10 unchanged sentences
changes in general national, regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets, volatility and disruption in national and international financial markets, government intervention in the U.S.
−Removed: financial system, reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits, reductions in the market value of wealth management assets under administration, changes in the value of securities and other assets, reductions in loan demand, changes in loan collectability, default and charge-off rates, changes in the size and nature of the Company's competition, changes in legislation or regulation and accounting principles, policies and guidelines, uncertainties with respect to the nature, the extent and the duration of the COVID-19 pandemic and its consequences (including in our market areas or affecting our customers such as protracted adverse effects on the tourism and hospitality industries), and changes in the assumptions used in making such forward-looking statements.
+Added: financial system, reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits, reductions in the market value of wealth management assets under administration, changes in the value of securities and other assets, reductions in loan demand, changes in loan collectability, default and charge-off rates, changes in the size and nature of the Company's competition, changes in legislation or regulation and accounting principles, policies and guidelines, and changes in the assumptions used in making such forward-looking statements.
In addition, the factors described under "Risk Factors" in Item 1A of this Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC, may result in these differences, as well as the "Risk Factors" in Part II, Item 1A listed below.
6 unchanged sentences
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.
−Removed: On an ongoing basis, Management evaluates its estimates, including those related to the allowance for loan losses, the fair value of securities, goodwill, the valuation of mortgage servicing rights, and other-than-temporary impairment on securities.
+Added: On an ongoing basis, Management evaluates its estimates, including those related to the allowance for credit losses on loans, the fair value of securities and allowance for credit losses on securities, the allowance for credit losses on off balance sheet commitments, goodwill, and the valuation of mortgage servicing rights.
Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis in making judgments about the carrying values of assets that are not readily apparent from other sources.
Actual results could differ from the amount derived from Management's estimates and assumptions under different assumptions or conditions.
−Removed: Allowance for Loan Losses.
−Removed: Management believes the allowance for loan losses requires the most significant estimates and assumptions used in the preparation of the consolidated financial statements.
−Removed: The allowance for loan losses is based on Management's evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio.
−Removed: Management regularly evaluates the allowance, typically monthly, to determine the appropriate level by taking into consideration factors such as the size and growth trajectory of the portfolio, quality trends as measured by key indicators, prior loan loss experience in major portfolio segments, local and national business and economic conditions, the results of any stress testing undertaken during the period, and Management's estimation of potential losses.
−Removed: The use of different estimates or assumptions could produce different provisions for loan losses.
+Added: Allowance for Credit Losses.
+Added: Management believes the allowance for credit losses requires the most significant estimates and assumptions used in the preparation of the consolidated financial statements.
+Added: The allowance for credit losses is based on Management's evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan and investment portfolios.
+Added: The allowance is comprised of the allowance for credit losses on loans, the allowance for credit losses on off balance sheet commitments, and the allowance for credit losses on held to maturity securities.
+Added: Management regularly evaluates the allowance, typically monthly, to determine the appropriate level by taking into consideration factors such as the size and growth trajectory of the portfolios, quality trends as measured by key indicators, prior loan loss experience in each loan portfolio segment, local and national business and economic conditions, and other factors contributing to Management's estimation of potential losses.
+Added: The use of different estimates or assumptions could produce different provisions for credit losses.
Management utilizes numerous techniques to estimate the value of various assets held by the Company, including methods to determine the appropriate carrying value of goodwill as required under Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 350 "Intangibles – Goodwill and Other." In addition,
18 unchanged sentences
Results of the validation are reported to the Bank's Asset Liability Committee each quarter and any variances between the two sources above defined thresholds are investigated by management.
−Removed: Other-Than-Temporary Impairment on Securities.
−Removed: Another significant estimate related to investment securities is the evaluation of other-than-temporary impairment.
−Removed: The evaluation of securities for other-than-temporary impairment is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized in current period earnings.
+Added: Credit Loss Recognition on Securities.
+Added: Another significant estimate related to investment securities is the evaluation of potential credit losses on investment securities.
+Added: The evaluation of securities for potential credit losses is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized as a charge to the allowance for credit losses.
The risks and uncertainties include changes in general economic conditions, the issuer's financial condition and/or future prospects, the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses.
−Removed: Securities that are in an unrealized loss position are reviewed at least quarterly to determine if other-than-temporary impairment is present based on certain quantitative and qualitative factors and measures.
−Removed: The primary factors considered in evaluating whether a decline in value of securities is other-than-temporary include:
−Removed: (a) the length of time and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security, (b) the financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, (d) the volatility of the securities' market price, (e) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery, which may be at maturity and (f) any other information and observable data considered relevant in determining whether other-than-temporary impairment has occurred, including the expectation of receipt of all principal and interest when due.
+Added: Securities that are in an unrealized loss position are reviewed at least quarterly to determine if recognition of a loss is required.
+Added: The primary factors considered in this evaluation (a) the length of time and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security, (b) the financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, (d) the volatility of the securities' market price, (e) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery, which may be at maturity and (f) any other information and observable data considered relevant, including the expectation of receipt of all principal and interest when due.
Derivative Financial Instruments Designated as Hedges.
8 unchanged sentences
Risks and Uncertainties.
−Removed: As of September 30, 2022, local and state governments in the US have eased or eliminated most restrictions imposed to curtail the spread of the global pandemic, COVID-19.
+Added: As of March 31, 2023, local and state governments in the US have eased or eliminated most restrictions imposed to curtail the spread of the global pandemic, COVID-19.
There continues to be uncertainty surrounding the duration of the pandemic, its potential economic ramifications, and any further government actions to mitigate them.
−Removed: Accordingly, while management has considered the effect of the pandemic on collectability of loans receivable and other business impacts, it is possible that this matter may have a further financial impact on the Company's financial position and results of future operations, such potential impact of which cannot be reasonably estimated.
+Added: Accordingly, it is possible that this matter may have a further financial impact on the Company's financial position and results
+Added: of future operations, such potential impact of which cannot be reasonably estimated.
+Added: Government has announced that the public health emergency declared in response to COVID-19 will end on May 11, 2023.
Government economic programs intended to backstop and bolster the economy through the pandemic, such as the Payroll Protection Program (PPP) have ended, and the nation's economy has entered an inflationary phase.
3 unchanged sentences
The conflict between Russia and Ukraine has exacerbated pandemic-related supply chain issues, upset numerous global markets including energy and certain raw materials, and generally added to economic uncertainty and geopolitical instability.
+Added: The recent failures of several regional banks have further roiled markets and introduced a new source of uncertainty.
Any or all could have negative downstream effects on the Company's operating results, the extent of which is indeterminable at this time.
16 unchanged sentences
A Federal Income Tax rate of 21.0% was used in 2023 and 2022.
−Removed: For the nine months ended September 30, For the quarter ended September 30,
+Added: For the three months ended March 31,
Dollars in thousands
−Removed: 2022 2021 2022 2021
Net interest income as presented $ 17,475 $ 18,620
3 unchanged sentences
The GAAP-based efficiency ratio is non-interest expenses divided by net interest income plus non-interest income from the Consolidated Statements of Income.
−Removed: The non-GAAP efficiency ratio excludes securities losses and other-than-temporary impairment charges from non-interest expenses, excludes securities gains from non-interest income, and adds the tax-equivalent adjustment to net interest income.
+Added: The non-GAAP efficiency ratio excludes securities losses and provision for credit losses on securities from non-interest expenses, excludes securities gains from non-interest income, and adds the tax-equivalent adjustment to net interest income.
The following table provides a reconciliation between the GAAP and non-GAAP efficiency ratio:
−Removed: For the nine months ended September 30, For the quarter ended September 30,
+Added: For the three months ended March 31,
Dollars in thousands
−Removed: 2022 2021 2022 2021
Non-interest expense, as presented $ 10,850 $ 10,650
3 unchanged sentences
Effect of non-interest tax-exempt income 44 42
−Removed: Net securities (gains) losses (7) (22) (6) 142
+Added: Net securities gains — (2)
Adjusted net interest income plus non-interest income $ 21,708 $ 23,449
5 unchanged sentences
The following table provides a reconciliation of average tangible common equity to the Company's consolidated financial statements, which have been prepared in accordance with U.S.
−Removed: For the nine months ended September 30, For the quarter ended September 30,
+Added: For the three months ended March 31,
Dollars in thousands
−Removed: 2022 2021 2022 2021
Average shareholders' equity as presented $ 237,518 $ 246,635
3 unchanged sentences
Period Ending
−Removed: In thousands of dollars, except per share data September 30, 2022 September 30, 2021
+Added: In thousands of dollars, except per share data March 31, 2023 March 31, 2022
Shareholders' Equity $ 228,461 $ 233,646
6 unchanged sentences
The following table provides a reconciliation to Net Income:
−Removed: For the nine months ended September 30, For the quarter ended September 30,
+Added: For the three months ended March 31,
Dollars in thousands 2023 2022
4 unchanged sentences
Executive Summary
−Removed: Net income for the nine months ended September 30, 2022 was $29.8 million, up $3.1 million or 11.5% from the same period in 2021.
−Removed: Earnings per common share on a fully diluted basis were $2.70 for the nine months ended September 30, 2022, up $0.27 or 11.1% from the $2.43 posted for the same period in 2021.
−Removed: For the quarter ended September 30, 2022, net income was $10.1 million, up $1.1 million or 11.9% from the same period in 2021.
−Removed: Earnings per common share on a fully diluted basis were $0.91 for the quarter ended September 30, 2022, up $0.09 or 11.0% from the $0.82 posted for the same period in 2021.
−Removed: The Company continues to perform very strongly in 2022, posting record earnings in each of the three quarters.
−Removed: Growth in net interest income, predominantly from a combination of strong earning asset growth and expanded net interest margin, has been a primary driver of performance year-to-date .
−Removed: Based upon the strength of the Company's earnings, dividends totaling $1.00 per share have been declared year-to-date, representing a payout to our shareholders of 36.63% of basic earnings per share for the period.
−Removed: Net interest income on a tax-equivalent basis was up $8.0 million or 15.9% in the nine months ended September 30, 2022 compared to the same period in 2021.
−Removed: This increase is attributable primarily to growth in earning assets and a wider net interest margin.
−Removed: The tax equivalent net interest margin for the nine months ended September 30, 2022, was 3.17%, up from 2.94% for the same period in 2021.
−Removed: For the quarter ended September 30, 2022, net interest income on a tax-equivalent basis increased $2.4 million or 13.5% compared to the same period in 2021, with the net interest margin at 3.14% compared to 2.96% for the same period in 2021.
−Removed: Non-interest income for the nine months ended September 30, 2022 was $13.0 million, down $1.6 million or 10.7%, from the nine months ended September 30, 2021.
−Removed: Revenue at First National Wealth Management increased $161,000 or 4.8% over the same period, debit card revenue was up $1.0 million or 26.0%, and service charge revenue increased $226,000 or 20.0%.
−Removed: Conversely, mortgage banking revenue decreased $3.1 million or 71.6%.
−Removed: Non-interest expense for the nine months ended September 30, 2022 was $32.2 million, up $2.9 million or 9.9% from the nine months ended September 30, 2021.
−Removed: Salaries and employee benefits year-to-date in 2022 have increased 9.6% from the same period in 2021.
−Removed: Other operating expense has increased 12.3% over the same period largely attributable to one-time charges associated with the sale of a block of residential mortgage loans.
−Removed: Asset quality has further improved year-to-date in 2022 and continues to be strong and stable.
−Removed: Non-performing assets stood at 0.07% of total assets as of September 30, 2022, down from 0.25% of total assets as of September 30, 2021 and 0.23% as of December 31, 2021.
−Removed: Total past-due loans were 0.08% of total loans as of September 30, 2022, down from 0.26% of total loans as of December 31, 2021 and 0.25% as of September 30, 2021.
−Removed: The provision for loan losses for the first nine months of 2022 was $1.3 million, down from the $1.6 million provisioned in the same period in 2021.
−Removed: The Company continues to view it prudent to consider the uncertainties brought about by COVID-19 and the potential impact to borrowers in its provision analysis.
−Removed: Net loan chargeoffs for the nine months ended September 30, 2022 were $434,000 or 0.03% of average loans on an annualized basis, unchanged in percentage terms to net charge-offs of $321,000 or 0.03% of total loans for the nine months ended September 30, 2021.
−Removed: The allowance for loan losses increased $866,000 between December 31, 2021 and September 30, 2022, and now stands at 0.88% of loans outstanding as of September 30, 2022, down from 0.94% at December 31, 2021 and 1.08% at September 30, 2021.
−Removed: The Company's balance sheet continued to expand in the first nine months of 2022 as total assets increased $208.0 million or 8.2% year-to-date.
−Removed: The loan portfolio increased $210.3 million or 12.8% in the nine months ended September 30, 2022 and $240.8 million or 14.9% from a year ago.
−Removed: Loan growth in the first nine months of 2022 was centered in commercial real estate and construction loans, up $112.2 million, and other commercial loans, up $45.5 million.
−Removed: Other commercial loans include PPP loan balances of $14,000, a decrease of $22.0 million since December 31, 2021.
−Removed: The investment portfolio decreased $26.3 million year-to-date and decreased $24.1 million from a year ago based upon changes in the carrying value of Available-for-Sale securities.
−Removed: On the liability side of the balance sheet, low-cost deposits have increased $44.9 million or 3.3% year-to-date, with growth centered in Demand and NOW account balances.
−Removed: Year-over-year, low-cost deposits have increased $66.8 million
−Removed: Local certificates of deposit ("CDs") increased $19.5 million and wholesale CDs increased $200.5 million year-to-date.
+Added: Net income for the three months ended March 31, 2023 was $8.0 million, down $1.7 million or 17.9% from the same period in 2022.
+Added: Earnings per common share on a fully diluted basis were $0.72 for the three months ended March 31, 2023, down $0.16 or 18.2% from the $0.88 posted for the same period in 2022.
+Added: Dividends totaling $0.34 per share have been declared year-to-date, representing a payout to our shareholders of 46.58% of basic earnings per share for the period.
+Added: Net interest income on a tax-equivalent basis was down $1.1 million or 5.6% in the three months ended March 31, 2023 compared to the same period in 2022.
+Added: The tax equivalent net interest margin for the three months ended March 31, 2023, was 2.78%, down from 3.24% for the same period in 2022.
+Added: The period to period change in net interest margin is attributable to $1.1 million in PPP revenue earned in the first quarter of 2022 which was non-continuing, coupled with rising funding costs.
+Added: Non-interest income for the three months ended March 31, 2023 was $3.6 million, down $663,000 or 15.7%, from the three months ended March 31, 2022.
+Added: Revenue at First National Wealth Management decreased $51,000 or 4.3% over the same period, debit card revenue was down $245,000 or 17.1% due to timing of program incentive payments, and mortgage banking revenue decreased $306,000.0 or 61.4% on lower volume of mortgage sales and negative marks taken against mortgage servicing rights valuation.
+Added: Non-interest expense for the three months ended March 31, 2023 was $10.9 million, up $200,000 or 1.9% from the three months ended March 31, 2022.
+Added: Salaries and employee benefits decreased 3.7% from the same period in 2022, while other operating expense has increased 8.0% over the same period.
+Added: Asset quality continues to be strong and stable.
+Added: Non-performing assets stood at 0.06% of total assets as of March 31, 2023, down from 0.20% of total assets as of March 31, 2022 and even with December 31, 2022.
+Added: Total past-due loans were 0.10% of total loans as of March 31, 2023, up slightly from 0.08% of total loans as of December 31, 2022 and down from 0.25% as of March 31, 2022.
+Added: The provision for credit losses for the first three months of 2023 was $550,000, up from the $450,000 provisioned in the same period in 2022.
+Added: Net loan chargeoffs for the three months ended March 31, 2023 were $25,000 or 0.01% of average loans on an annualized basis, down from net charge-offs of $205,000 or 0.05% of total loans for the three months ended March 31, 2022.
+Added: Due to CECL adoption, the allowance for credit losses increased $6.7 million between December 31, 2022 and March 31, 2023, and now stands at 1.18% of loans outstanding as of March 31, 2023, up from 0.87% at December 31, 2022 and 0.92% at March 31, 2022.
+Added: The Company has modeled its ACL using a discounted cash flow approach applied to each segment of the loan portfolio.
+Added: The Company's balance sheet continued to expand in the first three months of 2023 as total assets increased $72.6 million or 2.7% year-to-date.
+Added: The loan portfolio increased $68.2 million or 3.6% in the three months ended March 31, 2023 and $275.5 million or 16.1% from a year ago.
+Added: Loan growth in the first three months of 2023 was centered in the commercial and residential portfolios.
+Added: Commercial loans increased by $50.6 million during the period, led by increases in owner-occupied commercial real estate of $28.6 million, non-owner occupied commercial real estate of $20.8 million and commercial & industrial loans of $20.3 million;
+Added: commercial construction balances decreased by $21.2 million as a number of projects converted to permanent financing.
+Added: Residential term loans increased by $9.4 million in the first quarter while residential construction loans increased by $2.8 million.
+Added: Commercial & industry loans include PPP loan balances of $11,000.
+Added: The investment portfolio increased $1.7 million year-to-date and decreased $11.6 million from a year ago based upon changes in the carrying value of Available-for-Sale securities.
+Added: On the liability side of the balance sheet total deposits have increased $87.8 million, or 3.7%, year-to-date to $2.47 billion.
+Added: The Company typically experiences a modest decline in local deposit balances in the first quarter of each year due to seasonal factors.
+Added: In the three months ended March 31, 2023 total local deposits fell by $18.4 million, or 1.1%, well within a normal range.
+Added: Low-cost deposits (Demand, NOW, Savings) decreased $55.7 million or 4.2% during the period, while Money Market balances increased $21.2 million and certificates of deposit ("CDs") increased $45.3 million as depositors shifted balances to higher cost product types.
+Added: To balance the seasonal runoff and to support earning asset growth, wholesale CDs have increased $96.7 million year-to-date, while borrowings have decreased by $19.6 million.
Remaining well capitalized is a top priority for The First Bancorp, Inc.
−Removed: The Company's total risk-based capital ratio was 13.59% as of September 30, 2022, solidly above the well-capitalized threshold of 10.0% set by the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller of the Currency.
−Removed: The Company's operating ratios were strong in the first nine months of 2022, with a return on average tangible common equity of 19.29% for the nine months ended September 30, 2022 compared to 17.62% for the same period in 2021.
−Removed: Our non-GAAP efficiency ratio continues to be an important component in the Company's overall performance and stood at 44.99% for the nine months ended September 30, 2022 compared to 45.04% for the same period in 2021.
+Added: The Company's total risk-based capital ratio was 13.72% as of March 31, 2023, solidly above the well-capitalized threshold of 10.0% set by the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the Office of the Comptroller of the Currency.
+Added: The Company's operating ratios remained favorable in the first three months of 2023, with a return on average tangible common equity of 15.64% for the three months ended March 31, 2023 compared to 18.25% for the same period in 2022.
+Added: Our non-GAAP efficiency ratio continues to be an important component in the Company's overall performance and stood at 49.98% for the three months ended March 31, 2023 compared to 45.42% for the same period in 2022.
Net Interest Income
−Removed: Total interest income of $66.0 million for the nine months ended September 30, 2022 was an increase of $8.9 million or 15.5% compared to total interest income of $57.1 million for the same period of 2021, with growth in earning assets primarily responsible for the increase.
−Removed: Total interest expense of $9.3 million for the nine months ended September 30, 2022 was an increase of $798,000 or 9.4% compared to total interest expense for the nine months ended September 30, 2021.
−Removed: As a result, net interest income of $56.7 million for the nine months ended September 30, 2022 was an increase of $8.1 million or 16.6% compared to net interest income of $48.6 million for the same period ended September 30, 2021.
−Removed: The Company's net interest margin on a tax-equivalent basis for the nine months ended September 30, 2022 was 3.17%, up from 2.94% for the first nine months of 2021.
−Removed: Tax-exempt interest income amounted to $6.5 million for the nine months ended September 30, 2022 compared to $6.6 million for the nine months ended September 30, 2021.
−Removed: The following tables present the amount of interest earned or paid, as well as the average yield or rate on an annualized basis, for each major category of assets or liabilities for the nine months and quarters ended September 30, 2022 and 2021.
+Added: Total interest income of $28.9 million for the three months ended March 31, 2023 was an increase of $8.4 million or 40.8% compared to total interest income of $20.5 million for the same period of 2022, which included $1.1 million of non-recurring PPP revenue.
+Added: Growth in earning assets coupled with higher interest rates resulted in the period to period increase.
+Added: Higher interest rates coupled with changing customer product preferences to money market and CD accounts led to total interest expense of $11.4 million for the three months ended March 31, 2023, an increase of $9.5 million or 498.0% compared to total interest expense for the three months ended March 31, 2022.
+Added: As a result, net interest income of $17.5 million for the three months ended March 31, 2023 was a decrease of $1.1 million or 6.1% compared to net interest income of $18.6 million for the same period ended March 31, 2022.
+Added: The Company's net interest margin on a tax-equivalent basis for the three months ended March 31, 2023 was 2.78%, down from 3.24% for the first three months of 2022.
+Added: Tax-exempt interest income amounted to $2.3 million for the three months ended March 31, 2023 compared to $2.1 million for the three months ended March 31, 2022.
+Added: The following tables present the amount of interest earned or paid, as well as the average yield or rate on an annualized basis, for each major category of assets or liabilities for the three months ended March 31, 2023 and 2022.
Tax-exempt income is calculated on a tax-equivalent basis, using a 21.0% Federal Income Tax rate.
−Removed: For the nine months ended
−Removed: September 30, 2022 September 30, 2021
+Added: For the three months ended
+Added: March 31, 2023 March 31, 2022
Dollars in thousands
14 unchanged sentences
Net interest margin 2.78 % 3.24 %
−Removed: For the quarters ended
−Removed: September 30, 2022 September 30, 2021
−Removed: Dollars in thousands
−Removed: interest Average
−Removed: Yield/Rate Amount of
−Removed: interest Average
−Removed: Interest on earning assets
−Removed: Interest-bearing deposits $ 92 2.32 % $ 21 0.14 %
−Removed: Investments 4,849 2.80 % 4,168 2.37 %
−Removed: Loans held for sale 2 4.84 % 3 0.97 %
−Removed: Loans 19,640 4.29 % 15,970 3.96 %
−Removed: Total interest-earning assets 24,583 3.87 % 20,162 3.39 %
−Removed: Interest expense
−Removed: Deposits 4,164 0.86 % 1,650 0.40 %
−Removed: Other borrowings 463 1.40 % 927 1.57 %
−Removed: Total interest expense 4,627 0.89 % 2,577 0.54 %
−Removed: Net interest income $ 19,956 $ 17,585
−Removed: Interest rate spread 2.97 % 2.85 %
−Removed: Net interest margin 3.14 % 2.96 %
−Removed: Interest income includes $137,000 in net origination fees recognized during the first six months of 2022, attributable to PPP loans;
−Removed: as of June 30, 2022, net unrecognized PPP origination fees were zero, therefore no fees were recognized during the third quarter 2022.
−Removed: Interest income in the first nine months of 2021 included $2.9 million in net origination fees recognized on PPP loans;
−Removed: as of September 30, 2021, net unrecognized PPP origination fees totaled $2.4 million.
−Removed: The following tables present changes in interest income and expense attributable to changes in interest rates and volume for interest-earning assets and liabilities for the nine months and quarters ended September 30, 2022 compared to 2021.
+Added: The following tables present changes in interest income and expense attributable to changes in interest rates and volume for interest-earning assets and liabilities for the three months ended March 31, 2023 compared to 2022.
Tax-exempt income is calculated on a tax-equivalent basis, using a 21% Federal Income Tax rate.
−Removed: For the nine months ended September 30, 2022 compared to 2021
+Added: For the three months ended March 31, 2023 compared to 2022
Dollars in thousands
12 unchanged sentences
1 Represents the change attributable to a combination of change in rate and change in volume.
−Removed: For the quarter ended September 30, 2022 compared to 2021
−Removed: Dollars in thousands
−Removed: Volume Rate Rate/Volume 1
−Removed: Interest on earning assets
−Removed: Interest-bearing deposits $ (15) $ 329 $ (243) $ 71
−Removed: Investment securities (61) 753 (11) 681
−Removed: Loans held for sale (3) 12 (10) (1)
−Removed: Loans 2,183 1,308 179 3,670
−Removed: Change in interest income 2,104 2,402 (85) 4,421
−Removed: Interest expense
−Removed: Deposits 267 1,934 313 2,514
−Removed: Other borrowings (408) (100) 44 (464)
−Removed: Change in interest expense (141) 1,834 357 2,050
−Removed: Change in net interest income $ 2,245 $ 568 $ (442) $ 2,371
Average Daily Balance Sheets
−Removed: The following table shows the Company's average daily balance sheets for the nine months and quarters ended September 30, 2022 and 2021.
−Removed: For the nine months ended For the quarters ended
+Added: The following table shows the Company's average daily balance sheets for the three months ended March 31, 2023 and 2022.
+Added: For the three months ended
Dollars in thousands
−Removed: September 30,
−Removed: 2022 September 30,
−Removed: 2021 September 30,
−Removed: 2022 September 30,
+Added: 2023 March 31,
Cash and cash equivalents $ 23,122 $ 22,285
Interest-bearing deposits in other banks 3,360 23,650
−Removed: Securities available for sale (includes tax exempt securities of $35,457 and $34,762 at September 30, 2022 and 2021, respectively)
+Added: Securities available for sale (includes tax exempt securities of $36,636 and $34,879 at March 31, 2023 and 2022, respectively)
287,984 319,805
−Removed: Securities to be held to maturity (included tax exempt securities of $253,554 and $251,417 at September 30, 2022 and 2021, respectively)
+Added: Securities to be held to maturity, net of allowance for credit losses of $438 at March 31, 2023 1 (included tax exempt securities of $257,279 and $250,145 at March 31, 2023 and 2022, respectively)
393,001 371,771
2 unchanged sentences
Loans 1,948,353 1,675,245
−Removed: Allowance for loan losses (15,962) (16,788) (16,365) (17,180)
+Added: Allowance for credit losses (17,026) (15,557)
Net loans 1,931,327 1,659,688
1 unchanged sentence
Premises and equipment 28,204 28,948
−Removed: Other real estate owned 12 325 33 71
Goodwill 30,646 30,646
17 unchanged sentences
Retained earnings 209,543 186,297
−Removed: Net unrealized gain (loss) on securities available for sale (22,823) 2,047 (33,249) 1,740
+Added: Net unrealized loss on securities available for sale (41,716) (6,749)
Net unrealized loss on securities transferred from available for sale to held to maturity (62) (87)
−Removed: Net unrealized gain (loss) on cash flow hedging derivative instruments 67 (2,736) 209 (2,453)
+Added: Net unrealized gain on cash flow hedging derivative instruments 796 —
Net unrealized gain on postretirement benefit costs 273 105
1 unchanged sentence
Total Liabilities & Shareholders' Equity $ 2,775,779 $ 2,517,620
+Added: 1 March 31, 2022 had no allowance for credit losses
Non-Interest Income
−Removed: Non-interest income of $13.0 million for the nine months ended September 30, 2022 is a decrease of $1.6 million compared to the same period in 2021.
−Removed: Revenue at First National Wealth Management increased $161,000 or 4.8% over the same period, debit card revenue was up $1.0 million or 26.0% due primarily to receipt of one-time program incentive payments, and service charge revenue was up 20.0%.
−Removed: As expected, mortgage banking revenues continued to trend down from the heights of the past two years, down $3.1 million, or 71.6%;
−Removed: the decrease is attributable to a significant year-to-year decrease in mortgage refinance activity and two marks against mortgage servicing rights.
−Removed: Non-interest income of $4.7 million for the quarter ended September 30, 2022 is an increase of $340,000 compared to the same period in 2021, due primarily to debit card revenue.
+Added: Non-interest income of $3.6 million for the three months ended March 31, 2023 is a decrease of $663,000 compared to the same period in 2022.
+Added: Revenue at First National Wealth Management decreased $51,000 or 4.3% over the same period, and debit card revenue was down $245,000 or 17.1%.
+Added: Debit card interchange revenue has been reasonably steady, and revenue changes are mostly attributable to the timing of annual incentive payments.
+Added: Mortgage banking revenue was down $306,000, or 61.4%;
+Added: the decrease is attributable to a year-to-year decrease in mortgage refinance activity and marks against mortgage servicing rights.
Non-Interest Expense
−Removed: Non-interest expense of $32.2 million for the nine months ended September 30, 2022 is an increase of 9.9% or $2.9 million compared to non-interest expense of $29.3 million for the same period in 2021.
−Removed: Salaries and employee benefits increased as well as other operating expense, over the same period.
−Removed: Other Operating Expenses increased $906,000 or 12.3%, largely attributable to one-time charges totaling $681,000 incurred in a sale of residential mortgage loans in the third quarter of 2022 .
−Removed: Non-interest expense of $11.4 million for the quarter ended September 30, 2022 is an increase of 14.5% compared to non-interest expense of $9.9 million for the same period in 2021 due to the reasons mentioned.
−Removed: The Company's non-GAAP efficiency ratio stood at 44.99% for the nine months ended September 30, 2022, down from 45.04% for the same period in 2021.
−Removed: Income taxes on operating earnings were $6.4 million for the nine months ended September 30, 2022, up $832,000 from the same period in 2021.
−Removed: The carrying value of the Company's investment portfolio decreased by $26.3 million between December 31, 2021 and September 30, 2022.
−Removed: As of September 30, 2022, mortgage-backed securities had a carrying value of $285.6 million and a fair value of $273.9 million.
+Added: Non-interest expense of $10.9 million for the three months ended March 31, 2023 is an increase of 1.9% or $200,000 compared to non-interest expense of $10.7 million for the same period in 2022.
+Added: Salaries and employee benefits decreased $217,000 or 3.7%, while other operating expense increased $194,000 or 8.0%.
+Added: Income taxes on operating earnings were $1.7 million for the three months ended March 31, 2023, down $374,000 from the same period in 2022.
+Added: The carrying value of the Company's investment portfolio increased by $1.7 million between December 31, 2022 and March 31, 2023.
+Added: As of March 31, 2023, mortgage-backed securities had a carrying value of $290.6 million and a fair value of $280.2 million.
Of this total, securities with a fair value of $82.1 million or 29.3% of the mortgage-backed portfolio were issued by the Government National Mortgage Association and securities with a fair value of $198.2 million or 70.7% of the mortgage-backed portfolio were issued by the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae").
15 unchanged sentences
The amortization of the net unrealized loss reported in accumulated other comprehensive income (loss) will offset the effect on interest income of the discount for the transferred securities.
−Removed: The remaining unamortized balance of the net unrealized losses for the securities transferred from available for sale to held to maturity was $67,000 at September 30, 2022.
−Removed: This compares to $87,000 and $99,000, net of taxes, at December 31, 2021 and September 30, 2021, respectively.
+Added: The remaining unamortized balance of the net unrealized losses for the securities transferred from available for sale to held to maturity was $60,000 at March 31, 2023.
+Added: This compares to $64,000 and $78,000, net of taxes, at December 31, 2022 and March 31, 2022, respectively.
These securities were transferred as a part of the Company's overall investment and balance sheet strategies.
−Removed: The following table sets forth the Company's investment securities at their carrying amounts as of September 30, 2022 and 2021 and December 31, 2021.
+Added: The following table sets forth the Company's investment securities at their carrying amounts as of March 31, 2023 and 2022 and December 31, 2022.
Dollars in thousands
−Removed: September 30,
2023 December 31,
−Removed: 2021 September 30,
+Added: 2022 March 31,
Securities available for sale
10 unchanged sentences
$ 392,283 $ 393,896 $ 377,183
+Added: Less allowance for credit losses (438) — —
+Added: Net securities to be held to maturity $ 391,845 $ 393,896 $ 377,183
Restricted equity securities
3 unchanged sentences
Total securities $ 683,961 $ 682,288 $ 695,600
−Removed: The following table sets forth yields and contractual maturities of the Company's investment securities as of September 30, 2022.
+Added: The Company adopted ASC 326, the CECL standard in the current reporting period.
+Added: In conjunction with adoption, holdings of AFS Securities and HTM securities were evaluated to determine the need to establish an allowance for credit losses, if any.
+Added: The total ACL for HTM securities was $438,000 as of March 31, 2023;
+Added: there was no reserve as of December 31, 2022 and March 31, 2022.
+Added: Further details are included in Notes 2 and 16 of the accompanying financial statements.
+Added: The following table sets forth yields and contractual maturities of the Company's investment securities as of March 31, 2023.
Yields on tax-exempt securities have been computed on a tax-equivalent basis using a tax rate of 21%.
34 unchanged sentences
$ 288,242 2.35 % $ 392,283 2.70 %
−Removed: Impaired Securities
−Removed: The securities portfolio contains certain securities where the amortized cost of which exceeds fair value, which at September 30, 2022 amounted to $128.5 million, or 18.24% of the amortized cost of the total securities portfolio.
+Added: Debt Securities in an Unrealized Loss Position
+Added: The securities portfolio contains certain securities where the amortized cost of which exceeds fair value, which at March 31, 2023 amounted to $100.1 million, or 14.07% of the amortized cost of the total securities portfolio.
At December 31, 2022, this amount was $111.7 million, or 15.65% of the amortized cost of total securities portfolio.
−Removed: The position change since 2021 year-end is the result of the significant increase in market interest rates during the period.
−Removed: As a part of the Company's ongoing security monitoring process, the Company identifies securities in an unrealized loss position that could potentially be other-than-temporarily impaired.
−Removed: If a decline in the fair value of a debt security is judged to be other-than-temporary, the decline related to credit loss is recorded in net realized securities losses while the decline attributable to other factors is recorded in other comprehensive income or loss.
−Removed: The Company's evaluation of securities for impairment is a quantitative and qualitative process intended to determine whether declines in the fair value of investment securities should be recognized in current period earnings.
−Removed: The primary factors considered in evaluating whether a decline in the fair value of securities is other-than-temporary include:
−Removed: (a) the length of time
−Removed: and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security, (b) the financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, (d) the volatility of the securities market price, (e) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery, which may be at maturity, and (f) any other information and observable data considered relevant in determining whether other-than-temporary impairment has occurred.
+Added: The Company's evaluation of securities for impairment is a quantitative and qualitative process intended to determine whether declines in the fair value of investment securities should be recognized as a charge against the allowance for credit losses.
+Added: The primary factors considered in evaluating whether a loss should be recognized include:
+Added: (a) the length of time and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security, (b) the financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, (d) the volatility of the securities market price, (e) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery, which may be at maturity, and (f) any other
+Added: information and observable data considered relevant in determining whether full collection of amounts contractually due will be realized.
The Company's best estimate of cash flows uses severe economic recession assumptions due to market uncertainty.
The Company's assumptions include but are not limited to delinquencies, foreclosure levels and constant default rates on the underlying collateral, loss severity ratios, and constant prepayment rates.
−Removed: If the Company does not expect to receive 100% of future contractual principal and interest, an other-than-temporary impairment charge is recognized.
+Added: If the Company does not expect to receive 100% of future contractual principal and interest, a charge against the allowance for credit losses is recognized.
Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral.
−Removed: As of September 30, 2022, the Company had temporarily impaired securities with a fair value of $561.1 million and unrealized losses of $128.5 million, as identified in the table below.
−Removed: Securities in a continuous unrealized loss position more than twelve months amounted to $223.6 million as of September 30, 2022, compared with $55.9 million at December 31, 2021.
−Removed: The Company has concluded that these securities were not other-than-temporarily impaired.
+Added: As of March 31, 2023, the Company had debt securities available-for-sale in an unrealized loss position with a fair value of $544.7 million and unrealized losses of $100.1 million, as identified in the table below.
+Added: Securities in a continuous unrealized loss position more than twelve months amounted to $451.1 million as of March 31, 2023, compared with $310.2 million at December 31, 2022.
+Added: The Company has concluded that these securities are fully collectible and that no charge against the allowance is required.
This conclusion was based on the issuer's continued satisfaction of the securities obligations in accordance with their contractual terms and the expectation that the issuer will continue to do so, Management's intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value which may be at maturity, the expectation that the Company will receive 100% of future contractual cash flows, as well as the evaluation of the fundamentals of the issuer's financial condition and other objective evidence.
−Removed: The following table summarizes temporarily impaired securities and their approximate fair values at September 30, 2022:
+Added: The following table summarizes debt securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded at March 31, 2023:
Less than 12 months 12 months or more Total
9 unchanged sentences
$ 93,562 $ (3,948) $ 451,136 $ (96,119) $ 544,698 $ (100,067)
−Removed: For securities with unrealized losses, the following information was considered in determining that the securities were not other-than-temporarily impaired:
+Added: For securities with unrealized losses, the following information was considered in determining that no charge against the allowance for decline in fair value was required in the current reporting period:
Securities issued by U.S.
Government-sponsored agencies and enterprises.
−Removed: As of September 30, 2022, there were $17.3 million unrealized losses on these securities compared to $2.3 million unrealized losses as of December 31, 2021.
+Added: As of March 31, 2023, there were $16.6 million unrealized losses on these securities compared to $17.4 million unrealized losses as of December 31, 2022.
All of these securities were credit rated "AAA" or "AA+" by the major credit rating agencies.
Management believes that securities issued by U.S.
−Removed: Government-sponsored agencies and enterprises have minimal credit risk, as these agencies and enterprises play a vital role in the nation's financial markets and does not consider these securities to be other-than-temporarily impaired at September 30, 2022.
+Added: Government-sponsored agencies and enterprises have minimal credit risk, and that 100% of the amounts contractually due will be collected.
Mortgage-backed securities issued by U.S.
1 unchanged sentence
Government-sponsored enterprises.
−Removed: As of September 30, 2022, there were $55.8 million of unrealized losses on these securities compared with $5.7 million at December 31, 2021.
+Added: As of March 31, 2023, there were $49.2 million of unrealized losses on these securities compared with $53.8 million at December 31, 2022.
All of these securities were credit rated "AAA" or "AA+" by the major credit rating agencies.
2 unchanged sentences
Government-sponsored enterprises have minimal credit risk, as these agencies and enterprises play a vital role in the nation's financial markets.
−Removed: Management believes that the unrealized losses at September 30, 2022 were attributable to changes in current market yields and spreads since the date the underlying securities were purchased, and does not consider these securities to be other-than-temporarily impaired at September 30, 2022.
+Added: Management believes that the unrealized losses at March 31, 2023 were attributable to changes in current market yields and spreads since the date the underlying securities were purchased, and that 100% of the amounts contractually due will be realized.
The Company also has the ability and intent to hold these securities until a recovery of their amortized cost, which may be at maturity.
Obligations of state and political subdivisions.
−Removed: As of September 30, 2022, there were $53.3 million of unrealized losses on these securities compared to $390,000 at December 31, 2021.
+Added: As of March 31, 2023, there were $31.5 million of unrealized losses on these securities compared to $38.0 million at December 31, 2022.
Municipal securities are supported by the general taxing authority of the municipality or a dedicated revenue stream, and, in the case of school districts, are generally supported by state aid.
−Removed: September 30, 2022, all municipal bond issuers were current on contractually obligated interest and principal payments.
−Removed: The Company attributes the unrealized losses at September 30, 2022 to changes in prevailing market yields and pricing spreads since the date the underlying securities were purchased, combined with current market liquidity conditions and disruption in the financial markets in general.
−Removed: Accordingly, the Company does not consider these municipal securities to be other-than-temporarily impaired at September 30, 2022.
+Added: At March 31, 2023, all municipal bond issuers were current on contractually obligated interest and principal payments.
+Added: The Company attributes the unrealized losses at March 31, 2023 to changes in prevailing market yields and pricing spreads since the date the underlying securities were purchased, combined with current market liquidity conditions and disruption in the financial markets in general.
+Added: The Company has the ability and intent to hold these securities until a recovery of their amortized cost, which may be at maturity, and believes that 100% of the amounts contractually due will be realized.
Asset-backed securities.
−Removed: As of September 30, 2022, there were $32,000 of unrealized losses on these securities compared to none at December 31, 2021.
+Added: As of March 31, 2023, there were $63,000 of unrealized losses on these securities compared to $53,000 at December 31, 2022.
These securities consist of U.S Government backed student loans along with other credit enhancements.
−Removed: Management believes that the unrealized losses at September 30, 2022 were attributable to changes in current market yields and spreads since the date the underlying securities were purchased, and does not consider these securities to be other-than-temporarily impaired at September 30, 2022.
+Added: Management believes that the unrealized losses at March 31, 2023 were attributable to changes in current market yields and spreads since the date the underlying securities were purchased, and that 100% of the amounts contractually due will be realized.
Corporate securities.
−Removed: As of September 30, 2022, there were $2.1 million of unrealized losses on these securities compared to $66,000 at December 31, 2021.
+Added: As of March 31, 2023, there were $2.8 million of unrealized losses on these securities compared to $2.5 million at December 31, 2022.
Corporate securities are dependent on the operating performance of the issuers.
−Removed: At September 30, 2022, all corporate bond issuers were current on contractually obligated interest and principal payments.
−Removed: Management believes that the unrealized losses at September 30, 2022 were attributable to changes in current market yields and spreads since the date the underlying securities were purchased, and does not consider these securities to be other-than-temporarily impaired at September 30, 2022.
+Added: At March 31, 2023, all corporate bond issuers were current on contractually obligated interest and principal payments.
+Added: Management believes that the unrealized losses at March 31, 2023 were attributable to changes in current market yields and spreads since the date the underlying securities were purchased, and that 100% of the amounts contractually due will be realized.
Federal Home Loan Bank Stock
2 unchanged sentences
The Bank uses the FHLB for much of its wholesale funding needs.
−Removed: As of September 30, 2022, the Bank's investment in FHLB stock totaled $3.5 million.
−Removed: This compares to $4.3 million as of December 31, 2021 and $7.8 million as of September 30, 2021.
+Added: As of March 31, 2023, the Bank's investment in FHLB stock totaled $2.8 million.
+Added: This compares to $2.8 million as of December 31, 2022 and $4.4 million as of March 31, 2022.
FHLB stock is a non-marketable equity security and therefore is reported at cost, subject to adjustments for any observable market transactions on the same or similar instruments of the investee.
−Removed: No impairment losses have been recorded through September 30, 2022.
+Added: No impairment losses have been recorded through March 31, 2023.
The Company will continue to monitor its investment in FHLB stock.
1 unchanged sentence
Loans held for sale are carried at the lower of cost or market value.
−Removed: As of September 30, 2022, the Bank had no loans held for sale.
−Removed: This compares to $835,000 loans held for sale at December 31, 2021 and $1.4 million loans held for sale at September 30, 2021.
+Added: As of March 31, 2023, the Bank had no loans held for sale.
+Added: This compares to $275,000 loans held for sale at December 31, 2022 and $400,000 loans held for sale at March 31, 2022.
The Bank participates in FHLB's Mortgage Partnership Finance Program ("MPF"), selling loans with recourse.
1 unchanged sentence
therefore, there was minimum impact on the reserve.
−Removed: The loan portfolio increased during the first nine months of 2022, with total loans at $1.86 billion at September 30, 2022, up $210.3 million or 12.8% from total loans of $1.65 billion at December 31, 2021.
−Removed: Commercial loans increased $157.7 million or 17.1% between December 31, 2021 and September 30, 2022, municipal loans increased $340,000 or 0.7%, residential term loans increased $44.2 million, residential construction increased $9.9 million, and home equity lines of credit increased $306,000.
+Added: The Company provides loans to customers within our market area, the State of Maine, with very limited exposures outside of Maine.
+Added: Loans are originated primarily via our network of branch offices, along with an online channel for residential mortgage loans.
+Added: The loan portfolio increased during the first three months of 2023, with total loans at $1.98 billion at March 31, 2023, up $68.2 million or 3.6% from total loans of $1.91 billion at December 31, 2022.
+Added: Commercial loans increased $50.6 million or 7.5% between December 31, 2022 and March 31, 2023, municipal loans increased $6.5 million or 16.1%, residential term loans increased $9.4 million, residential construction increased $2.8 million, and home equity lines of credit increased $447,000.
Loans made under the U.S.
−Removed: Small Business Administration's PPP accounted for $14,000 of commercial loans as of September 30, 2022.
−Removed: Commercial loans are comprised of three major classes:
−Removed: commercial real estate loans, commercial construction loans and other commercial loans.
−Removed: Commercial real estate loans consist of mortgage loans to finance investments in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational and other specific or mixed use properties.
−Removed: Commercial real estate loans are typically written with amortizing payment structures.
−Removed: Collateral values are determined based on appraisals and evaluations in accordance with established policy and regulatory guidelines.
−Removed: Commercial real estate loans typically have a loan-to-value ratio of up to 80% based upon current valuation information at the time the loan is made.
−Removed: Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.
−Removed: Commercial construction loans consist of loans to finance construction in a mix of owner- and non-owner occupied commercial real estate properties.
−Removed: Commercial construction loans typically have a construction phase of less than two years, followed by a repayment phase.
−Removed: Payment structures during the construction period are typically on an interest only basis, although principal payments may be established depending on the type of construction project being financed.
−Removed: During the construction phase, commercial construction loans are primarily paid by cash flow generated from the construction project or other operating cash flows from the borrower or guarantors, if applicable.
−Removed: At the end of the construction period, loan
−Removed: repayment typically comes from a third party source in the event that the Company will not be providing permanent term financing.
−Removed: Collateral valuation and loan-to-value guidelines follow those for commercial real estate loans.
−Removed: Other commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and or capital investment.
−Removed: Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate, if applicable.
−Removed: Commercial loans are primarily paid by the operating cash flow of the borrower.
−Removed: Commercial loans may be secured or unsecured.
−Removed: Municipal loans are comprised of loans to municipalities in Maine for capitalized expenditures, construction projects or tax-anticipation notes.
−Removed: All municipal loans are considered general obligations of the municipality and are collateralized by the taxing ability of the municipality for repayment of debt.
−Removed: Residential loans are comprised of two classes:
−Removed: term loans and construction loans.
−Removed: Residential term loans consist of residential real estate loans held in the Company's loan portfolio made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors.
−Removed: Borrower qualifications include favorable credit history combined with supportive income requirements and loan-to-value ratios within established policy and regulatory guidelines.
−Removed: Collateral values are determined based on appraisals and evaluations in accordance with established policy and regulatory guidelines.
−Removed: Residential loans typically have a loan-to-value ratio of up to 80% based on appraisal information at the time the loan is made.
−Removed: Collateral consists of mortgage liens on one- to four-family residential properties.
−Removed: Loans are offered with fixed or adjustable rates with amortization terms of up to thirty years.
−Removed: Residential construction loans typically consist of loans for the purpose of constructing single family residences to be owned and occupied by the borrower.
−Removed: Borrower qualifications include favorable credit history combined with supportive income requirements and loan-to-value ratios within established policy and regulatory guidelines.
−Removed: Residential construction loans normally have construction terms of one year or less and payment during the construction term is typically on an interest only basis from sources including interest reserves, borrower liquidity and/or income.
−Removed: Residential construction loans will typically convert to permanent financing from the Company or have another financing commitment in place from an acceptable mortgage lender.
−Removed: Collateral valuation and loan-to-value guidelines are consistent with those for residential term loans.
−Removed: Home equity lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner-occupied one- to four-family homes, condominiums, or vacation homes.
−Removed: The home equity line of credit typically has a variable interest rate and is billed as interest-only payments during the draw period.
−Removed: At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest.
−Removed: Loan maturities are normally 300 months.
−Removed: Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios usually not exceeding 80% inclusive of priority liens.
−Removed: Collateral valuation guidelines follow those for residential real estate loans.
−Removed: Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as auto, recreational vehicles, debt consolidation, personal expenses or overdraft protection.
−Removed: Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines.
−Removed: Consumer loans may be secured or unsecured.
−Removed: Construction loans, both commercial and residential, at 67.9% of total Bank capital are well under the regulatory guidance of 100.0% of capital at September 30, 2022.
−Removed: Construction loans and non-owner-occupied commercial real estate loans are at 221.4% of total Bank capital, well under the regulatory guidance of 300.0% of capital at September 30, 2022.
−Removed: The following table summarizes the loan portfolio, by class, at September 30, 2022 and 2021 and December 31, 2021.
+Added: Small Business Administration's PPP accounted for only $11,000 of commercial loans as of March 31, 2023.
+Added: The loan portfolio is segmented into ten classes.
+Added: Commercial loans comprise five of the classes:
+Added: commercial real estate owner occupied, commercial real estate non-owner occupied, commercial construction, C&I and multifamily.
+Added: Residential mortgage loans comprise two of the classes:
+Added: residential real estate term and residential real estate construction.
+Added: The remaining classes are municipal loans, home equity loans, and consumer loans.
+Added: Further descriptions of each class, and the risk factors associated with each, are included in Note 4 of the accompanying financial statements.
+Added: The following table summarizes the loan portfolio, by class, at March 31, 2023 and 2022 and December 31, 2022.
Dollars in thousands
−Removed: September 30, 2022 December 31, 2021 September 30, 2021
−Removed: Real estate $ 638,708 34.5 % $ 576,198 35.0 % $ 550,077 34.0 %
+Added: March 31, 2023 December 31, 2022 March 31, 2022
+Added: Real estate owner occupied $ 285,224 14.4 % $ 256,623 13.4 % $ 223,881 13.1 %
+Added: Real estate non-owner occupied 384,457 19.4 % 363,660 19.0 % 292,727 17.2 %
Construction 72,705 3.7 % 93,907 4.9 % 102,982 6.0 %
−Removed: Other 310,110 16.7 % 264,570 16.1 % 288,121 17.8 %
+Added: C&I 339,688 17.1 % 319,359 16.7 % 267,666 15.7 %
+Added: Multifamily 81,089 4.1 % 79,057 4.1 % 71,693 4.2 %
Municipal 47,166 2.4 % 40,619 2.1 % 50,867 3.0 %
1 unchanged sentence
Construction 52,712 2.7 % 49,907 2.6 % 36,272 2.1 %
−Removed: Home equity line of credit 73,938 4.0 % 73,632 4.5 % 74,594 4.6 %
+Added: Revolving and term 93,522 4.7 % 93,075 4.9 % 82,502 4.8 %
Consumer 19,435 1.0 % 21,063 1.1 % 22,077 1.3 %
Total loans $ 1,982,847 100.0 % $ 1,914,674 100.0 % $ 1,707,348 100.0 %
−Removed: The following table sets forth certain information regarding the contractual maturities of the Bank's loan portfolio as of September 30, 2022.
+Added: The following table sets forth certain information regarding the contractual maturities of the Bank's loan portfolio as of March 31, 2023.
Dollars in thousands
< 1 Year 1 - 5 Years 5 - 10 Years > 10 Years Total
−Removed: Real estate $ 221 $ 26,476 $ 67,436 $ 544,575 $ 638,708
+Added: Real estate owner occupied $ 210 $ 12,297 $ 27,680 $ 245,037 $ 285,224
+Added: Real estate non-owner occupied — 16,866 50,856 316,735 384,457
Construction — 8,026 7,023 57,656 72,705
−Removed: Other 453 118,861 79,473 111,323 310,110
+Added: C&I 450 141,219 89,131 108,888 339,688
+Added: Multifamily — 1,078 410 79,601 81,089
Municipal 524 17,158 9,989 19,495 47,166
1 unchanged sentence
Construction — 2,013 — 50,699 52,712
−Removed: Home equity line of credit 1,323 3,301 1,781 67,533 73,938
+Added: Revolving and term 1,197 5,625 4,553 82,147 93,522
Consumer 5,167 7,332 2,847 4,089 19,435
Total loans $ 7,548 $ 217,937 $ 231,795 $ 1,525,567 $ 1,982,847
−Removed: The following table provides a listing of loans by class, between variable and fixed rates as of September 30, 2022.
+Added: The following table provides a listing of loans by class, between variable and fixed rates as of March 31, 2023.
Fixed-Rate Adjustable-Rate Total
1 unchanged sentence
Amount % of total Amount % of total Amount % of total
−Removed: Real estate $ 86,567 4.7 % $ 552,141 29.8 % $ 638,708 34.5 %
+Added: Real Estate Owner Occupied $ 17,249 0.9 % $ 267,975 13.5 % $ 285,224 14.4 %
+Added: Real Estate Non-Owner Occupied 86,682 4.4 % 297,775 15.0 % 384,457 19.4 %
Construction 23,077 1.2 % 49,628 2.5 % 72,705 3.7 %
−Removed: Other 119,552 6.4 % 190,558 10.3 % 310,110 16.7 %
+Added: C&I 131,997 6.7 % 207,691 10.4 % 339,688 17.1 %
+Added: Multifamily 726 0.0 % 80,363 4.1 % 81,089 4.1 %
Municipal 46,905 2.4 % 261 0.0 % 47,166 2.4 %
1 unchanged sentence
Construction 38,790 2.0 % 13,922 0.7 % 52,712 2.7 %
−Removed: Home equity line of credit 305 0.0 % 73,633 4.0 % 73,938 4.0 %
+Added: Revolving and Term 9,160 0.5 % 84,362 4.2 % 93,522 4.7 %
Consumer 13,307 0.7 % 6,128 0.3 % 19,435 1.0 %
1 unchanged sentence
Loan Concentrations
−Removed: As of September 30, 2022 and 2021, the Bank had one concentration of loans that exceeded 10% of its total loan portfolio.
+Added: As of March 31, 2023 and 2022, the Bank had one concentration of loans that exceeded 10% of its total loan portfolio.
Loans to hotels (except Casino hotels) and motels totaled $223.5 million, or 11.27% of total loans and $206.7 million, or 10.79% of total loans, respectfully.
−Removed: In September 2022, the Bank sold a block of mixed-performing residential mortgage loans.
−Removed: The block consisted of 41 units with a total carrying value of $5.2 million, and included past-due, non-accrual, and Troubled Debt Restructure loans.
−Removed: One-time charges associated with the sale totaling $681,000 were recognized in the third quarter.
−Removed: Credit Risk Management and Allowance for Loan Losses
−Removed: Credit risk is the risk of loss arising from the inability of a borrower to meet its obligations.
−Removed: We manage credit risk by evaluating the risk profile of the borrower, repayment sources, the nature of the underlying collateral, and other support given current events, conditions, and expectations.
−Removed: We attempt to manage the risk characteristics of our loan portfolio through various control processes, such as credit evaluation of borrowers, establishment of lending limits, and application of lending procedures, including the holding of adequate collateral and the maintenance of compensating balances.
−Removed: However, we seek to rely primarily on the cash flow of our borrowers as the principal source of repayment.
−Removed: Although credit policies and evaluation processes are designed to minimize our risk, Management recognizes that loan losses will occur and the amount of these losses will fluctuate depending on the risk characteristics of our loan portfolio, as well as general and regional economic conditions.
−Removed: We provide for loan losses through the establishment of an allowance for loan losses which represents an estimated reserve for existing losses in the loan portfolio.
−Removed: We deploy a systematic methodology for determining our allowance that includes a quarterly review process, risk rating, and adjustment to our allowance.
−Removed: We classify our portfolios as either commercial or residential and consumer and monitor credit risk separately as discussed below.
−Removed: We evaluate the appropriateness of our allowance continually based on a review of all significant loans, with a particular emphasis on nonaccruing, past due, and other loans that we believe require special attention.
−Removed: The allowance consists of four elements:
−Removed: (1) specific reserves for loans evaluated individually for impairment;
−Removed: (2) general reserves for types or portfolios of loans based on historical loan loss experience;
−Removed: (3) qualitative reserves judgmentally adjusted for local and national economic conditions, concentrations, portfolio composition, volume and severity of delinquencies and nonaccrual loans, trends of criticized and classified loans, changes in credit policies, and underwriting standards, credit administration practices, and other factors as applicable;
−Removed: and (4) unallocated reserves.
−Removed: All outstanding loans are considered in evaluating the appropriateness of the allowance.
−Removed: Appropriateness of the allowance for loan losses is determined using a consistent, systematic methodology, which analyzes the risk inherent in the loan portfolio.
−Removed: In addition to evaluating the collectibility of specific loans when determining the appropriateness of the allowance for loan losses, Management also takes into consideration other factors such as changes in the mix and size of the loan portfolio, historic loss experience, the amount of delinquencies and loans adversely classified, economic trends, changes in credit policies, and experience, ability and depth of lending management.
−Removed: The appropriateness of the allowance for loan losses is assessed by an allocation process whereby specific reserve allocations are made against certain adversely classified loans, and general reserve allocations are made against segments of the loan portfolio which have similar attributes.
−Removed: The Company's historical loss experience, industry trends, and the impact of the local and regional economy on the Company's borrowers, are considered by Management in determining the appropriateness of the allowance for loan losses.
−Removed: The allowance for loan losses is increased by provisions charged against current earnings.
+Added: Credit Risk Management and Allowance for Credit Losses on Loans
+Added: Upon adoption of the CECL standard, in the first quarter of 2023, the Company replaced the incurred loss model that recognized loan losses when it became probable that a credit loss would be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased.
+Added: The ACL is a valuation amount that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans.
+Added: Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible.
+Added: The ACL consists of three elements:
+Added: (1) specific reserves for loans individually analyzed;
+Added: (2) general reserves for each portfolio segment;
+Added: and, (3) qualitative reserves.
+Added: All outstanding loans are considered in evaluating the appropriateness of the allowance with similar risk characteristics in the portfolio.
+Added: Prior to adoption of ASC 326, under the incurred loss methodology, the Company evaluated portfolio risk characteristics largely on loan purpose.
+Added: The Company provides for loan losses through the allowance for credit losses which represents an estimated reserve for losses in the loan portfolio.
+Added: To determine an appropriate level for general reserves, a discounted cash flow approach is applied to each portfolio segment implementing a probability of default and loss given default estimate based upon a number of factors including historical losses over an economic cycle, economic forecasts, loan prepayment speeds and curtailment rates.
+Added: To determine an appropriate level for qualitative reserves various factors are considered including underwriting policies, credit administration practices, experience, ability and depth of lending management, and economic factors not captured in the general reserve calculation.
+Added: Adoption of ASC 326 added $6.2 million to the ACL on loans, recorded as a charge to retained earnings.
+Added: The allowance for credit losses is increased by provisions charged against current earnings.
Loan losses are charged against the allowance when Management believes that the collectibility of the loan principal is unlikely.
Recoveries on loans previously charged off are credited to the allowance.
+Added: The adequacy of the ACL is overseen by the ACL Committee whose membership includes senior level personnel from the Executive, Lending, Credit Administration, and Finance functions of the Bank.
While Management uses available information to assess possible losses on loans, future additions to the allowance may be necessary based on increases in non-performing loans, changes in economic conditions, growth in loan portfolios, or for other reasons.
2 unchanged sentences
Such agencies may require the Company to record additions to the allowance based on judgments different from those of Management.
−Removed: Our commercial portfolio includes all secured and unsecured loans to borrowers for commercial purposes, including commercial lines of credit and commercial real estate.
−Removed: Our process for evaluating commercial loans includes performing updates on loans that we have rated for credit risk.
−Removed: Our non-performing commercial loans are generally reviewed individually to determine impairment, accrual status, and the need for specific reserves.
−Removed: Our methodology incorporates a variety of risk considerations, both qualitative and quantitative.
−Removed: Quantitative factors include our historical loss experience by loan type, collateral values, financial condition of borrowers, and other factors.
−Removed: Qualitative factors applied to the portfolio or segments of the portfolio may include judgments concerning general economic conditions that may affect credit quality, credit concentrations, the pace of portfolio growth, the direction of risk rating movements, policy exception levels, and delinquency levels;
−Removed: these qualitative factors are also considered in connection with the unallocated portion of our allowance for loan losses.
−Removed: The process of establishing the allowance with respect to the commercial loan portfolio begins when a Loan Officer or Senior Officer (or designate) initially assigns each loan a risk rating, using established credit criteria.
−Removed: Approximately 60% of commercial loan outstanding balances are subject to review and validation annually by an independent consulting firm.
−Removed: Additionally, commercial loan relationships with exposure greater than or equal to $500,000 are subject to review annually by the Company's internal credit review function.
−Removed: Our methodology employs Management's judgment as to the level of losses on existing loans based on our internal review of the loan portfolio, including an analysis of the borrowers' current financial position, and the consideration of current and anticipated economic conditions and their potential effects on specific borrowers and or lines of business.
−Removed: In determining our ability to collect certain loans, we also consider the fair value of any underlying collateral.
−Removed: We also evaluate credit risk concentrations, including trends in large dollar exposures to related borrowers, industry and geographic concentrations, and economic and environmental factors.
−Removed: Residential, Home Equity and Consumer
−Removed: Consumer, home equity and residential mortgage loans are generally segregated into homogeneous pools with similar risk characteristics.
−Removed: Trends and current conditions in these pools are analyzed and historical loss experience is adjusted accordingly.
−Removed: Quantitative and qualitative adjustment factors for the consumer, home equity and residential mortgage portfolios are consistent with those for the commercial portfolios.
−Removed: Certain loans in the consumer and residential portfolios identified as having the potential for further deterioration are analyzed individually to confirm the appropriate risk status and accrual status, and to determine the need for a specific reserve.
−Removed: Consumer loans that are greater than 120 days past due are generally charged off.
−Removed: Residential loans and home equity lines of credit that are greater than 90 days past due are evaluated for collateral adequacy and if deficient are placed on non-accrual status.
−Removed: The unallocated portion of the allowance is intended to provide for losses that are not identified when establishing the specific and general portions of the allowance and is based upon Management's evaluation of various conditions that are not directly measured in the determination of the portfolio and loan specific allowances.
−Removed: Such conditions may include general economic and business conditions affecting our lending area, credit quality trends (including trends in delinquencies and nonperforming loans expected to result from existing conditions), loan volumes and concentrations, duration of the current business cycle, bank regulatory examination results, findings of external loan review examiners, and Management's judgment with respect to various other conditions including loan administration and management and the quality of risk identification systems.
−Removed: Management reviews these conditions quarterly.
−Removed: We have risk management practices designed to ensure timely identification of changes in loan risk profiles;
−Removed: however, undetected losses may exist inherently within the loan portfolio.
−Removed: In response to the consequences of COVID-19, we have increased the rigor and frequency of our loan portfolio monitoring and borrower contact, particularly within those industry groups thought to be most vulnerable, including the lodging, restaurant and hospitality sectors.
−Removed: As the economy has re-opened initial experience within these sectors has been generally favorable;
−Removed: our Allowance for Loan Losses will be evaluated as additional information continues to become available.
−Removed: The judgmental aspects involved in applying the risk grading criteria, analyzing the quality of individual loans, and assessing collateral values can also contribute to undetected, but probable, losses.
−Removed: Consequently, there may be underlying credit risks that have not yet surfaced in the loan-specific or qualitative metrics the Company uses to estimate its allowance for loan losses.
−Removed: The allowance for loan losses includes reserve amounts assigned to individual loans on the basis of loan impairment.
−Removed: Certain loans are evaluated individually and are judged to be impaired when Management believes it is probable that the Company will not collect all of the contractual interest and principal payments as scheduled in the loan agreement.
−Removed: Under this method, loans are selected for evaluation based on non-accrual and/or troubled debt restructure status.
−Removed: A specific reserve is allocated to an individual loan when that loan has been deemed impaired and when the amount of a probable loss is estimable on the basis of its collateral value, the present value of anticipated future cash flows, or its net realizable value.
−Removed: At September 30, 2022, impaired loans with specific reserves totaled $2.5 million and the amount of such reserves was $420,000.
−Removed: This compares to impaired loans with specific reserves of $3.1 million at December 31, 2021 and the amount of such reserves was $576,000.
−Removed: All of these analyses are reviewed and discussed by the Directors' Loan Committee, and recommendations from these processes provide Management and the Board of Directors with independent information on loan portfolio condition.
−Removed: Our total allowance at September 30, 2022 is considered by Management to be appropriate to address the credit losses inherent in the loan portfolio at that date.
−Removed: However, our determination of the appropriate allowance level is based upon a number of assumptions we make about future events, which we believe are reasonable, but which may or may not prove valid.
−Removed: Thus, there can be no assurance that our charge-offs in future periods will not exceed our allowance for loan losses or that we will not need to make additional increases in our allowance for loan losses.
−Removed: The following table summarizes our allocation of allowance by loan class as of September 30, 2022 and 2021 and December 31, 2021.
+Added: The allowance for credit losses includes reserve amounts assigned to individually analyzed loans.
+Added: This includes loans that had been reported as TDR loans prior to adoption of ASU 2022-02 and loans placed on non-accrual.
+Added: A specific reserve is allocated to an individual loan when the amount of a probable loss is estimable on the basis of its collateral value, the present value of anticipated future cash flows, or its net realizable value.
+Added: At March 31, 2023, individually analyzed loans with specific reserves totaled $2.0 million and the amount of such reserves was $388,000.
+Added: This compares to individually analyzed loans with specific reserves of $1.8 million at December 31, 2022 and the amount of such reserves was $398,000.
+Added: Additional detail on individually analyzed loans may be found in Note 3 of the financial statements.
+Added: The total ACL on loans at March 31, 2023 is considered by Management to be appropriate to address the credit losses inherent in the loan portfolio at that date.
+Added: However, determination of the appropriate allowance level is based upon a number of assumptions made about future events, which we believe are reasonable, but which may or may not prove valid.
+Added: Thus, there can be no assurance charge-offs in future periods will not exceed the ACL or that additional increases in the ACL will not be necessary.
+Added: The following table summarizes the allocation of allowance by loan class as of March 31, 2023 and 2022 and December 31, 2022.
The percentages are the portion of each loan class to total loans.
Dollars in thousands
−Removed: September 30, 2022 December 31, 2021 September 30, 2021
−Removed: Real estate $ 5,575 34.5 % $ 5,367 35.0 % $ 6,499 34.0 %
+Added: March 31, 2023 December 31, 2022 March 31, 2022
+Added: Real estate owner occupied $ 4,470 14.4 % $ 6,116 36.5 % $ 5,369 34.5 %
+Added: Real estate non-owner occupied 4,422 19.4 % — — % $ — — %
Construction 1,784 3.7 % 821 4.9 % $ 939 6.0 %
−Removed: Other 3,014 16.7 % 2,830 16.1 % $ 3,727 17.8 %
+Added: C&I 4,838 17.1 % 3,097 16.7 % $ 2,956 15.7 %
+Added: Multifamily 1,206 4.1 % — — % $ — — %
Municipal 307 2.4 % 162 2.1 % $ 156 3.0 %
1 unchanged sentence
Construction 949 2.7 % 199 2.6 % $ 161 2.1 %
−Removed: Home equity line of credit 993 4.0 % 925 4.5 % $ 956 4.6 %
+Added: Revolving and term 603 4.7 % 1,029 4.0 % $ 939 4.3 %
Consumer 271 1.0 % 1,062 1.1 % $ 866 1.3 %
1 unchanged sentence
Total $ 23,458 100.0 % $ 16,723 100.0 % $ 15,766 100.0 %
−Removed: The allowance for loan losses totaled $16.4 million at September 30, 2022, compared to $15.5 million as of December 31, 2021 and $17.5 million as of September 30, 2021.
−Removed: Management's ongoing application of methodologies to establish the allowance include an evaluation of impaired loans for specific reserves.
−Removed: These specific reserves decreased $156,000 in the first nine months of 2022 from $576,000 at December 31, 2021 to $420,000 at September 30, 2022.
−Removed: The specific loans that make up those categories change from period to period.
−Removed: Impairment on those loans, which would be reflected in the allowance for loan losses, might or might not exist, depending on the specific circumstances of each loan.
−Removed: The portion of the reserve based upon homogeneous pools of loans increased by $35,000 in the first nine months of 2022.
−Removed: The portion of the reserve based on qualitative factors increased $832,000 in the first nine months of 2022 due to a mix of factors.
−Removed: These included changes in various macroeconomic measures used in the qualitative model, updated analysis of the loan portfolio in multiple stress scenarios, and performance after exit of COVID-19 related loan modifications.
−Removed: Unallocated reserves of $1.8 million, or 11.5% of the total reserve at December 31, 2021, increased to $1.9 million, or 11.8% as of September 30, 2022.
−Removed: After consideration of the shifts in specific, pooled and qualitative reserves, Management determined that the unallocated portion of the reserve at September 30, 2022 adequately addresses general imprecision related to loan portfolio growth, along with other underlying credit risks not yet captured in loan specific or qualitative metrics the Company uses to estimate its allowance.
−Removed: A breakdown of the allowance for loan losses as of September 30, 2022, by loan class and allowance element, is presented in the following table:
+Added: The ACL totaled $23.5 million at March 31, 2023, compared to $16.7 million as of December 31, 2022 and $15.8 million as of March 31, 2022.
+Added: The increase in the total allowance from December 31, 2022 to March 31, 2023 is attributable to the adoption of CECL.
+Added: A breakdown of the ACL on loans as of March 31, 2023, by loan class and allowance element, is presented in the following table:
Dollars in thousands
−Removed: Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated
−Removed: Reserves Total Reserves
−Removed: Real estate $ — $ 867 $ 4,708 $ — $ 5,575
+Added: Specific Reserves on Loans Evaluated Individually General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Total Reserves
+Added: Real estate owner occupied $ — $ 3,792 $ 678 $ 4,470
+Added: Real estate non-owner occupied — 3,914 508 4,422
Construction — 1,729 55 1,784
−Removed: Other 315 420 2,279 — 3,014
+Added: C&I 291 3,937 610 4,838
+Added: Multifamily — 1,146 60 1,206
Municipal — 272 35 307
1 unchanged sentence
Construction — 939 10 949
−Removed: Home equity line of credit — 106 887 — 993
+Added: Revolving and term 3 457 143 603
Consumer — 244 27 271
−Removed: Unallocated — — — 1,937 1,937
$ 388 $ 20,216 $ 2,854 $ 23,458
−Removed: Based upon Management's evaluation, provisions are made to maintain the allowance as a best estimate of inherent losses within the portfolio.
−Removed: The provision for loan losses to maintain the allowance was $1.3 million for the first nine months of 2022 and $1.6 million the first nine months of 2021.
−Removed: Net charge-offs were $434,000 in the first nine months of 2022, up from $321,000 in the first nine months of 2021.
−Removed: Our allowance as a percentage of outstanding loans was 0.88% as of September 30, 2022, down marginally from 0.94% as of December 31, 2021, and down from 1.08% as of September 30, 2021.
−Removed: The following table summarizes the activities in our allowance for loan losses for the nine months ended September 30, 2022 and 2021 and for the year ended December 31, 2021:
+Added: Based upon Management's evaluation, provisions are made to maintain the allowance as a best estimate of expected losses within the portfolio.
+Added: The provision for credit losses to maintain the allowance was $550,000 for the first three months of 2023 and $450,000 the first three months of 2022.
+Added: Net charge-offs were $25,000 in the first three months of 2023, down from $205,000 in the first three months of 2022.
+Added: Our ACL as a percentage of outstanding loans was 1.18% as of March 31, 2023, up from 0.87% as of December 31, 2022, and up from 0.92% as of March 31, 2022.
+Added: The following table summarizes the activities in our allowance for credit losses for the three months ended March 31, 2023 and 2022 and for the year ended December 31, 2022:
Dollars in thousands
−Removed: September 30, 2022 December 31, 2021 September 30, 2021
+Added: March 31, 2023 December 31, 2022 March 31, 2022
Balance at the beginning of period $ 16,723 $ 15,521 $ 15,521
Loans charged off:
−Removed: Real estate — 106 71
+Added: Real estate owner occupied 39 — —
+Added: Real estate non-owner occupied — — —
Construction — — —
−Removed: Other 272 288 286
+Added: Multifamily — —
Municipal — — —
Construction — — —
−Removed: Home equity line of credit 29 — —
+Added: Revolving and term — 29 29
Consumer 37 412 217
1 unchanged sentence
Recoveries on loans previously charged off
−Removed: Real estate 16 95 95
+Added: Real estate owner occupied — 20 16
+Added: Real estate non-owner occupied — — —
Construction — — —
−Removed: Other 11 84 83
+Added: Multifamily — —
Municipal — — —
−Removed: Term 27 66 12
Construction — — —
−Removed: Home equity line of credit 3 61 60
+Added: Revolving and term 4 4 1
Consumer 43 144 16
1 unchanged sentence
Net loans charged off 25 548 205
−Removed: Provision (credit) for loan losses 1,300 (375) 1,575
+Added: Provision for credit losses 550 1,750 450
+Added: Adoption of ASU No.
+Added: 2016-13 $ 6,210 $ — $ —
Balance at end of period $ 23,458 $ 16,723 $ 15,766
1 unchanged sentence
0.01 % 0.03 % 0.05 %
−Removed: Ratio of allowance for loan losses to total loans outstanding 0.88 % 0.94 % 1.08 %
+Added: Ratio of allowance for credit losses to total loans outstanding 1.18 % 0.87 % 0.92 %
1 Annualized using a 365-day basis for both 2023 and 2022.
−Removed: In Management's opinion, the level of the provision for loan losses is directionally consistent with the overall credit quality of our loan portfolio and corresponding levels of nonperforming loans, as well as with the performance of the national and local economies, including effects of the COVID-19 pandemic.
−Removed: COVID-19 Impact on Loan Portfolio
−Removed: First National Bank is a designated SBA preferred lender and has participated in both the 2020 (PPP1) and 2021 (PPP2) rounds of the PPP.
−Removed: Under PPP1, 1,718 loans were granted totaling $97.8 million in funds disbursed to qualified small businesses and under PPP2 there were 1,263 loans granted totaling $52.1 million.
−Removed: The Bank worked actively with borrowers to process applications for forgiveness per PPP guidelines.
−Removed: As of September 30, 2022, remaining PPP balances totaled $14,000.
−Removed: The State of Maine, where most of the Bank's customers reside and/or operate businesses, has re-opened its economy.
−Removed: The emergence of COVID-19 variants virus has not resulted in new restrictions or curtailment of economic activity, but COVID-19 remains a threat to economic normalization and could ultimately have a negative impact on the Bank's borrowers.
−Removed: The Company regularly monitors activity on open credit lines and has not observed increased utilization related to COVID-19.
+Added: ACL for Unfunded Commitments
+Added: Adoption of CECL resulted in an increase in the Company's ACL for unfunded commitments.
+Added: Our modeling methodology applies the same class level credit loss factors used in the ACL on loans model to applicable classes of unfunded commitments to determine an appropriate ACL level.
+Added: Utilization assumptions are based upon an independent analysis of the Bank's historical data.
+Added: The ACL for unfunded commitments is reported on the Company's balance within other liabilities and totaled $1.4 million as of March 31, 2023.
Nonperforming Loans
9 unchanged sentences
All payments made on nonaccrual loans are applied to the principal balance of the loan.
−Removed: Nonperforming loans, expressed as a percentage of total loans, totaled 0.10% at September 30, 2022 compared to 0.35% at December 31, 2021 and 0.39% at September 30, 2021.
−Removed: The following table shows the distribution of nonperforming loans by class as of September 30, 2022 and 2021 and December 31, 2021:
+Added: Nonperforming loans, expressed as a percentage of total loans, totaled 0.09% at March 31, 2023 and December 31, 2022 compared to 0.30% at March 31, 2022.
+Added: The following table shows the distribution of nonperforming loans by class as of March 31, 2023 and 2022 and December 31, 2022:
Dollars in thousands
−Removed: September 30,
2023 December 31,
−Removed: 2021 September 30,
−Removed: Real estate $ 195 $ 242 $ 604
+Added: 2022 March 31,
+Added: Real estate owner occupied $ 152 $ 193 $ 604
+Added: Real estate non-owner occupied — — 27
Construction 23 23 —
−Removed: Other 756 1,068 1,251
+Added: C&I 648 663 1,014
+Added: Multifamily — — —
Municipal — — —
1 unchanged sentence
Construction — — —
−Removed: Home equity line of credit 247 457 482
+Added: Revolving and term 534 304 291
Consumer — — —
Total nonperforming loans $ 1,800 $ 1,755 $ 5,049
−Removed: Allowance for loan losses as a percentage of nonperforming loans 881.0 % 277.1 % 284.9 %
+Added: Allowance for credit losses as a percentage of nonperforming loans 1303.2 % 952.9 % 312.3 %
The amounts shown for total nonperforming loans do not include loans 90 or more days past due and still accruing interest.
These are loans for which we expect to collect all amounts due, including past-due interest.
−Removed: As of September 30, 2022, there were no loans 90 or more days past due and still accruing interest compared to $32,000 at December 31, 2021 and $229,000 at September 30, 2021.
+Added: As of March 31, 2023, there were loans totaling $208,000 that were 90 or more days past due and still accruing interest compared to $241,000 at December 31, 2022 and $46,000 at March 31, 2022.
+Added: Loan Modifications Made to Borrowers Experiencing Financial Difficulty
+Added: The Company adopted ASU 2022-02 effective January 1, 2023.
+Added: Reporting of loan modifications subject to ASU 2022-02 may be found in Note 3 of the financial statements.
Troubled Debt Restructured
−Removed: A TDR constitutes a restructuring of debt if the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider.
−Removed: To determine whether or not a loan should be classified as a TDR, Management evaluates a loan based upon the following criteria:
+Added: Prior to adoption of ASU 2022-02 the Company evaluated loan modifications and other transactions to determine if classification as a TDR was necessary.
+Added: A TDR constituted a restructuring of debt if the Company, for economic or legal reasons related to the borrower's financial difficulties, granted a concession to the borrower that it would not otherwise consider.
+Added: To determine whether or not a loan was to be classified as a TDR, Management evaluated a loan based upon the following criteria:
• The borrower demonstrates financial difficulty;
2 unchanged sentences
common concession types include maturity date extension, interest rate adjustments to below market pricing, and deferment of payments.
−Removed: As of September 30, 2022, we had 31 loans with a balance of $4.9 million that have been restructured.
−Removed: This compares to 60 loans with a balance of $8.3 million and 64 loans with a balance of $10.1 million classified as TDRs as of December 31, 2021 and September 30, 2021, respectively.
−Removed: The following table shows the activity in loans classified as TDRs between December 31, 2021 and September 30, 2022:
+Added: The following table shows the activity in loans previously classified as TDRs between December 31, 2022 and March 31, 2023:
Balance in Thousands of Dollars Number of Loans Aggregate Balance
Total at December 31, 2022
−Removed: Added in 2022
Loans paid off in 2023
Repayments in 2023
−Removed: Total at September 30, 2022
−Removed: As of September 30, 2022, 25 loans with an aggregate balance of $4.5 million were performing under the modified terms, six loans with an aggregate balance of $430,000 were on nonaccrual and no loans were more than 30 days past due and accruing.
−Removed: As a percentage of aggregate outstanding balance, 91.27% were performing under the modified terms, 8.73% were on nonaccrual and 0.00% were past due and still accruing.
−Removed: The performance status of all TDRs as of September 30, 2022, as well as the associated specific reserve in the allowance for loan losses, is summarized by type of loan in the following table.
+Added: Total at March 31, 2023
+Added: As of March 31, 2023, 23 loans with an aggregate balance of $3.7 million were performing under the modified terms, five loans with an aggregate balance of $334,000 were on nonaccrual and no loans were more than 30 days past due and accruing.As a percentage of aggregate outstanding balance, 91.73% were performing under the modified terms, 8.27% were on nonaccrual and 0.00% were past due and still accruing.
+Added: The performance status of all loans previously classified as TDRs, as of March 31, 2023, is summarized by type of loan in the following table.
In thousands of dollars
13 unchanged sentences
Number of loans 23 — 5 28
−Removed: Associated specific reserve $ 106 $ — $ 83 $ 189
−Removed: Residential and consumer TDRs as of September 30, 2022 included 20 loans with an aggregate balance of $2.7 million, and the modifications granted fell into four major categories.
+Added: Residential TDRs as of March 31, 2023 included 20 loans with an aggregate balance of $2.7 million and the modifications granted fell into four major categories.
Loans totaling $1.5 million had an extension of term, allowing the borrower to repay over an extended number of years and lowering the monthly payment to a level the borrower can afford.
−Removed: Loans totaling $945,000 had interest capitalized, allowing the borrower to become current after unpaid interest was added to the balance of the loan and re-amortized over the remaining life of the loan.
−Removed: Rate concessions were granted on loans totaling $108,000.
+Added: Loans totaling $1.0 million had interest capitalized, allowing the borrower to become current after unpaid interest was added to the balance of the loan and re-amortized over the remaining life of the loan.
+Added: Short-term rate concessions were granted on loans totaling $220,000.
Loans with an aggregate balance of $521,000 were involved in bankruptcy.
Certain residential TDRs had more than one modification.
−Removed: Commercial TDRs as of September 30, 2022 were comprised of 11 loans with a balance of $2.2 million.
−Removed: Of this total, four loans with an aggregate balance of $1.0 million had an extended period of interest-only payments, deferring the start of
−Removed: principal repayment.
−Removed: Three loans with an aggregate balance of $249,000 had a deferral of payment.
−Removed: The remaining four loans with an aggregate balance of $1.0 million had several different modifications.
−Removed: In each case when a loan was modified, Management determined it was in the Bank's best interest to work with the borrower with modified terms rather than to proceed to foreclosure.
−Removed: Once a loan is classified as a TDR it generally remains classified as such until the balance is fully repaid, whether or not the loan is performing under the modified terms.
−Removed: As of September 30, 2022, Management is aware of four loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $558,000.
−Removed: There were also 6 loans with an outstanding balance of $430,000 that were classified as TDRs and on non-accrual status, of which no loans were in the process of foreclosure.
−Removed: Impaired Loans
−Removed: Impaired loans include restructured loans and loans placed on non-accrual status.
−Removed: These loans are measured at the present value of expected future cash flows discounted at the loan's effective interest rate or at the fair value of the collateral less estimated selling costs if the loan is collateral dependent.
−Removed: If the measure of an impaired loan is lower than the recorded investment in the loan, a specific reserve is established for the difference.
−Removed: Impaired loans totaled $6.4 million at September 30, 2022, and have decreased $5.7 million from December 31, 2021.
−Removed: There were 59 impaired loans at September 30, 2022 down from 107 loans at December 31, 2021.
−Removed: Impaired commercial loans decreased $488,000 between December 31, 2021 and September 30, 2022.
−Removed: The specific allowance for impaired commercial loans decreased from $439,000 at December 31, 2021 to $321,000 as of September 30, 2022, which represented the fair value deficiencies for loans where the fair value of the collateral or net present value of expected cash flows was estimated at less than our carrying amount of the loan.
−Removed: From December 31, 2021 to September 30, 2022, impaired residential loans decreased $5.0 million and impaired home equity lines of credit decreased $210,000.
−Removed: The following table sets forth impaired loans as of September 30, 2022 and 2021 and December 31, 2021:
−Removed: Dollars in thousands
−Removed: September 30,
−Removed: 2022 December 31,
−Removed: 2021 September 30,
−Removed: Real estate $ 1,295 $ 1,428 $ 2,800
−Removed: Construction 686 689 705
−Removed: Other 951 1,303 1,755
−Removed: Municipal — — —
−Removed: Term 3,176 8,173 8,782
−Removed: Construction — — —
−Removed: Home equity line of credit 247 457 503
−Removed: Consumer — 2 4
−Removed: Total $ 6,355 $ 12,052 $ 14,549
+Added: Commercial TDRs as of March 31, 2023 were comprised of eight loans with a balance of $1.4 million.
+Added: Of this total, three loans with an aggregate balance of $929,000 had an extended period of interest-only payments, deferring the start of principal repayment.
+Added: One loan with an aggregate balance of $46,000 had a deferral of payment.
+Added: The remaining four loans with an aggregate balance of $406,000 had several different modifications.
+Added: As of March 31, 2023, Management is aware of four loans previously classified as TDRs that are involved in bankruptcy proceedings with an aggregate outstanding balance of $545,000.
+Added: There were also five loans with an outstanding balance of $334,000 that were previously classified as TDRs and on non-accrual status, of which no loans were in the process of foreclosure.
Past Due Loans
−Removed: The Bank's overall loan delinquency ratio was 0.08% at September 30, 2022 compared to 0.26% at December 31, 2021 and 0.25% at September 30, 2021.
−Removed: Loans 90 days delinquent and accruing decreased from $32,000 at December 31, 2021 to zero as of September 30, 2022.
−Removed: The following table sets forth loan delinquencies as of September 30, 2022 and 2021 and December 31, 2021:
+Added: The Bank's overall loan delinquency ratio was 0.10% at March 31, 2023 compared to 0.08% at December 31, 2022 and 0.25% at March 31, 2022.
+Added: Loans 90 days delinquent and accruing decreased from $241,000 at December 31, 2022 to $208,000 as of March 31, 2023.
+Added: The following table sets forth loan delinquencies as of March 31, 2023 and 2022 and December 31, 2022:
Dollars in thousands
−Removed: September 30,
2023 December 31,
−Removed: 2021 September 30,
−Removed: Real estate $ 195 $ 440 $ 259
+Added: 2022 March 31,
+Added: Real estate owner occupied $ 152 $ 193 $ 563
+Added: Real estate non-owner occupied — — —
Construction — — 12
−Removed: Other 271 157 676
+Added: C&I 300 226 269
+Added: Multifamily — — —
Municipal — — —
1 unchanged sentence
Construction — — —
−Removed: Home equity line of credit 502 1,035 407
+Added: Revolving and term 568 421 827
Consumer 120 167 136
8 unchanged sentences
Based on historical experience, the credit quality of some of these loans may improve due to improvements in the economy as well as changes in collateral values or the financial condition of the borrowers, while the credit quality of other loans may deteriorate, resulting in some amount of loss.
−Removed: At September 30, 2022, there were two potential problem loans with a balance of $111,000 or 0.006% of total loans.
+Added: At March 31, 2023, there was one potential problem loan with a balance of $12,000 or 0.001% of total loans.
At December 31, 2022, there were no potential problem loans.
−Removed: As of September 30, 2022, there were three loans in the process of foreclosure with a total balance of $356,000.
+Added: As of March 31, 2023, there were two residential loans in the process of foreclosure with a total balance of $166,000.
The Bank's residential foreclosure process begins when a loan becomes 75 days past due at which time a Demand/Breach Letter is sent to the borrower.
3 unchanged sentences
A foreclosure auction date is then set 30 days from the POR expiration date if the default is not cured.
+Added: As of March 31, 2023, there was one commercial loan in the process of foreclosure with a balance of $151,000.
The Bank's commercial foreclosure process begins when a loan becomes 60 days past due, at which time a default letter is issued.
9 unchanged sentences
The Bank follows the published guidelines of each investor.
−Removed: Loans serviced for Freddie Mac and Fannie Mae have been sold without recourse, and the Bank has no liability for these loans in the event of foreclosure.
+Added: Loans serviced for Freddie Mac and Fannie Mae have been sold without recourse, and the Bank has no liability for
+Added: these loans in the event of foreclosure.
A de minimis volume of loans has been sold to and serviced for MPF to date.
4 unchanged sentences
Real estate acquired through foreclosure is carried at the lower of fair value less estimated cost to sell or the cost of the asset and is not included as part of the allowance for loan loss totals.
−Removed: At September 30, 2022, 2021 and December 31, 2021 there were no OREO properties owned and no allowance for OREO losses.
−Removed: Liquidity Management
−Removed: As of September 30, 2022, the Bank had primary sources of liquidity of $901.0 million.
−Removed: It is Management's opinion this is sufficient to meet liquidity needs under a broad range of scenarios.
−Removed: The Bank has $499.0 million in contingent sources of liquidity, including the Federal Reserve Borrower in Custody program, municipal and corporate securities, and correspondent bank lines of credit.
−Removed: The Asset/Liability Committee ("ALCO") establishes guidelines for liquidity in its Asset/Liability policy and monitors internal liquidity measures to manage liquidity exposure.
−Removed: Based on its assessment of the liquidity considerations described above, Management believes the Company's sources of funding will meet anticipated funding needs.
+Added: At March 31, 2023, 2022 and December 31, 2022 there were no OREO properties owned and no allowance for OREO losses.
Liquidity is the ability of a financial institution to meet maturing liability obligations and customer loan demand.
−Removed: The Bank's primary source of liquidity is deposits, which funded 85.0% of total average assets in the first nine months of 2022, up from 79.8% a year ago.
−Removed: While the generally preferred funding strategy is to attract and retain low-cost deposits, the ability to do so is affected by competitive interest rates and terms in the marketplace.
−Removed: Other sources of funding include discretionary use of purchased liabilities (e.g., FHLB term advances and other borrowings), cash flows from the securities portfolios and loan repayments.
+Added: The Bank's lead source of liquidity is deposits, including brokered deposits, which funded 86.7% of total average assets in the first three months of 2023, up from 84.2% a year ago.
+Added: Other sources of funding include discretionary use of purchased liabilities (e.g., FHLB term or overnight advances, and other borrowings), cash flows from the securities portfolio and loan repayments.
Securities designated as available for sale may also be sold in response to short-term or long-term liquidity needs, although Management has no intention to do so at this time.
−Removed: The Bank has a detailed liquidity funding policy and a contingency funding plan that provide for the prompt and comprehensive response to unexpected demands for liquidity.
+Added: While the generally preferred funding strategy is to attract and retain low cost deposits, our ability to do so is affected by competitive interest rates and terms in the marketplace.
+Added: The Bank has a detailed liquidity funding policy and a contingency funding plan that provide for prompt and comprehensive responses to unexpected demands for liquidity.
Management has developed quantitative models to estimate needs for contingent funding that could result from unexpected outflows of funds in excess of "business as usual" cash flows.
−Removed: In Management's estimation, risks are concentrated in two major categories:
−Removed: runoff of in-market deposit balances and the inability to access or renew wholesale sources of funding.
−Removed: Of the two categories, potential runoff of deposit balances would have the most significant impact on contingent liquidity.
+Added: In Management's estimation, risks are concentrated amongst several major categories:
+Added: runoff of in-market deposit balances, an inability to renew wholesale sources of funding, and materially increased utilization of available credit lines by borrowers.
+Added: Of these, potential runoff of deposit balances would have the most significant impact on contingent liquidity.
Our modeling attempts to quantify deposits at risk over selected time horizons.
−Removed: In addition to these unexpected outflow risks, several other "business as usual" factors enter into the calculation of the adequacy of contingent liquidity including payment proceeds from loans and investment securities, maturing debt obligations and maturing time deposits.
−Removed: The Bank has established collateralized borrowing capacity with the FRB of Boston and also maintains additional collateralized borrowing capacity with the FHLB in excess of levels used in the ordinary course of business as well as Fed Funds lines with two correspondent banks and availability through the FRB Borrower in Custody program.
−Removed: During the first nine months of 2022, total deposits increased by $246.7 million or 11.6% from December 31, 2021 levels.
−Removed: Low-cost deposits (demand, NOW, and savings accounts) increased by $44.9 million or 3.3% in the first nine months of 2022, money market deposits decreased $18.2 million or 8.8%, and certificates of deposit increased $220.0 million or 38.9%.
−Removed: Between September 30, 2021 and September 30, 2022, total deposits increased by $336.7 million or 16.6%.
−Removed: Low-cost deposits increased by $66.8 million or 5.0%, money market accounts decreased $1.7 million or 0.9%, and certificates of deposit increased $271.6 million or 52.8%.
−Removed: Estimated uninsured deposits totaled $194.0 million, $202.3 million and $228.4 million at September 30, 2022, 2021 and December 31, 2021, respectively.
+Added: In addition to these outflow risks, several other "business as usual" factors enter into the calculation of the adequacy of contingent liquidity, including payment proceeds from loans and investment securities, maturing debt obligations and maturing time deposits.
+Added: Stress testing analysis of liquidity resources under various scenarios is conducted no less than quarterly and results are reported to the Bank's Asset/Liability Committee ("ALCO").
+Added: Borrowings supplement deposits as a source of liquidity;
+Added: our borrowings typically consist of customer repurchase agreements and FHLB advances.
+Added: The Bank tests its borrowing capacity with the Federal Reserve Bank of Boston, the FHLB and Fed Funds lines with other correspondent no less than annually.
+Added: The Company defines its primary sources of contingent liquidity as cash & equivalents, unencumbered US Government or Agency bond collateral, available capacity at FHLB, and available authorized brokered deposit issuance capacity.
+Added: As of March 31, 2023, the Bank had primary sources of contingent liquidity of $830.0 million or 29.9% of its total assets.
+Added: It is Management's opinion that this is an appropriate level.
+Added: In addition, the Bank has $180.0 in borrowing capacity under the Federal Reserve Borrower in Custody program, $51.0 million in credit lines with correspondent banks, and $177.0 million in other unencumbered securities available as collateral for borrowing.
+Added: These bring the Bank's total sources of liquidity to $1.238 billion or 44.5% of its total assets.
+Added: The Bank established borrowing capacity of an additional $47 million at the FRB of Boston under the Bank Term Funding Program ("BTFP") introduced in March 2023, which is included in the primary sources of contingent liquidity total above.
+Added: To date, no advances have been made under BTFP.
+Added: The ALCO establishes guidelines for liquidity in its Asset/Liability policy and monitors internal liquidity measures to manage liquidity exposure.
+Added: Based on its assessment of the liquidity considerations described above, Management believes the Company's sources of funding will meet anticipated funding needs.
+Added: The Company is dependent upon the payment of cash dividends by the Bank to service its commitments.
+Added: As the sole shareholder of the Bank, the Company is entitled to such dividends when and as declared by the Bank's Board of Directors from legally available funds.
+Added: For the periods ended March 31, 2023, 2022 and December 31, 2022 the Bank declared dividends to the Company of $3.6 million, $3.4 million, and $3.4 million, respectively.
+Added: The Bank's regulator, the OCC, may limit the amount of dividends declared and paid in a calendar year based upon certain factors.
+Added: Further discussion may be found Shareholder's Equity below.
+Added: During the first three months of 2023, total deposits increased by $87.8 million or 3.7% from December 31, 2022 levels.
+Added: Low-cost deposits (demand, NOW, and savings accounts) decreased by $55.7 million or 4.2% in the first three months of 2023, money market deposits increased $1.6 million or 0.8%, and certificates of deposit increased $142.0 million or 16.4%.
+Added: Between March 31, 2022 and March 31, 2023, total deposits increased by $308.2 million or 14.3%.
+Added: Low-cost deposits decreased by $88.6 million or 6.6%, money market accounts decreased $3.0 million or 1.5%, and certificates of deposit increased $399.7 million or 65.5%.
+Added: Estimated uninsured deposits totaled $404.5 million or 16.4% of total deposits as of March 31, 2023, and $451.6 million or 19.0% of total deposits of December 31, 2022.
+Added: The company has pledged assets as collateral covering certain deposits;
+Added: these amounts were $324.7 million and $350.4 million as of March 31, 2023 and December 31, 2022, respectively.
Borrowed Funds
1 unchanged sentence
This funding may also be used to balance seasonal deposit flows or to carry out interest rate risk management strategies, and may be used to replace or supplement other sources of funding, including core deposits and certificates of deposit.
−Removed: During the nine months ended September 30, 2022, borrowed funds decreased $18.0 million or 13.2% from December 31, 2021, primarily in customer repurchase agreements.
−Removed: Between September 30, 2021 and September 30, 2022, borrowed funds decreased by $114.9 million or 49.3%;
−Removed: this decrease resulted primarily from repayment of various FHLB borrowings.
−Removed: Shareholders' Equity
−Removed: Shareholders' equity as of September 30, 2022 was $219.9 million, compared to $245.7 million as of December 31, 2021 and $238.7 million as of September 30, 2021.
−Removed: The Company's earnings in the first nine months of 2022, net of dividends declared, added $18.8 million to shareholders' equity.
−Removed: The net unrealized loss on available-for-sale securities, net of tax, presented in accordance with FASB ASC Topic 320 "Investments – Debt and Equity Securities" stands at $47.7 million as of September 30, 2022 and was $1.7 million as of December 31, 2021.
−Removed: Additional information about the net unrealized loss on available-for-sale securities was provided in Note 2 of the Consolidated Financial Statements and in the Impaired Securities section of Management's Discussion and Analysis of Financial Condition and Results of Operations.
−Removed: A cash dividend of $0.34 per share was declared in the third quarter of 2022.
−Removed: The dividend payout ratio, which is calculated by dividing dividends declared per share by basic earnings per share, was 36.63% for the first nine months of 2022 compared to 38.78% for the same period in 2021.
+Added: During the three months ended March 31, 2023, borrowed funds decreased $19.6 million or 18.9% from December 31, 2022, primarily in customer repurchase agreements.
+Added: Between March 31, 2022 and March 31, 2023, borrowed funds decreased by $49.8 million or 37.3%;
+Added: the reduction was a combination of repayment of FHLB borrowings and lower balances in customer repurchase agreements.
+Added: Capital Resources
+Added: Shareholders' equity as of March 31, 2023 was $228.5 million, compared to $228.9 million as of December 31, 2022 and $233.6 million as of March 31, 2022.
+Added: The Company's earnings in the first three months of 2023, net of dividends declared, added $4.2 million to shareholders' equity.
+Added: The net unrealized loss on available-for-sale securities, net of tax, presented in accordance with FASB ASC Topic 320 "Investments – Debt and Equity Securities" stands at $40.5 million as of March 31, 2023 and was $44.7 million as of December 31, 2022.
+Added: Additional information about the net unrealized loss on available-for-sale securities was provided in Note 2 of the Consolidated Financial Statements and in the Debit Securities section of Management's Discussion and Analysis of Financial Condition and Results of Operations.
+Added: A cash dividend of $0.34 per share was declared in the first quarter of 2023.
+Added: The dividend payout ratio, which is calculated by dividing dividends declared per share by basic earnings per share, was 46.58% for the first three months of 2023 compared to 35.96% for the same period in 2022.
In determining future dividend payout levels, the Board of Directors carefully analyzes capital requirements and earnings retention, as set forth in the Company's Dividend Policy.
6 unchanged sentences
In order to avoid limitations on capital distributions, including dividend payments, the Company must hold a capital conservation buffer of 2.5% above the adequately capitalized risk-based capital ratios.
−Removed: The Company met each of the well-capitalized ratio guidelines at September 30, 2022.
−Removed: The following tables indicate the capital ratios for the Bank and the Company at September 30, 2022 and December 31, 2021.
−Removed: As of September 30, 2022 Leverage Tier 1 Common Equity Tier 1 Total Risk-Based
+Added: The Company met each of the well-capitalized ratio guidelines at March 31, 2023.
+Added: The following tables indicate the capital ratios for the Bank and the Company at March 31, 2023 and December 31, 2022.
+Added: As of March 31, 2023 Leverage Common Equity Tier 1 Tier 1 Total Risk-Based
Bank 8.58 % 12.38 % 12.38 % 13.64 %
1 unchanged sentence
Adequately capitalized ratio 4.00 % 4.50 % 6.00 % 8.00 %
−Removed: Adequately capitalized ratio plus capital conservation buffer 4.00 % 8.50 % 7.00 % 10.50 %
+Added: Adequately capitalized ratio plus capital conservation buffer n/a % 7.00 % 8.50 % 10.50 %
Well capitalized ratio (Bank only) 5.00 % 6.50 % 8.00 % 10.00 %
−Removed: As of December 31, 2021 Leverage Tier 1 Common Equity Tier 1 Total Risk-Based
+Added: As of December 31, 2022 Leverage Common Equity Tier 1 Tier 1 Total Risk-Based
Bank 8.81 % 12.64 % 12.64 % 13.52 %
1 unchanged sentence
Adequately capitalized ratio 4.00 % 4.50 % 6.00 % 8.00 %
−Removed: Adequately capitalized ratio plus capital conservation buffer 4.00 % 8.50 % 7.00 % 10.50 %
+Added: Adequately capitalized ratio plus capital conservation buffer n/a % 7.00 % 8.50 % 10.50 %
Well capitalized ratio (Bank only) 5.00 % 6.50 % 8.00 % 10.00 %
8 unchanged sentences
In each of the six scenarios the Bank remained well capitalized.
−Removed: Off-Balance Sheet Financial Instruments and Contractual Obligations
+Added: Off-Balance Sheet Financial Credit Exposures and Contractual Obligations
Derivative Financial Instruments Designated as Hedges
2 unchanged sentences
Derivative instruments that Management periodically uses as part of its interest rate risk management strategy may include interest rate swap agreements, interest rate floor agreements, and interest rate cap agreements.
−Removed: At September 30, 2022, the Bank had three outstanding off-balance sheet, derivative instruments designated as cash flow hedges.
−Removed: These derivative instruments were interest rate swap agreements, with notional principal amounts totaling $30.0 million and an unrealized gain of $500,000, net of taxes.
+Added: At March 31, 2023, the Bank had four outstanding off-balance sheet, derivative instruments, designated as cash flow hedges and three off-balance sheet, derivative instruments, designated as asset hedges.
+Added: These derivative instruments were interest rate swap agreements, with notional principal amounts totaling $105.0 million and $100.0 million, respectively, and an unrealized loss of $2.2 million, net of taxes.
The notional amounts and net unrealized gain (loss) of the financial derivative instruments do not represent exposure to credit loss.
The Bank is exposed to credit loss only to the extent the counterparty defaults in its responsibility to pay interest under the terms of the agreements.
−Removed: The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that Management believes to be creditworthy and by
−Removed: limiting the amount of exposure to each counter-party.
−Removed: At September 30, 2022, the Bank's derivative instrument counterparties
−Removed: had a composite credit rating of “A-” based upon the ratings of several major credit rating agencies.
+Added: The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that Management believes to be creditworthy and by limiting the amount of exposure to each counter-party.
+Added: At March 31, 2023, the Bank's derivative instrument counterparties had a composite credit rating of “A-” based upon the ratings of several major credit rating agencies.
The interest rate swap agreements were entered into by the Bank to limit its exposure to rising interest rates.
4 unchanged sentences
Credit risk is mitigated by prudent underwriting of the loan customer and financial institution counterparties.
−Removed: As of September 30, 2022, the Bank had six loan swap agreements in place with a total notional value of $77.3 million.
+Added: As of March 31, 2023, the Bank had six loan swap agreements in place with a total notional value of $74.3 million.
Contractual Obligations
−Removed: The following table sets forth the contractual obligations of the Company as of September 30, 2022:
+Added: The following table sets forth the contractual obligations of the Company as of March 31, 2023:
Dollars in thousands
6 unchanged sentences
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.