OLD POINT FINANCIAL CORPORATION The following discussion supplements and provides information about the major components of the results of operations, financial condition, liquidity and capital resources of the Company. This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements, the notes to the financial statements, and the other financial data included in this report, as well as the Company's 2021 Form 10-K. In addition to current and historical information, the following discussion and analysis contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to the Company's future business, financial condition or results of operations. For a description of certain factors that may have a significant impact on future business, financial condition or results of operations, see "Cautionary Statement Regarding Forward-Looking Statements" at the end of this Item 2. "Management's Discussion and Aanlysis of Financial Condition and Results of Operations." Results of operations for the three months endedMarch 31, 2022 and 2021 are not necessarily indicative of results that may be attained for any other period. Amounts are rounded for presentation purposes while some of the percentages presented are computed based on unrounded amounts.
Overview
The Company's primary goals are to maximize earnings by maintaining strong asset quality and deploying capital in profitable growth initiatives that will enhance long-term stockholder value. The Company operates in three principal business segments: the Bank, the Trust, and the Company as a separate segment, the Parent. Revenues from the Bank's operations consist primarily of interest earned on loans and investment securities, fees earned on deposit accounts, debit card interchange, and treasury and commercial services and mortgage banking income. Trust's operating revenues consist principally of income from fiduciary and asset management fees. The Parent's revenues are mainly fees and dividends received from the Bank and Trust. Net income for the three months endedMarch 31, 2022 was$2.0 million ($0.39 per diluted share) compared to$3.0 million ($0.58 per diluted share) for the three months endedMarch 31, 2021 . Total assets of$1.3 billion as ofMarch 31, 2022 decreased by$12.8 million fromDecember 31, 2021 .
Key factors affecting comparisons of consolidated net income for the three
months ended
• Loans held for investment (net of deferred fees and costs), excluding PPP
(non-GAAP), increased
• Average earning assets increased
• Interest income decreased
PPP origination fees of
• Interest expense increased
in long term borrowings partially offset by lower rates and shifts in funding
to lower cost deposits;
• Net Interest Margin (NIM) was 3.14% for the first quarter of 2022 compared to
3.58% for the first quarter of 2021. The decrease was due primarily to lower
accretion of net PPP origination fees;
• Fiduciary and asset management fees and other service charges, commissions and
fees increased
respectively;
• Mortgage banking income decreased
mortgage industry volume and rising interest rates; and
• On
amount of 3.50% fixed-to-floating rate subordinated notes due 2031 in a private
placement transaction. The Notes initially bear interest at a fixed rate of
3.50% for five years and convert to the three-month SOFR plus 286 basis points,
resetting quarterly, thereafter. Interest expense attributable to these
subordinated notes impacted the Company's net interest income and net interest
margin for the first quarter of 2022 but not for the corresponding 2021 period.
For more information about financial measures that are not calculated in accordance with GAAP, please see "Non-GAAP Financial Measures" below.
Capital Management and Dividends Total equity was$108.1 million atMarch 31, 2022 , compared to$120.8 million atDecember 31, 2021 . Total equity decreased$12.7 million atMarch 31, 2022 compared toDecember 31, 2021 , due primarily to unrealized losses in the market value of securities available for sale, which are recognized as a component of accumulated other comprehensive (loss) income, and the repurchase of shares under the Company's share repurchase program, partially offset by net income. The Company's securities available for sale are fixed income debt securities, and their decline in market value during the first quarter of 2022 was a result of increases in market interest rates. The Company expects to recover its investments in debt securities through scheduled payments of principal and interest and unrealized losses are not expected to affect the earnings or regulatory capital of the Company or its subsidiaries. 26
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For the first quarter of 2022 the Company declared dividends of$0.13 per share, an increase of 8.3% over dividends of$0.12 per share declared in the first quarter of 2021. The Board of Directors of the Company continually reviews the amount of cash dividends per share and the resulting dividend payout ratio. The Company's principal goals related to the maintenance of capital are to provide adequate capital to support the Company's risk profile consistent with the board approved risk appetite, provide financial flexibility to support future growth and client needs, comply with relevant laws, regulations, and supervisory guidance, and provide a competitive return to stockholders. Risk-based capital ratios, which include CET1 capital, Tier 1 capital and Total capital for the Bank are calculated based on regulatory guidance related to the measurement of capital and risk-weighted assets. The Company has a share repurchase program which was authorized by the Board of Directors inOctober 2021 to repurchase up to 10% of the Company's issued and outstanding common stock throughNovember 30, 2022 . During the first quarter of 2022, 122,995 shares, for an aggregate purchase price of$3.0 million , were repurchased by the Company under this plan. AtMarch 31, 2022 , the book value per share of the Company's common stock was$21.12 , and tangible book value per share (non-GAAP) was$20.75 , compared to$23.06 and$22.69 , respectively, atDecember 31, 2021 . Refer to "Non-GAAP Financial Measures," below, for information about non-GAAP financial measures, including a reconciliation to the most directly comparable financial measures calculated in accordance withU.S. GAAP. Critical Accounting Estimates The accounting and reporting policies of the Company are in accordance withU.S. GAAP and conform to general practices within the banking industry. The Company's financial position and results of operations are affected by management's application of accounting policies, including estimates, assumptions, and judgments made to arrive at the carrying value of assets and liabilities and amounts reported for revenues, expenses, and related disclosures. Different assumptions in the application of these policies could result in material changes in the Company's consolidated financial position and/or results of operations. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them, as needed. Management has discussed the Company's critical accounting policies and estimates with the Audit Committee of the Board of Directors. Allowance for Loan Losses The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. Loan losses are charged against the allowance when it is believed the collection of the principal is unlikely. Subsequent recoveries of losses previously charged against the allowance are credited to the allowance. The allowance represents an amount that, in the Company's judgment, will be adequate to absorb probable and estimable losses inherent in the loan portfolio. The judgment in determining the level of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs for relevant periods of time, changes in the nature and volume of the loan portfolio, current economic conditions that may affect a borrower's ability to repay and the value of collateral, overall portfolio quality and review of specific potential losses. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. In evaluating the level of the allowance, management considers a range of possible assumptions and outcomes related to the various factors identified above. Under alternative assumptions that we considered in developing our estimate of an allowance that will be adequate to absorb probable and estimable losses inherent in the loan portfolio atMarch 31, 2022 , our estimate of the allowance varied between$8 million and$10 million .
For further information concerning accounting policies, refer to Note 1. Significant Accounting Policies of the Notes to Consolidated Financial Statements included in Item 8. "Financial Statements and Supplementary Data" of the Company's 2021 Form 10-K.
Results of Operations
Net Interest Income The principal source of earnings for the Company is net interest income. Net interest income is the difference between interest and fees generated by earning assets and interest expense paid to fund them. Changes in the volume and mix of interest-earning assets and interest-bearing liabilities, as well as their respective yields and rates, have a significant impact on the level of net interest income. The NIM is calculated by dividing net interest income by average earning assets, or on a fully tax-equivalent basis, tax-equivalent net interest income by average earning assets. For the first quarter of 2022, net interest income was$9.6 million , an decrease of$519 thousand or 5.1% from the first quarter of 2021. The decrease was primarily due to significant growth in average earning asset balances at lower average earning yields. Lower average earning yields were in part driven by accelerated recognition of net deferred fees related to PPP forgiveness at a lower volume during the first quarter of 2022. This was partially offset by higher average interest-bearing liabilities at lower average rates. 27
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The NIM was 3.14% for the quarter endedMarch 31, 2022 as compared to 3.58% for the first quarter of 2021. Net interest income, on a fully tax-equivalent basis, was$9.7 million for the first quarter of 2022, a decrease of$510 thousand from the 2021 comparative quarter. On a fully tax-equivalent basis, NIM was 3.16% and 3.60%, for the quarters endedMarch 31, 2022 and 2021, respectively. Average loan yields were lower by 52 basis points due to the lower interest rate environment which resulted in lower average yields on new loan originations, including PPP loans, which earn interest at a fixed 1%, and repricing within the existing loan portfolio. Lower levels of accelerated recognition of deferred fees and costs related to PPP forgiveness also contributed to the decrease when comparing the 2022 and 2021 quarters. Loan fees and costs related to PPP loans are deferred at time of loan origination, are amortized into interest income over the remaining terms of the loans and accelerated upon forgiveness or repayment of the PPP loans. Net PPP fees of$408 thousand and$1.6 million were recognized in first quarter of 2022 and 2021, respectively. As ofMarch 31, 2022 , unamortized net deferred PPP fees were$284 thousand . Subordinated debt interest expense also impacted the NIM for the first quarter of 2022 but not for the first quarter of 2021. High levels of liquidity invested at lower yielding short-term levels in the low interest rate environment also continue to impact the NIM. For more information about these FTE financial measures, please see "Non-GAAP Financial Measures" below. Average loans, which includes both loans held for investment and loans held for sale, increased$28.4 million to$863.9 million for the quarter endedMarch 31, 2022 , compared to 2021. Average loans held for investment included$12.9 million and$69.7 million of average balances of loans originated under the PPP for 2022 and 2021, respectively. The increase in average loans outstanding in 2022 compared to 2021 was due primarily to growth in the commercial real estate, automobile, and consumer real estate segments of the loan portfolio. Average securities available for sale increased$49.7 million for 2022, compared to 2021, due primarily to higher purchases of securities. The average yield on the securities portfolio on a taxable-equivalent basis decreased 1 basis points for first quarter of 2022, compared to the first quarter of 2021. Average money market, savings and interest-bearing demand deposits increased$67.2 million and average time deposits decreased$23.4 million , for the quarter endedMarch 31, 2022 , respectively, compared to the same period in 2021, due to growth in consumer and business deposits primarily as a result of new accounts and liquidity from government stimulus programs as well as a shift from time deposits as a result of lower interest rates. Average noninterest-bearing demand deposits increased$46.0 million for the quarter endedMarch 31, 2022 compared toMarch 31, 2021 . The average cost of interest-bearing deposits decreased 16 basis points for the first quarter of 2022 compared to the 2021 comparatvie period, due primarily to lower rates on deposits and a shift in composition from time deposits. While changes in rates take effect immediately for interest checking, money market and savings accounts, changes in the average cost of time deposits lag changes in pricing based on the repricing of time deposits at maturity. Average borrowings decreased$7.8 million for the first quarter of 2022 compared to the same period in 2021 due primarily to the repayment of PPPLF borrowings during 2021 primarily offset by long-term borrowings related to the issuance of subordinated notes by the Company duringJuly 2021 . The average cost of borrowings increased 318 basis points during the first quarter of 2022 compared to 2021 due primarily to the issuance of subordinated notes by the Company duringJuly 2021 . 28
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The following table shows analyses of average earning assets, interest-bearing
liabilities and rates and yields for the periods indicated. Nonaccrual loans are
included in loans outstanding.
TABLE 1: AVERAGE BALANCE SHEETS, NET INTEREST INCOME AND RATES
For the quarters ended March 31,
2022 2021
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Rate** Balance Expense Rate**
ASSETS
Loans* $ 863,897 $ 9,196 4.32 % $ 835,349 $ 9,965 4.84 %
Investment securities:
Taxable 201,940 989 1.99 % 159,516 770 1.96 %
Tax-exempt* 37,007 265 2.90 % 29,696 229 3.12 %
Total investment securities 238,947 1,254 2.13 % 189,212 999 2.14 %
Interest-bearing due from banks 137,601 73 0.22 % 124,347 43 0.14 %
Federal funds sold 4,441 1 0.09 % 4 - 0.04 %
Other investments 1,142 14 4.90 % 1,319 30 9.16 %
Total earning assets 1,246,028 $ 10,538 3.43 % 1,150,231 $ 11,037 3.89 %
Allowance for loan losses (9,989 ) (9,648 )
Other non-earning assets 93,796 97,123
Total assets $ 1,329,835 $ 1,237,706
LIABILITIES AND STOCKHOLDERS' EQUITY
Time and savings deposits:
Interest-bearing transaction accounts $ 75,129 $ 3 0.02 % $ 67,759 $ 3 0.02 %
Money market deposit accounts 389,368 163 0.17 % 347,530 201 0.24 %
Savings accounts 126,258 10 0.03 % 108,262 11 0.04 %
Time deposits 167,859 361 0.87 % 191,298 584 1.24 %
Total time and savings deposits 758,614 537 0.29 % 714,849 799 0.45 %
Federal funds purchased, repurchase
agreements and other borrowings 4,589 1 0.10 % 26,253 23 0.35 %
Long term borrowings 29,419 295 4.01 % - - 0.00 %
Total interest-bearing liabilities 792,622 833 0.43 % 741,102 822 0.45 %
Demand deposits 414,080 368,073
Other liabilities 5,368 9,906
Stockholders' equity 117,765 118,625
Total liabilities and stockholders' equity $ 1,329,835 $ 1,237,706
Net interest margin $ 9,705 3.16 % $ 10,215 3.60 %
*Computed on a fully tax-equivalent basis (non-GAAP) using a 21% rate, adjusting interest income by $68 thousand and $59 thousand for March 31, 2022 and 2021,
respectively.
**Annualized
Interest income and expense are affected by fluctuations in interest rates, by
changes in volume of earning assets and interest-bearing liabilities, and by the
interaction of rate and volume factors. The following table shows the direct
causes of the period-to-period changes in the components of net interest
income. The Company calculates the rate and volume variances using a formula
prescribed by the SEC . Rate/volume variances, the third element in the
calculation, are not show separately in the table, but are allocated to the rate
and volume variances in proportion to the absolute dollar amounts of each.
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TABLE 2: VOLUME AND RATE ANALYSIS*
Three months ended
Increase (Decrease)
Due to Changes in:
(dollars in thousands) Volume Rate Total
EARNING ASSETS
Loans $ 345 $ (1,114 ) $ (769 )
Investment securities:
Taxable 208 11 219
Tax-exempt 57 (21 ) 36
Total investment securities 265 (10 ) 255
Federal funds sold 0 1 1
Other investments ** 1 13 14
Total earning assets 611 (1,110 ) (499 )
INTEREST-BEARING LIABILITIES
Interest-bearing transaction accounts 0 (0 ) -
Money market deposit accounts 25 (63 ) (38 )
Savings accounts 2 (3 ) (1 )
Time deposits (73 ) (150 ) (223 )
Total time and savings deposits (46 ) (216 ) (262 )
Federal funds purchased, repurchaseagreements and other borrowings
(19 ) (3 ) (22 ) Long term borrowings - 295 295 Total interest-bearing liabilities (65 ) 76 11 Change in net interest income $
676 $ (1,186 )
The Company believes NIM may be affected in future periods by several factors that are difficult to predict, including (1) changes in interest rates, which may depend on the severity of adverse economic conditions, inflationary pressures, the timing and extent of any economic recovery, and the extent or continuing impact of government stimulus measures, which are inherently uncertain, and (2) possible changes in the composition of earning assets which may result from decreased loan demand as a result of the current economic environment. During the first quarter of 2022, market interest rates increased and the Company is asset sensitive atMarch 31, 2022 ; however, the Company can give no assurance as to the ultimate impact of rising interest rates or as to when or for how long the Company may experience an increase in the NIM. Provision for Loan Losses The provision for loan losses is a charge against earnings necessary to maintain the allowance for loan losses at a level consistent with management's evaluation of the portfolio. This expense is based on management's estimate of probable credit losses inherent in the loan portfolio. Management's evaluation included credit quality trends, collateral values, discounted cash flow analysis, loan volumes, geographic, borrower and industry concentrations, the findings of internal credit quality assessments and results from external regulatory examinations. These factors, as well as identified impaired loans, historical losses and current economic and business conditions including uncertainties associated with the COVID-19 pandemic, were used in developing estimated loss factors for determining the loan loss provision. Based on its analysis of the adequacy of the allowance for loan losses, management concluded that the provision was appropriate. For the three months endedMarch 31, 2022 , the Company recognized a provision for loan losses of$101 thousand compared to a provision of$150 thousand for the first quarter of 2021. The lower provision expense during the first quarter of 2022 was driven primarily by the shift of one large commercial relationship from pooled to individually impaired with no specific reserve, partially offset by qualitative factor adjustments for volume trends. Charged-off loans totaled$700 thousand in the first quarter of 2022, compared to$316 thousand in the first quarter of 2021. Recoveries amounted to$254 thousand and$286 thousand for the quarters endedMarch 31, 2022 and 2021, respectively. The Company's annualized net loans charged off to average loans were 0.21% for the first quarter of 2022 as compared to 0.01% for the first quarter of 2021. The state of the local economy can have a significant impact on the level of loan charge-offs. If the economy begins to contract, nonperforming assets could increase as a result of declines in real estate values and home sales or increases in unemployment rates and financial stress on borrowers. Increased nonperforming assets would increase charge-offs and reduce earnings due to larger contributions to the loan loss provision. 30
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Noninterest Income Noninterest income was$3.5 million for the three months endedMarch 31, 2022 , a decrease of$619 thousand or 15.0% from the first quarter of 2021. Although fiduciary and asset management fees, service charges on deposit accounts, other service charges, commissions and fees, bank-owned life insurance income, and other operating income increased compared to the prior year quarter, these increases were offset by lower mortgage banking income driven by reductions in volume which were attributable to changes in mortgage market conditions, resulting in a decline in noninterest income for the first quarter of 2022 when compared to the prior year quarter.
The Company continues to focus on diversifying noninterest income through efforts to expand Trust, insurance, and mortgage banking activities, and a continued focus on business checking and other corporate services.
Noninterest Expense Noninterest expense was$10.7 million for the first quarter of 2022, an increase of$155 thousand , or 1.5%, compared to$10.6 million for the first quarter of 2021. The increase over the prior year quarter was primarily driven by increased salary and benefit expense and employee professional development related to recruiting partially offset by decreased ATM and other losses and other operating expenses. The increase in salary and benefits was related to lower commission expense of$215 thousand offset by lower deferred loan costs of$381 thousand . During the first quarter of 2022, the Company completed implementation of a new online account opening solution, continues to navigate the ongoing roadmap for bank-wide technology and operating efficiency initiatives, is actively assessing major vendor contracts and relationships, and completed the closure of two branches, creating a more streamlined branch footprint. The Company's income tax expense decreased$263 thousand for the first quarter of 2022 when compared to the same period in 2021 primarily due to changes in the levels of net income and the mix of effective tax exempt income. The effective federal income tax rates for the three months endedMarch 31, 2022 andMarch 31, 2021 were 13.1% and 15.9%, respectively. Balance Sheet Review AtMarch 31, 2022 , the Company had total assets of$1.3 billion , a decrease of$12.8 million compared to assets as ofDecember 31, 2021 . Net loans held for investment increased$12.1 million or 1.5%, from$833.7 million atDecember 31, 2021 to$845.7 million atMarch 31, 2022 . Loans held for investment, excluding PPP (non-GAAP), grew 2.8%, or$23.2 million , driven by loan growth in the following segments: commercial real estate of$12.6 million , construction, land development, and other land loans of$6.1 million , and multi-family residential real estate of$7.7 million . This segmented growth was partially offset by a decrease in PPP loans of$11.5 million . Cash and cash equivalents decreased$29.6 million or 15.8% fromDecember 31, 2021 toMarch 31, 2022 , and securities available for sale increased$3.7 million or 1.6% over the same period as additional liquidity provided by growth in deposit accounts was deployed in the Company's investment portfolio. Total deposits of$1.2 billion as ofMarch 31, 2022 increased$1.8 million , or 0.2% fromDecember 31, 2021 . Noninterest-bearing deposits decreased$36.4 million , or 8.6%, savings deposits increased$42.3 million , or 7.2%, and time deposits decreased$4.1 million , or 2.5%. Liquidity continues to be impacted by record cumulative levels of consumer savings, government stimulus, and PPP loan related deposits. The Company utilized the PPPLF initiated by theFederal Reserve Bank to partially fund PPP loan originations. PPPLF borrowings were fully repaid during the first quarter of 2022 compared to$480 thousand atDecember 31, 2021 . The Company also utilizes FHLB advances as a source of liquidity as needed. AtMarch 31, 2022 andDecember 31, 2021 , the Company had no FHLB advances. Securities Portfolio When comparingMarch 31, 2022 toDecember 31, 2021 , securities available-for-sale increased$3.7 million , or 1.5%. The majority of the change was due primarily to purchases ofU.S. Treasury securities, securities issued by state and political subdivisions, and corporate bonds and other securities to deploy additional liquidity provided by growth in deposit accounts rather than holding in lower yielding cash reserves. The Company's strategy for the securities portfolio is primarily intended to manage the portfolio's susceptibility to interest rate risk and to provide liquidity to fund loan growth. The securities portfolio is also adjusted to achieve other asset/liability objectives, including pledging requirements, and to manage tax exposure when necessary. 31
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The following table sets forth a summary of the securities portfolio:
TABLE 3: SECURITIES PORTFOLIO
March 31, December 31,
(Dollars in thousands) 2022 2021
U.S. Treasury securities $ 17,895 $ 14,904
Obligations of U.S. Government agencies 37,247 38,558
Obligations of state and political subdivisions 67,756 65,803 Mortgage-backed securities 86,575 89,058 Money market investments 1,147 2,413 Corporate bonds and other securities 27,403
23,585
238,023 234,321
Restricted securities: Federal Home Loan Bank stock$ 682
383
Federal Reserve Bank stock 665
609
Community Bankers' Bank stock 42 42
1,389 1,034
Total Securities $ 239,412 $ 235,355
For more information about the Company's securities available for sale,
including information about securities in an unrealized loss position at March
31, 2022 and December 31, 2021 , see Part I, Item 1, "Financial Statements" under
the heading Note 2, Securities in this Quarterly Report on Form 10-Q.
Loan Portfolio
The following table shows a breakdown of total loans by segment at March 31,
2022 and December 31, 2021 .
TABLE 5: LOAN PORTFOLIO
March 31, December 31,
(Dollars in thousands) 2022 2021
Commercial and industrial $ 58,886 $ 68,690
Real estate-construction 64,502 58,440
Real estate-mortgage (1) 212,824 206,368
Real estate-commercial 394,987 382,603
Consumer 117,701 118,441
Other 6,334 8,984
Ending Balance $ 855,234 $ 843,526
(1) The real estate-mortgage segment included residential 1-4 family, multi-family, second mortgages and equity lines of credit.
Based on the North American Industry Classification System code, there are no categories of loans that exceed 10% of total loans other than the categories disclosed in the preceding table. As ofMarch 31, 2022 , the total loan portfolio increased by$11.7 million or 1.4% fromDecember 31, 2021 , primarily due to increases in real estate construction, real estate mortgage, and real estate-commercial which were offset by reductions in commercial and industrial due to a decline of$11.5 million in PPP loans outstanding. Net loans held for investment increased 1.5% fromDecember 31, 2021 toMarch 31, 2022 . Loans held for investment (net of deferred fees and costs), excluding PPP (non-GAAP), grew 2.8%. For more information about the Company's loan portfolio atMarch 31, 2022 andDecember 31, 2021 , see Part I, Item 1, "Financial Statements" under the heading Note 3, Loans and the Allowance for Loan Losses in this Quarterly Report on Form 10-Q. 32
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Nonperforming Assets Nonperforming assets consist of nonaccrual loans, loans past due 90 days or more and accruing interest, nonperforming restructured loans, and other real estate owned (OREO). Restructured loans are loans with terms that were modified in a troubled debt restructuring (TDR) for borrowers experiencing financial difficulties. Refer to Part I, Item 1, "Financial Statements" under the heading Note 3, Loans and the Allowance for Loan Losses in this Quarterly Report on Form 10-Q for more information. Nonperforming assets increased by$3.3 million from$1.5 million atDecember 31, 2021 to$4.8 million atMarch 31, 2022 . The total atMarch 31, 2022 consisted of$624 thousand in loans still accruing interest but past due 90 days or more and$4.2 million in nonaccrual loans. All of the nonaccrual loans are classified as impaired and 93.9% of the nonaccrual loans atMarch 31, 2022 were secured by real estate. Impaired loans are a component of the allowance for loan losses. When a loan changes from "90 days past due but still accruing interest" to "nonaccrual" status, the loan is normally reviewed for impairment. If impairment is identified, then the Company records a charge-off based on the value of the collateral or the present value of the loan's expected future cash flows, discounted at the loan's effective interest rate. If the Company is waiting on an appraisal to determine the collateral's value, management allocates funds to cover the deficiency to the allowance for loan losses based on information available to management at the time. The recorded investment in impaired loans increased to$6.6 million as ofMarch 31, 2022 from$1.3 million as ofDecember 31, 2021 as detailed in Part I, Item 1, "Financial Statements" under the heading Note 3, Loans and the Allowance for Loan Losses in this Quarterly Report on Form 10-Q. The majority of these loans were collateralized. The following table presents information concerning the aggregate amount of nonperforming assets, which includes nonaccrual loans, past due loans, TDRs and OREO: TABLE 6: NONPERFORMING ASSETS March 31, December 31, (dollars in thousands) 2022 2021 Nonaccrual loans Commercial and industrial$ 255 $ 174 Real estate-construction 998 - Real estate-mortgage (1) 164 191 Real estate-commercial 2,770 113 Total nonaccrual loans$ 4,187 $ 478 Loans past due 90 days or more and accruing interest Commercial and industrial $ - $ 169 Consumer loans (2) 614 846 Other 10 10 Total loans past due 90 days or more and accruing interest$ 624 $ 1,025 Restructured loans Real estate-construction$ 78 $ 79 Real estate-mortgage (1) 418 450 Real estate-commercial 399 413 Total restructured loans$ 895 $ 942 Less nonaccrual restructured loans (included above) 164 191 Less restructured loans currently in compliance (3) 731 751 Net nonperforming, accruing restructured loans $ - $ - Nonperforming loans$ 4,811 $ 1,503 Total nonperforming assets$ 4,811 $ 1,503
Interest income that would have been recorded under original loan terms on nonaccrual loans above
$ 75 $ 11 Interest income recorded for the period on nonaccrual loans included above$ 4 $ 2 Total loans$ 855,234 $ 843,526 ALLL$ 9,520 $ 9,865 Nonaccrual loans to total loans 0.49 % 0.06 % ALLL to total loans 1.11 % 1.17 % ALLL to nonaccrual loans 227.37 % 2063.81 % (1) The real estate-mortgage segment includes residential 1 - 4 family, second mortgages and equity lines of credit. (2) Amounts listed include student loans and small business loans with principal and interest amounts that are 97 - 100% guaranteed by the federal government. The past due principal portion of these guaranteed loans totaled$409 thousand atMarch 31, 2022 and$711 thousand atDecember 31, 2021 . For additional information, refer to Note 3, Loans and Allowance for Loan Losses included in Part I, Item 1, "Financial Statements" of this report on Quarterly Report on Form 10-Q. (3) Amounts listed represent restructured loans that are in compliance with their modified terms as of the date presented. 33
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As shown in the table above, as ofMarch 31, 2022 compared toDecember 31, 2021 , the nonaccrual loan category increased by$3.7 million and the 90-days past due and still accruing interest category decreased by$401 thousand or 39.1%. The increase in nonaccrual loans during the first quarter of 2022 was driven by one well-secured large commercial relationship which was downgraded during the fourth quarter of 2021 and became impaired and placed on nonaccrual status during the first quarter of 2022. The nonaccrual loans atMarch 31, 2022 were related to eight credit relationships. All loans in these relationships have been analyzed to determine whether the cash flow of the borrower and the collateral pledged to secure the loans is sufficient to cover outstanding principal balances. The Company has set aside specific allocations for those loans without sufficient cash flow or collateral and charged off any balance that management does not expect to collect. The majority of the loans past due 90 days or more and still accruing interest atMarch 31, 2022 ($409 thousand ) were student loans. The federal government has provided guarantees of repayment of these student loans in an amount ranging from 97% to 98% of the total principal and interest of the loans; as such, management does not expect even a significant increase in past due student loans to have a material effect on the Company. Management believes the Company has excellent credit quality review processes in place to identify problem loans quickly. For a detailed discussion of the Company's nonperforming assets, refer to Part I, Item 1, "Financial Statements" under the heading Note 3, Loans and the Allowance for Loan Losses in this Quarterly Report on Form 10-Q. The Allowance for Loan Losses The allowance for loan losses is based on several components. In evaluating the adequacy of the allowance, each segment of the loan portfolio is divided into several pools of loans:
1. Specific identification (regardless of risk rating)
2. Pool-substandard
3. Pool-other assets especially mentioned (OAEM) (rated just above substandard)
4. Pool-pass loans (all other rated loans)
The first component of the allowance for loan losses is determined based on specifically identified loans that may become impaired. These loans are individually analyzed for impairment and include nonperforming loans and both performing and nonperforming TDRs. This component may also include loans considered impaired for other reasons, such as outdated financial information on the borrower or guarantors or financial problems of the borrower, including operating losses, marginal working capital, inadequate cash flow, or business interruptions. Changes in TDRs and nonperforming loans affect the dollar amount of the allowance. Increases in the impairment allowance for TDRs and nonperforming loans are reflected as an increase in the allowance for loan losses except in situations where the TDR or nonperforming loan does not require a specific allocation (i.e., the discounted present value of expected future cash flows or the collateral value is considered sufficient). The majority of the Company's TDRs and nonperforming loans are collateralized by real estate. When reviewing loans for impairment, the Company obtains current appraisals when applicable. If the Company has not yet received a current appraisal on loans being reviewed for impairment, any loan balance that is in excess of the estimated appraised value is allocated in the allowance. As ofMarch 31, 2022 andDecember 31, 2021 , the impaired loan component of the allowance for loan losses amounted to$33 thousand and$128 thousand , respectively. The decrease in the impaired loan component is due primarily to the charge-off of one credit relationship. The impaired loan component of the allowance for loan losses is reflected as a valuation allowance related to impaired loans in Note 3, Loans and the Allowance for Loan Losses included in Part I, Item 1, "Financial Statements" in this Quarterly Report on Form 10-Q. The second component of the allowance consists of qualitative factors and includes items such as economic conditions, growth trends, loan concentrations, changes in certain loans, changes in underwriting, changes in management and legal and regulatory changes. Historical loss is the final component of the allowance for loan losses. The calculation of the historical loss component is conducted on loans evaluated collectively for impairment and uses migration analysis with eight migration periods covering twelve quarters each on pooled segments. These segments are based on the loan classifications set by theFederal Financial Institutions Examination Council in the instructions for the Call Report applicable to the Bank. Consumer loans not secured by real estate and made to individuals for household, family and other personal expenditures are segmented into pools based on whether the loan's payments are current (including loans 1 - 29 days past due), 30 - 59 days past due, 60 - 89 days past due, or 90 days or more past due. All other loans, including loans to consumers that are secured by real estate, are segmented by the Company's internally assigned risk grades: substandard, other assets especially mentioned (rated just above substandard), and pass (all other loans). The Company may also assign loans to the risk grades of doubtful or loss, but as ofMarch 31, 2022 andDecember 31, 2021 , the Company had no loans in these categories. 34
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The overall historical loss rate fromDecember 31, 2021 toMarch 31, 2022 , improved 8 basis points as a percentage of loans evaluated collectively for impairment as a result of overall improving asset quality. For the same period, the qualitative factor components increased 1 basis point as a percentage of loans evaluated collectively for impairment overall. This increase was primarily due to adjustments for change in volume for certain segments. While there have not been significant changes in overall credit quality of the loan portfolio fromDecember 31, 2021 toMarch 31, 2022 , management will continue to monitor economic recovery challenges at macro and micro levels, including levels of inflation, the impacts of new COVID-19 variants, expansion and contraction of pandemic-related government stimulus efforts, supply chain disruption, and employment levels, which may be delaying signs of credit deterioration. If there are further challenges to the economic recovery, elevated levels of risk within the loan portfolio may require additional increases in the allowance for loan losses. On a combined basis, the historical loss and qualitative factor components amounted to$9.5 million as ofMarch 31, 2022 and$9.7 million as ofDecember 31, 2021 . Management is monitoring portfolio activity, such as levels of deferral and/or modification requests, deferral and/or modification concentration levels by collateral, as well as industry concentration levels to identify areas within the loan portfolio which may create elevated levels of risk should the economic environment created by uncertainty related to COVID-19 pandemic present indications of economic instability that is other than temporary in nature. Overall Change in Allowance As a result of management's analysis, the Company added, through the provision,$101 thousand to the ALLL for the quarter endedMarch 31, 2022 . The ALLL, as a percentage of period-end loans held for investment, was 1.11% and 1.17% atMarch 31, 2022 andDecember 31, 2021 , respectively. The decrease in the ALLL as a percentage of loans held for investment atMarch 31, 2022 compared to theDecember 31, 2021 was primarily attributable to: (i) an increase in loans held for investment, excluding PPP loans (non-GAAP); (ii) continued improvement in historical qualitative loss rates; and (iii) the shift of one large commercial relationship from pooled to individually impaired with no specific reserve, partially offset by qualitative factor adjustments for volume trends. Excluding PPP loans, the ALLL as a percentage of loans held for investment was 1.12% and 1.20% at March 31 2022 and December 31, 2021, respectively. Loans held for investment excluding PPP loans is a non-GAAP financial measure. For more information about financial measures that are not calculated in accordance with GAAP, please see "Non-GAAP Financial Measures" below. Management believes that the allowance has been appropriately funded for losses on existing loans, based on currently available information. Low levels of past dues and year-over-year quantitative historical loss rates continue to demonstrate improvement. The Company will continue to monitor the loan portfolio, levels of nonperforming assets, and the sustainability of improving asset quality trends experienced closely and make changes to the allowance for loan losses when necessary. As the economic impact of the COVID-19 pandemic continues to evolve, elevated levels of risk within the loan portfolio may require additional increases in the ALLL. The allowance for loan losses represents an amount that, in management's judgement, will be adequate to absorb probable and estimable losses inherent in the loan portfolio. The provision for loan losses increase the allowance and loans charged-off, net of recoveries, reduce the allowance. The following table presents the Company's loan loss experience for the periods indicated: TABLE 7: ALLOWANCE FOR LOAN LOSSES For the three month ended March 31, 2022 Commercial Real Estate Real
Estate - Real Estate - (Dollars in thousands) and Industrial Construction Mortgage (1) Commercial Consumer Other Unallocated
Total
Allowance for loan losses:
Balance, beginning $ 683 $ 459 $
2,390 $ 4,787
-$ 9,865 Charge-offs (296 ) - - - (307 ) (97 ) - (700 ) Recoveries 77 - 30 - 116 31 - 254 Provision for loan losses 72 45 14 (187 ) 170 (13 ) - 101 Ending Balance $ 536 $ 504 $ 2,434 $ 4,600$ 1,341 $ 105 $ -$ 9,520 Average loans 67,002 60,513 212,063 398,547 116,691 7,375 862,191 Ratio of net charge-offs to average loans 0.33 % 0.00 % -0.01 % 0.00 % 0.16 % 0.89 % 0.05 % For the three month ended March 31, 2021 Commercial Real Estate Real Estate - Real Estate - (Dollars in thousands) and Industrial Construction Mortgage (1) Commercial Consumer Other Unallocated Total Allowance for loan losses: Balance, beginning $ 650 $ 339 $ 2,560 $ 4,434$ 1,302 $ 123 $ 133$ 9,541 Charge-offs (4 ) - (1 ) - (197 ) (114 ) - (316 ) Recoveries 2 - 14 1 213 56 - 286 Provision for loan losses 93 (17 ) (24 ) (118 ) (33 ) 196 53 150 Ending Balance $ 741 $ 322 $ 2,549 $ 4,317$ 1,285 $ 261 $ 186$ 9,661 Average loans 128,458 42,744 205,115 323,380 116,981 8,764 825,442 Ratio of net charge-offs to average loans 0.00 % 0.00 % -0.01 % 0.00 % -0.01 % 0.66 % 0.00 %
(1) The real estate-mortgage segment included residential 1-4 family, multi-family, second mortgages and equity lines of credit.
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The following table shows the amount of the allowance for loan losses allocated
to each category and the ratio of corresponding outstanding loan balances as of
the periods indicated. Although the allowance for loan losses is allocated into
these categories, the entire allowance for loan losses is available to cover
loan losses in any category.
TABLE 8: ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
March 31, December 31,
2022 2021
Percent of Percent of
Loans to Loans to
Total Total
(Dollars in thousands) Amount Loans Amount Loans
Commercial and industrial $ 536 6.89 % $ 683 8.14 %
Real estate-construction 504 7.54 % 459 6.93 %
Real estate-mortgage (1) 2,434 24.88 % 2,390 24.46 %
Real estate-commercial 4,600 46.18 % 4,787 45.36 %
Consumer 1,341 13.76 % 1,362 14.04 %
Other 105 0.74 % 184 1.07 %
Ending Balance $ 9,520 100.00 % $ 9,865 100.00 %
(1) The real estate-mortgage segment included residential 1-4 family, multi-family, second mortgages and equity lines of credit.
Deposits
The following table shows the average balances and average rates paid on deposits for the periods presented.
TABLE 9: DEPOSITS
Three months ended March 31,
2022 2021
Average Average Average Average
(Dollars in thousands) Balance Rate Balance Rate
Interest-bearing transaction $ 75,129 0.02 % $ 67,759 0.02 %
Money market 389,368 0.17 % 347,530 0.24 %
Savings 126,258 0.03 % 108,262 0.04 %
Time deposits 167,859 0.87 % 191,298 1.24 %
Total interest bearing 758,614 0.29 % 714,849 0.45 %
Demand 414,080 368,073
Total deposits $ 1,172,694 $ 1,082,922
The Company's average total deposits were $1.2 billion for the three months
ended March 31, 2022 , an increase of $89.8 million or 8.3% from average total
deposits for the three months ended March 31, 2021 . Demand deposit and money
market account categories had the largest increases, totaling $46.0 million and
$41.8 million , respectively. Average time deposits, which is the Company's most
expensive deposit category, decreased by a total of $23.4 million as seen in the
table above. The average rate paid on interest-bearing deposits by the Company
in 2022 was 0.29% compared to 0.45% in 2021.
The impact of government stimulus, PPP loan related deposits, and higher levels
of consumer savings were primary drivers of the increase in total deposits. The
Company remains focused on increasing lower-cost deposits by actively targeting
new noninterest-bearing deposits and savings deposits.
As of March 31, 2022 and 2021, the estimated amounts of total uninsured deposits
were $273.7 million and $240.7 million , respectively. The following table shows
maturities of the estimated amounts of uninsured time deposits at March 31,
2022 . The estimate of uninsured deposits generally represents the portion of
deposit accounts that exceed the FDIC insurance limit of $250,000 and is
calculated based on the same methodologies and assumptions used for purposes of
the Bank's regulatory reporting requirements.
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TABLE 10: MATURITIES OF UNINSURED TIME DEPOSITS
As of March 31,
(dollars in thousands) 2022 2021
Maturing in:
Within 3 months $ 12,631 $ 13,006
4 through 6 months 8,512 4,381
7 through 12 months 4,397 8,913
Greater than 12 months 13,226 16,020
$ 38,766 $ 42,320
Capital Resources
Total stockholders' equity as of March 31, 2022 was $108.1 million , down 10.5%
from $120.8 million on December 31, 2021 . The decrease was related to unrealized
losses in the market value of securities available for sale, which are
recognized as a component of accumulated other comprehensive (loss) income and
was driven by increases in market interest rates, and the repurchase of 122,995
shares, for an aggregate purchase price of $3.0 million , under the Company's
share repurchase program, partially offset by retained earnings.
The assessment of capital adequacy depends on such factors as asset quality,
liquidity, earnings performance, and changing competitive conditions and
economic forces. The adequacy of the Company's and the Bank's capital is
regularly reviewed. The Company targets regulatory capital levels that will
assure an adequate level of capital to support anticipated asset growth and to
absorb potential losses. While the Company will continue to look for
opportunities to invest capital in profitable growth, the Company will also
consider investing capital in other transactions, such as share repurchases,
that facilitate improving shareholder return, as measured by ROE and earnings
per share.
The Bank's capital position remains strong as evidenced by the regulatory
capital measurements. Under the banking regulations, Total Capital is composed
of core capital (Tier 1) and supplemental capital (Tier 2). Tier 1 capital
consists of common stockholders' equity less goodwill. Tier 2 capital consists
of certain qualifying debt and a qualifying portion of the allowance for loan
losses.
In June 2013 , the federal bank regulatory agencies adopted the Basel III Capital
Rules (i) to implement the Basel III capital framework and (ii) for calculating
risk-weighted assets. These rules became effective January 1, 2015 , subject to
limited phase-in periods. The EGRRCPA, enacted in May 2018 , required action by
the FRB to expand the applicability of its Small Bank Holding Company Policy
Statement, which, among other things, exempts certain bank holding companies
from reporting consolidated regulatory capital ratios and from minimum
regulatory capital requirements that apply to other bank holding companies. In
August 2018 , the FRB issued an interim final rule provisionally expanding the
applicability of the small bank holding company policy statement to bank holding
companies with consolidated total assets of less than $3 billion . The statement
previously applied only to bank holding companies with consolidated total assets
of less than $1 billion . As a result of the interim final rule, which was
effective upon its issuance, the Company expects that it will be treated as a
small bank holding company and will not be subject to regulatory capital
requirements. For an overview of the Basel III Capital Rules and the EGRRCPA,
refer to "Regulation and Supervision" included in Item 1, "Business" of the
Company's 2021 Form 10-K.
On
In order to qualify for the CBLR framework, a community banking organization must have a Tier 1 leverage ratio of greater than 9%, less than$10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. The CBLR framework was available for banks to begin using in theirMarch 31, 2020 , Call Report. The Bank did not opt into the CBLR framework. 37
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The following is a summary of the Bank's capital ratios as of
TABLE 11: REGULATORY CAPITAL
2022 2021
Regulatory Regulatory
Minimums
12.19 % 4.500 % 12.57 %
Tier 1 Capital to Risk-Weighted Assets 6.000 % 12.19 % 6.000 % 12.57 %
Tier 1 Leverage to Average Assets 4.000 % 9.18 % 4.000 % 9.09 %
Total Capital to Risk-Weighted Assets 8.000 % 13.15 % 8.000 % 13.61 %
Capital Conservation Buffer 2.500 % 5.15 % 2.500 % 5.61 %
Risk-Weighted Assets (in thousands) $ 995,172 $ 952,218
On July 14, 2021 , the Company issued $30.0 million in aggregate principal amount
of 3.50% fixed-to-floating rate subordinated notes due 2031 (the Notes) in a
private placement transaction. The Notes initially bear interest at a fixed
rate of 3.50% for five years and convert to three month SOFR plus 286 basis
points, resetting quarterly, thereafter. The Notes were structured to qualify
as Tier 2 capital for regulatory purposes and are included in the Company's Tier
2 capital as of March 31, 2022 and December 31, 2021 .
Effective October 19, 2021 , the Company's Board of Directors approved a stock
repurchase program. The Company is authorized pursuant to this program to
repurchase up to 10% of the Company's issued and outstanding common stock
through November 30, 2022 . Repurchases under the program may be made through
privately negotiated transactions or open market transactions, including
pursuant to a trading plan in accordance with Rule 10b5-1 and/or Rule 10b-18
under the Exchange Act and shares repurchased will be returned to the status of
authorized and unissued shares of common stock. The timing, number and purchase
price of shares repurchased under the program, if any, will be determined by
management in its discretion and will depend on a number of factors, including
the market price of the shares as a percentage of tangible book value, general
market and economic conditions, applicable legal requirements and other
conditions, and there is no assurance that the Company will purchase any shares
under the program. The Company repurchased 122,995 shares of the Company's
common stock at an aggregate cost of $3.0 million under this plan during the
first quarter of 2022.
Liquidity
Liquidity is the ability of the Company to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management. Liquid assets include cash, interest-bearing deposits with banks, federal funds sold, investments in securities and loans maturing within one year.
A major source of the Company's liquidity is its large, stable deposit base. In addition, secondary liquidity sources are available through the use of borrowed funds if the need should arise, including secured advances from the FHLB and FRB. As of the end of the first quarter of 2022, the Company had$399.0 million in FHLB borrowing availability based on loans and securities currently available for pledging. The Company believes that the availability at the FHLB is sufficient to meet future cash-flow needs. The Company also has available short-term, unsecured borrowed funds in the form of federal funds lines of credit with correspondent banks. Based on the Company's management of liquid assets, the availability of borrowed funds, and the Company's ability to generate liquidity through liability funding, management believes that the Company maintains overall liquidity sufficient to satisfy its depositors' requirements and to meet its customers' future borrowing needs. Notwithstanding the foregoing, the Company's ability to maintain sufficient liquidity may be affected by numerous factors, including economic conditions nationally and in the Company's markets. Depending on its liquidity levels, its capital position, conditions in the capital markets and other factors, the Company may from time to time consider the issuance of debt, equity, other securities or other possible capital markets transactions, the proceeds of which could provide additional liquidity for the Company's operations.
The following table sets forth information relating to the Company's sources of
liquidity and the outstanding commitments for use of liquidity at
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TABLE 12: LIQUIDITY SOURCES AND USES
March 31,
2022
(dollars in thousands) Total In Use Available
Sources:
Federal funds lines of credit $ 115,000 $ - $ 115,000
Federal Home Loan Bank advances 399,020 - 399,020
Federal funds sold & balances at the Federal Reserve 141,964
Securities, available for sale and unpledged at fair value 176,084
Total short-term funding sources $ 832,068
Uses: (1)
Unfunded loan commitments and lending lines of credit 74,457
Letters of credit 1,083
Total potential short-term funding uses 75,540
Liquidity coverage ratio 1101.5 %
(1) Represents partial draw levels based on loan segment.
The Company's operating activities provided$4.5 million of cash during the three months endedMarch 31, 2022 , compared to$14.2 million provided during the comparative 2021 period. The Company's investing activities used$30.8 million of cash during the first quarter of 2022, compared to$18.4 million of cash provided during the first quarter of 2021. The Company's financing activities used$3.4 million and provided$24.4 million of cash during the three months endedMarch 31, 2022 and 2021, respectively. Management is not aware of any market or institutional trends, events or uncertainties that are expected to have a material effect on the liquidity, capital resources or operations of the Company. Nor is management aware of any current recommendations by regulatory authorities that would have a material effect on liquidity or operations. The Company's internal sources of liquidity are deposits, loan and investment repayments and securities available-for-sale. The Company's primary external source of liquidity is advances from the FHLB. In the ordinary course of business the Company has entered into contractual obligations and has made other commitments to make future payments. As ofMarch 31, 2022 , there have been no material changes outside the ordinary course of business as disclosed in the Company's contractual obligations disclosed in the Company's 2021 Form 10-K.
Off-Balance Sheet Arrangements
As of
Non-GAAP Financial Measures In reporting the results of the quarter endedMarch 31, 2022 , the Company has provided supplemental financial measures on a tax equivalent or an adjusted basis. These non-GAAP financial measures are a supplement to GAAP, which is used to prepare the Company's financial statements, and should not be considered in isolation or as a substitute for comparable measures calculated in accordance with GAAP. In addition, the Company's non-GAAP financial measures may not be comparable to non-GAAP financial measures of other companies. The Company uses the non-GAAP financial measures discussed herein in its analysis of the Company's performance. The Company's management believes that these non-GAAP financial measures provide additional understanding of ongoing operations and enhance comparability of results of operations with prior periods presented without the impact of items or events that may obscure trends in the Company's underlying performance. A reconciliation of the non-GAAP financial measures used by the Company to evaluate and measure the Company's performance to the most directly comparable GAAP financial measures is presented below. 39
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TABLE 13: Non-GAAP FINACIAL MEASURES
Three Months Ended March 31,
(dollar in thousands, except per share data) 2022 2021
Fully Taxable Equivalent Net Interest Income
Net interest income (GAAP) $ 9,637 $ 10,156
FTE adjustment 68 59
Net interest income (FTE) (non-GAAP) $ 9,705 $ 10,215
Noninterest income (GAAP) 3,515 4,134
Total revenue (FTE) (non-GAAP) $ 13,220 $ 14,349
Noninterest expense (GAAP) 10,713 10,558
Average earning assets $ 1,246,028 $ 1,150,231
Net interest margin 3.14 % 3.58 %
Net interest margin (FTE) (non-GAAP) 3.16 % 3.60 %
Tangible Book Value Per Share March 31, 2022 December 31, 2021
Total Stockholders Equity (GAAP) $ 108,099 $ 120,818
Less goodwill 1,650 1,650
Less core deposit intangible 264 275
Tangible Stockholders Equity (non-GAAP) $ 106,185 $ 118,893
Shares issued and outstanding 5,118,193 5,239,707
Book value per share $ 21.12 $ 23.06
Tangible book value per share $ 20.75 $ 22.69
ALLL as a Percentage of Loans Held for Investment March 31, 2022 December 31, 2021 March 31, 2021
Loans held for investment (net of deferred fees and costs) (GAAP)
$ 855,234 $ 843,526$ 807,661 Less PPP originations 7,509 19,008 66,805 Loans held for investment, (net of deferred fees and costs), excluding PPP (non-GAAP)$ 847,725 $ 824,518$ 740,856 ALLL $ 9,520 $ 9,865 $ 9,661 ALLL as a Percentage of Loans Held for Investment 1.11 % 1.17 % 1.20 %
ALLL as a Percentage of Loans Held for Investment, net of PPP originations
1.12 % 1.20 % 1.30 %
Cautionary Statement Regarding Forward-Looking Statements
This report contains statements concerning the Company's expectations, plans,
objectives or beliefs regarding future financial performance and other
statements that are not historical facts. These statements may constitute
"forward-looking statements" as defined by federal securities laws and may
include, but are not limited to: statements regarding expected future operations
and financial performance? current and future interest rate levels and
fluctuations; the Company's technology and efficiency initiatives and
anticipated completion timelines; potential effects of the COVID-19 pandemic,
including on asset quality, the allowance for loan losses, provision for loan
losses, interest rates, and results of operations; certain items that management
does not expect to have an ongoing impact on consolidated net income; net
interest margin compression and items affecting net interest margin; strategic
business initiatives and the anticipated effects thereof, forgiveness of loans
originated under the Paycheck Protection Program (PPP) of the Small Business
Administration and the related impact on the Company's results of operations;
asset quality; adequacy of allowances for loan losses and the level of future
chargeoffs; liquidity and capital levels; and the effect of future market and
industry trends. These forward-looking statements are subject to significant
risks and uncertainties due to factors that could have a material adverse effect
on the operations and future prospects of the Company including, but not limited
to, changes in:
• interest rates, such as increases or volatility in short-term interest rates or
yields on
rates, and the impacts on macroeconomic conditions, customer and client
behavior and the Company's funding costs
• general business conditions, as well as conditions within the financial markets
• general economic conditions, including unemployment levels, supply chain
disruptions, higher inflation, and slowdowns in economic growth, including
related to further and sustained economic impacts of the COVID-19 pandemic
• the effectiveness of the Company's efforts to respond to COVID-19, the severity
and duration of the pandemic, the impact of loosening of governmental
restrictions, the uncertainty regarding new variants, the pace and efficacy of
vaccinations and treatment developments, the pace and durability of economic
recovery and the heightened impact that COVID-19 may have on many of the risks
described herein
• the Company's branch realignment initiatives
• the Company's technology, efficiency, and other strategic initiatives
• the legislative/regulatory climate, regulatory initiatives with respect to
financial institutions, products and services, the Consumer Financial
theCFPB 40
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Index
• monetary and fiscal policies of the
Reserve System, and the effect of these policies on interest rates and business
in our markets
• future levels of government defense spending particularly in the Company's
service area
• the impact of potential changes in the political landscape and related policy
changes, including monetary, regulatory and trade policies
• the
purchased by the Company
• the value of securities held in the Company's investment portfolios
• demand for loan products and the impact of changes in demand on loan growth
• the quality or composition of the loan portfolios and the value of the
collateral securing those loans
• changes in the volume and mix of interest-earning assets and interest-bearing
liabilities
• the effects of management's investment strategy and strategy to manage the net
interest margin
• the level of net charge-offs on loans and the adequacy of our allowance for
loan and lease losses
• performance of the Company's dealer lending program
• deposit flows
• the strength of the Company's counterparties
• competition from both banks and non-banks
• demand for financial services in the Company's market area
• implementation of new technologies
• the Company's ability to develop and maintain secure and reliable electronic
systems
• any interruption or breach of security in the Company's information systems or
those of the Company's third-party vendors or their service providers
• reliance on third parties for key services
• cyber threats, attacks or events
• potential adverse effects of unusual and infrequently occurring events, such as
weather-related disasters, terrorist acts, geopolitical conflicts, such as the
ongoing conflict between
the COVID-19 pandemic, and of governmental and societal responses thereto
• the use of inaccurate assumptions in management's modeling systems
• technological risks and developments
• the commercial and residential real estate markets
• the demand in the secondary residential mortgage loan markets
• expansion of the Company's product offerings
• accounting principles, policies and guidelines and elections made by the
Company thereunder These risks and uncertainties, and the risks discussed in more detail in Item 1A. "Risk Factors," of Part I of the Company's 2021 Form 10-K should be considered in evaluating the forward-looking statements contained herein. Forward-looking statements generally can be identified by the use of words such as "believe," "expect," "anticipate," "estimate," "plan," "may," "will," "intend," "should," "could," or similar expressions, are not statements of historical fact, and are based on management's beliefs, assumptions and expectations regarding future events or performance as of the date of this report, taking into account all information currently available. Readers are cautioned not to place undue reliance on such statements. Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which it is made, except as otherwise required by law. In addition, past results of operations are not necessarily indicative of future results.
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