NEW PEOPLES BANKSHARES INC 10-Q/A

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Caution About Forward Looking Statements We make forward looking statements in this quarterly report on Form 10-Q that are subject to risks and uncertainties. These forward looking statements include statements regarding expectations, intentions, projections and beliefs concerning our profitability, liquidity, and allowance for loan losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward looking statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Important factors that may cause actual results to differ from projections include: the success or failure of our efforts to implement our business plan; any required increase in our regulatory capital ratios; satisfying other regulatory requirements that may arise from examinations, changes in the law and other similar factors; deterioration of asset quality; changes in the level of our nonperforming assets and charge-offs; fluctuations of real estate values in our markets; our ability to attract and retain talent; demographical changes in our markets which negatively impact the local economy; the uncertain outcome of current or future legislation or regulations or policies of state and federal regulators; the successful management of interest rate risk; the successful management of liquidity; changes in general economic and business conditions in our market area and the United States in general; credit risks inherent in making loans such as changes in a borrower’s ability to repay and our management of such risks; competition with other banks and financial institutions, and companies outside of the banking industry, including online lenders and those companies that have substantially greater access to capital and other resources; demand, development and acceptance of new products and services we have offered or may offer; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve, inflation, interest rate, market and monetary fluctuations; the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues (including the ongoing novel coronavirus (COVID-19) outbreak and the associated efforts to limit the spread of the disease), and other catastrophic events; technology utilized by us; our ability to successfully manage cyber security; our reliance on third-party vendors and correspondent banks; changes in generally accepted accounting principles; changes in governmental regulations, tax rates and similar matters; and, other risks, which may be described, from time to time, in our filings with the SEC. Because of these uncertainties, our actual future results may be materially different from the results indicated by these forward looking statements. In addition, our past results of operations do not necessarily indicate our future results. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Critical Accounting Policies For discussion of our significant accounting policies, see our Annual Report on Form 10-K for the year ended December 31, 2021 (the 2021 10-K). Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of our financial statements. Our most critical accounting policies relate to the allowance for loan losses and the related provision for loan losses and the calculation of our deferred tax asset and related valuation allowance. The allowance represents an amount that, in the Company's judgment, will be adequate to absorb probable and estimable losses inherent in the loan portfolio. The judgment in determining the level of the allowance is based on evaluations of the collectability of loans while taking into consideration such factors as trends in delinquencies and charge-offs for relevant periods of time, changes in the nature and volume of the loan portfolio, current economic conditions that may affect a borrower's ability to repay and the value of collateral, overall portfolio quality and review of specific potential losses. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. Deferred tax assets or liabilities are computed based upon the difference between financial statement and income tax bases of assets and liabilities using the enacted marginal tax rate. In the past, the Company provided a valuation allowance on its net deferred tax assets where it was deemed more likely than not such assets would not be realized. At March 31, 2022 and December 31, 2021, the Company had no valuation allowance on its net deferred tax assets. 23 The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. For further discussion of the deferred tax asset and valuation allowance, we refer you to the section on “Deferred Tax Asset and Income Taxes” below. Overview and Highlights The Company generated net income for the three months ended March 31, 2022 of $1.9 million, or basic and diluted net income per share of $0.08, as compared to the three months ended March 31, 2021 when the Company had net income of $1.6 million, or $0.07 basic and diluted net income per share. The primary drivers for the increase were increases in net interest income of $208 thousand, a reduction in the provision for loan losses of $86 thousand, and an increase in total noninterest income of $241 thousand. Net interest income increased $208 thousand due to a $270 thousand decrease in interest expense, which more than offset a $62 thousand decrease in interest income. Although year-over-year there was a $36.3 million increase in the volume of earning assets, due largely to growth in the investment and loan portfolios of $60.7 million and $9.7 million, respectively, interest income attributed to the increased volume of earning assets increased only $43 thousand. There are a couple of primary reasons for the results. One, the net increase was negatively impacted comparative to the prior year due to a $312 thousand decrease in loan fee income resulting from the forgiveness in PPP loans in 2021 which was not replicated in 2022. We anticipate loan interest income to be less in the second and third quarters of 2022 as compared to the same periods in 2021 for the same reasons related to the PPP loan fee income cessation. Secondly, interest income was negatively impacted by the repricing of earning assets at lower interest rates which caused a year-over-year, rate related, decline of $105 thousand. Interest expense decreased driven by the continued low interest rate environment throughout 2021 and into the first quarter of 2022, as our overall cost of funds fell 16 basis points year-over-year to 0.30% for the first quarter of 2022. Also, the mix of deposits continues to shift away from time deposits to lower, and noninterest, rate bearing deposits. Furthermore, Federal Home Loan Bank advances were paid off resulting in a decrease in interest expense of $96,000. In March and May 2022, the Federal Open Market Committee raised the target federal funds rate 25 and 50 basis points, respectively, in what is largely considered to be a series of rate increases during 2022. Due to our interest rate sensitivity position, we anticipate interest income to increase as interest rates increase in the near future; however, future year-over-year comparisons may not reflect the increase due to the impact of the PPP loan forgiveness in 2021. The year-over-year reduction in the provision for loan losses of $86 thousand is due to a combination of factors, including the improving characteristics of the loan portfolio, as exhibited by the decline in nonperforming loans, combined with continued improving employment metrics. Annualized net charge-offs to average loans remain at low levels and were 0.05% for the quarter ended March 31, 2022. Nonaccrual loans to total loans and nonperforming assets to total assets declined to 0.44% and 0.42%, respectively at March 31, 2022. Total non-interest income increased $240,000 during the first quarter of 2022 compared to the first quarter of 2021 due to increases in service charges and fees and card processing fees of $175 thousand and $52 thousand, respectively. The service charges and fees increase relates to increased volume in overdraft charges related to customer activity beginning to return to pre-pandemic levels as businesses reopened and as customers spend savings from stimulus payments accumulated during the pandemic. Card processing fee revenue is also volume related for reasons similar to those impacting service charge income. In addition, year-over-year, fees generated through financial and merchant services increased $12 thousand and $11 thousand, respectively, due to increased volume from both new and existing customers using these services. We continue efforts to increase noninterest income revenue through product enhancements and customer development. Total non-interest expense increased $90 thousand, as salaries and benefits expense increased $196 thousand due to the impact of increasing our minimum base hourly wage in the fourth quarter of 2021, targeted salary adjustments to retain and attract employees, combined with normal annual wage adjustments and added accrued costs for performance incentive plans to be awarded in the first quarter of 2023, if 2022 goals are met. Occupancy expense decreased $170 thousand due largely to the reduction in the number of buildings through sales or transfers to other real estate owned. Additionally, net depreciation costs for furniture, equipment and computer equipment decreased $89 thousand as assets reached the end of their estimated economic useful lives, along with the decommissioning of a number of interactive teller machines during the fourth quarter of 2021. Other operating expenses increased $83 thousand year-over-year, primarily due to costs related to the holding and disposal of other real estate owned, which increased from $33 thousand to $130 thousand in 2021 to 2022. ATM network expenses increased $25 thousand to $367 thousand, due to increased activity combined with general cost increases. Miscellaneous losses increased $69 thousand to $50 thousand in 2022, as compared to net recoveries of $19 thousand in 2021. These increased expenses were partially offset by decreases in data processing and telecommunications costs, and FDIC insurance which decreased $19 thousand and $21 thousand, respectively. Data processing and telecommunication costs decreased due to the reduction in the number of branch sites and renegotiated contracts, while FDIC insurance decreased due to the improved risk factors considered in the premium assessment. Efforts continue to decrease non-interest expenses of the Company and improve efficiency. 24 Total assets increased $18.9 million, or 2.4%, to $813.5 million at March 31, 2022 from $794.6 million at December 31, 2021, funded largely by increased deposits as the low interest rate environment continues to provide liquidity. Total loans increased $1.4 million, or 0.23%, to $595.1 million at March 31, 2022 from $593.7 million at December 31, 2021. Loan growth has resulted from to increases in construction and land development loans, commercial loans secured by real estate and multi-family loans, which grew $6.5 million, $1.2 million and $1.4 million, respectively. Growth in these components of the portfolio offset a reduction in commercial loans of $6.7 million. The decrease in commercial loans was largely the result of the repayment and forgiveness of PPP loans which declined $3.6 million during the first three months of 2022. Our loan production operation in Boone, North Carolina, continues to generate positive results, as well as our Tri Cities area branches in Bristol, Virginia and Kingsport, Tennessee. Total deposits increased $23.5 million, or 3.3%, to $731.0 million at March 31, 2022 from $707.5 million at December 31, 2021, driven by liquidity resulting from the continuing low interest rate environment and seasonal growth from income tax refunds. At March 31, 2022, shareholders’ equity totaled $58.9 million, a decrease of $4.7 million, or 7.4%, from December 31, 2021. The primary cause for the net decrease was the change in the net unrealized loss on investment securities available for sale, which increased $5.4 million, or 668.8%, during the first quarter of 2022, due to the impact of the change in interest rates. Excluding the impact of the unrealized loss, equity increased $725 thousand, due to net income of $1.9 million less the cash dividend payment of $1.2 million, which was the first cash dividend paid by the Company. Highlights as of and for the three month period ended March 31, 2022 include: · Net income for the first quarter of 2022 was $1.9 million, compared to $1.6 million for the first quarter of 2021; · Net interest margin was 3.53% for the quarter, a decrease of 6 basis points compared to 3.59% for the quarter ended March 31, 2021; · Provision for loans losses was $100 thousand for the quarter, a reduction of $86 thousand compared to the first quarter of 2021; · Salaries and employee benefits expense increased $196 thousand, or 6.4%, to $3.3 million for the first quarter of 2022 compared to the same quarter in 2021; · Total assets grew $18.9 million to $813.5 million, during the first three months of 2022; while · Deposit balances grew $23.5 million; · Loan balances grew $1.4 million; and · Nonperforming assets, which include nonaccrual loans and other real estate owned, totaled $3.4 million at March 31, 2022, a decline of $867 thousand, or 20.2%, during the quarter. Comparison of the Three Months ended March 31, 2022 to March 31, 2021 The Company’s primary source of income is net interest income, which increased by $208 thousand, or 3.2%, to $6.6 million for the first quarter of 2022 compared to $6.4 million for the first quarter of 2021. While we had increases in average loan balances and investment securities, those were impacted by the effect of decreases in interest rates and a decrease of $292 thousand in nonrecurring PPP loan fees in 2022, causing interest income to decrease by $62 thousand. However, total interest expense decreased $270 thousand, which more than mitigated the decrease in interest income. The decrease in interest expense was driven primarily by a $253 thousand decrease in interest on deposits, a result of growth in noninterest bearing deposits and a 16 basis-point decrease in the cost of funds to 30 bps. Overall, the net interest margin decreased 6 bps to 3.53%. 25 The following table shows the rates paid on earning assets and interest bearing liabilities for the periods indicated: Net Interest Margin Analysis Average Balances, Income and Expense, and Yields and Rates (Dollars in thousands) Three Months Ended March 31, 2022 2021 Average Income/ Yields/ Average Income/ Yields/ Balance Expense Rates Balance Expense Rates ASSETS Loans (1) (2) (3) $ 596,060 $ 6,674 4.54% $ 586,733 $ 6,921 4.79% Federal funds sold 218 - 0.15% 227 - 0.07% Interest bearing deposits in other banks 53,809 21 0.16% 87,535 19 0.09% Taxable investment securities 110,435 462 1.67% 49,687 279 2.25% Total earning assets 760,522 7,157 3.82% 724,182 7,219 4.04% Less: Allowance for loans losses (6,848) (7,303) Non-earning assets 49,332 59,938 Total Assets $ 803,006 $ 776,817 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing demand deposits $ 67,217 $ 16 0.10% $ 52,999 $ 14 0.11% Savings and money market deposits 194,195 38 0.08% 164,260 37 0.09% Time deposits 196,283 376 0.78% 232,938 632 1.10% Short-term borrowings - - -% 5,000 17 1.34% Trust preferred securities 16,496 106 2.58% 16,496 106 2.58% Total interest-bearing liabilities 474,191 536 0.46% 471,693 806 0.69% Non-interest-bearing deposits 258,157 - -% 237,454 - % Total deposit liabilities and cost of funds 732,348 536 0.30% 709,147 806 0.46% Other liabilities 7,575 9,031 Total Liabilities 739,923 718,178 Shareholders’ Equity 63,083 58,639 Total Liabilities and Shareholders’ Equity $ 803,006 $ 776,817 Net Interest Income $ 6,621 $ 6,413 Net Interest Margin 3.53% 3.59% Net Interest Spread 3.36% 3.35% (1) Nonaccrual loans and loans held for sale have been included in average loan balances. (2) Tax exempt income is not significant and has been treated as fully taxable. (3) Includes loans held for sale Net interest income is affected by changes in both average interest rates and average volumes (balances) of interest-earning assets and interest-bearing liabilities. The following table sets forth the amounts of the total changes in interest income and interest expense which can be attributed to rates and volume for the period indicated: 26 Volume and Rate Analysis Increase (decrease) Three Months Ended March 31, 2022 versus 2021 (Dollars in thousands) Volume Effect Rate Effect Change in Interest Income/ Expense Interest Income: Loans $ (160) $ (87) $ (247) Federal funds sold - - - Interest bearing deposits in other banks (9) 11 2 Taxable investment securities 212 (29) 183 Total Earning Assets 43 (105) (62) Interest Expense: Interest-bearing demand deposits 4 (2) 2 Savings and money market deposits 7 (6) 1 Time deposits (90) (166) (256) Short-term borrowings (17) - (17) Trust preferred securities - - - Total Interest-bearing Liabilities (96) (174) (270) Change in Net Interest Income $ 139 $ 69 $ 208 Based on our current assessment of the loan portfolio, a lower provision of $100 thousand was made in the first quarter of 2022, after considering the continued improvement in loan quality, exhibited by reductions in past due and nonaccrual loans and classified assets. For a discussion of the factors affecting the allowance for loan losses, including provision expense, refer to Note 7, Allowance for Loan Losses, in Item 1 of this Form 10-Q. Noninterest income for the first quarter of 2022 was $2.4 million, an increase of $240 thousand, or 11.3%, when compared to the same period in 2021. As discussed previously, increased revenues from service charges and card servicing fees, which increased $175 thousand and $52 thousand, respectively, were the primary drivers of this improvement. Revenue from financial services activities increased $12 thousand, or 5.3%, while merchant services income increased $11 thousand or 37.6%, as we continue to develop, or expand existing, customer relationships in these service sectors. Total non-interest expense increased $90 thousand, year-over-year for the three month period ending March 31, 2022. As previously discussed, increases to salaries and benefits expenses of $196 thousand were largely offset by reduced occupancy expenses which decreased $170 thousand. The efficiency ratio, a non-GAAP measure, which is defined as noninterest expense divided by the sum of net interest income plus noninterest income, improved to 71.6% for the first quarter of 2022 from 74.3% for the first quarter of 2021, as we continue to implement changes to increase income and further control operating expenses. On April 29, 2022, the Bank notified its principal regulators that it will be closing branch offices in Big Stone Gap and Chilhowie, Virginia, on August 12, 2022. Accounts serviced at these offices will be transferred to nearby branches, and employees will be reassigned to other positions or offices, as available. Interactive teller machines at these locations will remain in service for the foreseeable future. This restructuring of the branch network should improve the efficiency of service to the customers of these communities. Income tax expense for the first quarter of 2022 totaled $530 thousand, an increase of $108 thousand, or 25.6% from the $422 thousand recorded during the same period in 2021. The year-over-year increase approximates the increase of pre-tax earnings. Balance Sheet Total assets increased $18.9 million, or 2.4%, to $813.5 million at March 31, 2022 from $794.6 million at December 31, 2021. This growth was primarily driven by the $23.5 million increase in deposits, which has increased interest-bearing deposits in other banks and has helped fund loan growth which increased $16.0 million and $1.4 million, respectively. 27 Total investments decreased $538 thousand, or 0.5%, to $106.8 million at March 31, 2022 due primarily to an increase of $6.9 million in net unrealized losses and $4.2 million of repayments and maturities, which were largely offset by purchases of $10.7 million. It is expected that purchases will continue as we deploy excess liquidity, and use the investment portfolio to manage the balance sheet and increase the return on earning assets. There were $100 thousand of loans held for sale at March 31, 2022 versus $0 at December 31, 2021. These loans are originated for sale into the secondary market on a best efforts basis. Loans receivable increased $1.4 million, or 0.2%, due mainly to increases in construction and land development loans, commercial loans secured by real estate and multi-family loans, which grew $6.5 million, $1.2 million and $1.4 million, respectively. Growth in these components of the portfolio offset a reduction in commercial loans of $6.7 million. The decrease in commercial loans was largely the result of the repayment and forgiveness of PPP loans which declined $3.6 million during the first three months of 2022. At March 31, 2022, PPP loans totaled $2.8 million. Total deposits increased $23.5 million, or 3.3%, to $731.0 million at March 31, 2022 from $707.5 million at December 31, 2021, due to increases in noninterest-bearing demand deposits of $18.0 million, or 7.2%, and interest-bearing deposits of $5.5 million, or 1.2%. The increase in deposits was driven mainly by increases in interest-bearing NOW and demand deposits and other interest-bearing transaction accounts which increased $5.5 million and $5.6 million, respectively, offset by a decrease in time deposits of $5.7 million. The increase in deposits is something experienced across the industry, due to the continuing low interest rate environment, combined with the lingering impact of various stimulus and liquidity measures implemented by the government during the peak of the pandemic. While it is likely that recent and expected increases to the federal funds rate will, at some point, impact liquidity, we continue to maintain core deposits through attractive consumer and commercial deposit products and strong ties with our customer base and communities. Trust preferred securities of $16.5 million at March 31, 2022 were unchanged compared to December 31, 2021. Total equity at March 31, 2022 was $58.9 million, a decrease of $4.7 million, or 7.4%, compared to $63.6 million at December 31, 2021. As discussed previously and in the Capital Resources section the primary driver of the decline was the $5.4 million net increase in the other accumulated comprehensive loss, related to the unrealized loss on available for sale investment securities, along with a cash dividend payment. The increase in other accumulated comprehensive loss is related to the recent increase in interest rates and is not related to any deterioration in the credit quality of any investment securities held. Asset Quality Non-performing assets decreased $867 thousand, or 20.2%, during the first three months of 2022, driven by a decrease in nonaccruing loan balances of $301 thousand, a decrease in other real estate owned (OREO) of $566 thousand. As a result, the ratio of nonperforming assets to total assets decreased to 0.42% at March 31, 2022 compared to 0.54% at December 31, 2021. Nonperforming assets include nonaccrual loans, OREO and loans past due more than 90 days which are still accruing interest. Our policy is to place loans on nonaccruing status once they reach 90 days past due. The makeup of the nonaccruing loans is primarily those secured by residential mortgages, and commercial real estate. OREO is primarily made up of commercial properties, farmland and land of which $475 thousand consists of former branch office sites that were transferred to OREO in 2021. Those two remaining branch sites at March 31, 2022, were sold in May 2022, bringing our OREO balance down to $321 thousand. We continue extensive and aggressive measures to work through problem credits and liquidate foreclosed properties in an effort to reduce nonperforming assets. We remain mindful of the impact on earnings and capital as we work to achieve our goal to reduce nonperforming assets. However, we may recognize some losses and reductions in the allowance for loan loss as we expedite the resolution of these problem assets. Loans rated substandard or below totaled $2.6 million at March 31, 2022, a decrease of $261 thousand from $2.9 million at December 31, 2021. Total past due loans decreased to $2.7 million at March 31, 2022 from $3.4 million at December 31, 2021. Please refer to Note 6 Loans in Section 1 of this Form 10-Q for additional details related to loan ratings and past due loans. 28 Our allowance for loan losses at March 31, 2022 was $6.8 million, or 1.14% of total loans as compared to $6.7 million, or 1.13%, of total loans at December 31, 2021. Impaired loans totaled $2.8 million with an estimated related specific allowance of $199 thousand for potential losses at March 31, 2022 as compared to $2.8 million of impaired loans with an estimated related allowance of $166 thousand at the end of 2021. A provision of $100 thousand was recorded for the first quarter of 2022 compared to $186 thousand for the first three months of 2021. In the first three months of 2022, net charge-offs were $76 thousand, or 0.05% of average loans, annualized, as compared to $84 thousand, or 0.06%, of average loans for the same period of 2021. The allowance for loan losses is being maintained at a level that management deems appropriate to absorb any potential future losses and known impairments within the loan portfolio, whether or not the losses are actually ever realized. We continue to adjust the allowance for loan loss model to best reflect the risks in the portfolio and the changes made in our internal policies and procedures; however, future provisions may be deemed necessary. Due to uncertainties related to the ongoing pandemic and the resulting economic uncertainty, internal and external qualitative factors that were revised early in the pandemic remain largely in place. These revisions included reviewing our internal scoring related to loan modifications and extensions, and external factors, specifically, unemployment and other economic factors. We have commenced the process of preparing to implement the Current Expected Credit Loss (CECL) model to replace our legacy loan loss model. We are on schedule to be testing and running concurrent quarterly calculations of both the legacy and CECL models by the end of the second quarter 2022. Selected Credit Ratios March 31, December 31, (Dollars in thousands) 2022 2021 Allowance for loan losses $ 6,759 $ 6,735 Total loans 595,132 593,744 Allowance for loan losses to total loans 1.14 % 1.13 % Nonaccrual loans $ 2,640 $ 2,941 Nonaccrual loans to total loans 0.44 % 0.50 % Ratio of allowance for loan losses to nonaccrual loans 2.56 X 2.29 X Charge-offs net of recoveries $ 76 $ 828 Average loans $ 596,046 $ 586,963 Net charge-offs to average loans 0.05 % 0.14 % Deferred Tax Asset and Income Taxes Due to timing differences between book and tax treatment of several income and expense items, a net deferred tax asset, excluding the deferred tax asset on the unrealized loss on securities available for sale, of $2.6 million and $1.7 million existed at March 31, 2022 and December 31, 2021, respectively. Our income tax expense was computed at the corporate income tax rate of 21% of taxable income. We have no significant nontaxable income or nondeductible expenses. Capital Resources Total shareholders’ equity at March 31, 2022 was $58.9 million compared to $63.6 million at December 31, 2021, a decrease of $4.7 million, or 7.4%. As previously discussed, this decline was driven by the $5.4 million net increase in the accumulated comprehensive loss related to the unrealized loss on investment securities available- for-sale. Excluding the impact of the unrealized loss, equity increased $725 thousand, due to net income of $1.9 million less the cash dividend payment of $1.2 million. The Company meets the eligibility criteria to be classified as a small bank holding company in accordance with the Federal Reserve’s Small Bank Holding Company Policy Statement issued in February 2015 and is therefore not obligated to report consolidated regulatory capital. The Bank continues to be subject to various capital requirements administered by banking agencies. 29 The Bank’s capital ratios along with the minimum regulatory thresholds to be considered well-capitalized are presented at Note 4 in Item 1 of this Form 10-Q. At March 31, 2022, the Bank remains well capitalized under the regulatory framework for prompt corrective action. The ratios mentioned above for the Bank comply with the Federal Reserve rules to align with the Basel III Capital requirements. Book value per common share was $2.46 at March 31, 2022, and $2.66 at December 31, 2021. Excluding the impact of the accumulated other comprehensive loss, book value per share was $2.72 and $2.69 at March 31, 2022 and December 31, 2021, respectively. Other key performance indicators are as follows: Three months ended March 31, 2022 2021 Return on average assets 1 0.97% 0.83% Return on average equity 1 12.35% 10.96% Average equity to average assets 7.86% 7.55% 1 - Annualized Under current economic conditions, we believe it is prudent to continue to retain capital sufficient to support planned asset growth while being able to absorb potential losses that may occur if asset quality deteriorates, and based upon projections, we believe our current capital levels will be sufficient. During the first quarter of 2022, the Company paid its first cash dividend of $0.05 to shareholders. Earnings will continue to be retained to provide capital to support the planned growth and operations of the Company and to continue to pay any future dividends to shareholders. On April 28, 2022 the board of directors of the Company authorized the repurchase of up to 500,000 shares of the Company’s outstanding common stock through March 31, 2023. The actual means and timing of any purchases, number of shares and prices or range of prices will be determined by the Company in its discretion and will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal and regulatory requirements. There is no assurance that the Company will purchase any shares under this program Liquidity We closely monitor our liquidity and our liquid assets in the form of cash, due from banks, federal funds sold, and unpledged available for sale investments. Collectively, those balances were $184.7 million at March 31, 2022, an increase of $25.4 million from $159.3 million at December 31, 2021. A surplus of short-term assets is maintained at levels management deems adequate to meet potential liquidity needs during 2022. At March 31, 2022, all of our investment securities were classified as available-for-sale. These investments provide a source of liquidity in the amount of $95.8 million, which is net of the $11.1 million of securities pledged as collateral. Investment securities available for sale serve as a source of liquidity while yielding a higher return versus other short-term investment options, such as federal funds sold and overnight deposits with the Federal Reserve Bank. Our loan to deposit ratio was 81.4% at March 31, 2022 and 83.9% at December 31, 2021. We anticipate this ratio to remain at or below 90% for the foreseeable future. Available third-party sources of liquidity at March 31, 2022 include the following: a line of credit with the FHLB, access to brokered certificates of deposit markets and the discount window at the Federal Reserve Bank. We also have the ability to borrow $30.0 million in unsecured federal funds through credit facilities extended by correspondent banks. The Bank’s line of credit with the FHLB is $198.6 million, with unused availability at March 31, 2022 of $186.6 million. No FHLB advances were outstanding at March 31, 2022, but the credit line also secures letters of credit totaling $12.0 million. The available line and the outstanding letters of credit are secured by a blanket lien on our residential real estate loans which amounted to $132.0 million at March 31, 2022. 30 The Bank also has access to the brokered deposits market and the Certificate of Deposit Registry Service (CDARS). At March 31, 2022, we held no brokered deposits and $4.4 million in CDARS reciprocal time deposits. Additional liquidity is available through the Federal Reserve Bank discount window for overnight funding needs. We may collateralize this line with investment securities and loans at our discretion; however, we do not anticipate using this funding source except as a last resort. With the on-balance sheet liquidity and other external sources of funding, we believe the Bank has adequate liquidity and capital resources to meet our requirements and needs for the foreseeable future. However, liquidity can be further affected by a number of factors such as counterparty willingness or ability to extend credit, regulatory actions and customer preferences, etc., some of which are beyond our control. The bank holding company has approximately $748 thousand in cash on deposit at the Bank at March 31, 2022. The holding company receives periodic dividend payments from the Bank which are used to pay operating expenses, trust preferred interest payments, and fund dividend payments to shareholders. The Company makes quarterly interest payments on the trust preferred securities. As discussed in the Capital Resources section, on April 28, 2022, the board of directors of the Company authorized the repurchase of up to 500,000 shares of the Company’s outstanding common stock through March 31, 2023. Payments for any repurchases will be distributed from available funds, or from dividends payments from the Bank. Off Balance Sheet Items and Contractual Obligations There have been no material changes during the quarter ended March 31, 2022 to the off-balance sheet items and the contractual obligations disclosed in our 2021 Form 10-K. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable.