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The Company paid cash dividends of $0.54 per share in the first six months of 2023,
an increase of 2% from the same
period of 2022.
The Company repurchased 4,225 shares for $0.1
million during the first six months of 2023.
At June 30,
2023, the Bank’s regulatory capital ratios
were well above the minimum amounts required to be “well capitalized” under
current regulatory standards with a total risk-based capital ratio of 16.31%,
a tier 1 leverage ratio of 10.23% and a common
equity tier 1 (“CET1”) ratio of 15.33% at June 30, 2023.
At June 30,
2023, the Company’s equity to total assets ratio
was
6.92%, compared to 6.65% at December 31, 2022, and 7.02% at June 30, 2022
.
For the second quarter of 2023, net earnings were $1.9 million, or $0.55
per share, compared to $1.8 million, or $0.51 per
share, for the second quarter of 2022.
Net interest income (tax-equivalent) was $7.0 million for the second quarter of 2023,
an increase of 8% compared to $6.5
million for the second quarter of 2022.
This increase was primarily due to
improvements in the Company’s net interest
margin.
The Company’s net interest margin
(tax-equivalent) was 3.03% in the
second quarter of 2023 compared to 2.60% in the second quarter of 2022.
The Company recorded a negative provision for
credit losses during the second quarter of 2023 of $0.4 million, compared to no provision for
credit losses during the second
quarter 2022.
The provision for credit losses was primarily related to the resolution of a collateral
dependent
nonperforming loan, with a recorded investment of $1.3 million and a corresponding allowance
of $0.5 million, that was
collected in full during the second quarter of 2023.
Noninterest income was $0.8 million in the second quarter of 2023 and
2022, respectively.
Noninterest expense was $5.8 million in the second quarter of 2023,
compared to $5.1 million for the
second quarter of 2022.
The increase in noninterest expense was primarily due to increases in other noninterest expense
of
$0.4 million.
Income tax expense was $0.3
million for the second quarter of 2023, compared to $0.4 million for the second
quarter of 2022.
The Company's effective tax rate for the second quarter of 2023
was 13.00%, compared to 16.77% in the
second quarter of 2022.
The Company’s effective income
tax rate is principally impacted by tax-exempt earnings from the
Company’s investment in municipal
securities, bank-owned life insurance, and New Markets Tax
Credits.
CRITICAL ACCOUNTING POLICIES
The accounting and financial reporting policies of the Company conform with U.S. generally accepted
accounting
principles and with general practices within the banking industry.
In connection with the application of those principles, we
have made judgments and estimates which, in the case of the determination of our allowance
for credit losses for loans, our
determination of credit losses for investment securities,
recurring and non-recurring fair value measurements, the valuation
of other real estate owned, and the valuation of deferred tax assets, were critical to the determination
of our financial
position and results of operations. Other policies also require subjective judgment and
assumptions and may accordingly
impact our financial position and results of operations.
Accounting Standards Adopted in 2023
On January 1, 2023, the Company adopted ASC 326 as described more fully in our
unaudited financial statements in Part I
of this Quarterly report,
especially Note 1, Accounting Standards Adopted in 2023 and Note 5, Loans and Allowance
for
Credit Losses.
This standard replaced the incurred loss methodology with an expected loss
methodology that is referred to
as the current expected credit loss (“CECL”) methodology.
CECL requires an estimate of credit losses for the remaining
estimated life of the financial asset using historical experience, current conditions,
and reasonable and supportable forecasts
and generally applies to financial assets measured at amortized cost, including loan
receivables and held-to-maturity debt
securities, and some off-balance sheet credit exposures such as unfunded
commitments to extend credit. Financial assets
measured at amortized cost will be presented at the net amount expected to be
collected by using an allowance for credit
In addition, CECL made changes to the accounting for available for sale debt
securities. One such change is to require
credit losses to be presented as an allowance rather than as a write-down on available for sale debt
securities if management
does not intend to sell and does not believe that it is more likely than not, they will be required
to sell.
The Company adopted ASC 326 and all related subsequent amendments thereto
effective January 1, 2023 using the
modified retrospective approach for all financial assets measured at amortized
cost and off-balance sheet credit exposures.
The transition adjustment upon the adoption of CECL on January 1, 2023 included an increase
in the allowance for credit
losses on loans of $1.0 million, which is presented as a reduction to net loans outstanding, and
an increase in the allowance
for credit losses on unfunded loan commitments of $0.1 million, which is recorded
within other liabilities. The Company
recorded a net decrease to retained earnings of $0.8 million as of January 1, 2023 for the cumulative
effect of adopting
CECL, which reflects the transition adjustments noted above, net of the applicable deferred
tax assets recorded. Results for
reporting periods beginning after January 1, 2023 are presented under CECL while prior
period amounts continue to be
reported
in accordance with previously applicable accounting standards.