The following is management’s discussion and analysis of our financial condition, changes in our financial condition and results of operations in the accompanying consolidated financial statements. This analysis should be read in conjunction with the accompanying notes to the consolidated financial statements.
We may from time to time make written or oral "forward-looking statements," including statements contained in this quarterly report. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For example, risks and uncertainties can arise with changes in: general economic conditions, including turmoil in the financial markets and related efforts of government agencies to stabilize the financial system; the impact of the COVID-19 pandemic on our business and results of operation; the adequacy of our allowance for credit losses and our methodology for determining such allowance; adverse changes in our loan portfolio and credit risk-related losses and expenses; concentrations within our loan portfolio, including our exposure to commercial real estate loans; inflation; changes to our primary service area; changes in interest rates; our ability to identify, negotiate, secure and develop new branch locations and renew, modify, or terminate leases or dispose of properties for existing branch locations effectively; business conditions in the financial services industry, including competitive pressure among financial services companies, new service and product offerings by competitors, price pressures and similar items; deposit flows; loan demand; the regulatory environment, including evolving banking industry standards, changes in legislation or regulation; our securities portfolio and the valuation of our securities; accounting principles, policies and guidelines as well as estimates and assumptions used in the preparation of our financial statements; rapidly changing technology; our ability to regain compliance with Nasdaq Listing Rule 5250(c)(1); the failure to maintain current technologies; failure to attract or retain key employees; our ability to access cost-effective funding; fluctuations in real estate values; litigation liabilities, including costs, expenses, settlements and judgments; and other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services. You should carefully review the risk factors described in the Annual Report on Form 10-K for the year endedDecember 31, 2021 , and other documents we file from time to time with theSecurities and Exchange Commission . The words "would be," "could be," "should be," "probability," "risk," "target," "objective," "may," "will," "estimate," "project," "believe," "intend," "anticipate," "plan," "seek," "expect" and similar expressions or variations on such expressions are intended to identify forward-looking statements. All such statements are made in good faith by us pursuant to the "safe harbor" provisions of theU.S. Private Securities Litigation Reform Act of 1995. We do not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by or on behalf of us, except as may be required by applicable law or regulations. Executive SummaryRepublic First Bancorp, Inc. was organized and incorporated under the laws of theCommonwealth of Pennsylvania in 1987 and is the holding company forRepublic First Bank , which does business under the name Republic Bank. We offer a variety of credit and depository banking services to individuals and businesses primarily inGreater Philadelphia ,Southern New Jersey , andNew York City through our offices and branch locations in those markets. As ofMarch 31, 2022 , we serve our customers through 33 branch locations, in addition to four loan offices that specialize in commercial, small business and residential mortgage lending. It is our goal to deliver best in class customer service across all delivery channels including not only our physical branch locations, but online and mobile options as well. 40 --------------------------------------------------------------------------------
Economic Environment
The coronavirus ("COVID-19") outbreak and the public health response to contain
it have resulted in unprecedented economic and financial market conditions. In
response to these conditions, the Board of Governors of the Federal Reserve
System ("Federal Reserve") reduced the federal funds target range by 150 basis
points to 0.00% to 0.25% in March 2020 . During the first quarter of 2022, the
federal funds target range increased by 25 basis points to a range of 0.25% -
0.50% to curb inflation, with continued increases planned.
The President signed into law the Coronavirus Aid, Relief and Economic Security
Act ("CARES Act") in March 2020 to lessen the impact of COVID-19 on consumers
and businesses. Among other measures, the CARES Act authorized funding for the
Small Business Administration's ("SBA") Paycheck Protection Program ("PPP") to
provide loans to small businesses to keep employees on their payroll and to make
other eligible payments to sustain their operation in the near term. In December
2020 , the Economic Aid Act was signed into law, which extended certain
provisions of the CARES Act and provides additional support and financial
assistance for small businesses, non-profit organizations, and other entities.
In a period of economic contraction, elevated levels of loan losses and lost
interest income may occur. The extent to which the COVID-19 pandemic has a
further impact the Company's business, results of operations, and financial
condition, as well as the Company's regulatory capital and liquidity ratios,
will depend on future developments, which are highly uncertain and cannot be
predicted, including the scope and duration of the COVID-19 pandemic and actions
taken by governmental authorities and other third parties in response to the
COVID-19 pandemic.
Loss Mitigation and Loan Portfolio Analysis
We took a proactive approach to analyze and prepare for the potential challenges to be faced as the effects of the COVID-19 pandemic continue to impact our customers. A detailed analysis of loan concentrations and segments that may present the areas of highest risk has been prepared and continues to be closely monitored. Our commercial lending team initiated contact with a majority of our loan customers to discuss the impact that this pandemic crisis has had on their businesses to date and the expected ramifications that could be felt in the future. We have executed loan modifications and initiated payment deferrals for all customers that had an immediate need for assistance. Pursuant to the CARES Act, loan modifications made betweenMarch 1, 2020 , and the earlier of (i)December 30, 2020 or (ii) 60 days after the President declared a termination of the COVID-19 national emergency were not classified as TDRs if the related loans were not more than 30 days past due as ofDecember 31, 2019 . InDecember 2020 , the Economic Aid Act was signed into law, which extended the period to suspend the requirements under TDR accounting guidance to the earlier of (i)January 1, 2022 , or (ii) 60 days after the President declared a termination of the national emergency related to the COVID-19 pandemic. As ofMarch 31, 2022 andDecember 31, 2021 , there were no loan customers deferring loan payments, and all customers that were granted deferrals to assist during the height of the COVID pandemic have resumed contractual payments. As a result of the changes in economic conditions, we increased the qualitative factors for certain components of Republic's allowance for credit loss calculation. We also took into consideration the probable impact that the various stimulus initiatives provided through the CARES Act, along with other government programs, may have to assist borrowers during this period of economic stress. We believe the combination of ongoing communication with our customers, lower loan-to-value ratios on underlying collateral, loan payment deferrals, increased focus on risk management practices, and access to government programs such as the PPP should help mitigate potential future period losses. We will continue to closely monitor all key economic indicators and our internal asset quality metrics as the effects of the coronavirus pandemic begin to unfold. Based on the current expected credit loss methodology currently utilized by Republic, the provision for credit losses and charge-offs may be impacted in future periods, but more time is needed to fully understand the magnitude and severity of the economic downturn and the full impact on our loan portfolio. 41
--------------------------------------------------------------------------------
Financial Condition Assets Total assets increased by$74.0 million , or 1%, to$5.7 billion as ofMarch 31, 2022 , compared to$5.6 billion as ofDecember 31, 2021 . The increase in assets was due to a$40.7 million , or 4%, increase in available for sale securities and a$46.3 million , or 2%, increase in loans. In addition to the ongoing success with our expansion strategy, the growth in assets was also driven by our participation in the PPP loan program, which resulted in a significant increase in new business relationships and deposit account openings. Cash and Cash Equivalents Cash and due from banks and interest-bearing deposits comprise this category, which consists of our most liquid assets. The aggregate amount in these three categories decreased by$17.4 million to$101.5 million as ofMarch 31, 2022 , from$118.9 million as ofDecember 31, 2021 as excess cash was used to fund loan originations and security purchases. Loans Held for Sale Loans held for sale are comprised of loans guaranteed by theU.S. Small Business Administration ("SBA") and residential mortgage loans, both of which we intend to sell in the future. Total SBA loans held for sale were$4.5 million as ofMarch 31, 2022 compared to$5.2 million as ofDecember 31, 2021 . Residential mortgage loans held for sale totaled$4.7 million atMarch 31, 2022 , a decrease of$3.9 million , versus$8.5 million atDecember 31, 2021 . A decrease in the volume of residential mortgage loans originated during the three months endedMarch 31, 2022 due to the higher interest rate environment drove the decrease in residential mortgage loans held for sale compared toDecember 31, 2021 . Loans held for sale as a percentage of our total assets were less than 1% atMarch 31, 2022 . Loans Receivable The loan portfolio represents our most significant source of interest income. Our lending strategy is focused on small and medium-sized businesses and professionals that seek highly personalized banking services. The loan portfolio consists of secured and unsecured commercial loans, commercial real estate loans, construction loans, residential mortgages, home improvement loans, home equity loans and lines of credit, overdraft lines of credit, and others. Loans increased$46.3 million , or 2%, to$2.5 billion atMarch 31, 2022 , versus$2.5 billion atDecember 31, 2021 . Loans originated through the PPP loan program continue to be repaid or forgiven by the SBA and decreased by$55.7 million , or 47%, in the first quarter of 2022, which offsets the growth experienced in other categories in the portfolio. Excluding the impact of the PPP loans, gross loans increased by$103.7 million , or 4%, to$2.5 billion atMarch 31, 2022 compared to$2.4 billion atDecember 31, 2021 . This growth was primarily the result of the successful execution of our relationship banking model, which has driven a steady flow in quality loan demand. 42 --------------------------------------------------------------------------------
Investment Securities Investment securities available for sale are investments that may be sold in response to changing market and interest rate conditions, and for liquidity and other purposes. Our debt securities consist primarily ofU.S. Government agency SBA bonds,U.S. Government agency collateralized mortgage obligations ("CMO"), agency mortgage-backed securities ("MBS"), municipal securities, and corporate bonds. Investment securities available for sale totaled$1.1 billion atMarch 31, 2022 as compared to$1.1 billion atDecember 31, 2021 . The$40.7 million increase was primarily due to the purchase of securities totaling$147.8 million partially offset by the paydowns, maturities, and calls of securities totaling$37.7 million during the three months endedMarch 31, 2022 . AtMarch 31, 2022 , the portfolio had a net unrealized loss on available for sale securities of$80.4 million compared to a net unrealized loss of$11.6 million atDecember 31, 2021 . The$68.9 million decrease in the market value of the investment portfolio was driven by an increase in market interest rates, which drove a decrease in value of the available for sale securities held in our portfolio atMarch 31, 2022 . As interest rates are expected to continue to increase throughout 2022, management will be looking to mitigate the trend on our investment portfolio with offsetting strategies and opportunities. Investment securities held-to-maturity are investments for which there is the intent and ability to hold the investment to maturity. These investments are carried at amortized cost. The held-to-maturity portfolio consists primarily ofU.S. Government agencySmall Business Investment Company bonds (SBIC) and SBA bonds, CMO's and MBS's. The fair value of securities held-to-maturity totaled$1.5 billion and$1.6 billion atMarch 31, 2022 andDecember 31, 2021 , respectively. The$115.9 million decrease was primarily due to paydowns, maturities, and calls of securities held in the portfolio totaling$60.9 million partially offset by the purchase of securities held to maturity totaling$51.1 million during the three month period endedMarch 31, 2022 . AtMarch 31, 2022 , the portfolio had a net unrecognized loss on held-to-maturity securities of$118.4 million compared to a net unrecognized loss of$12.9 million atDecember 31, 2021 . The$105.5 million decrease in the market value of the investment portfolio was driven by an increase in market interest rates, which drove a decrease in the value of the held-to-maturity securities held in our portfolio atMarch 31, 2022 .
Equity securities consist of investments in preferred shares of national banks. Equity securities are held at fair value. The fair value of equity securities amounts to
Restricted Stock Restricted stock, which represents a required investment in the capital stock of correspondent banks related to available credit facilities, was carried at cost as ofMarch 31, 2022 andDecember 31, 2021 . As of those dates, restricted stock consisted of investments in the capital stock of theFederal Home Loan Bank of Pittsburgh ("FHLB") andAtlantic Community Bankers Bank ("ACBB"). AtMarch 31, 2022 andDecember 31, 2021 , the investment in FHLB ofPittsburgh capital stock totaled$3.0 million and$3.4 million , respectively. At bothMarch 31, 2022 andDecember 31, 2021 , ACBB capital stock totaled$143,000 . Both the FHLB and ACBB paid dividends during the first quarter of 2022. Premises and Equipment The balance of premises and equipment increased by$2.2 million to$129.6 million atMarch 31, 2022 from$127.4 million atDecember 31, 2021 . The increase was primarily due to purchases of premises and equipment totaling$4.3 million partially offset by depreciation and amortization expense of$2.1 million offset during the three months endedMarch 31, 2022 . The total branch count was 33 atMarch 31, 2022 with the opening of a new branch inOcean City, New Jersey compared to 32 atDecember 31, 2021 . The Company's branch strategy will be a critical focus throughout 2022 and beyond. Other Real Estate Owned
Both
43
--------------------------------------------------------------------------------
Operating Leases – Right of Use Asset
Under ASC 842, the right-of-use asset is valued as the initial amount of the lease liability obligation adjusted for any initial direct costs, prepaid or accrued rent, and any lease incentives. AtMarch 31, 2022 andDecember 31, 2021 , the balance of operating leases - right-of-use asset was$76.5 million and$75.6 million , respectively. Deposits Deposits, which include non-interest and interest-bearing demand deposits, money market, savings, and time deposits, are Republic's major source of funding. Deposits are generally solicited from our market area through the offering of a variety of products to attract and retain customers, with a primary focus on multi-product relationships. Total deposits increased by$119.1 million to$5.3 billion atMarch 31, 2022 from$5.2 billion atDecember 31, 2021 . We focus our efforts on the growth of deposit balances through the successful execution of our relationship banking model, which is based upon a high level of customer service and satisfaction. This strategy has also allowed us to build a stable core-deposit base and nearly eliminate our dependence upon the more volatile sources of funding found in brokered and internet certificates of deposit. Our participation in the PPP loan program also resulted in significant growth in new deposit relationships.
Liability obligation related to operating leases
Under ASC 842, the operating lease liability obligation is calculated as the present value of the lease payments, using the discount rate specified in the lease, or if that is not available, our incremental borrowing rate. AtMarch 31, 2022 andDecember 31, 2021 , the balance of the operating lease liability obligation was$82.8 million and$81.8 million , respectively. Shareholders' Equity Total shareholders' equity decreased$47.2 million to$277.0 million atMarch 31, 2022 compared to$324.2 million atDecember 31, 2021 . The decrease was primarily due to a decrease in the accumulated other comprehensive loss of$51.2 million partially offset by an increase in retained earnings of$3.0 million . The decrease in the accumulated other comprehensive loss was exacerbated by an increase in market interest rates which drove a decrease in the market value of the securities held in our portfolio. Results of Operations
Three months completed
We reported net income available to common shareholders of$5.3 million or$0.08 per diluted share, for the three-month period endedMarch 31, 2022 compared to a net income available to common shareholders of$6.2 million or$0.09 per diluted share, for the three-month period endedMarch 31, 2021 . The decrease was primarily driven by a reduction in non-interest income during the first quarter of 2022. We reported net income available to common shareholders of$5.3 million or$0.08 per diluted share, for the three-month period endedMarch 31, 2022 compared to a net income available to common shareholders of$5.2 million or$0.08 per diluted share, for the three-month period endedDecember 31, 2021 . The increase during the first quarter of 2022 was primarily driven by a decrease in the provision for loan losses, a decrease in non-interest expense, and an increase in net interest income partially offset by decrease in non-interest income. 44 --------------------------------------------------------------------------------
Net interest income analysis
Our earnings depend primarily upon Republic's net interest income, which is the
difference between interest earned on interest-earning assets and interest paid
on interest-bearing liabilities. Net interest income is affected by changes in
the mix of the volume and rates of interest-earning assets and interest-bearing
liabilities. The following table provides an analysis of net interest income on
an annualized basis, setting forth for the periods average assets, liabilities,
and shareholders' equity, interest income earned on interest-earning assets and
interest expense on interest-bearing liabilities, average yields earned on
interest-earning assets and average rates on interest-bearing liabilities, and
Republic's net interest margin (net interest income as a percentage of average
total interest-earning assets). Averages are computed based on daily balances.
Non-accrual loans are included in average loans receivable. Yields are adjusted
for tax equivalency, a non-GAAP measure, using a rate of 25% in 2022 and 24% in
2021.
Average Balances and Net Interest Income
For the three months ended For the three months ended
March 31, 2022 March 31, 2021
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Rate(1) Balance Expense Rate(1)
Interest-earning assets:
Federal funds sold and other
interest-earning assets $ 137,533 $ 40 0.12 % $ 208,397 $ 49 0.09 %
Investment securities and
restricted stock 2,816,956 13,378 1.93 % 1,430,854 6,488 1.81 %
Loans receivable 2,516,719 26,177 4.22 % 2,676,705 30,019 4.55 %
Total interest-earning
assets 5,471,208 39,595 2.93 % 4,315,956 36,556 3.44 %
Other assets 221,835 276,967
Total assets $ 5,693,043 $ 4,592,923
Interest-earning
liabilities:
Demand - non-interest
bearing $ 1,378,400 $ 1,087,052
Demand - interest bearing 2,326,808 2,210 0.39 % 1,846,968 3,258 0.72 %
Money market & savings 1,365,857 795 0.24 % 1,013,275 1,118 0.45 %
Time deposits 195,516 246 0.51 % 184,831 539 1.18 %
Total deposits 5,266,581 3,249 0.25 % 4,132,126 4,915 0.48 %
Total interest-bearing
deposits 3,888,181 3,249 0.34 % 3,045,074 4,915 0.65 %
Other borrowings 11,938 57 1.97 % 46,059 73 0.64 %
Total interest-bearing
liabilities 3,900,119 3,307 0.34 % 3,091,133 4,988 0.65 %
Total deposits and other
borrowings 5,278,519 3,307 0.25 % 4,178,185 4,988 0.48 %
Non-interest-bearing other
liabilities 110,416 104,843
Shareholders' equity 304,108 309,895
Total liabilities and
shareholders' equity $ 5,693,043 $ 4,592,923
Net interest income (2) $ 36,288 $ 31,568
Net interest spread 2.59 % 2.79 %
Net interest margin (2) 2.69 % 2.97 %
(1) Investment returns are calculated on the basis of amortized cost.
(2)Net interest income and net interest margin are presented on a tax equivalent basis, a non-GAAP measure. Net interest income has been increased over the financial statement amount by$148 and$136 for the three months endedMarch 31, 2022 and 2021, respectively, to adjust for tax equivalency. The tax equivalent net interest margin is calculated by dividing tax equivalent net interest income by average total interest earning assets. 45 --------------------------------------------------------------------------------
Rate/volume analysis of changes in net interest income
Net interest income may also be analyzed by segregating the volume and rate
components of interest income and interest expense. The following table sets
forth an analysis of volume and rate changes in net interest income for the
periods indicated. For purposes of this table, changes in interest income and
expense are allocated to volume and rate categories based upon the respective
changes in average balances and average rates. Net interest income and net
interest margin are presented on a tax equivalent basis.
For the three months ended
March 31, 2022 vs. 2021
Changes due to:
Average Average Total
(dollars in thousands) Volume Rate Change
Interest earned:
Federal funds sold and other
interest-earning assets $ (20 ) $ 11 $ (9 )
Securities 6,583 307 6,890
Loans (2,329 ) (1,513 ) (3,842 )
Total interest-earning assets 4,234 (1,195 ) 3,039
Interest expense:
Deposits
Interest-bearing demand deposits 456 (1,504 ) (1,048 )
Money market and savings 197 (523 ) (326 )
Time deposits 13 (305 ) (292 )
Total deposit interest expense 666 (2,332 ) (1,666 )
Other borrowings (37 ) 22 (15 )
Total interest expense 629 (2,310 ) (1,681 )
Net interest income $ 3,605 $ 1,115 $ 4,720
Net interest income and net interest margin
Net interest income, on a fully tax-equivalent basis for the three months endedMarch 31, 2022 , increased$4.7 million , or 15%, over the same period in 2021. Interest income on interest-earning assets totaled$39.6 million for the three months endedMarch 31, 2022 , an increase of$3.0 million , compared to$36.6 million for the three months endedMarch 31, 2021 . The increase in interest income was primarily the result of an increase in the balance of interest-earning assets, offset by a 51 basis point decrease in the average yield on interest-earning assets. The most significant increase in interest-earning assets was a$1.4 billion increase in the average balance of the investment securities portfolio. Total interest expense for the three months endedMarch 31, 2022 decreased by$1.7 million , or 34%, over the same period in 2021. Interest expense on deposits decreased by$1.7 million for the three months endedMarch 31, 2022 versus the same period in 2021 due primarily to a 23 basis point decrease in the average cost of deposit balances, offset by a$1.1 billion increase in the average balance of deposits. Interest expense on other borrowings decreased by$15,000 for the three months endedMarch 31, 2022 as compared toMarch 31, 2021 due primarily to a decrease in the average balance of overnight borrowings Changes in net interest income are frequently measured by two statistics: net interest rate spread and net interest margin. Net interest rate spread is the difference between the average rate earned on interest-earning assets and the average rate incurred on interest-bearing liabilities. Our net interest rate spread on a fully tax-equivalent basis was 2.59% during the first three months of 2022 compared to 2.79% during the first three months of 2021. Net interest margin represents the difference between interest income, including net loan fees earned, and interest expense, reflected as a percentage of average interest-earning assets. For the first three months of 2022 and 2021, the fully tax-equivalent net interest margin was 2.69% and 2.97%, respectively. The decrease in the net interest margin was primarily attributable to the reduction in origination fees related to PPP loans recognized during the period. In the first quarter of 2022,$1.9 million in fees were recognized as revenue compared to$7.4 million in fees recognized during the first quarter of 2021. 46 --------------------------------------------------------------------------------
Provision for Credit Losses As ofMarch 31, 2022 , the estimated ACL in accordance with CECL is$21.9 million for the loan portfolio. This is relatively unchanged from the ACL reserve balance as ofDecember 31, 2021 . The allowance for credit losses estimate atMarch 31, 2022 includes segment-specific quantitative calculations for homogeneous loan pools based on similar risk characteristics ($16.3 million ), specific measurement for loans that do not share similar risk characteristics with other loans or pools of loans ($3.6 million ), and a qualitative assessment to account for model limitations and/or facts and circumstances not representative of the default and loss observations used to derive the quantitative measurement ($2.0 million ). Management believes this is the best estimate of expected credit losses under the CECL guidance as ofMarch 31, 2022 . Non-interest Income Total non-interest income for the three months endedMarch 31, 2022 decreased by$5.9 million , or 58%, compared to the same period in 2021. Mortgage banking income totaled$1.1 million during the three months endedMarch 31, 2022 , which represents a decrease of$3.4 million compared to the same period in 2021. The decrease was driven by a reduction in refinancing activity due to a decline in residential mortgage loan originations due to the higher interest rate environment. Service fees on deposit accounts totaled$3.5 million for the three months endedMarch 31, 2022 compared to$4.0 million during the same period in 2021. Gains on the sale of SBA loans totaled$527,000 for the three months endedMarch 31, 2022 , a decrease of$234,000 , compared to$761,000 for the same period in 2021. Loan and servicing fees totaled$495,000 for the three months endedMarch 31, 2022 compared to$633,000 for the same period in 2021. Non-interest income during the first quarter of 2022 was also negatively impacted by a reduction in the value of equity securities held in the investment portfolio, which were recognized as losses during the current period. In addition, during the first quarter of 2021 we recognized a one-time non-recurring incentive of$1.4 million related to a branding and marketing agreement signed withVISA . Non-interest Expenses Non-interest expenses increased$2.3 million , or 8%, to$31.7 million for the first three months of 2022 compared to$29.3 million for the same period in 2021. An explanation of changes in non-interest expenses for certain categories is presented in the following paragraphs. Salaries and employee benefits decreased by$189,000 , or 1%, for the first three months of 2022 compared to the same period in 2021. The decrease in salaries and benefits was related to lower commissions paid to residential mortgage lenders based on lower production offset by increased headcount due to our growth and relocation strategy. Occupancy expense, including depreciation and amortization expense, decreased by$26,000 for the first three months of 2022 compared to the same period last year. A new branch was opened inOcean City, New Jersey during the three months endedMarch 31, 2022 . Other real estate expenses totaled$203,000 during the first three months of 2022, an increase of$105,000 , or 107%, compared to the same period in 2021. This increase was a result of higher costs to carry foreclosed properties in the current period. 47
-------------------------------------------------------------------------------- All other non-interest expenses increased by$2.4 million , or 29%, for the first three months of 2022 compared to the same period last year due to increases in expenses related to data processing fees, regulatory assessments and costs, legal fees, other taxes, professional fees, and other expenses, which were mainly associated with our growth strategy. In addition, we incurred certain one-time costs and expenditures during the first quarter of 2022 in preparation for the implementation of our new technology platform, which was launched during the second quarter of 2022. One key measure that management utilizes to monitor progress in controlling overhead expenses is the ratio of annualized net non-interest expenses to average assets. For the purposes of this calculation, net non-interest expenses equal non-interest expenses less non-recurring expenses less non-interest income. For the three month period endedMarch 31, 2022 , the ratio was 1.87% compared to 2.59% for the three month period endedMarch 31, 2021 . The decrease in this ratio was mainly due to our growth in average assets. Another productivity measure utilized by management is the efficiency ratio, a non-GAAP measure. This ratio expresses the relationship of non-interest expenses to net interest income plus non-interest income. The efficiency ratio equaled 78.2% for the first three months of 2022, compared to 70.4% for the first three months of 2021. The increase for the three months endedMarch 31, 2022 versusMarch 31, 2021 was due to non-interest expenses increasing at a faster rate than net interest income and non-interest income.
Provision (benefit) for federal income tax
We recorded a provision for income taxes of$2.1 million for the three months endedMarch 31, 2022 , compared to a$2.3 million provision for income taxes for the three months endedMarch 31, 2021 . The effective tax rates for the three-month periods endedMarch 31, 2022 and 2021 were 25% and 24%, respectively The Company evaluates the carrying amount of our deferred tax assets on a quarterly basis or more frequently, if necessary, in accordance with the guidance provided in FASB Accounting Standards Codification Topic 740 (ASC 740), in particular, applying the criteria set forth therein to determine whether it is more likely than not (i.e. a likelihood of more than 50%) that some portion, or all, of the deferred tax asset will not be realized within its life cycle, based on the weight of available evidence. If management makes a determination based on the available evidence that it is more likely than not that some portion or all of the deferred tax assets will not be realized in future periods, a valuation allowance is calculated and recorded. These determinations are inherently subjective and dependent upon estimates and judgments concerning management's evaluation of both positive and negative evidence. In assessing the need for a valuation allowance, the Company carefully weighed both positive and negative evidence currently available. Judgment is required when considering the relative impact of such evidence. The weight given to the potential effect of positive and negative evidence must be commensurate with the extent to which it can be objectively verified. The Company is in a four-year cumulative profit position factoring in pre-tax GAAP income and permanent book/tax differences. Growth in interest-earning assets has occurred over the last several years and is expected to continue. As ofDecember 31, 2021 , the Company has no federal NOLs to carry forward which would have potentially been at risk of expiring in the future.
Conversely, the effects of the COVID-19 pandemic on the local and global economy could lead to a significant increase in provisions for credit losses and future write-offs. A rise in interest rates and a slowing economy could significantly reduce the volume of mortgage loans and have a negative impact on asset quality.
48 --------------------------------------------------------------------------------
Based on the guidance provided in ASC 740, we believe that the positive evidence reviewed in
The net deferred tax asset balance was$31.9 million as ofMarch 31, 2022 and$14.2 million as ofDecember 31, 2021 . The increase in the deferred tax asset balance is primarily related to FAS 115 and the unrealized losses in the investment portfolio. The deferred tax asset will continue to be analyzed on a quarterly basis for changes affecting realizability. Preferred Dividends
Dividends of
Net earnings and net earnings per common share
Net income available to common shareholders for the first three months of 2022 was$5.3 million , a decrease of$940,000 , compared to a net income available to common shareholders of$6.2 million recorded for the first three months of 2021. The decline was mainly driven by a reduction in non-interest income during the first quarter of 2022. For the three-month period endedMarch 31, 2022 , basic and fully diluted net income per common share was$0.09 and$0.08 , respectively, compared to basic and fully diluted net loss per common share of$0.11 and$0.09 for the three month period endedMarch 31, 2021 .
Return on average assets and average equity
Return on average assets ("ROA") measures our net income in relation to our
total average assets. The ROA for the first three months of 2022 and 2021 was
0.44% and 0.62%, respectively. Return on average equity ("ROE") indicates how
effectively we can generate net income on the capital invested by our
stockholders. ROE is calculated by dividing annualized net income by average
stockholders' equity. The ROE for the first three months of 2022 and 2021 was
8.16% and 9.25%, respectively.
Commitments, contingencies and concentrations
Financial instruments with contract amounts representing potential credit risk were commitments to extend credit of approximately$542.8 million and$549.8 million , and standby letters of credit of approximately$18.1 million and$18.0 million , atMarch 31, 2022 andDecember 31, 2021 , respectively. These financial instruments constitute off-balance sheet arrangements. Commitments often expire without being drawn upon. Substantially all of the$542.8 million of commitments to extend credit atMarch 31, 2022 were committed as variable rate credit facilities. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and many require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained upon extension of credit is based on management's credit evaluation of the customer. Collateral held varies but may include real estate, marketable securities, pledged deposits, equipment and accounts receivable. 49 -------------------------------------------------------------------------------- Standby letters of credit are conditional commitments issued that guarantee the performance of a customer to a third party. The credit risk and collateral policy involved in issuing letters of credit is essentially the same as that involved in extending loan commitments. The amount of collateral obtained is based on management's credit evaluation of the customer. Collateral held varies but may include real estate, marketable securities, pledged deposits, equipment and accounts receivable. Regulatory Matters We are required to comply with certain "risk-based" capital adequacy guidelines issued by theFederal Reserve and theFDIC . The risk-based capital guidelines assign varying risk weights to the individual assets held by a bank. The guidelines also assign weights to the "credit-equivalent" amounts of certain off-balance sheet items, such as letters of credit and interest rate and currency swap contracts. Under the capital rules, risk-based capital ratios are calculated by dividing common equity Tier 1, Tier 1, and total risk-based capital, respectively, by risk-weighted assets. Assets and off-balance sheet credit equivalents are assigned to one of several categories of risk-weights, based primarily on relative risk. Under applicable capital rules, Republic is required to maintain a minimum common equity Tier 1 capital ratio requirement of 4.5%, a minimum Tier 1 capital ratio requirement of 6%, a minimum total capital requirement of 8% and a minimum leverage ratio requirement of 4%. Under the rules, in order to avoid limitations on capital distributions (including dividend payments and certain discretionary bonus payments to executive officers), a banking organization must hold a capital conservation buffer comprised of common equity Tier 1 capital above its minimum risk-based capital requirements in an amount greater than 2.5% of total risk-weighted assets. Management believes that the Company and Republic met, as ofMarch 31, 2022 andDecember 31, 2021 , all applicable capital adequacy requirements. In the current year, theFDIC categorized Republic as well capitalized under the regulatory framework for prompt corrective action provisions of the Federal Deposit Insurance Act. There are no calculations or events since that notification which management believes would have changed this categorization. The Company and Republic's ability to maintain the required levels of capital is substantially dependent upon the success of their capital and business plans, the impact of future economic events on Republic's loan customers and Republic's ability to manage its interest rate risk, growth and other operating expenses. 50
-------------------------------------------------------------------------------- The following table presents our regulatory capital ratios atMarch 31, 2022 , andDecember 31, 2021 . To Be Well Minimum Capital Capitalized Under Minimum Capital Adequacy with Prompt Corrective (dollars in thousands) Actual Adequacy Capital Buffer Action Provisions Amount Ratio Amount Ratio Amount Ratio Amount Ratio AtMarch 31, 2022 : Total risk based capital Republic$ 355,133 11.25 %$ 252,517
8.00%
367,795 11.61 % 253,338 8.00 % 332,506 10.50 % - - % Tier one risk based capital Republic 332,619 10.54 % 189,388 6.00 % 268,299 8.50 % 252,517 8.00 % Company 345,281 10.90 % 190,003 6.00 % 269,171 8.50 % - - % CET 1 risk based capital Republic 332,619 10.54 % 142,041 4.50 % 220,952 7.00 % 205,170 6.50 % Company 299,186 9.45 % 142,502 4.50 % 221,671 7.00 % - - % Tier one leveraged capital Republic 275,351 5.83 % 228,289 4.00 % 228,289 4.00 % 285,362 5.00 % Company 277,013 6.04 % 228,708 4.00 % 228,708 4.00 % - - % AtDecember 31, 2021 : Total risk based capital Republic$ 347,030 11.43 %$ 242,787
8.00%
360,175 11.83 % 243,591 8.00 % 319,713 10.50 % - - % Tier one risk based capital Republic 328,066 10.81 % 182,091 6.00 % 257,962 8.50 % 242,787 8.00 % Company 341,211 11.21 % 182,693 6.00 % 258,816 8.50 % - - % CET 1 risk based capital Republic 328,066 10.81 % 136,568 4.50 % 212,439 7.00 % 197,265 6.50 % Company 281,886 9.26 % 137,020 4.50 % 213,142 7.00 % - - % Tier one leveraged capital Republic 322,097 5.85 % 224,247 4.00 % 224,247 4.00 % 280,309 5.00 % Company 324,242 6.08 % 224,656 4.00 % 224,656 4.00 % - - % Dividend Policy OnAugust 26, 2020 , the Company issued 2,000,000 shares of 7.00% Non-Cumulative Perpetual Preferred Stock, Series A, par value$0.01 per share (the "Series A Preferred Stock"), at a price of$25.00 per share. The Company received net proceeds of$48.3 million from the offering, after deducting offering costs. The Company will pay dividends on the Series A Preferred Stock when and if declared by its Board of Directors or an authorized committee thereof. If declared, dividends will be due and payable at a rate of 7.00% per annum, payable quarterly in arrears onMarch 1 ,June 1 ,September 1 , andDecember 1 of each year. During the three-month period endedMarch 31, 2022 ,$866,000 in dividends were declared and paid on the preferred stock compared to$875,000 during the three month period endedMarch 31, 2021 . We have not paid any cash dividends on our common stock. We have no current plans to pay cash dividends on common stock in 2022. Our ability to pay dividends depends primarily on receipt of dividends from our subsidiary, Republic. Dividend payments from Republic are subject to legal and regulatory limitations. The ability of Republic to pay dividends is also subject to profitability, financial condition, capital expenditures and other cash flow requirements. 51
--------------------------------------------------------------------------------
Liquidity
A financial institution must maintain and manage liquidity to ensure it has the
ability to meet its financial obligations. These obligations include: the
payment of deposits on demand or at their contractual maturity; the repayment of
borrowings as they mature; the payment of lease obligations as they become due;
the ability to fund new and existing loans and other funding commitments; and
the ability to take advantage of new business opportunities. Liquidity needs can
be met by either reducing assets or increasing liabilities. Our most liquid
assets consist of cash, amounts due from banks and federal funds sold and
available for sale securities.
Regulatory authorities require us to maintain certain liquidity ratios in order
for funds to be available to satisfy commitments to borrowers and the demands of
depositors. In response to these requirements, we have formed an asset/liability
committee ("ALCO"), comprised of certain members of Republic's Board of
Directors and senior management to monitor such ratios. The ALCO is responsible
for managing the liquidity position and interest sensitivity. That committee's
primary objective is to maximize net interest income while configuring
Republic's interest-sensitive assets and liabilities to manage interest rate
risk and provide adequate liquidity for projected needs. The ALCO meets on a
quarterly basis or more frequently if deemed necessary.
Our target and actual liquidity levels are determined by comparisons of the
estimated repayment and marketability of interest-earning assets with projected
future outflows of deposits and other liabilities. Our most liquid assets,
comprised of cash and cash equivalents on the balance sheet, totaled $101.5
million at March 31, 2022 , compared to $118.9 million at December 31, 2021 . Loan
maturities and repayments are another source of asset liquidity. At March 31,
2022 , Republic estimated that more than $120.0 million of loans would mature or
repay in the six-month period ending September 30, 2022 . Additionally, a
significant portion of our investment securities are available to satisfy
liquidity requirements through sales on the open market or by pledging as
collateral to access credit facilities. At March 31, 2022 , we had outstanding
commitments (including unused lines of credit and letters of credit) of $542.8
million . Certificates of deposit scheduled to mature in one year totaled $167.8
million at March 31, 2022 . We anticipate that we will have sufficient funds
available to meet all current commitments.
Daily funding requirements have historically been satisfied by generating core
deposits and certificates of deposit with competitive rates, buying federal
funds, or utilizing the credit facilities of the FHLB. We have established a
line of credit with the FHLB of Pittsburgh . Our maximum borrowing capacity with
the FHLB was $1.3 billion at March 31, 2022 . At March 31, 2022 and December 31,
2021 , we had no outstanding term borrowings and no outstanding overnight
borrowings with the FHLB. FHLB had issued letters of credit, on Republic's
behalf, totaling $100.0 million at March 31, 2022 and December 31, 2021 against
our available credit line. We also established a contingency line of credit of
$10.0 million with ACBB and a Fed Funds line of credit with Zions Bank in the
amount of $15.0 million to assist in managing our liquidity position. We had no
amounts outstanding against the ACBB line of credit or the Zions Fed Funds line
at both March 31, 2022 and December 31, 2021 .
Marketable securities portfolio
AtMarch 31, 2022 , we identified certain investment securities that were being held for indefinite periods of time, including securities that will be used as part of our asset/liability management strategy and that may be sold in response to changes in interest rates, prepayments and similar factors. These securities are classified as available-for-sale and are intended to increase the flexibility of our asset/liability management. Our investment securities classified as available for sale consist primarily of SBAs, CMOs, MBSs, municipal securities, and corporate bonds. Available for sale securities totaled$1.1 billion as ofMarch 31, 2022 andDecember 31, 2021 . AtMarch 31, 2022 , securities classified as available for sale had a net unrealized loss of$80.4 million and a net unrealized loss of$11.6 million atDecember 31, 2021 . 52 --------------------------------------------------------------------------------
Loan Portfolio Our loan portfolio consists of secured and unsecured commercial loans, commercial real estate loans, construction and land development loans, owner occupied real estate loans, consumer and other loans, and residential mortgages. Commercial loans are primarily secured term loans made to small to medium-sized businesses and professionals for working capital, asset acquisition and other purposes. Commercial loans are originated as either fixed or variable rate loans with typical terms of 1 to 5 years. Republic's commercial loans typically range between$250,000 and$5.0 million , but customers may borrow significantly larger amounts up to Republic's legal lending limit of approximately$51.2 million as ofMarch 31, 2022 . Individual customers may have several loans often secured by different collateral. Credit Quality Republic's written lending policies require specific underwriting, loan documentation and credit analysis standards to be met prior to funding, with independent credit department approval for the majority of new loan balances. A committee consisting of senior management and certain members of the Board of Directors oversees the loan approval process to monitor that proper standards are maintained, while approving the majority of commercial loans. Loans are generally classified as non-accrual if they are past due as to maturity or payment of interest or principal for a period of more than 90 days, unless such loans are well-secured and in the process of collection. Loans that are on a current payment status or past due less than 90 days may also be classified as non-accrual if repayment of principal and/or interest in full is in doubt. Loans may be returned to accrual status when all principal and interest amounts contractually due are reasonably assured of repayment within an acceptable period of time, and there is a sustained period of repayment performance by the borrower, in accordance with the contractual terms. While a loan is classified as non-accrual, any collections of interest and principal are generally applied as a reduction to principal outstanding. When the future collectability of the recorded loan balance is expected, interest income may be recognized on a cash basis. For non-accrual loans, which have been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Cash interest receipts in excess of that amount are recorded as recoveries to the allowance for credit losses until prior charge-offs have been fully recovered.
The following table presents information regarding past due loans and non-performing assets as of the dates indicated (in thousands of dollars):
March 31, December 31,
2022 2021
Loans accruing, but past due 90 days or more $ 2 $ 323
Non-accrual loans 12,424 12,541
Total non-performing loans 12,426 12,864
Other real estate owned 360 360
Total non-performing assets $ 12,786 $ 13,224
Non-performing loans as a percentage of total loans, net of unearned income
0.48 % 0.51 % Non-performing assets as a percentage of total assets 0.22 % 0.24 % Non-performing asset balances decreased by$438,000 to$12.8 million as ofMarch 31, 2022 from$13.2 million atDecember 31, 2021 . Non-accrual loans decreased$117,000 to$12.4 million as ofMarch 31, 2022 , from$12.5 million atDecember 31, 2021 . There were$2,000 of loans accruing but past due 90 days or more as ofMarch 31, 2022 compared to$323,000 atDecember 31, 2021 . 53 -------------------------------------------------------------------------------- The following table presents our 30 to 89 days past due loans atMarch 31, 2022 andDecember 31, 2021 . (dollars in thousands) March 31, December 31, 2022 2021 30 to 59 days past due$ 7,588 $ 4,851 60 to 89 days past due 2,825 4,706
Total loans 30 to 89 days past due
Loans with payment arrears of 30 to 59 days moved to
Other Real Estate Owned The balance of other real estate owned was$360,000 as ofMarch 31, 2022 andDecember 31, 2021 . The following table presents a reconciliation of other real estate owned for the three months endedMarch 31, 2022 and the year endedDecember 31, 2021 : March 31, December 31, (dollars in thousands) 2022 2021 Beginning Balance, January 1st$ 360 $ 1,188 Additions - 360 Valuation adjustments - (722 ) Dispositions - (466 ) Ending Balance$ 360 $ 360
From
Allowance for Credit Losses OnJanuary 1, 2022 , the Company adopted ASU 2016-13 (Topic 326), which replaced the incurred loss methodology with CECL for financial instruments measured at amortized cost and other commitments to extend credit. The allowance for credit losses is a valuation allowance for management's estimate of expected credit losses in the loan portfolio. The process to determine expected credit losses utilizes analytic tools and management judgement and is reviewed on a quarterly basis. When management is reasonably certain that a loan balance is not fully collectable, an individually evaluated analysis is completed whereby a specific reserve may be established or a full or partial charge off is recorded against the allowance. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance via a quantitative analysis which considers available information from internal and external sources related to past loan loss and prepayment experience and current conditions as well as the incorporation of reasonable and supportable forecasts. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. Also included in the allowance for credit losses are qualitative reserves that are expected, but, in the management's assessment, may not be adequately represented in the quantitative analysis. The allowance is available for any loan that, in management's judgment, should be charged off. Management evaluates a variety of factors including available published economic information in arriving at its forecast. Factors considered in the calculation of the allowance for credit losses include several qualitative and quantitative factors such as historical loss experience, trends in delinquency and nonperforming loan balances, changes in risk composition and underwriting standards, experience and ability of management, and general economic conditions as well as external factors, such as competition, legal and regulatory requirements. Historical loss experience is analyzed by reviewing charge-offs over a life of loan period to determine loss rates consistent with the loan categories depicted in the allowance for credit loss table below. 54 -------------------------------------------------------------------------------- The factors supporting the allowance for credit losses do not diminish the fact that the entire allowance for credit losses is available to absorb losses in the loan portfolio and related commitment portfolio, respectively. Our principal focus, therefore, is on the adequacy of the total allowance for credit losses. The allowance for credit losses is subject to review by banking regulators along with the Audit Committee and Board of Directors. Our primary bank regulators regularly conduct examinations of the allowance for credit losses and make assessments regarding the adequacy and the methodology employed in their determination. An analysis of the allowance for credit losses for the three months endedMarch 31, 2022 and 2021, and the twelve months endedDecember 31, 2021 is as follows: For the twelve For the three months ended For the three months ended December 31, months ended (dollars in thousands) March 31, 2022 2021 March 31, 2021 Balance at beginning of period $ 18,964$ 12,975 $ 12,975 CECL Day 1 Adjustment 2,980 - - Balance at beginning of period (as adjusted) 21,944 - -
Refunds:
Commercial real estate - 311 - Construction and land development - - - Commercial and industrial - 61 - Owner occupied real estate - - - Consumer and other 67 117 34 Residential mortgage - - Paycheck protection program - - - Total chargeoffs 67 489 34 Recoveries: Commercial real estate - 33 - Construction and land development - - - Commercial and industrial 10 462 104 Owner occupied real estate 7 64 43 Consumer and other - 169 3 Residential mortgage - - - Paycheck protection program - - - Total recoveries 17 728 150 Net chargeoffs/(recoveries) 50 (239 ) (116 ) Provision for credit losses 620 5,750 3,000 Balance at end of period $ 22,514$ 18,964 $ 16,091 Average loans outstanding(1)$ 2,516,719 $ 2,577,498 $ 2,676,705 As a percent of average loans:(1) Net chargeoffs (annualized) (0.01 )% (0.01 )% (0.02 )% Provision for credit losses (annualized) 0.10 % 0.22 % 0.45 % Allowance for credit losses 0.89 % 0.74 % 0.60 % Allowance for credit losses to: Total loans, net of unearned income 0.88 % 0.75 % 0.59 % Total nonperforming loans 181.19 % 147.42 % 121.99 %
(1) Includes unaccrued loans
We recorded a provision for credit losses in the amount of$620,000 during the three-month period endedMarch 31, 2022 and a$3.0 million provision during the three-month period endedMarch 31, 2021 . The decrease in the provision required during the first quarter of 2022 was driven by the adoption of ASU 2016-13 during the three months endedMarch 31, 2022 . 55 -------------------------------------------------------------------------------- The change in the allowance required for loans evaluated under CECL was primarily driven by the uncertainty surrounding the economic environment due to the impact of the COVID-19 pandemic. As a result of the changes in economic conditions caused by the pandemic, we have increased the qualitative factors for certain components included in the allowance for credit loss calculation. We have also taken into consideration the probable impact that the various stimulus initiatives provided through the CARES Act and Economic Aid Act, along with other government programs, may have to assist borrowers during this period of economic stress. We believe the combination of ongoing communication with our customers, loan payment deferrals, increased focus on risk management practices, and access to government programs such as the PPP Program should help mitigate potential future period losses. Although the economy has begun to demonstrate signs of recovery, many key economic indicators have not returned to pre-pandemic levels. Based on the current expected credit loss methodology currently utilized by the Bank, the provision for credit losses and charge-offs may be impacted in future periods, but more time is needed to fully understand the magnitude and severity of the economic downturn and the corresponding impact on our loan portfolio. The allowance for credit losses as a percentage of non-performing loans (coverage ratio) was 181% atMarch 31, 2022 , compared to 147% atDecember 31, 2021 and 122% atMarch 31, 2021 . Total non-performing loans were$12.4 million ,$12.9 million , and$13.2 million atMarch 31, 2022 ,December 31, 2021 , andMarch 31, 2021 , respectively. The increase in the coverage ratio atMarch 31, 2022 compared toDecember 31, 2021 was a result of an increase in the allowance for credit losses during the first three months of 2022. Management makes at least a quarterly determination as to an appropriate provision to maintain an allowance for credit losses that it determines is adequate to absorb life of loan expected credit losses in the loan portfolio. The Board of Directors periodically reviews the status of all non-accrual and impaired loans and loans classified by the management team. The Board of Directors also considers specific loans, pools of similar loans, historical charge-off activity, economic conditions, reasonable and support forecast of future credit loses, and other relevant factors in reviewing the adequacy of the allowance for credit losses. Any additions deemed necessary to the allowance for credit losses are charged to operating expenses. We evaluate loans for impairment and potential charge-offs on a quarterly basis. Any loan rated as substandard or lower will have a collateral evaluation analysis completed in accordance with the guidance under GAAP on impaired loans to determine if a deficiency exists. Our credit monitoring process assesses the ultimate collectability of an outstanding loan balance from all potential sources. When a loan is determined to be uncollectible it is charged-off against the allowance for credit losses. Unsecured commercial loans and all consumer loans are charged-off immediately upon reaching the 90-day delinquency mark unless they are well-secured and in the process of collection. The timing on charge-offs of all other loan types is subjective and will be recognized when management determines that full repayment, either from the cash flow of the borrower, collateral sources, and/or guarantors, will not be sufficient and that repayment is unlikely. A full or partial charge-off is recognized equal to the amount of the estimated deficiency calculation. Serious delinquency is often the first indicator of a potential charge-off. Reductions in appraised collateral values and deteriorating financial condition of borrowers and guarantors are factors considered when evaluating potential charge-offs. The likelihood of possible recoveries or improvements in a borrower's financial condition is also assessed when considering a charge-off. Partial charge-offs of non-performing and impaired loans can significantly reduce the coverage ratio and other credit loss statistics due to the fact that the balance of the allowance for credit losses will be reduced while still carrying the remainder of a non-performing loan balance in the impaired loan category. The amount of non-performing loans for which partial charge-offs have been recorded amounted to$4.2 million at bothMarch 31, 2022 andDecember 31, 2021 . 56
--------------------------------------------------------------------------------
The following table provides additional analysis of partially charged-off loans.
March 31, December 31,
(dollars in thousands) 2022 2021
Total nonperforming loans $ 12,426 $ 12,864
Nonperforming and impaired loans with partial
charge-offs 4,243
4,242
Ratio of non-performing loans with partial cancellations to total loans
0.17 %
0.17% Ratio of non-performing loans with partial write-offs to total non-performing loans
34.15 % 32.98 % Coverage ratio net of nonperforming loans with partial charge-offs 530.59 % 447.05 % Our charge-off policy is reviewed on an annual basis and updated as necessary. During the three-month period endedMarch 31, 2022 , there were no changes made to this policy. Effects of Inflation The majority of assets and liabilities of a financial institution are monetary in nature. Therefore, a financial institution differs greatly from most commercial and industrial companies that have significant investments in fixed assets or inventories. Management believes that the most significant impact of inflation on its financial results is through our need and ability to react to changes in interest rates. Management attempts to maintain an essentially balanced position between rate sensitive assets and liabilities over a one-year time horizon in order to protect net interest income from being affected by wide interest rate fluctuations.
© Edgar Online, source