UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 20222023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-16435
|
|
Vermont | 03-0284070 | ||
(State of Incorporation) |
| (IRS Employer Identification Number) |
4811 US Route 5, Derby, Vermont | 05829 | ||
(Address of Principal Executive Offices) |
| (zip code) |
Registrant’sRegistrant's Telephone Number: (802) 334-7915
Securities registered pursuant to Section 12(b) of the Act: NONE
Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered |
| (Not Applicable) |
|
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file for such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ NO ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated Filer | ☒ | Smaller reporting company | ☒ |
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
At May 4, 2022,02, 2023, there were 5,391,5185,455,805 shares outstanding of the Corporation’sCorporation's common stock.
FORM 10-Q
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| 3 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 28 |
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| 50 |
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2 |
Table of Contents |
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
The following are the unaudited consolidated financial statements for the Company.
Community Bancorp. and Subsidiary |
| March 31, |
| December 31, |
|
| March 31 |
| December 31, |
| ||||||
Consolidated Balance Sheets |
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
|
| (Unaudited) |
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| (Unaudited) |
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Assets |
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Cash and due from banks |
| $ | 17,330,851 |
| $ | 17,839,374 |
|
| $ | 7,521,058 |
| $ | 12,302,771 |
| ||
Federal funds sold and overnight deposits |
|
| 67,121,921 |
|
|
| 92,519,552 |
|
|
| 30,123,942 |
|
|
| 58,837,557 |
|
Total cash and cash equivalents |
| 84,452,772 |
| 110,358,926 |
|
| 37,645,000 |
| 71,140,328 |
| ||||||
Securities available-for-sale |
| 185,755,566 |
| 182,342,459 |
|
| 192,679,330 |
| 192,918,109 |
| ||||||
Restricted equity securities, at cost |
| 1,390,950 |
| 1,434,450 |
|
| 1,436,550 |
| 1,411,750 |
| ||||||
Loans held-for-sale |
| 246,000 |
| 339,000 |
| |||||||||||
Loans |
| 696,293,182 |
| 689,988,533 |
|
| 758,586,712 |
| 748,548,608 |
| ||||||
Allowance for loan losses |
| (7,890,648 | ) |
| (7,710,256 | ) | ||||||||||
Deferred net loan cost (fees) |
|
| 274,346 |
|
|
| (37,972 | ) | ||||||||
Allowance for credit losses |
| (9,256,170 | ) |
| (8,709,225 | ) | ||||||||||
Deferred net loan costs |
|
| 509,611 |
|
|
| 493,275 |
| ||||||||
Net loans |
| 688,676,880 |
| 682,240,305 |
|
| 749,840,153 |
| 740,332,658 |
| ||||||
Bank premises and equipment, net |
| 13,503,142 |
| 13,767,328 |
|
| 12,874,462 |
| 13,042,468 |
| ||||||
Accrued interest receivable |
| 2,719,138 |
| 2,400,560 |
|
| 3,111,173 |
| 3,214,332 |
| ||||||
Bank owned life insurance |
| 5,093,288 |
| 5,073,228 |
|
| 5,173,002 |
| 5,153,387 |
| ||||||
Goodwill |
| 11,574,269 |
| 11,574,269 |
|
| 11,574,269 |
| 11,574,269 |
| ||||||
Other assets |
|
| 11,778,865 |
|
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| 9,575,274 |
|
|
| 16,205,454 |
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| 17,244,846 |
|
Total assets |
| $ | 1,005,190,870 |
|
| $ | 1,019,105,799 |
|
| $ | 1,030,539,393 |
|
| $ | 1,056,032,147 |
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Liabilities and Shareholders’ Equity |
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Liabilities and Shareholders' Equity |
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Liabilities |
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Deposits: |
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Demand, non-interest bearing |
| $ | 203,661,459 |
| $ | 209,465,151 |
|
| $ | 200,311,094 |
| $ | 216,093,534 |
| ||
Interest-bearing transaction accounts |
| 258,401,561 |
| 265,513,937 |
|
| 279,977,413 |
| 294,050,079 |
| ||||||
Money market funds |
| 130,731,075 |
| 129,728,954 |
|
| 132,554,229 |
| 140,117,086 |
| ||||||
Savings |
| 177,994,875 |
| 168,390,905 |
|
| 170,452,633 |
| 171,072,921 |
| ||||||
Time deposits, $250,000 and over |
| 17,106,871 |
| 17,463,871 |
|
| 16,737,914 |
| 15,632,058 |
| ||||||
Other time deposits |
|
| 89,404,604 |
|
|
| 88,837,135 |
|
|
| 88,511,815 |
|
|
| 86,006,601 |
|
Total deposits |
| 877,300,445 |
| 879,399,953 |
|
| 888,545,098 |
| 922,972,279 |
| ||||||
Borrowed funds |
| 1,300,000 |
| 1,300,000 |
|
| 1,300,000 |
| 1,300,000 |
| ||||||
Repurchase agreements |
| 28,744,011 |
| 32,609,875 |
|
| 38,058,036 |
| 33,077,829 |
| ||||||
Junior subordinated debentures |
| 12,887,000 |
| 12,887,000 |
|
| 12,887,000 |
| 12,887,000 |
| ||||||
Accrued interest and other liabilities |
|
| 7,514,626 |
|
|
| 8,148,703 |
|
|
| 10,069,472 |
|
|
| 10,618,676 |
|
Total liabilities |
|
| 927,746,082 |
|
|
| 934,345,531 |
|
|
| 950,859,606 |
|
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| 980,855,784 |
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Shareholders’ Equity |
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Preferred stock, 1,000,000 shares authorized, 15 shares issued and outstanding at 03/31/22 and 12/31/21 ($100,000 liquidation value, per share) |
| 1,500,000 |
| 1,500,000 |
| |||||||||||
Common stock - $2.50 par value; 15,000,000 shares authorized, 5,602,178 shares issued at 03/31/22 and 5,587,939 shares issued at 12/31/21 |
| 14,005,445 |
| 13,969,848 |
| |||||||||||
Shareholders' Equity |
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Preferred stock, 1,000,000 shares authorized, 15 shares issued and outstanding |
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at 03/31/23 and 12/31/22 ($100,000 liquidation value, per share) |
| 1,500,000 |
| 1,500,000 |
| |||||||||||
Common stock - $2.50 par value; 15,000,000 shares authorized, 5,665,187 |
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shares issued at 03/31/23 and 5,647,710 shares issued at 12/31/22 |
| 14,162,968 |
| 14,119,275 |
| |||||||||||
Additional paid-in capital |
| 35,559,149 |
| 35,322,063 |
|
| 36,659,419 |
| 36,383,235 |
| ||||||
Retained earnings |
| 38,914,579 |
| 37,758,105 |
|
| 47,975,176 |
| 46,464,447 |
| ||||||
Accumulated other comprehensive loss |
| (9,911,608 | ) |
| (1,166,971 | ) |
| (17,994,999 | ) |
| (20,667,817 | ) | ||||
Less: treasury stock, at cost; 210,101 shares at 03/31/22 and 12/31/21 |
|
| (2,622,777 | ) |
|
| (2,622,777 | ) | ||||||||
Total shareholders’ equity |
|
| 77,444,788 |
|
|
| 84,760,268 |
| ||||||||
Total liabilities and shareholders’ equity |
| $ | 1,005,190,870 |
|
| $ | 1,019,105,799 |
| ||||||||
Less: treasury stock, at cost; 210,101 shares at 03/31/23 and 12/31/22 |
|
| (2,622,777 | ) |
|
| (2,622,777 | ) | ||||||||
Total shareholders' equity |
|
| 79,679,787 |
|
|
| 75,176,363 |
| ||||||||
Total liabilities and shareholders' equity |
| $ | 1,030,539,393 |
|
| $ | 1,056,032,147 |
| ||||||||
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Book value per common share outstanding |
| $ | 14.08 |
| $ | 15.48 |
|
| $ | 14.33 |
| $ | 13.55 |
|
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
3 |
Table of Contents |
Community Bancorp. and Subsidiary |
| Three Months Ended March 31, |
|
| Three Months Ended March 31 |
| ||||||||||
Consolidated Statements of Income |
| 2022 |
|
| 2021 |
|
| 2023 |
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| 2022 |
| ||||
(Unaudited) |
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Interest income |
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| ||||||
Interest and fees on loans |
| $ | 7,487,200 |
| $ | 8,253,296 |
|
| $ | 9,376,025 |
| $ | 7,487,200 |
| ||
Interest on debt securities |
| 667,226 |
| 265,112 |
| |||||||||||
Interest on taxable debt securities |
| 943,478 |
| 656,277 |
| |||||||||||
Interest on tax-exempt debt securities |
| 90,658 |
| 10,949 |
| |||||||||||
Dividends |
| 16,460 |
| 10,619 |
|
| 30,653 |
| 16,460 |
| ||||||
Interest on federal funds sold and overnight deposits |
|
| 80,660 |
|
|
| 87,883 |
|
|
| 329,411 |
|
|
| 80,660 |
|
Total interest income |
|
| 8,251,546 |
|
|
| 8,616,910 |
|
|
| 10,770,225 |
|
|
| 8,251,546 |
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| ||||||
Interest expense |
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| ||||||
Interest on deposits |
| 551,959 |
| 705,244 |
|
| 1,844,747 |
| 551,959 |
| ||||||
Interest on borrowed funds |
| 21,965 |
| 14,941 |
|
| 24,520 |
| 21,965 |
| ||||||
Interest on repurchase agreements |
| 21,040 |
| 35,442 |
|
| 132,128 |
| 21,040 |
| ||||||
Interest on junior subordinated debentures |
|
| 98,352 |
|
|
| 98,795 |
|
|
| 245,465 |
|
|
| 98,352 |
|
Total interest expense |
|
| 693,316 |
|
|
| 854,422 |
|
|
| 2,246,860 |
|
|
| 693,316 |
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| ||||||
Net interest income |
| 7,558,230 |
| 7,762,488 |
|
| 8,523,365 |
| 7,558,230 |
| ||||||
Provision for loan losses |
|
| 862,500 |
|
|
| 267,497 |
| ||||||||
Net interest income after provision for loan losses |
|
| 6,695,730 |
|
|
| 7,494,991 |
| ||||||||
Provision for credit losses |
|
| 286,526 |
|
|
| 862,500 |
| ||||||||
Net interest income after provision for credit losses |
|
| 8,236,839 |
|
|
| 6,695,730 |
| ||||||||
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| ||||||
Non-interest income |
|
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| ||||||
Service fees |
| 862,887 |
| 788,623 |
|
| 880,288 |
| 862,887 |
| ||||||
Income from sold loans |
| 203,842 |
| 185,006 |
|
| 107,535 |
| 203,842 |
| ||||||
Other income from loans |
| 271,260 |
| 183,274 |
|
| 428,572 |
| 271,260 |
| ||||||
Other income |
|
| 348,440 |
|
|
| 415,328 |
|
|
| 342,382 |
|
|
| 348,440 |
|
Total non-interest income |
|
| 1,686,429 |
|
|
| 1,572,231 |
|
|
| 1,758,777 |
|
|
| 1,686,429 |
|
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| ||||||
Non-interest expense |
|
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|
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| ||||||
Salaries and wages |
| 2,040,000 |
| 1,975,003 |
|
| 2,288,760 |
| 2,040,000 |
| ||||||
Employee benefits |
| 772,052 |
| 831,210 |
|
| 754,270 |
| 772,052 |
| ||||||
Occupancy expenses, net |
| 753,364 |
| 744,720 |
|
| 770,986 |
| 753,364 |
| ||||||
Other expenses |
|
| 1,888,172 |
|
|
| 1,814,118 |
|
|
| 2,065,686 |
|
|
| 1,888,172 |
|
Total non-interest expense |
|
| 5,453,588 |
|
|
| 5,365,051 |
|
|
| 5,879,702 |
|
|
| 5,453,588 |
|
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| ||||||
Income before income taxes |
| 2,928,571 |
| 3,702,171 |
|
| 4,115,914 |
| 2,928,571 |
| ||||||
Income tax expense |
|
| 523,029 |
|
|
| 676,470 |
|
|
| 777,153 |
|
|
| 523,029 |
|
Net income |
| $ | 2,405,542 |
|
| $ | 3,025,701 |
|
| $ | 3,338,761 |
|
| $ | 2,405,542 |
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| ||||||
Earnings per common share |
| $ | 0.44 |
| $ | 0.57 |
|
| $ | 0.61 |
| $ | 0.44 |
| ||
Weighted average number of common shares used in computing earnings per share |
| 5,382,678 |
| 5,322,404 |
| |||||||||||
Weighted average number of common shares |
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| |||||||||||
used in computing earnings per share |
| 5,444,040 |
| 5,382,678 |
| |||||||||||
Dividends declared per common share |
| $ | 0.23 |
| $ | 0.22 |
|
| $ | 0.23 |
| $ | 0.23 |
|
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
4 |
Table of Contents |
Community Bancorp. and Subsidiary |
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Consolidated Statements of Comprehensive Income |
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(Unaudited) |
| Three Months Ended March 31, |
| |||||
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| 2022 |
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| 2021 |
| ||
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Net income |
| $ | 2,405,542 |
|
| $ | 3,025,701 |
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Other comprehensive loss, net of tax: |
|
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|
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Unrealized holding loss on securities AFS arising during the period |
|
| (11,069,161 | ) |
|
| (1,660,640 | ) |
Tax effect |
|
| 2,324,524 |
|
|
| 348,735 |
|
Other comprehensive loss, net of tax |
|
| (8,744,637 | ) |
|
| (1,311,905 | ) |
Total comprehensive (loss) income |
| $ | (6,339,095 | ) |
| $ | 1,713,796 |
|
Community Bancorp. and Subsidiary |
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Consolidated Statements of Comprehensive Income (Loss) |
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(Unaudited) |
| Three Months Ended March 31 |
| |||||
|
| 2023 |
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| 2022 |
| ||
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| ||
Net income |
| $ | 3,338,761 |
|
| $ | 2,405,542 |
|
|
|
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|
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on securities AFS arising during the period |
|
| 3,383,314 |
|
|
| (11,069,161 | ) |
Tax effect |
|
| (710,496 | ) |
|
| 2,324,524 |
|
Other comprehensive income (loss), net of tax |
|
| 2,672,818 |
|
|
| (8,744,637 | ) |
Total comprehensive income (loss) |
| $ | 6,011,579 |
|
| $ | (6,339,095) |
|
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
5 |
Table of Contents |
Community Bancorp. and Subsidiary |
Consolidated Statements of Changes in |
(Unaudited) |
|
| Three Months Ended March 31, 2022 |
|
| Three Months Ended March 31 2023 |
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| Additional |
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| Total |
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| Additional |
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| Total |
| |||||||||||||||||||||||||||||||
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| Common |
| Preferred |
| paid-in |
| Retained |
|
|
| Treasury |
| shareholders’ |
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| Common |
| Preferred |
| paid-in |
| Retained |
|
| Treasury |
| shareholders' |
| |||||||||||||||||||||||||||
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| Stock |
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| Stock |
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| capital |
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| earnings |
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| AOCI* |
|
| stock |
|
| equity |
|
| Stock |
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| Stock |
|
| capital |
|
| earnings |
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| AOCI* |
|
| stock |
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| equity |
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January 1, 2022 |
| $ | 13,969,848 |
| $ | 1,500,000 |
| $ | 35,322,063 |
| $ | 37,758,105 |
| $ | (1,166,971 | ) |
| $ | (2,622,777 | ) |
| $ | 84,760,268 |
| ||||||||||||||||||||||||||||||||
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January 1, 2023 |
| $ | 14,119,275 |
| $ | 1,500,000 |
| $ | 36,383,235 |
| $ | 46,464,447 |
| $ | (20,667,817 | ) |
| $ | (2,622,777 | ) |
| $ | 75,176,363 |
| ||||||||||||||||||||||||||||||||
Cumulative change in accounting principle (Note 2) |
|
|
|
|
|
|
|
| (549,113 | ) |
|
|
|
|
|
| (549,113 | ) | ||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2023 (as adjusted for |
|
|
|
|
|
|
| 45,915,334 |
|
|
|
|
| 74,627,250 |
| |||||||||||||||||||||||||||||||||||||||||
Change in accounting principle) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
Issuance of common stock |
| 35,597 |
|
|
| 237,086 |
|
|
|
|
|
|
| 272,683 |
|
| 43,693 |
|
|
| 276,184 |
|
|
|
|
|
|
| 319,877 |
| ||||||||||||||||||||||||||
Cash dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Common stock |
|
|
|
|
|
|
| (1,236,880 | ) |
|
|
|
|
| (1,236,880 | ) |
|
|
|
|
|
|
| (1,250,794 | ) |
|
|
|
|
| (1,250,794 | ) | ||||||||||||||||||||||||
Preferred stock |
|
|
|
|
|
|
| (12,188 | ) |
|
|
|
|
| (12,188 | ) |
|
|
|
|
|
|
| (28,125 | ) |
|
|
|
|
| (28,125 | ) | ||||||||||||||||||||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
| 2,405,542 |
|
|
|
|
| 2,405,542 |
|
|
|
|
|
|
|
| 3,338,761 |
|
|
|
|
| 3,338,761 |
| ||||||||||||||||||||||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (8,744,637 | ) |
|
|
|
|
|
| (8,744,637 | ) | ||||||||||||||||||||||||||||
March 31, 2022 |
| $ | 14,005,445 |
|
| $ | 1,500,000 |
|
| $ | 35,559,149 |
|
| $ | 38,914,579 |
|
| $ | (9,911,608 | ) |
| $ | (2,622,777 | ) |
| $ | 77,444,788 |
| ||||||||||||||||||||||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,672,818 |
|
|
|
|
|
|
| 2,672,818 |
| ||||||||||||||||||||||||||||
March 31, 2023 |
| $ | 14,162,968 |
|
| $ | 1,500,000 |
|
| $ | 36,659,419 |
|
| $ | 47,975,176 |
|
| $ | (17,994,999 | ) |
| $ | (2,622,777 | ) |
| $ | 79,679,787 |
|
|
| Three Months Ended March 31, 2021 |
|
| Three Months Ended March 31 2022 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
| Additional |
|
|
|
|
|
|
| Total |
|
|
|
| Additional |
|
|
|
| Total |
| |||||||||||||||||||||||||||||||
|
| Common |
| Preferred |
| paid-in |
| Retained |
|
|
| Treasury |
| shareholders’ |
|
| Common |
| Preferred |
| paid-in |
| Retained |
|
| Treasury |
| shareholders' |
| |||||||||||||||||||||||||||
|
| Stock |
|
| Stock |
|
| capital |
|
| earnings |
|
| AOCI* |
|
| stock |
|
| equity |
|
| Stock |
|
| Stock |
|
| capital |
|
| earnings |
|
| AOCI* |
|
| stock |
|
| equity |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
January 1, 2021 |
| $ | 13,818,450 |
| $ | 1,500,000 |
| $ | 34,309,646 |
| $ | 29,368,046 |
| $ | 915,348 |
| $ | (2,622,777 | ) |
| $ | 77,288,713 |
| |||||||||||||||||||||||||||||||||
January 1, 2022 |
| $ | 13,969,848 |
| $ | 1,500,000 |
| $ | 35,322,063 |
| $ | 37,758,105 |
| $ | (1,166,971 | ) |
| $ | (2,622,777 | ) |
| $ | 84,760,268 |
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Issuance of common stock |
| 42,523 |
|
|
| 222,256 |
|
|
|
|
|
|
| 264,779 |
|
| 35,597 |
|
|
| 237,086 |
|
|
|
|
|
|
| 272,683 |
| ||||||||||||||||||||||||||
Cash dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
Common stock |
|
|
|
|
|
|
| (1,169,555 | ) |
|
|
|
|
| (1,169,555 | ) |
|
|
|
|
|
|
| (1,236,880 | ) |
|
|
|
|
| (1,236,880 | ) | ||||||||||||||||||||||||
Preferred stock |
|
|
|
|
|
|
| (12,188 | ) |
|
|
|
|
| (12,188 | ) |
|
|
|
|
|
|
| (12,188 | ) |
|
|
|
|
| (12,188 | ) | ||||||||||||||||||||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
Net income |
|
|
|
|
|
|
| 3,025,701 |
|
|
|
|
| 3,025,701 |
|
|
|
|
|
|
|
| 2,405,542 |
|
|
|
|
| 2,405,542 |
| ||||||||||||||||||||||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,311,905 | ) |
|
|
|
|
|
| (1,311,905 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (8,744,637 | ) |
|
|
|
|
|
| (8,744,637 | ) |
March 31, 2021 |
| $ | 13,860,973 |
|
| $ | 1,500,000 |
|
| $ | 34,531,902 |
|
| $ | 31,212,004 |
|
| $ | (396,557 | ) |
| $ | (2,622,777 | ) |
| $ | 78,085,545 |
| ||||||||||||||||||||||||||||
March 31, 2022 |
| $ | 14,005,445 |
|
| $ | 1,500,000 |
|
| $ | 35,559,149 |
|
| $ | 38,914,579 |
|
| $ | (9,911,608 | ) |
| $ | (2,622,777 | ) |
| $ | 77,444,788 |
|
*Accumulated other comprehensive income (loss) income
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
6 |
Table of Contents |
Community Bancorp. and Subsidiary |
|
|
|
|
|
|
|
|
|
| ||||||
Consolidated Statements of Cash Flows |
|
|
|
|
|
|
|
|
|
| ||||||
(Unaudited) |
| Three Months Ended March 31, |
|
| Three Months Ended March 31 |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
| $ | 2,405,542 |
| $ | 3,025,701 |
|
| $ | 3,338,761 |
| $ | 2,405,542 |
| ||
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
| |||||||||||
Adjustments to reconcile net income to net cash provided by |
|
|
|
|
| |||||||||||
operating activities: |
|
|
|
|
| |||||||||||
Depreciation and amortization, bank premises and equipment |
| 285,202 |
| 259,449 |
|
| 276,656 |
| 285,202 |
| ||||||
Provision for loan losses |
| 862,500 |
| 267,497 |
| |||||||||||
Provision for credit losses |
| 286,526 |
| 862,500 |
| |||||||||||
Deferred income tax |
| 47,344 |
| 16,608 |
|
| (68,835 | ) |
| 47,344 |
| |||||
Gain on sale of loans |
| (102,945 | ) |
| (114,211 | ) |
| (29,331 | ) |
| (102,945 | ) | ||||
(Income) loss from CFS Partners |
| (225,870 | ) |
| 1,693,014 |
| ||||||||||
Income from CFS Partners |
| (252,051 | ) |
| (225,870 | ) | ||||||||||
Amortization of bond premium, net |
| 186,967 |
| 95,456 |
|
| 66,815 |
| 186,967 |
| ||||||
Proceeds from sales of loans held for sale |
| 4,425,711 |
| 2,145,611 |
|
| 1,637,381 |
| 4,725,711 |
| ||||||
Originations of loans held for sale |
| (4,229,766 | ) |
| (2,435,200 | ) |
| (1,608,050 | ) |
| (4,529,766 | ) | ||||
Increase in taxes payable |
| 408,593 |
| 569,100 |
|
| 778,860 |
| 408,593 |
| ||||||
Increase in interest receivable |
| (318,578 | ) |
| (250,630 | ) | ||||||||||
(Increase) decrease in mortgage servicing rights |
| (2,374 | ) |
| 38,280 |
| ||||||||||
Decrease (increase) in interest receivable |
| 103,159 |
| (318,578 | ) | |||||||||||
Decrease (increase) in mortgage servicing rights |
| 23,370 |
| (2,374 | ) | |||||||||||
Decrease in right-of-use assets |
| 49,669 |
| 49,031 |
|
| 50,321 |
| 49,669 |
| ||||||
Decrease in operating lease liabilities |
| (51,283 | ) |
| (49,198 | ) |
| (53,751 | ) |
| (51,283 | ) | ||||
Increase in other assets |
| (173,852 | ) |
| (148,665 | ) |
| (72,609 | ) |
| (173,852 | ) | ||||
Increase in cash surrender value of BOLI |
| (20,060 | ) |
| (21,673 | ) |
| (19,615 | ) |
| (20,060 | ) | ||||
Amortization of limited partnerships |
| 67,092 |
| 90,762 |
|
| 67,128 |
| 67,092 |
| ||||||
Change in net deferred loan fees and costs |
| (312,318 | ) |
| 1,076,424 |
|
| (16,336 | ) |
| (312,318 | ) | ||||
Decrease in interest payable |
| (1,332 | ) |
| (12,953 | ) |
| (2,485 | ) |
| (1,332 | ) | ||||
Decrease in accrued expenses |
| (567,062 | ) |
| (420,431 | ) |
| (1,040,367 | ) |
| (567,062 | ) | ||||
(Decrease) increase in other liabilities |
|
| (24,896 | ) |
|
| 3,175 |
| ||||||||
Increase (decrease) in other liabilities |
|
| 73,186 |
|
|
| (24,896 | ) | ||||||||
Net cash provided by operating activities |
|
| 2,708,284 |
|
|
| 5,877,147 |
|
|
| 3,538,733 |
|
|
| 2,708,284 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Investments - AFS |
|
|
|
|
|
|
|
|
|
| ||||||
Maturities, calls, pay downs and sales |
| 4,434,388 |
| 4,383,743 |
|
| 3,555,278 |
| 4,434,388 |
| ||||||
Purchases |
| (19,103,623 | ) |
| (27,371,666 | ) |
| 0 |
| (19,103,623 | ) | |||||
Proceeds from redemption of restricted equity securities |
| 43,500 |
| 0 |
|
| 67,800 |
| 43,500 |
| ||||||
Decrease in limited partnership contributions payable |
| 0 |
| (150,000 | ) | |||||||||||
Purchases of restricted equity securities |
| (92,600 | ) |
| 0 |
| ||||||||||
Investments in limited liability entities |
| (1,000 | ) |
| 0 |
| ||||||||||
Increase in loans, net |
| (6,998,537 | ) |
| (20,167,317 | ) |
| (10,074,935 | ) |
| (6,998,537 | ) | ||||
Capital expenditures net of proceeds from sales of bank premises and equipment |
| (70,686 | ) |
| (2,657,300 | ) | ||||||||||
Capital expenditures net of proceeds from sales of bank |
|
|
|
|
| |||||||||||
premises and equipment |
| (158,971 | ) |
| (70,686 | ) | ||||||||||
Recoveries of loans charged off |
|
| 11,780 |
|
|
| 25,314 |
|
|
| 132,860 |
|
|
| 11,780 |
|
Net cash used in investing activities |
|
| (21,683,178 | ) |
|
| (45,937,226 | ) |
|
| (6,571,568 | ) |
|
| (21,683,178 | ) |
7 |
Table of Contents |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Net (decrease) increase in demand and interest-bearing transaction accounts |
| (12,916,068 | ) |
| 7,863,790 |
| ||||||||||
Net increase in money market and savings accounts |
| 10,606,091 |
| 19,474,878 |
| |||||||||||
Net increase (decrease) in time deposits |
| 210,469 |
| (3,639,187 | ) | |||||||||||
Net decrease in repurchase agreements |
| (3,865,864 | ) |
| (6,627,854 | ) | ||||||||||
Repayments on long-term borrowings |
| 0 |
| (500,000 | ) | |||||||||||
(Decrease) increase in finance lease obligations |
| (52,807 | ) |
| 2,388,819 |
| ||||||||||
Net decrease in demand and interest-bearing transaction accounts |
| (29,855,106 | ) |
| (12,916,068 | ) | ||||||||||
Net (decrease) increase in money market and savings accounts |
| (8,183,145 | ) |
| 10,606,091 |
| ||||||||||
Net increase in time deposits |
| 3,611,070 |
| 210,469 |
| |||||||||||
Net increase (decrease) in repurchase agreements |
| 4,980,207 |
| (3,865,864 | ) | |||||||||||
Decrease in finance lease obligations |
| (54,493 | ) |
| (52,807 | ) | ||||||||||
Dividends paid on preferred stock |
| (12,188 | ) |
| (12,188 | ) |
| (28,125 | ) |
| (12,188 | ) | ||||
Dividends paid on common stock |
|
| (900,893 | ) |
|
| (743,679 | ) |
|
| (932,901 | ) |
|
| (900,893 | ) |
Net cash (used in) provided by financing activities |
|
| (6,931,260 | ) |
|
| 18,204,579 |
| ||||||||
Net cash used in financing activities |
|
| (30,462,493 | ) |
|
| (6,931,260 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Net decrease in cash and cash equivalents |
| (25,906,154 | ) |
| (21,855,500 | ) |
| (33,495,328 | ) |
| (25,906,154 | ) | ||||
Cash and cash equivalents: |
|
|
|
|
|
|
|
|
|
| ||||||
Beginning |
|
| 110,358,926 |
|
|
| 115,049,920 |
|
|
| 71,140,328 |
|
|
| 110,358,926 |
|
Ending |
| $ | 84,452,772 |
|
| $ | 93,194,420 |
|
| $ | 37,645,000 |
|
| $ | 84,452,772 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Supplemental Schedule of Cash Paid During the Period: |
|
|
|
|
|
|
|
|
|
| ||||||
Interest |
| $ | 694,648 |
|
| $ | 867,375 |
|
| $ | 2,249,345 |
|
| $ | 694,648 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Supplemental Schedule of Noncash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
| ||||||
Change in unrealized loss on securities AFS |
| $ | (11,069,161 | ) |
| $ | (1,660,640 | ) | ||||||||
Change in unrealized gain (loss) on securities AFS |
| $ | 3,383,314 |
|
| $ | (11,069,161 | ) | ||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Common Shares Dividends Paid: |
|
|
|
|
|
|
|
|
|
| ||||||
Dividends declared |
| $ | 1,236,880 |
| $ | 1,169,555 |
|
| $ | 1,250,794 |
| $ | 1,236,880 |
| ||
Increase in dividends payable attributable to dividends declared |
| (63,304 | ) |
| (161,097 | ) | ||||||||||
Decrease (increase) in dividends payable attributable to dividends declared |
| 1,984 |
| (63,304 | ) | |||||||||||
Dividends reinvested |
|
| (272,683 | ) |
|
| (264,779 | ) |
|
| (319,877 | ) |
|
| (272,683 | ) |
Total dividends paid |
| $ | 900,893 |
|
| $ | 743,679 |
|
| $ | 932,901 |
|
| $ | 900,893 |
|
The accompanying notes are an integral part of these unaudited interim consolidated financial statements.
8 |
Table of Contents |
Notes to Consolidated Financial Statements
Note 1. Basis of Presentation and Consolidation and Certain Definitions
Basis of Presentation and Consolidation. The interim consolidated financial statements of Community Bancorp. and Subsidiary are unaudited. All significant intercompany balances and transactions have been eliminated in consolidation. In the opinion of management, all adjustments necessary for the fair presentation of the consolidated financial condition and results of operations of the Company and its subsidiary, Community National Bank (the Bank), contained herein have been made. The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 20212022 contained in the Company’sCompany's Annual Report on Form 10-K. Certain amounts in the 2022 consolidated financial statements were reclassified to conform to the current period presentation. The reclassification had no effect on net income or shareholders’ equity as previously reported. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for any other interim period or the full annual period ending December 31, 2022.
There were no reclassifications to the consolidated financial statements for the periods presented.2023.
The Company is considered a “smaller reporting company” under the disclosure rules of the SEC, as amended in 2018. Accordingly, the Company has elected to provide its audited consolidated statements of income, comprehensive income, cash flows and changes in shareholders’ equity for a two year, rather than a three year, period, and provides smaller reporting company scaled disclosures where management deems it appropriate.
In addition to the definitions provided elsewhere in this quarterly report, the definitions, acronyms and abbreviations identified below are used throughout this report, including in Part I. “Financial Information” and Part II. “Other Information”, and are intended to aid the reader and provide a reference page when reviewing this report.
ABS: | Asset backed security |
|
|
AFS: | Available-for-sale |
|
|
Agency MBS: | MBS issued by a US government agency | FHLBB: | Federal Home Loan Bank of Boston |
or GSE | FHLMC: | Federal Home Loan Mortgage Corporation | |
|
| FOMC: | Federal Open Market Committee |
|
| FRB: | Federal Reserve Board |
|
| FRBB: | Federal Reserve Bank of Boston |
|
| GAAP: | Generally Accepted Accounting Principles |
| Accounting Standards | in the United States | |
|
| GSE: | Government sponsored enterprise |
| Community | HTM: | Held-to-maturity |
|
| ICS: | Insured Cash Sweeps of the InterFi Network |
BIC: | Borrower-in-Custody | IRS: | Internal Revenue Service |
Board: | Board of Directors |
|
|
BOLI: | Bank owned life insurance |
|
|
bp or bps: | Basis point(s) |
|
|
|
|
|
|
|
|
| |
|
|
|
|
CDARS: | Certificate of Deposit Accounts Registry |
|
|
Service of the InterFi Network |
|
| |
CDs: | Certificates of deposit |
|
|
CDI: | Core deposit intangible |
|
|
CECL: | Current Expected Credit Loss |
|
|
CFSG: | Community Financial Services Group, LLC |
|
|
CFS Partners: | Community Financial Services Partners, |
|
|
LLC |
|
| |
CMO | Collateralized Mortgage |
|
|
Company: | Community Bancorp. and Subsidiary |
|
|
COVID-19: | Coronavirus Disease 2019 |
|
|
CRE: | Commercial Real Estate |
| U.S. |
DDA or DDAs: | Demand Deposit Account(s) |
|
|
DTC: | Depository Trust Company |
|
|
DRIP: | Dividend Reinvestment Plan |
| Troubled-debt restructuring |
Exchange Act: | Securities Exchange Act of 1934 | USDA: | U.S. Department of Agriculture |
FASB: | Financial Accounting Standards Board | VA: | U.S. Veterans Administration |
FDIC: | Federal Deposit Insurance Corporation |
9 |
Table of Contents |
Note 2. Recent Accounting Developments
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and has issued subsequent amendments thereto, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extended the sunset date of December 31, 2022 to December 31, 2024. The guidance is effective for all entities as of March 12, 2020 through December 31, 2024. The Company is assessing ASU No. 2020-04 and its impact on the transition away from LIBOR for its Junior Subordinated Debentures due December 15, 2037, the Company’s only financial instruments that utilize LIBOR as a reference rate. That transition will become effective for the Debentures as of the first London banking day after June 30, 2023 (see the Interest Rate Risk and Asset and Liability Management section of the accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations following these Notes).
Accounting Standards Adopted in 2023
The Company has adopted the following accounting standards and has applied them to the Company’s interim consolidated financial statements for the three months ended March 31, 2023. Prior periods have not been restated as a result of adoption of these accounting standards.
ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. Under the new guidance, which will replacereplaces the existing incurred loss model for recognizing credit losses, banks and other lending institutions will beare required to recognize the full amount of expected credit losses over the life of a loan. The new guidance, which is referred to as the current expected credit loss, or CECL model, requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses over the life of the loans. A modified version of these requirements also applies to debt securities classified as available for sale, which will requirerequires that credit losses on those securities be recorded through an allowance for credit losses rather than a write-down. The ASU may have a material impact on the Company’s consolidated financial statements upon adoption as it will require a change in the Company’s methodology for calculating its ALL and allowance on unused commitments. The Company will transition from an incurred loss model to an expected loss model, which may result in an increase in the ALL upon adoption and may negatively impact the Company’s and the Bank’s regulatory capital ratios. The Company has formed a committee to assess the implications of this new pronouncement and transitioned to a software solution for preparing the ALL calculation and related reports that management believes provides the Company with stronger data integrity, ease and efficiency in ALL preparation. The new software solution also provides numerous training opportunities for the appropriate personnel within the Company. The Company has gathered and is continuing to analyze the historical data to serve as a basis for estimating the ALL under CECL and continues to evaluate the anticipated impactof the adoption of the ASU on its consolidated financial statements. The ASU will becomebecame effective for the Company beginning with the 2023 fiscal year including interim periods. Parallel calculations underUpon adoption of this ASU on January 1, 2023, a cumulative-effect adjustment of $549,113 was recorded as a reduction to retained earnings, with a corresponding adjustment of $243,376 increasing the existing ALL methodology and the CECL model will be run throughout 2022 in preparationACL on loans, an adjustment of $451,704, increasing other liabilities for the transition to CECL.ACL on off-balance sheet credit exposures, and an adjustment of $145,967 increasing deferred tax assets. There was no allowance recorded for credit losses on AFS debt securities resulting from adoption of this ASU.
ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures.In March 2022, the FASB issued ASU No. 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The guidance amends Topic 326 (CECL) to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, under the CECL model creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. Additionally, the amendments to Topic 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The guidance willhas become effective for the Company beginning with the fiscal year 2023, including interim periods. The Company is currently assessing the impactAdoption of this ASU No. 2022-02 but doesdid not expect that its adoption will have a material impact on the consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and has issued subsequent amendments thereto, which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is assessing ASU No. 2020-04 and its impact on the transition away from LIBOR for its Junior Subordinated Debentures due December 15, 2037, the Company’s only financial instruments that utilize LIBOR as a reference rate.
In March and April, 2020, federal banking regulators issued interagency guidance on accounting for loan modifications in light of the economic impact of the COVID-19 pandemic. The guidance interprets current accounting standards and indicates that a lender can conclude that a borrower is not experiencing financial difficulty if short-term (that is, six months or less) modifications are made in response to COVID-19, such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant, provided that the loan is less than 30 days past due at the time a modification program is implemented. The banking agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs under ASC No. 310-40, Receivables – Troubled Debt Restructurings by Creditors. Additionally, a provision of the CARES Act enacted in March 2020 provides that COVID-19 related loan modifications (including modifications that are not short-term) made to a loan between March 1, 2020 and the earlier of December 31, 2020 or the sixtieth day after the end of the COVID-19 emergency declared by the President will not require the loan to be treated as a TDR under U.S. GAAP, so long as the modified loan was not past due as of December 31, 2019. On December 27, 2020, the Consolidated Appropriations Act 2021 (CAA) extended the date for COVID-19 related loan modifications from December 31, 2020 to January 1, 2022.
Note 3. Earnings per Common Share
Earnings per common share amounts are computed based on the weighted average number of shares of common stock issued during the period (retroactively adjusted for stock splits and stock dividends, if any), including Dividend Reinvestment Plan shares issuable upon reinvestment of dividends declared, and reduced for shares held in treasury.
10 |
Table of Contents |
The following tables illustrate the calculation of earnings per common share for the periods presented, as adjusted for the cash dividends declared on the preferred stock:
Three Months Ended March 31, |
| 2022 |
|
| 2021 |
| ||||||||||
Three Months Ended March 31 |
| 2023 |
|
| 2022 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income, as reported |
| $ | 2,405,542 |
| $ | 3,025,701 |
|
| $ | 3,338,761 |
| $ | 2,405,542 |
| ||
Less: dividends to preferred shareholders |
|
| 12,188 |
|
|
| 12,188 |
|
|
| 28,125 |
|
|
| 12,188 |
|
Net income available to common shareholders |
| $ | 2,393,354 |
|
| $ | 3,013,513 |
|
| $ | 3,310,636 |
|
| $ | 2,393,354 |
|
Weighted average number of common shares |
|
|
|
|
|
|
|
|
|
| ||||||
used in calculating earnings per share |
| 5,382,678 |
| 5,322,404 |
|
| 5,444,040 |
| 5,382,678 |
| ||||||
Earnings per common share |
| $ | 0.44 |
| $ | 0.57 |
|
| $ | 0.61 |
| $ | 0.44 |
|
Note 4. Investment Securities
Debt securities AFS as of the balance sheet dates consisted of the following:
|
|
|
| Gross |
| Gross |
|
|
|
|
|
| Gross |
| Gross |
|
|
| ||||||||||||||
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair |
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair |
| ||||||||||||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
March 31, 2022 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
March 31, 2023 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
U.S. GSE debt securities |
| $ | 12,001,306 |
| $ | 0 |
| $ | 764,922 |
| $ | 11,236,384 |
|
| $ | 12,000,000 |
| $ | 0 |
| $ | 1,300,086 |
| $ | 10,699,914 |
| ||||||
U.S. Government securities |
| 39,497,938 |
| 0 |
| 1,868,539 |
| 37,629,399 |
|
| 41,328,783 |
| 0 |
| 2,559,714 |
| 38,769,069 |
| ||||||||||||||
Taxable Municipal securities |
| 300,000 |
| 0 |
| 26,323 |
| 273,677 |
|
| 300,000 |
| 0 |
| 57,048 |
| 242,952 |
| ||||||||||||||
Tax-Exempt Municipal securities |
| 4,644,229 |
| 0 |
| 336,281 |
| 4,307,948 |
| |||||||||||||||||||||||
Tax-exempt Municipal securities |
| 12,026,492 |
| 154,266 |
| 559,646 |
| 11,621,112 |
| |||||||||||||||||||||||
Agency MBS |
| 132,398,698 |
| 23,491 |
| 9,482,071 |
| 122,940,118 |
|
| 132,421,042 |
| 54,714 |
| 17,999,320 |
| 114,476,436 |
| ||||||||||||||
ABS and OAS |
| 1,847,185 |
| 4,332 |
| 22,855 |
| 1,828,662 |
|
| 2,686,444 |
| 0 |
| 164,536 |
| 2,521,908 |
| ||||||||||||||
CMO |
| 1,422,549 |
| 0 |
| 115,921 |
| 1,306,628 |
|
| 12,223,050 |
| 193 |
| 272,673 |
| 11,950,570 |
| ||||||||||||||
Other investments |
|
| 6,190,000 |
|
|
| 68,665 |
|
|
| 25,915 |
|
|
| 6,232,750 |
|
|
| 2,472,000 |
|
|
| 0 |
|
|
| 74,631 |
|
|
| 2,397,369 |
|
Total |
| $ | 198,301,905 |
|
| $ | 96,488 |
|
| $ | 12,642,827 |
|
| $ | 185,755,566 |
|
| $ | 215,457,811 |
|
| $ | 209,173 |
|
| $ | 22,987,654 |
|
| $ | 192,679,330 |
|
|
|
|
| Gross |
| Gross |
|
|
| |||||||||||||||||||||||
|
| Amortized |
| Unrealized |
| Unrealized |
| Fair |
| |||||||||||||||||||||||
|
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
December 31, 2021 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
December 31, 2022 |
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
U.S. GSE debt securities |
| $ | 12,001,978 |
| $ | 36,024 |
| $ | 209,504 |
| $ | 11,828,498 |
|
| $ | 12,000,000 |
| $ | 0 |
| $ | 1,624,709 |
| $ | 10,375,291 |
| ||||||
U.S. Government securities |
| 32,374,935 |
| 0 |
| 333,894 |
| 32,041,041 |
|
| 41,368,624 |
| 0 |
| 3,137,035 |
| 38,231,589 |
| ||||||||||||||
Taxable Municipal securities |
| 300,000 |
| 0 |
| 1,267 |
| 298,733 |
|
| 300,000 |
| 0 |
| 65,142 |
| 234,858 |
| ||||||||||||||
Tax-Exempt Municipal securities |
| 830,279 |
| 1,167 |
| 67 |
| 831,379 |
| |||||||||||||||||||||||
Tax-exempt Municipal securities |
| 12,042,410 |
| 40,513 |
| 759,356 |
| 11,323,567 |
| |||||||||||||||||||||||
Agency MBS |
| 128,291,487 |
| 184,002 |
| 1,342,968 |
| 127,132,521 |
|
| 135,193,097 |
| 69,447 |
| 20,030,945 |
| 115,231,599 |
| ||||||||||||||
ABS and OAS |
| 2,131,610 |
| 82,414 |
| 0 |
| 2,214,024 |
|
| 2,929,740 |
| 0 |
| 236,134 |
| 2,693,606 |
| ||||||||||||||
CMO |
| 1,451,349 |
| 0 |
| 30,891 |
| 1,420,458 |
|
| 12,278,033 |
| 581 |
| 342,689 |
| 11,935,925 |
| ||||||||||||||
Other investments |
|
| 6,438,000 |
|
|
| 142,199 |
|
|
| 4,394 |
|
|
| 6,575,805 |
|
|
| 2,968,000 |
|
|
| 0 |
|
|
| 76,326 |
|
|
| 2,891,674 |
|
Total |
| $ | 183,819,638 |
|
| $ | 445,806 |
|
| $ | 1,922,985 |
|
| $ | 182,342,459 |
|
| $ | 219,079,904 |
|
| $ | 110,541 |
|
| $ | 26,272,336 |
|
| $ | 192,918,109 |
|
The Company had investments in Agency MBS exceeding 10% of stockholders’ equity with a book value of $132.4 million and $135.2 million, respectively, and a fair value of $114.5 million and $115.2 million, respectively, at March 31, 2023 and December 31, 2022.
Investments securities pledged as collateral for repurchase agreements consisted of certain U.S. GSE debt securities, Agency MBS, ABS and OAS, and CMO. These repurchase agreements mature daily. The aggregate amortized cost and fair value of these pledged investments as of the balance sheet dates were as follows:
|
| Amortized |
|
| Fair |
| ||
|
| Cost |
|
| Value |
| ||
|
|
|
|
|
|
| ||
March 31, 2023 |
| $ | 54,714,154 |
|
| $ | 46,610,309 |
|
December 31, 2022 |
|
| 55,899,113 |
|
|
| 46,789,284 |
|
There were no sales of debt securities during the first three months of 2023 or 2022.
11 |
Table of Contents |
Investments pledged as collateral for repurchase agreements consisted of U.S. GSE debt securities, Agency MBS, ABS and OAS, and CMO. These repurchase agreements mature daily. These pledged investments as of the balance sheet dates were as follows:
|
| Amortized |
|
| Fair |
| ||
|
| Cost |
|
| Value |
| ||
|
|
|
|
|
|
| ||
March 31, 2022 |
| $ | 60,664,506 |
|
| $ | 56,148,099 |
|
December 31, 2021 |
|
| 63,045,599 |
|
|
| 62,256,702 |
|
There were no sales of debt securities for the first three months of 2022 or 2021.
The scheduled maturities of debt securities as of the balance sheet dates were as follows:
|
| Amortized |
| Fair |
|
| Amortized |
| Fair |
| ||||||
|
| Cost |
|
| Value |
|
| Cost |
|
| Value |
| ||||
March 31, 2022 |
|
|
|
|
| |||||||||||
March 31, 2023 |
|
|
|
|
| |||||||||||
Due in one year or less |
| $ | 3,718,000 |
| $ | 3,739,035 |
|
| $ | 7,205,661 |
| $ | 7,094,786 |
| ||
Due from one to five years |
| 45,449,014 |
| 43,386,569 |
|
| 56,308,526 |
| 52,625,845 |
| ||||||
Due from five to ten years |
| 10,790,658 |
| 10,173,219 |
|
| 5,241,640 |
| 4,828,976 |
| ||||||
Due after ten years |
| 5,945,535 |
| 5,516,625 |
|
| 14,280,942 |
| 13,653,287 |
| ||||||
Agency MBS |
|
| 132,398,698 |
|
|
| 122,940,118 |
|
|
| 132,421,042 |
|
|
| 114,476,436 |
|
Total |
| $ | 198,301,905 |
|
| $ | 185,755,566 |
|
| $ | 215,457,811 |
|
| $ | 192,679,330 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
December 31, 2021 |
|
|
|
|
| |||||||||||
December 31, 2022 |
|
|
|
|
| |||||||||||
Due in one year or less |
| $ | 3,470,000 |
| $ | 3,508,582 |
|
| $ | 1,976,000 |
| $ | 1,966,767 |
| ||
Due from one to five years |
| 36,860,731 |
| 36,619,130 |
|
| 58,875,224 |
| 54,736,949 |
| ||||||
Due from five to ten years |
| 13,065,163 |
| 12,942,726 |
|
| 8,631,626 |
| 7,591,761 |
| ||||||
Due after ten years |
| 2,132,257 |
| 2,139,500 |
|
| 14,403,957 |
| 13,391,033 |
| ||||||
Agency MBS |
|
| 128,291,487 |
|
|
| 127,132,521 |
|
|
| 135,193,097 |
|
|
| 115,231,599 |
|
Total |
| $ | 183,819,638 |
|
| $ | 182,342,459 |
|
| $ | 219,079,904 |
|
| $ | 192,918,109 |
|
Agency MBS are not due at a single maturity date and have not been allocated to maturity groupings for purposes of the maturity table.
Debt securities with unrealized losses as of the balance sheet dates are presented in the table below.
|
| Less than 12 months |
| 12 months or more |
| Totals |
|
| Less than 12 months |
| 12 months or more |
| Totals |
| ||||||||||||||||||||||||||||||||||||||||||
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Number of |
| Fair |
| Unrealized |
|
| Fair |
| Unrealized |
| Fair |
| Unrealized |
| Number of |
| Fair |
| Unrealized |
| ||||||||||||||||||||||||||
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Securities |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Securities |
|
| Value |
|
| Loss |
| ||||||||||||||
March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||||
U.S. GSE debt securities |
| $ | 6,718,245 |
| $ | 283,061 |
| $ | 4,518,139 |
| $ | 481,861 |
| 11 |
| $ | 11,236,384 |
| $ | 764,922 |
|
| $ | 0 |
| $ | 0 |
| $ | 10,699,914 |
| $ | 1,300,086 |
| 11 |
| $ | 10,699,914 |
| $ | 1,300,086 |
| ||||||||||||||
U.S. Government securities |
| 37,629,399 |
| 1,868,539 |
| 0 |
| 0 |
| 52 |
| 37,629,399 |
| 1,868,539 |
|
| 0 |
| 0 |
| 38,769,069 |
| 2,559,714 |
| 54 |
| 38,769,069 |
| 2,559,714 |
| ||||||||||||||||||||||||||
Taxable Municipal securities |
| 273,677 |
| 26,323 |
| 0 |
| 0 |
| 1 |
| 273,677 |
| 26,323 |
|
| 0 |
| 0 |
| 242,952 |
| 57,048 |
| 1 |
| 242,952 |
| 57,048 |
| ||||||||||||||||||||||||||
Tax-Exempt Municipal securities |
| 4,307,948 |
| 336,281 |
| 0 |
| 0 |
| 9 |
| 4,307,948 |
| 336,281 |
| |||||||||||||||||||||||||||||||||||||||||
Tax-exempt Municipal securities |
| 1,536,169 |
| 13,862 |
| 4,587,518 |
| 545,784 |
| 13 |
| 6,123,687 |
| 559,646 |
| |||||||||||||||||||||||||||||||||||||||||
Agency MBS |
| 91,645,963 |
| 6,483,880 |
| 29,071,931 |
| 2,998,191 |
| 106 |
| 120,717,894 |
| 9,482,071 |
|
| 6,599,945 |
| 162,379 |
| 103,573,217 |
| 17,836,941 |
| 119 |
| 110,173,162 |
| 17,999,320 |
| ||||||||||||||||||||||||||
ABS and OAS |
| 1,277,498 |
| 22,855 |
| 0 |
| 0 |
| 2 |
| 1,277,498 |
| 22,855 |
|
| 1,192,731 |
| 61,720 |
| 1,329,177 |
| 102,816 |
| 4 |
| 2,521,908 |
| 164,536 |
| ||||||||||||||||||||||||||
CMO |
| 449,231 |
| 29,845 |
| 857,397 |
| 86,076 |
| 3 |
| 1,306,628 |
| 115,921 |
|
| 9,000,364 |
| 179,637 |
| 996,979 |
| 93,036 |
| 9 |
| 9,997,343 |
| 272,673 |
| ||||||||||||||||||||||||||
Other investments |
|
| 470,085 |
|
|
| 25,915 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2 |
|
|
| 470,085 |
|
|
| 25,915 |
|
|
| 1,954,018 |
|
|
| 21,982 |
|
|
| 443,351 |
|
|
| 52,649 |
|
|
| 10 |
|
|
| 2,397,369 |
|
|
| 74,631 |
|
Total |
| $ | 142,772,046 |
|
| $ | 9,076,699 |
|
| $ | 34,447,467 |
|
| $ | 3,566,128 |
|
|
| 186 |
|
| $ | 177,219,513 |
|
| $ | 12,642,827 |
|
| $ | 20,283,227 |
|
| $ | 439,580 |
|
| $ | 160,642,177 |
|
| $ | 22,548,074 |
|
|
| 221 |
|
| $ | 180,925,404 |
|
| $ | 22,987,654 |
|
|
| Less than 12 months |
|
| 12 months or more |
|
| Totals |
| |||||||||||||||||||
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Number of |
|
| Fair |
|
| Unrealized |
| |||||||
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Securities |
|
| Value |
|
| Loss |
| |||||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
U.S. GSE debt securities |
| $ | 2,723,388 |
|
| $ | 276,611 |
|
| $ | 7,651,903 |
|
| $ | 1,348,098 |
|
|
| 11 |
|
| $ | 10,375,291 |
|
| $ | 1,624,709 |
|
U.S. Government securities |
|
| 4,837,891 |
|
|
| 169,501 |
|
|
| 33,393,698 |
|
|
| 2,967,534 |
|
|
| 54 |
|
|
| 38,231,589 |
|
|
| 3,137,035 |
|
Taxable Municipal securities |
|
| 0 |
|
|
| 0 |
|
|
| 234,858 |
|
|
| 65,142 |
|
|
| 1 |
|
|
| 234,858 |
|
|
| 65,142 |
|
Tax-exempt Municipal securities |
|
| 8,608,507 |
|
|
| 522,128 |
|
|
| 592,388 |
|
|
| 237,228 |
|
|
| 19 |
|
|
| 9,200,895 |
|
|
| 759,356 |
|
Agency MBS |
|
| 14,541,901 |
|
|
| 810,356 |
|
|
| 97,718,436 |
|
|
| 19,220,589 |
|
|
| 120 |
|
|
| 112,260,337 |
|
|
| 20,030,945 |
|
ABS and OAS |
|
| 2,693,606 |
|
|
| 236,134 |
|
|
| 0 |
|
|
| 0 |
|
|
| 4 |
|
|
| 2,693,606 |
|
|
| 236,134 |
|
CMO |
|
| 8,954,323 |
|
|
| 232,398 |
|
|
| 1,014,910 |
|
|
| 110,291 |
|
|
| 9 |
|
|
| 9,969,233 |
|
|
| 342,689 |
|
Other investments |
|
| 2,451,892 |
|
|
| 20,108 |
|
|
| 439,782 |
|
|
| 56,218 |
|
|
| 12 |
|
|
| 2,891,674 |
|
|
| 76,326 |
|
Total |
| $ | 44,811,508 |
|
| $ | 2,267,236 |
|
| $ | 141,045,975 |
|
| $ | 24,005,100 |
|
|
| 230 |
|
| $ | 185,857,483 |
|
| $ | 26,272,336 |
|
12 |
Table of Contents |
|
| Less than 12 months |
|
| 12 months or more |
|
| Totals |
| |||||||||||||||||||
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Number of |
|
| Fair |
|
| Unrealized |
| |||||||
|
| Value |
|
| Loss |
|
| Value |
|
| Loss |
|
| Securities |
|
| Value |
|
| Loss |
| |||||||
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
U.S. GSE debt securities |
| $ | 5,869,117 |
|
| $ | 130,883 |
|
| $ | 1,921,379 |
|
| $ | 78,621 |
|
|
| 7 |
|
| $ | 7,790,496 |
|
| $ | 209,504 |
|
U.S. Government securities |
|
| 32,041,041 |
|
|
| 333,894 |
|
|
| 0 |
|
|
| 0 |
|
|
| 46 |
|
|
| 32,041,041 |
|
|
| 333,894 |
|
Taxable Municipal securities |
|
| 298,733 |
|
|
| 1,267 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1 |
|
|
| 298,733 |
|
|
| 1,267 |
|
Tax-Exempt Municipal securities |
|
| 330,212 |
|
|
| 67 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1 |
|
|
| 330,212 |
|
|
| 67 |
|
Agency MBS |
|
| 107,061,452 |
|
|
| 1,128,587 |
|
|
| 8,809,493 |
|
|
| 214,381 |
|
|
| 84 |
|
|
| 115,870,945 |
|
|
| 1,342,968 |
|
CMO |
|
| 1,420,458 |
|
|
| 30,891 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3 |
|
|
| 1,420,458 |
|
|
| 30,891 |
|
Other investments |
|
| 491,606 |
|
|
| 4,394 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2 |
|
|
| 491,606 |
|
|
| 4,394 |
|
Total |
| $ | 147,512,619 |
|
| $ | 1,629,983 |
|
| $ | 10,730,872 |
|
| $ | 293,002 |
|
|
| 144 |
|
| $ | 158,243,491 |
|
| $ | 1,922,985 |
|
.
The Company adopted ASU No. 2016-13 effective January 1, 2023 which requires credit losses on debt securities AFS to be recorded in an allowance for credit losses and eliminates the concept of OTTI for debt securities AFS. Under the ASU, if the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, then the credit loss is recorded through an allowance rather than as a write-down of the security. As of March 31, 2023, the Company did not have the intent to sell, nor was it more likely than not that we would be required to sell any of the debt securities AFS in an unrealized loss position prior to recovery. As of March 31, 2023, the Company also determined that no individual debt securities in an unrealized loss position represented credit losses that would require an allowance for credit losses. The Company concluded that the unrealized losses were primarily attributed to increases in market interest rates since these securities were purchased under other market conditions.
TheAs of December 31, 2022, the Company believed the unrealized losses for all periods presentedon securities AFS were principally attributabledue to changes in prevailing interest rates for similar types of securities and notmarket conditions rather than reduced estimated cash flows or deterioration in the creditworthiness of the issuer.
Management evaluates its debt securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions, or adverse developments relating to the issuer, warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than the carrying value, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of At December 31, 2022, the Company did not intend to retain its investment for a period of time sufficientsell these securities, did not anticipate that these securities will be required to allow for anybe sold before anticipated recovery, and expected full principal and interest to be collected. Therefore, under the accounting principles pertaining to OTTI analysis then in fair value. In analyzing an issuer’s financial condition, management considers whethereffect, the securities are issued byCompany did not consider the federal government or its agencies, whether downgrades by bond rating agencies or other adverse developments in the status of the securities have occurred, and the results of reviews of the issuer’s financial condition. As of March 31, 2022 and December 31, 2021, there were no declines in the fair value of any of thethese securities reflected in the table above that were deemed by management to be OTTI.OTTI as of December 31, 2022.
Note 5. Loans, Allowance for LoanCredit Losses and Credit Quality
The composition of net loans as of the balance sheet dates was as follows:
|
| March 31, |
| December 31, |
| |||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| March 31, 2023 |
| December 31, 2022 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Commercial & industrial |
| $ | 121,473,157 |
| $ | 120,933,470 |
|
| $ | 118,898,281 |
| 15.67 | % |
| $ | 112,951,873 |
| 15.09 | % | |||||
Purchased |
| 6,697,965 |
| 0.88 | % |
| 7,530,458 |
| 1.00 | % | ||||||||||||||
Commercial real estate |
| 308,311,734 |
| 300,958,931 |
|
| 362,136,416 |
| 47.74 | % |
| 356,892,986 |
| 47.68 | % | |||||||||
Municipal |
| 48,660,440 |
| 47,955,231 |
|
| 36,473,847 |
| 4.81 | % |
| 34,633,055 |
| 4.63 | % | |||||||||
Residential real estate - 1st lien |
| 181,610,294 |
| 181,316,345 |
|
| 199,033,728 |
| 26.24 | % |
| 198,743,375 |
| 26.55 | % | |||||||||
Residential real estate - Jr lien |
| 33,066,989 |
| 34,359,864 |
|
| 31,901,495 |
| 4.21 | % |
| 33,756,872 |
| 4.51 | % | |||||||||
Consumer |
|
| 3,170,568 |
|
|
| 4,464,692 |
|
|
| 3,444,980 |
|
|
| 0.45 | % |
|
| 4,039,989 |
|
|
| 0.54 | % |
Total loans |
|
| 696,293,182 |
|
|
| 689,988,533 |
|
| 758,586,712 |
|
| 100.00 | % |
| 748,548,608 |
|
| 100.00 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
ALL |
| (7,890,648 | ) |
| (7,710,256 | ) | ||||||||||||||||||
Deferred net loan cost (fees) |
|
| 274,346 |
|
|
| (37,972 | ) | ||||||||||||||||
ACL |
| (9,256,170 | ) |
|
|
| (8,709,225 | ) |
|
|
| |||||||||||||
Deferred net loan costs (fees) |
|
| 509,611 |
|
|
|
|
| 493,275 |
|
|
|
| |||||||||||
Net loans |
| $ | 688,676,880 |
|
| $ | 682,240,305 |
|
| $ | 749,840,153 |
|
|
|
| $ | 740,332,658 |
|
|
|
|
Provision for Credit Losses
The provision for credit losses was made up of the following components for the periods indicated:
|
| Three Months Ended |
| |||||
|
| March 31, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Provision for credit losses on loans |
|
| 207,540 |
|
|
| 862,500 |
|
Provision for credit losses on OBS credit exposure |
|
| 78,986 |
|
|
| 0 |
|
Provision for credit losses |
|
| 286,526 |
|
|
| 862,500 |
|
13 |
Table of Contents |
The following tables present the activity in the ACL on loans at adoption of ASU 2016-13 (CECL) on January 1, 2023 and for the first three months of 2023 and select information on impairment evaluation by portfolio segment
As of or for the first three months ended March 31, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential |
|
| Residential |
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Commercial |
|
|
|
|
| Commercial |
|
|
|
|
| Real Estate |
|
| Real Estate |
|
|
|
|
|
|
|
|
|
| |||||||||
|
| & Industrial |
|
| Purchased |
|
| Real Estate |
|
| Municipal |
|
| 1st Lien |
|
| Jr Lien |
|
| Consumer |
|
| Unallocated |
|
| Total |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
ACL beginning balance |
| $ | 1,116,322 |
|
| $ | 53,090 |
|
| $ | 5,061,813 |
|
| $ | 62,339 |
|
| $ | 2,001,836 |
|
| $ | 241,950 |
|
| $ | 69,686 |
|
| $ | 102,189 |
|
| $ | 8,709,225 |
|
Impact of adopting CECL |
|
| (164,116 | ) |
|
| (29,196 | ) |
|
| (22,467 | ) |
|
| 24,244 |
|
|
| 273,168 |
|
|
| 297,745 |
|
|
| (33,813 | ) |
|
| (102,189 | ) |
|
| 243,376 |
|
Charge-offs |
|
| (11,577 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (25,254 | ) |
|
| 0 |
|
|
| (36,831 | ) |
Recoveries |
|
| 1,374 |
|
|
| 0 |
|
|
| 22,000 |
|
|
| 0 |
|
|
| 72,326 |
|
|
| 25,548 |
|
|
| 11,612 |
|
|
| 0 |
|
|
| 132,860 |
|
Provision (credit) |
|
| 73,635 |
|
|
| (3,693 | ) |
|
| 124,810 |
|
|
| 4,602 |
|
|
| 48,779 |
|
|
| (48,595 | ) |
|
| 8,002 |
|
|
| 0 |
|
|
| 207,540 |
|
ACL ending balance |
| $ | 1,015,638 |
|
| $ | 20,201 |
|
| $ | 5,186,156 |
|
| $ | 91,185 |
|
| $ | 2,396,109 |
|
| $ | 516,648 |
|
| $ | 30,233 |
|
| $ | 0 |
|
| $ | 9,256,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential |
|
| Residential |
|
|
|
|
|
|
| ||||||||
|
| Commercial |
|
|
|
|
| Commercial |
|
|
|
|
| Real Estate |
|
| Real Estate |
|
|
|
|
|
|
| ||||||||
|
| & Industrial |
|
| Purchased |
|
| Real Estate |
|
| Municipal |
|
| 1st Lien |
|
| Jr Lien |
|
| Consumer |
|
| Total |
| ||||||||
ACL evaluated for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Individually |
| $ | 0 |
|
| $ | 0 |
|
| $ | 2,734 |
|
| $ | 0 |
|
| $ | 2,669 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 5,403 |
|
Collectively |
|
| 1,015,638 |
|
|
| 20,201 |
|
|
| 5,183,422 |
|
|
| 91,185 |
|
|
| 2,393,440 |
|
|
| 516,648 |
|
|
| 30,233 |
|
|
| 9,250,767 |
|
Total |
| $ | 1,015,638 |
|
| $ | 20,201 |
|
| $ | 5,186,156 |
|
| $ | 91,185 |
|
| $ | 2,396,109 |
|
| $ | 516,648 |
|
| $ | 30,233 |
|
| $ | 9,256,170 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans evaluated for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
| $ | 3,870,954 |
|
| $ | 0 |
|
| $ | 2,913,355 |
|
| $ | 0 |
|
| $ | 1,140,222 |
|
| $ | 39,876 |
|
| $ | 0 |
|
| $ | 7,964,407 |
|
Collectively |
|
| 115,027,327 |
|
|
| 6,697,965 |
|
|
| 359,223,061 |
|
|
| 36,473,847 |
|
|
| 197,893,506 |
|
|
| 31,861,619 |
|
|
| 3,444,980 |
|
|
| 750,622,305 |
|
Total |
| $ | 118,898,281 |
|
| $ | 6,697,965 |
|
| $ | 362,136,416 |
|
| $ | 36,473,847 |
|
| $ | 199,033,728 |
|
| $ | 31,901,495 |
|
| $ | 3,444,980 |
|
| $ | 758,586,712 |
|
The following tables present activity in the ALL and select loan information on impairment evaluation, by portfolio segment, under the incurred loss methodology, for the periods indicated:
As of or for the year ended December 31, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential |
|
| Residential |
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Commercial |
|
|
|
|
| Commercial |
|
|
|
|
| Real Estate |
|
| Real Estate |
|
|
|
|
|
|
|
|
|
| |||||||||
|
| & Industrial |
|
| Purchased |
|
| Real Estate |
|
| Municipal |
|
| 1st Lien |
|
| Jr Lien |
|
| Consumer |
|
| Unallocated |
|
| Total |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
ALL beginning balance |
| $ | 870,392 |
|
| $ | 68,655 |
|
| $ | 4,151,760 |
|
| $ | 76,728 |
|
| $ | 1,765,892 |
|
| $ | 182,014 |
|
| $ | 55,698 |
|
| $ | 539,117 |
|
| $ | 7,710,256 |
|
Charge-offs |
|
| (76,875 | ) |
|
| 0 |
|
|
| (667,474 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (63,625 | ) |
|
| 0 |
|
|
| (807,974 | ) |
Recoveries |
|
| 14,112 |
|
|
| 0 |
|
|
| 667,474 |
|
|
| 0 |
|
|
| 111,763 |
|
|
| 5,089 |
|
|
| 30,505 |
|
|
| 0 |
|
|
| 828,943 |
|
Provision (credit) |
|
| 308,693 |
|
|
| (15,565 | ) |
|
| 910,053 |
|
|
| (14,389 | ) |
|
| 124,181 |
|
|
| 54,847 |
|
|
| 47,108 |
|
|
| (436,928 | ) |
|
| 978,000 |
|
ALL ending balance |
| $ | 1,116,322 |
|
| $ | 53,090 |
|
| $ | 5,061,813 |
|
| $ | 62,339 |
|
| $ | 2,001,836 |
|
| $ | 241,950 |
|
| $ | 69,686 |
|
| $ | 102,189 |
|
| $ | 8,709,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL evaluated for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
| $ | 2,322 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 106,280 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 108,602 |
|
Collectively |
|
| 1,114,000 |
|
|
| 53,090 |
|
|
| 5,061,813 |
|
|
| 62,339 |
|
|
| 1,895,556 |
|
|
| 241,950 |
|
|
| 69,686 |
|
|
| 102,189 |
|
|
| 8,600,623 |
|
Total |
| $ | 1,116,322 |
|
| $ | 53,090 |
|
| $ | 5,061,813 |
|
| $ | 62,339 |
|
| $ | 2,001,836 |
|
| $ | 241,950 |
|
| $ | 69,686 |
|
| $ | 102,189 |
|
| $ | 8,709,225 |
|
| ||||||||||||||||||||||||||||||||||||
Loans evaluated for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
| $ | 3,442,124 |
|
| $ | 0 |
|
| $ | 3,176,835 |
|
| $ | 0 |
|
| $ | 3,816,012 |
|
| $ | 77,416 |
|
| $ | 0 |
|
|
|
|
|
| $ | 10,512,387 |
|
Collectively |
|
| 109,509,749 |
|
|
| 7,530,458 |
|
|
| 353,716,151 |
|
|
| 34,633,055 |
|
|
| 194,927,363 |
|
|
| 33,679,456 |
|
|
| 4,039,989 |
|
|
|
|
|
|
| 738,036,221 |
|
Total |
| $ | 112,951,873 |
|
| $ | 7,530,458 |
|
| $ | 356,892,986 |
|
| $ | 34,633,055 |
|
| $ | 198,743,375 |
|
| $ | 33,756,872 |
|
| $ | 4,039,989 |
|
|
|
|
|
| $ | 748,548,608 |
|
14 |
Table of Contents |
As of or for the three months ended March 31, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential |
|
| Residential |
|
|
|
|
|
|
|
|
|
| |||||||||
|
| Commercial |
|
|
|
|
| Commercial |
|
|
|
|
| Real Estate |
|
| Real Estate |
|
|
|
|
|
|
|
|
|
| |||||||||
|
| & Industrial |
|
| Purchased |
|
| Real Estate |
|
| Municipal |
|
| 1st Lien |
|
| Jr Lien |
|
| Consumer |
|
| Unallocated |
|
| Total |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
ALL beginning balance |
| $ | 870,392 |
|
| $ | 68,655 |
|
| $ | 4,151,760 |
|
| $ | 76,728 |
|
| $ | 1,765,892 |
|
| $ | 182,014 |
|
| $ | 55,698 |
|
| $ | 539,117 |
|
| $ | 7,710,256 |
|
Charge-offs |
|
| (17,650 | ) |
|
| 0 |
|
|
| (667,474 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (8,764 | ) |
|
| 0 | �� |
|
| (693,888 | ) |
Recoveries |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,276 |
|
|
| 1,210 |
|
|
| 8,294 |
|
|
| 0 |
|
|
| 11,780 |
|
Provision (credit) |
|
| 122,927 |
|
|
| (5,024 | ) |
|
| 1,159,995 |
|
|
| 10,861 |
|
|
| 46,289 |
|
|
| (4,671 | ) |
|
| (19,036 | ) |
|
| (448,841 | ) |
|
| 862,500 |
|
ALL ending balance |
| $ | 975,669 |
|
| $ | 63,631 |
|
| $ | 4,644,281 |
|
| $ | 87,589 |
|
| $ | 1,814,457 |
|
| $ | 178,553 |
|
| $ | 36,192 |
|
| $ | 90,276 |
|
| $ | 7,890,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL evaluated for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 115,614 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 115,614 |
|
Collectively |
|
| 975,669 |
|
|
| 63,631 |
|
|
| 4,644,281 |
|
|
| 87,589 |
|
|
| 1,698,843 |
|
|
| 178,553 |
|
|
| 36,192 |
|
|
| 90,276 |
|
|
| 7,775,034 |
|
Total |
| $ | 975,669 |
|
| $ | 63,631 |
|
| $ | 4,644,281 |
|
| $ | 87,589 |
|
| $ | 1,814,457 |
|
| $ | 178,553 |
|
| $ | 36,192 |
|
| $ | 90,276 |
|
| $ | 7,890,648 |
|
| ||||||||||||||||||||||||||||||||||||
Loans evaluated for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
| $ | 222,236 |
|
| $ | 0 |
|
| $ | 3,713,169 |
|
| $ | 0 |
|
| $ | 3,910,848 |
|
| $ | 85,691 |
|
| $ | 0 |
|
|
|
|
|
| $ | 7,931,944 |
|
Collectively |
|
| 112,160,751 |
|
|
| 9,090,170 |
|
|
| 304,598,565 |
|
|
| 48,660,440 |
|
|
| 177,699,446 |
|
|
| 32,981,298 |
|
|
| 3,170,568 |
|
|
|
|
|
|
| 688,361,238 |
|
Total |
| $ | 112,382,987 |
|
| $ | 9,090,170 |
|
| $ | 308,311,734 |
|
| $ | 48,660,440 |
|
| $ | 181,610,294 |
|
| $ | 33,066,989 |
|
| $ | 3,170,568 |
|
|
|
|
|
| $ | 696,293,182 |
|
The following is an age analysis of past due loans (including non-accrual) as of the balance sheet dates, by portfolio segment:
|
|
|
| 90 Days |
| Total |
|
|
|
|
| Non-Accrual |
| 90 Days or More and |
|
|
|
| 90 Days |
| Total |
|
|
|
|
| ||||||||||||||||||||||
March 31, 2022 |
| 30-89 Days |
|
| or More |
|
| Past Due |
|
| Current |
|
| Total Loans |
|
| Loans |
|
| Accruing |
| |||||||||||||||||||||||||||
March 31, 2023 |
| 30-89 Days |
|
| or More |
|
| Past Due |
|
| Current |
|
| Total Loans |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Commercial & industrial |
| $ | 233,764 |
| $ | 141,700 |
| $ | 375,464 |
| $ | 121,097,693 |
| $ | 121,473,157 |
| $ | 222,236 |
| $ | 0 |
|
| $ | 0 |
| $ | 3,229,266 |
| $ | 3,229,266 |
| $ | 115,669,015 |
| $ | 118,898,281 |
| ||||||||||
Purchased |
| 0 |
| 0 |
| 0 |
| 6,697,965 |
| 6,697,965 |
| |||||||||||||||||||||||||||||||||||||
Commercial real estate |
| 1,546,310 |
| 1,640,382 |
| 3,186,692 |
| 305,125,042 |
| 308,311,734 |
| 3,708,593 |
| 0 |
|
| 1,326,520 |
| 565,347 |
| 1,891,867 |
| 360,244,549 |
| 362,136,416 |
| ||||||||||||||||||||||
Municipal |
| 0 |
| 0 |
| 0 |
| 48,660,440 |
| 48,660,440 |
| 0 |
| 0 |
|
| 0 |
| 0 |
| 0 |
| 36,473,847 |
| 36,473,847 |
| ||||||||||||||||||||||
Residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
- 1st lien |
| 1,221,885 |
| 611,883 |
| 1,833,768 |
| 179,776,526 |
| 181,610,294 |
| 1,343,723 |
| 561,440 |
| |||||||||||||||||||||||||||||||||
- Jr lien |
| 82,115 |
| 93,374 |
| 175,489 |
| 32,891,500 |
| 33,066,989 |
| 140,411 |
| 93,374 |
| |||||||||||||||||||||||||||||||||
Residential real estate - 1st lien |
| 1,291,368 |
| 409,273 |
| 1,700,641 |
| 197,333,087 |
| 199,033,728 |
| |||||||||||||||||||||||||||||||||||||
Residential real estate - Jr lien |
| 160,470 |
| 64,883 |
| 225,353 |
| 31,676,142 |
| 31,901,495 |
| |||||||||||||||||||||||||||||||||||||
Consumer |
|
| 4,028 |
|
|
| 0 |
|
|
| 4,028 |
|
|
| 3,166,540 |
|
|
| 3,170,568 |
|
|
| 0 |
|
|
| 0 |
|
|
| 17,689 |
|
|
| 0 |
|
|
| 17,689 |
|
|
| 3,427,291 |
|
|
| 3,444,980 |
|
Totals |
| $ | 3,088,102 |
|
| $ | 2,487,339 |
|
| $ | 5,575,441 |
|
| $ | 690,717,741 |
|
| $ | 696,293,182 |
|
| $ | 5,414,963 |
|
| $ | 654,814 |
|
| $ | 2,796,047 |
|
| $ | 4,268,769 |
|
| $ | 7,064,816 |
|
| $ | 751,521,896 |
|
| $ | 758,586,712 |
|
|
|
|
| 90 Days |
| Total |
|
|
|
|
| Non-Accrual |
| 90 Days or More and |
|
|
|
| 90 Days |
| Total |
|
|
|
|
| ||||||||||||||||||||||
December 31, 2021 |
| 30-89 Days |
|
| or More |
|
| Past Due |
|
| Current |
|
| Total Loans |
|
| Loans |
|
| Accruing |
| |||||||||||||||||||||||||||
December 31, 2022 |
| 30-89 Days |
|
| or More |
|
| Past Due |
|
| Current |
|
| Total Loans |
| |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Commercial & industrial |
| $ | 833,875 |
| $ | 0 |
| $ | 833,875 |
| $ | 120,099,595 |
| $ | 120,933,470 |
| $ | 98,661 |
| $ | 0 |
|
| $ | 2,377,668 |
| $ | 879,802 |
| $ | 3,257,470 |
| $ | 109,694,403 |
| $ | 112,951,873 |
| ||||||||||
Purchased |
| 0 |
| 0 |
| 0 |
| 7,530,458 |
| 7,530,458 |
| |||||||||||||||||||||||||||||||||||||
Commercial real estate |
| 49,450 |
| 2,400,514 |
| 2,449,964 |
| 298,508,967 |
| 300,958,931 |
| 4,517,839 |
| 0 |
|
| 1,395,444 |
| 353,842 |
| 1,749,286 |
| 355,143,700 |
| 356,892,986 |
| ||||||||||||||||||||||
Municipal |
| 0 |
| 0 |
| 0 |
| 47,955,231 |
| 47,955,231 |
| 0 |
| 0 |
|
| 0 |
| 0 |
| 0 |
| 34,633,055 |
| 34,633,055 |
| ||||||||||||||||||||||
Residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||
- 1st lien |
| 1,190,300 |
| 608,775 |
| 1,799,075 |
| 179,517,270 |
| 181,316,345 |
| 1,180,563 |
| 506,827 |
| |||||||||||||||||||||||||||||||||
- Jr lien |
| 51,837 |
| 86,476 |
| 138,313 |
| 34,221,551 |
| 34,359,864 |
| 143,566 |
| 86,476 |
| |||||||||||||||||||||||||||||||||
Residential real estate - 1st lien |
| 1,517,653 |
| 641,141 |
| 2,158,794 |
| 196,584,581 |
| 198,743,375 |
| |||||||||||||||||||||||||||||||||||||
Residential real estate - Jr lien |
| 321,579 |
| 25,007 |
| 346,586 |
| 33,410,286 |
| 33,756,872 |
| |||||||||||||||||||||||||||||||||||||
Consumer |
|
| 9,741 |
|
|
| 0 |
|
|
| 9,741 |
|
|
| 4,454,951 |
|
|
| 4,464,692 |
|
|
| 0 |
|
|
| 0 |
|
|
| 18,745 |
|
|
| 0 |
|
|
| 18,745 |
|
|
| 4,021,244 |
|
|
| 4,039,989 |
|
Totals |
| $ | 2,135,203 |
|
| $ | 3,095,765 |
|
| $ | 5,230,968 |
|
| $ | 684,757,565 |
|
| $ | 689,988,533 |
|
| $ | 5,940,629 |
|
| $ | 593,303 |
|
| $ | 5,631,089 |
|
| $ | 1,899,792 |
|
| $ | 7,530,881 |
|
| $ | 741,017,727 |
|
| $ | 748,548,608 |
|
For all loan segments, loans over 30 days past due are considered delinquent.
15 |
Table of Contents |
The following tables present the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing as of the dates presented:
|
|
|
|
|
|
|
|
|
|
| 90 Days or |
| ||||
|
| Nonaccrual |
|
| Nonaccrual |
|
| Total |
|
| More and |
| ||||
March 31, 2023 |
| with an ACL |
|
| with No ACL |
|
| Nonaccrual |
|
| Accruing |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial & industrial |
| $ | 0 |
|
| $ | 3,875,801 |
|
| $ | 3,875,801 |
|
| $ | 0 |
|
Purchased |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Commercial real estate |
|
| 692,600 |
|
|
| 2,369,614 |
|
|
| 3,062,214 |
|
|
| 0 |
|
Municipal |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Residential real estate - 1st lien |
|
| 167,159 |
|
|
| 1,246,617 |
|
|
| 1,413,776 |
|
|
| 175,981 |
|
Residential real estate - Jr lien |
|
| 0 |
|
|
| 128,563 |
|
|
| 128,563 |
|
|
| 0 |
|
Consumer |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Totals |
| $ | 859,759 |
|
| $ | 7,620,595 |
|
| $ | 8,480,354 |
|
| $ | 175,981 |
|
|
|
|
|
|
|
|
|
|
|
| 90 Days or |
| ||||
|
| Nonaccrual |
|
| Nonaccrual |
|
| Total |
|
| More and |
| ||||
December 31, 2022 |
| with an ALL |
|
| with No ALL |
|
| Nonaccrual |
|
| Accruing |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial & industrial |
| $ | 452,963 |
|
| $ | 2,989,161 |
|
| $ | 3,442,124 |
|
| $ | 0 |
|
Purchased |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Commercial real estate |
|
| 0 |
|
|
| 3,180,478 |
|
|
| 3,180,478 |
|
|
| 324,927 |
|
Municipal |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Residential real estate - 1st lien |
|
| 278,026 |
|
|
| 858,304 |
|
|
| 1,136,330 |
|
|
| 248,157 |
|
Residential real estate - Jr lien |
|
| 0 |
|
|
| 131,088 |
|
|
| 131,088 |
|
|
| 0 |
|
Consumer |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Totals |
| $ | 730,989 |
|
| $ | 7,159,031 |
|
| $ | 7,890,020 |
|
| $ | 573,084 |
|
As of the balance sheet dates presented,March 31, 2023, there were no loans in process of foreclosure, consistedcompared to 5 loans with an aggregate balance of the following residential mortgage loans:$195,082 at December 31, 2022.
|
| Number of loans |
|
| Balance |
| ||
|
|
|
|
|
|
| ||
March 31, 2022 |
|
| 4 |
|
| $ | 153,054 |
|
December 31, 2021 |
|
| 5 |
|
|
| 195,082 |
|
Allowance for loancredit losses
The ALLACL is established through a provision for loancredit losses charged to earnings. LoanCredit losses are charged against the allowance when management believes that future payments of a loan balance are unlikely. Subsequent recoveries, if any, are credited to the allowance.
Unsecured loans are charged off when they become uncollectible and no later than 120 days past due. Unsecured loans to customers who subsequently file bankruptcy are charged off within 30 days of receipt of the notification of filing or by the end of the month in which the loans become 120 days past due, whichever occurs first. For secured loans, both residential and commercial, the potential loss on impaired loans is carried as a loan loss reserve specific allocation; the loss portion is charged off when collection of the full loan appears unlikely. The unsecured portion of a real estate loan is that portion of the loan exceeding the “fair value”"fair value" of the collateral less the estimated cost to sell. Value of the collateral is determined in accordance with the Company’s appraisal policy. The unsecured portion of an impaired real estate secured loan is charged off by the end of the month in which the loan becomes 180 days past due.
As described below, the allowance consists of general specific and unallocatedspecific components. However, the entire allowance is available to absorb losses in the loan portfolio, regardless of specific, general and unallocatedor specific components considered in determining the amount of the allowance.
General component
The general component of the ALLACL is based on historical loss experiencemethodologies, inputs, and various qualitative factors and is stratified byassumptions utilized to estimate lifetime credit losses when applied to the following loan segments: commercial and industrial, purchased loans, CRE, municipal, residential real estate 1st lien, residential real estate Jr lien and consumer loans. The Company does not disaggregate its portfolio segments further into classes.
16 |
Table of Contents |
Loss ratiosThe Company utilizes a discounted cash flow (DCF) approach to calculate the expected loss for each portfolio segment. Within the DCF model, a probability of default (PD) and loss given default (LGD) assumption is applied to calculate the expected loss for each segment. PD is the probability the asset will default within a given timeframe and LGD is the percentage of assets not expected to be collected due to default. The Company's PD and LGD assumptions may be derived from internal historical default and loss experience or from external data where there are calculated bynot statistically meaningful loss events for a loan segment using appropriate look back periods.or it does not have default and loss data that covers a full economic cycle.
As of March 31, 2023, the primary macroeconomic drivers used within the DCF model included forecasts of Civilian unemployment and changes in National gross domestic product (GDP). Management uses an averagemonitors and assesses its macroeconomic drivers at least annually (generally in the fourth quarter) to determine if or that they continue to be the most predictive indicator of historical losses within the Company's loan portfolio, and these macroeconomic drivers may change from time to time.
To determine its reasonable and supportable forecast, management may leverage macroeconomic forecasts obtained from various reputable sources, which may include, but is not limited to, the FOMC forecast and other publicly available forecasts from well recognized, leading economists or firms. The Company's reasonable and supportable forecast period generally ranges from one to three years, depending on the facts and circumstances of the current state of the economy, portfolio segment, and management's judgment of what can be reasonably supported. The model reversion period generally ranges from one to six years, and it also depends on the current state of the economy and management's judgments of such. Management monitors and assesses the forecast and reversion period at least annually. The Company used a one-year forecast and reversion period to calculate the ACL on loans as of March 31, 2023.
When the DCF method is used to determine the ACL, management does not adjust the effective interest rate used to discount expected cash flows to incorporate expected prepayments.
Expected credit losses are estimated over the contractual term of the loans. For term loans, the contractual life is calculated based on the maturity date. For commercial revolving loans with no stated maturity date, the contractual life is calculated based on the internal review date. For all other revolving loans, the contractual life is based on either the estimated maturity date or a time framedefault date. The contractual term excludes expected extensions, renewals, and modifications.
In calculating the ACL on loans, the contractual life of a loan must be adjusted for prepayments to arrive at expected cash flows. The Company models term loans using an annualized prepayment. When the Company has a specific expectation of differing payment behavior for a given loan, the loan may be evaluated individually. For revolving loans that do not have a principal payment schedule, a curtailment rate is factored into the cash flow.
Management has elected loss rate methodologies appropriate to capture relevant loss data for each loan segment. The DCF method was chosen for the commercial and industrial, CRE, residential real estate 1st lien, residential real estate Jr Lien and consumer loans. The DCF model, being periodic in nature, allows for effective incorporation of a reasonable and supportable forecast in a directionally consistent and objective manner. For the purchased loans segment, ina long-term average loss rate is calculated and applied on a quarterly basis for the current economic climate. During periodsremaining life of economic stability, a relatively longer period (e.g., five years) may be appropriate. During periods of significant expansion or contraction, the Company may appropriately shorten the historical time period.pool. Due primarily to the effectslack of COVID-19, during 2020any historical loss data, a manual entry methodology was chosen for the Company shortened its look back periodmunicipal loans given the immaterial nature of the pool when considering prior loss history as well as the inability to one year, however, duringreasonably forecast defaults or loss given default for the first quarter of 2022, the look back period was lengthened to two years.pool.
Qualitative factors are also applied to include the levels of and trends in delinquencies and non-performing loans, levels of and trends in loan risk groups, trends in volumes and terms of loans, effects of any changes in loan related policies, experience, ability and the depth of management, documentation and credit data exception levels, national and local economic trends, external factors such as competition and regulation and lastly, concentrations of credit risk in a variety of areas, including portfolio product mix, the level of loans to individual borrowers and their related interests, loans to industry segments, and the geographic distribution of CRE loans. This evaluation is inherently subjective as it requires estimates that are susceptible to revision as more information becomes available.
The qualitative factors are determined based on the various risk characteristics of each loan segment. The Company has policies, procedures and internal controls that management believes are commensurate with the risk profile of each of these segments. Major risk characteristics relevant to each portfolio segment are as follows:
Commercial & Industrial – Loans in this segment include commercial and industrial loans and to a lesser extent loans to finance agricultural production. Commercial loans are made to businesses and are generally secured by assets of the business, including trade assets and equipment. While not the primary collateral, in many cases these loans may also be secured by the real estate of the business. Repayment is expected from the cash flows of the business. A weakened economy, soft consumer spending, unfavorable foreign trade conditions and the rising cost of labor or raw materials are examples of issues that can impact the credit quality in this segment.
Purchased – Loans in this segment are loans purchased through a loan purchasing program with Bankers Healthcare Group (BHG). BHG originates commercial loans to medical professionals nationwide and sells them individually to a secondary market, primarily banks, through a bid process. The Bank has established conservative credit parameters and expects a low risk of default in this portfolio.
17 |
Table of Contents |
Commercial Real Estate – Loans in this segment are principally made to businesses and are generally secured by either owner-occupied, or non-owner occupied CRE. A relatively small portion of this segment includes farm loans secured by farm land and buildings. As with commercial and industrial loans, repayment of owner-occupied CRE loans is expected from the cash flows of the business and the segment would be impacted by the same risk factors as commercial and industrial loans. The non-owner occupied CRE portion includes both residential and commercial construction loans, vacant land and real estate development loans, multi-family dwelling loans and commercial rental property loans. Repayment of construction loans is expected from permanent financing takeout; the Company generally requires a commitment or eligibility for the take-out financing prior to construction loan origination. Real estate development loans are generally repaid from the sale of the subject real property as the project progresses. Construction and development lending entail additional risks, including the project exceeding budget, not being constructed according to plans, not receiving permits, or the pre-leasing or occupancy rate not meeting expectations. Repayment of multi-family loans and commercial rental property loans is expected from the cash flow generated by rental payments received from the individuals or businesses occupying the real estate. CRE loans are impacted by factors such as competitive market forces, vacancy rates, cap rates, net operating incomes, lease renewals and overall economic demand. In addition, loans in the recreational and tourism sector can be affected by weather conditions, such as unseasonably low winter snowfalls. CRE lending also carries a higher degree of environmental risk than other real estate lending.
Municipal – Loans in this segment are made to local municipalities, attributable to municipal financing transactions and backed by the full faith and credit of town governments or dedicated governmental revenue sources, with no historical losses recognized by the Company. Qualitative factors are not utilized in the manual entry method for municipal loans.
Residential Real Estate - 1st Lien – Loans in this segment are collateralized by first mortgages on 1 – 4 family owner-occupied residential real estate and repayment is dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.
Residential Real Estate – Jr Lien – Loans in this segment are collateralized by junior lien mortgages on 1 – 4 family residential real estate and repayment is primarily dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.
Consumer – Loans in this segment are made to individuals for consumer and household purposes. This segment includes both loans secured by automobiles and other consumer goods, as well as loans that are unsecured. This segment also includes overdrafts, which are extensions of credit made to both individuals and businesses to cover temporary shortages in their deposit accounts and are generally unsecured. The Company maintains policies restricting the size and term of these extensions of credit. The overall health of the economy, including unemployment rates, has an impact on the credit quality of this segment.
Specific component
The specific component of the ALL relates to loansLoans that do not share risk characteristics are impaired. Impaired loansevaluated on an individual basis. Loans evaluated individually are loans to a borrower thatnot also included in the aggregate arecollective evaluation. In general, loans individually evaluated for estimated credit losses include those (i) greater than $100,000 and that are in non-accrual statuson nonaccrual or (ii) have other unique characteristics differing from the portfolio segment. Specific reserves are TDRs regardless of amount. A specific allowance is established when appropriate for an impaired loan when its estimated fair value or net present value of future cash flows is less than the carrying value of the loan. For all loan segments, except consumersuch loans a loan is considered impaired when, based on current information and events, in management’s estimation it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant or temporary payment delays and payment shortfalls generally are not classified as impaired. Management evaluates the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length and frequency of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis, by either the present value of expected future cash flows discountedof the loan. However, when management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the loan’s effective interest rate,reporting date and repayment is expected to be provided substantially through the loan’s obtainable market price,operation or sale of the collateral expected credit losses are based on the fair value of the collateral ifat the loan is collateral dependent.
Impaired loans also include troubled loans that are restructured. A TDR occurs when the Company,reporting date, adjusted for economic or legal reasons related to the borrower’s financial difficulties, grants a concession to the borrower that would otherwise not be granted. TDRs may include the transfer of assets to the Company in partial satisfaction of a troubled loan, a modification of a loan’s terms, or a combination of the two. As described above in Note 2, under March 2020 guidance from the federal banking agencies and concurrence by the FASB, certain short-term loan accommodations made in good faith prior to January 1, 2022 for borrowers experiencing financial difficulties due to the COVID-19 health emergency are not considered TDRs.selling costs as appropriate.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer loans for impairment evaluation, unless such loans are subject to a restructuring agreement.evaluation.
Unallocated componentAllowance for loan losses (prior to adoption of CECL)
An unallocated componentPlease refer to Note 4 to the audited consolidated financial statements contained in the Company’s 2022 Annual Report on 10-K for the description on disclosure of the ALL is maintainedin periods prior to cover uncertainties that could affect management’s estimateadoption of probable losses. The unallocated component reflects management’s estimate of the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.CECL.
The tables below summarize changes in the ALL and select loan information, by portfolio segment, for the periods indicated.
As of or for the three months ended March 31, 2022
|
|
|
|
|
|
|
|
|
|
| Residential |
|
| Residential |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Commercial |
|
| Commercial |
|
|
|
|
| Real Estate |
|
| Real Estate |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| & Industrial |
|
| Real Estate |
|
| Municipal |
|
| 1st Lien |
|
| Jr Lien |
|
| Consumer |
|
| Unallocated |
|
| Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
ALL beginning balance |
| $ | 939,047 |
|
| $ | 4,151,760 |
|
| $ | 76,728 |
|
| $ | 1,765,892 |
|
| $ | 182,014 |
|
| $ | 55,698 |
|
| $ | 539,117 |
|
| $ | 7,710,256 |
|
Charge-offs |
|
| (17,650 | ) |
|
| (667,474 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (8,764 | ) |
|
| 0 |
|
|
| (693,888 | ) |
Recoveries |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,276 |
|
|
| 1,210 |
|
|
| 8,294 |
|
|
| 0 |
|
|
| 11,780 |
|
Provision (credit) |
|
| 117,903 |
|
|
| 1,159,995 |
|
|
| 10,861 |
|
|
| 46,289 |
|
|
| (4,671 | ) |
|
| (19,036 | ) |
|
| (448,841 | ) |
|
| 862,500 |
|
ALL ending balance |
| $ | 1,039,300 |
|
| $ | 4,644,281 |
|
| $ | 87,589 |
|
| $ | 1,814,457 |
|
| $ | 178,553 |
|
| $ | 36,192 |
|
| $ | 90,276 |
|
| $ | 7,890,648 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL evaluated for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 115,614 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 115,614 |
|
Collectively |
|
| 1,039,300 |
|
|
| 4,644,281 |
|
|
| 87,589 |
|
|
| 1,698,843 |
|
|
| 178,553 |
|
|
| 36,192 |
|
|
| 90,276 |
|
|
| 7,775,034 |
|
Total |
| $ | 1,039,300 |
|
| $ | 4,644,281 |
|
| $ | 87,589 |
|
| $ | 1,814,457 |
|
| $ | 178,553 |
|
| $ | 36,192 |
|
| $ | 90,276 |
|
| $ | 7,890,648 |
|
| ||||||||||||||||||||||||||||||||
Loans evaluated for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
| $ | 222,236 |
|
| $ | 3,713,169 |
|
| $ | 0 |
|
| $ | 3,910,848 |
|
| $ | 85,691 |
|
| $ | 0 |
|
|
|
|
|
| $ | 7,931,944 |
|
Collectively |
|
| 121,250,921 |
|
|
| 304,598,565 |
|
|
| 48,660,440 |
|
|
| 177,699,446 |
|
|
| 32,981,298 |
|
|
| 3,170,568 |
|
|
|
|
|
|
| 688,361,238 |
|
Total |
| $ | 121,473,157 |
|
| $ | 308,311,734 |
|
| $ | 48,660,440 |
|
| $ | 181,610,294 |
|
| $ | 33,066,989 |
|
| $ | 3,170,568 |
|
|
|
|
|
| $ | 696,293,182 |
|
As of or for the year ended December 31, 2021
|
|
|
|
|
|
|
|
|
|
| Residential |
|
| Residential |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Commercial |
|
| Commercial |
|
|
|
|
| Real Estate |
|
| Real Estate |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| & Industrial |
|
| Real Estate |
|
| Municipal |
|
| 1st Lien |
|
| Jr Lien |
|
| Consumer |
|
| Unallocated |
|
| Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
ALL beginning balance |
| $ | 842,547 |
|
| $ | 3,854,153 |
|
| $ | 82,211 |
|
| $ | 1,735,304 |
|
| $ | 234,896 |
|
| $ | 60,461 |
|
| $ | 398,913 |
|
| $ | 7,208,485 |
|
Charge-offs |
|
| (18,847 | ) |
|
| (22,000 | ) |
|
| 0 |
|
|
| (98,704 | ) |
|
| 0 |
|
|
| (87,651 | ) |
|
| 0 |
|
|
| (227,202 | ) |
Recoveries |
|
| 4,761 |
|
|
| 27,160 |
|
|
| 0 |
|
|
| 7,636 |
|
|
| 10,821 |
|
|
| 54,430 |
|
|
| 0 |
|
|
| 104,808 |
|
Provision (credit) |
|
| 110,586 |
|
|
| 292,447 |
|
|
| (5,483 | ) |
|
| 121,656 |
|
|
| (63,703 | ) |
|
| 28,458 |
|
|
| 140,204 |
|
|
| 624,165 |
|
ALL ending balance |
| $ | 939,047 |
|
| $ | 4,151,760 |
|
| $ | 76,728 |
|
| $ | 1,765,892 |
|
| $ | 182,014 |
|
| $ | 55,698 |
|
| $ | 539,117 |
|
| $ | 7,710,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL evaluated for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 79,978 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 79,978 |
|
Collectively |
|
| 939,047 |
|
|
| 4,151,760 |
|
|
| 76,728 |
|
|
| 1,685,914 |
|
|
| 182,014 |
|
|
| 55,698 |
|
|
| 539,117 |
|
|
| 7,630,278 |
|
Total |
| $ | 939,047 |
|
| $ | 4,151,760 |
|
| $ | 76,728 |
|
| $ | 1,765,892 |
|
| $ | 182,014 |
|
| $ | 55,698 |
|
| $ | 539,117 |
|
| $ | 7,710,256 |
|
| ||||||||||||||||||||||||||||||||
Loans evaluated for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
| $ | 93,362 |
|
| $ | 4,553,734 |
|
| $ | 0 |
|
| $ | 3,720,503 |
|
| $ | 88,563 |
|
| $ | 0 |
|
|
|
|
|
| $ | 8,456,162 |
|
Collectively |
|
| 120,840,108 |
|
|
| 296,405,197 |
|
|
| 47,955,231 |
|
|
| 177,595,842 |
|
|
| 34,271,301 |
|
|
| 4,464,692 |
|
|
|
|
|
|
| 681,532,371 |
|
Total |
| $ | 120,933,470 |
|
| $ | 300,958,931 |
|
| $ | 47,955,231 |
|
| $ | 181,316,345 |
|
| $ | 34,359,864 |
|
| $ | 4,464,692 |
|
|
|
|
|
| $ | 689,988,533 |
|
As of or for the three months ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
| Residential |
|
| Residential |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Commercial |
|
| Commercial |
|
|
|
| �� | Real Estate |
|
| Real Estate |
|
|
|
|
|
|
|
|
|
| ||||||||
|
| & Industrial |
|
| Real Estate |
|
| Municipal |
|
| 1st Lien |
|
| Jr Lien |
|
| Consumer |
|
| Unallocated |
|
| Total |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
ALL beginning balance |
| $ | 842,547 |
|
| $ | 3,854,153 |
|
| $ | 82,211 |
|
| $ | 1,735,304 |
|
| $ | 234,896 |
|
| $ | 60,461 |
|
| $ | 398,913 |
|
| $ | 7,208,485 |
|
Charge-offs |
|
| (18,847 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (14,161 | ) |
|
| 0 |
|
|
| (33,008 | ) |
Recoveries |
|
| 4,761 |
|
|
| 7,000 |
|
|
| 0 |
|
|
| 1,567 |
|
|
| 528 |
|
|
| 11,458 |
|
|
| 0 |
|
|
| 25,314 |
|
Provision (credit) |
|
| 60,170 |
|
|
| (37,468 | ) |
|
| 1,320 |
|
|
| (69,277 | ) |
|
| (32,112 | ) |
|
| (18,136 | ) |
|
| 363,000 |
|
|
| 267,497 |
|
ALL ending balance |
| $ | 888,631 |
|
| $ | 3,823,685 |
|
| $ | 83,531 |
|
| $ | 1,667,594 |
|
| $ | 203,312 |
|
| $ | 39,622 |
|
| $ | 761,913 |
|
| $ | 7,468,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALL evaluated for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 119,306 |
|
| $ | 255 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 119,561 |
|
Collectively |
|
| 888,631 |
|
|
| 3,823,685 |
|
|
| 83,531 |
|
|
| 1,548,288 |
|
|
| 203,058 |
|
|
| 39,621 |
|
|
| 761,913 |
|
|
| 7,348,727 |
|
Total |
| $ | 888,631 |
|
| $ | 3,823,685 |
|
| $ | 83,531 |
|
| $ | 1,667,594 |
|
| $ | 203,313 |
|
| $ | 39,621 |
|
| $ | 761,913 |
|
| $ | 7,468,288 |
|
| ||||||||||||||||||||||||||||||||
Loans evaluated for impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
| $ | 420,974 |
|
| $ | 1,645,678 |
|
| $ | 0 |
|
| $ | 4,394,274 |
|
| $ | 143,333 |
|
| $ | 0 |
|
|
|
|
|
| $ | 6,604,259 |
|
Collectively |
|
| 188,022,649 |
|
|
| 276,837,413 |
|
|
| 52,207,213 |
|
|
| 165,415,944 |
|
|
| 36,735,240 |
|
|
| 3,666,921 |
|
|
|
|
|
|
| 722,885,380 |
|
Total |
| $ | 188,443,623 |
|
| $ | 278,483,091 |
|
| $ | 52,207,213 |
|
| $ | 169,810,218 |
|
| $ | 36,878,573 |
|
| $ | 3,666,921 |
|
|
|
|
|
| $ | 729,489,639 |
|
Impaired loans, by portfolio segment, were as follows:
|
| As of March 31, 2022 |
|
|
|
|
|
|
| |||||||||||
|
|
|
|
| Unpaid |
|
|
|
|
| Average |
|
| Interest |
| |||||
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Income |
| |||||
|
| Investment(1) |
|
| Balance |
|
| Allowance |
|
| Investment(1)(2) |
|
| Recognized(2) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
1st lien |
| $ | 1,113,112 |
|
| $ | 1,129,082 |
|
| $ | 115,614 |
|
| $ | 907,849 |
|
| $ | 14,387 |
|
Jr lien |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 51 |
|
Total with related allowance |
|
| 1,113,112 |
|
|
| 1,129,082 |
|
|
| 115,614 |
|
|
| 907,849 |
|
|
| 14,438 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial |
|
| 222,236 |
|
|
| 261,011 |
|
|
|
|
|
|
| 157,799 |
|
|
| 204 |
|
Commercial real estate |
|
| 3,713,309 |
|
|
| 4,861,145 |
|
|
|
|
|
|
| 4,133,691 |
|
|
| 1,670 |
|
Residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st lien |
|
| 2,836,069 |
|
|
| 3,845,577 |
|
|
|
|
|
|
| 2,943,358 |
|
|
| 42,714 |
|
Jr lien |
|
| 85,697 |
|
|
| 131,069 |
|
|
|
|
|
|
| 87,133 |
|
|
| 37 |
|
Total with no related allowance |
|
| 6,857,311 |
|
|
| 9,098,802 |
|
|
|
|
|
|
| 7,321,981 |
|
|
| 44,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans |
| $ | 7,970,423 |
|
| $ | 10,227,884 |
|
| $ | 115,614 |
|
| $ | 8,229,830 |
|
| $ | 59,063 |
|
|
|
|
|
18 |
Table of Contents |
|
| As of December 31, 2021 |
|
|
|
|
|
|
| |||||||||||
|
|
|
|
| Unpaid |
|
|
|
|
| Average |
|
| Interest |
| |||||
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Income |
| |||||
|
| Investment(1) |
|
| Balance |
|
| Allowance |
|
| Investment(1)(2) |
|
| Recognized(2) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
1st lien |
| $ | 702,586 |
|
| $ | 716,118 |
|
| $ | 79,978 |
|
| $ | 858,124 |
|
| $ | 60,769 |
|
Jr lien |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,452 |
|
|
| 243 |
|
Total with related allowance |
|
| 702,586 |
|
|
| 716,118 |
|
|
| 79,978 |
|
|
| 861,576 |
|
|
| 61,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial |
|
| 93,362 |
|
|
| 115,414 |
|
|
|
|
|
|
| 290,181 |
|
|
| 204 |
|
Commercial real estate |
|
| 4,554,074 |
|
|
| 5,108,557 |
|
|
|
|
|
|
| 2,747,193 |
|
|
| 120,996 |
|
Residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st lien |
|
| 3,050,647 |
|
|
| 4,076,352 |
|
|
|
|
|
|
| 3,331,971 |
|
|
| 205,514 |
|
Jr lien |
|
| 88,570 |
|
|
| 132,802 |
|
|
|
|
|
|
| 124,803 |
|
|
| 186 |
|
Total with no related allowance |
|
| 7,786,653 |
|
|
| 9,433,125 |
|
|
|
|
|
|
| 6,494,148 |
|
|
| 326,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans |
| $ | 8,489,239 |
|
| $ | 10,149,243 |
|
| $ | 79,978 |
|
| $ | 7,355,724 |
|
| $ | 387,912 |
|
The following table presents the amortized cost basis of collateral-dependent loans as of March 31, 2023 by collateral type:
|
| Business |
|
| Commercial |
|
| Residential |
|
|
|
| ||||
|
| Assets (1) |
|
| Real Estate |
|
| Real Estate |
|
| Total |
| ||||
Commercial |
| $ | 1,777,018 |
|
|
|
|
|
|
|
| $ | 1,777,018 |
| ||
Commercial real estate |
|
|
|
|
|
| 776,329 |
|
|
|
|
|
| 776,329 |
| |
Residential real estate - 1st lien |
|
|
|
|
|
|
|
|
|
| 326,922 |
|
|
| 326,922 |
|
Total collateral-dependent loans |
| $ | 1,777,018 |
|
| $ | 776,329 |
|
| $ | 326,922 |
|
| $ | 2,880,268 |
|
(1) Including, but not limited to, inventory, equipment and accounts receivable.
Impaired loans, by portfolio segment, prior to adoption of ASU 2022-02 (Troubled Debt Restructurings and Vintage Disclosures), were as follows:
|
| As of December 31, 2022 |
| |||||||||
|
|
|
|
| Unpaid |
|
|
|
| |||
|
| Recorded |
|
| Principal |
|
| Related |
| |||
|
| Investment(1) |
|
| Balance |
|
| Allowance |
| |||
|
|
|
|
|
|
|
|
|
| |||
Related allowance recorded |
|
|
|
|
|
|
|
|
| |||
Commercial & industrial |
| $ | 452,963 |
|
| $ | 462,745 |
|
| $ | 2,322 |
|
Residential real estate – 1st lien |
|
| 1,041,730 |
|
|
| 1,073,350 |
|
|
| 106,280 |
|
Total with related allowance |
|
| 1,494,693 |
|
|
| 1,536,095 |
|
|
| 108,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No related allowance recorded |
|
|
| �� |
|
|
|
|
|
|
|
|
Commercial & industrial |
|
| 2,989,161 |
|
|
| 3,078,769 |
|
|
|
|
|
Commercial real estate |
|
| 3,176,962 |
|
|
| 3,671,196 |
|
|
|
|
|
Residential real estate - 1st lien |
|
| 2,785,669 |
|
|
| 3,805,682 |
|
|
|
|
|
Residential real estate - Jr lien |
|
| 77,419 |
|
|
| 126,250 |
|
|
|
|
|
Total with no related allowance |
|
| 9,029,211 |
|
|
| 10,681,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans |
| $ | 10,523,904 |
|
| $ | 12,217,992 |
|
| $ | 108,602 |
|
(1) Recorded investment in impaired loans in the table above includes accrued interest receivable and deferred net loan costs of $11,517.
|
| As of March 31, 2022 |
| |||||||||
|
|
|
|
| Unpaid |
|
|
|
| |||
|
| Recorded |
|
| Principal |
|
| Related |
| |||
|
| Investment(1) |
|
| Balance |
|
| Allowance |
| |||
|
|
|
|
|
|
|
|
|
| |||
Related allowance recorded |
|
|
|
|
|
|
|
|
| |||
Residential real estate - 1st lien |
| $ | 1,113,112 |
|
| $ | 1,129,082 |
|
| $ | 115,614 |
|
Total with related allowance |
|
| 1,113,112 |
|
|
| 1,129,082 |
|
|
| 115,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial |
|
| 222,236 |
|
|
| 261,011 |
|
|
|
|
|
Commercial real estate |
|
| 3,713,309 |
|
|
| 4,861,145 |
|
|
|
|
|
Residential real estate - 1st lien |
|
| 2,836,069 |
|
|
| 3,845,577 |
|
|
|
|
|
Residential real estate - Jr lien |
|
| 85,697 |
|
|
| 131,069 |
|
|
|
|
|
Total with no related allowance |
|
| 6,857,311 |
|
|
| 9,098,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans |
| $ | 7,970,423 |
|
| $ | 10,227,884 |
|
| $ | 115,614 |
|
(1 ) Recorded investment in impaired loans in the table above includes accrued interest receivable of $38,479.
| |
19 | |
| |
|
|
|
| As of March 31, 2021 |
|
|
|
|
|
|
| |||||||||||
|
|
|
|
| Unpaid |
|
|
|
|
| Average |
|
| Interest |
| |||||
|
| Recorded |
|
| Principal |
|
| Related |
|
| Recorded |
|
| Income |
| |||||
|
| Investment(1) |
|
| Balance |
|
| Allowance |
|
| Investment(1)(2) |
|
| Recognized(2) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
1st lien |
| $ | 1,159,129 |
|
| $ | 1,196,306 |
|
| $ | 119,306 |
|
| $ | 1,029,855 |
|
| $ | 18,650 |
|
Jr lien |
|
| 4,466 |
|
|
| 4,463 |
|
|
| 255 |
|
|
| 4,622 |
|
|
| 117 |
|
Total with related allowance |
|
| 1,163,595 |
|
|
| 1,200,769 |
|
|
| 119,561 |
|
|
| 1,034,477 |
|
|
| 18,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No related allowance recorded |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial & industrial |
|
| 420,975 |
|
|
| 485,396 |
|
|
|
|
|
|
| 417,620 |
|
|
| 204 |
|
Commercial real estate |
|
| 1,645,921 |
|
|
| 2,103,732 |
|
|
|
|
|
|
| 1,794,967 |
|
|
| 2,044 |
|
Residential real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st lien |
|
| 3,269,662 |
|
|
| 4,132,986 |
|
|
|
|
|
|
| 3,529,314 |
|
|
| 46,958 |
|
Jr lien |
|
| 138,870 |
|
|
| 180,547 |
|
|
|
|
|
|
| 134,574 |
|
|
| 0 |
|
Total with no related allowance |
|
| 5,475,428 |
|
|
| 6,902,661 |
|
|
|
|
|
|
| 5,876,475 |
|
|
| 49,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans |
| $ | 6,639,023 |
|
| $ | 8,103,430 |
|
| $ | 119,561 |
|
| $ | 6,910,952 |
|
| $ | 67,973 |
|
|
|
|
|
|
| As of March 31, 2022 |
| |||||
|
| Three Months Ended |
| |||||
|
| Average |
|
| Interest |
| ||
|
| Recorded |
|
| Income |
| ||
|
| Investment |
|
| Recognized |
| ||
|
|
|
|
|
|
| ||
Related allowance recorded |
|
|
|
|
|
| ||
Residential real estate - 1st lien |
| $ | 907,849 |
|
| $ | 14,387 |
|
Residential real estate - Jr lien |
|
| 0 |
|
|
| 51 |
|
Total with related allowance |
|
| 907,849 |
|
|
| 14,438 |
|
|
|
|
|
|
|
|
|
|
No related allowance recorded |
|
|
|
|
|
|
|
|
Commercial & industrial |
|
| 157,799 |
|
|
| 204 |
|
Commercial real estate |
|
| 4,133,691 |
|
|
| 1,670 |
|
Residential real estate - 1st lien |
|
| 2,943,358 |
|
|
| 42,714 |
|
Residential real estate - Jr lien |
|
| 87,133 |
|
|
| 37 |
|
Total with no related allowance |
|
| 7,321,981 |
|
|
| 44,625 |
|
|
|
|
|
|
|
|
|
|
Total impaired loans |
| $ | 8,229,830 |
|
| $ | 59,063 |
|
For all loan segments, the accrual of interest is discontinued when a loan is specifically determined to be impaired or when the loan is delinquent 90 days and management believes, after considering collection efforts and other factors, that the borrower’sborrower's financial condition is such that collection of interest is considered by management to be doubtful. Any unpaid interest previously accrued on those loans is reversed from income. Interest income is generally not recognized on specific impaired loans unless the likelihood of further loss is considered by management to be remote. Interest payments received on impaired loans are generally applied as a reduction of the loan principal balance. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and a satisfactory payment performance of six or more months has occurred.
Credit Quality Grouping
In developing the ALL,ACL, management uses credit quality groupings to help evaluate trends in credit quality. The Company groups credit risk into Groups A, B and C. The manner the Company utilizes to assign risk grouping is driven by loan purpose. Commercial purpose loans are individually risk graded while the retail portion of the portfolio is generally grouped by delinquency pool.
Group A loans - Acceptable RiskPass – are loans that are expected to perform as agreed under their respective terms. Such loans carry a normal level of risk that does not require management attention beyond that warranted by the loan or loan relationship characteristics, such as loan size or relationship size. Group A loans include commercial purpose loans that are individually risk rated, including purchased and retail loans that are rated by pool. Group A retail loans include performing consumer and residential real estate loans. Residential real estate loans are loans to individuals secured by 1-4 family homes, including first mortgages, home equity and home improvement loans. Loan balances fully secured by deposit accounts or that are fully guaranteed by the federal government are considered acceptable risk.
Group B loans – Management InvolvedSpecial Mention - are loans that require greater attention than the acceptable risk loans in Group A. Characteristics of such loans may include, but are not limited to, borrowers that are experiencing negative operating trends such as reduced sales or margins, borrowers that have exposure to adverse market conditions such as increased competition or regulatory burden, or borrowers that have had unexpected or adverse changes in management. These loans have a greater likelihood of migrating to an unacceptable risk level if these characteristics are left unchecked. Group B is limited to commercial purpose loans that are individually risk rated.
Group C loans – Unacceptable RiskSubstandard/Doubtful – are loans that have distinct shortcomings that require a greater degree of management attention. Examples of these shortcomings include a borrower’sborrower's inadequate capacity to service debt, poor operating performance, or insolvency. These loans are more likely to result in repayment through collateral liquidation. Group C loans range from those that are likely to sustain some loss if the shortcomings are not corrected, to those for which loss is imminent and non-accrual treatment is warranted. Group C loans include individually rated commercial purpose loans and retail loans adversely rated in accordance with the Federal Financial Institutions Examination Council’s Uniform Retail Credit Classification Policy. Group C retail loans include 1-4 family residential real estate loans and home equity loans past due 90 days or more with loan-to-value ratios greater than 60%, home equity loans 90 days or more past due where the Bank does not hold first mortgage, irrespective of loan-to-value, loans in bankruptcy where repayment is likely but not yet established, and lastly consumer loans that are 90 days or more past due.
20 |
Table of Contents |
Commercial purpose loan ratings are assigned by the commercial account officer; for larger and more complex commercial loans, the credit rating is a collaborative assignment by the lender and the credit analyst. The credit risk rating is based on the borrower’sborrower's expected performance, i.e., the likelihood that the borrower will be able to service its obligations in accordance with the loan terms. Credit risk ratings are meant to measure risk versus simply record history. Assessment of expected future payment performance requires consideration of numerous factors. While past performance is part of the overall evaluation, expected performance is based on an analysis of the borrower’sborrower's financial strength, and historical and projected factors such as size and financing alternatives, capacity and cash flow, balance sheet and income statement trends, the quality and timeliness of financial reporting, and the quality of the borrower’s management. Other factors influencing the credit risk rating to a lesser degree include collateral coverage and control, guarantor strength and commitment, documentation, structure and covenants and industry conditions. There are uncertainties inherent in this process.
Credit risk ratings are dynamic and require updating whenever relevant information is received. Risk ratings are assessed on an ongoing basis and at various points, including at delinquency or at the time of other adverse events. For larger, more complex or adversely rated loans, risk ratings are also assessed at the time of annual or periodic review. Lenders are required to make immediate disclosure to the Senior CreditChief Lending Officer of any known increase in loan risk, even if considered temporary in nature.
The risk ratings within the loan portfolio and current period gross charge-offs, by loan segment and origination year, as of March 31, 2023 were as follows:
As of March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revolving |
|
| Revolving |
|
|
|
| |||||||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loans |
|
| Loans |
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Amortized |
|
| Converted |
|
|
|
| |||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
|
| 2020 |
|
| 2019 |
|
| Prior |
|
| Cost Basis |
|
| to Term |
|
| Total |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Commercial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Pass |
| $ | 5,305 |
|
| $ | 23,235 |
|
| $ | 16,023 |
|
| $ | 3,648 |
|
| $ | 5,225 |
|
| $ | 6,797 |
|
| $ | 46,878 |
|
| $ | 0 |
|
| $ | 107,111 |
|
Special mention |
|
| 0 |
|
|
| 134 |
|
|
| 959 |
|
|
| 248 |
|
|
| 0 |
|
|
| 68 |
|
|
| 5,627 |
|
|
| 0 |
|
|
| 7,036 |
|
Substandard/Doubtful |
|
| 0 |
|
|
| 398 |
|
|
| 0 |
|
|
| 277 |
|
|
| 307 |
|
|
| 1,549 |
|
|
| 2,220 |
|
|
| 0 |
|
|
| 4,751 |
|
Total commercial |
| $ | 5,305 |
|
| $ | 23,767 |
|
| $ | 16,982 |
|
| $ | 4,173 |
|
| $ | 5,532 |
|
| $ | 8,414 |
|
| $ | 54,725 |
|
| $ | 0 |
|
| $ | 118,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period gross charge-offs |
| $ | 0 |
|
| $ | 12 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 169 |
|
| $ | 103 |
|
| $ | 1,990 |
|
| $ | 1,707 |
|
| $ | 2,729 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 6,698 |
|
Total purchased |
| $ | 169 |
|
| $ | 103 |
|
| $ | 1,990 |
|
| $ | 1,707 |
|
| $ | 2,729 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 6,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 10,897 |
|
| $ | 94,652 |
|
| $ | 40,651 |
|
| $ | 51,252 |
|
| $ | 36,336 |
|
| $ | 96,120 |
|
| $ | 22,309 |
|
| $ | 0 |
|
| $ | 352,217 |
|
Special mention |
|
| 0 |
|
|
| 383 |
|
|
| 1,512 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,616 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,511 |
|
Substandard/Doubtful |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,675 |
|
|
| 1,422 |
|
|
| 2,524 |
|
|
| 788 |
|
|
| 0 |
|
|
| 6,409 |
|
Total commercial real estate |
| $ | 10,897 |
|
| $ | 95,035 |
|
| $ | 42,163 |
|
| $ | 52,927 |
|
| $ | 37,758 |
|
| $ | 100,260 |
|
| $ | 23,097 |
|
| $ | 0 |
|
| $ | 362,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 3,514 |
|
| $ | 10,020 |
|
| $ | 3,598 |
|
| $ | 5,332 |
|
| $ | 682 |
|
| $ | 11,766 |
|
| $ | 1,562 |
|
| $ | 0 |
|
| $ | 36,474 |
|
Total municipal |
| $ | 3,514 |
|
| $ | 10,020 |
|
| $ | 3,598 |
|
| $ | 5,332 |
|
| $ | 682 |
|
| $ | 11,766 |
|
| $ | 1,562 |
|
| $ | 0 |
|
| $ | 36,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate - 1st lien: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 6,828 |
|
| $ | 40,869 |
|
| $ | 44,113 |
|
| $ | 34,995 |
|
| $ | 11,024 |
|
| $ | 57,324 |
|
| $ | 1,445 |
|
| $ | 0 |
|
| $ | 196,598 |
|
Substandard/Doubtful |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 1,867 |
|
|
| 42 |
|
|
| 527 |
|
|
| 0 |
|
|
| 0 |
|
|
| 2,436 |
|
Total residential real estate - 1st lien |
| $ | 6,828 |
|
| $ | 40,869 |
|
| $ | 44,113 |
|
| $ | 36,862 |
|
| $ | 11,066 |
|
| $ | 57,851 |
|
| $ | 1,445 |
|
| $ | 0 |
|
| $ | 199,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate - Jr lien: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 77 |
|
| $ | 2,024 |
|
| $ | 420 |
|
| $ | 638 |
|
| $ | 689 |
|
| $ | 1,356 |
|
| $ | 24,869 |
|
| $ | 1,794 |
|
| $ | 31,867 |
|
Substandard/Doubtful |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 34 |
|
|
| 0 |
|
|
| 0 |
|
|
| 34 |
|
Total residential real estate - Jr lien |
| $ | 77 |
|
| $ | 2,024 |
|
| $ | 420 |
|
| $ | 638 |
|
| $ | 689 |
|
| $ | 1,390 |
|
| $ | 24,869 |
|
| $ | 1,794 |
|
| $ | 31,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
| $ | 697 |
|
| $ | 1,362 |
|
| $ | 656 |
|
| $ | 395 |
|
| $ | 208 |
|
| $ | 127 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 3,445 |
|
Total consumer |
| $ | 697 |
|
| $ | 1,362 |
|
| $ | 656 |
|
| $ | 395 |
|
| $ | 208 |
|
| $ | 127 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 3,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period gross charge-offs |
| $ | 0 |
|
| $ | 8 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 17 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans |
| $ | 27,487 |
|
| $ | 173,180 |
|
| $ | 109,922 |
|
| $ | 102,034 |
|
| $ | 58,664 |
|
| $ | 179,808 |
|
| $ | 105,698 |
|
| $ | 1,794 |
|
| $ | 758,587 |
|
There were no current period gross charge-offs within the Purchased, CRE, Municipal, Residential real estate 1st lien and Residential real estate Jr lien loan segments. There were no Special mention loans within the Residential real estate 1st lien or Jr lien loan segments. There were no Special mention or Substandard/Doubtful loans within the Purchased, Municipal and Consumer loan segments.
Table of Contents |
The
Before the adoption of ASC 326 (CECL), the risk ratings within the loan portfolio, by segment, as of the balance sheet datesDecember 31, 2022 were as follows:
As of March 31, 2022
|
|
|
|
|
|
|
|
|
|
| Residential |
|
| Residential |
|
|
|
|
|
|
| |||||||
|
| Commercial |
|
| Commercial |
|
|
|
|
| Real Estate |
|
| Real Estate |
|
|
|
|
|
|
| |||||||
|
| & Industrial |
|
| Real Estate |
|
| Municipal |
|
| 1st Lien |
|
| Jr Lien |
|
| Consumer |
|
| Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Group A |
| $ | 118,322,106 |
|
| $ | 299,401,050 |
|
| $ | 48,660,440 |
|
| $ | 177,592,027 |
|
| $ | 32,631,970 |
|
| $ | 3,170,568 |
|
| $ | 679,778,161 |
|
Group B |
|
| 579,664 |
|
|
| 2,422,197 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,001,861 |
|
Group C |
|
| 2,571,387 |
|
|
| 6,488,487 |
|
|
| 0 |
|
|
| 4,018,267 |
|
|
| 435,019 |
|
|
| 0 |
|
|
| 13,513,160 |
|
Total |
| $ | 121,473,157 |
|
| $ | 308,311,734 |
|
| $ | 48,660,440 |
|
| $ | 181,610,294 |
|
| $ | 33,066,989 |
|
| $ | 3,170,568 |
|
| $ | 696,293,182 |
|
As of December 31, 2021
|
|
|
|
|
|
|
| Residential |
| Residential |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential |
| Residential |
|
|
|
|
| ||||||||||||||||||||||||||||
|
| Commercial |
| Commercial |
|
|
| Real Estate |
| Real Estate |
|
|
|
|
|
| Commercial |
|
|
| Commercial |
|
|
| Real Estate |
| Real Estate |
|
|
|
|
| ||||||||||||||||||||||||||||
|
| & Industrial |
|
| Real Estate |
|
| Municipal |
|
| 1st Lien |
|
| Jr Lien |
|
| Consumer |
|
| Total |
|
| & Industrial |
|
| Purchased |
|
| Real Estate |
|
| Municipal |
|
| 1st Lien |
|
| Jr Lien |
|
| Consumer |
|
| Total |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Group A |
| $ | 117,607,773 |
| $ | 285,732,365 |
| $ | 47,955,231 |
| $ | 177,456,149 |
| $ | 34,166,076 |
| $ | 4,464,692 |
| $ | 667,382,286 |
|
| $ | 104,697,047 |
| $ | 7,530,458 |
| $ | 347,732,935 |
| $ | 34,633,055 |
| $ | 195,269,893 |
| $ | 33,538,767 |
| $ | 4,039,989 |
| $ | 727,442,144 |
| |||||||||||||
Group B |
| 693,084 |
| 6,550,335 |
| 0 |
| 0 |
| 0 |
| 0 |
| 7,243,419 |
|
| 6,296,411 |
| 0 |
| 2,754,649 |
| 0 |
| 0 |
| 0 |
| 0 |
| 9,051,060 |
| ||||||||||||||||||||||||||||
Group C |
|
| 2,632,613 |
|
|
| 8,676,231 |
|
|
| 0 |
|
|
| 3,860,196 |
|
|
| 193,788 |
|
|
| 0 |
|
|
| 15,362,828 |
|
|
| 1,958,415 |
|
|
| 0 |
|
|
| 6,405,402 |
|
|
| 0 |
|
|
| 3,473,482 |
|
|
| 218,105 |
|
|
| 0 |
|
|
| 12,055,404 |
|
Total |
| $ | 120,933,470 |
|
| $ | 300,958,931 |
|
| $ | 47,955,231 |
|
| $ | 181,316,345 |
|
| $ | 34,359,864 |
|
| $ | 4,464,692 |
|
| $ | 689,988,533 |
|
| $ | 112,951,873 |
|
| $ | 7,530,458 |
|
| $ | 356,892,986 |
|
| $ | 34,633,055 |
|
| $ | 198,743,375 |
|
| $ | 33,756,872 |
|
| $ | 4,039,989 |
|
| $ | 748,548,608 |
|
Modifications of Loans and TDRs
A loan is classified as a TDRconsidered modified if, for economic or legal reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not otherwise consider.
The Company is deemed to have granted such a concession if it has modified a troubled loan in any of the following ways:
| · | Reduced accrued interest; |
| · | Reduced the original contractual interest rate to a rate that is below the current market rate for the borrower; |
| · | Converted a variable-rate loan to a fixed-rate loan; |
| · | Extended the term of the loan beyond an insignificant delay; |
| · | Deferred or forgiven principal in an amount greater than three months of payments; |
| · | Performed a refinancing and deferred or forgiven principal on the original loan; |
| · | Capitalized protective advance to pay delinquent real estate taxes; or |
| · | Capitalized delinquent accrued interest. |
An insignificant delay or insignificant shortfall in the amount of payments typically would not require the loan to be accounted for as a TDR.modified. However, pursuant to regulatory guidance, any payment delay longer than three months is generally not considered insignificant. Management’s assessment of whether a concession has been granted also takes into account payments expected to be received from third parties, including third-party guarantors, provided that the third party has the ability to perform on the guarantee.
The Company’s TDRsmodified loans are principally a result of extending loan repayment terms to relieve cash flow difficulties. The Company has only, on a limited basis, reduced interest rates for borrowers below the current market rate for the borrower. The Company has not forgiven principal or reduced accrued interest within the terms of original restructurings, nor has it converted variable rate terms to fixed rate terms. However, the Company evaluates each TDR situationpotential loan modification on its own merits and does not foreclose the granting of any particular type of concession.
The Company has adopted the TDR guidance issued by the federal banking agencies in March and April 2020 regarding the treatment of certain short-termThere were no new loan modifications relating tofor the COVID-19 pandemic (See Note 2). Under this guidance, qualifying concessions and modifications are not considered TDRs. In total, throughout the pandemic, the Company granted short term loan concessions and/or modifications within the termsfirst three months of this guidance to 595 borrowers. Of those loans, 351 remained on the books with an aggregate principal balance of $103.2 million as of March 31, 2022.2023.
Prior to adoption of ASU 2022-02, new TDRs, by portfolio segment, during the periods presented below were as follows:
|
| Year ended December 31, 2022 |
| |||||||||
|
|
|
|
| Pre- |
|
| Post- |
| |||
|
|
|
|
| Modification |
|
| Modification |
| |||
|
|
|
|
| Outstanding |
|
| Outstanding |
| |||
|
| Number of |
|
| Recorded |
|
| Recorded |
| |||
|
| Contracts |
|
| Investment |
|
| Investment |
| |||
|
|
|
|
|
|
|
|
|
| |||
Residential real estate – 1st lien |
|
| 2 |
|
| $ | 562,592 |
|
| $ | 562,592 |
|
Table of Contents |
|
| Three months ended March 31, 2022 |
| |||||||||
|
|
|
|
| Pre- |
|
| Post- |
| |||
|
|
|
|
| Modification |
|
| Modification |
| |||
|
|
|
|
| Outstanding |
|
| Outstanding |
| |||
|
| Number of |
|
| Recorded |
|
| Recorded |
| |||
|
| Contracts |
|
| Investment |
|
| Investment |
| |||
|
|
|
|
|
|
|
|
|
| |||
Residential real estate – 1st lien |
|
| 1 |
|
| $ | 292,592 |
|
| $ | 292,592 |
|
New
There were no TDRs by portfolio segment,for which there was a payment default during the periods presented were as follows:
|
| Three months ended March 31, 2022 |
| |||||||||
|
|
|
|
| Pre- |
|
| Post- |
| |||
|
|
|
|
| Modification |
|
| Modification |
| |||
|
|
|
|
| Outstanding |
|
| Outstanding |
| |||
|
| Number of |
|
| Recorded |
|
| Recorded |
| |||
|
| Contracts |
|
| Investment |
|
| Investment |
| |||
|
|
|
|
|
|
|
|
|
| |||
Residential real estate - 1st lien |
|
| 1 |
|
| $ | 292,592 |
|
| $ | 292,592 |
|
|
| Year ended December 31, 2021 |
| |||||||||
|
|
|
|
| Pre- |
|
| Post- |
| |||
|
|
|
|
| Modification |
|
| Modification |
| |||
|
|
|
|
| Outstanding |
|
| Outstanding |
| |||
|
| Number of |
|
| Recorded |
|
| Recorded |
| |||
|
| Contracts |
|
| Investment |
|
| Investment |
| |||
|
|
|
|
|
|
|
|
|
| |||
Commercial & industrial |
|
| 1 |
|
| $ | 41,751 |
|
| $ | 41,751 |
|
Commercial real estate |
|
| 2 |
|
|
| 3,153,402 |
|
|
| 3,153,402 |
|
Residential real estate – 1st lien |
|
| 1 |
|
|
| 67,007 |
|
|
| 67,007 |
|
|
|
| 4 |
|
| $ | 3,262,160 |
|
| $ | 3,262,160 |
|
|
| Three months ended March 31, 2021 |
| |||||||||
|
|
|
|
| Pre- |
|
| Post- |
| |||
|
|
|
|
| Modification |
|
| Modification |
| |||
|
|
|
|
| Outstanding |
|
| Outstanding |
| |||
|
| Number of |
|
| Recorded |
|
| Recorded |
| |||
|
| Contracts |
|
| Investment |
|
| Investment |
| |||
|
|
|
|
|
|
|
|
|
| |||
Commercial & industrial |
|
| 1 |
|
| $ | 41,751 |
|
| $ | 41,751 |
|
twelve month period ended December 31, 2022. The TDRs for which there was a payment default during the twelve month periods presented below were as follows:
For the twelve months ended March 31, 2022
|
| Number of |
|
| Recorded |
| ||
|
| Contracts |
|
| Investment |
| ||
|
|
|
|
|
|
| ||
Commercial real estate |
|
| 2 |
|
| $ | 2,422,965 |
|
For the twelve months ended December 31, 2021
|
| Number of |
|
| Recorded |
| ||
|
| Contracts |
|
| Investment |
| ||
|
|
|
|
|
|
| ||
Commercial & industrial |
|
| 1 |
|
| $ | 38,001 |
|
Commercial real estate |
|
| 2 |
|
|
| 3,081,810 |
|
|
|
| 3 |
|
| $ | 3,119,811 |
|
For the twelve months ended March 31, 2021
|
| Number of |
|
| Recorded |
| ||
|
| Contracts |
|
| Investment |
| ||
|
|
|
|
|
|
| ||
Commercial & industrial |
|
| 1 |
|
| $ | 41,001 |
|
Residential real estate - 1st lien |
|
| 1 |
|
|
| 162,821 |
|
|
|
| 2 |
|
| $ | 203,822 |
|
Prior to adoption of ASU 2022-02, TDRs arewere treated as other impaired loans and carrycarried individual specific reserves with respect to the calculation of the ALL. These loans arewere categorized as non-performing, may behave been past due, and arewere generally adversely risk rated. The TDRs that havehad defaulted under their restructured terms arewere generally in collection status and their ALL reserve iswas typically calculated using the fair value of collateral method.
ThePrior to adoption of ASU 2022-02, the specific allowances within the ALL related to TDRs as of the balance sheet dates are presented in the table below.December 31, 2022 totaled $106,280.
|
| March 31, |
|
| December 31, |
| ||
|
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Specific Allocation |
| $ | 115,614 |
|
| $ | 79,978 |
|
As of the balance sheet dates, the Company evaluates whether it is contractually committed to lend additional funds to debtors with impaired, non-accrual or modified loans. The Company is contractually committed to lend on one SBA guaranteed line of credit to a borrower whose lending relationship was previously restructured.modified.
OBS Credit Exposures: In the ordinary course of business, the Company enters into commitments to extend credit, including commercial letters of credit and standby letters of credit. Such financial instruments are recorded as loans when they are funded.
Allowance for Credit Losses on OBS Credit Exposures: The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL on OBS credit exposures is adjusted through credit loss expense. To appropriately measure expected credit losses, management disaggregates the loan portfolio into similar risk characteristics, identical to those determined for the loan portfolio. An estimated funding rate is then applied to the qualifying unfunded loan commitments and letters of credit using the Company's own historical experience to estimate the expected funded amount for each loan segment as of the reporting date. Once the expected funded amount for each loan segment is determined, the loss rate, which is the calculated expected loan loss as a percent of the amortized cost basis for each loan segment, is applied to calculate the ACL on OBS credit exposures as of the reporting date. The ACL on OBS credit exposures is presented within accrued interest and other liabilities on the consolidated balance sheets.
Note 6. Goodwill and Other Intangible Assets
As a result of a merger with LyndonBank on December 31, 2007, the Company recorded goodwill amounting to $11,574,269. The goodwill is not amortizable and is not deductible for tax purposes.
As of December 31, 2021,2022, the most recent evaluation, management concluded that no impairment existed. Management evaluates its goodwill intangible for impairment at least annually, or more frequently as circumstances warrant, including, as applicable, circumstances arising out of the COVID-19 pandemic, including the disruptions to the economy and increased volatility in the financial markets and related impacts on the Company’s business.warrant.
23 |
Table of Contents |
Note 7. Fair Value
Certain assets and liabilities are recorded at fair value to provide additional insight into the Company’s quality of earnings and comprehensive income. The fair values of some of these assets and liabilities are measured on a recurring basis while others are measured on a non-recurring basis, with the determination based upon applicable existing accounting pronouncements. For example, securities available-for-sale are recorded at fair value on a recurring basis. Other assets, such as MSRs, loans held-for-sale, impaired loans, and OREO are recorded at fair value on a non-recurring basis using the lower of cost or market methodology to determine impairment of individual assets. The Company groups assets and liabilities which are recorded at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (with Level 1 considered highest and Level 3 considered lowest). A brief description of each level follows.
Level 1 | Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include debt and equity securities and derivative contracts that are traded in an active exchange market, as well as U.S. Treasury and other U.S. Government debt securities that are highly liquid and are actively traded in over-the-counter markets. |
|
|
Level 2 | Observable inputs other than Level 1 prices such as quoted prices for similar assets and liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes MSRs, collateral-dependent impaired loans and OREO. |
|
|
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
The following methods and assumptions were used by the Company in estimating its fair value measurements:
Debt Securities AFS: Fair value measurement is based upon quoted prices for similar assets, if available. If quoted prices are not available, fair values are measured using matrix pricing models, or other model-based valuation techniques requiring observable inputs other than quoted prices such as yield curves, prepayment speeds and default rates.rates, net of any related credit allowance. Level 1 securities would include U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets. Level 2 securities include federal agency securities, municipal securities and other asset-backed securities.
ImpairedIndividually analyzed loans: ImpairedIndividually analyzed loans are reported based on one of three measures: the present value of expected future cash flows discounted at the loan’s effective interest rate; the loan’s observable market price; or the fair value of the collateral if the loan is collateral dependent. If the fair value is less than an impaired loan’s recorded investment, an impairment loss is recognized as part of the ALL.ACL. Accordingly, certain impairedindividually analyzed loans may be subject to measurement at fair value on a non-recurring basis. Management has estimated the fair values of collateral-dependent loans using Level 2 inputs, such as the fair value of collateral based on independent third-party appraisals.
Loans held-for-sale: The fair value of loans held-for-sale is based upon an actual purchase and sale agreement between the Company and an independent market participant. The sale is executed within a reasonable period following quarter end at the stated fair value.
MSRs: MSRs represent the value associated with servicing residential mortgage loans. Servicing assets and servicing liabilities are reported using the amortization method and compared to fair value for impairment. In evaluating the carrying values of MSRs, the Company obtains third party valuations based on loan level data including note rate, and the type and term of the underlying loans. The Company classifies MSRs as non-recurring Level 2.
24 |
Table of Contents |
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
Assets measured at fair value on a recurring basis and reflected in the consolidated balance sheets at the dates presented, segregated by fair value hierarchy, are summarized below. There were no Level 3 assets or liabilities measured on a recurring basis as of the balance sheet dates presented, nor were there any transfers of assets between Levels during either 2022of the periods presented for 2023 or 2021.2022.
|
| March 31, |
|
| December 31, |
| ||
Assets: (market approach) |
| 2022 |
|
| 2021 |
| ||
|
|
|
|
|
|
| ||
Level 1 |
|
|
|
|
|
| ||
U.S. Government securities |
| $ | 37,629,399 |
|
| $ | 32,041,041 |
|
|
|
|
|
|
|
|
|
|
Level 2 |
|
|
|
|
|
|
|
|
U.S. GSE debt securities |
| $ | 11,236,384 |
|
| $ | 11,828,498 |
|
Taxable Municipal securities |
|
| 273,677 |
|
|
| 298,733 |
|
Tax-Exempt Municipal securities |
|
| 4,307,948 |
|
|
| 831,379 |
|
Agency MBS |
|
| 122,940,118 |
|
|
| 127,132,521 |
|
ABS and OAS |
|
| 1,828,662 |
|
|
| 2,214,024 |
|
CMO |
|
| 1,306,628 |
|
|
| 1,420,458 |
|
Other investments |
|
| 6,232,750 |
|
|
| 6,575,805 |
|
Level 2 Total |
| $ | 148,126,167 |
|
| $ | 150,301,418 |
|
|
|
|
|
|
|
|
|
|
Grand Total |
| $ | 185,755,566 |
|
| $ | 182,342,459 |
|
|
| March 31, |
|
| December 31, |
| ||
Assets: (market approach) |
| 2023 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Level 1 |
|
|
|
|
|
| ||
U.S. Government securities |
| $ | 38,769,069 |
|
| $ | 38,231,589 |
|
|
|
|
|
|
|
|
|
|
Level 2 |
|
|
|
|
|
|
|
|
U.S. GSE debt securities |
| $ | 10,699,914 |
|
| $ | 10,375,291 |
|
Taxable Municipal securities |
|
| 242,952 |
|
|
| 234,858 |
|
Tax-exempt Municipal securities |
|
| 11,621,112 |
|
|
| 11,323,567 |
|
Agency MBS |
|
| 114,476,436 |
|
|
| 115,231,599 |
|
ABS and OAS |
|
| 2,521,908 |
|
|
| 2,693,606 |
|
CMO |
|
| 11,950,570 |
|
|
| 11,935,925 |
|
Other investments |
|
| 2,397,369 |
|
|
| 2,891,674 |
|
Level 2 Total |
| $ | 153,910,261 |
|
| $ | 154,686,520 |
|
|
|
|
|
|
|
|
|
|
Grand Total |
| $ | 192,679,330 |
|
| $ | 192,918,109 |
|
Assets and Liabilities Recorded at Fair Value on a Non-Recurring Basis
The following table includes assets measured at fair value on a non-recurring basis that have had a fair value adjustment since their initial recognition. ImpairedIndividually analyzed loans measured at fair value only include impairedthose loans with a partial write-down or with a related specific ALLACL and are presented net of the specific allowances as disclosed in Note 5. Assets measured at fair value on a non-recurring basis and reflected in the consolidated balance sheets at the dates presented, segregated by fair value hierarchy level, are summarized below. There were no Level 1 or Level 3 assets or liabilities measured on a non-recurring basis as of the balance sheet dates presented, nor were there any transfers of assets between levels during either 2022of the periods presented for 2023 or 2021.2022.
|
| March 31, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||||
Level 2 |
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Assets: (market approach) |
|
|
|
|
|
|
|
|
|
| ||||||
Impaired loans, net of related allowance |
| $ | 1,792,892 |
| $ | 177,523 |
| |||||||||
Loans held-for-sale |
| 246,000 |
| 339,000 |
| |||||||||||
Individually analyzed loans, net of related allowance |
| $ | 0 |
| $ | 94,458 |
| |||||||||
MSRs (1) |
| 900,094 |
| 897,720 |
|
| 839,223 |
| 862,593 |
|
| (1) Represents MSRs at lower of cost or fair value. |
FASB ASC Topic 825, “Financial Instruments”, requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, if the fair values can be reasonably determined. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques using observable inputs when available. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Topic 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.
25 |
Table of Contents |
The estimated fair values of commitments to extend credit and letters of credit were immaterial as of the dates presented in the tables below. The estimated fair values of the Company’sCompany's financial instruments as of the balance sheet dates were as follows:
March 31, 2022 |
|
|
| Fair |
| Fair |
| Fair |
| Fair |
| |||||||||||||||||||||||||||||
March 31, 2023 |
|
|
| Fair |
| Fair |
| Fair |
| Fair |
| |||||||||||||||||||||||||||||
|
| Carrying |
| Value |
| Value |
| Value |
| Value |
|
| Carrying |
| Value |
| Value |
| Value |
| Value |
| ||||||||||||||||||
|
| Amount |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Amount |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||||
|
| (Dollars in Thousands) |
|
| (Dollars in Thousands) |
| ||||||||||||||||||||||||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Cash and cash equivalents |
| $ | 84,453 |
| $ | 84,453 |
| $ | 0 |
| $ | 0 |
| $ | 84,453 |
|
| $ | 37,645 |
| $ | 37,645 |
| $ | 0 |
| $ | 0 |
| $ | 37,645 |
| ||||||||
Debt securities AFS |
| 185,756 |
| 37,630 |
| 148,126 |
| 0 |
| 185,756 |
|
| 192,679 |
| 38,769 |
| 153,910 |
| 0 |
| 192,679 |
| ||||||||||||||||||
Restricted equity securities |
| 1,391 |
| 0 |
| 1,391 |
| 0 |
| 1,391 |
|
| 1,437 |
| 0 |
| 1,437 |
| 0 |
| 1,437 |
| ||||||||||||||||||
Loans and loans held-for-sale, net of ALL |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Loans and loans held-for-sale, net of ACL |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Commercial & industrial |
| 120,196 |
| 0 |
| 96 |
| 120,247 |
| 120,343 |
|
| 117,856 |
| 0 |
| 0 |
| 115,447 |
| 115,447 |
| ||||||||||||||||||
Purchased |
| 6,678 |
| 0 |
| 0 |
| 6,279 |
| 6,279 |
| |||||||||||||||||||||||||||||
Commercial real estate |
| 303,589 |
| 0 |
| 1,571 |
| 303,512 |
| 305,083 |
|
| 356,913 |
| 0 |
| 0 |
| 338,459 |
| 338,459 |
| ||||||||||||||||||
Municipal |
| 48,566 |
| 0 |
| 0 |
| 48,136 |
| 48,136 |
|
| 36,383 |
| 0 |
| 0 |
| 34,231 |
| 34,231 |
| ||||||||||||||||||
Residential real estate - 1st lien |
| 180,554 |
| 0 |
| 126 |
| 176,286 |
| 176,412 |
|
| 197,211 |
| 0 |
| 0 |
| 180,754 |
| 180,754 |
| ||||||||||||||||||
Residential real estate - Jr lien |
| 32,884 |
| 0 |
| 0 |
| 32,865 |
| 32,865 |
|
| 31,384 |
| 0 |
| 0 |
| 31,050 |
| 31,050 |
| ||||||||||||||||||
Consumer |
| 3,134 |
| 0 |
| 0 |
| 3,175 |
| 3,175 |
|
| 3,415 |
| 0 |
| 0 |
| 3,408 |
| 3,408 |
| ||||||||||||||||||
MSRs (1) |
| 900 |
| 0 |
| 995 |
| 0 |
| 995 |
|
| 839 |
| 0 |
| 1,307 |
| 0 |
| 1,307 |
| ||||||||||||||||||
Accrued interest receivable |
| 2,719 |
| 0 |
| 2,719 |
| 0 |
| 2,719 |
|
| 3,111 |
| 0 |
| 3,111 |
| 0 |
| 3,111 |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Other deposits |
| 877,051 |
| 0 |
| 875,756 |
| 0 |
| 875,756 |
|
| 888,296 |
| 0 |
| 885,157 |
| 0 |
| 885,157 |
| ||||||||||||||||||
Brokered deposits |
| 249 |
| 0 |
| 235 |
| 0 |
| 235 |
|
| 249 |
| 0 |
| 228 |
| 0 |
| 228 |
| ||||||||||||||||||
Long-term borrowings |
| 1,300 |
| 0 |
| 1,112 |
| 0 |
| 1,112 |
|
| 1,300 |
| 0 |
| 1,044 |
| 0 |
| 1,044 |
| ||||||||||||||||||
Repurchase agreements |
| 28,744 |
| 0 |
| 28,744 |
| 0 |
| 28,744 |
|
| 38,058 |
| 0 |
| 38,058 |
| 0 |
| 38,058 |
| ||||||||||||||||||
Operating lease obligations |
| 812 |
| 0 |
| 812 |
| 0 |
| 812 |
|
| 605 |
| 0 |
| 605 |
| 0 |
| 605 |
| ||||||||||||||||||
Finance lease obligations |
| 3,805 |
| 0 |
| 3,805 |
| 0 |
| 3,805 |
|
| 3,590 |
| 0 |
| 3,590 |
| 0 |
| 3,590 |
| ||||||||||||||||||
Subordinated debentures |
| 12,887 |
| 0 |
| 12,826 |
| 0 |
| 12,826 |
|
| 12,887 |
| 0 |
| 12,711 |
| 0 |
| 12,711 |
| ||||||||||||||||||
Accrued interest payable |
| 58 |
| 0 |
| 58 |
| 0 |
| 58 |
|
| 72 |
| 0 |
| 72 |
| 0 |
| 72 |
|
| (1) Reported fair value represents all MSRs for loans serviced by the Company, regardless of carrying amount. |
26 |
Table of Contents |
December 31, 2021 |
|
|
| Fair |
| Fair |
| Fair |
| Fair |
| |||||||||||||||||||||||||||||
December 31, 2022 |
|
|
| Fair |
| Fair |
| Fair |
| Fair |
| |||||||||||||||||||||||||||||
|
| Carrying |
| Value |
| Value |
| Value |
| Value |
|
| Carrying |
| Value |
| Value |
| Value |
| Value |
| ||||||||||||||||||
|
| Amount |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Amount |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||||
|
| (Dollars in Thousands) |
|
| (Dollars in Thousands) |
| ||||||||||||||||||||||||||||||||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Cash and cash equivalents |
| $ | 110,359 |
| $ | 110,359 |
| $ | 0 |
| $ | 0 |
| $ | 110,359 |
|
| $ | 71,140 |
| $ | 71,140 |
| $ | 0 |
| $ | 0 |
| $ | 71,140 |
| ||||||||
Debt securities AFS |
| 182,342 |
| 32,041 |
| 150,301 |
| 0 |
| 182,342 |
|
| 192,918 |
| 38,232 |
| 154,686 |
| 0 |
| 192,918 |
| ||||||||||||||||||
Restricted equity securities |
| 1,434 |
| 0 |
| 1,434 |
| 0 |
| 1,434 |
|
| 1,412 |
| 0 |
| 1,412 |
| 0 |
| 1,412 |
| ||||||||||||||||||
Loans and loans held-for-sale, net of ALL |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Loans and loans held-for-sale, net of ACL |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||
Commercial & industrial |
| 119,382 |
| 0 |
| 0 |
| 120,146 |
| 120,146 |
|
| 111,792 |
| 0 |
| 0 |
| 109,534 |
| 109,534 |
| ||||||||||||||||||
Purchased |
| 7,476 |
| 0 |
| 0 |
| 7,119 |
| 7,119 |
| |||||||||||||||||||||||||||||
Commercial real estate |
| 296,528 |
| 0 |
| 29 |
| 297,339 |
| 297,368 |
|
| 351,738 |
| 0 |
| 29 |
| 340,254 |
| 340,283 |
| ||||||||||||||||||
Municipal |
| 47,841 |
| 0 |
| 0 |
| 49,419 |
| 49,419 |
|
| 34,566 |
| 0 |
| 0 |
| 34,558 |
| 34,558 |
| ||||||||||||||||||
Residential real estate - 1st lien |
| 180,271 |
| 0 |
| 149 |
| 180,302 |
| 180,451 |
|
| 197,281 |
| 0 |
| 65 |
| 180,879 |
| 180,944 |
| ||||||||||||||||||
Residential real estate - Jr lien |
| 34,151 |
| 0 |
| 0 |
| 34,189 |
| 34,189 |
|
| 33,510 |
| 0 |
| 0 |
| 33,218 |
| 33,218 |
| ||||||||||||||||||
Consumer |
| 4,406 |
| 0 |
| 0 |
| 4,436 |
| 4,436 |
|
| 3,970 |
| 0 |
| 0 |
| 3,949 |
| 3,949 |
| ||||||||||||||||||
MSRs (1) |
| 898 |
| 0 |
| 995 |
| 0 |
| 995 |
|
| 863 |
| 0 |
| 1,287 |
| 0 |
| 1,287 |
| ||||||||||||||||||
Accrued interest receivable |
| 2,401 |
| 0 |
| 2,401 |
| 0 |
| 2,401 |
|
| 3,214 |
| 0 |
| 3,214 |
| 0 |
| 3,214 |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Deposits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||
Other deposits |
| 879,151 |
| 0 |
| 879,545 |
| 0 |
| 879,545 |
|
| 922,723 |
| 0 |
| 918,882 |
| 0 |
| 918,882 |
| ||||||||||||||||||
Brokered deposits |
| 249 |
| 0 |
| 246 |
| 0 |
| 246 |
|
| 249 |
| 0 |
| 225 |
| 0 |
| 225 |
| ||||||||||||||||||
Long-term borrowings |
| 1,300 |
| 0 |
| 1,179 |
| 0 |
| 1,179 |
|
| 1,300 |
| 0 |
| 1,025 |
| 0 |
| 1,025 |
| ||||||||||||||||||
Repurchase agreements |
| 32,610 |
| 0 |
| 32,610 |
| 0 |
| 32,610 |
|
| 33,078 |
| 0 |
| 33,078 |
| 0 |
| 33,078 |
| ||||||||||||||||||
Operating lease obligations |
| 864 |
| 0 |
| 864 |
| 0 |
| 864 |
|
| 658 |
| 0 |
| 658 |
| 0 |
| 658 |
| ||||||||||||||||||
Finance lease obligations |
| 3,858 |
| 0 |
| 3,858 |
| 0 |
| 3,858 |
|
| 3,645 |
| 0 |
| 3,645 |
| 0 |
| 3,645 |
| ||||||||||||||||||
Subordinated debentures |
| 12,887 |
| 0 |
| 12,868 |
| 0 |
| 12,868 |
|
| 12,887 |
| 0 |
| 12,740 |
| 0 |
| 12,740 |
| ||||||||||||||||||
Accrued interest payable |
| 59 |
| 0 |
| 59 |
| 0 |
| 59 |
|
| 74 |
| 0 |
| 74 |
| 0 |
| 74 |
|
| (1) Reported fair value represents all MSRs for loans serviced by the Company, regardless of carrying amount. |
Note 8. Loan Servicing
The following table shows the changes in the carrying amount of the MSRs, included in other assets in the consolidated balance sheets, for the periods indicated:
|
| Three Months Ended |
|
| Year Ended |
|
| Three Months Ended |
| Year Ended |
| |||||
|
| March 31, 2022 |
|
| December 31, 2021 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance at beginning of year |
| $ | 897,720 |
| $ | 922,146 |
|
| $ | 862,593 |
| $ | 897,720 |
| ||
MSRs capitalized |
| 45,304 |
| 147,328 |
|
| 15,814 |
| 120,629 |
| ||||||
MSRs amortized |
| (42,930 | ) |
| (225,404 | ) |
| (39,184 | ) |
| (155,756 | ) | ||||
Change in valuation allowance |
|
| 0 |
|
|
| 53,650 |
|
|
| 0 |
|
|
| 0 |
|
Balance at end of period |
| $ | 900,094 |
|
| $ | 897,720 |
|
| $ | 839,223 |
|
| $ | 862,593 |
|
Note 9. Legal Proceedings
In the normal course of business, the Company is involved in litigation that is considered incidental to its business. Management does not expect that any such litigation will be material to the Company’sCompany's consolidated financial condition or results of operations.
Note 10. Subsequent Events
The Company has evaluated events and transactions through the date that the financial statements were issued for potential recognition or disclosure in these financial statements, as required by GAAP. On March 16, 2022,15, 2023, the Company’s Board declared a cash dividend of $0.23 per common share, payable May 1, 20222023 to shareholders of record as of April 15, 2022.2023. This dividend has been recorded in the Company’s consolidated financial statements as of the declaration date, including shares issuable under the DRIP.
27 |
Table of Contents |
ITEM 2. Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations
MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Period Ended March 31, 20222023
The following discussion analyzes the consolidated financial condition of Community Bancorp. and its wholly-owned subsidiary, Community National Bank, as of March 31, 20222023 and December 31, 2021,2022, and its consolidated results of operations for the three-monththree--month interim period and one year period presented. The Company is considered a “smaller reporting company” and a “non-accelerated filer” under the disclosure rules of the SEC. Accordingly, the Company has elected to provide its audited statements of income, comprehensive income, cash flows and changes in shareholders’ equity for a two year, rather than a three year, period and intends to provide smaller reporting company scaled disclosures where management deems it appropriate.
The following discussion should be read in conjunction with the Company’s audited consolidated financial statements and related notes contained in its 20212022 Annual Report on Form 10-K filed with the SEC. Please refer to Note 1 in the accompanying audited consolidated financial statements for a listing of acronyms and defined terms used throughout the following discussion.
FORWARD-LOOKING STATEMENTS
This Management’sManagement's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, regarding the results of operations, financial condition and business of the Company and its subsidiary. Words used in the discussion below such as “believes,” “expects,” “anticipates,” “intends,” “estimates,”"believes," "expects," "anticipates," "intends," "estimates," “projects”, “plans,”"plans," “assumes”, “predicts,”"predicts," “may”, “might”, “will”, “could”, “should” and similar expressions, indicate that management of the Company is making forward-looking statements.
Forward-looking statements are not guarantees of future performance. They necessarily involve risks, uncertainties and assumptions. Examples of forward looking statements included in this discussion include, but are not limited to, statements regarding the potential effects of the COVID-19 pandemic on our business, financial condition, results of operations and prospects; the estimated contingent liability related to assumptions made within the asset/liability management process; management’smanagement's expectations as to the future interest rate environment and the Company’sCompany's related liquidity level; credit risk expectations relating to the Company’sCompany's loan portfolio;portfolio and management’soff-balance sheet commitments; and management's general outlook for the future performance of the Company orand the local or national economy. Although forward-looking statements are based on management’smanagement's expectations and estimates as of the date they are made, many of the factors that could influence or determine actual results are unpredictable and not within the Company’sCompany's control.
Factors that may cause actual results to differ materially from those contemplated by these forward-looking statements include, among others, the following possibilities:
| · | interest rates change in such a way as to negatively affect loan demand, the local economy or the Company's net income, asset valuations or margins; |
· | general economic or business conditions, either nationally, regionally or locally, deteriorate, resulting in a decline in credit quality or a diminished demand for the | |
| · | |
| · | changes in the United States monetary and fiscal policies, including the interest |
| · | changes in applicable accounting policies, practices and standards; |
· | the geographic concentration of the Company’s loan portfolio and deposit base; | |
· | the planned phase out of three month LIBOR by June 30, 2023, which could adversely affect the Company’s interest costs in future periods on its $12,887,000 in principal amount of Junior Subordinated Debentures due December 12, 2037, which currently bear interest at a variable rate, adjusted quarterly, equal to 3-month LIBOR, plus 2.85%; | |
· | reductions in deposit levels, which necessitate increased borrowings to fund loans and sale of investment securities; | |
· | increases in the level of nonperforming assets and charge-offs; | |
· | changes in federal or state tax laws or policy; | |
· | changes in laws or government rules, including the rules of the federal Consumer Financial Protection Bureau, or the way in which courts or government agencies interpret or implement those laws or rules, increase our costs of doing business, causing us to limit or change our product offerings or pricing, or otherwise adversely affect the | |
| ||
| ||
| ||
| ||
| ||
| ||
|
28 |
Table of Contents |
· | regulatory responses to recent high profile bank failures increase our costs of operation, including through regulatory compliance changes and higher FDIC deposit insurance assessments to replenish the Bank Insurance Fund (BIF); | |
· | competitive pressures increase among financial service providers in the Company's northern New England market area or in the financial services industry generally, including competitive pressures from non-bank financial service providers, from increasing consolidation and integration of financial service providers, and from changes in technology and delivery systems; | |
| · | cybersecurity risks could adversely affect the Company’s business, financial performance or reputation and could result in financial liability for losses incurred by customers or others due to data breaches or other compromise of the Company’s information security systems; |
| · | higher-than-expected costs are incurred relating to information technology or difficulties arise in implementing technological enhancements; |
| · | management’s risk management measures may not be completely effective; |
| · | changes in |
| ||
| ||
| ||
| ||
| · | operational and internal system failures due to changes in normal business practices, including remote working for Company staff; |
| · | increased cybercrime and payment system risk due to |
| ||
| · | the ongoing challenges to find qualified workers to maintain a stable |
· | losses due to the fraudulent or negligent conduct of third parties, including the Company’s service providers, customers and employees; and | |
· | adverse changes in the credit rating of U.S. government debt. |
Readers are cautioned not to place undue reliance on such statements as they speak only as of the date they are made. The Company does not undertake, and disclaims any obligation, to revise or update any forward-looking statements to reflect the occurrence or anticipated occurrence of events or circumstances after the date of this Report, except as required by applicable law. The Company claims the protection of the safe harbor for forward-looking statements provided in the Private Securities Litigation Reform Act of 1995.
NON-GAAP FINANCIAL MEASURES
Under SEC Regulation G, public companies making disclosures containing financial measures that are not in accordance with GAAP must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure, as well as a statement of the company’s reasons for utilizing the non-GAAP financial measure. The SEC has exempted from the definition of non-GAAP financial measures certain commonly used financial measures that are not based on GAAP. However, three non-GAAP financial measures commonly used by financial institutions, namely tax-equivalent net interest income and tax-equivalent net interest margin (as presented in the tables in the section labeled Interest Income Versus Interest Expense (NII)) and core earnings (as defined and discussed in the Results of Operations section), have not been specifically exempted by the SEC, and may therefore constitute non-GAAP financial measures under Regulation G. We are unable to state with certainty whether the SEC would regard those measures as subject to Regulation G.
Management believes that these non-GAAP financial measures are useful in evaluating the Company’s financial performance and facilitate comparisons with the performance of other financial institutions. However, that information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP.
OVERVIEW
The Company’s consolidated assets on March 31, 20222023 were $1,005,190,870$1.03 billion compared to $1,019,105,799$1.06 billion at December 31, 2021,2022, a decrease of 1.4%2.4%. Significant changes in the asset base were due to a decrease of $25.9$33.5 million, or 23.5%47.1%, in cash and cash equivalents, which was partially offset by an increase in net loans of $6.4$9.5 million, or 0.9%, and an increase in1.3%. This demonstrates the available for sale investment portfolio of $3.4 million. The decrease inCompany’s efforts to deploy cash also reflects deposit runoff, primarily in business and municipal accounts, in the first quarter.into higher earning assets. The increase in the loan portfolio was primarily attributable to an increase of $7.8$5.9 million in commercial & industrial loans, and $6.1$5.23 million in CRE loans and $1.8 million in municipal loans, which was partially offset by a $7.0decrease of $1.9 million decrease in PPP loan balances.residential junior lien loans and $0.8 million in purchased BHG loans.
Total deposits on March 31, 20222023 were $877,300,445$888.5 million compared to $879,399,953$923.0 million on December 31, 2021,2022, a decrease of $2.1$34.4 million, or 0.2%, reflecting the combined effect3.7% and an increase of decreases in core deposits (demand deposit accounts, non-interest bearing) of $5.8$11.2 million, or 2.8%1.28%, compared to March 31, 2022. Year to date, demand and a decrease in interest-bearing transaction accounts of $7.1decreased in total by $29.9 million or 2.7%5.9%, partiallyfollowed by a decrease of $7.6 million, or 5.4% in money market funds. This was offset minimally by an increase in money market funds totaling $1.0of $3.6 million, or 0.8%, and an3.6% in time deposits. An increase in savings accounts of $9.6$5.0 million, or 5.7%.15.1%, in repurchase agreements is also noted since year end and $9.3 million, or 32.4%, since March 31, 2022. A decline in deposits in the first quarter is a normal occurrence for the Company primarily due to normal seasonal outflows. Pricing pressures as depositors look for alternative products with higher interest rates in the current rate environment has resulted in deposit outflows as well.
29 |
Table of Contents |
Consolidated net income for the first three months of 2022 decreased $620,159, or 20.5% compared to the same period in 2021. A $927,248 decrease in the amortization of PPP loan processing fees from the SBA was partially offset by an increase of $407,954 in investment income from the Company’s debt securities portfolio and adjustments to interest income totaling $177,000, which is primarily from loans coming out of non-accrual status. Also contributing to the offset was a decrease of $54,257 in interest expense on savings and money market deposits, and a decrease of $103,849 in interest expense from time deposits. These changes and other significant changes are discussed in the appropriate income sections of this MD&A.
Total interest income decreased $365,364,increased $2.5 million, or 4.2%, year over year, due to the changes discussed in the previous paragraph related to PPP loan processing fees and investment and loan income. The investment portfolio has increased considerably year over year accounting for the increase in investment income. The amortization of the SBA PPP fees was $295,769 for the first three months of 2022, compared to $1.2 million for the same period in 2021. Those processing fees represented 73.2% and 92.9%, respectively, of the total of fees on loans of $404,326 for the first three months of 2022, and $1.3 million for the first three months of 2021.
Total interest expense decreased $161,106, or 18.9%30.5%, for the first three months of 20222023 compared to the same period in 2021. A decrease2022. The increase in time deposits year over year is a contributing factor to the decreaseloan portfolio, coupled with the increases in interest expense, as well as the prolonged low interestfed funds rate environment that prevailed throughout 20212022 and most ofin the first quarter of 2023 help to support the year over year increase in interest income.
Total interest expense increased $1.6 million, or 224.1%, for the first three months of 2023 compared to the same period in 2022. The recent increases in the fed funds rate have put more pressure on competitive deposit pricing, resulting in an increase in the Company’s money market and time deposit rates. Please refer to the interest rate sensitivity discussion in the Interest Rate Risk and Asset and Liability Management section for more information on the impact that the actions of the FRB’s FOMC in regulating interest rates, and changes in the yield curve, could have on net interest income.
The provision for loancredit losses for the quarter ended March 31, 2023 was determined under ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, commonly referenced as the Current Expected Credit Losses, or CECL, which the Company adopted effective January 1, 2023.
The provision for credit losses for the first quarterthree months of 20222023 was $862,500$286,526 compared to $267,497$862,500 for the same quarterperiod in 2022, a decrease of 2021, resulting in an increase of $595,003,$575,974, or 222.4%, between periods.66.8%. This increasedecrease to the provision was driven primarily by a write-down on a non-performing CRE loan totaling $667,474 during March 2022. Please refer to Note 5 of the ALLunaudited consolidated financial statements as well as the ACL and provisions discussion in the Credit Risk section of this MD&A.
Consolidated net income for more information.the first three months of 2023 increased $933,219 to $3.3 million compared to $2.4 million in the same period of 2022. Year over year, a $2.5 million increase in interest income was offset in part by an increase of $1.6 million in interest expense, but a decrease of $575,974 in the provision for credit losses between periods resulted in an increase of $1.6 million in net interest income after provision for credit losses. These changes, along with other significant changes in non-interest income and non-interest expense are discussed in the appropriate sections of this MD&A.
Equity capital decreasedincreased to $77.4$79.7 million, with a book value per share of $14.08$14.33 as of March 31, 2022,2023, compared to equity capital of $84.8$75.2 million and a book value of $15.48$13.55 as of December 31, 2021.2022. This decreaseincrease in equity capital is directlypartially related to the increasedecrease of unrealized losses in the investment portfolio reflecting rising bond rates, which resulted in an increase of $8,744,637,$2.7 million, net of tax, in the accumulated other comprehensive loss in the shareholders’ equity portion of the balance sheet. This position is considered by management as temporary and does not impact the Company’s regulatory capital ratios.
On March 16, 2022,15, 2023, the Company’sCompany's Board of Directors declared a quarterly cash dividend of $0.23 per common share, payable on May 1, 20222023 to shareholders of record on April 15, 2022.2023.
As of March 31, 2022,2023, all of the Company’s capital ratios, and those of our subsidiary Bank, were in excess of applicable regulatory requirements. While we believe that we have sufficient capital to withstand an economic downturn from any headwinds related to inflation or recessionary periods, should one occur, our equity capital and regulatory capital ratios could be adversely impacted, including as a result of credit losses and other adverse impacts of the pandemic, deteriorating economic conditions, or government monetary policy.
CRITICAL ACCOUNTING POLICIES
The Company’s consolidated financial statements are prepared according to U.S. GAAP. The preparation of such financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities in the consolidated financial statements and related notes. The SEC has defined a company’s critical accounting policies as those that are most important to the portrayal of the Company’s financial condition and results of operations, and which require the Company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Because of the significance of these estimates and assumptions, there is a high likelihood that materially different amounts would be reported for the Company under different conditions or using different assumptions or estimates. Management evaluates on an ongoing basis its judgment as to which policies are considered to be critical.critical, and communicates all evaluations with the Company’s Audit Committee.
The Company’s critical accounting policies govern:
· | the | |
· | OREO; | |
· | ||
· | valuation of residential MSRs; and | |
· | the carrying value of goodwill. |
30 |
Table of Contents |
These policies are described in the Company’s 20212022 Annual Report on Form 10-K in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and in Note 1 (Significant Accounting Policies) to the audited consolidated financial statements. ThereWith the exception of the ACL policy, there were no material changes during the first three months of 20222023 in the Company’s critical accounting policies.
ACL - Management believes that the calculation of the ACL is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of its consolidated financial statements. In estimating the ACL, management has adopted a methodology consistent with ASU No. 2016-13 that requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses over the life of the loans at the measurement date. Further consideration is given to qualitative factors, including changes in current economic indicators and their probable impact on borrowers and collateral, trends in delinquent and non-performing loans, trends in criticized and classified assets, levels of exceptions, the impact of competition in the market, concentrations of credit risk in a variety of areas, including portfolio product mix, the level of loans to individual borrowers and their related interests, loans to industry segments and the geographic distribution of CRE loans. Management’s estimates used in calculating the ACL may increase or decrease based on changes in these factors, which in turn will affect the amount of the Company’s provision for credit losses charged against current period income. This evaluation is inherently subjective and actual results could differ significantly from these estimates under different assumptions, judgments or conditions. A modified version of these requirements applies to debt securities classified as available for sale, which eliminates OTTI impairment analysis and requires that if a decline in the fair value of debt securities AFS are deemed by management to be the result of credit losses rather than other factors, the credit losses on those securities will be recorded through an allowance for credit losses rather than a write-down of the security. The Company’s securities portfolio is evaluated for impairment on a quarterly basis. |
RESULTS OF OPERATIONS
NetThe Company’s net income for the first three months of 20222023 was $2,405,542$3.3 million or $0.44$0.61 per common share, compared to $3,025,701$2.4 million or $0.57$0.44 per common share for the same period of 2021.2022. Core earnings (NII) were $8.5 million for the first three months of 2022 were $7.6 million2023 compared to $7.8$7.6 million for the same period in 2021. As noted2022. Interest and fees on loans, the major component of interest income, increased $1.9 million, or 25.2% for the first three months of 2023 compared to the same period in the Overview, the decrease year over year is attributable to a decrease in the amortization of fees from administering PPP loans. Over the past year, the portfolio of PPP loans has decreased, as these loans are forgiven and paid in full by the SBA. The PPP loan portfolio balance decreased from $92.6 million at the end of February 2021 to $12.2 million at December 31, 2021 and then to $5.1 million as of March 31, 2022. As these loans are paid in full, the unamortized fees are taken to income, resulting in a decrease in income year over year. Interest paid on deposits, which is the major component of total interest expense, decreased $153,284,increased $1.3 million, or 21.7%234.2%, year over year, driven primarily by the increases in the fed funds rate during 2022 driven in part by a decrease in time deposits.and the first quarter of 2023.
Return on average assets, which is net income divided by average total assets, measures how effectively a corporation uses its assets to produce earnings. Return on average equity, which is net income divided by average shareholders’shareholders' equity, measures how effectively a corporation uses its equity capital to produce earnings.
The following tables show these ratios annualized, as well as other equity ratios monitored by management, for the comparison periods presented.
|
| Three Months Ended March 31 |
| |||||||||||||
|
| Three Months Ended March 31, |
|
| 2023 |
|
| 2022 |
| |||||||
|
| 2022 |
|
| 2021 |
|
|
|
|
|
| |||||
Return on average assets |
| 0.97 | % |
| 1.33 | % |
| 1.31 | % |
| 0.97 | % | ||||
Return on average equity |
| 11.76 | % |
| 15.75 | % |
| 17.57 | % |
| 11.76 | % | ||||
Dividend payout ratio (1) |
| 52.27 | % |
| 38.60 | % |
| 37.70 | % |
| 52.27 | % | ||||
Average equity to average assets |
| 8.24 | % |
| 8.48 | % |
| 7.47 | % |
| 8.24 | % |
| (1) Dividends declared per common share divided by earnings per common share. |
INTEREST INCOME VERSUS INTEREST EXPENSE (NET INTEREST INCOME)
The largest component of the Company’s operating income is NII, which is the difference between interest earned on loans and investments and the interest paid on deposits and other sources of funds (i.e., borrowings). The Company’s level of net interest income can fluctuate over time due to changes in the level and mix of earning assets and sources of funds (volume), and changes in the yield earned and costs of funds (rate). A portion of the Company’s income from loans to local municipalities is not subject to income taxes. Because the proportion of tax-exempt items in the Company’sCompany's balance sheet varies from year-to-year, to improve comparability of information, the non-taxable income shown in the tables below has been converted to a tax equivalent basis. The Company’s corporate tax rate is 21%; therefore, to equalize tax-free and taxable income in the comparison, we divide the tax-free income by 79%, with the result that every tax-free dollar is equivalent to $1.27 in taxable income for the periods presented.
The Company’s tax-exempt interest income of $236,043$291,954 and $258,761$224,094 for the three months ended March 31, 20222023 and 2021,2022, respectively, was derived from loans to local municipalities of $48.7$36.5 million and $52.2$48.7 million, and tax-exempt municipal investments of $2.2$11.6 million and $0,$4.3 million, at March 31, 20222023 and 2021,2022, respectively.
The following tables show the reconciliation between reported NII and tax equivalent NII for the comparison periods presented.
|
| Three Months Ended March 31, |
| |||||||||||||
|
| 2022 |
|
| 2021 |
| ||||||||||
Three Months Ended March 31, |
| 2023 |
|
| 2022 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Net interest income as presented |
| $ | 7,558,230 |
| $ | 7,762,488 |
|
| $ | 8,523,365 |
| $ | 7,558,230 |
| ||
Effect of tax-exempt income |
|
| 62,745 |
|
|
| 68,785 |
|
|
| 77,608 |
|
|
| 62,745 |
|
Net interest income, tax equivalent |
| $ | 7,620,975 |
|
| $ | 7,831,273 |
|
| $ | 8,600,973 |
|
| $ | 7,620,975 |
|
31 |
Table of Contents |
The following tables present the daily average interest-earning assets and the daily average interest-bearing liabilities supporting earning assets for the respective comparison periods. Interest income (excluding interest on non-accrual loans) is expressed on a tax equivalent basis, both in dollars and as a rate/yieldyield/rate for the comparison periods presented. Net interest income, net interest spread and net interest margin are also expressed on a tax equivalent basis.
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31, |
| ||||||||||||||||||||||||||||||||||||||||||
|
|
|
| 2022 |
|
|
|
|
|
| 2021 |
|
|
|
| 2023 |
|
| 2022 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
| Average |
|
|
|
|
| Average |
|
|
|
|
|
| Average |
|
|
|
|
| Average |
| ||||||||||||||||||||||
|
| Average |
| Income/ |
| Rate/ |
| Average |
| Income/ |
| Rate/ |
|
| Average |
| Income/ |
| Yield/ |
| Average |
| Income/ |
| Yield/ |
| ||||||||||||||||||||||
|
| Balance |
|
| Expense |
|
| Yield |
|
| Balance |
|
| Expense |
|
| Yield |
|
| Balance |
|
| Expense |
|
| Rate |
|
| Balance |
|
| Expense |
|
| Rate |
| ||||||||||||
Interest-Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Loans (1) |
| $ | 693,001,033 |
| $ | 7,547,035 |
| 4.42 | % |
| $ | 720,584,311 |
| $ | 8,322,081 |
| 4.68 | % | ||||||||||||||||||||||||||||||
Average Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Loans, net (1) |
| $ | 746,342,447 |
| $ | 9,429,534 |
| 5.12 | % |
| $ | 685,633,810 |
| $ | 7,547,035 |
| 4.46 | % | ||||||||||||||||||||||||||||||
Taxable investment securities |
| 185,794,633 |
| 656,277 |
| 1.43 | % |
| 71,633,125 |
| 265,112 |
| 1.50 | % |
| 181,762,470 |
| 943,478 |
| 2.11 | % |
| 185,794,633 |
| 656,277 |
| 1.43 | % | ||||||||||||||||||||
Tax-exempt investment securities |
| 2,232,280 |
| 13,859 |
| 2.52 | % |
| 0 |
| 0 |
| 0.00 | % |
| 11,458,866 |
| 114,757 |
| 4.06 | % |
| 2,232,280 |
| 13,859 |
| 2.52 | % | ||||||||||||||||||||
Sweep and interest-earning accounts |
| 69,778,429 |
| 80,660 |
| 0.47 | % |
| 79,995,338 |
| 87,883 |
| 0.45 | % |
| 30,469,901 |
| 329,411 |
| 4.38 | % |
| 69,778,429 |
| 80,660 |
| 0.47 | % | ||||||||||||||||||||
Other investments (2) |
|
| 1,779,400 |
|
|
| 16,460 |
|
|
| 3.75 | % |
|
| 1,833,550 |
|
|
| 10,619 |
|
|
| 2.35 | % |
|
| 1,778,480 |
|
|
| 30,653 |
|
|
| 6.99 | % |
|
| 1,779,400 |
|
|
| 16,460 |
|
|
| 3.75 | % |
Total |
| $ | 952,585,775 |
|
| $ | 8,314,291 |
|
|
| 3.54 | % |
| $ | 874,046,324 |
|
| $ | 8,685,695 |
|
|
| 4.03 | % | ||||||||||||||||||||||||
Total interest-earning assets |
| 971,812,164 |
| $ | 10,847,833 |
| 4.53 | % |
| 945,218,552 |
| $ | 8,314,291 |
| 3.57 | % | ||||||||||||||||||||||||||||||||
Cash and due from banks |
| 10,034,768 |
|
|
|
|
| 18,567,180 |
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Premises and equipment |
| 12,992,588 |
|
|
|
|
| 13,663,867 |
|
|
|
|
| |||||||||||||||||||||||||||||||||||
BOLI |
| 5,160,130 |
|
|
|
|
| 5,080,119 |
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Goodwill |
| 11,574,269 |
|
|
|
|
| 11,574,269 |
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Other assets |
|
| 18,678,923 |
|
|
|
|
|
|
| 12,307,610 |
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total assets |
| $ | 1,030,252,842 |
|
|
|
|
|
| $ | 1,006,411,597 |
|
|
|
|
|
| |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Interest-Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Average Liabilities and Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Interest-bearing transaction accounts |
| $ | 258,739,985 |
| $ | 160,078 |
| 0.25 | % |
| $ | 214,680,380 |
| $ | 146,518 |
| 0.28 | % |
| $ | 279,908,863 |
| $ | 964,867 |
| 1.40 | % |
| $ | 258,739,985 |
| $ | 160,078 |
| 0.25 | % | ||||||||||||
Money market funds |
| 130,743,524 |
| 127,680 |
| 0.40 | % |
| 120,918,163 |
| 168,105 |
| 0.56 | % |
| 135,616,740 |
| 513,675 |
| 1.54 | % |
| 130,743,524 |
| 127,680 |
| 0.40 | % | ||||||||||||||||||||
Savings deposits |
| 173,158,450 |
| 23,440 |
| 0.05 | % |
| 144,612,956 |
| 37,273 |
| 0.10 | % |
| 171,177,131 |
| 30,996 |
| 0.07 | % |
| 173,158,450 |
| 23,440 |
| 0.05 | % | ||||||||||||||||||||
Time deposits |
| 106,635,720 |
| 240,761 |
| 0.92 | % |
| 111,327,106 |
| 353,348 |
| 1.29 | % |
| 102,310,661 |
| 335,209 |
| 1.33 | % |
| 106,635,720 |
| 240,761 |
| 0.92 | % | ||||||||||||||||||||
Borrowed funds |
| 1,301,144 |
| 2 |
| 0.00 | % |
| 2,530,789 |
| 12 |
| 0.00 | % |
| 1,611,144 |
| 3,781 |
| 0.95 | % |
| 1,301,144 |
| 2 |
| 0.00 | % | ||||||||||||||||||||
Repurchase agreements |
| 28,847,413 |
| 21,040 |
| 0.30 | % |
| 37,312,342 |
| 35,442 |
| 0.39 | % |
| 36,136,359 |
| 132,128 |
| 1.48 | % |
| 28,847,413 |
| 21,040 |
| 0.30 | % | ||||||||||||||||||||
Finance lease obligations |
| 3,823,091 |
| 21,963 |
| 2.30 | % |
| 1,679,688 |
| 14,929 |
| 3.56 | % |
| 3,608,925 |
| 20,739 |
| 2.30 | % |
| 3,823,091 |
| 21,963 |
| 2.30 | % | ||||||||||||||||||||
Junior subordinated debentures |
|
| 12,887,000 |
|
|
| 98,352 |
|
|
| 3.10 | % |
|
| 12,887,000 |
|
|
| 98,795 |
|
|
| 3.11 | % |
|
| 12,887,000 |
|
|
| 245,465 |
|
|
| 7.72 | % |
|
| 12,887,000 |
|
|
| 98,352 |
|
|
| 3.10 | % |
Total |
| $ | 716,136,327 |
|
| $ | 693,316 |
|
|
| 0.39 | % |
| $ | 645,948,424 |
|
| $ | 854,422 |
|
|
| 0.54 | % | ||||||||||||||||||||||||
Total interest-bearing liabilities |
| 743,256,823 |
| $ | 2,246,860 |
| 1.23 | % |
| 716,136,327 |
| $ | 693,316 |
| 0.39 | % | ||||||||||||||||||||||||||||||||
Noninterest bearing deposits |
| 203,297,212 |
|
|
|
|
| 203,509,006 |
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Other liabilities |
|
| 6,647,483 |
|
|
|
|
|
|
| 3,380,650 |
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities |
| 953,201,518 |
|
|
|
|
| 923,025,983 |
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Shareholders' equity |
|
| 77,051,324 |
|
|
|
|
|
|
| 83,385,614 |
|
|
|
|
|
| |||||||||||||||||||||||||||||||
Total liabilities and shareholders' equity |
| $ | 1,030,252,842 |
|
|
|
|
|
| $ | 1,006,411,597 |
|
|
|
|
|
| |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Net interest income |
|
|
| $ | 7,620,975 |
|
|
|
|
|
| $ | 7,831,273 |
|
|
|
|
|
|
| $ | 8,600,973 |
|
|
|
|
|
| $ | 7,620,975 |
|
|
|
| ||||||||||||||
Net interest spread (3) |
|
|
|
|
| 3.15 | % |
|
|
|
|
| 3.49 | % |
|
|
|
|
|
| 3.30 | % |
|
|
|
|
|
| 3.18 | % | ||||||||||||||||||
Net interest margin (4) |
|
|
|
|
| 3.24 | % |
|
|
|
|
| 3.63 | % |
|
|
|
|
|
| 3.59 | % |
|
|
|
|
|
| 3.27 | % |
| (1) | Included in |
|
|
|
| (2) | Included in other investments is the Company’s FHLBB Stock with average balances of |
|
|
|
| (3) | Net interest spread is the difference between the average yield on average interest-earning assets and the average rate paid on average interest-bearing liabilities. |
|
|
|
| (4) | Net interest margin is net interest income divided by average earning assets. |
The average volume of interest-earning assets for the three-month period ended March 31, 2022 increased 9.0% compared to the three-month period ended March 31, 2021. The average yield on interest-earning assets decreased 49 basis points for 2022 versus 2021.
The average volume of loans decreased 3.8% for the first three months of 2022 versus the same period in 2021, and the average yield on loans decreased 26 basis points to 4.42% for 2022 compared to 4.68% for 2021. The decrease in the yield in 2022 was due primarily to the decrease in PPP fees year over year as discussed in the Overview. The decrease in the average volume of loans is attributable to the forgiveness and payoff of PPP loans by the SBA between periods. Interest earned on the loan portfolio as a percentage of total interest income decreased to 90.8% for the first three months of 2022, compared to 95.8% for the same period in 2021.
32 |
Table of Contents |
The average volume of the taxable investment portfolio (classified as AFS) increased 159.4%interest-earning assets for the three-month period ended March 31, 20222023 increased 2.8% compared to the same period last year, while the average yield decreased seven basis points. on interest-earning assets increased 96 bps.
The increase in average volume is due primarilyof loans increased 8.9% over the three-month comparison period of 2023 versus 2022, and the average yield on loans increased 66 bps. Loans accounted for 76.8% of the average interest-earning asset portfolio for the three-month period ended March 31, 2023 compared to management’s effort72.5% for the same period last year. Interest earned on the loan portfolio as a percentage of total interest income was 86.9% for the first three months of 2023 compared to continue to grow90.8% for the same period in 2022.
The average volume of the taxable investment portfolio incrementally(classified as AFS) decreased 2.2% during the balance sheet grows in orderthree-month period ended March 31, 2023, compared to provide additional liquiditythe same period last year, and pledge quality assets.the average yield increased 68 bps between periods.
The average volume of the tax-exempt investment portfolio (classified as AFS) increased $9.2 million, or 5.0% for the three-month period ended March 31, 2022 was $2.2 million, with a2023 and the tax equivalent yield of 2.52%.increased 154 bps between periods. The Company began investing in these tax-exempt bonds during December 2021.2021, and currently carries an average volume of $11.5 million as of March 31, 2023.
The average volume of sweep and interest-earning accounts, which consists primarily of an interest-bearing account at the FRBB, decreased 12.8%56.3% for the three-month comparison period ended March 31, 20222023 compared to the same period in 2021. This2022. The decrease in average volume is attributable to a need to fund investmentthe funding of investments in 2022 and loan growth throughout 2022 and also to a decrease in customer deposit accounts.into 2023. The average yield on these funds increased two basis points during391 bps for the first three months of 2022three-month period ended March 31, 2023 versus the same period in 2021.2022.
The average volume of interest-bearing liabilities for the three-month period ended March 31, 20222023 increased 10.9%3.8%, compared to the same period in 2021. The2022, and the average rate paid on interest-bearing liabilities decreased 15 basis points during 2022 compared to 2021. Although year to date volume shows an overall decrease in deposit accounts, most of the funds deposited through PPP loan proceeds and stimulus funds remained on deposit throughout 2021.increased 84 bps.
The average volume of interest-bearing transaction accounts increased 20.5% during8.2% for the three-month period ended March 31, 20222023 compared to the same period of 2021, reflecting strong deposit growth throughout 2021. The2022 and the average rate paid on these accounts decreased three basis pointsincreased 115 bps between comparison periods. Interest paid on interest-bearing transaction accounts as a percentage of total interest expense was 42.9% for the three-month period ended March 31, 2023, compared to 23.1% for the same comparison period in 2022.
The average volume of money market accounts increased 8.1% during3.7% for the three-month period ended March 31, 20222023 compared to the same period of 2021, while2022, and the average rate paid on these deposits decreased 16 basis points.increased 114 bps.
The average volume of savings accounts increased 19.7%decreased 1.1% for the three-month period ended March 31, 20222023 compared to the same period in 2021,2022, while the average rate paid on these accounts decreased five basis points.increased two bps year over year.
The average volume of time deposits decreased 4.2% during4.1% for the three-month period ended March 31, 20222023 compared to the same period in 2021, and2022, while the average rate paid decreased 37 basis points. Interest paid on time deposits as a percentage of total interest expense was 34.7% and 41.4%, respectively for the three-month periods ended March 31, 2022 and 2021. The decrease inincreased 41 bps. Historically, the average volume of time deposits between periods reflects the maturity ofincluded brokered deposits, in January and Aprilwhich provided an alternate source of 2021 that had not been replacedfunding, but as of March 31, 2022.the Company’s retail deposits increased over the last two years, the need for these funds diminished. Management still considers the brokered deposit market to be a beneficial source of funding in appropriate circumstances to help smooth out the fluctuations in core deposit balances without the need to disrupt deposit pricing in the Company’s local markets. These funds can be obtained relatively quickly on an as-needed basis, making them a valuable alternative to traditional term borrowings from the FHLBB. Refer to the “Liquidity and Capital Resources” section for more discussion on this topic.
The average volume of borrowed funds decreased $1.2 million, or 48.6%increased 23.8% for the three-month period ended March 31, 20222023 compared to the same period in 2021 and, for both periods,2022. In 2022, borrowed funds consisted of only JNE funds at zero percent interest.interest, however, during the first three months of 2023, as the Company’s balance at FRBB decreased, the need for overnight borrowings increased for a short period of time in February.
The average volume of repurchase agreements decreased 22.7%increased 25.3% for the three-month period ended March 31, 20222023 compared to the same period in 20212022 and the average rate paid decreased nine basis points.increased 118 bps between comparison periods.
In summary, between the three-month periods ended March 31, 20222023 and 2021,2022, the average yield on interest-earning assets decreased 49 basis pointsincreased 96 bps and the average rate paid on interest-bearing liabilities decreased 15 basis points.increased 84 bps. Net interest spread decreased 34 basis pointsincreased 12 bps for the three-month periodfirst three months of 20222023 versus 20212022 and net interest margin decreased 39 basis pointsincreased 32 bps between periods.periods, reflecting the rising interest rate environment.
33 |
Table of Contents |
The following table summarizes the variances in interest income and interest expense on a fully tax-equivalent basis for the interim periods presented for 20222023 and 20212022 resulting from volume changes in daily average assets and daily average liabilities and fluctuations in average rates earned and paid.
|
| Three Months Ended March 31, |
|
| Three Months Ended March 31 |
| ||||||||||||||||||
|
| Variance |
| Variance |
|
|
|
| Variance |
| Variance |
|
|
| ||||||||||
|
| Due to |
| Due to |
| Total |
|
| Due to |
| Due to |
| Total |
| ||||||||||
|
| Rate (1) |
|
| Volume (1) |
|
| Variance |
|
| Rate (1) |
|
| Volume (1) |
|
| Variance |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Average Interest-Earning Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Loans |
| $ | (474,426 | ) |
| $ | (300,620 | ) |
| $ | (775,046 | ) |
| $ | 1,214,870 |
| $ | 667,629 |
| $ | 1,882,499 |
| ||
Taxable investment securities |
| (31,076 | ) |
| 422,241 |
| 391,165 |
|
| 308,179 |
| (20,978 | ) |
| 287,201 |
| ||||||||
Tax-exempt investment securities |
| 13,859 |
| 0 |
| 13,859 |
|
| 43,567 |
| 57,331 |
| 100,898 |
| ||||||||||
Sweep and interest-earning accounts |
| 4,617 |
| (11,840 | ) |
| (7,223 | ) |
| 673,283 |
| (424,532 | ) |
| 248,751 |
| ||||||||
Other investments |
|
| 6,342 |
|
|
| (501 | ) |
|
| 5,841 |
|
|
| 14,209 |
|
|
| (16 | ) |
|
| 14,193 |
|
Total |
| $ | (480,684 | ) |
| $ | 109,280 |
|
| $ | (371,404 | ) |
| $ | 2,254,108 |
|
| $ | 279,434 |
|
| $ | 2,533,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Average Interest-Bearing Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Interest-bearing transaction accounts |
| $ | (16,859 | ) |
| $ | 30,419 |
| $ | 13,560 |
|
| $ | 791,740 |
| $ | 13,049 |
| $ | 804,789 |
| |||
Money market funds |
| (53,992 | ) |
| 13,567 |
| (40,425 | ) |
| 381,189 |
| 4,806 |
| 385,995 |
| |||||||||
Savings deposits |
| (20,872 | ) |
| 7,039 |
| (13,833 | ) |
| 7,898 |
| (342 | ) |
| 7,556 |
| ||||||||
Time deposits |
| (101,945 | ) |
| (10,642 | ) |
| (112,587 | ) |
| 108,632 |
| (14,184 | ) |
| 94,448 |
| |||||||
Borrowed funds |
| (10 | ) |
| 0 |
| (10 | ) |
| 3,779 |
| 0 |
| 3,779 |
| |||||||||
Repurchase agreements |
| (8,140 | ) |
| (6,262 | ) |
| (14,402 | ) |
| 105,696 |
| 5,392 |
| 111,088 |
| ||||||||
Finance lease obligations |
| (11,781 | ) |
| 18,815 |
| 7,034 |
|
| (9 | ) |
| (1,215 | ) |
| (1,224 | ) | |||||||
Junior subordinated debentures |
|
| (443 | ) |
|
| 0 |
|
|
| (443 | ) |
|
| 147,113 |
|
|
| 0 |
|
|
| 147,113 |
|
Total |
| $ | (214,042 | ) |
| $ | 52,936 |
|
| $ | (161,106 | ) |
| $ | 1,546,038 |
|
| $ | 7,506 |
|
| $ | 1,553,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in net interest income |
| $ | (266,642 | ) |
| $ | 56,344 |
|
| $ | (210,298 | ) |
| $ | 708,070 |
|
| $ | 271,928 |
|
| $ | 979,998 |
|
(1) | Items which have shown a year-to-year increase in volume have variances allocated as follows: |
Variance due to rate = Change in rate x new volume | |
Variance due to volume = Change in volume x old rate | |
Items which have shown a year-to-year decrease in volume have variances allocated as follows: | |
Variance due to rate = Change in rate x old volume | |
Variances due to volume = Change in volume x new rate |
34 |
Table of Contents |
NON-INTEREST INCOME AND NON-INTEREST EXPENSE
Non-interest Income
The components of non-interest income for the periods presented were as follows:
|
| Three Months Ended |
|
|
|
|
|
| Three Months Ended |
|
|
|
|
| ||||||||||||||||||
|
| March 31, |
| Change |
|
| March 31 |
| Change |
| ||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Income |
|
| Percent |
|
| 2023 |
|
| 2022 |
|
| Income |
|
| Percent |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Service fees |
| $ | 862,887 |
| $ | 788,623 |
| $ | 74,264 |
| 9.42 | % |
| $ | 880,288 |
| $ | 862,887 |
| $ | 17,401 |
| 2.02 | % | ||||||||
Income from sold loans |
| 203,842 |
| 185,006 |
| 18,836 |
| 10.18 | % |
| 107,535 |
| 203,842 |
| (96,307 | ) |
| (47.25 | %) | |||||||||||||
Other income from loans |
| 271,260 |
| 183,274 |
| 87,986 |
| 48.01 | % |
| 428,572 |
| 271,260 |
| 157,312 |
| 57.99 | % | ||||||||||||||
Other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Income from CFS Partners |
| 225,870 |
| 306,986 |
| (81,116 | ) |
| -26.42 | % |
| 252,051 |
| 225,870 |
| 26,181 |
| 11.59 | % | |||||||||||||
Other miscellaneous income |
|
| 122,570 |
|
|
| 108,342 |
|
|
| 14,228 |
|
|
| 13.13 | % |
|
| 90,331 |
|
|
| 122,570 |
|
|
| (32,239 | ) |
|
| (26.30 | %) |
Total non-interest income |
| $ | 1,686,429 |
|
| $ | 1,572,231 |
|
| $ | 114,198 |
|
|
| 7.26 | % |
| $ | 1,758,777 |
|
| $ | 1,686,429 |
|
| $ | 72,348 |
|
|
| 4.29 | % |
Total non-interest income increased $114,198,$72,348, or 7.3%4.3%, for the first three months of 20222023 compared to the same period in 2021,2022, with significant changes noted in the following:
| · | The |
|
|
|
| · | An increase in CRE loan volume in 2023 resulted in a significant increase in documentation fees collected at origination as well as commercial rate lock fees collected, accounting for the increase in other income from |
|
|
|
| · | Income from CFS Partners increased between periods due in |
|
|
|
| · | |
| Included in |
35 |
Table of Contents |
Non-interest Expense
The components of non-interest expense for the periods presented were as follows:
|
| Three Months Ended |
|
|
|
|
|
| Three Months Ended |
|
|
|
|
| ||||||||||||||||||
|
| March 31, |
| Change |
|
| March 31 |
| Change |
| ||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Expense |
|
| Percent |
|
| 2023 |
|
| 2022 |
|
| Expense |
|
| Percent |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Salaries and wages |
| $ | 2,040,000 |
| $ | 1,975,003 |
| $ | 64,997 |
| 3.29 | % |
| $ | 2,288,760 |
| $ | 2,040,000 |
| $ | 248,760 |
| 12.19 | % | ||||||||
Employee benefits |
| 772,052 |
| 831,210 |
| (59,158 | ) |
| -7.12 | % |
| 754,270 |
| 772,052 |
| (17,782 | ) |
| (2.30 | %) | ||||||||||||
Occupancy expenses, net |
| 753,364 |
| 744,720 |
| 8,644 |
| 1.16 | % |
| 770,986 |
| 753,364 |
| 17,622 |
| 2.34 | % | ||||||||||||||
Other expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Directors Fees |
| 143,857 |
| 129,104 |
| 14,753 |
| 11.43 | % | |||||||||||||||||||||||
Telephone expense |
| 34,571 |
| 32,125 |
| 2,446 |
| 7.61 | % | |||||||||||||||||||||||
Service contracts - administrative |
| 155,500 |
| 138,505 |
| 16,995 |
| 12.27 | % | |||||||||||||||||||||||
Audit fees |
| 100,728 |
| 89,232 |
| 11,496 |
| 12.88 | % |
| 126,937 |
| 100,728 |
| 26,209 |
| 26.02 | % | ||||||||||||||
Consultant services |
| 64,887 |
| 78,789 |
| (13,902 | ) |
| -17.64 | % | ||||||||||||||||||||||
FDIC insurance |
| 89,984 |
| 82,857 |
| 7,127 |
| 8.60 | % |
| 131,643 |
| 89,984 |
| 41,659 |
| 46.30 | % | ||||||||||||||
Collection & non-accruing loan expense |
| 36,000 |
| 11,600 |
| 24,400 |
| 210.34 | % |
| 25,500 |
| 36,000 |
| (10,500 | ) |
| (29.17 | %) | |||||||||||||
ATM fees |
| 140,890 |
| 128,946 |
| 11,944 |
| 9.26 | % |
| 160,826 |
| 140,890 |
| 19,936 |
| 14.15 | % | ||||||||||||||
Electronic banking expense |
| 67,578 |
| 52,382 |
| 15,196 |
| 29.01 | % | |||||||||||||||||||||||
State deposit tax |
| 240,478 |
| 206,933 |
| 33,545 |
| 16.21 | % |
| 256,872 |
| 240,478 |
| 16,394 |
| 6.82 | % | ||||||||||||||
Other miscellaneous expenses |
|
| 969,199 |
|
|
| 1,002,150 |
|
|
| (32,951 | ) |
|
| -3.29 | % |
|
| 1,208,408 |
|
|
| 1,141,587 |
|
|
| 66,821 |
|
|
| 5.85 | % |
Total non-interest expense |
| $ | 5,453,588 |
|
| $ | 5,365,051 |
|
| $ | 88,537 |
|
|
| 1.65 | % |
| $ | 5,879,702 |
|
| $ | 5,453,588 |
|
| $ | 426,114 |
|
|
| 7.81 | % |
Total non-interest expense increased $88,537,$426,114, or 1.7%,7.8% for the first three months of 20222023 compared to the same period in 2021,2022, with significant changes noted in the following:
| · | In addition to normal salary increases, the increase in salaries and wages year over year is |
|
|
|
| · | The |
|
|
|
| · | The increase in |
|
|
|
| · | The Company increased the 2023 monthly accrual for |
|
|
|
| · |
|
|
|
|
| · |
|
|
|
|
| · | |
| ||
| ||
| State deposit tax increased year over year due primarily to the increase in | |
|
36 |
Table of Contents |
APPLICABLE INCOME TAXES
The provision for income taxes decreased $153,441,increased $254,124, or 22.7%48.6%, for the first three months of 20222023 compared to the same period in 20212022 and is proportional to the decreaseincrease in income before income taxes totaling $773,600 year over year.$1.2 million. Tax credits related to limited partnership investments amounted to $96,237$67,128 and $117,015,$96,237, respectively, for the first three months of 20222023 and 2021.2022.
Amortization expense related to limited partnership investments is included as a component of income tax expense and amounted to $67,092$67,128 and $90,762,$67,092, respectively, for the first three months of 20222023 and 2021.2022. These investments provide tax benefits, including tax credits, and are designed to provide a targeted effective annual yield between 7% and 10%.
CHANGES IN FINANCIAL CONDITION
The following table reflects the composition of the Company’sCompany's major categories of assets and liabilities as a percentage of total assets or liabilities and shareholders’ equity, as the case may be, as of the balance sheet dates:
|
| March 31, 2022 |
| December 31, 2021 |
|
| March 31, 2023 |
| December 31, 2022 |
| ||||||||||||||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Loans |
| $ | 696,293,182 |
| 69.27 | % |
| $ | 689,988,533 |
| 67.71 | % |
| $ | 758,586,712 |
| 73.61 | % |
| $ | 748,548,608 |
| 70.88 | % | ||||||||
AFS securities |
| 185,755,566 |
| 18.48 | % |
| 182,342,459 |
| 17.89 | % |
| 192,679,330 |
| 18.70 | % |
| 192,918,109 |
| 18.27 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Demand deposits |
| 203,661,459 |
| 20.26 | % |
| 209,465,151 |
| 20.55 | % |
| 200,311,094 |
| 19.44 | % |
| 216,093,534 |
| 20.46 | % | ||||||||||||
Interest-bearing transaction accounts |
| 258,401,561 |
| 25.71 | % |
| 265,513,937 |
| 26.05 | % |
| 279,977,413 |
| 27.17 | % |
| 294,050,079 |
| 27.84 | % | ||||||||||||
Money market funds |
| 130,731,075 |
| 13.01 | % |
| 129,728,954 |
| 12.73 | % |
| 132,554,229 |
| 12.86 | % |
| 140,117,086 |
| 13.27 | % | ||||||||||||
Savings deposits |
| 177,994,875 |
| 17.71 | % |
| 168,390,905 |
| 16.52 | % |
| 170,452,633 |
| 16.54 | % |
| 171,072,921 |
| 16.20 | % | ||||||||||||
Time deposits |
| 106,511,475 |
| 10.60 | % |
| 106,301,006 |
| 10.43 | % |
| 105,249,729 |
| 10.21 | % |
| 101,638,659 |
| 9.62 | % | ||||||||||||
Long-term advances |
| 1,300,000 |
| 0.13 | % |
| 1,300,000 |
| 0.13 | % |
| 1,300,000 |
| 0.13 | % |
| 1,300,000 |
| 0.12 | % |
The following table reflects the changes in the composition of the Company’sCompany's major categories of assets and liabilities between the balance sheet dates, as disclosed in the table above:
|
| Change in Volume |
|
| Percentage Change |
|
| Volume Change |
|
| Percentage |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
| ||||||
Loans |
| $ | 6,304,649 |
| 0.91 | % |
| $ | 10,038,104 |
| 1.34 | % | ||||
AFS securities |
| 3,413,107 |
| 1.87 | % |
| (238,779 | ) |
| (0.12 | %) | |||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Liabilities |
|
|
|
|
|
|
|
|
|
| ||||||
Demand deposits |
| (5,803,692 | ) |
| -2.77 | % |
| (15,782,440 | ) |
| (7.30 | %) | ||||
Interest-bearing transaction accounts |
| (7,112,376 | ) |
| -2.68 | % |
| (14,072,666 | ) |
| (4.79 | %) | ||||
Money market funds |
| 1,002,121 |
| 0.77 | % |
| (7,562,857 | ) |
| (5.40 | %) | |||||
Savings deposits |
| 9,603,970 |
| 5.70 | % |
| (620,288 | ) |
| (0.36 | %) | |||||
Time deposits |
| 210,469 |
| 0.20 | % |
| 3,611,070 |
| 3.55 | % |
The increase in the loan portfolio during the first three months of 20222023 was attributable to increases totaling $13.9$13.0 million in commercial & industrial CRE and CREmunicipal loans, which was partially offset by payoffsdecreases of certain PPP$0.8 million in purchased BHG loans, through SBA’s forgiveness program totaling $7.0 million.$1.9 million in residential junior lien loans and $0.6 million in consumer loans. The SBA PPP program endedCompany has experienced strong loan activity among its commercial customers, but only minimal consumer loan activity.
There were no securities AFS purchased during the second quarterfirst three months of 2021, so this portfolio will continue to decrease throughout the remainder of 2022 either through pay downs or payoffs initiated on behalf of SBA’s forgiveness program, or by regular amortization as borrowers begin to make scheduled monthly payments.
2023. The increasechange in the securities AFS portfolio is attributable to the purchase of $19.1 million in securities AFS during the first three months of 2022, consisting of $7.2 million in US Treasuries, $3.8 million in Tax-exempt municipal bonds, and $8.1 million in MBS. These purchases were reduced in part by maturities and calls exercised amounting to $291,500,$0.6 million, as well as principal payments on MBSvarious securities totaling $4.2 million, and$3.1 million. These changes were almost totally offset by an increasea decrease of $11.1$3.4 million in unrealized losses arising during the first quarterthree months of 2022 and2023, which is reflected in OCI. In management’s view, the size of the securities AFS portfolio is appropriate and proportional to the overall asset base, as this portfolio serves an important role in the Company’s liquidity position.
The decrease in the demand deposit accounts was entirely made up of business DDAs. The decrease in interest-bearing transaction accounts consists of a decrease of $13.1 million, or 10.6%, in consumer interest-bearing transaction accounts, a decrease of $11.6 million, or 28.8%, in municipal deposit accounts and a decrease of $11.0 million, or 12.9% in ICS deposit accounts. These decreases were partially offset by a combined increase of $21.6 million, or 48.7% in health savings accounts and the deposit account of the Company’s trust and asset management affiliate, CFSG. The decrease in money market funds was driven by decreases of $6.5 million, or 21.9% in ICS accounts and $4.6 million, or 4.5% in retail money market funds. These decreases were partially offset by an increase in municipal accounts of $3.5 million or 39.6%. The increase in time deposits is attributable to customer response to periodic certificate of deposit specials that have been offered.
37 |
Table of Contents |
MostCERTAIN TIME DEPOSITS
Increments of the fluctuation in demand deposits is due to a decrease during the first quartermaturity of 2022 in business checking accountstime CDs of $7.1 million,$250,000 or 4.4%, which the Company believes primarily reflects the outflow of fundsmore outstanding on March 31, 2023 are summarized as customers are starting to spend some of the funds generated through the PPP loans. The decrease in interest-bearing transaction accounts consists of a decrease of $10.8 million, or 25.7%, in municipal deposit accounts, as well as a decrease of $6.1 million, or 8.6%, in ICS deposit accounts, which was partially offset by an increase of $8.1 million, or 7.0%, in consumer interest-bearing transaction accounts. The increase in savings deposits of $9.6 million, or 5.7%, is likely attributable in part to parked funds as customers await more favorable rates for time deposits, as well as deposits of stimulus payments and tax credits from the U.S. Government.follows:
3 months or less |
| $ | 4,166,139 |
|
Over 3 through 6 months |
|
| 1,872,753 |
|
Over 6 through 12 months |
|
| 4,274,743 |
|
Over 12 months |
|
| 6,424,279 |
|
Total |
| $ | 16,737,914 |
|
Interest Rate Risk and Asset and Liability Management - Management actively monitors and manages the Company’s interest rate risk exposure and attempts to structure the balance sheet to maximize net interest income while controlling its exposure to interest rate risk. The Company’sCompany's ALCO is made up of the Executive Officers and certain Vice Presidents of the Bank representing major business lines. The ALCO formulates strategies to manage interest rate risk by evaluating the impact on earnings and capital of such factors as current interest rate forecasts and economic indicators, potential changes in such forecasts and indicators, liquidity and various business strategies. The ALCO meets at least quarterly to review financial statements, liquidity levels, yields and spreads to better understand, measure, monitor and control the Company’s interest rate risk. In the ALCO process, the committee members apply policy limits set forth in the Asset Liability, Liquidity and Investment policies approved and periodically reviewed by the Company’s Board of Directors. The ALCO’sALCO's methods for evaluating interest rate risk include an analysis of the effects of interest rate changes on net interest income and an analysis of the Company’sCompany's interest rate sensitivity “gap”"gap", which provides a static analysis of the maturity and repricing characteristics of the entire balance sheet. The ALCO Policy also includes a contingency funding plan to help management prepare for unforeseen liquidity restrictions, including hypothetical severe liquidity crises.
Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change, thereby impacting NII, the primary component of the Company’s earnings. Fluctuations in interest rates can also have an impact on liquidity. The ALCO uses an outside consultant to perform rate shock simulations to the Company’sCompany's net interest income, as well as a variety of other analyses. It is the ALCO’s function to provide the assumptions used in the modeling process. Assumptions used in prior period simulation models are regularly tested by comparing projected NII with actual NII. The ALCO utilizes the results of the simulation model to quantify the estimated exposure of NII and liquidity to sustained interest rate changes. The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on the Company’s balance sheet. The model also simulates the balance sheet’s sensitivity to a prolonged flat rate environment. All rate scenarios are simulated assuming a parallel shift of the yield curve; however further simulations are performed utilizing non-parallel changes in the yield curve. The results of this sensitivity analysis are compared to the ALCO policy limits which specify a maximum tolerance level for NII exposure over a 1-year horizon, assuming no balance sheet growth, given a 200 bp shift upward and a 100 bp shift downward in interest rates.
Under the Company’s interest rate sensitivity modeling, with the continued asset sensitive balance sheet, in a rising rate environment NII is expected to trendinitially trends upward as the short-term asset base (cash and adjustable rate loans) quickly cycle upward while the retail funding base (deposits) lags the market. If rates paid on deposits have to be increased more and/or more quickly than projected due to competitive pressures, the expected benefit to rising rates would be reduced. In a falling rate environment, NII is expected to trend slightly downward compared with the current rate environment scenario for the first year of the simulation as asset yield erosion is not fully offset by decreasing funding costs. Thereafter, net interest income is projected to experience sustained downward pressure as funding costs reach their assumed floors and asset yields continue to reprice into the lower rate environment. Management expects that theThe current rising rate environment will havehas had a positive impact to the Company’s NII in 2022.however market expectations for higher deposit rates are applying increasing pressure to the spread between interest income and interest expense.
38 |
Table of Contents |
The following table summarizes the estimated impact on the Company’sCompany's NII over a twelve month period, assuming a gradual parallel shift of the yield curve beginning March 31, 2022:2023:
Rate Change |
| Percent Change in NII |
| |
|
|
|
| |
Down 100 bps |
|
| %) | |
Up 200 bps |
|
| %) |
The estimated amounts shown in the table above are within the ALCO Policy limits. However, those amounts do not represent a forecast and should not be relied upon as indicative of future results. The ALCO model also provides alternate scenarios including a sustained flat, or inverted yield curve. While assumptions used in the ALCO process, including the interest rate simulation analyses, are developed based upon current economic and local market conditions, and expected future conditions, the Company cannot provide any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change. As the market rates continue to increase, the impact of a falling rate environment is more pronounced, and the possibility more plausible than during the last several years of near zero shortshort-term rates.
As of March 31, 2022,2023, the Company had outstanding $12,887,000 in principal amount of Junior Subordinated Debentures due December 15, 2037, which bear a quarterly floating rate of interest equal to the 3-month London Interbank Offered Rate (LIBOR), plus 2.85%. During 2017,As previously announced by the Financial Conduct Authority (FCA) in the United Kingdom, the entity that administers LIBOR, announced that LIBOR will be phased out, with an expected target date of December 31, 2021 for the phase out. On March 5, 2021, the FCA announced firm target dates for the phase out of various LIBOR settings, including a phase out date of June 30, 2023 for 3-month LIBOR for U.S. dollar deposits. Underdenominated deposits will be phased out as of June 30, 2023. The Indenture governing the terms of the Indenture, ifCompany’s Debentures contains detailed fallback provisions in the event 3-month LIBOR is not available, empowering the Trustee mayto obtain substitute quotations from fourother leading banksbanks. However, under the federal Adjustable Interest Rate (LIBOR) Act enacted in March 2022 (the “LIBOR Act”), fallback provisions like those in the LondonCompany’s Indenture that are based on a “determining person” (such as an indenture trustee) obtaining quotations of interbank market for their offeredlending or deposit rates are deemed “ineffective” and will be replaced as a matter of law, without need to amend contract documents, with a benchmark interest rate to prime banksidentified in regulations promulgated by the Federal Reserve. As required under the LIBOR Act, the Federal Reserve-identified benchmark rates specified in the final regulations for various tenors of LIBOR are based on the Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York and each includes an appropriate “tenor spread adjustment” to reflect historical spreads between LIBOR and SOFR. The replacement benchmark rate for ineffective fallback provisions will take effect on the first London market for U.S. dollar deposits havingbanking day after June 30, 2023, (the “LIBOR Replacement Date”). The Indenture Trustee has informed the Company that it views the fallback provisions in the Indenture as ineffective under the LIBOR Act, and that, absent either an amendment to the Indenture and related Debenture documents to adopt a three month maturity; if at least two such quotations are provided,new interest rate or a change in applicable law, effective on and after the quarterly rate onLIBOR Replacement Date, 3-month LIBOR will be replaced by 3-month CME SOFR, as adjusted by a spread adjustment factor of 0.26161 percent, in accordance with the LIBOR Act and FRB regulations. The Company does not intend to seek an amendment of the Indenture or other Debenture documents. Accordingly, as of the LIBOR Replacement Date, the Debentures will be the arithmetic meanbear interest at a quarterly floating rate equal to 3-month CME SOFR, as adjusted by a spread adjustment of such quotations. If fewer than two such quotations are received, the Trustee will request substitute quotations from four major New York City banks for their offered rate to leading European banks for loans in U.S. dollars; if at least two such quotations are provided, the quarterly rate on the Debentures will be the arithmetic mean of such quotations. The Debenture Trustee has not yet informed the Company as to how it intends to proceed. 0.26161 percent, plus 2.85%.
Aside from the Debentures, the Company does not have any other exposures to the phase out of LIBOR. The Company has not generally utilized LIBOR as an interest rate benchmark for its variable rate commercial, residential or other loans and does not utilize derivatives or other financial instruments tied to LIBOR for hedging or investment purposes. Accordingly, management expects that the Company’s exposure to the phase out of LIBOR will be limited to the effect on the interest rate paid on its Debentures, but cannot predict the magnitude of the impact on the Company’s interest expense at this time.Debentures.
Credit Risk - As a financial institution, one of the primary risks the Company manages is credit risk, the risk of loss stemming from borrowers’ failure to repay loans or inability to meet other contractual obligations. The Company’s Board of Directors prescribes policies for managing credit risk, including Loan, Appraisal and Environmental policies. These policies are supplemented by comprehensive underwriting standards and procedures. The Company maintains a Credit Administration department whose function includes credit analysis and monitoring of and reporting on the status of the loan portfolio, including delinquent and non-performing loan trends. The Company also monitors concentration of credit risk in a variety of areas, including portfolio mix, the level of loans to individual borrowers and their related interests, loans to industry segments, and the geographic distribution of commercial real estate loans. Loans are reviewed periodically by an independent loan review firm to help ensure accuracy of the Company’sCompany's internal risk ratings and compliance with various internal policies, procedures and regulatory guidance.
Residential mortgagesmortgage loans represented 30.8%30.4% of the Company’s loan balances as ofat March 31, 2022,2023, compared to 31.3%31.2% at December 31, 2021, a level that has historically been on a gradual annual decline in recent years, consistent with the Company’s strategic shift to commercial lending.2022. The Company maintains a residential mortgage loan portfolio of traditional mortgage products and does not engage inoffer higher risk loansloan products, such as option adjustable rate mortgage products, high loan-to-value products, interest only mortgages, subprime loans and products with deeply discounted teaser rates. Residential mortgages with loan-to-valuesloan-to-value ratios exceeding 80% are generally covered by PMI. A 90% loan-to-value residential mortgage product without PMI is only available to borrowers with excellent credit and low debt-to-income ratios and has not been widely originated. As of March 31, 2022,2023, junior lien home equity products made up 17.6%13.8% of the residential mortgage portfolio with maximum loan-to-value ratios (including prior liens) of 80%. The Company also originates some home equity loans greater than 80% under an insured loan program with stringent underwriting criteria.
39 |
Table of Contents |
Consistent with the strategic focus on commercial lending, the commercial & industrial and CRE loan portfolios have seen solid growth over recent years. Commercial & industrial, purchased, CRE and CREmunicipal loans togethercollectively comprised 68.7%69.1% of the Company’s loan portfolio at March 31, 2022,2023, compared to 68.1%68.4% at December 31, 2021. Those percentages included the Company’s portfolio of PPP loans, which have been steadily decreasing, and totaled $5.1 million at March 31, 2022, compared to $12.2 million at December 31, 2021.
Growth in the CRE portfolio in recent years has been principally driven by new loan volume in Chittenden County and northern Windsor County around the White River Junction, I91-I93 interchange area. Credits in the Chittenden County market are being managed by two commercial lenders out of the Company’s Burlington loan production office that know the area well, while Windsor County is being served by a commercial lender from the St. Johnsbury office with previous lending experience serving the greater White River Junction area. The Company has a loan production office in Lebanon, New Hampshire to provide a presence in the greater White River Junction area including Grafton County, New Hampshire. Larger transactions continue to be centrally underwritten and monitored through the Company’s commercial credit department. The types of CRE transactions driving the growth have been a mix of construction, land and development, multifamily, and other non-owner occupied CRE properties including hotels, retail, office, and industrial properties.2022. The largest components of the $308.3 million CRE portfolio at March 31, 2022 were $105.6$99.4 million in owner-occupied CRE and $110.0$139.0 million in non-owner occupied CRE.CRE at March 31, 2023.
Risk in the Company’s commercial & industrial and CRE loan portfolios is mitigated in part by government guarantees issued by federal agencies such as the SBA and RD. At March 31, 2022,2023, the Company had $36.8$26.2 million in guaranteed loans with guaranteed balances of $28.8$17.0 million, compared to $42.9$27.0 million in guaranteed loans with guaranteed balances of $35.4$18.3 million at December 31, 2021.2022. PPP loans with outstanding balances of $116,299 and $199,664 at March 31, 2023 and December 31, 2022, respectively, are included in these totals, all of which carry a 100% guarantee through the SBA, subject to borrower eligibility requirements.
The Company works actively with customers early in the delinquency process to help them to avoid default and foreclosure. Commercial & industrial and CRE loans are generally placed on non-accrual status when there is deterioration in the financial position of the borrower, payment in full of principal and interest is not expected, and/or principal or interest has been in default for 90 days or more. However, such a loan need not be placed on non-accrual status if it is both well secured and in the process of collection. Residential mortgages and home equity loans are considered for non-accrual status at 90 days past due and are evaluated on a case-by-case basis. The Company obtains current property appraisals or market value analyses and considers the cost to carry and sell collateral in order to assess the level of specific allocations required. Consumer loans are generally not placed in non-accrual but are charged off by the time they reach 120 days past due. When a loan is placed in non-accrual status, the Company reverses the accrued interest against current period income and discontinues the accrual of interest until the borrower clearly demonstrates the ability and intention to resume normal payments, typically demonstrated by regular timely payments for a period of not less than six months. Interest payments received on non-accrual or impaired loans are generally applied as a reduction of the loan book balance.
Provision for Credit Losses
The provision for credit losses was made up of the following components for the periods indicated:
|
| Three Months Ended |
|
|
|
|
|
|
| |||||||
|
| March 31, |
|
| Change |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Provision for credit losses on loans |
| $ | 207,540 |
|
| $ | 862,500 |
|
| $ | (654,960 | ) |
|
| (75.94 | %) |
Provision for credit losses on OBS credit exposure |
|
| 78,986 |
|
|
| 0 |
|
|
| 78,986 |
|
|
| 100.00 | % |
Provision for credit losses |
| $ | 286,526 |
|
| $ | 862,500 |
|
| $ | (575,974 | ) |
|
| (66.78 | %) |
ACL and provisions – As stated in Note 2 of the accompanying notes to the Company’s TDRs are principally a resultunaudited interim consolidated financial statements, effective January 1, 2023, the Company was required to recognize credit losses under the guidance of extending loan repayment termsASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, The new guidance, which is referred to relieve cash flow difficulties. The Company has only infrequently reduced interest rates belowas the current market rate.expected credit loss, or CECL model, requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses over the life of the loans. The Company has not forgiven principal or reduced accrued interest withinadjustment from the termsadoption of original restructurings. Management evaluates each TDR situation on its own meritsCECL amounted to $549,113, net of tax and does not foreclosewas recorded as an adjustment to retained earnings and will affect calculation of regulatory capital ratios. Changes in forecasts used in the granting of any particular type of concession.model could produce different results, quarter to quarter.
The Company’s TDRsboard of directors has approved an ACL policy that were past due 90 days or more orprovides guidance in non-accrual status as of the dates presented:
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||||||||||
|
| Number of |
|
| Principal |
|
| Number of |
|
| Principal |
| ||||
|
| Loans |
|
| Balance |
|
| Loans |
|
| Balance |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial & industrial |
|
| 5 |
|
| $ | 58,448 |
|
|
| 6 |
|
| $ | 71,128 |
|
Commercial real estate |
|
| 5 |
|
|
| 2,968,472 |
|
|
| 5 |
|
|
| 3,642,073 |
|
Residential real estate - 1st lien |
|
| 13 |
|
|
| 1,239,113 |
|
|
| 12 |
|
|
| 977,961 |
|
Residential real estate - Jr lien |
|
| 1 |
|
|
| 40,263 |
|
|
| 1 |
|
|
| 41,901 |
|
Total |
|
| 24 |
|
| $ | 4,306,296 |
|
|
| 24 |
|
| $ | 4,733,063 |
|
maintaining an adequate methodology for establishing, estimating and maintaining allowances for credit losses under ASC 326. The remaining TDRs were performing in accordance with their modified terms as of the dates presented and consisted of the following:
|
| March 31, 2022 |
|
| December 31, 2021 |
| ||||||||||
|
| Number of |
|
| Principal |
|
| Number of |
|
| Principal |
| ||||
|
| Loans |
|
| Balance |
|
| Loans |
|
| Balance |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Commercial real estate |
|
| 1 |
|
| $ | 9,496 |
| �� |
| 2 |
|
| $ | 41,228 |
|
Residential real estate - 1st lien |
|
| 31 |
|
|
| 2,460,459 |
|
|
| 31 |
|
|
| 2,473,767 |
|
Residential real estate - Jr lien |
|
| 1 |
|
|
| 3,213 |
|
|
| 1 |
|
|
| 3,537 |
|
Total |
|
| 33 |
|
| $ | 2,473,168 |
|
|
| 34 |
|
| $ | 2,518,532 |
|
As of the balance sheet dates, the Company evaluates whether it is contractually committedpolicy creates a measurement model to lend additional funds to debtors with impaired, non-accrual or modified loans. The Company is contractually committed to lendestablish a proper ACL based on one SBA guaranteed line ofcurrent expected credit to a borrower whose lending relationship was previously restructured.losses rather than incurred losses.
ALL and provisions - The Company maintains an ALLACL at a level that management believes is appropriate to absorb losses inherent in the loan portfolio as of the measurement date (See Note 5 to the accompanying unaudited interim consolidated financial statements). Although the Company, in establishing the ALL,ACL, considers the inherent losses in individual loans and pools of loans, the ALLACL is a general reserve available to absorb all credit losses in the loan portfolio. No part of the ALLACL is segregated to absorb losses from any particular loan or segment of loans.
When establishing the ALLACL each quarter, the Company applies a combination of historical loss factors to loan segments, including residential firstsignificant key assumptions and junior lien mortgages, CRE, commercial & industrial,methodologies, as discussed in the ACL section under Critical Accounting Policies in this MD&A, and consumer loan portfolios, other than the municipal loans as there has never been a loss recordedalso presented in that loan segment. The Company applies numerous qualitative factors to each segmentNote 5 of the loan portfolio. Those factors include the levels of and trends in delinquencies and non-accrual loans, criticized and classified assets, volumes and terms of loans, and the impact of any loan policy changes. Experience, ability and depth of lending personnel, levels of policy and documentation exceptions, national and local economic trends, the competitive environment, and concentrations of credit are also factors considered.accompanying unaudited interim consolidated financial statements.
40 |
Table of Contents |
Specific allocations to the ALL are made for certain impaired loans. Impaired loans include all troubled debt restructurings regardless of amount, and all loans to a borrower that in aggregate are greater than $100,000 and that are in non-accrual status. A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, including interest and principal, according to the contractual terms of the loan agreement. The Company reviews all the facts and circumstances surrounding non-accrual loans and on a case-by-case basis may consider loans below the threshold as impaired when such treatment is material to the financial statements. See Note 5 to the accompanying unaudited interim consolidated financial statements for information on the recorded investment in impaired loans and their related allocations.
The following table summarizes the Company’s credit risk ratios for the balance sheet dates presented:
|
| March 31, |
| December 31, |
|
| March 31 |
| December 31, |
| ||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||||
ALL to total loans outstanding |
| 1.13 | % |
| 1.12 | % | ||||||||||
ALL |
| $ | 7,890,648 |
| $ | 7,710,256 |
| |||||||||
ACL to total loans outstanding |
| 1.22 | % |
| 1.16 | % | ||||||||||
ACL |
| $ | 9,256,170 |
| $ | 8,709,225 |
| |||||||||
Loans outstanding |
| $ | 696,293,182 |
| $ | 689,988,533 |
|
| $ | 758,586,712 |
| $ | 748,548,608 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Non-accruing loans to loans outstanding |
| 0.78 | % |
| 0.86 | % |
| 1.12 | % |
| 1.05 | % | ||||
Non-accruing loans |
| $ | 5,414,963 |
| $ | 5,940,629 |
|
| $ | 8,480,354 |
| $ | 7,890,020 |
| ||
Loans outstanding |
| $ | 696,293,182 |
| $ | 689,988,533 |
|
| $ | 758,586,712 |
| $ | 748,548,608 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
ALL to non-accruing loans |
| 145.72 | % |
| 129.79 | % | ||||||||||
ALL |
| $ | 7,890,648 |
| $ | 7,710,256 |
| |||||||||
ACL to non-accruing loans |
| 109.15 | % |
| 110.38 | % | ||||||||||
ACL |
| $ | 9,256,170 |
| $ | 8,709,225 |
| |||||||||
Non-accruing loans |
| $ | 5,414,963 |
| $ | 5,940,629 |
|
| $ | 8,480,354 |
| $ | 7,890,020 |
|
The provision for loancredit losses for the first quarterthree months ended March 31, 20222023 was $862,500,$286,526, compared to $267,497$862,500 for the same period in 2021.2022. The $595,003$575,974 year over year increasedecrease was driven primarilyin part by a write-down totaling $667,474, on a single non-performing loan, which is in foreclosure, totaling $667,474.March of 2022.
The first quarter ALLACL analysis indicates that the reserve balance of $7.9$9.3 million at March 31, 20222023 is sufficient to cover expected credit losses that are probable and estimable as of the measurement date, with an unallocated reserve of $90,276.date. Management believes the reserve balance continues to be directionally consistent with the overall risk profile of the Company’s loan portfolio and credit risk appetite. The portion of the ALL termed “unallocated” is established to absorb inherent losses that exist as of the measurement date although not specifically identified through management’s process for estimating credit losses. While the ALLACL is described as consisting of separate allocated portions, the entire ALLACL is available to support loan losses, regardless of category. Due to the charge off activity during the first quarter of 2022, the unallocated reserves are lower than historical levels. It is expected that the provision would be increased in future periods, if loan growth or additional charge-offs warrants an increase. The adequacy of the ALLACL is reviewed quarterly by the risk management committee of the Board and then presented to the full Board for approval.approval quarterly.
41 |
Table of Contents |
Net charge-offsrecoveries (charge-offs) during the periodperiods presented to average loanloans outstanding were as follows:
For the Three Months Ended March 31, |
| 2022 |
|
| 2021 |
| ||||||||||
For the Three Months Ended March 31 |
| 2023 |
|
| 2022 |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial & industrial |
| -0.01 | % |
| -0.01 | % |
| (0.01 | %) |
| (0.02 | %) | ||||
Net charge-off during the period |
| $ | (17,650 | ) |
| $ | (14,086 | ) | ||||||||
Net charge-offs during the period |
| $ | (10,203 | ) |
| $ | (17,650 | ) | ||||||||
Average amount outstanding |
| $ | 117,162,692 |
| $ | 111,436,341 |
| |||||||||
|
|
|
|
|
| |||||||||||
Purchased |
| 0.00 | % |
| 0.00 | % | ||||||||||
Net charge-offs during the period |
| $ | 0 |
| $ | 0 |
| |||||||||
Average amount outstanding |
| $ | 120,804,935 |
| $ | 177,158,060 |
|
| $ | 7,086,337 |
| $ | 9,368,594 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Commercial real estate |
| -0.22 | % |
| 0.00 | % |
| 0.01 | % |
| (0.22 | %) | ||||
Net (charge-off) recovery during the period |
| $ | (667,474 | ) |
| $ | 7,000 |
| ||||||||
Net recoveries (charge-offs) during the period |
| $ | 22,000 |
| $ | (667,474 | ) | |||||||||
Average amount outstanding |
| $ | 304,057,825 |
| $ | 280,029,141 |
|
| $ | 360,454,697 |
| $ | 304,057,825 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Municipal |
| 0.00 | % |
| 0.00 | % |
| 0.00 | % |
| 0.00 | % | ||||
Net charge-off during the period |
| $ | 0 |
| $ | 0 |
| |||||||||
Net charge-offs during the period |
| $ | 0 |
| $ | 0 |
| |||||||||
Average amount outstanding |
| $ | 49,022,024 |
| $ | 52,232,117 |
|
| $ | 35,177,595 |
| $ | 49,022,024 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential real estate - 1st lien |
| 0.00 | % |
| 0.00 | % |
| 0.04 | % |
| 0.00 | % | ||||
Net recovery during the period |
| $ | 1,210 |
| $ | 1,567 |
| |||||||||
Net recoveries during the period |
| $ | 72,326 |
| $ | 2,276 |
| |||||||||
Average amount outstanding |
| $ | 182,305,338 |
| $ | 170,036,028 |
|
| $ | 198,536,712 |
| $ | 182,305,338 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Residential real estate - Jr lien |
| 0.01 | % |
| 0.00 | % |
| 0.08 | % |
| 0.01 | % | ||||
Net recovery during the period |
| $ | 2,276 |
| $ | 528 |
| |||||||||
Net recoveries during the period |
| $ | 25,548 |
| $ | 1,210 |
| |||||||||
Average amount outstanding |
| $ | 33,230,645 |
| $ | 37,317,509 |
|
| $ | 32,704,333 |
| $ | 33,230,645 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Consumer |
| -0.01 | % |
| -0.07 | % |
| (0.36 | %) |
| (0.01 | %) | ||||
Net charge-off during the period |
| $ | (470 | ) |
| $ | (2,703 | ) | ||||||||
Net charge-offs during the period |
| $ | (13,642 | ) |
| $ | (470 | ) | ||||||||
Average amount outstanding |
| $ | 3,580,266 |
| $ | 3,811,456 |
|
| $ | 3,786,350 |
| $ | 3,580,266 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||||
Total loans |
| -0.10 | % |
| 0.00 | % |
| 0.01 | % |
| (0.10 | %) | ||||
Net charge-off during the period |
| $ | (682,108 | ) |
| $ | (7,694 | ) | ||||||||
Net recoveries (charge-offs) during the period |
| $ | 96,029 |
| $ | (682,108 | ) | |||||||||
Average amount outstanding |
| $ | 693,001,033 |
| $ | 720,584,311 |
|
| $ | 754,908,716 |
| $ | 693,001,033 |
|
In addition to credit risk in the Company’s loan portfolioand investment portfolios and its off-balance sheet commitments, and liquidity risk in its loan and deposit-taking operations, the Company’s business activities also generate market risk. Market risk is the risk of loss in a financial instrument arising from adverse changes in market prices and rates, foreign currency exchange rates, commodity prices and equity prices. Declining capital markets and changes in interest rates can result in fair value adjustments necessary to record decreases inasset valuations or the value of the investment portfolio for other-than-temporary-impairment.need to create a related reserve or allowance. The Company does not have any market risk sensitive instruments acquired for trading purposes. The Company’s market risk arises primarily from interest rate risk inherent in its lending, and deposit taking and investment activities. During recessionary periods, a declining housing market can result in an increase in loan loss reserves or ultimately an increase in foreclosures. Interest rate risk is directly related to the different maturities and repricing characteristics of interest-bearing assets and liabilities, as well as to loan prepayment risks, early withdrawal of time deposits, and the fact that the speed and magnitude of responses to interest rate changes vary by product. Rapid changes in prevailing interest rates, particularly after a long period of relative stability, create a challenging interest rate environment. As discussed above under “Interest"Interest Rate Risk and Asset and Liability Management”Management", the Company actively monitors and manages its interest rate risk through the ALCO process.
COMMITMENTS, CONTINGENCIES AND OFF-BALANCE-SHEET ARRANGEMENTS
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and risk-sharing commitments on certain sold loans. Such instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet. The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments. During the first three months of 2022,2023, the Company did not engage in any activity that created any additional types of off-balance sheet risk.
42 |
Table of Contents |
With the adoption of ASU 2016-13 (CECL), the Company is required to establish an allowance for expected credit losses on OBS credit exposures. Expected credit losses are estimated by management over the contractual period during which the Company is exposed to credit risk under a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Upon adoption of ASU 2016-13, the Company recorded an adjustment to retained earnings of $451,704 to reflect an allowance for credit losses for unfunded commitments. The allowance for credit losses for OBS credit exposures is presented in the "Accrued interest and other liabilities" line of the consolidated balance sheets. There were no changes to the allowance for credit losses for OBS credit exposures during the three months ended March 31, 2023.
LIQUIDITY AND CAPITAL RESOURCES
Managing liquidity risk is essential to maintaining both depositor confidence and stability in earnings. Liquidity management refers to the ability of the Company to adequately cover fluctuations in assets and liabilities. Meeting loan demand (assets) and covering the withdrawal of deposit funds (liabilities) are two key components of the liquidity management process. The Company’s principal sources of funds are deposits, amortization and prepayment of loans and securities, maturities of investment securities, sales of loans available-for-sale, and earnings and funds provided from operations. Maintaining a relatively stable funding base, which is achieved by diversifying funding sources, competitively pricing deposit products, and extending the contractual maturity of liabilities, reduces the Company’s exposure to rollover risk on deposits and limits reliance on volatile short-term borrowed funds. Short-term funding needs arise from declines in deposits or other funding sources and from funding requirements for loan commitments. The Company’s strategy is to fund assets to the maximum extent possible with core deposits that provide a sizable source of relatively stable and low-costlower-cost funds.
The Company recognizes that, at times, when loan demand exceeds deposit growth or the Company has other liquidity demands, it may be desirable to utilize alternative sources of deposit funding to augment retail deposits and borrowings. One-way deposits acquired through the CDARS program provide an alternative funding source when needed. At March 31, 20222023 and December 31, 2021,2022, the Company had no one-way CDARS outstanding. In addition, two-way (reciprocal) CDARS deposits, as well as reciprocal ICS money market and demand deposits, allowenhance the Company’s ability to retain larger deposit balances by allowing the Company to provide FDIC deposit insurance to its customers in excess of account coverage limits by exchangingthrough the exchange of deposits with other participating FDIC-insured financial institutions. At March 31, 20222023 and December 31, 2021,2022, the Company reported $3.6$2.8 million in reciprocal CDARS deposits. The balance in ICS reciprocal money market deposits was $17.2$23.0 million at March 31, 2022,2023, compared to $15.3$29.5 million at December 31, 2021,2022, and the balance in ICS reciprocal demand deposits as of those dates was $64.6$74.3 million and $70.8$85.3 million, respectively.
The Company had two blocks of DTC Brokered CDs totaling $2.3 million and $1.4 million with maturities in January, 2021 and April, 2021, respectively. These blocks were not replaced, leaving no DTC Brokered CDs outstanding at December 31, 2021 or March 31, 2022. Although wholesale deposit funding through DTC is an important supplemental source of liquidity that has proven efficient, flexible and cost-effective when compared with other borrowing methods, the growth in deposits during 2021 has reduced the Company’s need for supplementary funding sources in the near term.
At March 31, 20222023 and December 31, 2021,2022, borrowing capacity of $95.3$110.3 million and $100.2$112.3 million, respectively, was available through the FHLBB, secured by the Company’sCompany's qualifying loan portfolio (generally, residential mortgage and commercial loans), reduced by outstanding advances and by collateral pledges securing FHLBB letters of credit collateralizing public unit deposits. The Company also has an unsecured Federal Funds credit line with the FHLBB with an available balance of $500,000 and no outstanding advances during any of the respective comparison periods. Interest is chargeable at a rate determined daily, approximately 25 bps higher than the rate paid on federal funds sold.
The Company has a BIC arrangement with the FRBB secured by eligible commercial & industrial loans, CRE loans and home equity loans, resulting in an available credit line of $65.1$52.8 million and $52.3$56.1 million, respectively, at March 31, 20222023 and December 31, 2021.2022. Credit advances under this FRBB lending program are overnight advances with interest chargeable at the primary credit rate (generally referred to as the discount rate), currently 40500 bps. The Company had no outstanding advances through this facility at March 31, 20222023 or December 31, 2021.2022.
As of March 31, 2023, the Company had additional potential borrowing capacity, subject to pledging of required collateral, under the FRB’s Term Funding Program, which was established in March 2023 to provide banks with an additional source of liquidity. The Company did not have any advances under the Term Funding Program at March 31, 2023.
The following table reflects the Company’s outstanding FHLBB and FRBB advances againstunder the respective linesFHLBB’s JNE program as of the dates indicated:
|
| March 31, |
| December 31, |
|
| March 31, |
| December 31, |
| ||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Long-Term Advances(1) |
|
|
|
|
|
|
|
|
|
| ||||||
FHLBB term advance, 0.00%, due September 22, 2023 |
| $ | 200,000 |
| $ | 200,000 |
|
| $ | 200,000 |
| $ | 200,000 |
| ||
FHLBB term advance, 0.00%, due November 12, 2025 |
| 300,000 |
| 300,000 |
|
| 300,000 |
| 300,000 |
| ||||||
FHLBB term advance, 0.00%, due November 13, 2028 |
|
| 800,000 |
|
|
| 800,000 |
|
|
| 800,000 |
|
|
| 800,000 |
|
|
| $ | 1,300,000 |
|
| $ | 1,300,000 |
|
| $ | 1,300,000 |
|
| $ | 1,300,000 |
|
|
(1) Under the JNE program,
The Company has unsecured lines of credit with two correspondent banks with aggregate available borrowing capacity totaling $20.5 million as of the balance sheet dates presented in this quarterly report. The Company had no outstanding advances against these credit lines as of the balance sheet dates presented.
The following table illustrates the changes in
The primary objective of the Company’s capital planning process is to balance appropriately the retention of capital to support operations and future growth, with the goal of providing shareholders an attractive return on their investment. To that end, management monitors capital retention and dividend policies on an ongoing basis.
As described in more detail in Note 23 to the audited consolidated financial statements contained in the Company’s
As of March 31,
The following table shows the Company’s actual capital ratios and those of its subsidiary, as well as currently applicable regulatory capital requirements, as of the dates indicated. The calculations as of March 31, 2023 reflect adoption of ASU 2016-13 (CECL), including the beginning period cumulative effect adjustment of $549,113, which reduced retained earnings.
The
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Omitted, in accordance with the regulatory relief available to smaller reporting companies in SEC Release Nos. 33-10513 and 34-83550.
ITEM 4. Controls and Procedures
Disclosure Controls and Procedures
Management is responsible for establishing and maintaining effective disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act). As of March 31,
For this purpose, the term “disclosure controls and procedures” means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by it in the reports that it files or submits under the Exchange Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31,
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In the normal course of business, the Company is involved in litigation that is considered incidental to
ITEM 1A. Risk Factors
In management’s view, the Risk Factors identified in our Annual Report on Form 10-K for the year ended December 31,
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information as to the purchases of the Company’s common stock during the three months ended March 31,
ITEM 6. Exhibits
The following exhibits are filed with, or incorporated by reference in, this report:
*This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
COMMUNITY BANCORP.
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31,
COMMUNITY BANCORP.
EXHIBITS
EXHIBIT INDEX
* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act.
|