . The decrease in interest expense is primarily
attributable to interest rate related factors, as the average rate on
interest-bearing liabilities fell 55 basis points to 0.64 percent compared to
the same period in 2021.
Variance in Net Interest Income
The following table quantifies the impact on net interest income resulting from
changes in average balances and average rates during the periods presented. Any
change in interest income or expense attributable to both changes in volume and
changes in rate has been allocated to change in rate of each category.
Analysis of Variance in Net Interest Income Due to Changes in Volume and Rates
Three Months Ended March 31, Six Months Ended March 31,
2022 and 2021 2022 and 2021
Increase (Decrease) Due to Change in: Increase (Decrease) Due to Change in:
Net Net
Average Volume Average Rate Change Average Volume Average Rate Change
(In thousands)
Interest Earning Assets:
Loans, including fees $ (1,226 ) $ (215 ) $ (1,441 ) $ (1,194 ) $ (2,095 ) $ (3,289 )
Investment securities 289 (48 ) 241 242 119 361
Interest-bearing cash accounts 5 4 9 5 9 14
Dividends, restricted stock (35 ) (9 ) (44 ) (38 ) (56 ) (94 )
Total interest-earning assets $ (967 )
(985 ) $ (2,023 ) $ (3,008 )
Interest Bearing Liabilities:
Money Market deposits $ 31 $ (488 ) $ (457 ) $ 83 $ (1,053 ) $ (970 )
Savings deposits 2 (6 ) (4 ) 3 (13 ) (10 )
Certificates of deposits (240 ) (121 ) (361 ) (329 ) (634 ) (963 )
Other interest-bearing deposits 17 (172 ) (155 ) 60 (306 ) (246 )
Total interest-bearing deposits (190 ) (787 ) $ (977 ) (183 ) (2,006 ) $ (2,189 )
Borrowings and Subordinated debt (384 ) (26 ) (410 ) (414 ) (411 ) (825 )
Total interest-bearing liabilities $ (574 )
(597 ) $ (2,417 ) $ (3,014 ) Change in net interest income $ (393 ) $ 545
$ 152 $ (388 ) $ 394$ 6 -50-
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Average Balances, Net Interest Income, and Yields Earned and Rates Paid. The
following table shows for the periods indicated the total dollar amount of
interest from average interest-earning assets and the resulting yields, as well
as the interest expense on average interest-bearing liabilities, expressed both
in dollars and rates, and the NIM (net interest income as a percentage of
average interest-earning assets). All average balances are based on monthly
balances. Management does not believe that the monthly averages differ
significantly from what the daily averages would be. Quarterly rates, yields,
spreads, and margins throughout this MD&A are calculated on an annualized basis
where appropriate.
Three Months Ended March 31,
2022 2021
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
(Dollars in thousands)
ASSETS
Interest Earning Assets:
Loans, including fees(1) $ 856,937 $ 7,628 3.56 % $ 990,913 $ 9,069 3.66 %
Investment securities 91,433 585 2.56 % 49,658 344 2.77 %
Interest-bearing cash accounts 36,452 16 0.18 % 21,506 7 0.13 %
Dividends, restricted stock 6,263 75 4.79 % 8,901 119 5.35 %
Total interest-earning assets(1) 991,087 8,304 3.35 % 1,070,978 9,539 3.56 %
Non-interest-earning assets:
Cash and due from banks 91,651 105,485
Bank-owned life insurance 26,282 25,631
Other assets 25,479 29,030
Other real estate owned 4,961 5,796
Allowance for loan losses (10,517 ) (13,037 )
Total non-interest-earning assets 137,856 152,905
Total assets $ 1,128,943 $ 1,223,883
LIABILITIES & SHAREHOLDERS' EQUITY
Interest-Bearing Liabilities:
Money Market deposits $ 341,138 219 0.26 % $ 326,110 676 0.83 %
Savings deposits 54,550 12 0.09 % 47,888 16 0.13 %
Certificates of deposits 114,115 274 0.96 % 183,617 635 1.38 %
Other interest-bearing deposits 319,246 323 0.40 % 308,538 478 0.62 %
Total interest-bearing deposits 829,049 828 0.40 % 866,153 1,805 0.83 % Borrowings
84,991 522 2.46 % 144,835 932 2.57 %
Total interest-bearing liabilities 914,040 1,350 0.59 % 1,010,988 2,737 1.08 %
Non-interest-bearing liabilities:
Demand deposits 54,502 50,327
Other liabilities 14,249 17,751
Total non-interest bearing
liabilities 68,751 68,078
Shareholders' equity 146,152 144,817
Total liabilities and shareholders'
equity $ 1,128,943 $ 1,223,883
Net interest spread 2.76 % 2.48 %
Net interest margin 2.81 % 2.54 %
Net interest income $ 6,954 $ 6,802 (1)Includes non-accrual loans during the respective periods. Calculated net of deferred loan fees and loan discounts.
-51-
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Six Months Ended March 31,
2022 2021
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
(Dollars in thousands)
ASSETS
Interest Earning Assets:
Loans, including fees(1) $ 885,573 $ 15,856 3.58 % $ 1,011,927 $ 19,145 3.78 %
Investment securities 83,342 1,076 2.58 % 49,722 715 2.88 %
Interest-bearing cash accounts 34,594 29 0.17 % 21,599 15 0.14 %
Dividends, restricted stock 6,484 166 5.12 % 9,128 260 5.70 %
Total interest-earning assets(1) 1,009,993 17,127 3.39 % 1,092,376 20,135 3.69 %
Non-interest-earning assets:
Cash and due from banks 98,899 83,213
Bank-owned life insurance 26,202 25,549
Other assets 25,764 30,141
Other real estate owned 4,961 5,796
Allowance for loan losses (12,357 ) (12,746 )
Total non-interest-earning assets 143,469 131,953
Total assets $ 1,153,462 LIABILITIES & SHAREHOLDERS' EQUITY Interest-Bearing Liabilities: Money Market deposits$ 354,596 497 0.28 %$ 318,524 1,467 0.92 % Savings deposits 53,936 24 0.09 % 46,742 34 0.15 % Certificates of deposits 113,866 572
1.01 % 199,376 1,535 1.54 % Other interest-bearing deposits
330,521 780 0.47 % 295,696 1,026 0.69 % Total interest-bearing deposits
852,919 1,873 0.44 % 860,338 4,062 0.94 % Borrowings
88,493 1,142 2.58 % 152,861 1,967 2.57 % Total interest-bearing liabilities 941,412 3,015 0.64 % 1,013,199 6,029 1.19 %
Non-interest-bearing liabilities: Demand deposits 54,294 49,228 Other liabilities 12,813 18,225 Total non-interest liabilities 67,107 67,453 Shareholders' equity 144,943 143,677 Total liabilities and shareholders' equity$ 1,153,462 $ 1,224,329 Net interest spread 2.75 % 2.50 % Net interest margin 2.79 % 2.58 % Net interest income$ 14,112 $ 14,106
(1) Includes non-accrual loans during the respective periods. Calculated net of deferred loan fees and loan discounts.
-52-
--------------------------------------------------------------------------------Other Income
The following table presents the principal categories of other income for the
periods indicated:
Three Months Ended March 31, Six Months Ended March 31,
Increase Percent Increase Percent
2022 2021 (Decrease) Change 2022 2021 (Decrease) Change
(Dollars in thousands)
Service charges and other
fees $ 219 $ 419 $ (200 ) (47.73 )%
48 54 (6 ) (11.11 ) 100 108 (8 ) (7.41 )
Net gains on sale and call of
investments - 259 (259 ) (100.00 ) - 614 (614 ) (100.00 )
Net gains on sale of loans 11 274 (263 ) (95.99 ) 63 678 (615 ) (90.71 )
Earnings on bank-owned life
insurance 283 161 122 75.78 452 325 127 39.08
Total other income $ 561 $ 1,167 $ (606 ) (51.93 )%
For the three months endedMarch 31, 2022 , total other income amounted to$561,000 , a decrease of$606,000 , or 51.9 percent, compared to the three months endedMarch 31, 2021 . The decrease in total other income was primarily due to a decrease of$533,000 in net gains on sale of loans and net gains on sale and call of investments, partially offset by an increase in earnings on bank-owned life insurance of$122,000 during the quarter endedMarch 31, 2022 . Similar to the quarter, other income for the six months endedMarch 31, 2022 , decreased by$1.1 million mainly due to reductions in the net gains on sale of loans and investments of$1.2 million .
Other Expense
The following table presents the principal categories of other expense for the
periods indicated:
Three Months Ended March 31, Six Months Ended March 31,
Increase Percent Increase Percent
2022 2021 (Decrease) Change 2022 2021 (Decrease) Change
(Dollars in thousands)
Salaries and employee
benefits $ 2,347 $ 2,275 $ 72 3.16 %
546 568 (22 ) (3.87 ) 1,061 1,110 (49 ) (4.41 )
Federal deposit insurance
premium 71 83 (12 ) (14.46 ) 147 159 (12 ) (7.55 )
Advertising 32 32 - - 64 64 - -
Data processing 359 306 53 17.32 679 634 45 7.10
Professional fees 868 884 (16 ) (1.81 ) 1,923 1,547 376 24.31
Other real estate owned
expense, net - 3 (3 ) (100.00 ) 5 31 (26 ) (83.87 )
Pennsylvania shares tax 169 169 - - 339 339 - -
Other operating expenses 2,453 743 1,710 230.15 3,213 1,604 1,609 100.31
Total other expense $ 6,845 $ 5,063 $ 1,782 35.20 % $ 12,073 $ 10,035 $ 2,038 20.31 %
For the three months ended March 31, 2022 , total other expense increased $1.8
million , or 35.2 percent, from the comparable three months ended March 31, 2021 .
This increase was primarily due to a $1.7 million valuation allowance recorded
on loans held for sale. The valuation allowance adjustment consists of
approximately $395,000 in reduced value and approximately $1.3 million in real
estate tax expense.
For the six months ended March 31, 2022 , total other expense increased $2.0
million , or 20.3 percent, from the comparable six months ended March 31, 2021 .
The primary components of the increase were the aforementioned valuation
allowance and increased professional fees. The increase in professional fees
was primarily due to increases in legal fees related to loan workouts and
reporting and disclosure matters related to nonperforming loans.
-53-
--------------------------------------------------------------------------------Income Taxes
The Company recorded income tax expense of$148,000 and$788,000 during the three and six months endedMarch 31, 2022 , respectively, reflecting an effective tax rate of 22.1 percent and 23.7 percent, respectively. The reduction in the effective tax rate was due primarily to the tax free income received from the additional bank-owned life insurance. The Company recorded a provision for income taxes of$682,000 and$1.4 million for the three and six months endedMarch 31, 2021 , respectively, reflecting an effective tax rate of 23.5 percent and 23.9 percent, respectively.
Investment Portfolio
For the three months endedMarch 31, 2022 , the average volume of investment securities increased by$41.8 million to approximately$91.4 million , or 9.2 percent of average earning assets, from$49.7 million , or 4.6 percent of average earning assets, for the three months endedMarch 31, 2021 . During the six months endedMarch 31, 2022 , the average volume of investment securities increased$33.6 million to approximately$83.3 million , or 8.3 percent of average earnings assets, from$49.7 million , or 4.6 percent of average earning assets, for the six months endedMarch 31, 2021 . AtMarch 31, 2022 , the total investment portfolio amounted to$104.1 million , an increase of$33.4 million or 47.1 percent fromSeptember 30, 2021 . This increase in the investment portfolio was primarily due to purchases of$41.4 million of investment securities, partially offset by payments, maturities, and calls of$5.1 million of investment securities. AtMarch 31, 2022 , the principal components of the investment portfolio were government agency obligations, federal agency obligations, including mortgage-backed securities, obligations ofU.S. states and political subdivisions,U.S. treasury note, corporate bonds and notes, a trust preferred security, and taxable mutual funds. During the three month period endedMarch 31, 2022 , rate-related factors decreased investment revenue by approximately$48,000 , while volume-related factors increased investment revenue by approximately$289,000 from the three month period endedMarch 31, 2021 . The yield on investments decreased by 21 basis points to 2.56 percent for the three month period endedMarch 31, 2022 , as compared to 2.77 percent for the three month period endedMarch 31, 2021 . During the six month period endedMarch 31, 2022 , rate-related factors increased investment revenue by approximately$119,000 , and volume-related factors increased investment revenue by approximately$242,000 from the six month period endedMarch 31, 2021 . The yield on investments decreased by 30 basis points to 2.58 percent for the three month period endedMarch 31, 2022 , as compared to 2.88 percent for the six month period endedMarch 31, 2021 .
Loan Portfolio
The Company's loan portfolio consists of residential, construction and development, commercial, and consumer loans, serving the diverse customer base in its market area. The composition of the Company's portfolio continues to change due to local competition. Factors such as the economic climate, interest rates, real estate values and employment all contribute to changes in the composition of the Company's portfolio. Growth is generated through business development efforts, repeat customer requests for new financings, penetration into existing markets, and entry into new markets. The Company seeks to create growth in commercial lending, which primarily includes commercial real estate, multi-family, farmland, and commercial and industrial lending, by offering customer-focused products and competitive pricing and by capitalizing on the positive trends in its market area. Products offered are designed to meet the financial requirements of the Company's customers. It is the objective of the Company's credit policies to diversify the commercial loan portfolio and limit concentrations in any single industry. Total gross loans amounted to$808.0 million atMarch 31, 2022 and$913.8 million atSeptember 30, 2021 . The$105.8 million decrease in the gross loan portfolio atMarch 31, 2022 compared toSeptember 30, 2021 or 11.6 percent, for the period was driven by higher loan payoffs and paydowns during the period primarily in the commercial loan category. Commercial loans declined to$580.7 million atMarch 31, 2022 from$629.7 million atSeptember 30, 2021 or a 7.8 percent decline as compared toSeptember 30, 2021 . Residential loans were$30.2 million and$63.7 million atMarch 31, 2022 andSeptember 30, 2021 , respectively. Loans held-for-sale amounted to$13.2 (rather than the previously reported $11.9) million atMarch 31, 2022 , compared to$33.2 million atSeptember 30, 2021 . The decline was primarily related to the sale of three commercial loans totaling$18.9 million combined with a a$1.7 million valuation allowance recorded on loans held for sale. The valuation allowance adjustment consists of approximately$395,000 in reduced value and approximately$1.3 million in real estate tax expense. AtMarch 31, 2022 , the Company had$142.3 million in overall undisbursed loan commitments, which consisted primarily of available usage from active construction facilities, unused commercial lines of credit and home equity lines of credit. -54- -------------------------------------------------------------------------------- Average loan balances of our total loans decreased$134.0 million , or 13.5 percent, for the three months endedMarch 31, 2022 as compared to the same period in fiscal 2021, while the average yield on loans decreased by 10 basis points for the three months endedMarch 31, 2022 compared with the same period in fiscal 2021. The decrease in average total loan volume was primarily due to increased paydowns and payoff activity. During the the second quarter of fiscal year 2022 compared to the same period in fiscal year 2021, the volume-related factors during the period contributed to the decrease of income on loans of$1.2 million , while the rate-related factors decreased interest income on loans by$215,000 . The average balance of our total loans decreased$126.4 million , or 12.5 percent, for the six months endedMarch 31, 2022 as compared to the same period in fiscal year 2021, while the average yield on loans decreased by 20 basis points for the six months endedMarch 31, 2022 compared with the same period in fiscal year 2021. The decrease in average total loan volume was primarily due to increased paydowns and payoff activity. During the six months endedMarch 31, 2022 compared to the same period in fiscal year 2021, the volume-related factors during the period contributed to a decrease of interest income on loans of$1.2 million , while the rate-related factors decreased interest income on loans by$2.1 million .
Allowance for Loan Losses and Related Provision
The purpose of the ALLL is to absorb the impact of losses inherent in the loan portfolio. Additions to the ALLL are made through provisions charged against current operations and through recoveries made on loans previously charged-off. The ALLL is maintained at an amount considered adequate by management to provide for probable loan losses inherent in the loan portfolio based upon a periodic evaluation of the portfolio's risk characteristics. In establishing an appropriate ALLL, an assessment of the individual borrowers, a determination of the value of the underlying collateral, a review of historical loss experience and an analysis of the levels and trends of loan categories, delinquencies and problem loans are considered. Such factors as the level and trend of interest rates and current economic conditions and peer group statistics are also reviewed. Given the economic volatility impacting national, regional, and local markets, the Company's analysis of its ALLL takes into consideration the potential impact that current trends may have on the Company's borrower base. Although management uses the best information available, the level of the ALLL remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Company's ALLL. Such agencies may require the Company to increase the ALLL based on their analysis of information available to them at the time of their examination. Furthermore, the majority of the Company's loans are secured by real estate in theState of New Jersey and theState of Pennsylvania . Future adjustments to the ALLL may be necessary due to economic factors impactingNew Jersey andPennsylvania real estate and the economy in general, as well as operating, regulatory and other conditions beyond the Company's control. AtMarch 31, 2022 , the ALLL amounted to approximately$9.3 million , or 1.15 percent of total gross loans. AtSeptember 30, 2021 , the ALLL amounted to approximately$11.5 million , or 1.26 percent of total gross loans, excluding loans held-for-sale. The decrease in the allowance for loan losses of$2.2 million or 18.9 percent is in line with the Company's improved asset quality and, more specifically, improvement in non-performing loans which declined$2.6 million , or 70.2 percent compared to the period endedSeptember 30, 2021 . The Company did not record a provision for loan losses for both quarters endingMarch 31, 2022 and 2021. The net charge-offs were$ 736,000 and$2.2 million for the three and six months endedMarch 31, 2022 , respectively. Net loan charge-offs increased during the six months endedMarch 31, 2022 due to one non-accrual commercial and industrial loan totaling$2.5 million that was charged-off in the amount of$2.2 million . This credit had a specific reserve of$1.5 million as ofSeptember 30, 2021 . The partial charge-off was primarily the result of the ongoing monitoring and evaluation of classified loan values and is reflective of changes in current economic conditions. We will continue to experience some level of periodic charge-offs in the future as exit strategies are considered and executed, in particular as it relates to our clients impacted by the COVID-19 pandemic. Loans with previously established specific reserves may ultimately result in a charge-off under a variety of scenarios.The level of the ALLL for the respective periods of fiscal year 2022 and fiscal year 2021 reflects the credit quality within the loan portfolio, the loan volume recorded or lost during the periods, the changing composition of the commercial and residential real estate loan portfolios and other related factors. In management's view, the level of the ALLL atMarch 31, 2022 was adequate to cover losses inherent in the loan portfolio. Actual results could differ materially from management's analysis, based principally upon the factors considered by management in establishing the ALLL. -55- -------------------------------------------------------------------------------- Changes in the ALLL are presented in the following table for the periods indicated: Six Months Ended March 31, 2022 2021 (Dollars in thousands) Average loans outstanding$ 856,937 $ 1,011,927 Total gross loans at end of period$ 808,037 $ 986,428 Analysis of the Allowance of Loan Losses: Balance at beginning of period$ 11,472 $ 12,433 Charge-offs: Commercial: Commercial real estate 484 Commercial and industrial 2,194 - Consumer: Second mortgages 106 - Other - 1 Total charge-offs 2,300 485 Recoveries: Residential Mortgage 1 1 Commercial: Commercial real estate 76 1 Commercial and industrial 1 1 Consumer: Home equity lines of credit 1 1 Second mortgages 50 98 Second mortgages - 1 Total recoveries 129 103 Net charge-offs 2,171 382 Provision for loan losses - 550 Balance at end of period$ 9,301 $ 12,601 Ratios: Ratio of allowance for loan losses to non-performing loans 842.48 %
54.68 % Ratio of net charge-offs to average loans outstanding (1)
0.49 % 0.08 %
Ratio of net charge-offs to total allowance for loan
losses 23.34 % 3.03 %
(1) Annualized
Asset Quality
The Company manages asset quality and credit risk by maintaining diversification
in its loan portfolio and through review processes that include analysis of
credit requests and ongoing examination of outstanding loans, delinquencies, and
potential problem loans, with particular attention to the loan portfolio's
dynamics and mix of assets. The Company endeavors to identify loans experiencing
difficulty early in the process in an attempt to correct the problems, to record
charge-offs promptly based on realistic assessments of current collateral values
and cash flows, and to maintain an adequate ALLL at all times.
It is generally the Company's policy to discontinue interest accruals once a
loan is past due as to interest or principal payments for a period of 90 days.
When a loan is placed on non-accrual status, interest accruals cease and
uncollected accrued interest is reversed and charged against current income.
Payments received on non-accrual loans are applied against principal. A loan
only may be restored to an accruing basis when it again becomes well-secured,
all past due amounts have been collected and a satisfactory period of ongoing
repayments exist. Accruing loans past due 90 days or more are generally
well-secured and in the process of collection.
-56-
--------------------------------------------------------------------------------Non-Performing Assets, OREO and Troubled Debt Restructured Loans
Non-performing loans include non-accrual loans and accruing loans that are
contractually past due 90 days or more. Non-accrual loans represent loans on
which interest accruals have been suspended. It is the Company's general policy
to consider the charge-off of loans at the point they become past due in excess
of 90 days, with the exception of loans that are both well-secured and in the
process of collection.
TDR loans represent loans to borrowers experiencing financial difficulties on
which a concession was granted, such as a reduction in interest rate which is
lower than the current market rate for new debt with similar risks, or modified
repayment terms, and are performing under the restructured terms. Such loans, as
long as they are performing in accordance with their restructured terms, are not
included within the Company's non-performing loans. For additional information
regarding loans, see Note 6 of the Notes to the Unaudited Consolidated Financial
Statements.
The following table sets forth, as of the dates indicated, the amount of the
Company's non-accrual loans, accruing loans past due 90 days or more, OREO and
performing TDR loans:
March 31, September 30,
2022 2021
(In thousands)
Non-accruing loans:
Non-accrual loans $ 1,101 $ 3,697
Accruing loans more than 90 days past due 3 -
Total non-performing loans 1,104 3,697
OREO 4,961 4,961
Total non-performing assets $ 6,065 $ 8,658
TDR loans - performing $ 5,787 $ 17,601
Non-accrual loans totaled $1.1 million at March 31, 2022 and $3.7 million at
September 30, 2021 . OREO was $5.0 million at March 31, 2022 , and September 30,
2021 . The decrease in non-accrual loans was primarily due a partial charge down
of $2.2 million related to one non-accrual commercial and industrial loan. This
loan had a specific allocation of $1.5 million previously reported at September
30, 2021 . The partial charge-off was the result of the ongoing monitoring and
evaluation of the loan's value in light of indications of interest received with
respect to the note. Performing TDR loans were $5.8 million at March 31, 2022
and $17.6 million at September 30, 2021 . The decrease is primarily related to
two TDR commercial real estate loans totaling $11.4 million that were sold
during the December 31, 2021 period, as part of the note sale, previously
announced in September 30, 2021 .
Credit quality risk ratings include categories of "pass," "special mention,"
"substandard" and "doubtful." Assets classified as "pass" are those protected by
the current net worth and paying capacity of the obligor or by the value of the
underlying collateral. Assets which do not currently expose the Company to
sufficient risk to warrant classification as substandard or doubtful but possess
certain identified weaknesses are required to be designated as "special
mention." If uncorrected, the potential weaknesses may result in deterioration
of the repayment prospects. An asset is considered "substandard" if it is
inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct possibility" that the Company will sustain "some
loss" if the deficiencies are not corrected. Assets classified as "doubtful"
have all of the weaknesses inherent in those classified "substandard" with the
added characteristic that the weaknesses present make "collection or liquidation
in full," on the basis of currently existing facts, conditions, and values,
"highly questionable and improbable."
At March 31, 2022 , special mention loans were $43.0 million compared to $58.1
million at September 30, 2021 . The decrease was primarily due to one $9.3
million commercial real estate loan that paid off during the three months ended
December 31, 2021 . Substandard loans were $12.5 million and $16.1 million at
March 31, 2022 and September 30, 2021 , respectively. This decrease in
substandard loans is primarily due to a $2.2 million charge down of one
commercial and industrial loan. Our loans that have been identified as special
mention or substandard are considered potential problem loans due to a variety
of changing conditions affecting the credits, including general economic
conditions and/or conditions applicable to the specific borrowers.
-57-
--------------------------------------------------------------------------------Recent Accounting Pronouncements
Note 2 of the Notes to the Unaudited Consolidated Financial Statements discusses the expected impact of accounting pronouncements recently issued or proposed but not yet required to be adopted.
Asset and Liability Management
Asset and liability management encompasses an analysis of market risk, the control of interest rate risk (interest sensitivity management) and the ongoing maintenance and planning of liquidity and capital. The composition of the Company's statement of condition is planned and monitored by the Company'sAsset and Liability Committee ("ALCO"). In general, management's objective is to optimize net interest income and minimize market risk and interest rate risk by monitoring the components of the statement of condition and the interaction of interest rates. Short-term interest rate exposure analysis is supplemented with an interest sensitivity gap model. The Company utilizes interest sensitivity analysis to measure the responsiveness of net interest income to changes in interest rate levels. Interest rate risk arises when an earning asset matures or when its interest rate changes in a time period different than that of a supporting interest-bearing liability, or when an interest-bearing liability matures or when its interest rate changes in a time period different than that of an earning asset that it supports. While the Company matches only a small portion of specific assets and liabilities, total earning assets and interest-bearing liabilities are grouped to determine the overall interest rate risk within a number of specific time frames. The difference between interest-sensitive assets and interest-sensitive liabilities is referred to as the interest sensitivity gap. At any given point in time, the Company may be in an asset-sensitive position, whereby its interest-sensitive assets exceed its interest-sensitive liabilities, or in a liability-sensitive position, whereby its interest-sensitive liabilities exceed its interest-sensitive assets, depending in part on management's judgment as to projected interest rate trends. The Company's interest rate sensitivity position in each time frame may be expressed as assets less liabilities, as liabilities less assets, or as the ratio between rate sensitive assets ("RSA") and rate sensitive liabilities ("RSL"). For example, a short-funded position (liabilities repricing before assets) would be expressed as a net negative position, when period gaps are computed by subtracting repricing liabilities from repricing assets. When using the ratio method, an RSA/RSL ratio of 1 indicates a balanced position, a ratio greater than 1 indicates an asset-sensitive position and a ratio less than 1 indicates a liability-sensitive position. A negative gap and/or a rate sensitivity ratio less than 1 tends to expand NIMs in a falling rate environment and reduce NIMs in a rising rate environment. Conversely, when a positive gap occurs, generally margins expand in a rising rate environment and contract in a falling rate environment. From time to time, the Company may elect to deliberately mismatch liabilities and assets in a strategic gap position.
At
Estimates of Fair Value
The estimation of fair value is significant to a number of the Company's assets,
including loans held for sale, investment securities available-for-sale and loan
swaps. These are all recorded at either fair value or the lower of cost or fair
value. Fair values are volatile and may be influenced by a number of factors.
Circumstances that could cause estimates of the fair value of certain assets and
liabilities to change include a change in prepayment speeds, discount rates, or
market interest rates. Fair values for most available-for-sale investment
securities are based on quoted market prices. If quoted market prices are not
available, fair values are based on judgments regarding future expected loss
experience, current economic condition, risk characteristics of various
financial instruments, and other factors. These estimates are subjective in
nature, involve uncertainties and matters of significant judgment and therefore
cannot be determined with precision. Changes in assumptions could significantly
affect the estimates.
Liquidity
The liquidity position of the Company is dependent primarily on successful
management of the Bank's assets and liabilities so as to meet the needs of both
deposit and credit customers. Liquidity needs arise principally to accommodate
possible deposit outflows and to meet customers' requests for loans. Scheduled
principal loan repayments, maturing investments, short-term liquid assets, and
deposit inflows can satisfy such needs. The objective of liquidity management is
to enable the Company to maintain sufficient liquidity to meet its obligations
in a timely and cost-effective manner.
Management monitors current and projected cash flows, and adjusts positions as
necessary to maintain adequate levels of liquidity. Under its liquidity risk
management program, the Company regularly monitors correspondent bank funding
exposure and credit exposure in accordance with guidelines issued by the banking
regulatory authorities. Management uses a variety of potential
-58-
--------------------------------------------------------------------------------
funding sources and staggering maturities to reduce the risk of potential
funding pressure. Management also maintains a detailed contingency funding plan
designed to respond adequately to situations which could lead to stresses on
liquidity. Management believes that the Company has the funding capacity to meet
the liquidity needs arising from potential events.
The Company's primary sources of short-term liquidity consist of cash and cash
equivalents, interest bearing deposits with banks (including the FHLB
Pittsburgh ), investment securities held to maturity that are maturing within 90
days or would otherwise qualify as maturities if sold (i.e., 85 percent of
original cost basis has been repaid), investment securities available-for-sale,
loans held or sale, and from time to time federal funds sold and receivables
related to unsettled securities transactions.
Additionally, liquidity is derived from scheduled loan payments of principal and
interest, as well as prepayments received. As a contingency plan for any
liquidity constraints, liquidity could also be derived from the sale of
conforming residential mortgages from our loan portfolio or alleviated from the
temporary curtailment of lending activities. At March 31, 2022 , the Company had
$122.0 million in cash and cash equivalent compared to $136.6 million at
September 30, 2021 . In addition, our available for sale investment securities
amounted to $54.2 million at March 31, 2022 and $40.8 million at September 30,
2021 .
Deposits
Total deposits decreased
Total interest-bearing deposits decreased$84.6 million from$884.3 million atSeptember 30, 2021 to$799.7 million atMarch 31, 2022 . Time deposits$250,000 and over decreased$613,000 as compared toSeptember 30, 2021 . Time deposits$250,000 and over represented 2.0 percent of total deposits atMarch 31, 2022 compared to 1.8 percent atSeptember 30, 2021 . We had brokered deposits totaling$9.0 million atMarch 31, 2022 compared to$6.1 million atSeptember 30, 2021 . The Company continues to focus on the maintenance, development, and expansion of its deposit base. Management believes that the emphasis on serving the needs of our communities will provide a long-term relationship base which in turn will allow the Company to efficiently compete for and retain deposits in its market. The Company continues to focus on the maintenance, development, and expansion of its deposit base. Management believes that the emphasis on serving the needs of our communities will provide a long-term relationship base which in turn will allow the Company to efficiently compete for and retain deposits in its market.
The following table depicts the Company's deposits classified by type, with
percentages to total deposits, at
March 31, September 30,
2022 2021 Dollar
Amount Percentage Amount Percentage Change
Balances by types of deposit: (Dollars in thousands)
Savings $ 54,074 6.33 % $ 50,582 5.39 % $ 3,492
Money market accounts 328,324 38.43 385,480 41.09 (57,156 )
Interest bearing demand 302,468 35.40 336,645 35.88 (34,177 )
Non-interest bearing demand 54,712 6.40 53,849 5.74 863
$ 739,578 86.56 $ 826,556 88.10 $ (86,978 )
Certificates of deposit 114,859 13.44 111,603 11.90 3,256
Total $ 854,437 100.00 % $ 938,159 100.00 % $ (83,722 )
Borrowings
Advances from FHLB Pittsburgh are available to supplement the Company's
liquidity position and, to the extent that maturing deposits do not remain with
the Company, management may replace such funds with these advances. As of
March 31, 2022 and September 30, 2021 , the Company's outstanding balance of FHLB
Pittsburgh advances totaled $60.0 million and $90.0 million , respectively. Of
the $60.0 million in advances, all are short-term fixed-rate advances having a
rolling 90 day maturity.
The Company did not purchase any securities sold under agreements to repurchase as a short-term funding source during the first fiscal quarters of 2022 or 2021.
-59-
--------------------------------------------------------------------------------Cash Flows
The Consolidated Statements of Cash Flows present the changes in cash and cash equivalents resulting from the Company's operating, investing, and financing activities. During the six months endedMarch 31, 2022 , cash and cash equivalents decreased by$14.6 million from the balance atSeptember 30, 2021 . Net cash of$10.1 million was provided by operating activities primarily due to net income of$2.5 million , an increase of$8.3 million in other liabilities and$3.0 million decrease in other assets. Net cash provided by investing activities amounted to approximately$88.2 million primarily due to a net decrease in loans of$123.2 million which was partially offset by purchases of$41.4 million of investment securities. The decrease in net cash from financing activities of$112.9 million was primarily from the net decrease of$30.0 million in long term borrowings and$83.7 million in deposits.
Shareholders' Equity
Total shareholders' equity amounted to$144.6 million , or 13.1 percent of total assets, atMarch 31, 2022 , compared to$142.2 million , or 11.8 percent of total assets, atSeptember 30, 2021 . Book value per common share was$18.95 atMarch 31, 2022 , compared to$18.65 atSeptember 30, 2021 . March 31, September 30, 2022 2021 (In thousands, except for per share data) Shareholders' equity 144,550 142,168 Book value per common share $ 18.95 $ 18.65 Capital AtMarch 31, 2022 , the Bank's common equity Tier 1 capital ratio was 18.25 percent, Tier 1 leverage ratio was 14.29 percent, Tier 1 risk-based capital ratio was 18.25 percent and the total risk-based capital ratio was 19.31 percent. AtSeptember 30, 2021 , the Bank's common equity Tier 1 capital ratio was 16.13 percent, Tier 1 leverage ratio was 13.14 percent, Tier 1 risk-based capital ratio was 16.13 percent and the total risk-based capital ratio was 17.32 percent. AtMarch 31, 2022 , the Bank was in compliance with all applicable regulatory capital requirements.
Information on Stock Repurchases
Information on Stock Repurchases is provided in "Part II. Other Information,
Item 2, Unregistered Sales of
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