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 credit 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; deposit flows and competition for deposits; 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; geopolitical conditions, including acts or threats of terrorism, international hostilities, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad; 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 the allowance for credit losses resulting from the adoption and implementation of the CECL methodology; the transition from the use of the LIBOR index; 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 Securities and Exchange Commission. 27 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, 2022, and Note 2 Summary of Significant Accounting Policies, in Item 1 of this Form 10-Q. 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 our allowance for credit losses. The allowance represents an amount that, in the Company's judgment, will be adequate to absorb expected 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, reasonable and supportable forecasts of 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. Overview and Highlights Net income for the three months ended March 31, 2023 was $2.0 million, an increase of $100,000, or 5.2%, from the same period in 2022. The increase was primarily due to improvement in the net interest margin to 3.83% for the first quarter of 2023 compared to 3.53% for the first quarter of 2022 due to the increase in asset yields outpacing increases in funding costs in the rising interest rate environment throughout 2022 and 2023. The primary driver for the improved earnings was an increase in net interest income of $447,000 and a reduction of the provision for credit losses of $100,000, offset by an increase in total noninterest expense of $431,000. The increase in total non-interest expense is related to increases in salaries and employee benefits as well as data processing and telecommunications expenses. The increase in salaries and employee benefits related to bonus accruals and performance raises, and benefits enhancements made in the first quarter of 2023. The balance sheet grew to $793.6 million as of March 31, 2023, from $775.4 million as of December 31, 2022, funded by deposits which increased $16.1 million to $708.8 million as of March 31, 2023 from $692.7 million as of December 31, 2022. These deposits funded an increase of $10.3 million in interest bearing deposits in other banks and an increase of $5.88 million in gross loans. The increase in gross loans is due to a moderate increase in loan demand and less prepayment activity due to the higher interest rate environment. During the second quarter of 2022, we initiated a previously announced stock repurchase program. Through March 31, 2023, 93,527 shares have been repurchased at an average price of $2.32 per share. Comparison of the Three Months ended March 31, 2023 and 2022 Quarter-to-date highlights include: · Returns on average assets and equity of 1.07% and 14.05 % for the first quarter of 2023, compared to 0.97% and 12.35% for the first quarter of 2022, respectively; · Net interest income was $7.0 million for the first quarter of 2023, an increase of $447,000, or 6.8%, compared to the first quarter of 2022; · No provision for credit losses for the first quarter of 2023 compared to $100,000 for the first quarter of 2022; · Noninterest income was $2.4 million, an increase of $30,000, or 1.3%, during the first quarter of 2023 compared to the first quarter of 2022; and · Noninterest expense was $6.9 million, an increase of $430,000, or 6.7%, for the first quarter of 2023 compared to the first quarter of 2022. The Company’s primary source of income is net interest income, which increased by $447,000, or 6.8%, to $7.0 million for the first quarter of 2023 compared to $6.6 million for the first quarter of 2022. Interest income increased $1.4 million due to increased interest earning deposits with banks and higher yielding loans resulting from the increase in fed funds rate. Total interest expense increased $918,000 driven primarily by the increase in the cost of interest-bearing liabilities, which rose 81 bps to 1.27% from 0.46% for comparative three months ended March 31, 2023 and 2022. The increase in interest rates more than offset the modest decrease of $9.4 million, or 1.98% in average interest-bearing liabilities for the comparative three-month period. Overall there was a 53 basis-point (“bp”) increase in the cost of funds to 83 bps while the net interest margin increased 30 bps to 3.83%. During the first quarter of 2023, the Federal Reserve’s Open Market Committee (FOMC) increased the discount rate two times for a total of 50 bps, bringing the number of rate increases to eight since the quarter ended March 31, 2022. The Company experienced benefits of the rate increases during the first quarter, but the full impact will be somewhat lagging as certain loans, investments, and borrowings through trust preferred securities will not reprice until the individual instruments next interest rate repricing date. Deposit rates have been impacted by the rate increases, but not yet to the extent of new loan rates and rates earned on overnight funds. The Company continues to evaluate rate adjustments for factors, including competitive pressure within the local markets, funding needs to support growth and other needs. 28 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, 2023 2022 Average Income/ Yields/ Average Income/ Yields/ Balance Expense Rates Balance Expense Rates ASSETS Loans (1) (2) (3) $ 586,116 $ 7,382 5.11% $ 596,060 $ 6,674 4.54% Federal funds sold 631 7 4.67% 218 - 0.15% Interest bearing deposits in other banks 47,944 533 4.50% 53,809 21 0.16% Taxable investment securities 112,739 600 2.13% 110,435 462 1.67% Total earning assets 747,430 8,522 4.62% 760,522 7,157 3.82% Less: allowance for credit losses (6,861) (6,848) Non-earning assets 36,812 49,332 Total assets $ 777,381 $ 803,006 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest-bearing demand deposits $ 80,331 $ 95 0.48% $ 67,217 $ 16 0.10% Savings and money market deposits 166,550 222 0.54% 194,195 38 0.08% Time deposits 199,858 829 1.68% 196,283 376 0.78% Total interest-bearing deposits 446,739 1,146 1.04% 457,695 430 0.38% Short-term borrowings 1,556 19 4.95% - - -% Trust preferred securities 16,496 289 7.11% 16,496 106 2.58% Total interest-bearing liabilities 464,791 1,454 1.27% 474,191 536 0.46% Non-interest-bearing deposits 245,010 - -% 258,157 - - % Total deposit liabilities and cost of funds 709,801 1,454 0.83% 732,348 536 0.30% Other liabilities 8,606 7,575 Total liabilities 718,407 739,923 Shareholders’ equity 58,974 63,083 Total liabilities and shareholders’ equity $ 777,381 $ 803,006 Net interest income $ 7,068 $ 6,621 Net interest margin 3.83% 3.53% Net interest spread 3.35% 3.36% (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 mortgage 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 three months ended March 31, 2023, as compared to the three months ended March 31, 2022. 29 Volume and Rate Analysis Increase (decrease) Three Months Ended March 31, 2023 versus March 31, 2022 (Dollars in thousands) Volume Effect Rate Effect Change in Interest Income/ Expense Interest income: Loans $ (236) $ 944 $ 708 Federal funds sold - 7 7 Interest bearing deposits in other banks (2) 514 512 Taxable investment securities 32 106 138 Total earning assets (206) 1,571 1,365 Interest expense: Interest-bearing demand deposits 5 74 79 Savings and money market deposits (7) 191 184 Time deposits 10 443 453 Short-term borrowings 19 - 19 Trust preferred securities - 183 183 Total interest-bearing liabilities 27 891 918 Change in net interest income $ (233) $ 680 $ 447 Based on our current assessment of the loan portfolio and related unfunded commitments, there was no provision for credit losses made in the first quarter of 2023, compared to $100,000 for the first quarter of 2022. Subsequent to adoption of ASU 2016-13 on January 1, 2023, based on management's analysis since the implementation date through March 31, 2023, no further provision for credit losses was required for the first quarter. The allowance for credit losses as a percentage of loans decreased from 1.15% at December 31, 2022 to 1.13% as of March 31, 2023. For a discussion of the factors affecting the allowance for credit losses, including provision expense, refer to Note 7, Allowance for Credit Losses for Loans, in Item 1 of this Form 10-Q. Non-interest income increased $30,000 to $2.4 million for the quarter ended March 31, 2023 from $2.4 million for the comparable quarter in 2022. The primary driver of the increase was the sale of the former call center building in Bristol, Virginia, and a former branch office in Big Stone Gap, Virginia, which resulted in a combined gain of $130,000. This was offset by decreases in service charge income and card processing fees totaling a combined $107,000 during the period. Service charge income decreased due to changes made in 2022 in assessing certain charges, that reduced the number of transactions subject to such fees. Fees from debit card activity declined, as stimulus funds payments resulting from tax credits and direct payments have been curtailed. Non-interest expense was $6.9 million for the quarter ended March 31, 2023 compared to $6.4 million for the quarter ended March 31, 2022. The $431,000 increase was impacted by increases in salaries and employee benefits as well as data processing and telecommunications expenses. The increase in salaries and employee benefits related to bonus accruals and performance raises, and benefits enhancements made during the first quarter of 2023. As previously reported, the Company approved a Long-Term Cash Incentive Plan (the “Plan”), effective February 27, 2023, for cash incentive awards to Plan participants based on quarterly earnings per share of common stock. The efficiency ratio, a non-GAAP measure, which is defined as noninterest expense divided by the sum of net interest income plus noninterest income, increased to 72.56% for first three months of 2023 from 71.59% for the first quarter of 2022. We continue to assess our operational procedures and structure to improve efficiencies and contain costs. Income tax expense for the first quarter of 2023 totaled $576,000, an increase of $46,000, or 8.68% from the $530,000 recorded during the same period in 2022. The effective tax rate for the three months ended March 31, 2023, was 22.2%, compared to 21.6% for the same period in 2022. The year-over-year, quarterly increase generally approximates the percentage increase of pre-tax earnings. 30 Balance Sheet Total assets as of March 31, 2023 were $793.6 million, an increase of $18.3 million, or 2.4%, from $775.4 million as of December 31, 2022. Gross loans increased $5.9 million, or 1.0%, during 2023, due to a moderate increase in loan demand, combined with less incentive for prepayments, by borrowers, due to the higher interest rate environment. Investment securities increased $646,000 during 2023 primarily due to a decrease of $2.7 million in the unrealized loss position offset by a decrease in mortgage-backed securities, agencies, and collateralized mortgage obligations of $2.1 million, collectively, due to principal repayments of amortizing investments. Gross loans increased $5.9 million, or 1.0% during the first three months of 2023. The increase is primarily related to multifamily and residential 1-4 family real estate secured loans. Multifamily real estate loans increased $4.5 million, or 15%, from $29.7 as of December 31, 2022 to $34.2 million as of March 31, 2023. Residential 1-4 family real estate increased $1.5 million, or 0.7% from $227.2 million as of December 31, 2022 to $228.7 million as of March 31, 2023. Loan originations, specifically commercial real estate and multi-family loans, continue to be positively impacted by our Boone, NC, loan production office, as well as originations in the Kingsport and Johnson City, Tennessee markets. Deposits were $708.8 million as of March 31, 2023 compared to $692.7 million as of December 31, 2022. The increase of the $16.1 million, or 2.3%, was due to efforts to attract and retain time deposits, combined with cyclical funds inflows primarily attributed to tax refunds, and pension and social security deposits, received by customers. Trust preferred securities of $16.5 million at March 31, 2023 were unchanged compared to December 31, 2022. Total equity as of March 31, 2023 was $59.7 million, an increase of $2.5 million, or 4.3%, compared to $57.2 million as of December 31, 2022. As discussed previously and in the Capital Resources section below, the primary driver of the increase was related to the decrease of $2.1 million in the net unrealized loss on available-for-sale investment securities combined with the quarter-to-date earnings of $2.0 million, offset by a cash dividend payment of $1.4 million, and the repurchase of common stock totaling $46,000. Additionally, the implementation of the CECL methodology, resulted in a onetime net of tax, direct charge to retained earnings of $212,000. Asset Quality Nonperforming assets include nonaccrual loans, other real estate owned (OREO) and loans past due more than 90 days which are still accruing interest. Our policy is to place loans on nonaccrual status once they reach 90 days past due. The makeup of the nonaccrual loans is primarily those secured by residential mortgages and commercial real estate. OREO is primarily made up of residential and commercial lots. Nonperforming assets decreased $586,000, or 15.9%, during the first three months of 2023, driven by a decrease of $586,000 in nonaccrual loans. The decrease in nonaccrual loans is attributed to a general improvement in the performance of nonaccrual loans, resulting in several accounts being returned to accruing status. No loans 90 days or more past due are accruing interest. As a result, the ratio of nonperforming assets to total assets decreased to 0.39% at March 31, 2023 compared to 0.47% at December 31, 2022. As of March 31, 2023, OREO is primarily made up of residential and commercial lots acquired through foreclosure. It remained consistent with a balance of $261,000 as of March 31, 2023 and December 31, 2022. Expenses associated with OREO were $6,000 for the quarter ended March 31, 2023, compared to $130,000 during the quarter ended March 31, 2022, due to costs associated with the sale of other real estate owned during the first three months of 2022. We continue to work to reduce nonperforming and under-performing assets. For detailed information for nonaccrual loans and other real estate owned as of March 31, 2023, and December 31, 2022, refer to Note 6 Loans and Note 9 Other Real Estate Owned in Item 1 of this Form 10-Q. Loans rated substandard or below totaled $2.8 million as of March 31, 2023, a decrease of $586,000 from $3.4 million at December 31, 2022. Total past due loans decreased $2.9 million, to $2.6 million at March 31, 2023 from $5.5 million at December 31, 2022. As discussed in Note 2 Summary of Significant Accounting Policies in Item 1 of this Form 10-Q, the Company adopted CECL effective January 1, 2023. The transition adjustment for the adoption of CECL resulted in a decrease to the allowance for credit losses on loans of $80,000. Our allowance for credit losses for loans as of March 31, 2023 was $6.7 million, or 1.13% of total loans, as compared to $6.7 million, or 1.15% of total loans, at December 31, 2022. Individually evaluated loans totaled $715,000 with an estimated related specific allowance of $64,000 at March 31, 2023, as compared to $2.7 million as of December 31, 2022 with an estimated related specific allowance of $86,000 of impaired loans at the end of 2022. There was no provision for credit losses recorded during the three months ended March 31, 2023, compared to a provision for loan losses of $100,000 recorded in the three months ended March 31, 2022, which was under the incurred loss model. For the three-months ended March 31, 2023, the net provision for credit losses of zero, was comprised of a provision of $24,000 to the allowance for credit losses for loans and reversal of $24,000 from the allowance for unfunded loan commitments. 31 In the first three months of 2023, net charge-offs totaled $10,000, or 0.01% of average loans, annualized, as compared to $76,000, or 0.05% of average loans, for the same period in 2022. The allowance for credit losses is 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. Through our quarterly assessment, we continue to adjust the CECL model to best reflect the characteristics in the portfolio. However, future provisions may be deemed necessary. During the first three months of 2023, we made modest adjustments to our qualitative factors as part of our CECL implementation. Those changes, along with the assessment of the historical and specific risks associated with the loan portfolio, resulted in a net provision for credit losses of zero, with offsetting adjustments to the loan and loan commitment components recorded during the first three months of 2023. The following table summarizes components of the allowance for credit losses and related loans as of March 31, 2023 and December 31, 2022: Selected Credit Ratios March 31, December 31, (Dollars in thousands) 2023 2022 Allowance for credit losses $ 6,661 $ 6,727 Total loans 590,490 584,613 Allowance for credit losses to total loans 1.13% 1.15% Nonaccrual loans $ 2,827 $ 3,413 Nonaccrual loans to total loans 0.48% 0.58% Ratio of allowance for credit losses to nonaccrual loans 2.36X 1.97X Charge-offs net of recoveries $ 10 $ 633 Average loans $ 586,116 $ 591,179 Annualized net charge-offs to average loans 0.01% 0.11% 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 $4.1 thousand and $4.6 million existed as of March 31, 2023 and December 31, 2022, 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. The implementation of the CECL methodology resulted in a onetime deferred tax charge of $56,000. Refer to Note 2 Summary of Significant Accounting Policies in Part 1 of this Form 10-Q Capital Resources Total shareholders’ equity as of March 31, 2023 was $59.7 million compared to $57.2 million at December 31, 2022, an increase of $2.5 million, or 4.3%. The increase was driven by a decrease in net unrealized loss on available-for-sale investment securities of $2.1 million, which, when combined with quarter-do-date earnings of $2.0 million, more than offset a cash dividend payment of $1.4 million and the repurchase of common stock totaling $46,000. Additionally, the implementation of the CECL methodology resulted in a onetime net of tax, direct charge to retained earnings of $212,000. 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. 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. As of March 31, 2023, 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. 32 Book value per common share was $2.50 as of March 31, 2023, and $2.40 at December 31, 2022. Other key performance indicators are as follows: Three Months Ended March 31, 2023 2022 Return on average assets 1 1.07% 0.97% Return on average equity 1 14.05% 12.35% Average equity to average assets 7.59% 7.86% 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 2023, the Company paid a cash dividend of $0.06 per common share to our shareholders. Future payments of cash dividends will depend on a number of factors including but not limited to maintaining positive retained earnings, compliance with regulatory rules governing the payment of dividends, strategic plans, and sufficient capital at the Bank to allow payment of dividends to the parent company. During the second quarter of 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. As previously reported, this plan was extended by the Board of Directors through March 31, 2024. 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. As of March 31, 2023, the Company has repurchased 93,527 shares at an average price of $2.32 per share. During the quarter ended March 31, 2023, the Company repurchased 19,932 shares at an average price of $2.28 per share. There is no assurance that the Company will purchase any additional 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 $143.7 million as of March 31, 2023, an increase of $13.2 million from $130.5 million as of December 31, 2022. A surplus of short-term assets is maintained at levels management deems adequate to meet potential liquidity needs during 2023. As of March 31, 2023, all of our investment securities were classified as available-for-sale. These investments provide a source of liquidity in the amount of $69.4 million, which is net of the $27.3 million of securities pledged to secure public funds and as collateral for advances against the discount window. 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. Due to the unrealized loss on securities available for sale, the sale of investments would not be considered a primary source of liquidity due to the immediate impact on regulatory capital; however, the majority of the portfolio is considered high credit quality investments and would be available to pledge against borrowings. Our loan to deposit ratio was 83.3% as of March 31, 2023 and 84.4% at December 31, 2022. We anticipate this ratio to remain at or below 90% for the foreseeable future. Available third-party sources of liquidity as of March 31, 2023 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. Additionally, in March 2023, the FRB, initiated a supplemental term funding program offering borrowings, of up to one year, secured by securities valued at par rather than market value. This program offers an additional source of liquidity against high quality securities, rather than liquidating securities should a need for additional funds arise. We also have the ability to borrow $30.0 million in unsecured federal funds through credit facilities extended by correspondent banks. We have used our line of credit with FHLB to issue a letter of credit totaling $7.0 million to the Treasury Board of Virginia for collateral on public funds. No draws on the letter of credit have been issued. This letter of credit is considered to be a draw on our FHLB line of credit. An additional $186.8 million was available as of March 31, 2023 on the $193.8 million line of credit, of which $116.5 million is secured by a blanket lien on our residential real estate loans. 33 We held no brokered deposits as of March 31, 2023 and December 31, 2022. Internet accounts are limited to customers located in our primary market area and the surrounding geographical area. The average balance of and the rate paid on deposits is shown in the net interest margin analysis table in the “Net Interest Income and Net Interest Margin” section. Total Certificate of Deposit Registry Services (“CDARS”) time deposits were $2.5 million and $1.4 million as of March 31, 2023 and December 31, 2022, respectively. Aside from the availability of CDARS time deposits, we also offer a similar deposit product for transaction account customers Intrafi Cash Service (“ICS”). At March 31, 2023 approximately $34.9 million were placed in this product as compared to $23.9 million at December 31, 2022. Both the CDARS and ICS offerings assist us in maintaining deposit relationships, while assuring the depositors’ funds retain federal deposit insurance coverage. 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, while we do not anticipate using this as a primary funding source, securities with an estimated market value of $27.3 million were pledged at March 31, 2023. In March and May, 2023, three regional banks, each with assets in excess of $100 billion, were taken into receivership through FDIC and were sold in-whole, or in part to other financial institutions. Two of these banks, Silicon Valley Bank (“SVB”) headquartered in Santa Clara, California, and First Republic Bank (“FR”) headquartered in San Francisco, California, experienced significant outflows of deposit funds fueled by concerns of large commercial and retail deposit customers holding funds far in excess of the FDIC insured limits at both institutions. These concerns, in SVB’s case, related to unrealized losses in SVB’s investment portfolio combined with the long-term maturities of the investments and other earning assets held by SVB. Concerns related to FR related to exposure to long-term jumbo mortgages made to preferred deposit customers and the impact to net interest earnings and the value of those mortgages in the rising rate environment. While we, or any other financial institution, can be impacted by sudden changes in market conditions or customer sentiment, we believe that our funding and liquidity management strategies and procedures are sound. In addition, our deposit customer base is diverse without significant exposure to uninsured deposit relationships. Prior to receivership of SVB and FR our deposit fluctuations were largely tied to cyclical events and inflows and outflows related to customers seeking higher interest rates. Since the date of these receiverships, we have not experienced any significant or unusual deposit outflows and we have taken steps to successfully test certain liquidity facilities in the event of any future deposit outflows. 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 $460,000 in cash on deposit at the Bank as of March 31, 2023. The holding company receives periodic dividend payments from the Bank which are used to pay operating expenses, to pay trust preferred interest payments, and to fund dividend payments to shareholders and repurchase shares. The Company makes quarterly interest payments on the trust preferred securities. As discussed in the Capital Resources section, the Company authorized the repurchase of up to 500,000 shares of the Company’s outstanding common stock through March 31, 2024. Payments for any repurchases will be distributed from available funds, or from dividend payments from the Bank, and are not expected to have a material impact on available liquidity. Off Balance Sheet Items and Contractual Obligations There have been no material changes during the three months ended March 31, 2023, to the off-balance sheet items and the contractual obligations disclosed in our 2022 Form 10-K. As discussed in Note 2 Summary of Significant Accounting Policies in Item 1 of this Form 10-Q, the Company adopted CECL effective January 1, 2023 to include an assessment of off-balance sheet credit exposures. The transition adjustment for the adoption of CECL included establishment of an allowance for credit losses on unfunded loan commitments of $348,000, which is recorded within other liabilities. 34 Item 3. Quantitative and Qualitative Disclosures About Market Risk Not Applicable.