21 unchanged sentences
Crucial to the Company’s community banking strategy is growth in its commercial banking services, retail mortgage lending and retail banking services.
−Removed: Through the branch network of its subsidiary bank, Hawthorn Bank (the Bank), the Company, with $1.8 billion in assets at June 30, 2022, provides a broad range of commercial and personal banking services.
+Added: Through the branch network of its subsidiary bank, Hawthorn Bank (the Bank), the Company, with $1.8 billion in assets at September 30, 2022, provides a broad range of commercial and personal banking services.
The Bank’s specialties include commercial banking for small and mid-sized businesses, including equipment, operating, commercial real estate, Small Business Administration (SBA) loans, and personal banking services including real estate mortgage lending, installment and consumer loans, certificates of deposit, individual retirement and other time deposit accounts, checking accounts, savings accounts, and money market accounts.
8 unchanged sentences
Furthermore, the success of the Company’s growth strategy depends on its ability to maintain sufficient regulatory capital levels during periods in which general economic conditions are unfavorable and despite economic conditions being beyond its control.
−Removed: The Bank is a full-service bank that conducts general banking business, offering its customers checking and savings accounts, debit cards, certificates of deposit, safety deposit boxes and a wide range of lending services, including commercial and industrial loans, residential real estate loans, single payment personal loans, installment loans and credit card accounts.
+Added: The Bank is a full-service bank that conducts a general banking business, offering its customers checking and savings accounts, debit cards, certificates of deposit, safety deposit boxes and a wide range of lending services, including commercial and industrial loans, residential real estate loans, single payment personal loans, installment loans and credit card accounts.
In addition, the Bank provides trust services.
4 unchanged sentences
The Company is subject to supervision and examination by the Board of Governors of the Federal Reserve System.
−Removed: Significant Developments and Transactions
−Removed: The item listed below materially affects the comparability of our results of operations for the three and six months ended June 30, 2022 and 2021, and our financial condition as of June 30, 2022 and December 31, 2021, and may affect the comparability of financial information we report in future fiscal periods.
−Removed: COVID-19 Pandemic
−Removed: The Coronavirus Disease 2019 (COVID-19) pandemic (the pandemic) has impacted the Company and may continue to do so, as uncertainty remains about the duration of the pandemic and the timing and strength of the global and national economic recovery.
−Removed: In conjunction with our efforts to support clients affected by the pandemic, the Company has cumulatively originated $136.0 million in loans under the Paycheck Protection Program (PPP) with amounts outstanding of $1.1 million and $8.4 million at June 30, 2022 and December 31, 2021, respectively.
−Removed: For more information on PPP loans, see Note 2 – Loans and Allowance for Loan Losses in the Notes to Consolidated Financial Statements (unaudited) .
−Removed: The future direct and indirect impact of the pandemic on our businesses, results of operations and financial condition remains uncertain.
−Removed: Should current economic conditions deteriorate or if the pandemic worsens due to various factors, including through the spread of more easily communicable variants of COVID-19, such conditions could have an adverse effect on our businesses and results of operations and could adversely affect our financial condition.
−Removed: CRITICAL ACCOUNTING POLICIES
+Added: CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The following accounting policies are considered most critical to the understanding of the Company’s financial condition and results of operations.
13 unchanged sentences
There can be no assurances that actual results will not differ from those estimates.
−Removed: Three Months Ended
−Removed: (Dollars in thousands, except per share data) June 30, 2022 March 31, 2022 June 30, 2021
+Added: The Three Months Ended
+Added: (Dollars in thousands, except per share data) September 30, 2022 June 30, 2022 September 30, 2021
Net interest income $ 15,067 $ 14,561 $ 15,380
−Removed: Provision for (release of) loan losses 1,200 (2,500) 400
+Added: Provision for loan losses 300 1,200 300
Non-interest income 3,485 3,648 3,776
−Removed: Investment securities (losses) gains, net (9) (4) —
+Added: Investment securities gains (losses), net 1 (9) 126
Non-interest expense 12,195 11,540 11,769
7 unchanged sentences
Net interest margin 3.56% 3.64% 3.78%
−Removed: Six Months Ended
+Added: Nine Months Ended
+Added: September 30,
(Dollars in thousands, except per share data) 2022 2021
14 unchanged sentences
Total revenue is calculated as net interest income plus non-interest income.
−Removed: As of and for the Three and Six Months Ended
−Removed: June 30, 2022 March 31, 2022 June 30, 2021
+Added: The Three Months Ended As of and for the Nine months ended
+Added: September 30, 2022 June 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021
Key financial ratios
5 unchanged sentences
Average stockholders' equity to total assets 7.06% 7.40% 8.05% 7.55% 7.82%
−Removed: Cash dividends paid on common stock $ 1,983 $ 993 $ 1,670
−Removed: Return on total assets 1.28% 1.51% 1.26%
−Removed: Return on stockholders' equity 16.33% 18.41% 16.31%
−Removed: Average stockholders' equity to total assets 7.81% 8.22% 7.70%
Capital Ratios
5 unchanged sentences
Asset Quality
−Removed: Net-charge-offs (recoveries) (Qtr) $ 126 $ 124 $ 26
−Removed: Net-charge-offs (recoveries) (Ytd) $ 250 $ 124 $ (222)
+Added: Net-charge-offs (recoveries) $ 148 $ 126 $ 106 $ 398 $ (116)
Non-performing loans $ 17,348 $ 17,817 $ 32,835
5 unchanged sentences
Results of Operations Highlights
−Removed: Consolidated net income of $4.5 million for the second quarter 2022 decreased $2.1 million compared to the first quarter 2022 ("linked quarter") and decreased $0.4 million from the second quarter 2021 (the "prior year quarter").
−Removed: Earnings per diluted share were $0.66 for the second quarter 2022 compared to $0.97 and $0.71 for the linked quarter and prior year quarter, respectively.
−Removed: For the second quarter 2022, the return on average assets was 1.04%, the return on average stockholders’ equity was 14.00%, and the efficiency ratio was 63.4%.
−Removed: Consolidated net income of $11.1 million, or $1.63 per diluted share, for the six months ended June 30, 2022 increased $0.4 million compared to $10.7 million, or $1.56 per diluted share, for the six months ended June 30, 2021.
−Removed: For the six months ended June 30, 2022, the return on average assets was 1.28%, the return on average stockholders’ equity was 16.33%, and the efficiency ratio was 65.9%.
−Removed: Net interest income of $14.6 million for the second quarter 2022, increased $0.4 million from the linked quarter, and increased $0.9 million from the prior year quarter.
−Removed: Net interest margin, on a fully taxable equivalent basis ("FTE") basis, was 3.64% for the second quarter, an increase from 3.50% for the linked quarter, and an increase from 3.40% for the prior year quarter.
−Removed: Net interest income of $28.7 million, for the six months ended June 30, 2022, increased $0.6 million compared to $28.1 million for the six months ended June 30, 2021.
−Removed: Net interest margin, on a fully taxable equivalent basis ("FTE") basis, was 3.57% for the six months ended June 30, 2022, an increase from 3.51% for the six months ended June 30, 2021.
+Added: Consolidated net income of $4.9 million for the third quarter 2022 increased $0.4 million, or 9.8%, compared to the second quarter 2022 ("linked quarter") and decreased $0.9 million, or 15.0%, from the third quarter 2021 (the "prior year quarter").
+Added: Earnings per diluted share were $0.73 for the third quarter 2022 compared to $0.66 and $0.84 for the linked quarter and prior year quarter, respectively.
+Added: For the third quarter 2022, the return on average assets was 1.08%, the return on average stockholders’ equity was 15.30%, and the efficiency ratio was 65.7%.
+Added: Consolidated net income of $16.0 million, or $2.36 per diluted share, for the nine months ended September 30, 2022 decreased $0.5 million, or 3.0%, compared to $16.5 million, or $2.40 per diluted share, for the nine months ended September 30, 2021.
+Added: For the nine months ended September 30, 2022, the return on average assets was 1.21%, the return on average stockholders’ equity was 16.00%, and the efficiency ratio was 65.8%.
+Added: Net interest income of $15.1 million for the third quarter 2022 increased $0.5 million from the linked quarter, and decreased $0.3 million from the prior year quarter.
+Added: Net interest margin, on a fully taxable equivalent basis ("FTE") basis, was 3.56% for the third quarter, a decrease from 3.64% and 3.78% for the linked quarter and the prior year quarter, respectively.
+Added: Net interest income of $43.8 million for the nine months ended September 30, 2022 increased $0.3 million compared to $43.4 million for the nine months ended September 30, 2021.
+Added: Net interest margin, on a fully taxable equivalent basis ("FTE") basis, was 3.57% for the nine months ended September 30, 2022, a decrease from 3.60% for the nine months ended September 30, 2021.
These changes are discussed in greater detail under the Average Balance Sheet Data and Rate and Volume Analysis section below.
−Removed: Non-interest income for the second quarter 2022 was $3.6 million, a decrease of $0.1 million, or 2.1%, from the linked quarter, and a decrease of $1.0 million, or 21.7%, from the prior year quarter.
−Removed: The change in the current quarter compared to the prior year quarter is primarily due to the decrease in the gain on sale of real estate mortgages of $1.2 million, or 60.5%.
−Removed: Non-interest income of $7.4 million, for the six months ended June 30, 2022 decreased $1.9 million, or 20.1%, compared to $9.2 million for the six months ended June 30, 2021.
+Added: Non-interest income for the third quarter 2022 was $3.5 million, a decrease of $0.2 million, or 4.5%, from the linked quarter, and a decrease of $0.3 million, or 7.7%, from the prior year quarter.
+Added: The change in the current quarter compared to
+Added: the prior year quarter was primarily due to the decrease in the gain on sale of real estate mortgages of $0.7 million, or 54.1%.
+Added: Non-interest income of $10.9 million for the nine months ended September 30, 2022 decreased $2.2 million, or 16.5%, compared to $13.0 million for the nine months ended September 30, 2021.
The change was primarily due to the decrease in the gain on sale of real estate mortgages of $3.6 million, or 60.5%.
These changes are discussed in greater detail under the Non-interest Income and Expense section below.
−Removed: Non-interest expense for the second quarter 2022, was $11.5 million, a decrease of $0.7 million, or 5.6%, from the linked quarter, and a decrease of $0.3 million, or 2.5%, from the prior year quarter.
−Removed: The change in the current quarter compared to the linked quarter is primarily due to the decrease in salary and benefits expenses and the change in the fair value adjustment for mortgage banking derivative liabilities.
−Removed: Non-interest expense for the six months ended June 30, 2022 was $23.8 million, an increase of $0.1 million, or 0.6%, from the six months ended June 30, 2021.
−Removed: The change was primarily due to the new software maintenance agreements and the change in the fair value adjustment for mortgage banking derivatives, partially offset by a decrease in salary and benefits.
+Added: Non-interest expense for the third quarter 2022 was $12.2 million, an increase of $0.7 million, or 5.7%, from the linked quarter, and an increase of $0.4 million, or 3.6%, from the prior year quarter.
+Added: The change in the current quarter compared to the linked quarter was primarily due to the increase in salary and benefits expenses, processing, network, and bankcard expense, and advertising and promotion expenses.
+Added: Non-interest expense for the nine months ended September 30, 2022 was $36.0 million, an increase of $0.6 million, or 1.6%, from the nine months ended September 30, 2021.
+Added: The change was primarily due to the new software maintenance agreements and the change in the fair value adjustment for mortgage banking derivatives, partially offset by a decrease in salary and benefits and loan expense.
These changes are discussed in greater detail under the Non-interest Income and Expense section below.
Balance Sheet Highlights
−Removed: Loans – Loans held for investment increased by $93.9 million, or 7.0%, equal to $1.4 billion as of June 30, 2022 as compared to the end of the linked quarter.
−Removed: Year-over-year, loans held for investment grew $133.9 million, or 10.4%, from $1.3 billion as of June 30, 2021.
−Removed: Asset quality – Non-performing loans totaled $17.8 million at June 30, 2022, an increase of $0.7 million from $17.1 million at the end of the linked quarter, and a decrease of $16.0 million from $33.8 million at the end of the prior year quarter.
−Removed: The reduction in non-performing loans in the current quarter as compared to the prior year quarter was primarily due to several large non-accrual loans returning to accrual status.
−Removed: The allowance for loan losses to total loans was 1.08% at June 30, 2022, compared to 1.30% at December 31, 2021 and 1.45% at June 30, 2021.
+Added: Loans – Loans held for investment increased by $64.2 million, or 4.5%, equal to $1.5 billion as of September 30, 2022 as compared to the end of the linked quarter.
+Added: Year-over-year, loans held for investment grew $209.2 million, or 16.3%, from $1.3 billion as of September 30, 2021.
+Added: Asset quality – Non-performing loans totaled $17.3 million at September 30, 2022, a decrease of $0.5 million from $17.8 million at the end of the linked quarter, and a decrease of $15.5 million from $32.8 million at the end of the prior year quarter.
+Added: The reduction in non-performing loans in the current quarter as compared to the prior year quarter was primarily due to three large non-accrual loan relationships returning to accrual status.
+Added: The allowance for loan losses to total loans was 1.04% at September 30, 2022, compared to 1.30% at December 31, 2021 and 1.48% at September 30, 2021.
These changes are discussed in greater detail under the Lending and Credit Management section below.
−Removed: Deposit s – Total deposits increased by $74.7 million, or 5.1%, equal to $1.5 billion as of June 30, 2022 as compared to the end of the linked quarter.
−Removed: Year-over-year deposits grew $149.8 million, or 10.8%, from $1.4 billion as of June 30, 2021.
−Removed: Capital – Total shareholder’s equity was $124.1 million and the common equity to assets ratio was 6.93% at June 30, 2022 as compared to 7.74% and 7.99% at the end of the linked quarter and the prior year quarter, respectively.
−Removed: Regulatory capital ratios remain “well-capitalized,” with tier 1 leverage ratio of 10.98% and a total risk-based capital ratio of 13.97% at June 30, 2022.
+Added: Deposit s – Total deposits increased by $62.0 million, or 4.0%, equal to $1.6 billion as of September 30, 2022 as compared to the end of the linked quarter.
+Added: Year-over-year deposits grew $181.7 million, or 12.9%, from $1.4 billion as of September 30, 2021.
+Added: Capital – Total shareholder’s equity was $115.4 million and the common equity to assets ratio was 6.25% at September 30, 2022 as compared to 6.93% and 8.00% at the end of the linked quarter and the prior year quarter, respectively.
+Added: Regulatory capital ratios remain “well-capitalized,” with a tier 1 leverage ratio of 10.60% and a total risk-based capital ratio of 13.84% at September 30, 2022.
Average Balance Sheet Data
1 unchanged sentence
It is affected both by changes in the level of interest rates and changes in the amounts and mix of interest earning assets and interest-bearing liabilities.
−Removed: The following table presents average balance sheet data, net interest income, average yields of earning assets, average costs of interest-bearing liabilities, net interest spread and net interest margin on a fully taxable equivalent basis for each of the three and six month periods ended June 30, 2022 and 2021, respectively.
+Added: The following table presents average balance sheet data, net interest income, average yields of earning assets, average costs of interest-bearing liabilities, net interest spread and net interest margin on a fully taxable equivalent basis for each of the three and nine month periods ended September 30, 2022 and 2021, respectively.
The average balances used in this table and other statistical data were calculated using average daily balances.
−Removed: Three Months Ended June 30, 2022
+Added: Three Months Ended September 30, 2022
(Dollars in thousands) Average Balance Interest Income/ Expense (1) Rate Earned/ Paid (1) Average Balance Interest Income/ Expense (1) Rate Earned/ Paid (1)
41 unchanged sentences
Net interest margin 3.56% 3.78%
−Removed: (1) Interest income and yields are presented on a fully taxable equivalent basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for the three months ended June 30, 2022 and 2021.
−Removed: Such adjustments totaled $0.6 million and $0.4 million for the three months ended June 30, 2022 and 2021, respectively.
+Added: (1) Interest income and yields are presented on a fully taxable equivalent basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for the three months ended September 30, 2022 and 2021.
+Added: Such adjustments totaled $0.5 million and $0.5 million for the three months ended September 30, 2022 and 2021, respectively.
(2) Non-accruing loans are included in the average amounts outstanding.
−Removed: (3) Fees and costs on loans are included in interest income ($0.1 million and $0.5 million of PPP fees were included in commercial loan income for the three months ended June 30, 2022 and 2021, respectively)
−Removed: Six Months Ended June 30, 2022
+Added: (3) Fees and costs on loans are included in interest income ($20,000 and $2.0 million of PPP fees were included in commercial loan income for the three months ended September 30, 2022 and 2021, respectively)
+Added: Nine Months Ended September 30, 2022
(Dollars in thousands) Average Balance Interest Income/ Expense (1) Rate Earned/ Paid (1) Average Balance Interest Income/ Expense (1) Rate Earned/ Paid (1)
41 unchanged sentences
Net interest margin 3.57% 3.60%
−Removed: (1) Interest income and yields are presented on a fully taxable equivalent basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for the six months ended June 30, 2022 and 2021.
−Removed: Such adjustments totaled $1.1 million and $0.8 million for the six months ended June 30, 2022 and 2021, respectively.
+Added: (1) Interest income and yields are presented on a fully taxable equivalent basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for the nine months ended September 30, 2022 and 2021.
+Added: Such adjustments totaled $1.6 million and $1.3 million for the nine months ended September 30, 2022 and 2021, respectively.
(2) Non-accruing loans are included in the average amounts outstanding.
−Removed: (3) Fees and costs on loans are included in interest income ($0.3 million and $2.0 million of PPP fees were included in commercial loan income for the six months ended June 30, 2022 and 2021, respectively).
+Added: (3) Fees and costs on loans are included in interest income ($0.4 million and $4.0 million of PPP fees were included in commercial loan income for the nine months ended September 30, 2022 and 2021, respectively).
Rate and Volume Analysis
−Removed: The following table summarizes the changes in net interest income on a fully taxable equivalent basis, by major category of interest earning assets and interest-bearing liabilities, identifying changes related to volumes and rates for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021.
+Added: The following table summarizes the changes in net interest income on a fully taxable equivalent basis, by major category of interest-earning assets and interest-bearing liabilities, identifying changes related to volumes and rates for the three and nine months ended September 30, 2022 compared to the three and nine months ended September 30, 2021.
The change in interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the absolute dollar amounts of change in each.
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
2021 2022 vs.
30 unchanged sentences
Net interest income on a fully taxable equivalent basis $ (304) $ 1,584 $ (1,888) $ 713 $ 3,478 $ (2,765)
−Removed: (1) Interest income and yields are presented on a fully taxable equivalent basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for the six months ended June 30, 2022 and 2021.
−Removed: Such adjustments totaled $1.1 million and $0.8 million for the six months ended June 30, 2022 and 2021, respectively.
+Added: (1) Interest income and yields are presented on a fully taxable equivalent basis using the federal statutory income tax rate of 21%, net of nondeductible interest expense, for the three and nine months ended September 30, 2022 and 2021, respectively.
+Added: Such adjustments totaled $0.5 million and $1.6 million for the three and nine months ended September 30, 2022 compared to $0.5 million and $1.3 million for the three and nine months ended September 30, 2021, respectively.
(2) Non-accruing loans are included in the average amounts outstanding.
−Removed: (3) Fees and costs on loans are included in interest income ($0.3 million and $2.0 million of PPP fees were included in commercial loan income for the six months ended June 30, 2022 and 2021, respectively).
−Removed: Financial results for the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 reflected an increase in net interest income, on a tax equivalent basis, of $1.0 million, or 7.3%, and the financial results for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 reflected an increase of $1.0 million, or 3.5%.
−Removed: Measured as a percentage of average earning assets, the net interest margin (expressed on a fully taxable equivalent basis) increased to 3.64% for the quarter ended June 30, 2022 compared to 3.40% for the quarter ended June 30, 2021, and increased to 3.57% for the six months ended June 30, 2022 compared to 3.51% for the six months ended June 30, 2021.
−Removed: Driving the increase in net interest income in the quarter compared to the prior year quarter was higher interest income, resulting from growth in both loans and investments securities of 6.9% and 7.9%, respectively.
−Removed: The increase in net interest income for the current year verses the prior year, on a year-to-date basis was higher interest income resulting from growth in both the balance and yield for the investment securities portfolio, in addition to lower interest expense for interest bearing liabilities.
−Removed: Average interest-earning assets increased $6.4 million, or 0.4%, to $1.67 billion for the quarter ended June 30, 2022 compared to $1.66 billion for the quarter ended June 30, 2021, and average interest-bearing liabilities increased $3.3 million, or 0.3%, to $1.15 billion for the quarter ended June 30, 2022 compared to $1.14 billion for the quarter ended June 30, 2021.
−Removed: Average interest-earning assets increased $28.2 million, or 1.7%, to $1.69 billion for the six months ended June 30, 2022 compared to $1.66 billion for the six months ended June 30, 2021, and average interest-bearing liabilities decreased $2.8 million, or 0.2%, to $1.15 billion for the six months ended June 30, 2022 compared to $1.16 billion for the six months ended June 30, 2021.
−Removed: Total interest income (expressed on a fully taxable equivalent basis) was $16.7 million and $32.7 million for the three and six months ended June 30, 2022, respectively, compared to $15.6 million and $32.0 million for the three and six months ended June 30, 2021, respectively.
−Removed: The Company’s rates earned on interest earning assets were 4.02% and 3.91% for the three and six months ended June 30, 2022, respectively, compared to 3.77% and 3.90% for the three and six months ended June 30, 2021, respectively.
−Removed: Interest income on loans held for investment was $14.7 million and $28.8 million for the three and six months ended June 30, 2022, respectively, compared to $14.0 million and $29.2 million for the three and six months ended June 30, 2021, respectively.
−Removed: Average loans outstanding increased $88.3 million, or 6.9%, to $1.36 billion for the quarter ended June 30, 2022 compared to $1.28 billion for the quarter ended June 30, 2021.
−Removed: The average yield on loans decreased to 4.33% for the quarter ended June 30, 2022 compared to 4.42% for the quarter ended June 30, 2021.
−Removed: Average loans outstanding increased $63.1 million, or 4.9%, to $1.34 billion for the six months ended June 30, 2022 compared to $1.28 billion for the six months ended June 30, 2021.
−Removed: The average yield on loans decreased to 4.33% for the six months ended June 30, 2022 compared to 4.61% for the six months ended June 30, 2021.
+Added: (3) Fees and costs on loans are included in interest income ($20,000 and $0.4 million of PPP fees were included in commercial loan income for the three and nine months ended September 30, 2022 compared to $2.0 million and $4.0 million for the nine months ended September 30, 2021, respectively).
+Added: Financial results for the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021 reflected a decrease in net interest income, on a tax equivalent basis, of $0.3 million, or 1.9%, and the financial results for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 reflected an increase of $0.7 million, or 1.6%.
+Added: Measured as a percentage of average earning assets, the net interest margin (expressed on a fully taxable equivalent basis) decreased to 3.56% for the quarter ended September 30, 2022 compared to 3.78% for the quarter ended September 30, 2021, and decreased to 3.57% for the nine months ended September 30, 2022 compared to 3.60% for the nine months ended September 30, 2021.
+Added: Driving the decrease in net interest income in the quarter compared to the prior year quarter was higher interest expense for interest bearing liabilities, partially offset by higher interest income resulting from growth in loans of 12.5%.
+Added: The significant loan growth more than offset the reduction in PPP fee income of $2.0 million from the prior year quarter.
+Added: Driving the increase in net interest income for the current year compared to the prior year, on a year-to-date basis, was higher interest income resulting from growth in loans of 7.5%, and investment securities portfolio of 12.5%, partially offset by higher interest expense for interest bearing liabilities and a reduction of PPP fee income of $3.7 million.
+Added: Average interest-earning assets increased $68.9 million, or 4.1%, to $1.74 billion for the quarter ended September 30, 2022 compared to $1.67 billion for the quarter ended September 30, 2021, and average interest-bearing liabilities increased $75.2 million, or 6.6%, to $1.21 billion for the quarter ended September 30, 2022 compared to $1.13 billion for the quarter ended September 30, 2021.
+Added: Average interest-earning assets increased $41.9 million, or 2.5%, to $1.70 billion for the nine months ended September 30, 2022 compared to $1.66 billion for the nine months ended September 30, 2021, and average interest-bearing liabilities increased $23.5 million, or 2.0%, to $1.17 billion for the nine months ended September 30, 2022 compared to $1.15 billion for the nine months ended September 30, 2021.
+Added: Total interest income (expressed on a fully taxable equivalent basis) was $18.4 million and $51.1 million for the three and nine months ended September 30, 2022, respectively, compared to $17.3 million and $49.3 million for the three and nine months ended September 30, 2021, respectively.
+Added: The Company’s rates earned on interest earning assets were 4.21% and 4.01% for the three and nine months ended September 30, 2022, respectively, compared to 4.12% and 3.97% for the three and nine months ended September 30, 2021, respectively.
+Added: Interest income on loans held for investment was $16.5 million and $45.2 million for the three and nine months ended September 30, 2022, respectively, compared to $15.6 million and $44.8 million for the three and nine months ended September 30, 2021, respectively.
+Added: Average loans outstanding increased $160.7 million, or 12.5%, to $1.45 billion for the quarter ended September 30, 2022 compared to $1.29 billion for the quarter ended September 30, 2021.
+Added: The average yield on loans decreased to 4.51% for the quarter ended September 30, 2022 compared to 4.81% for the quarter ended September 30, 2021.
+Added: Average loans outstanding increased $96.0 million, or 7.5%, to $1.38 billion for the nine months ended September 30, 2022 compared to $1.28 billion for the nine months ended September 30, 2021.
+Added: The average yield on loans decreased to 4.40% for the nine months ended September 30, 2022 compared to 4.68% for the nine months ended September 30, 2021.
See the Lending and Credit Management section for further discussion of changes in the composition of the lending portfolio.
−Removed: Interest income on available-for-sale securities was $1.9 million and $3.6 million for the three and six months ended June 30, 2022, respectively, compared to $1.4 million and $2.4 million for the three and six months ended June 30, 2021, respectively.
−Removed: Average securities increased $20.3 million, or 7.9%, to $278.3 million for the quarter ended June 30, 2022 compared to $257.9 million for the quarter ended June 30, 2021.
−Removed: The average yield on securities increased to 2.67% for the quarter ended June 30, 2022 compared to 2.10% for the quarter ended June 30, 2021.
+Added: Interest income on available-for-sale securities was $1.8 million and $5.4 million for the three and nine months ended September 30, 2022, respectively, compared to $1.5 million and $4.0 million for the three and nine months ended September 30, 2021, respectively.
+Added: Average securities decreased $13.5 million, or 4.8%, to $266.4 million for the quarter ended September 30, 2022 compared to $279.9 million for the quarter ended September 30, 2021.
+Added: The average yield on securities increased to 2.67% for the quarter ended September 30, 2022 compared to 2.15% for the quarter ended September 30, 2021.
See the Liquidity Management section for further discussion.
−Removed: Average securities increased $54.3 million, or 22.9%, to $291.2 million for the six months ended June 30, 2022 compared to $236.9 million for the six months ended June 30, 2021.
−Removed: The average yield on securities increased to 2.52% for the six months ended June 30, 2022 compared to 2.07% for the six months ended June 30, 2021.
+Added: Average securities increased $31.4 million, or 12.5%, to $282.9 million for the nine months ended September 30, 2022 compared to $251.4 million for the nine months ended September 30, 2021.
+Added: The average yield on securities increased to
+Added: 2.57% for the nine months ended September 30, 2022 compared to 2.10% for the nine months ended September 30, 2021.
See the Liquidity Management section for further discussion.
−Removed: Total interest expense increased to $1.6 million for the quarter ended June 30, 2022 compared to $1.5 million for the quarter ended June 30, 2021, and decreased to $2.9 million for the six months ended June 30, 2022 compared to $3.2 million for the six months ended June 30, 2021.
−Removed: The Company’s rates paid on interest bearing liabilities were 0.55% and
−Removed: 0.50% for the three and six months ended June 30, 2022, respectively, compared to 0.53% and 0.56% for the three and six months ended June 30, 2021, respectively.
+Added: Total interest expense increased to $2.8 million for the quarter ended September 30, 2022 compared to $1.4 million for the quarter ended September 30, 2021, and increased to $5.7 million for the nine months ended September 30, 2022 compared to $4.6 million for the nine months ended September 30, 2021.
+Added: The Company’s rates paid on interest bearing-liabilities were 0.93% and 0.65% for the three and nine months ended September 30, 2022, respectively, compared to 0.50% and 0.54% for the three and nine months ended September 30, 2021, respectively.
See the Liquidity Management section for further discussion.
−Removed: Interest expense on deposits increased to $0.9 million for the quarter ended June 30, 2022 compared to $0.8 million for the quarter ended June 30, 2021, and decreased to $1.6 million for the six months ended June 30, 2022 compared to $1.8 million for the six months ended June 30, 2021.
−Removed: Average interest-bearing deposits increased $60.7 million, or 6.4%, to $1.01 billion for the quarter ended June 30, 2022 compared to $0.95 billion for the quarter ended June 30, 2021.
−Removed: The average cost of deposits increased to 0.36% for the quarter ended June 30, 2022 compared to 0.33% for the quarter ended June 30, 2021.
−Removed: Average interest-bearing deposits increased $50.1 million, or 5.2%, to $1.02 billion for the six months ended June 30, 2022 compared to $0.97 billion for the six months ended June 30, 2021.
−Removed: The average cost of deposits decreased to 0.32% for the six months ended June 30, 2022 compared to 0.37% for the six months ended June 30, 2021.
−Removed: Interest expense on borrowings decreased to $0.7 million and $1.3 million for the three and six months ended June 30, 2022, respectively, compared to $0.7 million and $1.5 million for the three and six months ended June 30, 2021, respectively.
−Removed: Average borrowings decreased to $132.2 million for the quarter ended June 30, 2022 compared to $189.6 million for the quarter ended June 30, 2021.
−Removed: The average cost of borrowings increased to 2.06% for the quarter ended June 30, 2022 compared to 1.52% for the quarter ended June 30, 2021.
+Added: Interest expense on deposits increased to $2.0 million for the quarter ended September 30, 2022 compared to $0.7 million for the quarter ended September 30, 2021, and increased to $3.6 million for the nine months ended September 30, 2022 compared to $2.5 million for the nine months ended September 30, 2021.
+Added: Average interest-bearing deposits increased $117.0 million, or 12.2%, to $1.08 billion for the quarter ended September 30, 2022 compared to $0.96 billion for the quarter ended September 30, 2021.
+Added: The average cost of deposits increased to 0.73% for the quarter ended September 30, 2022 compared to 0.30% for the quarter ended September 30, 2021.
+Added: Average interest-bearing deposits increased $72.7 million, or 7.5%, to $1.04 billion for the nine months ended September 30, 2022 compared to $0.96 billion for the nine months ended September 30, 2021.
+Added: The average cost of deposits increased to 0.46% for the nine months ended September 30, 2022 compared to 0.34% for the nine months ended September 30, 2021.
+Added: Interest expense on borrowings increased to $0.9 million for the quarter ended September 30, 2022 compared to $0.7 million for the quarter ended September 30, 2021, and decreased to $2.1 million for the nine months ended September 30, 2022 compared to $2.2 million for the nine months ended September 30, 2021.
+Added: Average borrowings decreased to $130.9 million for the quarter ended September 30, 2022 compared to $172.8 million for the quarter ended September 30, 2021.
+Added: The average cost of borrowings increased to 2.61% for the quarter ended September 30, 2022 compared to 1.62% for the quarter ended September 30, 2021.
The increase in cost of funds primarily resulted from higher market interest rates.
−Removed: Average borrowings decreased to $136.4 million for the six months ended June 30, 2022 compared to $189.4 million for the six months ended June 30, 2021.
−Removed: The average cost of borrowings increased to 1.87% for the six months ended June 30, 2022 compared to 1.54% for the six months ended June 30, 2021.
+Added: Average borrowings decreased to $134.6 million for the nine months ended September 30, 2022 compared to $183.8 million for the nine months ended September 30, 2021.
+Added: The average cost of borrowings increased to 2.11% for the nine months ended September 30, 2022 compared to 1.57% for the nine months ended September 30, 2021.
The increase in cost of funds primarily resulted from higher market interest rates.
1 unchanged sentence
Non-interest income for the periods indicated was as follows:
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change
9 unchanged sentences
* Total revenue is calculated as net interest income plus non-interest income.
−Removed: Total non-interest income decreased $1.0 million, or 21.7%, to $3.6 million for the second quarter ended June 30, 2022 compared to $4.7 million for the second quarter ended June 30, 2021, and decreased $1.9 million, or 20.1%, to $7.4 million for the six months ended June 30, 2022 compared to $9.2 million for the six months ended June 30, 2021.
+Added: Total non-interest income decreased $0.3 million, or 7.7%, to $3.5 million for the third quarter ended September 30, 2022 compared to $3.8 million for the third quarter ended September 30, 2021, and decreased $2.2 million, or 16.5%, to $10.9 million for the nine months ended September 30, 2022 compared to $13.0 million for the nine months ended September 30, 2021.
The decrease was primarily due to the decrease in gain on sale of real estate mortgages due to lower volumes of real estate mortgage loans sold as further discussed below.
−Removed: Real estate servicing fees, net of the change in valuation of mortgage servicing rights (MSRs) decreased to $0.2 million for the quarter ended June 30, 2022 compared to $0.4 million for the quarter ended June 30, 2021, and increased to $0.5 million for the six months ended June 30, 2022 compared to $0.4 million for the six months ended June 30, 2021.
−Removed: Mortgage loan servicing fees earned on loans sold were $0.2 million and $0.4 million for the three and six months ended June 30, 2022, respectively, compared to $0.2 million and $0.4 million for the three and six months ended June 30, 2021, respectively.
−Removed: The current quarter's MSR valuation increased $160,000 and $190,000 from the linked quarter and December 31, 2021, respectively, primarily due to an increase in market rates.
−Removed: The Company was servicing $252.3 million of mortgage loans at June 30, 2022 compared to $270.0 million and $286.6 million at December 31, 2021 and June 30, 2021, respectively.
−Removed: Gain on sales of mortgage loans decreased $1.2 million to $0.8 million for the second quarter ended June 30, 2022 compared to $2.0 million for the second quarter ended June 30, 2021, and decreased $2.8 million to $1.7 million for the six months ended June 30, 2022 compared to $4.5 million for the six months ended June 30, 2021.
−Removed: The Company sold $25.7 million and $54.7 million of loans for the three and six months ended June 30, 2022, respectively, compared to $62.1 million and $128.2 million for the three and six months ended June 30, 2021, respectively.
−Removed: Loans sold to the secondary market slowed after strong sales during the first six months of 2021.
−Removed: Other Income increased $0.2 million to $0.4 million for the quarter ended June 30, 2022 compared to $0.2 million for the quarter ended June 30, 2021, and increased $0.6 million to $0.9 million for the six months ended June 30, 2022 compared to $0.3 million for the six months ended June 30, 2021.
+Added: Real estate servicing fees, net of the change in valuation of mortgage servicing rights (MSRs) increased to $0.4 million for the quarter ended September 30, 2022 compared to $0.1 million for the quarter ended September 30, 2021, and increased to $0.9 million for the nine months ended September 30, 2022 compared to $0.5 million for the nine months ended September 30, 2021.
+Added: Mortgage loan servicing fees earned on loans sold were $0.2 million and $0.7 million for the three and nine months ended September 30, 2022, respectively, compared to $0.2 million and $0.6 million for the three and nine months ended September 30, 2021, respectively.
+Added: The current quarter's MSR valuation increased $155,000 and $186,000 from the end of the linked quarter and December 31, 2021, respectively, primarily due to an increase in market rates.
+Added: Mortgage rates have increased significantly to over 6.0% for a new thirty-year conforming mortgage.
+Added: The Company was servicing $247.6 million of mortgage loans at September 30, 2022 compared to $270.0 million and $277.1 million at December 31, 2021 and September 30, 2021, respectively.
+Added: Gain on sales of mortgage loans decreased $0.7 million to $0.6 million for the third quarter ended September 30, 2022 compared to $1.4 million for the third quarter ended September 30, 2021, and decreased $3.6 million to $2.3 million for the nine months ended September 30, 2022 compared to $5.9 million for the nine months ended September 30, 2021.
+Added: The Company sold $21.4 million and $76.1 million of loans for the three and nine months ended September 30, 2022, respectively, compared to $39.1 million and $167.3 million for the three and nine months ended September 30, 2021, respectively.
+Added: Loans sold to the secondary market slowed after strong sales during the first nine months of 2021.
+Added: Other Income increased $0.3 million to $0.5 million for the quarter ended September 30, 2022 compared to $0.2 million for the quarter ended September 30, 2021, and increased $0.9 million to $1.4 million for the nine months ended September 30, 2022 compared to $0.5 million for the nine months ended September 30, 2021.
The increase primarily resulted from mortgage banking derivative income, interest component of net pension cost, net gain on sale of property in other real estate owned, and income received from the Missouri Department of Transportation related to a land easement.
−Removed: During the fourth quarter of 2021, the Company elected to record the fair value of derivatives related to interest rate lock commitments and mandatory commitments and the related changes due to volume and rates through non-interest income and non-interest expense.
The following table presents the gross realized gains and losses from sales and calls of available-for-sale securities, as well as gains and losses on equity securities from fair value adjustments which have been recognized in earnings:
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2022 2021 2022 2021
−Removed: Investment securities (losses) gains, net
+Added: Investment securities gains (losses), net
Available-for-sale securities:
4 unchanged sentences
Fair value adjustments, net 1 7 (12) 19
−Removed: Investment securities (losses) gains, net $ (9) $ — $ (13) $ 15
+Added: Investment securities gains (losses), net $ 1 $ 126 $ (12) $ 140
Non-interest expense for the periods indicated was as follows:
−Removed: Three Months Ended June 30, Six Months Ended June 30,
+Added: Three Months Ended September 30, Nine Months Ended September 30,
(Dollars in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change
15 unchanged sentences
Total revenue is calculated as net interest income plus non-interest income.
−Removed: Total non-interest expense decreased $0.3 million to $11.5 million for the quarter ended June 30, 2022 compared to $11.8 million for the quarter ended June 30, 2021, and increased $0.1 million to $23.8 million for the six months ended June 30, 2022 compared to $23.6 million for the six months ended June 30, 2021.
−Removed: Salaries decreased $0.1 million, or 2.8%, to $5.0 million for the quarter ended June 30, 2022 compared to $5.2 million for the quarter ended June 30, 2021, and decreased $0.3 million, or 3.1%, to $10.2 million for the six months ended June 30, 2022 compared to $10.5 million for the six months ended June 30, 2021.
−Removed: The decreases were primarily due to reduced commissions based on lower loan volume.
+Added: Total non-interest expense increased $0.4 million to $12.2 million for the quarter ended September 30, 2022 compared to $11.8 million for the quarter ended September 30, 2021, and increased $0.6 million to $36.0 million for the nine months ended September 30, 2022 compared to $35.4 million for the nine months ended September 30, 2021.
+Added: Salaries increased $0.2 million, or 4.0%, to $5.2 million for the quarter ended September 30, 2022 compared to $5.0 million for the quarter ended September 30, 2021, and decreased $0.1 million, or 0.9%, to $15.3 million for the nine months ended September 30, 2022 compared to $15.4 million for the nine months ended September 30, 2021.
+Added: The decrease for the nine months ended September 30, 2022 was primarily due to reduced commissions based on lower loan volume.
See Gains on sales of mortgage loans discussion above.
−Removed: Employee benefits decreased $0.2 million, or 10.8%, to $1.6 million for the quarter ended June 30, 2022 compared to $1.8 million for the quarter ended June 30, 2021, and decreased $0.3 million, or 7.5%, to $3.3 million for the six months ended June 30, 2022 compared to $3.6 million for the six months ended June 30, 2021.
+Added: Employee benefits decreased $0.1 million, or 6.7%, to $1.6 million for the quarter ended September 30, 2022 compared to $1.7 million for the quarter ended September 30, 2021, and decreased $0.4 million, or 7.2%, to $4.9 million for the nine months ended September 30, 2022 compared to $5.3 million for the nine months ended September 30, 2021.
The decreases were primarily due to a decrease in 401(k) plan contributions, medical premiums, and pension cost due to lower annual discount rate assumptions compared to the prior year's annual assumptions.
−Removed: Other non-interest expense increased $0.1 million, or 9.5%, to $1.2 million for the quarter ended June 30, 2022 compared to $1.1 million for the quarter ended June 30, 2021, and increased $0.6 million, or 28.0%, to $2.8 million for the six months ended June 30, 2022 compared to $2.2 million for the six months ended June 30, 2021.
−Removed: The increases were primarily related to the change in the fair value adjustment for mortgage banking derivatives, telephone and software expense related to network upgrades and maintenance agreements.
−Removed: During the fourth quarter of 2021, the Company elected to record the fair value of derivatives related to interest rate lock commitments and mandatory commitments and the related changes due to volume and rates through non-interest income and non-interest expense.
−Removed: Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 17.8% and 18.4% for the three and six months ended June 30, 2022, respectively, compared to 19.7% and 19.2% for the three and six months ended June 30, 2021, respectively.
−Removed: The decrease in the effective tax rate for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily attributable to the decrease in earnings and the benefit recorded pertaining to the historical tax credit.
−Removed: The decrease in the effective tax rate for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily attributable to the increase in earnings and an increase in state taxes attributed to elevated earnings partially offset by the benefit recorded pertaining to the historical tax credit.
−Removed: The effective tax rate for each of the three and six months ended June 30, 2022 and 2021, respectively, is lower than the U.S.
+Added: Other non-interest expense increased $0.3 million, or 27.4%, to $1.4 million for the quarter ended September 30, 2022 compared to $1.1 million for the quarter ended September 30, 2021, and increased $0.9 million, or 27.8%, to $4.2 million for the nine months ended September 30, 2022 compared to $3.3 million for the nine months ended September 30, 2021.
+Added: The increases were primarily related to the change in the fair value adjustment for mortgage banking derivatives, insurance expense, telephone, and software expense related to network upgrades and maintenance agreements.
+Added: Income taxes as a percentage of earnings before income taxes as reported in the consolidated financial statements were 18.7% and 18.5% for the three and nine months ended September 30, 2022, respectively, compared to 19.6% and 19.4% for the three and nine months ended September 30, 2021, respectively.
+Added: The decrease in the effective tax rate for the three months ended September 30, 2022 compared to the three months ended September 30, 2021 was primarily attributable to the decrease in earnings and the benefit recorded pertaining to the historical tax credit.
+Added: The decrease in the effective tax rate for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was primarily attributable to the decrease in earnings and the benefit recorded pertaining to the historical tax credit.
+Added: The effective tax rate for each of the three and nine months ended September 30, 2022 and 2021, respectively, is lower than the U.S.
federal statutory rate of 21% primarily due to tax-free revenues.
−Removed: Included in the effective tax rate is a $14,000 and $27,000 benefit associated with a historic tax credit investment for the three and six months ended June 30, 2022, respectively.
+Added: Included in the effective tax rate is a $13,000 and $40,000 benefit associated with a historic tax credit investment for the three and nine months ended September 30, 2022, respectively.
The investment is expected to generate a $331,000 tax benefit over the life of the project and is being recognized under the deferral method of accounting.
1 unchanged sentence
Interest earned on the loan portfolio is a primary source of interest income for the Company.
−Removed: Net loans represented 78.9% of total assets as of June 30, 2022 compared to 70.2% as of December 31, 2021.
+Added: Net loans represented 79.9% of total assets as of September 30, 2022 compared to 70.2% as of December 31, 2021.
Lending activities are conducted pursuant to an established loan policy approved by the Bank’s Board of Directors.
3 unchanged sentences
Major classifications within the Company’s held for investment loan portfolio as of the dates indicated is as follows:
−Removed: June 30, 2022 December 31, 2021
+Added: September 30, 2022 December 31, 2021
(Dollars in thousands) Amount % of Loans Amount % of Loans
10 unchanged sentences
Total loans held for investment $ 1,491,997 100.0 % $ 1,302,133 100.0 %
−Removed: (a) Includes $1.1 million and $8.4 million of SBA PPP loans, net as of June 30, 2022 and December 31, 2021, respectively.
+Added: (a) Includes $0.6 million and $8.4 million of SBA PPP loans, net as of September 30, 2022 and December 31, 2021, respectively.
The Company extends credit to its local community markets through traditional real estate mortgage products.
−Removed: The Company does not participate in credit extensions to sub-prime residential real estate markets.
+Added: The Company does not participate in credit extension to sub-prime residential real estate markets.
The Company does not lend funds for transactions defined as “highly leveraged” by bank regulatory authorities or for foreign loans.
3 unchanged sentences
Fixed rate loans conforming to standards required by the secondary market are offered to qualified borrowers but are not funded until the Company has a non-recourse purchase commitment from the secondary market at a predetermined price.
−Removed: During the six months ended June 30, 2022, the Company sold approximately $54.7 million of loans to investors compared to $128.2 million for the six months ended June 30, 2021.
−Removed: At June 30, 2022, the Company was servicing approximately $252.3 million of loans sold to the secondary market compared to $270.0 million at December 31, 2021, and $286.6 million at June 30, 2021.
+Added: During the nine months ended September 30, 2022, the Company sold approximately $76.1 million of loans to investors compared to $167.3 million for the nine months ended September 30, 2021.
+Added: At September 30, 2022, the Company was servicing approximately $247.6 million of loans sold to the secondary market compared to $270.0 million at December 31, 2021, and $277.1 million at September 30, 2021.
Risk Elements of the Loan Portfolio
14 unchanged sentences
The following table summarizes non-performing assets at the dates indicated:
−Removed: June 30, December 31,
+Added: September 30, December 31,
(Dollars in thousands) 2022 2021
8 unchanged sentences
Real estate mortgage − residential $ — $ 14
−Removed: Installment and other consumer 2 —
Total $ — $ 14
12 unchanged sentences
(b) Non-performing assets include non-performing loans and other real estate owned and repossessed assets.
−Removed: Total non-performing assets were $27.0 million, or 1.89% of total loans, at June 30, 2022 compared to $36.0 million, or 2.76% of total loans, at December 31, 2021.
−Removed: Total non-accrual loans at June 30, 2022 decreased $7.8 million, or 30.7%, to $17.6 million compared to $25.5 million at December 31, 2021.
−Removed: There were $169,000 in loans past due 90 days and still accruing interest at June 30, 2022 compared to $14,000 at December 31, 2021.
−Removed: Other real estate and repossessed assets were $9.2 million and $10.5 million at June 30, 2022 and December 31, 2021, respectively.
−Removed: During the six months ended June 30, 2022, there were no additions to other real estate owned compared to $30,000 of non-accrual loans, net of charge-offs taken, during the six months ended June 30, 2021.
−Removed: During the first quarter ended June 30, 2022, an additional $52,000 charge-off was recorded related to a property that moved into other real estate owned at the end of the fourth quarter of 2021.
−Removed: As of June 30, 2022, approximately $13.2 million of loans classified as substandard, which include performing TDRs, and were not included in the non-performing asset table, were identified as potential problem loans having more than normal risk which raised doubts as to the ability of the borrower to comply with present loan repayment terms, compared to $13.8
−Removed: million at December 31, 2021.
−Removed: Management believes the allowance for loan losses was sufficient to cover the risks and probable losses related to such loans at June 30, 2022 and December 31, 2021, respectively.
+Added: Total non-performing assets were $26.6 million, or 1.78% of total loans, at September 30, 2022 compared to $36.0 million, or 2.76% of total loans, at December 31, 2021.
+Added: Total non-accrual loans at September 30, 2022 decreased $8.1 million, or 31.9%, to $17.3 million compared to $25.5 million at December 31, 2021.
+Added: There were no loans past due 90 days and still accruing interest at September 30, 2022 compared to $14,000 at December 31, 2021.
+Added: Other real estate and repossessed assets were $9.2 million and $10.5 million at September 30, 2022 and December 31, 2021, respectively.
+Added: During the nine months ended September 30, 2022, there were $3,000 of non-accrual loans, net of charge-offs taken, added to other real estate owned and repossessed assets compared to $142,000 during the nine months ended September 30, 2021.
+Added: As of September 30, 2022, approximately $14.7 million of loans classified as substandard, which include performing TDRs, and were not included in the non-performing asset table, were identified as potential problem loans having more than normal risk which raised doubts as to the ability of the borrower to comply with present loan repayment terms, compared to $13.8 million at December 31, 2021.
+Added: Management believes the allowance for loan losses was sufficient to cover the risks and probable losses related to such loans at September 30, 2022 and December 31, 2021, respectively.
The following table summarizes the Company’s TDRs at the dates indicated:
−Removed: June 30, 2022 December 31, 2021
+Added: September 30, 2022 December 31, 2021
(Dollars in thousands) Number of contracts Recorded Investment Specific Reserves Number of contracts Recorded Investment Specific Reserves
12 unchanged sentences
Total TDRs 15 $ 1,918 $ 171 17 $ 2,356 $ 159
−Removed: At June 30, 2022, loans classified as TDRs totaled $2.1 million, with $0.2 million of specific reserves, compared to $2.4 million of loans classified as TDRs, with $0.2 million of specific reserves, at December 31, 2021.
−Removed: Non-performing loans, included $0.5 million of loans classified as TDRs at June 30, 2022 compared to $0.6 million at December 31, 2021.
+Added: At September 30, 2022, loans classified as TDRs totaled $1.9 million, with $0.2 million of specific reserves, compared to $2.4 million of loans classified as TDRs, with $0.2 million of specific reserves, at December 31, 2021.
+Added: Non-performing loans, included $0.3 million of loans classified as TDRs at September 30, 2022 compared to $0.6 million at December 31, 2021.
Both performing and non-performing TDRs are considered impaired loans.
When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs if the loan is collateral dependent.
−Removed: The net decrease in total TDRs from December 31, 2021 to June 30, 2022 was primarily due to $229,000 of payments received on TDRs.
+Added: The net decrease in total TDRs from December 31, 2021 to September 30, 2022 was primarily due to $439,000 of payments received on TDRs.
Allowance for Loan Losses and Provision
1 unchanged sentence
The following table is a summary of the allocation of the allowance for loan losses:
−Removed: June 30, 2022 December 31, 2021
+Added: September 30, 2022 December 31, 2021
(in thousands) Amount % of loans in each category to total loans Amount % of loans in each category to total loans
8 unchanged sentences
Total $ 15,505 100.0 % $ 16,903 100.0 %
−Removed: The allowance for loan losses was $15.4 million, or 1.08%, of loans outstanding at June 30, 2022 compared to $16.9 million, or 1.30%, of loans outstanding at December 31, 2021.
−Removed: The ratio of the allowance for loan losses to non-performing loans was 86.17% at June 30, 2022, compared to 66.36% at December 31, 2021.
+Added: The allowance for loan losses was $15.5 million, or 1.04%, of loans outstanding at September 30, 2022 compared to $16.9 million, or 1.30%, of loans outstanding at December 31, 2021.
+Added: The ratio of the allowance for loan losses to non-performing loans was 89.38% at September 30, 2022, compared to 66.36% at December 31, 2021.
The following table is a summary of the general and specific allocations of the allowance for loan losses:
−Removed: (in thousands) June 30, 2022 December 31, 2021
+Added: (in thousands) September 30, 2022 December 31, 2021
Allocation of allowance for loan losses:
7 unchanged sentences
Once the impairment amount is calculated, a specific reserve allocation is recorded.
−Removed: At June 30, 2022, $0.3 million of the Company’s ALL was allocated to impaired loans totaling approximately $19.3 million compared to $3.0 million of the Company’s ALL allocated to impaired loans totaling approximately $27.3 million at December 31, 2021.
−Removed: Management determined that $16.0 million, or 83%, of total impaired loans required no reserve allocation at June 30, 2022 compared to $16.6 million, or 61%, at December 31, 2021, primarily due to adequate collateral values , acceptable payment history and adequate cash flow ability.
+Added: At September 30, 2022, $0.3 million of the Company’s ALL was allocated to impaired loans totaling approximately $18.9 million compared to $3.0 million of the Company’s ALL allocated to impaired loans totaling approximately $27.3 million at December 31, 2021.
+Added: Management determined that $15.9 million, or 84%, of total impaired loans required no reserve allocation at September 30, 2022 compared to $16.6 million, or 61%, at December 31, 2021, primarily due to adequate collateral values , acceptable payment history and adequate cash flow ability.
The incurred loss component of the general reserve, or loans collectively evaluated for impairment, is determined by applying loss rates to pools of loans by asset type.
6 unchanged sentences
The historical loan loss rates are multiplied by loss emergence periods (LEP) which represent the estimated time period between a borrower first experiencing financial difficulty and the recognition of a loss.
−Removed: The Company’s methodology includes qualitative risk factors that allow management to adjust its estimates of losses based on the most recent information available and to address other limitations in the quantitative component that is based on historical loss rates.
+Added: The Company’s methodology includes qualitative risk factors that allow management to adjust its estimates of losses based on the most recent information available and to address other limitations in the quantitative component based on historical loss rates.
Such risk factors are generally reviewed and updated quarterly, as appropriate, and are adjusted to reflect changes in national and local economic conditions and developments, the nature, volume and terms of loans in the portfolio, including changes in volume and severity of past due loans, the volume of non-accrual loans, and the volume and severity of adversely classified or graded loans, loan concentrations, assessment of trends in collateral values, assessment of changes in the quality of the Company’s internal loan review department, and changes in lending policies and procedures, including underwriting standards and collections, charge-off and recovery practices.
1 unchanged sentence
Although the ALL is comprised of specific and general allocations, the entire ALL is available to absorb any credit losses.
−Removed: The decrease in the allowance for loan losses from December 31, 2021 as compared to June 30, 2022 primarily resulted from transitioning loans impacted by COVID-19 from non-accrual status back to performing status.
+Added: The decrease in the allowance for loan losses from December 31, 2021 as compared to September 30, 2022 primarily resulted from one large non-accrual loan relationship impacted by COVID-19 that returned to performing status.
This transition was made according to the Company’s established internal loan policies regarding loan performance as well as consultation with industry experts.
1 unchanged sentence
The Company continues to monitor the risks associated with its non-performing loans.
−Removed: Partially offsetting this decrease in the allowance for loan losses was an increase in the reserve due to the significant loan growth that occurred during the first six months of 2022.
−Removed: The Company recognized a provision expense and a negative provision expense for loan losses of $1.2 million and $1.3 million for the three and six months ended June 30, 2022, respectively, compared to $0.4 million provision expense for both the three and six months ended June 30, 2021, respectively.
−Removed: The negative provision expense primarily resulted
−Removed: from the release of specific reserves totaling $2.8 million in the first quarter of 2022 due to returning significant loan balances to accrual from non-accrual status or other collateral valuation adjustments.
+Added: Partially offsetting this decrease in the allowance for loan losses was an increase in the reserve due to the significant loan growth that occurred during the first nine months of 2022.
+Added: The Company recognized a provision expense and a negative provision expense for loan losses of $0.3 million and $1.0 million for the three and nine months ended September 30, 2022, respectively, compared to $0.3 million and $0.7 million provision expense for the three and nine months ended September 30, 2021, respectively.
+Added: The negative provision
+Added: expense primarily resulted from the release of specific reserves totaling $2.8 million in the first quarter of 2022 due to returning the balances related to one loan relationship to accrual from non-accrual status.
The following table summarizes loan loss experience for the periods indicated:
−Removed: Three Months Ended June 30, 2022
+Added: Three Months Ended September 30, 2022
(Dollars in thousands) Net Charge-offs (Recoveries) Average Loans Net (Recoveries) Charge-offs / Average Loans Net Charge-offs (Recoveries) Average Loans Net (Recoveries) Charge-offs / Average Loans
10 unchanged sentences
Total $ 148 $ 1,446,755 0.01 % $ 106 $ 1,286,068 0.01 %
−Removed: Six Months Ended June 30,
+Added: Nine Months Ended September 30,
(Dollars in thousands) Net Charge-offs (Recoveries) Average Loans Net (Recoveries) Charge-offs / Average Loans Net Charge-offs (Recoveries) Average Loans Net (Recoveries) Charge-offs / Average Loans
11 unchanged sentences
Net Loan Charge-offs (recoveries)
−Removed: The Company’s net charge-offs were $0.1 million, or 0.01% of average loans, for the quarter ended June 30, 2022 compared to $26,000, or approximately 0.00% of average loans, for the quarter ended June 30, 2021, and net charge-offs were $0.3 million, or 0.02% of average loans, for the six months ended June 30, 2022 compared to net recoveries of $0.2 million, or (0.02)% of average loans, for the six months ended June 30, 2021.
+Added: The Company’s net charge-offs were $0.1 million, or 0.01% of average loans, for the quarter ended September 30, 2022 compared to $0.1 million, or 0.01% of average loans, for the quarter ended September 30, 2021, and net charge-offs were $0.4 million, or 0.03% of average loans, for the nine months ended September 30, 2022 compared to net recoveries of $0.1 million, or (0.01)% of average loans, for the nine months ended September 30, 2021.
Loans Held For Sale
3 unchanged sentences
The loans are primarily sold to Freddie Mac, Fannie Mae, and PennyMac and other various secondary market investors.
−Removed: At June 30, 2022, the carrying amount of these loans was $1.7 million compared to $2.2 million at December 31, 2021.
+Added: At September 30, 2022, the carrying amount of these loans was $0.9 million compared to $2.2 million at December 31, 2021.
Liquidity and Capital Resources
9 unchanged sentences
The Company’s most liquid assets are comprised of available-for-sale investment securities, not including other debt securities, federal funds sold, and excess reserves held at the Federal Reserve.
−Removed: (in thousands) June 30, 2022 December 31, 2021
+Added: (in thousands) September 30, 2022 December 31, 2021
Federal funds sold $ 46 $ 7,122
4 unchanged sentences
Federal funds sold and resale agreements normally have overnight maturities and are used for general daily liquidity purposes.
−Removed: The fair value of the available-for-sale investment portfolio was $267.3 million at June 30, 2022 and included an unrealized net loss of $38.8 million.
+Added: The fair value of the available-for-sale investment portfolio was $245.2 million at September 30, 2022 and included an unrealized net loss of $54.5 million.
The portfolio includes projected maturities and mortgage-backed securities pay-downs of approximately $5.7 million over the next twelve months, which offer resources to meet either new loan demand or reductions in the Company’s borrowings.
The Company pledges portions of its investment securities portfolio to secure public fund deposits, federal funds purchase lines, securities sold under agreements to repurchase, borrowing capacity at the Federal Reserve Bank, and for other purposes as required or permitted by law.
−Removed: At June 30, 2022 and December 31, 2021, the Company’s unpledged securities in the available-for-sale portfolio totaled approximately $46.9 million and $35.5 million, respectively.
+Added: At September 30, 2022 and December 31, 2021, the Company’s unpledged securities in the available-for-sale portfolio totaled approximately $76.1 million and $35.5 million, respectively.
Total investment securities pledged for these purposes were as follows:
−Removed: (in thousands) June 30, 2022 December 31, 2021
+Added: (in thousands) September 30, 2022 December 31, 2021
Investment securities pledged for the purpose of securing:
4 unchanged sentences
Liquidity is available from the Company’s base of core customer deposits, defined as demand, interest checking, savings, money market deposit accounts, and time deposits less than $250,000, less all brokered deposits under $250,000.
−Removed: At June 30, 2022, such deposits totaled $1.4 billion and represented 91.2% of the Company’s total deposits.
+Added: At September 30, 2022, such deposits totaled $1.4 billion and represented 90.8% of the Company’s total deposits.
These core deposits are normally less volatile and are often tied to other products of the Company through long lasting relationships.
−Removed: Core deposits at June 30, 2022 and December 31, 2021 were as follows:
−Removed: (in thousands) June 30, 2022 December 31, 2021
+Added: Core deposits at September 30, 2022 and December 31, 2021 were as follows:
+Added: (in thousands) September 30, 2022 December 31, 2021
Core deposit base:
4 unchanged sentences
Total $ 1,445,604 $ 1,427,049
−Removed: Estimated uninsured deposits totaled $503.5 million, including $99.9 million of certificates of deposit, at June 30, 2022, compared to $513.5 million, including $69.1 million of certificates of deposit, at December 31, 2021.
−Removed: The Company had brokered deposits totaling $34.0 million and $20.2 million at June 30, 2022 and December 31, 2021, respectively.
+Added: Estimated uninsured deposits totaled $538.5 million, including $110.9 million of certificates of deposit, at September 30, 2022, compared to $513.5 million, including $69.1 million of certificates of deposit, at December 31, 2021.
+Added: The Company had brokered deposits totaling $36.1 million and $20.2 million at September 30, 2022 and December 31, 2021, respectively.
Other components of liquidity are the level of borrowings from third-party sources and the availability of future credit.
1 unchanged sentence
Federal funds purchased are overnight borrowings obtained mainly from upstream correspondent banks with which the Company maintains approved credit lines.
−Removed: As of June 30, 2022, under agreements with these unaffiliated banks, the Bank may borrow up to $60.0 million in federal funds on an unsecured basis and $8.3 million on a secured basis.
−Removed: There were no federal funds purchased outstanding at June 30, 2022.
+Added: As of September 30, 2022, under agreements with these unaffiliated banks, the Bank may borrow up to $60.0 million in federal funds on an unsecured basis and $7.6 million on a secured basis.
+Added: There were no federal funds purchased outstanding at September 30, 2022.
Securities sold under agreements to repurchase are generally borrowed overnight and are secured by a portion of the Company’s investment portfolio.
−Removed: At June 30, 2022, there were $6.9 million in repurchase agreements.
−Removed: The Company may periodically borrow additional short-term funds from the Federal Reserve Bank through the discount window, although no such borrowings were outstanding at June 30, 2022.
+Added: At September 30, 2022, there were $5.9 million in repurchase agreements.
+Added: The Company may periodically borrow additional short-term funds from the Federal Reserve Bank through the discount window, although no such borrowings were outstanding at September 30, 2022.
The Bank is a member of the Federal Home Loan Bank of Des Moines (FHLB) and has access to credit products of the FHLB.
−Removed: As of June 30, 2022, the Bank had $68.0 million in outstanding borrowings with the FHLB.
+Added: As of September 30, 2022, the Bank had $73.0 million in outstanding borrowings with the FHLB.
In addition, the Company has $49.5 million in outstanding subordinated notes issued to wholly-owned grantor trusts, funded by preferred securities issued by the trusts.
−Removed: Borrowings outstanding at June 30, 2022 and December 31, 2021 were as follows:
−Removed: (in thousands) June 30, 2022 December 31, 2021
+Added: Borrowings outstanding at September 30, 2022 and December 31, 2021 were as follows:
+Added: (in thousands) September 30, 2022 December 31, 2021
Federal funds purchased and securities sold under agreements to repurchase $ 5,890 $ 23,829
7 unchanged sentences
The following table reflects collateral value of assets pledged, borrowings, and letters of credit outstanding, in addition to the estimated future funding capacity available to the Company as follows:
−Removed: June 30, 2022 December 31, 2021
+Added: September 30, 2022 December 31, 2021
(in thousands) FHLB Federal Reserve Bank Federal Funds Purchased Lines Total FHLB Federal Reserve Bank Federal Funds Purchased Lines Total
3 unchanged sentences
Total available $ 193,597 $ 7,567 $ 60,000 $ 261,164 $ 165,061 $ 10,384 $ 60,000 $ 235,445
−Removed: At June 30, 2022, loans of $585.5 million were pledged to the Federal Home Loan Bank as collateral for borrowings and letters of credit.
−Removed: At June 30, 2022, investments with a market value of $8.8 million were pledged to secure federal funds purchase lines and borrowing capacity at the Federal Reserve Bank.
+Added: At September 30, 2022, loans of $636.5 million were pledged to the Federal Home Loan Bank as collateral for borrowings and letters of credit.
+Added: At September 30, 2022, investments with a market value of $8.0 million were pledged to secure federal funds purchase lines and borrowing capacity at the Federal Reserve Bank.
Based upon the above, management believes the Company has more than adequate liquidity, both on balance sheet and through the additional funding capacity with the FHLB, the Federal Reserve Bank and Federal funds purchased lines to meet future anticipated needs in both the short and long-term.
Sources and Uses of Funds
−Removed: Cash and cash equivalents were $28.2 million at June 30, 2022 compared to $159.9 million at December 31, 2021.
−Removed: The $131.7 million decrease resulted from changes in the various cash flows produced by operating, investing, and financing activities of the Company, as shown in the accompanying consolidated statement of cash flows for the six months ended June 30, 2022.
+Added: Cash and cash equivalents were $41.4 million at September 30, 2022 compared to $159.9 million at December 31, 2021.
+Added: The $118.5 million decrease resulted from changes in the various cash flows produced by operating, investing, and financing activities of the Company, as shown in the accompanying consolidated statement of cash flows for the nine months ended September 30, 2022.
Cash flow provided from operating activities consists mainly of net income adjusted for certain non-cash items.
−Removed: Operating activities provided cash flow of $6.5 million for the six months ended June 30, 2022.
−Removed: Investing activities, consisting mainly of purchases, sales and maturities of available-for-sale securities, and changes in the level of the loan portfolio, used total cash of $121.0 million during the six months ended June 30, 2022.
+Added: Operating activities provided cash flow of $14.2 million for the nine months ended September 30, 2022.
+Added: Investing activities, consisting mainly of purchases, sales and maturities of available-for-sale securities, and changes in the level of the loan portfolio, used total cash of $180.3 million during the nine months ended September 30, 2022.
The cash outflow primarily consisted of a net increase in loans held for investment of $190.2 million and $17.3 million in purchases of investment securities partially offset by $27.0 million from maturities and calls and sales of investment securities.
−Removed: Financing activities used total cash of $17.2 million during the six months ended June 30, 2022, resulting primarily from a $22.3 million decrease in interest-bearing transaction accounts, a $16.9 million decrease in securities sold under agreements to repurchase, and a $9.4 million net repayment of Federal Home Loan Bank advances.
−Removed: These decreases were partially offset by an increase in demand deposits.
−Removed: The decrease in interest-bearing accounts was due primarily to reductions in deposits for public funds customers, resulting from the distribution of prior year tax collections.
+Added: Financing activities provided total cash of $47.6 million during the nine months ended September 30, 2022, resulting primarily from a $76.0 million increase in demand deposits, interest-bearing transaction accounts and time deposits.
+Added: These increases were partially offset by a $17.9 million decrease in securities sold under agreements to repurchase.
In the normal course of business, the Company enters into certain forms of off-balance sheet transactions, including unfunded loan commitments and letters of credit.
1 unchanged sentence
Management considers both on-balance sheet and off-balance sheet transactions in its evaluation of the Company’s liquidity.
−Removed: The Company had $408.7 million in unused loan commitments and standby letters of credit as of June 30, 2022.
+Added: The Company had $426.3 million in unused loan commitments and standby letters of credit as of September 30, 2022.
Although the Company’s current liquidity resources are adequate to fund this commitment level, the nature of these commitments is such that the likelihood of such a funding demand is very low.
1 unchanged sentence
The Company’s ongoing liquidity needs primarily include funding its operating expenses, paying cash dividends to its shareholders and, to a lesser extent, repurchasing its shares of common stock.
−Removed: The Company paid cash dividends to its shareholders totaling approximately $2.0 million and $1.7 million for the six months ended June 30, 2022 and 2021, respectively.
+Added: The Company paid cash dividends to its shareholders totaling approximately $3.1 million and $2.6 million for the nine months ended September 30, 2022 and 2021, respectively.
A large portion of the Company’s liquidity is obtained from the Bank in the form of dividends.
−Removed: The Bank declared and paid $7.5 million and $4.5 million in dividends to the Company during the six months ended June 30, 2022 and 2021, respectively.
−Removed: At June 30, 2022 and December 31, 2021, the Company had cash and cash equivalents totaling $3.3 million and $1.8 million, respectively.
+Added: The Bank declared and paid $9.0 million and $6.5 million in dividends to the Company during the nine months ended September 30, 2022 and 2021, respectively.
+Added: At September 30, 2022 and December 31, 2021, the Company had cash and cash equivalents totaling $3.1 million and $1.8 million, respectively.
Subject to declaration by the Company's Board of Directors, the Company expects to continue paying quarterly cash dividends as a part of its current capital allocation strategy.
2 unchanged sentences
Management was given discretion to determine the number and pricing of the shares to be purchased, as well as the timing of any such purchases.
−Removed: The Company repurchased 23,536 and 85,188 common shares under the plan during the first and second quarter of 2022, respectively, at an average cost of $26.60 per share totaling $2.9 million.
+Added: The Company repurchased 108,724 common shares under the plan during the nine months ended September 30, 2022, at an average cost of $26.60 per share totaling $2.9 million.
The repurchases under these authorizations may be effectuated in the open market, by block purchase, in privately negotiated transactions, or through other transactions managed by broker-dealers, or any combination thereof.
No time limit was set for the completion of these authorized share repurchases.
−Removed: As of June 30, 2022, $2.1 million remained available for the repurchase of shares pursuant to the share repurchase authorizations.
+Added: As of September 30, 2022, $2.1 million remained available for the repurchase of shares pursuant to the share repurchase authorizations.
The Company may continue to repurchase shares under its share repurchase authorizations, but the amount and timing of such repurchases will be dependent on a number of factors, including the price of its common stock and other cash flow needs.
10 unchanged sentences
Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of CET1, Tier 1 and total capital to risk-weighted assets, and of Tier 1 capital to average assets, each as defined in the regulations.
−Removed: Management believes, as of June 30, 2022, that the Company and the Bank meet all capital adequacy requirements to which they are subject.
+Added: Management believes, as of September 30, 2022, that the Company and the Bank meet all capital adequacy requirements to which they are subject.
Financial institutions are categorized as well capitalized or adequately capitalized, based on minimum total risk-based, Tier 1 risk-based, CET1 and Tier 1 leverage ratios.
−Removed: As shown in the table below, the Company’s capital ratios exceeded the regulatory definition of adequately capitalized as of June 30, 2022 and December 31, 2021.
+Added: As shown in the table below, the Company’s capital ratios exceeded the regulatory definition of adequately capitalized as of September 30, 2022 and December 31, 2021.
Based upon the information in its most recently filed call report, the Bank met the capital ratios necessary to be well-capitalized.
4 unchanged sentences
Because the Bank had less than $15.0 billion in total consolidated assets as of December 31, 2009, the Company is allowed to continue to classify its trust preferred securities, all of which were issued prior to May 19, 2010, as Tier 1 capital.
−Removed: Under the Basel III requirements, at June 30, 2022 and December 31, 2021, the Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as shown in the following table as of periods indicated:
+Added: Under the Basel III requirements, at September 30, 2022 and December 31, 2021, the Company met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as shown in the following table as of periods indicated:
Actual Minimum Capital Required - Basel III Fully Phased-In Required to be Considered Well- Capitalized
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
−Removed: June 30, 2022
+Added: September 30, 2022
Total Capital (to risk-weighted assets):
24 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.