# First Community Bankshares Inc: Form 10-Q for the period ended Mar 31, 2022

- Company: [First Community Bankshares Inc](/companies/fcbc.md) (CIK 859070)
- Form: 10-Q
- Filed: 2022-05-10
- Accepted by EDGAR: May 10, 2022, 15:22 ET
- Period: 2022-03-31
- Accession: 0001437749-22-011701
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/859070/000143774922011701/fcbc20220331_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/859070/000143774922011701/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2022-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2022-01-01 to 2022-03-31 | $486.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-01-01 to 2022-03-31 | $2.9m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-01-01 to 2022-03-31 | $9.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-01-01 to 2022-03-31 | $0.56 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-01-01 to 2022-03-31 | $0.57 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-01-01 to 2022-03-31 | 16,864,515 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-01-01 to 2022-03-31 | $10.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-01-01 to 2022-03-31 | $175.0k | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 3 months, 2022-01-01 to 2022-03-31 | $4.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2022-01-01 to 2022-03-31 | $4.1m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Total assets | at 2022-03-31 | $3.24bn | us-gaap:Assets |
| Total liabilities | at 2022-03-31 | $2.82bn | us-gaap:Liabilities |
| Long-term debt | at 2022-03-31 | $0 | us-gaap:LongTermDebt |
| Shareholders' equity | at 2022-03-31 | $424.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 55,453 characters.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand our financial condition, changes in financial condition, and results of operations. MD&A contains forward-looking statements and should be read in conjunction with our consolidated financial statements, accompanying notes, and other financial information included in this report and our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”). Unless the context suggests otherwise, the terms “First Community,” “Company,” “we,” “our,” and “us” refer to First Community Bankshares, Inc. and its subsidiaries as a consolidated entity.

### Executive Overview

First Community Bankshares, Inc. (the “Company”) is a financial holding company, headquartered in Bluefield, Virginia, that provides banking products and services through its wholly owned subsidiary First Community Bank (the “Bank”), a Virginia chartered bank institution. As of March 31, 2022, the Bank operated 49 branches in Virginia, West Virginia, North Carolina and Tennessee. As of March 31, 2022, full-time equivalent employees, calculated using the number of hours worked, totaled 610. Our primary source of earnings is net interest income, the difference between interest earned on assets and interest paid on liabilities, which is supplemented by fees for services, commissions on sales, and various deposit service charges. We fund our lending and investing activities primarily through the retail deposit operations of our branch banking network. We invest our funds primarily in loans to retail and commercial customers and various investment securities. Our common stock is traded on the NASDAQ Global Select Market under the symbol, FCBC.

The Bank offers trust management, estate administration, and investment advisory services through its Trust Division and wholly owned subsidiary First Community Wealth Management Inc. (“FCWM”). The Trust Division manages inter vivos trusts and trusts under will, develops and administers employee benefit and individual retirement plans, and manages and settles estates. Fiduciary fees for these services are charged on a schedule related to the size, nature, and complexity of the account. Revenues consist primarily of investment advisory fees and commissions on assets under management and administration. As of March 31, 2022, the Trust Division and FCWM managed and administered $1.28 billion in combined assets under various fee-based arrangements as fiduciary or agent. The Bank also offers a full range of commercial and personal insurance products through its strategic partnership with Bankers Insurance, LLC.

On March 29, 2022, the Bank entered into a Purchase and Assumption Agreement with Benchmark Community Bank, the banking subsidiary of Benchmark Bankshares, Inc., to sell its Emporia, Virginia branch. The sale includes the branch real estate, certain personal property, and all deposits associated with the branch.

### Critical Accounting Estimates

We prepare our consolidated financial statements in accordance with generally accepted accounting principles (“GAAP”) in the U.S. and conform to general practices within the banking industry. Our financial position and results of operations may require management to make significant estimates and assumptions that have a material impact on our financial condition or operating performance. Due to the level of subjectivity and the susceptibility of such matters to change, actual results could differ significantly from management’s assumptions and estimates. Estimates, assumptions, and judgments, which are periodically evaluated, are based on historical experience and other factors, including expectations of future events believed reasonable under the circumstances. These estimates are generally necessary when assets and liabilities are required to be recorded at estimated fair value, when a decline in the value of an asset carried on the financial statements at fair value warrants an impairment write-down or a valuation reserve, or when an asset or liability needs recorded based on the probability of occurrence of a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. Fair values and information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices, when available, or third-party sources. When quoted prices or third-party information is not available, management estimates valuation adjustments primarily through the use of financial modeling techniques and appraisal estimates.

### Allowance for Credit Losses or "ACL"

The ACL reflects management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. Management uses a systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded in the balance sheet reflects management’s best estimate of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. See Note 1 – "Basis of Presentation - Significant Accounting Policies" in this Quarterly Report on Form 10-Q for further detailed descriptions of our estimation process and methodology related to the ACL. See also Note 5 — "Allowance for Credit Losses" in this Quarterly Report on Form 10-Q, “Provision for Loan Losses and Nonperforming Assets” in this MD&A. Periods prior to the January 1, 2021, adoption of ASU 2016-13 follow prior accounting guidance for estimated loan losses and may not be comparable.

Our accounting policies are fundamental in understanding MD&A and the disclosures presented in Item 1, “Financial Statements,” of this Quarterly Report on Form 10-Q. Our accounting policies are described in detail in Note 1, “Basis of Presentation,” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1 of the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2022, and in Note 1, “Basis of Presentation and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Part II, Item 8 of our 2021 Form 10-K. Our critical accounting estimates are detailed in the “Critical Accounting Estimates” section in Part II, Item 7 of our 2021 Form 10-K.

### Performance Overview

Highlights of our results of operations for the three months ended March 31, 2022, and financial condition as of March 31, 2022, include the following:

- Net income of $9.52 million for the quarter was a decrease of $5.09 million, or $0.26 per diluted common share, compared to the same quarter of 2021. The decrease was primarily driven by a return to more normalized expense in the provision for credit losses of $1.96 million for the first quarter of 2022 compared to a $4.00 million reversal of provision in the first quarter of 2021. The current year provision is largely due to robust loan growth in the first quarter, principally led by commercial loan demand. The reversal of provision in the first quarter of 2021 was driven by a significantly improved economic outlook than in early 2020.
- Salaries and employee benefits increased $787 thousand, or 7.23%, from last year. During the quarter, the Company implemented annualized wage increases of approximately $2.5 million as part of its strategic iniative to enhance Human Capital Management, which included an increased minimum wage.
- Despite the significant increase in credit loss provision between the two periods, annualized first quarter return on average assets was 1.20% and return on average common equity was 8.98%.
- Non-performing loans to total loans remained at 0.96% of total loans and continues the declining trend experienced over the past four quarters. Net charge-offs for the first quarter of 2022 were $838 thousand, or 0.15%, of annualized average loans, compared to net charge-offs of $725 thousand, or 0.14% of annualized average loans, for the same period in 2021.
- The Company's loan portfolio increased by $78.73 million during the first quarter of 2022. Loan demand and originations increased in all categories, including construction, commercial real estate, residential mortgage, and consumer loans.
- The allowance for credit losses to total loans remained at 1.29% of total loans.
- Book value per share at March 31, 2022, was $25.27, a decrease of $0.07 from year-end 2021.

### Results of Operations

#### Net Income

The following table presents the changes in net income and related information for the periods indicated:

*(Amounts in thousands, except per*

| share data) | Three Months Ended March 31, 2022 | 2021 | Increase (Decrease) | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net income | $9,515 | $14,602 | $(5,087) | -34.84% |
| Basic earnings per common share | 0.57 | 0.83 | (0.26) | -31.33% |
| Diluted earnings per common share | 0.56 | 0.82 | (0.26) | -31.71% |
| Return on average assets | 1.20% | 1.94% | -0.74% | -38.14% |
| Return on average common equity | 8.98% | 13.94% | -4.96% | -35.58% |

*Three-Month Comparison.* Net income decreased $5.09 million in the first quarter of 2022 largely due to a $5.96 million increase in the provision for credit losses. Provision for credit losses totaled $1.96 million for the first quarter of 2022 compared to a reversal of provision of $4.00 million in the first quarter of 2021. The current year provision is largely due to the growth in loans in the first quarter, in particular commercial loan demand. The reversal of provision in the first quarter of 2021 was driven by significantly improved economic forecasts.

#### Net Interest Income

Net interest income, our largest contributor to earnings, is analyzed on a fully taxable equivalent (“FTE”) basis, a non-GAAP financial measure. For additional information, see “Non-GAAP Financial Measures” below. The following tables present the consolidated average balance sheets and net interest analysis on a FTE basis for the dates indicated:

### AVERAGE BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS (Unaudited)

*(Amounts in thousands)*

| Assets Earning assets | Three Months Ended March 31, 2022 Average Balance | Interest(1) | Average Yield/ Rate(1) | 2021 Average Balance | Interest(1) | Average Yield/ Rate(1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Loans(2)(3) | $2,200,003 | $24,698 | 4.55% | $2,165,054 | $26,582 | 4.98% |
| Securities available for sale | 140,975 | 800 | 2.30% | 83,634 | 573 | 2.78% |
| Interest-bearing deposits | 544,718 | 249 | 0.19% | 468,067 | 118 | 0.10% |
| Total earning assets | 2,885,696 | 25,747 | 3.62% | 2,716,755 | 27,273 | 4.07% |
| Other assets | 328,212 |  |  | 331,483 |  |  |
| Total assets | $3,213,908 |  |  | $3,048,238 |  |  |
| **Liabilities and stockholders' equity** |  |  |  |  |  |  |
| Interest-bearing deposits |  |  |  |  |  |  |
| Demand deposits | $679,211 | $28 | 0.02% | $613,003 | $39 | 0.03% |
| Savings deposits | 881,295 | 66 | 0.03% | 778,430 | 91 | 0.05% |
| Time deposits | 346,902 | 392 | 0.46% | 412,986 | 739 | 0.73% |
| Total interest-bearing deposits | 1,907,408 | 486 | 0.10% | 1,804,419 | 869 | 0.19% |
| Borrowings |  |  |  |  |  |  |
| Retail repurchase agreements | 1,993 | - | N/M | 1,234 | - | N/M |
| Total borrowings | 1,993 | - | N/M | 1,234 | - | N/M |
| Total interest-bearing liabilities | 1,909,401 | 486 | 0.10% | 1,805,653 | 869 | 0.19% |
| Noninterest-bearing demand deposits | 835,921 |  |  | 777,876 |  |  |
| Other liabilities | 38,956 |  |  | 39,926 |  |  |
| Total liabilities | 2,784,278 |  |  | 2,623,455 |  |  |
| Stockholders' equity | 429,630 |  |  | 424,783 |  |  |
| Total liabilities and stockholders' equity | $3,213,908 |  |  | $3,048,238 |  |  |
| Net interest income, FTE(1) |  | $25,261 |  |  | $26,404 |  |
| Net interest rate spread |  |  | 3.52% |  |  | 3.88% |
| Net interest margin, FTE(1) |  |  | 3.55% |  |  | 3.94% |

(1) Interest income and average yield/rate are presented on a FTE, non-GAAP, basis using the federal statutory income tax rate of 21%.

(2) Nonaccrual loans are included in the average balance; however, no related interest income is recorded during the period of nonaccrual.

(3) Interest on loans includes non-cash and accelerated purchase accounting accretion of $866 thousand and $1.19 million for the three months ended March 31, 2022 and 2021, respectively.

36

The following table presents the impact to net interest income on a FTE basis due to changes in volume (change in average volume times the prior year’s average rate), rate (average rate times the prior year’s average volume), and rate/volume (average volume times the change in average rate), for the periods indicated:

*(Amounts in thousands)*

| Interest earned on(1) | Three Months Ended March 31, 2022 Compared to 2021 Dollar Increase (Decrease) due to Volume | Rate | Rate/ Volume | Total |
| --- | ---: | ---: | ---: | ---: |
| Loans | $1,740 | $(9,232) | $5,608 | $(1,884) |
| Securities available-for-sale | 1,593 | (399) | (967) | 227 |
| Interest-bearing deposits with other banks | 78 | 389 | (336) | 131 |
| Total interest earning assets | 3,411 | (9,242) | 4,305 | (1,526) |
| Interest paid on |  |  |  |  |
| Demand deposits | 17 | (56) | 28 | (11) |
| Savings deposits | 49 | (133) | 59 | (25) |
| Time deposits | (480) | (1,104) | 1,237 | (347) |
| Retail repurchase agreements | - | - | - | - |
| FHLB advances and other borrowings | - | - | - | - |
| Total interest-bearing liabilities | (414) | (1,293) | 1,324 | (383) |
| Change in net interest income(1) | $3,825 | $(7,949) | $2,981 | $(1,143) |

(1) FTE basis based on the federal statutory rate of 21%.

*Three-Month Comparison*. Net interest income comprised 73.23% of total net interest and noninterest income in the first quarter of 2022 compared to 77.64% in the same quarter of 2021. Net interest income on a GAAP basis decreased $1.13 million, or 4.30%, compared to a decrease of $1.14 million, or 4.33%, on a FTE basis. The net interest margin on a FTE basis decreased 39 basis points and the net interest spread on a FTE basis decreased 36 basis points. The decrease in the net interest margin and the net interest spread are primarily attributable to the current historically low interest rate environment.

Average earning assets increased $168.94 million, or 6.22%, primarily due to an increase of $76.65 million, or 16.38% in overnight funds. Securites available for sale increased $57.34 million, or 68.56% due to recent purchases of $203.17 million. In addition, average loans increased $34.95 million, or 1.61%, primarily due to strong levels of loan demand in all categories. Average interest-bearing deposits increased $102.99 million, or 5.71%. This increase is primarily due to unprecedented levels of federal government stimulus during the pandemic. The yield on earning assets decreased 45 basis points, or 11.06%, primarily due to the historically low rate environment. The average loan to deposit ratio decreased to 80.19% from 83.84% in the same quarter of 2021. Non-cash accretion income decreased $321 thousand, or 27.04%.

Average interest-bearing liabilities, which consist of interest-bearing deposits and borrowings, increased $103.75 million, or 5.75%, primarily due to an increase in interest-bearing deposits. The yield on interest-bearing liabilities decreased 9 basis points. Average interest-bearing deposits increased $102.99 million, or 5.71%, which was driven by unprecedented levels of federal government stimulus during the pandemic. Savings deposits increased $102.87 million, or 13.21%, and interest-bearing demand deposits increased $66.21 million, or 10.80%. These increases were offset by a decrease in time deposits of $66.08 million, or 16.00%.

#### Provision for Credit Losses

*Three-Month Comparison*. The provision charged to operations increased $5.96 million, or 149.01%, in the first quarter of 2022 compared to the same quarter of 2021. Provision for credit lossess of $1.96 million was recorded in the first quarter of 2022 and was primarily attributable to loan growth in the first quarter. A reversal in provision of $4.00 million was recorded in the first quarter of 2021 and was due to significantly improved economic forecasts.

#### Noninterest Income

The following table presents the components of, and changes in, noninterest income for the periods indicated:

*(Amounts in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 | Increase% (Decrease) | Change |
| --- | ---: | ---: | ---: | ---: |
| Wealth management | $972 | $881 | $91 | 10.33% |
| Service charges on deposits | 3,498 | 3,031 | 467 | 15.41% |
| Other service charges and fees | 3,017 | 3,022 | (5) | -0.17% |
| Other operating income | 1,707 | 635 | 1,072 | 168.82% |
| Total noninterest income | $9,194 | $7,569 | $1,625 | 21.47% |

*Three-Month Comparison*. Noninterest income comprised 23.27% of total net interest and noninterest income in the first quarter of 2022 compared to 23.28% in the same quarter of 2021. Noninterest income increased $1.63 million or 21.47%. Other operating income increased $1.07 million, or 168.82%. The increase was primarily due to a fair value increase recognized in earnings of $578 thousand for interest rate swaps that do no qualify as a fair value hedge; as well as a gain of $394 thousand recognized on a bank-owned property sold during the first quarter of 2022. Service charges on deposits increased $467 thousand, or 15.41% compared with the same quarter of 2021. The increase is primarily attributable to increased customer activity compared to the activity levels experienced during 2021.

#### Noninterest Expense

The following table presents the components of, and changes in, noninterest expense for the periods indicated:

*(Amounts in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 | Increase% (Decrease) | Change |
| --- | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | $11,671 | $10,884 | $787 | 7.23% |
| Occupancy expense | 1,269 | 1,275 | (6) | -0.47% |
| Furniture and equipment expense | 1,614 | 1,367 | 247 | 18.07% |
| Service fees | 1,503 | 1,335 | 168 | 12.58% |
| Advertising and public relations | 540 | 335 | 205 | 61.19% |
| Professional fees | 453 | 466 | (13) | -2.79% |
| Amortization of intangibles | 357 | 357 | - | 0.00% |
| FDIC premiums and assessments | 218 | 199 | 19 | 9.55% |
| Other operating expense | 2,361 | 2,602 | (241) | -9.26% |
| Total noninterest expense | $19,986 | $18,820 | $1,166 | 6.20% |

*Three-Month Comparison*. Noninterest expense increased $1.17 million, or 6.20%, in the first quarter of 2022 compared to the same quarter of 2021. The increase was largely attributable to an increase in salaries and employee benefits of $787 thousand or 7.23%. Early in the first quarter of 2022, the Company implemented annualized wage increases of approximately $2.5 million as part of its strategic initiative to enhance Human Capital Management, which included an increased minimum wage.

#### Income Tax Expense

The Company’s effective tax rate, income tax as a percent of pre-tax income, may vary significantly from the statutory rate due to permanent differences and available tax credits. Permanent differences are income and expense items excluded by law in the calculation of taxable income. The Company’s most significant permanent differences generally include interest income on municipal securities and increases in the cash surrender value of life insurance policies.

*Three-Month Comparison*. Income tax expense decreased $1.55 million, or 34.88% and was primarily due to the decrease in pre-tax income. The effective tax rate remained level decreasing only one basis point to 23.27% in the first quarter of 2022 from 23.28% in the same quarter of 2021.

### Non-GAAP Financial Measures

In addition to financial statements prepared in accordance with GAAP, we use certain non-GAAP financial measures that management believes provide investors with important information useful in understanding our operational performance and comparing our financial measures with other financial institutions. The non-GAAP financial measure presented in this report includes net interest income on a FTE basis. We believe FTE basis is the preferred industry measurement of net interest income and provides better comparability between taxable and tax exempt amounts. We use this non-GAAP financial measure to monitor net interest income performance and to manage the composition of our balance sheet. The FTE basis adjusts for the tax benefits of income from certain tax exempt loans and investments using the federal statutory rate of 21%. While we believe certain non-GAAP financial measures enhance understanding of our business and performance, they are supplemental and not a substitute for, or more important than, financial measures prepared on a GAAP basis. Our non-GAAP financial measures may not be comparable to those reported by other financial institutions. The reconciliations of non-GAAP to GAAP measures are presented below.

The following table reconciles net interest income and margin, as presented in our consolidated statements of income, to net interest income on a FTE basis for the periods indicated:

*(Amounts in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Net interest income, GAAP | $25,153 | $26,282 |
| FTE adjustment(1) | 108 | 122 |
| Net interest income, FTE | 25,261 | 26,404 |
| Net interest margin, GAAP | 3.53% | 3.92% |
| FTE adjustment(1) | 0.02% | 0.02% |
| Net interest margin, FTE | 3.55% | 3.94% |

(1) FTE basis of 21%.

### Financial Condition

Total assets as of March 31, 2022, increased $49.61 million, or 1.55% from December 31, 2021. The increase in assets was primarily driven by an increase in securities available-for-sale of $192.41 million, or 252.20%. Loans increased $78.73 million, or 3.64%. These increases were offset by a decrease in overnight funds of $223.29 million, or 35.61%. In addition, total liabilities increased $53.23 million, or 1.92% as of March 31, 2022, from December 31, 2021. The increase in liabilities was primarily driven by an increase in total deposits of $53.55 million, or 1.96%.

#### Investment Securities

Our investment securities are used to generate interest income through the employment of excess funds, to provide liquidity, to fund loan demand or deposit liquidation, and to pledge as collateral where required. The composition of our investment portfolio changes from time to time as we consider our liquidity needs, interest rate expectations, asset/liability management strategies, and capital requirements.

Available-for-sale debt securities as of March 31, 2022, increased $192.41 million, or 252.20%, compared to December 31, 2021. The increase is due to the purchase of $203.17 million in securities comprised of U. S. Treasury Notes, mortgage-backed securities, and corporate notes. The purchases were offset by $4.76 million in maturities, prepayments, and calls. The market value of debt securities available for sale as a percentage of amortized cost was 97.86% as of March 31, 2022, compared to 100.02% as of December 31, 2021.

Management evaluates securities for impairment where there has been a decline in fair value below the amortized cost basis of a security to determine whether there is a credit loss associated with the decline in fair value on at least a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Credit losses are calculated individually, rather than collectively, using a discounted cash flow method, whereby Management compares the present value of expected cash flows with the amortized cost basis of the security. The credit loss component would be recognized through the provision for credit losses and the creation of an allowance for credit losses. Consideration is given to (1) the financial condition and near-term prospects of the issuer including looking at default and delinquency rates, (2) the outlook for receiving the contractual cash flows of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or for a debt security whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees, and (8) collateral values. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the investments. U.S. Treasury Securities, Agency-Backed Securities including GNMA, FHLMC, FNMA, FHLB, FFCB and SBA. All of the U.S. Treasury and Agency-Backed Securities have the full faith and credit backing of the United State Government or one of its agencies. Municipal securities and all other securities that do not have a zero expected credit loss are evaluated quarterly to determine whether there is a credit loss associated with a decline in fair value. All debt securities available for sale in an unrealized loss position as of March 31, 2022 continue to perform as scheduled and we do not believe that a provision for credit losses is necessary.

#### Loans Held for Investment

Loans held for investment, which generates the largest component of interest income, are grouped into commercial, consumer real estate, and consumer and other loan segments. Each segment is divided into various loan classes based on collateral or purpose.

The following table presents loans, net of unearned income, with non-covered loans by loan class as of the dates indicated:

*(Amounts in thousands)*

| Loans held for investment Commercial loans | March 31, 2022 Amount | Percent | December 31, 2021 Amount | Percent | March 31, 2021 Amount | Percent |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Construction, development, and other land | $77,460 | 3.45% | $65,806 | 3.04% | $45,328 | 2.11% |
| Commercial and industrial | 152,885 | 6.81% | 133,630 | 6.17% | 162,227 | 7.56% |
| Multi-family residential | 115,269 | 5.14% | 100,402 | 4.64% | 105,592 | 4.92% |
| Single family non-owner occupied | 198,282 | 8.83% | 198,778 | 9.18% | 187,896 | 8.75% |
| Non-farm, non-residential | 728,142 | 32.44% | 707,506 | 32.67% | 718,830 | 33.49% |
| Agricultural | 9,496 | 0.42% | 9,341 | 0.43% | 9,723 | 0.45% |
| Farmland | 14,313 | 0.64% | 15,013 | 0.69% | 19,014 | 0.89% |
| Total commercial loans | 1,295,847 | 57.73% | 1,230,476 | 56.82% | 1,248,610 | 58.17% |
| Consumer real estate loans |  |  |  |  |  |  |
| Home equity lines | 79,461 | 3.54% | 79,857 | 3.69% | 92,095 | 4.29% |
| Single family owner occupied | 705,070 | 31.43% | 703,864 | 32.50% | 665,128 | 30.97% |
| Owner occupied construction | 19,858 | 0.88% | 16,910 | 0.78% | 18,376 | 0.86% |
| Total consumer real estate loans | 804,389 | 35.85% | 800,631 | 36.97% | 775,599 | 36.12% |
| Consumer and other loans |  |  |  |  |  |  |
| Consumer loans | 139,280 | 6.21% | 129,794 | 5.99% | 117,904 | 5.49% |
| Other | 4,780 | 0.21% | 4,668 | 0.22% | 4,527 | 0.21% |
| Total consumer and other loans | 144,060 | 6.42% | 134,462 | 6.21% | 122,431 | 5.70% |
| Total loans held for investment, net of unearned income | 2,244,296 | 100.00% | 2,165,569 | 100.00% | 2,146,640 | 100.00% |
| Less: allowance for credit losses | 28,981 |  | 27,858 |  | 34,563 |  |
| Total loans held for investment, net of unearned income and allowance | $2,215,315 |  | $2,137,711 |  | $2,112,077 |  |

Total loans increased $78.73 million compared to December 31, 2021 with increases in all three loan segments. The largest increase, $65.37 million, occurred in the commercial loan segment. The increase was comprised of increases of $20.64 million in non-farm, non-residential real estate, $19.26 million in commercial and industrial, $14.87 million in multi-family, and $11.65 million in construction, development, and other land. Consumer and other loans increased $9.60 million, or 7.14%, with consumer loans being the driving factor in the increase. Additionally, the consumer real estate loan segment increased by $3.76 million. The increase occurred primarily in owner occupied construction, with an increase of $2.95 million, or 17.43%.

#### Risk Elements

We seek to mitigate credit risk by following specific underwriting practices and by ongoing monitoring of our loan portfolio. Our underwriting practices include the analysis of borrowers’ prior credit histories, financial statements, tax returns, and cash flow projections; valuation of collateral based on independent appraisers’ reports; and verification of liquid assets. We believe our underwriting criteria are appropriate for the various loan types we offer; however, losses may occur that exceed the reserves established in our allowance for loan losses. We track certain credit quality indicators that include: trends related to the risk rating of commercial loans, the level of classified commercial loans, net charge-offs, nonperforming loans, and general economic conditions. The Company’s loan review function generally analyzes all commercial loan relationships greater than $4.00 million annually and at various times during the year. Smaller commercial and retail loans are sampled for review during the year.

Nonperforming assets consist of nonaccrual loans, accrual loans contractually past due 90 days or more, unseasoned troubled debt restructurings (“TDRs”), and OREO. Ongoing activity in the classification and categories of nonperforming loans include collections on delinquencies, foreclosures, loan restructurings, and movements into or out of the nonperforming classification due to changing economic conditions, borrower financial capacity, or resolution efforts.

The following table presents the components of nonperforming assets and related information as of the periods indicated:

*(Amounts in thousands)*

| Nonperforming | March 31, 2022 | December 31, 2021 | March 31, 2021 |
| --- | ---: | ---: | ---: |
| Nonaccrual loans | $20,487 | $20,768 | $26,106 |
| Accruing loans past due 90 days or more | - | 87 | 171 |
| TDRs(1) | 1,141 | 1,367 | 308 |
| Total nonperforming loans | 21,628 | 22,222 | 26,585 |
| OREO | 848 | 1,015 | 1,740 |
| Total nonperforming assets | $22,476 | $23,237 | $28,325 |
| **Additional Information** |  |  |  |
| Total Accruing TDRs(2) | 8,782 | 8,652 | 9,027 |
| **Asset Quality Ratios:** |  |  |  |
| Nonperforming loans to total loans | 0.96% | 1.03% | 1.24% |
| Nonperforming assets to total assets | 0.69% | 0.73% | 0.90% |
| Allowance for loan losses to nonperforming loans | 134.00% | 125.36% | 130.01% |
| Allowance for loan losses to total loans | 1.29% | 1.29% | 1.61% |

(1) TDRs restructured within the past six months and nonperforming TDRs exclude nonaccrual TDRs of $1.73 million, $1.80 million, and $2.09 million for the periods ended March 31, 2022, December 31, 2021, and March 31, 2021, respectively. They are included in nonaccrual loans.

(2) Total accruing TDRs exclude nonaccrual TDRs of $2.23 million, $2.52 million, and $3.48 million for the periods ended March 31, 2022, December 31, 2021, and March 31, 2021, respectively. They are included in nonaccrual loans.

Nonperforming assets as of March 31, 2022, decreased $761 thousand, or 3.27%, from December 31, 2021, with decreases occurring in all categories. Nonaccrual loans decreased $281 thousand, or 1.35%, non-performing TDR's decreased $226 thousand, or 16.53%, OREO decreased $167 thousand, or 16.45%, and 90 days past due and still accruing decreased $87 thousand or 100.00%. As of March 31, 2022, nonaccrual loans were largely attributed to single family owner occupied (43.78%), non-farm, non-residential (16.49%), and single family non-owner occupied loans (12.61%). Certain loans included in the nonaccrual category have been written down to estimated realizable value or assigned specific reserves in the allowance for loan losses based on management’s estimate of loss at ultimate resolution.

Delinquent loans, comprised of loans 30 days or more past due and nonaccrual loans, totaled $31.24 million as of March 31, 2022, a decrease of $1.87 million, or 5.65%, compared to $33.10 million as of December 31, 2021. Delinquent loans as a percent of total loans totaled 1.39% as of March 31, 2022, which includes past due loans (0.48%) and nonaccrual loans (0.91%).

When restructuring loans for borrowers experiencing financial difficulty, we generally make concessions in interest rates, loan terms, or amortization terms. Certain TDRs are classified as nonperforming when modified and are returned to performing status after six months of satisfactory payment performance; however, these loans remain identified as impaired until full payment or other satisfaction of the obligation occurs. Accruing TDRs as of March 31, 2022, increased $130 thousand, or 1.50%, to $8.78 million from December 31, 2021. Unseasoned, or loans restructured within the last six months, and nonperforming accruing TDRs as of March 31, 2022, decreased $226 thousand compared to December 31, 2021. Unseasoned and nonperforming accruing TDRs as a percent of total accruing TDRs totaled 12.99% as of March 31, 2022, compared to 15.81% as of December 31, 2021. There were no specific reserves related to TDRs as of March 31, 2022, or December 31, 2021.

The CARES Act included a provision allowing banks to not apply the guidance on accounting for troubled debt restructurings to loan modifications, such as extensions or deferrals, related to COVID-19 made between March 1, 2020, and the earlier of (i) December 31, 2021, or (ii) 60 days after the end of the COVID-19 national emergency. The relief can only be applied to modifications for borrowers that were not more than 30 days past due as of December 31, 2019. The Company elected to adopt this provision of the CARES Act.

Through March 31, 2022 we had modified a total of 4,168 loans for $478.83 million related to COVID-19 relief. Those modifications were generally short-term payment deferrals and are not considered TDRs based on the CARES Act. Our policy is to downgrade commercial loans modified for COVID-19 to special mention, which caused the significant increase in loans in that rating. Subsequent upgrade or downgrade will be on a case by case basis. The Company has upgraded these loans back to pass once the modification period has ended and timely contractual payments resume. Further downgrade would be based on a number of factors, including but not limited to additional modifications, payment performance and current underwriting. As of March 31, 2022, total COVID-19 loan deferrals stood at $3.01 million; compared to $2.92 million, at December 31, 2021; and down significantly from $17.48 million at March 31, 2021.

OREO, which is carried at the lesser of estimated net realizable value or cost, decreased $167 thousand, or 16.45%, as of March 31, 2022, compared to December 31, 2021, and consisted of 9 properties with an average holding period of approximately 17 months. The net gain on the sale of OREO totaled $5 thousand for the three months ended March 31, 2022, compared to a net loss of $316 thousand for the same period of the prior year. The following table presents the changes in OREO during the periods indicated:

*(Amounts in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Beginning balance | $1,015 | $2,083 |
| Additions | 17 | 460 |
| Disposals | (184) | (593) |
| Valuation adjustments | - | (210) |
| Ending balance | $848 | $1,740 |

#### Allowance for Credit Losses

The ACL reflects management’s estimate of losses that will result from the inability of our borrowers to make required loan payments. Management uses a systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. The ACL is a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio. Management considers the effects of past events, current conditions, and reasonable and supportable forecasts on the collectability of the loan portfolio. The Company’s estimate of its ACL involves a high degree of judgment; therefore, management’s process for determining expected credit losses may result in a range of expected credit losses. It is possible that others, given the same information, may at any point in time reach a different reasonable conclusion. The Company’s ACL recorded in the balance sheet reflects management’s best estimate of expected credit losses. The Company recognizes in net income the amount needed to adjust the ACL for management’s current estimate of expected credit losses. The Company’s measurement of credit losses policy adheres to GAAP as well as interagency guidance. The Company's ACL is calculated using collectively evaluated and individually evaluated loans.

​For collectively evaluated loans, the Company in general uses two modeling approaches to estimate expected credit losses. The Company projects the contractual run-off of its portfolio at the segment level and incorporates a prepayment assumption in order to estimate exposure at default. Financial assets that have been individually evaluated can be returned to a pool for purposes of estimating the expected credit loss insofar as their credit profile improves and that the repayment terms were not considered to be unique to the asset.

In addition to its own loss experience, management also includes peer bank historical loss experience in its assessment of expected credit losses to determine the ACL. The Company utilized call report data to measure historical credit loss experience with similar risk characteristics within the segments. For the majority of segment models for collectively evaluated loans, the Company incorporated at least one macroeconomic driver either using a statistical regression modeling methodology or simple loss rate modeling methodology.

Included in its systematic methodology to determine its ACL for loans held for investment and certain off-balance-sheet credit exposures. Management considers the need to qualitatively adjust expected credit losses for information not already captured in the loss estimation process. These qualitative adjustments either increase or decrease the quantitative model estimation (i.e. formulaic model results). Each period the Company considers qualitative factors that are relevant within the qualitative framework. For further discussion of our Allowance for Credit Losses - See Note 1 - "Basis of Presentation - Significant Accounting Policies".

With the adoption of ASU 2016-13 effective January 1, 2021, the Company changed its method for calculating it allowance for loans from an incurred loss method to a life of loan method. See Note 1 – "Basis of Presentation - Significant Accounting Policies" for further details. As of March 31, 2022, the balance of the ACL for loans was $28.98 million, or 1.29% of total loans. The ACL at March 31, 2022, increased $1.12 million from the balance of $27.86 million recorded at December 31, 2021. This increase included a $1.96 million provision offset by net charge-offs for the three months of $838 thousand. The provision was primarily driven by loan growth in the first quarter.

At March 31, 2022, the Company also had an allowance for unfunded commitments of $775 thousand which was recorded in Other Liabilities on the Balance Sheet. During the first quarter of 2022, the provision for credit losses on unfunded commitments was $97 thousand compared to $66 thousand recorded in the same period of 2021.

The following table presents the changes in the allowance for credit losses for loans during the periods indicated:

*(Amounts in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Beginning balance | $27,858 | $26,182 |
| Cumulative effect of adoption of ASU 2016-13 | - | 13,107 |
| Provision for (recovery of) loan losses charged to operations | 1,961 | (4,001) |
| Charge-offs | (1,302) | (1,730) |
| Recoveries | 464 | 1,005 |
| Net charge-offs | (838) | (725) |
| Ending balance | $28,981 | $34,563 |

#### Deposits

Total deposits as of March 31, 2022, increased $53.55 million, or 1.96%, compared to December 31, 2021. The increase was largely attributable to savings and interest-bearing demand deposits which increased $46.84 million, or 5.47% and $3.82 million, or 0.57%, respectively. Noninterest-bearing demand deposits also reflected growth with an increase of $17.87 million, or 2.12%. These increases were offset by a decrease in time deposits of $14.97 million, or 4.22%.

#### Borrowings

Total borrowings as of March 31, 2022, increased $952 thousand, or 61.98%, compared to December 31, 2021.

### Liquidity and Capital Resources

#### Liquidity

Liquidity is a measure of our ability to convert assets to cash or raise cash to meet financial obligations. We believe that liquidity management should encompass an overall balance sheet approach that draws together all sources and uses of liquidity. Poor or inadequate liquidity risk management may result in a funding deficit that could have a material impact on our operations. We maintain a liquidity risk management policy and contingency funding policy (“Liquidity Plan”) to detect potential liquidity issues and protect our depositors, creditors, and shareholders. The Liquidity Plan includes various internal and external indicators that are reviewed on a recurring basis by our Asset/Liability Management Committee (“ALCO”) of the Board of Directors. ALCO reviews liquidity risk exposure and policies related to liquidity management; ensures that systems and internal controls are consistent with liquidity policies; and provides accurate reports about liquidity needs, sources, and compliance. The Liquidity Plan involves ongoing monitoring and estimation of potentially credit sensitive liabilities and the sources and amounts of balance sheet and external liquidity available to replace outflows during a funding crisis. The liquidity model incorporates various funding crisis scenarios and a specific action plan is formulated, and activated, when a financial shock that affects our normal funding activities is identified. Generally, the plan will reflect a strategy of replacing liability outflows with alternative liabilities, rather than balance sheet asset liquidity, to the extent that significant premiums can be avoided. If alternative liabilities are not available, outflows will be met through liquidation of balance sheet assets, including unpledged securities.

As a financial holding company, the Company’s primary source of liquidity is dividends received from the Bank, which are subject to certain regulatory limitations. Other sources of liquidity include cash, investment securities, and borrowings. As of March 31, 2022, the Company’s cash reserves and short-term investment securities totaled $2.47 million and $17.28 million, respectively. The Company’s cash reserves and investments provide adequate working capital to meet obligations for the next twelve months.

In addition to cash on hand and deposits with other financial institutions, we rely on customer deposits, cash flows from loans and investment securities, and lines of credit from the FHLB and the Federal Reserve Bank (“FRB”) Discount Window to meet potential liquidity demands. These sources of liquidity are immediately available to satisfy deposit withdrawals, customer credit needs, and our operations. Secondary sources of liquidity include approved lines of credit with correspondent banks and unpledged available-for-sale securities. As of March 31, 2022, our unencumbered cash totaled $457.31 million, unused borrowing capacity from the FHLB totaled $425.09 million, available credit from the FRB Discount Window totaled $6.08 million, available lines from correspondent banks totaled $90.00 million, and unpledged available-for-sale securities totaled $247.33 million.

#### Cash Flows

The following table summarizes the components of cash flow for the periods indicated:

*(Amounts in thousands)*

|  | Three Months Ended March 31, 2022 | 2021 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $10,438 | $12,615 |
| Net cash (used) provided by investing activities | (276,551) | 41,442 |
| Net cash provided by financing activities | 45,980 | 118,127 |
| Net increase in cash and cash equivalents | (220,133) | 172,184 |
| Cash and cash equivalents, beginning balance | 677,439 | 456,561 |
| Cash and cash equivalents, ending balance | $457,306 | $628,745 |

Cash and cash equivalents decreased $220.13 million for the three months ended March 31, 2022, compared to an increase of $172.18 million for the same period of the prior year. The decrease in cash and cash equivalents for the three month period was due largely to the purchase of securities available for sale of $203.17 million and the funding of $78.72 million in loan originations. The decreases were offset by an net increase in deposits of $53.55 million.

#### Capital Resources

We are committed to effectively managing our capital to protect our depositors, creditors, and shareholders. Failure to meet certain capital requirements may result in actions by regulatory agencies that could have a material impact on our operations. Total stockholders’ equity as of March 31, 2022, decreased $3.62 million, or 0.85%, to $424.16 million from $427.78 million as of December 31, 2021. The change in stockholders’ equity was largely due to net income of $9.52 million offset by other comprehensive loss of $4.97 million, dividends declared on our common stock of $4.54 million, and the repurchase of 132,000 shares of our common stock totaling $4.09 million. In accordance with current regulatory guidelines, accumulated other comprehensive income/(loss) is largely excluded from stockholders’ equity in the calculation of our capital ratios. Our book value per common share decreased $0.07, or 0.28%, to $25.27 as of March 31, 2022, from $25.34 as of December 31, 2021.

#### Capital Adequacy Requirements

Risk-based capital guidelines, issued by state and federal banking agencies, include balance sheet assets and off-balance sheet arrangements weighted by the risks inherent in the specific asset type. Our current risk-based capital requirements are based on the international capital standards known as Basel III. A description of the Basel III capital rules is included in Part I, Item 1 of the 2021 Form 10-K. Our current required capital ratios are as follows:

- 4.5% Common Equity Tier 1 capital to risk-weighted assets (effectively 7.00% including the capital conservation buffer)
- 6.0% Tier 1 capital to risk-weighted assets (effectively 8.50% including the capital conservation buffer)
- 8.0% Total capital to risk-weighted assets (effectively 10.50% including the capital conservation buffer)
- 4.0% Tier 1 capital to average consolidated assets (“Tier 1 leverage ratio”)

The following table presents our capital ratios as of the dates indicated:

|  | March 31, 2022 Company | Bank | December 31, 2021 Company | Bank |
| --- | ---: | ---: | ---: | ---: |
| Common equity Tier 1 ratio | 13.70% | 12.62% | 14.39% | 13.37% |
| Tier 1 risk-based capital ratio | 13.70% | 12.62% | 14.39% | 13.37% |
| Total risk-based capital ratio | 14.96% | 13.87% | 15.65% | 14.62% |
| Tier 1 leverage ratio | 9.60% | 8.84% | 9.65% | 8.94% |

Our risk-based capital ratios as of March 31, 2022, decreased from December 31, 2021, due to a increase in our risk-weighted assets. The increase in risk-weighted assets was primarily due to the increase in total loans from year-end 2021. As of March 31, 2022, we continued to meet all capital adequacy requirements and were classified as well-capitalized under the regulatory framework for prompt corrective action. Management believes there have been no conditions or events since those notifications that would change the Bank’s classification. Additionally, our capital ratios were in excess of the minimum standards under the Basel III capital rules as of March 31, 2022.

### Off-Balance Sheet Arrangements

We extend contractual commitments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. Our exposure to credit loss in the event of nonperformance by other parties to financial instruments is the same as the contractual amount of the instrument. The following table presents our off-balance sheet arrangements as of the dates indicated:

*(Amounts in thousands)*

|  | March 31, 2022 | December 31, 2021 |
| --- | ---: | ---: |
| Commitments to extend credit | $270,184 | $272,447 |
| Standby letters of credit and financial guarantees (1) | 152,286 | 153,717 |
| Total off-balance sheet risk | $422,470 | $426,164 |
| Allowance for unfunded commitments | $775 | $678 |

(1) Includes FHLB letters of credit

### Market Risk and Interest Rate Sensitivity

Market risk represents the risk of loss due to adverse changes in current and future cash flows, fair values, earnings, or capital due to movements in interest rates and other factors. Our profitability is largely dependent upon net interest income, which is subject to variation due to changes in the interest rate environment and unbalanced repricing opportunities. We are subject to interest rate risk when interest-earning assets and interest-bearing liabilities reprice at differing times, when underlying rates change at different levels or in varying degrees, when there is an unequal change in the spread between two or more rates for different maturities, and when embedded options, if any, are exercised. ALCO reviews our mix of assets and liabilities with the goal of limiting exposure to interest rate risk, ensuring adequate liquidity, and coordinating sources and uses of funds while maintaining an acceptable level of net interest income given the current interest rate environment. ALCO is also responsible for overseeing the formulation and implementation of policies and strategies to improve balance sheet positioning and mitigate the effect of interest rate changes.

In order to manage our exposure to interest rate risk, we periodically review internal simulation and third-party models that project net interest income at risk, which measures the impact of different interest rate scenarios on net interest income, and the economic value of equity at risk, which measures potential long-term risk in the balance sheet by valuing our assets and liabilities at fair value under different interest rate scenarios. Simulation results show the existence and severity of interest rate risk in each scenario based on our current balance sheet position, assumptions about changes in the volume and mix of interest-earning assets and interest-bearing liabilities, and estimated yields earned on assets and rates paid on liabilities. The simulation model provides the best tool available to us and the industry for managing interest rate risk; however, the model cannot precisely predict the impact of fluctuations in interest rates on net interest income due to the use of significant estimates and assumptions. Actual results will differ from simulated results due to the timing, magnitude, and frequency of interest rate changes; changes in market conditions and customer behavior; and changes in our strategies that management might undertake in response to a sudden and sustained rate shock.

As of March 31, 2022, the Federal Open Market Committee had set the benchmark federal funds rate to a range of 25 to 50 basis points. The level of benchmark interest rates at year-end 2021, rendered a complete downward shock of 100 basis points meaningless; accordingly, a downward rate scenario is only presented for the current period. In the downward rate shock presented, benchmark interest rates were assumed at levels with floors near 0%. The following table presents the sensitivity of net interest income from immediate and sustained rate shocks in various interest rate scenarios over a twelve-month period for the periods indicated.

*(Dollars in thousands)*

| Increase (Decrease) in Basis Points | March 31, 2022 Change in Net Interest Income | Percent Change | December 31, 2021 Change in Net Interest Income | Percent Change |
| ---: | ---: | ---: | ---: | ---: |
| 300 | $8,585 | 8.49% | $14,960 | 14.90% |
| 200 | 6,065 | 6.00% | 10,303 | 10.30% |
| 100 | 3,349 | 3.31% | 5,502 | 5.50% |
| (100) | (6,966) | -6.89% | N/A | N/A |

46

### Inflation and Changing Prices

Our consolidated financial statements and related notes are presented in accordance with GAAP, which requires the measurement of results of operations and financial position in historical dollars. Inflation may cause a rise in price levels and changes in the relative purchasing power of money. These inflationary effects are not reflected in historical dollar measurements. The primary effect of inflation on our operations is increased operating costs. In management’s opinion, interest rates have a greater impact on our financial performance than inflation. Interest rates do not necessarily fluctuate in the same direction, or to the same extent, as the price of goods and services; therefore, the effect of inflation on businesses with large investments in property, plant, and inventory is generally more significant than the effect on financial institutions.

Astronomic federal government spending, growth in economic activity and demand for goods and services, alongside labor shortages and supply chain complications, have contributed to rising inflation. In response, the FRB has begun raising interest rates and signaled that it will continue to raise rates, taper its purchase of mortgage and other bonds and reduce the size of the balance sheet over time. The timing and impact of inflation and rising interest rates on our business and related financial results will depend on future developments, which are highly uncertain and difficult to predict.

In anticipation of the potential discontinuance of the London Interbank Offered Rate (LIBOR) in 2023, the Company has developed a LIBOR transition plan. In 2018, the Company discontinued the use of LIBOR as a reference rate in new loan originations. Additionally, the Company has the ability to substitute an alternative referenced rate for most adjustable rate loans originated prior to 2018.

## Market risk

As filed, 162 characters.

The information required in this item is incorporated by reference to “Market Risk and Interest Rate Sensitivity” in Item 2 of this Quarterly Report on Form 10-Q.

## Controls and procedures

As filed, 2,522 characters.

### Evaluation of Disclosure Controls and Procedures

In connection with this report, we conducted an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures under the Exchange Act Rule 13a-15(b). Based upon that evaluation, the CEO and CFO concluded that, as of March 31, 2022, our disclosure controls and procedures were effective.

Disclosure controls and procedures are our Company’s controls and other procedures that are designed to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions about required disclosure.

Management, including the CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, collusion of two or more people, or management’s override of the controls.

### Changes in Internal Control over Financial Reporting

We assess the adequacy of our internal control over financial reporting quarterly and enhance our controls in response to internal control assessments and internal and external audit and regulatory recommendations. There were no changes in our internal control over financial reporting during the quarter ended March 31, 2022, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,263 characters.

The risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2021, discuss potential events, trends, or other circumstances that could adversely affect our business, financial condition, results of operations, cash flows, liquidity, access to capital resources, and, consequently, cause the market value of our common stock to decline. These risks could cause our future results to differ materially from historical results and expectations of future financial performance. If any of the risks occur and the market price of our common stock declines significantly, individuals may lose all, or part, of their investment in our Company. Individuals should carefully consider our risk factors and information included in our annual report on Form 10-K for the year ended December 31, 2021 before making an investment decision. There may be risks and uncertainties that we have not identified or that we have deemed immaterial that could adversely affect our business; therefore, such risk factors are not intended to be an exhaustive list of all risks we face. There have been no material changes to the risk factors included in Part I, Item 1A, “Risk Factors,” of our annual report on Form 10-K for the year ended December 31, 2021.

Filed May 10, 2022.
Source: SEC EDGAR, the filing index for accession 0001437749-22-011701. Last ingested by Listed: Nov 6, 2026, 14:30 ET. No prices; not investment advice.