Citizens Holding Co: Form 10-Q for the period ended Mar 31, 2022

(in thousands, except share and per share data)

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q (the “Quarterly Report”) contains statements that constitute forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are based on management’s beliefs, plans, expectations and assumptions and on information currently available to management. The words “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate” and similar expressions used in this Quarterly Report that do not relate to historical facts are intended to identify forward-looking statements. These statements appear in a number of places in this Quarterly Report. The Company notes that a variety of factors could cause the actual results or experience to differ materially from the anticipated results or other expectations described or implied by such forward-looking statements.

The risks and uncertainties that may affect the operation, performance, development and results of the business of Citizens Holding Company (the “Company”) and the Company’s wholly-owned subsidiary, The Citizens Bank of Philadelphia, Mississippi (the “Bank” and collectively with the Company, the “Company”), include, but are not limited to, the following:

• expectations about the movement of interest rates, including actions that may be taken by the Federal Reserve Board in response to changing economic conditions;
• adverse changes in asset quality and loan demand, and the potential insufficiency of the allowance for loan losses and our ability to foreclose on delinquent mortgages;
• the risk of adverse changes in business conditions in the banking industry generally and in the specific markets in which the Company operates including, but not limited to, the effects of the emergence of widespread health emergencies or pandemics, including the duration of the COVID-19 pandemic and its impact on the Company’s and its customers’ business, results of operations, asset quality and financial condition;
• inflationary risks on the general economic, market or business conditions;
• extensive regulation, changes in the legislative and regulatory environment that negatively impact the Company and the Bank through increased operating expenses and the potential for regulatory enforcement actions, claims, or litigation;
• increased competition from other financial institutions and the risk of failure to achieve our business strategies;
• events affecting our business operations, including the effectiveness of our risk management framework, the accuracy of our estimates, our reliance on third party vendors, the risk of security breaches and potential fraud, and the impact of technological advances;
• climate change and societal responses to climate change could adversely affect the Company’s business and results of operations, including indirectly through impact to its customers;
• our ability to maintain sufficient capital and to raise additional capital when needed;
• our ability to maintain adequate liquidity to conduct business and meet our obligations;
• events affecting our ability to compete effectively and achieve our strategies, such as the risk of failure to achieve the revenue increases expected to result from our acquisitions, branch additions and in new product and service offerings, our ability to control expenses and our ability to attract and retain skilled people;
• events that adversely affect our reputation, and the resulting potential adverse impact on our business operations;
• risks arising from owning our common stock, such as the volatility and trading volume, our ability to pay dividends, the regulatory limitations on stock ownership, and provisions in our governing documents that may make it more difficult for another party to obtain control of us; and
• other risks detailed from time-to-time in the Company’s filings with the Securities and Exchange Commission.

Except as required by law, the Company does not undertake any obligation to update or revise any forward-looking statements subsequent to the date of this Quarterly Report, or if earlier, the date on which such statements were made.

Management’s discussion and analysis is intended to provide greater insight into the results of operations and the financial condition of the Company. The following discussion should be read in conjunction with the consolidated financial statements and notes appearing elsewhere in this Quarterly Report. All dollar amounts appearing in this section of our Quarterly Report are in thousands unless otherwise noted or the context otherwise requires.

OVERVIEW

The Company is a one-bank holding company incorporated under the laws of the State of Mississippi on February 16, 1982. The Company is the sole shareholder of the Bank. The Company does not have any direct subsidiaries other than the Bank.

The Bank was opened on February 8, 1908 as The First National Bank of Philadelphia. In 1917, the Bank surrendered its national charter and obtained a state charter, at which time the name of the Bank was changed to The Citizens Bank of Philadelphia, Mississippi. At March 31, 2022, the Bank was the largest bank headquartered in Neshoba County, Mississippi, with total assets of $1,348,538 and total deposits of $1,150,255. In addition to full service commercial banking, the Bank offers title insurance services through its affiliate, Title Services LLC. All significant intercompany transactions have been eliminated in consolidation. The principal executive offices of both the Company and the Bank are located at 521 Main Street, Philadelphia, Mississippi 39350, and the main telephone number is (601) 656-4692. All references hereinafter to the activities or operations of the Company reflect the Company’s activities or operations through the Bank.

LIQUIDITY

The Company has an asset and liability management program that assists management in maintaining net interest margins during times of both rising and falling interest rates and in maintaining sufficient liquidity. A measurement of liquidity is the ratio of net deposits and short-term liabilities divided by the sum of net cash, short-term investments and marketable assets. This measurement for liquidity of the Company at March 31, 2022, was 34.42% and at December 31, 2021, was 39.71%. The decrease was due to a decrease in interest bearing cash and cash equivalents and a decline in the fair market value of investment securities as of March 31, 2022. Management believes it maintains adequate liquidity for the Company’s current needs.

The Company’s primary source of liquidity is customer deposits, which were $1,149,580 at March 31, 2022, and $1,111,892 at December 31, 2021. Other sources of liquidity include investment securities, the Company’s line of credit with the Federal Home Loan Bank (“FHLB”), the Company’s secured line of credit with First Horizon Bank (“FHN”) and federal funds lines with correspondent banks. The Company had $674,715 invested in available-for-sale investment securities at March 31, 2022, and $647,557 at December 31, 2021. The increase in securities is the result of management deploying excess cash into higher yielding assets.

The Company also had $59,217 in interest bearing deposits at other banks at March 31, 2022 and $68,563 at December 31, 2021. The Company had secured and unsecured federal funds lines with correspondent banks in the amount of $45,000 at both March 31, 2022 and December 31, 2021. In addition, the Company has the ability to draw on its line of credit with the FHLB and FHN. At March 31, 2022, the Company had unused and available $210,522 of its line of credit with the FHLB and at December 31, 2021, the Company had unused and available $221,088 of its line of credit with the FHLB. The decrease in the amount available under the Company’s line of credit with the FHLB from the end of 2021 to March 31, 2022, was the result of a decrease in the amount of loans eligible for the collateral pool securing the Company’s line of credit with the FHLB. The secured line of credit with FHN was originated on June 9, 2021. At March 31, 2022, the Company had unused and available $2,000 of its secured line of credit with FHN. The Company had federal funds purchased of $-0- as of March 31, 2022 and December 31, 2021. The Company may purchase federal funds from correspondent banks on a temporary basis to meet short term funding needs.

When the Company has more funds than it needs for its reserve requirements or short-term liquidity needs, the Company increases its investment portfolio, increases the balances in interest bearing due from bank accounts or sells federal funds. It is management’s policy to maintain an adequate portion of its portfolio of assets and liabilities on a short-term basis to ensure rate flexibility and to meet loan funding and liquidity needs. When deposits decline or do not grow sufficiently to fund loan demand, management will seek funding either through federal funds purchased or advances from the FHLB.

CAPITAL RESOURCES

Total shareholders’ equity was $62,950 at March 31, 2022, as compared to $105,900 at December 31, 2021. The decrease in shareholders’ equity was the result of the accumulated other comprehensive loss (“AOCL”) brought about by the investment securities market value adjustment partially offset by earnings in excess of dividends paid. The AOCL is a result of an increase in interest rates that have occurred since the purchase of securities. Management does not intend to sell any securities at an unrealized loss position. Additionally, as noted in the liquidity section the Company has significant liquidity options available if the need for short-term funds arises.

The Company paid aggregate cash dividends in the amount of $1,343, or $0.24 per share, during the three-month period ended March 31, 2022 compared to $1,341, or $0.24 per share, for the same period in 2021.

Quantitative measures established by federal regulations to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of Total and Tier 1 capital (primarily common stock and retained earnings, less goodwill) to risk weighted assets, and of Tier 1 capital to average assets. Management believes that as of March 31, 2022, the Company and Bank meets all capital adequacy requirements to which it is subject and according to these requirements the Company and Bank is considered to be well capitalized.

The Dodd-Frank Act requires the Federal Reserve Bank (“FRB”), the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Company (“FDIC”) to adopt regulations imposing a continuing “floor” on the risk based capital requirements. In December 2010, the Basel Committee released a final framework for a strengthened set of capital requirements, known as “Basel III”. In early July 2013, each of the U.S. federal banking agencies adopted final rules relevant to us: (1) the Basel III regulatory capital reforms; and (2) the “standardized approach of Basel II for non-core banks and bank holding companies”, such as the Bank and the Company. The capital framework under Basel III replaced the existing regulatory capital rules for all banks, savings associations and U.S. bank holding companies with greater than $500 million in total assets, and all savings and loan holding companies.

Beginning January 1, 2015, the Company and the Bank began to comply with the final Basel III rules, which became effective on January 1, 2019. Among other things, the final Basel III rules impact regulatory capital ratios of banking organizations in the following manner:

• Create a requirement to maintain a ratio of common equity Tier 1 capital to total risk-weighted assets of not less than 4.5%;
• Increase the minimum leverage capital ratio to 4% for all banking organizations (currently 3% for certain banking organizations);
• Increase the minimum Tier 1 risk-based capital ratio from 4% to 6%; and
• Maintain the minimum total risk-based capital ratio at 8%.

In addition, the final Basel III rules subject banking organizations to certain limitations on capital distributions and discretionary bonus payments to executive officers if the organization does not maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of its total risk-weighted assets. The effect of the capital conservation buffer increases the minimum common equity Tier 1 capital ratio to 7%, the minimum Tier 1 risk-based capital ratio to 8.5% and the minimum total risk-based capital ratio to 10.5% for banking organizations seeking to avoid the limitations on capital distributions and discretionary bonus payments to executive officers.

The final Basel III rules also changed the capital categories for insured depository institutions for purposes of prompt corrective action. Under the final rules, to be well capitalized, an insured depository institution must maintain a minimum common equity Tier 1 capital ratio of at least 6.5%, a Tier 1 risk-based capital ratio of at least 8%, a total risk-based capital ratio of at least 10.0%, and a leverage capital ratio of at least 5%. In addition, the final Basel III rules established more conservative standards for including an instrument in regulatory capital and imposed certain deductions from and adjustments to the measure of common equity Tier 1 capital.

Management believes that, as of March 31, 2022, the Company and the Bank met all capital adequacy requirements under Basel III. The changes to the calculation of risk-weighted assets required by Basel III did not have a material impact on the Company’s capital ratios as presented.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated, certain items in the consolidated statements of income of the Company and the related changes between those periods:

See Note 3 to the Company’s Consolidated Financial Statements for an explanation regarding the Company’s calculation of Net Income Per Share - basic and - diluted.

Annualized return on average equity (“ROE”) was 8.53% for the three months ended March 31, 2022, and 6.45% for the corresponding period in 2021. The increase in ROE for the three months March 31, 2022 compared to the same period in 2021 was a result of an increase in earnings compared to prior period coupled with a decline in equity due to the unrealized losses on investments in AOCL.

Book value per share decreased to $11.27 at March 31, 2022, compared to $18.95 at December 31, 2021. The decrease in book value per share is directly attributable to the decrease in shareholders’ equity discussed above. Average assets for the three months ended March 31, 2022 were $1,352,709 compared to $1,412,082 for the year ended December 31, 2021. This decrease was due mainly to the Company reducing higher interest-bearing deposits throughout 2021.

NET INTEREST INCOME / NET INTEREST MARGIN

The main component of the Company’s earnings is net interest income, which is the difference between the interest and fees earned on loans and investments and the interest paid for deposits and borrowed funds. The net interest margin is net interest income expressed as a percentage of average earning assets. The primary concerns in managing net interest income are the volume, mix and repricing of assets and liabilities.

Net interest income was $8,287 for the three months ended March 31, 2022, as compared to $7,633 for the same respective time period in 2021.

The annualized net interest margin was 2.69% for the three months ended March 31, 2022 compared to 2.32% for the corresponding period of 2021. The increase in net interest margin for the three months ended Mach 31, 2022, when compared to the same period in 2021, was mainly due to interest on securities increasing by $1,711, or 183.39%, to $2,644 compared to $933 in same period in 2021. Additionally, management decreased the cost of funds to 33 basis point (“bps”) for the three months ended March 31, 2022 compared to 54 bps for the three months ended March 31, 2021. The increase in interest on securities coupled with the decrease in the cost of funds offset the decline in interest income on loans which decreased by $1,734, or (21.33%), compared to the same period in 2021.

At the current stage in the pandemic with interest rates starting to increase due to quantitative tightening by the Federal Reserve Bank to combat inflationary pressure that is starting to affect the economic recovery, the Company reasonably expects interest rates will continue to increase in the coming year. As a result, the Company is in position to benefit from interest rate hikes due to the amount of assets set to reprice during the coming year, and due to the fact interest-bearing demand and savings deposits may not be immediately affected by changes in general interest rates.

The following table sets forth average balance sheet data, including all major categories of interest-earning assets and interest-bearing liabilities, together with the interest earned or interest paid and the average yield or average rate paid on each such category for the periods presented:

TABLE 1 - AVERAGE BALANCE SHEETS AND INTEREST RATES

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(1) Overdrafts, while not considered an earning asset, are included in Loans, net of unearned in the average volume calculation due to the immaterial impact on the yield.

(2) Earnings Assets in the table above does include the dividend paying stock of the Federal Home Loan Bank.

(3) Demand deposits are not included in the average volume calculation as they are not interest bearing liabilities. They are included within the non-interest bearing liabilities section above.

The average balances of nonaccruing assets are included in the tables above. Interest income and weighted average yields on tax-exempt loans and securities have been computed on a fully tax equivalent basis assuming a federal tax rate of 21% and a state tax rate of 3.95%, which is net of federal tax benefit.

Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes in volume, mix and pricing decisions. External factors include changes in market interest rates, competition and the shape of the interest rate yield curve. For the three months ended March 31, 2022, repricing of interest-bearing demand deposits, and reallocating the investment portfolio into slower prepaying non-taxable securities and lower coupon mortgage-backed securities offset both the decline in yield on loans and the decline on yield on tax-exempt securities compared to the same period in 2021. Management believes by continuing to reprice and strategically reduce interest-bearing liabilities as they mature, continued focus on loan growth, and continuing to reallocate the investment mix will increase the net interest margin.

The following table sets forth a summary of the changes in interest earned, on a tax equivalent basis, and interest paid resulting from changes in volume and rates for the Company for the three months ended March 31, 2022 compared to the same respective period in 2021:

(in thousands)

CREDIT LOSS EXPERIENCE

As a natural corollary to the Company’s lending activities, some loan losses are to be expected. The risk of loss varies with the type of loan being made and the overall creditworthiness of the borrower over the term of the loan. The degree of perceived risk is taken into account in establishing the structure of, and interest rates and security for, specific loans and for various types of loans. The Company attempts to minimize its credit risk exposure by use of thorough loan application and approval procedures.

The Company maintains a program of systematic review of its existing loans. Loans are graded for their overall quality. Those loans, which management determines require further monitoring and supervision, are segregated and reviewed on a regular basis. Significant problem loans are reviewed monthly by the Company’s management and Board of Directors.

The Company charges off that portion of any loan that the Company’s management and Board of Directors has determined to be a loss. A loan is generally considered by management to represent a loss, in whole or in part, when exposure beyond the collateral value is apparent, servicing of the unsecured portion has been discontinued or collection is not anticipated based on the borrower’s financial condition. The general economic conditions in the borrower’s industry influence this determination. The principal amount of any loan that is declared a loss is charged against the Company’s allowance for loan losses.

The Company’s allowance for loan losses is designed to provide for loan losses that can be reasonably anticipated. The allowance for loan losses is established through charges to operating expenses in the form of provisions for loan losses. Actual loan losses or recoveries are charged or credited to the allowance for loan losses. Management determines the amount of the allowance, and the Board of Directors reviews and approves the allowance for loan losses. Among the factors considered in determining the allowance for loan losses are the current financial condition of the Company’s borrowers and the value of security, if any, for their loans. Estimates of future economic conditions and their impact on various industries and individual borrowers are also taken into consideration, as are the Company’s historical loan loss experience and reports of banking regulatory authorities. As these estimates, factors and evaluations are primarily judgmental, no assurance can be given as to whether the Company will sustain loan losses in excess or below its allowance or that subsequent evaluation of the loan portfolio may not require material increases or decreases in such allowance.

The following table summarizes the Company’s allowance for loan losses for the dates indicated:

The provision for loan losses for the three months ended March 31, 2022 was $93. The provision was primarily driven by loan growth during the quarter coupled with qualitative factor adjustments due to inflationary risk concerns to both the local and national economy. The Company’s model used to calculate the provision is based on the percentage of historical charge-offs, increased for certain qualitative factors within the regulatory framework, applied to the current loan balances by loan segment and specific reserves applied to certain impaired loans. Nonaccrual loans decreased during this period due to payments received and loans charged off in excess of new loans being added to nonaccrual status.

For the three months ended March 31, 2022, net loan losses recovered to the allowance for loan losses totaled $170, a decrease of $220 from the $50 charged off in the same period in 2021. A majority of the recoveries for the three months ended March 31, 2022 was due to recovery payments from one consumer loan that was previously charged-off in the fourth quarter of 2021. The total amount of recoveries from this loan was $175 for the three months ended March 31, 2022.

Management reviews quarterly with the Company’s Board of Directors the adequacy of the allowance for loan losses. The loan loss provision is adjusted when specific items reflect a need for such an adjustment. Management believes that there were no material loan losses during the three months ended March 31, 2022 that have not been charged off or specifically reserved for in the allowance. Management also believes that the Company’s allowance will be adequate to absorb probable losses inherent in the Company’s loan portfolio. However, it remains possible that additional provisions for loan loss may be required.

OTHER INCOME

Other income includes service charges on deposit accounts, wire transfer fees, safe deposit box rentals and other revenue not derived from interest on earning assets. Other income for the three months ended March 31, 2022 was $2,533, a decrease of $699, or (21.63%), from $3,232 in the same period in 2021. Service charges on deposit accounts were $945 in the three months ended March 31, 2022, compared to $814 for the same period in 2021. As the national and local economies are continuing to recover, spending and overdraft income have continued to trend upward. Included in the service charges on deposit accounts line item for the three months ended March 31, 2021, overdraft income increased by $124, or 22.56%, from the same period in 2021. Other service charges and fees increased by $50, or 5.13%, to $1,025 for the three months ended March 31, 2022 compared to $975 for the same period in 2021. Interchange fees which are included in the other service charges and fees line item on the income statement reflected a majority of the increase, by increasing $33, or 3.69%, to $922 for the three months ended March 31, 2022, compared to $889 for the same period in 2021. Other operating income not derived from service charges or fees decreased $354, or (38.60%), to $563 in the three months ended March 31, 2022, compared to $917 for the same period in 2021. This decrease was primarily due to a decrease in gains from the sale of other real estate owned properties and a decrease in mortgage loan origination income.

The following is a detail of the other major income classifications that were included in other operation income on the income statement:

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OTHER EXPENSES

Other expenses include salaries and employee benefits, occupancy and equipment, and other operating expenses. Aggregate non-interest expenses for the three months ended March 31, 2022 and 2021 were $8,301 and $8,468, respectively, a decrease of $167 or (1.97%). Salaries and benefits decreased $129, or (2.82%), to $4,439 for the three months ended March 31, 2022 when compared to the same period in 2021. Occupancy expense decreased by $42, or (2.31%), to $1,775 for the three months ended March 31, 2022, compared to $1,817 for the same period of 2021. For the three months ended March 31, 2022, other expense increased $4, or 0.19% to $2,087 compared to $2,083 for the same period in 2021.

The following is a detail of the major expense classifications that make up the other expense line item in the income statement:

The Company’s efficiency ratio for the three months ended March 31, 2022 was 75.33%, compared to 76.12% for the same period in 2021. The efficiency ratio is the ratio of non-interest expenses divided by the sum of net interest income (on a fully tax equivalent basis) and non-interest income.

BALANCE SHEET ANALYSIS

CASH AND CASH EQUIVALENTS

Cash and due from banks, which consist of cash, balances at correspondent banks and items in process of collection, balance at March 31, 2022 was $13,228, which was an increase of $2,555 from the balance of $10,673 at December 31, 2021. Interest bearing deposit with other banks decreased by $9,346, or (13.63%), to $59,217 at March 31, 2022 compared to $68,563 at December 31, 2021.

INVESTMENT SECURITIES

The Company’s investment securities portfolio primarily consists of United States agency debentures, mortgage-backed securities and obligations of states, counties and municipalities. Due to recent increases in interest rates, the fair value of the Company’s investment securities on the balance sheet represents a decrease in investment securities for the three months ended as of March 31, 2022 when compared to the balance of investment securities at December 31, 2021. The impact of the related unrealized losses net of the tax benefit was $43,682 is presented on the consolidated statements of comprehensive loss. However, as disclosed in Note 6 of the notes of the financial statement the Company’s investments securities portfolio at March 31, 2022 increased by $27,158, or 4.19%, to $674,715 from $647,557 at December 31, 2021 when comparing the amortized cost of the Company’s investments securities. The increase is a result of the Company deploying excess cash into higher yielding investment securities.

LOANS

The Company’s loan balance increased by $11,347, or 1.98%, during the three months ended March 31, 2022, to $583,194 from $571,847 at December 31, 2021. Excluding PPP loans with a total balance of $2,047 at March 31, 2022 and $5,789 at December 31, 2021, total loans increased $15,089, or 2.67%, compared to $566,058 at December 31, 2021. The linked-quarter growth primarily reflects increases in construction and development, commercial real estate, and credit cards loans. No material changes were made to the loan products offered by the Company during this period.

DEPOSITS

The following table shows the balance and percentage change in the various deposits:

All deposit accounts except for certificates of deposits increased during the three months ended March 31, 2022. The increase in deposit accounts is a result of the continued savings trend because of the record financial stimulus issued to mitigate the effects of the COVID-19 pandemic. The decrease in certificates of deposit accounts is a result of management strategically reducing higher interest-bearing accounts to help improve both interest margin and the Bank’s capital ratios. Management continually monitors the interest rates on time deposit products to ensure that the Company is managing liquidity in line with our asset and liability management objectives. These rate adjustments impact deposit balances.

OFF-BALANCE SHEET ARRANGEMENTS

Please refer to Note 2 to the consolidated financial statements included in this Quarterly Report for a discussion of the nature and extent of the Company’s off-balance sheet arrangements, which consist solely of commitments to fund loans and letters of credit.

Asset/Liability Management and Interest Rate Risk

The principal objective of our asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The Board of Directors of the Bank has oversight of our asset and liability management function, which is managed by our Chief Financial Officer. Our Chief Financial Officer meets with our senior executive management team regularly to review, among other things, the sensitivity of our assets and liabilities to market rate changes, local and national market conditions and market interest rates. That group also reviews our liquidity, capital, deposit mix, loan mix and investment positions.

As a financial institution, our primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the fair value of all interest earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair values.

We manage our exposure to interest rates primarily by structuring our balance sheet in the ordinary course of business. We do not typically enter into derivative contracts for the purpose of managing interest rate risk, but we may elect to do so should the situation warrant. Based upon the nature of our operations, we are not subject to material foreign exchange or commodity price risk. We do not own any trading assets.

We use an interest rate risk simulation model to test the interest rate sensitivity of net interest income and the balance sheet. Instantaneous parallel rate shift scenarios are modeled and utilized to evaluate risk and establish exposure limits for acceptable changes in projected net interest margin. These scenarios, known as rate shocks, simulate an instantaneous change in interest rates and use various assumptions, including, but not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, and reinvestment and replacement of asset and liability cash flows. We also analyze the economic value of equity as a secondary measure of interest rate risk. This is a complementary measure to net interest income where the calculated value is the result of the fair value of assets less the fair value of liabilities. The economic value of equity is a longer-term view of interest rate risk because it measures the present value of all future cash flows. The impact of changes in interest rates on this calculation is analyzed for the risk to our future earnings and is used in conjunction with the analyses on net interest income.

The following table summarizes the simulated change in net interest income assuming a static balance sheet versus unchanged rates as of March 31, 2022 and December 31, 2021:

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The following table presents the change in our economic value of equity as of March 31, 2022 and December 31, 2021, assuming immediate parallel shifts in interest rates:

Many assumptions are used to calculate the impact of interest rate fluctuations. Actual results may be significantly different than our projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. The computations of interest rate risk shown above do not include actions that our management may undertake to manage the risks in response to anticipated changes in interest rates, and actual results may also differ due to any actions taken in response to the changing rates.

As part of our asset/liability management strategy, our management has emphasized the origination of shorter duration loans as well as variable rate loans to limit the negative exposure to a rate increase. We also desire to acquire deposit transaction accounts, particularly noninterest or low interest-bearing non-maturity deposit accounts, whose cost is less sensitive to changes in interest rates.

The management of the Company, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decision regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that such disclosure controls and procedures were effective as of March 31, 2022 (the end of the period covered by this Quarterly Report).

There were no changes to the Company’s internal control over financial reporting that occurred in the three months ended March 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company’s business, future financial condition and results of operations are subject to a number of factors, risks and uncertainties, which are disclosed in Item 1A, “Risk Factors,” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, which the Company filed with the Securities and Exchange Commission on March 11, 2022. Additional information regarding some of those risks and uncertainties is contained in the notes to the consolidated financial statements appearing in Part I, Item 1 of this Quarterly Report, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in Part I, Item 2 of this Quarterly Report and in “Quantitative and Qualitative Disclosures About Market Risk” appearing in Part I, Item 3 of this Quarterly Report. The risks and uncertainties disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the Company’s quarterly reports on Form 10-Q and other reports and forms filed with the SEC are not necessarily all of the risks and uncertainties that may affect the Company’s business, financial condition and results of operations in the future.