MVB FINANCIAL CORP MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related notes thereto included elsewhere in this report. A discussion of changes in our results of operations from 2019 to 2020 may be found in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onMarch 9, 2021 . Further, we encourage you to revisit the Forward-Looking Statements at the beginning of this report.
Abstract
We have continued to invest in infrastructure to support anticipated future growth in each area that is key to our performance, including personnel, technology and processes in order to meet the increasing compliance obligations of the financial services industry. We believe we are well-positioned in high-growth markets in which we operate and will continue to focus on margin improvement, leveraging capital, organic portfolio loan growth and operating efficiency. We believe the key challenge for us in the future is to expand our lending platform and utilize the increase in our low cost deposits, while continuing to manage asset quality, as well as management of compliance in emerging and fast growing markets. We are expanding the Bank's treasury services function to support the banking needs of financial and emerging technology companies, which we believe will further enhance core deposits, notably through the expansion of deposit acquisition and fee income strategies through the Fintech division. During 2020 and into 2021, we entered into agreements for debit card program sponsorship to further enhance fee income and noninterest income. In addition, we continue to expand into the Fintech industry through the acquisition of technology, including a software development team, in order to scale and diversify our banking capabilities.
Financial results
Net interest income increased$8.3 million , noninterest income decreased$29.2 million and noninterest expense increased$0.3 million during 2021 compared to 2020. Our yield on earning assets (tax-equivalent) in 2021 was 3.52% compared to 4.17% in 2020. Total loans increased by$416.1 million to$1.87 billion as ofDecember 31, 2021 from$1.45 billion as ofDecember 31, 2020 . Our overall cost of interest-bearing liabilities was 0.44% in 2021 compared to 0.85% in 2020. The decrease in earning assets yield, partially offset by the decrease in the cost of interest-bearing liabilities, resulted in a decrease in our net interest margin (tax-equivalent) to 3.26% in 2021 from 3.57% in 2020. We earned$39.1 million in 2021 compared to$37.4 million in 2020, an increase of$1.7 million . The 2021 earnings equated to a return on average assets of 1.5% and a return on average equity of 15.6%, compared to 2020 results of 1.7% and 16.7%, respectively. Basic and diluted earnings per share were$3.32 and$3.10 , respectively, in 2021 compared to$3.13 and$3.06 , respectively, in 2020.
Covid-19 pandemic
The COVID-19 pandemic has introduced a great degree of uncertainty to both the global and domestic economy and financial markets. The full impact of COVID-19 is unknown and continues to evolve. Financial markets adjusted dramatically to the reduced economic activity and the pace of recovery is uncertain. The financial market benchmark most relevant to our current and future profitability is the United States Government Treasury yield curve.The United States Government Treasury yield curve is used as a basis for pricing most bonds, loans, borrowings, deposits and other fixed income yield curves. The United States Government Treasury yield curve has experienced a large, relatively parallel, downward shift. Given our current asset-sensitive position, management expects continued pressure on net interest income. As the outlook for the COVID-19 pandemic improves, management expects that the United States GovernmentTreasury curve will experience some degree of an upward shift over time. We actively participated in the Paycheck Protection Program ("PPP"), and may evaluate other programs available to assist our clients and provide consumer deferrals consistent with government-sponsored enterprise ("GSE") guidelines. Management is working to incorporate scenarios that reflect decreased loan cash flows in the short term into our interest rate risk models. There was considerable demand for the PPP implemented by the CARES Act to combat the economic slowdown brought on by the COVID-19 pandemic. The PPP was created to provide funding to small business owners who may have had to temporarily close or scale back production as a result of the COVID-19 pandemic. The intended use of this funding is to pay employees who may be temporarily unable to work. The original tranche of PPP funding of$349 billion ran out 13 days after the program's implementation. The second tranche of PPP funding of$310 billion had funds available as of the program's closure date. On July 37 -------------------------------------------------------------------------------- 2, 2020, additional legislation was passed that allowed small businesses to apply for loans throughAugust 8, 2020 . OnJanuary 8, 2021 , theSmall Business Administration ("SBA") announced that the PPP would reopen onJanuary 11, 2021 for new borrowers and certain existing PPP borrowers. During the latest round, funds totaling$284 billion were authorized throughMarch 31, 2021 . As ofDecember 31, 2021 , we originated 734 PPP loans with outstanding balances of$18.0 million through our internal commercial team and originated 3,731 PPP loans with outstanding balances of$113.7 million through our partnership with a Fintech company. As ofDecember 31, 2021 , mortgage loans totaling$2.1 million were outstanding for modifications, such as interest-only payments and payment deferrals. There were no commercial loan modifications outstanding as ofDecember 31, 2021 . These modifications were not considered to be troubled debt restructurings in reliance on guidance issued by banking regulators titled the "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus."
Net interest income and net interest margin (average balance tables)
The following tables present, for the periods indicated, information about (1)
average balances, the total dollar amount of interest income from
interest-earning assets and the resultant average yields; (2) average balances,
the total dollar amount of interest expense on interest-bearing liabilities and
the resultant average rates; (3) the interest rate spread; (4) net interest
income and margin; and (5) net interest income and margin (on a tax-equivalent
basis). The average balances presented are derived from daily average balances.
38
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Average Balances and Net Interest Income Analysis
2021 2020 2019
Interest Interest Interest
(Dollars in thousands) Average Balance Income/Expense Yield/Cost Average Balance Income/Expense Yield/Cost Average Balance Income/Expense Yield/Cost
Assets
Interest-bearing deposits in banks$ 249,801 $ 305 0.12 %$ 125,259 $ 191 0.15 % $ 9,264 $ 209 2.26 % CDs with banks 10,406 201 1.93 12,484 246 1.97 14,097 280 1.99 Investment securities: Taxable 231,450 2,405 1.04 121,607 2,448 2.01 129,486 3,055 2.36 Tax-exempt 2 201,532 6,328 3.14 144,389 5,361 3.71 103,235 4,456 4.32
Loans and loans held for sale: 1 3
Commercial 1,387,273 63,551 4.58 1,136,858 54,434 4.79 987,674 53,087 5.37 Tax-exempt 2 6,646 300 4.51 8,966 422 4.70 12,549 561 4.47 Real estate 307,829 9,662 3.14 403,166 18,100 4.49 447,891 21,220 4.74 Consumer 15,890 2,069 13.02 6,973 465 6.67 8,948 547 6.11 Total loans 1,717,638 75,582 4.40 1,555,963 73,421 4.72 1,457,062 75,415 5.18 Total earning assets 2,410,827 84,821 3.52 1,959,702 81,667 4.17 1,713,144 83,415 4.87 Allowance for loan losses (25,682) (18,079) (11,318) Cash and due from banks 13,874 26,460 17,625 Other assets 201,904 181,439 131,370 Total assets$ 2,600,923 $ 2,149,522 $ 1,850,821 Liabilities Deposits: Negotiable order of withdrawal$ 673,547 $ 1,612 0.24 %$ 408,110 $ 2,521 0.62 %$ 381,092 $ 3,586 0.94 % Money market checking 469,010 883 0.19 458,606 2,680 0.58 331,636 5,144 1.55 Savings 42,800 5 0.01 45,420 6 0.01 38,324 4 0.01 IRAs 9,674 121 1.25 13,691 218 1.59 17,415 329 1.89 CDs 134,250 1,355 1.01 349,787 4,869 1.39 387,660 8,376 2.16 Repurchase agreements 10,821 13 0.12 9,856 23 0.23 11,252 48 0.43 FHLB and other borrowings 25,275 93 0.37 68,407 1,049 1.53 183,812 4,704 2.56 Subordinated debt 51,149 2,188 4.28 7,568 261 3.45 12,124 770 6.35 Total interest-bearing liabilities 1,416,526 6,270 0.44 1,361,445 11,627 0.85 1,363,315 22,961 1.68 Noninterest-bearing demand deposits 895,024 502,457 258,546 Other liabilities 38,100 61,169 33,810 Total liabilities 2,349,650 1,925,071 1,655,671 Stockholders' equity Preferred stock 730 7,334 7,660 Common stock 12,614 12,047 11,762 Additional paid-in capital 140,610 130,312 118,837Treasury stock (16,741) (2,637) (1,084) Retained earnings 112,843 77,044 61,712 Accumulated other comprehensive income (loss) 534 351 (3,737) Total stockholders' equity attributable to parent 250,590 224,451 195,150 Noncontrolling interest 683 - - Total stockholders' equity 251,273 224,451 195,150 Total liabilities and stockholders' equity$ 2,600,923 $ 2,149,522 $ 1,850,821 Net interest spread (tax-equivalent) 3.08 3.32 3.19 Net interest income and margin (tax-equivalent) 2 $ 78,551 3.26 % $ 70,040 3.57 % $ 60,454 3.53 % Less: Tax-equivalent adjustments (1,392) (1,214) (1,054) Net interest spread 3.02 3.25 3.13 Net interest income and margin $ 77,159 3.20 % $ 68,826 3.51 % $ 59,400 3.47 % 1 Non-accrual loans are included in total loan balances, lowering the effective yield for the portfolio in the aggregate. 2 In order to make pre-tax income and resultant yields on tax-exempt loans and investment securities comparable to those on taxable loans and investment securities, a tax-equivalent adjustment has been computed using a Federal tax rate of 21% for the twelve months endedDecember 31, 2021 , 2020 and 2019, which is a non-U.S. GAAP financial measure. Please refer to the reconciliation of this non-U.S. GAAP financial measure to its most directly comparableU.S. GAAP 39 -------------------------------------------------------------------------------- financial measure following this table. 3 Our PPP loans, totaling$131.7 million and$82.0 million atDecember 31, 2021 and 2020, respectively, are included in this amount for the twelve months endedDecember 31, 2021 and 2020, respectively. Year Ended December 31, (Dollars in thousands) 2021 2020 2019 Net interest margin -U.S. GAAP basis Net interest income$ 77,159 $ 68,826 $ 59,400 Average interest-earning assets 2,410,827 1,959,702 1,713,144 Net interest margin 3.20 % 3.51 % 3.47 % Net interest margin - non-U.S. GAAP basis Net interest income$ 77,159 $ 68,826 $ 59,400 Plus: Impact of fully tax-equivalent adjustment 1,392 1,214 1,054 Net interest income on a fully-tax equivalent basis$ 78,551 $ 70,040 $ 60,454 Average interest-earning assets$ 2,410,827 $ 1,959,702 $ 1,713,144 Net interest margin on a fully tax-equivalent basis 3.26 % 3.57 % 3.53 % Rate Volume Calculation
The year-on-year change in fare volume between 2021 and 2020 is as follows:
Change in Change in Change in Both Rate (Dollars in thousands) Volume Rate & Volume Total Change Earning Assets Loans Commercial$ 11,991 $ (2,355) $ (519)$ 9,117 Tax-exempt (109) (17) 4 (122) Real estate (4,280) (5,446) 1,288 (8,438) Consumer 595 443 566 1,604 Investment securities: Taxable 2,211 (1,184) (1,070) (43) Tax-exempt 2,121 (827) (327) 967 Interest-bearing deposits in banks 190 (38) (38) 114 CDs with banks (41) (5) 1 (45) Total earning assets$ 12,678 $ (9,429) $ (95)$ 3,154 Interest-bearing liabilities Negotiable order of withdrawal$ 1,639 $ (1,544) $ (1,004)$ (909) Money market checking 61 (1,817) (41) (1,797) Savings - (1) - (1) IRAs (64) (47) 14 (97) CDs (3,000) (1,339) 825 (3,514) Repurchase agreements 2 (11) (1) (10) FHLB and other borrowings (662) (797) 503 (956) Subordinated debt 1,503 63 361 1,927 Total interest-bearing liabilities (521) (5,493) 657 (5,357) Total$ 13,199 $ (3,936) $ (752)$ 8,511 Net Interest Income Net interest income, which is the primary source of revenue for the Bank, is the amount by which interest income on earning assets exceeds interest expense incurred on interest-bearing liabilities. Interest-earning assets include loans and investment securities, as well as interest-bearing deposits and certificates of deposit in banks. Interest-bearing liabilities include interest-bearing deposits, borrowed funds, such as sweep accounts and repurchase agreements, and subordinated debt. Net interest income is also impacted by changes in market interest rates, as well as the mix of interest-earning assets and interest-bearing liabilities. 40 --------------------------------------------------------------------------------
Net interest income was favorably impacted by the increase in demand deposits and non-interest bearing shareholders’ equity.
Net interest margin is calculated by dividing net interest income by average interest-earning assets and serves as a measurement of the net revenue stream generated by the Bank's balance sheet. Net interest margin (tax equivalent) was 3.26% in 2021 compared to 3.57% in 2020. The net interest margin continues to face considerable pressure due to falling interest rates and competitive pricing of loans and deposits in the Bank's markets. During 2020, theFederal Reserve lowered its key interest rate from a range of 1.50% to 1.75% to a range of -% to 0.25% and remained at this range as of 2021. Management's estimate of the impact of future changes in market interest rates is shown in the section captioned Interest Rate Risk, in Item 7A - Quantitative and Qualitative Disclosures About Market Risk included elsewhere in this report. Net interest spread is calculated by taking the difference between interest earned on earning assets and interest paid on interest-bearing liabilities in an effort to maximize net interest, while maintaining an appropriate level of interest rate risk. Net interest spread (tax-equivalent) was 3.08% in 2021 compared to 3.32% in 2020. The difference between the net interest margin (tax-equivalent) and net interest spread (tax-equivalent) was 18 basis points in 2021 compared to 25 basis points in 2020. This was driven by the 65 basis point decrease in yield on earning assets outpacing the impact of the increase of$392.6 million in average noninterest-bearing demand deposits.
We continue to explore methods to deploy assets into a profitable asset mix that will result in a stronger net interest margin. Loan growth continues to be strong and management expects lending activity to remain strong in the near term.
During 2021, net interest income increased by$8.3 million , or 12.1%, to$77.2 million from$68.8 million in 2020. This increase is largely due to the increase in earnings assets of$451.1 million primarily funded by the increase in noninterest-bearing demand deposits of$404.6 million . Also impacting the yield was the sale of certain assets and liabilities of four banking center locations to Summit inJuly 2021 , the accretion related to loans acquired from First State and the amortization of PPP origination fees. Average total earning assets were$2.41 billion in 2021 compared to$1.96 billion in 2020. As a result of the increase in average total earning assets, total interest income increased by$3.0 million , or 3.7%, to$83.4 million in 2021 from$80.5 million in 2020. Average total loans and loans held-for-sale increased to$1.72 billion in 2021 from$1.56 billion in 2020, primarily as the result of a$250.4 million increase in average commercial loans; however, PPP loans with an outstanding balance of$131.7 million accounted for a portion of the increase and carried just a 1% yield, outside of origination fee accretion. Yield on total loans and loans held-for-sale decreased 32 basis points. Changes in the balance sheet related to the Summit and First State transactions also impacted yield on earning assets. Average investment securities increased$167.0 million in 2021 as the result of a$57.1 million increase in tax-exempt investments and a$109.8 million increase in taxable investments. Yield on tax-exempt securities decreased 57 basis points and taxable securities yield decreased 97 basis points. Average interest-bearing liabilities increased in 2021 by$55.1 million . The increase was primarily the result of an increase of$265.4 million in the average balance of negotiable order of withdrawal accounts and an increase of$10.4 million in money market checking accounts. The increase in average interest-bearing liabilities was partially offset by decreases of$215.5 million in the average balance of CDs and$43.1 million in the average balance of FHLB and other borrowings. Average interest-bearing deposits grew to$1.33 billion in 2021 from$1.28 billion in 2020. Total interest expense decreased by$5.4 million , primarily due to decreases of$6.3 million in deposit interest and$1.0 million in interest on FHLB and other borrowings, partially offset by an increase of$1.9 million in interest on subordinated debt. The result was a 41-basis point decrease in the cost of interest bearing liabilities from 2020 to 2021. The Bank's yield on earning assets declined during 2021 due to decrease in the loan portfolio yield of 32 basis points, driven by the addition of PPP loans purchased in the first quarter of 2021, and the investment portfolio yield of 92 basis points, while the cost of interest bearing liabilities decreased by 41 basis points. The cost of interest bearing liabilities decreased to 0.44% in 2021 from 0.85% in 2020. This decrease is primarily the result of decrease of 116 basis points in the cost of FHLB and other borrowings and a 51 basis point decrease in the cost of deposits. Further discussion on borrowings is included in Note 7 - Borrowed Funds accompanying the consolidated financial statements included elsewhere in this report. 41 --------------------------------------------------------------------------------
Allowance for loan losses
Our release of allowance for loan losses for 2021 was$6.3 million and our provision for loan losses for 2020 was$16.6 million . The provision for loan losses, which is a product of management's analysis, is recorded in response to inherent losses in the loan portfolio. The changes in loan loss provision are the result of a$2.6 million release allocated to a single loan as well as improvements in allocation rates, portfolio risk grades and economic and business factors. Determining the appropriate provision for loan losses requires considerable management judgment. In exercising this judgment, management considers numerous internal and external factors including, but not limited to, portfolio growth, national and local economic conditions, trends in the markets served and guidance from the Bank's primary regulators. Management has continued to evaluate the qualitative factor framework within the allowance for loan loss methodology in order to assess how well the framework can appropriately respond to the unprecedented risk presented by the COVID-19 pandemic. As a result, in 2020 the framework was significantly enhanced to consider a much greater degree of risk than when the framework was originally designed. The framework has consistently generated an adequate allowance for loan loss within a generally stable economic environment, but the onset of the pandemic made it apparent that the framework required modifications to consider this greater degree of risk. These enhancements resulted in the need for$12.8 million in additional loan loss provision in 2020. Throughout 2021, management observed continued improvement as the year progressed and the impacts of the pandemic began to be mitigated by the development and acceptance of vaccines. Furthermore, as a result of the ongoing analysis of the loan portfolios, a significant number of borrowers are reporting recovery from the strain on their operations experienced in 2020, and as a result present a relatively lower risk of default than a year ago. While the ultimate severity of impacts to the economic and business conditions in which we operate are not yet fully known, it seems that the impacts have begun to subside in recent months. However, the breadth of the worldwide COVID-19 pandemic has impacted virtually all industries and has created the potential for additional risk within the loan portfolios, should the pandemic again cause widespread economic disruptions. Additionally, management executed an improvement to the qualitative factor framework in 2021 that was designed to significantly reduce the level of subjectivity within the model. More specifically, the framework was enhanced to include specific metrics for each qualitative factor that will be routinely monitored to measure the degree of potential risk in the loan portfolios. These new metrics indicate that there is considerably less risk in the loan portfolios than was previously indicated. As a result of both the improving economic and business conditions, and the improvement to the qualitative factor framework, there was no need for an increase to the total loan loss provision in 2021, and a total of$6.3 million was released from the allowance. Meanwhile, total loan balances, excluding purchased credit impaired ("PCI") loans, increased$437.4 million in 2021 versus an increase of$41.1 million in 2020. The commercial loan portfolio increased by$339.4 million in 2021, in comparison to an increase of$77.3 million in 2020, while the residential mortgage loan portfolio increased by$65.9 million and decreased by$31.3 million in 2021 and 2020, respectively. Included in the commercial and total loan volume increases are PPP loans totaling$131.7 million as ofDecember 31, 2021 . Growth in the commercial loan portfolio in 2021 was highly concentrated in loans purchased from our strategic lending partners. As a result, this directly impacted the perceived risk of Purchased Participations loan portfolio segment. Additionally in 2021,$40.7 million of consumer loans were originated through a strategic lending partner. Net charge-offs in 2021 totaled$1.3 million , in comparison to net charge-offs of$2.1 million in 2020. Lastly, the release of allowance for loan losses was impacted by a$0.8 million decrease in the specific loan loss allocations in 2021, relative to a$0.7 million increase in 2020.
Non-interest income
Payment card and service charge income, consulting compliance income and holding gains on equity securities generate the core of our noninterest income. During 2021 and 2020, equity method investment income and gains on acquisition and divestiture activity have generated additional noninterest income. Total noninterest income for 2021, 2020 and 2019 was$62.6 million ,$91.8 million and$64.6 million , respectively. The decrease in noninterest income for 2021 compared to 2020 was primarily the result of decrease of$33.4 million in mortgage fee income,$6.7 million in equity method investment income from ICM,$6.9 million in gains on acquisition and divestiture activity and$3.5 million in gain on sale of equity securities. These decrease were partially offset by increase of$5.2 million in compliance and consulting income,$4.7 million in payment card and service charge income,$3.4 million in holding gain on equity securities,$3.8 million gain on sale of portfolio loans and$3.0 million gain on sale of available-for-sale investment securities. 42 -------------------------------------------------------------------------------- Equity method investment income of$17.4 million was due primarily to income from ICM. Prior to the combination with ICM inJuly 2020 , income from our mortgage activities was recognized through mortgage fee income. Mortgage fee income was$33.4 million in 2020.
Gains on the activity of acquisition and sale of
Compliance and consulting income increased$5.2 million from$4.4 million in 2020 to$9.6 million in 2021, driven by the Trabian Technology acquisition inApril 2021 and growth in Chartwell operations.
Revenue from payment cards and service fees increased
in 2020 for
Holding gain on equity securities increased$3.4 million from$0.4 million in 2020 to$3.8 million in 2021, primarily due to an increase in the valuation of our Fintech investment portfolio during the fourth quarter of 2021. Gain on sale of portfolio loans increased$3.8 million from$0.3 million in 2020 to$4.2 million in 2021, primarily due to an increase volume of SBA loan sale activity. Non interest Expense Noninterest expense was$97.5 million ,$97.1 million and$87.2 million in 2021, 2020 and 2019, respectively. Approximately 62%, 63% and 64% of noninterest expense for 2021, 2020 and 2019, respectively, related to personnel costs. Personnel costs are a significant part of our noninterest expense as such costs are critical to services organizations. Salaries and benefits decreased by$1.4 million in 2021, primarily as a result of the ICM combination, partially offset by incentive compensation and new hires to further build-out the Fintech vertical. Professional fees increased by$2.3 million in 2021, primarily the result of deal costs related to the acquisitions of Trabian Technology, the sale of theSouthern West Virginia banking centers and other strategic initiatives.
Income taxes
We incurred an income tax expense of
Our effective tax rate was 20%, 20% and 24% in 2021, 2020 and 2019, respectively. Our effective tax rate is affected by certain permanent tax differences caused by statutory requirements in the tax code. The largest permanent difference relates to tax-exempt interest income related to municipal investments and loans held by us. Other, smaller permanent differences arise from income derived from life insurance purchased on certain key employees and directors and meals and entertainment expenses.
For 2021, we plan to file tax returns in 33 states.
Return on assets and equity
Assets
Our return on average assets was 1.5% in 2021, compared to 1.7% in 2020. The decreased return in 2021 is a result of a$1.7 million increase in earnings, while average total assets increased by$451.4 million , mainly as the result of a$124.5 million increase in average interset-bearing deposits with banks and a$161.7 million increase in average total loans.
Equity
Our return on average stockholders' equity was 15.6% in 2021, compared to 16.7% in 2020. The decreased return in 2021 is a result of a$1.7 million increase in earnings, while average equity increased by$26.1 million . 43
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Statement of financial position
Cash and cash equivalents
Total cash and cash equivalents
Management believes the current balance of cash and cash equivalents adequately serves our liquidity and performance needs. Total cash and cash equivalents fluctuate on a daily basis due to transactions in process and other liquidity demands. Management believes liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and non-traditional funding sources and the portions of the investment and loan portfolios that mature within one year. These sources of funds should enable us to meet cash obligations as they come due. Due to the increase in liquidity driven by growth in noninterest-bearing deposits, management has elected to maintain a higher cash and cash equivalents balance to provide flexibility during the COVID-19 pandemic.
Investment securities total
The following table sets forth a summary of the investment securities portfolio
as of the dates indicated. The available-for-sale securities are reported at
estimated fair value.
December 31 , (Dollars in thousands) 2021
2020
Titles available for sale:
United States government agency securities$ 40,437
95,769
United States treasury securities 110,389
3,123
Municipal securities 175,012
231,887
Corporate debt securities 11,142
17,548
Other debt securities 7,500 7,500
Other securities 878 928
Total investment securities available-for-sale$ 421,466
$ 410,624 Equity securities$ 32,402 $ 27,585 AtDecember 31, 2021 , investment securities are available-for-sale or equity securities. Management believes the available-for-sale classification provides flexibility in terms of managing the portfolio for liquidity, yield enhancement and interest rate risk management opportunities. Due to the increase in liquidity driven by growth in noninterest-bearing deposits, management has elected to increase balances in investment securities to generate additional interest income. AtDecember 31, 2021 , the amortized cost of available-for-sale investment securities totaled$421.3 million , resulting in a net unrealized gain in the investment portfolio of$0.2 million . Management has the intent and ability to hold the investments to maturity and they are all high quality investments with no other than temporary impairment. The municipal securities continue to give us the ability to pledge and to decrease the effective tax rate. AtDecember 31, 2021 , equity securities primarily consist of our Fintech investment portfolio and are comprised of investments in nine companies with a carrying value of$27.3 million . These securities do not have readily determinable fair values; therefore, they are classified as equity securities and are recorded at cost and adjusted for observable price changes for underlying transactions for identical or similar investments. 44 --------------------------------------------------------------------------------
The following table presents the maturities of the portfolio of marketable securities available for sale at
Within one year After one year, but within five After five years, but within ten After ten years Total investment securities (Dollars in thousands) Amortized Cost Weighted-Avg. Yield Amortized Cost Weighted-Avg. Yield Amortized Cost Weighted-Avg. Yield Amortized Cost Weighted-Avg. Yield Amortized Cost Fair ValueUnited States government agency securities $ - - %$ 841 1.91 %$ 16,418 1.23 %$ 23,846 1.20 %$ 41,105 $ 40,437 United States sponsored mortgage-backed securities - - 1,312 0.55 3,069 1.70 73,138 1.16 77,519 76,108United States treasury securities - - 112,133 0.63 - - - - 112,133 110,389 Municipal securities 5 3.00 1,792 4.07 9,162 3.04 160,085 2.49 171,044 175,012 Corporate debt securities 989 4.07 500 6.25 9,604 6.47 - - 11,093 11,142 Other debt securities - - - - - - 7,500 - 7,500 7,500 Other securities - - - - 878 - - - 878 878 Total $ 994 4.06 %$ 116,578 0.72 %$ 39,131 2.95 %$ 264,569 1.94 %$ 421,272 $ 421,466
Maturities are based on final contractual payment dates and do not reflect the impact of prepayments or prepayments that may occur.
Management monitors the earnings performance and liquidity of the investment portfolio on a regular basis through theAsset and Liability Committee ("ALCO") meetings. The ALCO also monitors net interest income and assists in the management of interest rate risk for us. Through active balance sheet management and analysis of the investment securities portfolio, sufficient liquidity is maintained to satisfy depositor requirements and the various credit needs of our customers. Management believes the risk characteristics inherent in the investment portfolio are acceptable based on these parameters.
Loans
Our primary market areas are North Central West Virginia andNorthern Virginia . The portfolio consists principally of commercial lending, retail lending, which includes single-family residential mortgages, and consumer lending. Loans totaled$1.87 billion as ofDecember 31, 2021 , an increase of$416.1 million from$1.45 billion as ofDecember 31, 2020 .
Major classification of loans held for investment purposes, including PCI loans, to
2021
2020
Commercial and non-residential real estate$ 1,494,431 $ 1,162,122 Residential 310,498 257,207 Home equity 22,186 30,828 Consumer 44,332 4,644 Total loans$ 1,871,447 $ 1,454,801
Commissions and deferred loan origination fees, net
Loans to receive
$ 1,869,838 $ 1,453,744 AtDecember 31, 2021 , commercial and non-residential real estate loans, including PCI loans, represented the largest portion of the portfolio at 79.9%. Commercial and non-residential real estate loans totaled$1.49 billion atDecember 31, 2021 , compared to$1.16 billion atDecember 31, 2020 . Management will continue to focus on the enhancement and growth of the commercial loan portfolio while maintaining appropriate underwriting standards and risk/price balance. PPP loans are included in the totals above and have outstanding balances of$131.7 million and$82.0 million as ofDecember 31, 2021 and 2020, respectively. Residential real estate loans to retail customers, including home equity lines of credit and PCI loans, account for the second largest portion of the loan portfolio, comprising 16.6%. Residential real estate totaled$310.5 million atDecember 31, 2021 , compared to$257.2 million atDecember 31, 2020 . Management believes the home equity loans are competitive products with an acceptable return on investment after risk considerations. Residential real estate lending continues to represent a primary focus due to the lower risk factors associated with this type of loan and the opportunity to provide service to those in the North Central 45 --------------------------------------------------------------------------------
For discussion related to the PCI loans acquired in the First State acquisition and their related allowance for loan losses, please refer to Purchased Credit Impaired Loans in Note 3 - Loans and Allowance for Loan Losses accompanying the consolidated financial statements included elsewhere in this report. AtDecember 31, 2021 , Special Mention loans not yet impaired amounted to$30.8 million . The balance is comprised of 71 loans, which include$7.0 million in three commercial real estate hospitality loans to a single relationship, a$4.2 million owner occupied commercial property,$4.9 million in two related loans to multifamily commercial real estate developers, a$4.9 million commercial real estate loan to a senior care facility,$4.7 million to finance two government lease transactions for a single borrower and$1.5 million in two loans to finance a multifamily property. In addition, there are 60 loans to various unrelated borrowers totaling$3.6 million in commercial, home equity line of credit ("HELOC"), installment and mortgage loans. These are loans for which information about the borrowers' possible credit problems causes management to have doubts as to the borrowers' ability to comply with the loan repayment terms in the future. However, most of these loans were significantly impacted by the pandemic and as a result have qualified for government financial support and/or debt service relief from the Bank. These loans are being monitored closely, but were not considered impaired loans atDecember 31, 2021 . There were 74 additional loans that management identified as Substandard loans not yet impaired, totaling$39.7 million as ofDecember 31, 2021 . These loans include$27.8 million in four loans to finance hospitality properties to two unrelated borrowers,$4.7 million in three loans to a single borrower to finance movie theaters and a multifamily real estate property, a$2.2 million loan to finance a Montessori school, a$1.6 million loan secured by residential lots, a$1.0 million loan secured by a borrowing base and$0.5 million in two loans to a borrower in the energy industry. In addition, there are 62 loans to various unrelated borrowers totaling$1.9 million in commercial, HELOC, installment and mortgage loans. These are loans where known information about the borrowers' credit problems causes management to have serious doubts, relative to the eleven loans discussed above, as to the borrowers' ability to comply with the loan repayment terms in the future. However, these loans were all significantly impacted by the pandemic and as a result have qualified for government financial support and/or debt service relief from the Bank. These loans are being monitored closely, but as of year-end were not considered impaired loans.
The following table shows loan maturities at
One Year One
Until Five Five Until Maturity After (in thousands of dollars)
or Less Years Fifteen Years Fifteen Years Total Commercial and non-residential real estate$ 352,656 $ 781,502 $ 317,005 $ 43,267 $ 1,494,431 Residential 135,624 543 6,554 167,777 310,498 Home equity 740 2,726 642 18,078 22,186 Consumer 3,762 32,222 7,197 1,151 44,332 Total loans$ 492,782 $ 820,457 $ 331,398 $ 226,809 $ 1,871,447
The following table reflects the sensitivity of the loans to changes in interest rates at
Commercial and
non-residential real
(Dollars in thousands) estate Residential Home equity Consumer Total
Predetermined fixed interest rate $ 658,765 $
259,439 $41
Variable or revisable interest rate
835,666 51,059 22,145 32 908,901 Total as of December 31, 2021$ 1,494,431 $ 310,498 $ 22,186 $ 44,332 $ 1,871,447 Loan Concentration AtDecember 31, 2021 , commercial and non-residential real estate loans comprised the largest component of the loan portfolio. A large portion of commercial loans are secured by real estate and they are diverse with respect to geographical location and industry. Loans that are not secured by real estate are typically secured by accounts receivable, mortgages or equipment. While the loan concentration is in commercial loans, the commercial portfolio is comprised of loans to many different borrowers, in numerous different industries, primarily located in our market areas. 46 --------------------------------------------------------------------------------
Allowance for loan losses
The Loan Review Committee is responsible for the determination of the adequacy
of the allowance for loan losses ("ALL"). The Committee's determination is based
on management's assessment of risk in the loan portfolios which is calculated
through the ALL model. Management continually monitors the risk in the loan
portfolio through routine delinquency reporting and the internal loan review
system, which directly inform the ALL calculation. Specific loss estimates are
derived for individual loans based on specific criteria such as current
delinquent status, related deposit account activity where applicable and changes
in the local and national economy. When appropriate, management also considers
public knowledge and/or verifiable information from the local market to assess
risks to specific loans and the loan portfolios as a whole.
The result of the evaluation of the adequacy at each period presented herein
indicated that the ALL was considered by management to be adequate to absorb
losses inherent in the loan portfolio.
At December 31, 2021 and 2020, impaired loans totaled $22.5 million and $15.4
million , respectively. A portion of the ALL of $0.5 million and $1.3 million was
allocated to cover any loss in these loans at December 31, 2021 and 2020,
respectively. Loans past due more than 30 days were $12.0 million and $10.6
million , respectively, at December 31, 2021 and 2020.
2021 2020
Loans past due more than 30 days to gross loans 0.9 % 1.2 %
Loans past due more than 90 days to gross loans 0.5 % 0.6 %
For tables reflecting the allocation of the ALL, please refer to Note 3 - Loans
and Allowance for Loan Losses accompanying the consolidated financial statements
included elsewhere in this report.
The following table summarizes the primary segments of the ALL, excluding the
ALL related to PCI loans and loans individually evaluated for impairment as of
December 31, 2021 and 2020:
(Dollars in thousands) 2021 2020
% of loans in each % of loans in each
category to total category to total
December 31, Amount loans Amount loans
Commercial and non-residential real
estate $ 14,100 80 % $ 24,033 80 %
Residential 948 17 1,378 18
Home equity 128 1 298 2
Consumer and other 2,427 2 51 -
Total $ 17,603 100 % $ 25,760 100 %
Non-performing assets consist of loans that are no longer accruing interest,
loans that have been renegotiated to below market rates based upon financial
difficulties of the borrower and real estate acquired through foreclosure. When
interest accruals are suspended, accrued interest income is reversed with
current year accruals charged to earnings and prior year amounts generally
charged off as a credit loss. When, in management's judgment, the borrower's
ability to make periodic interest and principal payments resumes and
collectability is no longer in doubt, which is evident by the receipt of six
consecutive months of regular, on-time payments, the loan is eligible to be
returned to accrual status. Interest income on loans would have increased by
approximately $0.4 million , $0.6 million and $0.6 million for 2021, 2020 and
2019, respectively, if loans had performed in accordance with their terms.
47
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Non-performing assets and past due loans as of December 31 , are as follows:
(Dollars in thousands) 2021 2020
Non-accrual loans
Commercial $ 9,845 $ 12,079
Real estate and home equity 7,853 1,629
Consumer and other 259 5
Total non-accrual loans 17,957 13,713
Accruing loan past due 90 days or more - -
Total non-performing loans 17,957 13,713
Other real estate, net 2,330 5,730
Total non-performing assets $ 20,287 $ 19,443
Allowance for loan losses $ 18,266 $ 25,844
Non-performing loans to gross loans 0.9 % 0.9 %
Allowance for loan losses to total loans 1.0 % 1.8 %
Allowance for loan losses to non-performing loans 103.1 % 188.5 %
Non-performing assets to total assets 0.7 %
0.8%
Impaired loans have increased by$7.1 million , or 45.9%, during 2021. This change is the net effect of multiple factors, primarily the identification of$13.0 million of recently impaired loans, principal curtailments/payoffs of$3.7 million , normal loan amortization of$0.5 million and the reclassification of$0.7 million of previously reported impaired loans to performing loans. The$13.0 million of recently impaired loans were concentrated in one commercial relationship representing$4.8 million , or 37%, of the recently impaired loans and one residential mortgage loan representing$5.6 million , or 43% of the recently impaired loans. Both loans are currently under forbearance agreements and paying as agreed. The$3.7 million of principal curtailments/payoffs were concentrated in two commercial relationships in which the notes were curtailed through the partial sale of collateral. These two relationships represented$2.4 million , or 65%, of the total principal curtailments.
the
Loans classified as Special Mention totaled$30.3 million and$67.9 million as ofDecember 31, 2021 , andDecember 31, 2020 , respectively. The decrease of$37.6 million , or 55.4%, was concentrated in the commercial loan portfolio. This decrease is primarily the result of the payoff of 19 existing loans totaling$40.8 million to 12 borrowers, the risk grade upgrade of eight loans to four separate loan relationships, totaling$16.1 million , offset by the risk grade downgrade of 30 loans to 13 relationships, totaling$15.5 million . There was also a single commercial real estate hotel note upgraded to Special Mention, totaling$4.4 million . Of the 30 loans recently classified as Special Mention, there were eight commercial equipment loans to one relationship for$0.7 million , two government lease transactions totaling$4.7 million , two loans to multifamily development corporations totaling$4.9 million , and an owner occupied commercial real estate loan to a trucking company totaling$4.2 million . The$40.8 million in payoffs included four notes to two relationships totaling$15.9 million secured by retail properties, two notes to a single borrower totaling$14.7 million secured by office properties, a single note to a multifamily borrower for$8.6 million , and twelve remaining notes to various borrowers totaling$1.5 million . Loans classified as Substandard totaled$61.0 million and$58.3 million as ofDecember 31, 2021 andDecember 31, 2020 , respectively. The increase of$2.7 million , or 4.6%, was concentrated in the commercial loan portfolio. This increase is primarily the result of the downgrade to Substandard of 30 loans totaling$14.3 million , including two loans to a single relationship totaling$4.8 million , secured by government lease transactions, a single residential mortgage of$5.6 million , and a single note of$1.0 million secured by equipment. The increase is partially offset by the risk grade upgrade of three loans to two separate commercial loan relationships, totaling$4.5 million , the payoff of 40 existing loans totaling$5.6 million and the$2.0 million , or 39%, curtailment of three related equipment loans. There was also a charge-off of$0.3 million to a single borrower involved in government contracting. The$5.6 million in payoffs included a$0.9 million line of credit secured by the account receivables of an energy company, and three notes totaling$0.9 million to a retail commercial real estate developer. 48 -------------------------------------------------------------------------------- Loans classified as Doubtful totaled$1.7 million and$4.0 million as ofDecember 31, 2021 andDecember 31, 2020 , respectively. The decrease of$2.3 million , or 57.5%, was concentrated in the commercial loan portfolio and is the result of charging off the balance against associated marks of acquisition of various loans to unrelated borrowers obtained as part of the First State acquisition, as well as a charge off of a commercial loan totaling$0.9 million secured by a borrowing base. As ofDecember 31, 2021 , there is$0 in calculated loan loss reserve allocation against three legacy MVB loans totaling$0.1 million . The largest of purchased loans had a balance of$1.3 million , while the remaining 34 loans had balances totaling$3.9 million .
Funding sources
The Bank considers a number of alternatives, including but not limited to deposits, short-term borrowings and long-term borrowings when evaluating funding sources. Traditional deposits continue to be the most significant source of funds, totaling$2.38 billion , or 96.6% of funding sources, atDecember 31, 2021 . This same information atDecember 31, 2020 reflected$1.98 billion in deposits, representing 97.4% of such funding sources. Subordinated debt totaled$73.0 million and$43.4 million atDecember 31, 2021 and 2020, respectively, and represented 3.0% and 2.1% as ofDecember 31, 2021 and 2020, respectively. Repurchase agreements, which are available to large corporate customers, represented 0.5% and 0.5% of funding sources atDecember 31, 2021 and 2020, respectively. There were no FHLB and other borrowings atDecember 31, 2021 and 2020. Management continues to emphasize the development of additional noninterest-bearing deposits as a core funding source. AtDecember 31, 2021 , noninterest-bearing balances totaled$1.1 billion , compared to$715.8 million atDecember 31, 2020 , or 47.1% and 36.1% of total deposits, respectively. Interest-bearing deposits totaled$1.3 billion atDecember 31, 2021 and 2020, or 52.9% and 63.9% of total deposits, respectively. The main driver of deposit growth has been the increase in Fintech deposits through adding new relationships and continuing to grow current relationships. This growth in Fintech deposits is primarily due to the increasing in gaming deposits, primarily as a result of the increasing number of states legalizing sports gaming. We currently expect our Fintech banking activities to continue to grow. The following table sets forth the balance of each of the deposit categories for the years endedDecember 31, 2021 and 2020: (Dollars in thousands) 2021 2020
Demand deposits from individuals, partnerships and corporations
Noninterest-bearing demand $
1,120,433
Interest-bearing demand 651,016 496,502
Savings and money markets 510,068 545,501
Time deposits including CDs and IRAs 96,088 224,595
Total deposits $
2,377,605
Time deposits that meet or exceed theFDIC insurance limit $
9,573
Average interest-bearing deposits totaled$1.33 billion during 2021 compared to$1.28 billion during 2020. Average noninterest bearing deposits totaled$895.0 million during 2021 compared to$502.5 million during 2020. Maturities of time deposits that met or exceeded theFDIC insurance limit as ofDecember 31, 2021 : (Dollars in thousands) 2021 Under three months$ 1,160 Over three to 12 months 5,657 Over one to three years 2,356 Over three years 400 Total$ 9,573
In addition to traditional deposits, the Bank has access to both short-term borrowings from FHLB and overnight repurchase agreements to finance its operations and investments. For more details on our borrowings, please refer to Note 7 – Borrowed funds accompanying the consolidated financial statements included elsewhere in this report.
Capital and equity
During the year endedDecember 31, 2021 , stockholders' equity increased approximately$35.8 million to$275.3 million . This increase consists of net income for the year of$38.7 million , common stock options exercised totaling$4.9 million , stock-based 49 -------------------------------------------------------------------------------- compensation of$2.6 million , common stock issued related to stock-based compensation of$2.0 million and common stock issued related to the Trabian and Flexia acquisitions of$0.6 million and$4.5 million , respectively. These changes were offset by a$5.8 million decrease in accumulated other comprehensive income, dividends paid to both common and preferred shareholder totaling$6.1 million and redemption of preferred stock of$7.3 million . Despite the increase in stockholders' equity, the equity to assets ratio decreased from 10.3% to 9.8% due to asset growth of$461.0 million outpacing the increase in stockholders' equity during 2021. We paid dividends to common shareholders of$6.0 million in 2021 and$4.3 million in 2020, compared to earnings of$39.1 million in 2021 versus$37.4 million in 2020, resulting in the dividend payout ratio increase from 11.4% in 2020 to 15.4% in 2021. We and the Bank are also subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our consolidated financial statements. The Bank is required to comply with applicable capital adequacy standards established by theFDIC . We are exempt from theFederal Reserve Board's capital adequacy standards as we believe we meet the requirements of the SmallBank Holding Company Policy Statement.West Virginia state chartered banks, such as the Bank, are subject to similar capital requirements adopted by theWest Virginia Division of Financial Institutions . Bank regulators have established "risk-based" capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets companies hold in their portfolios. A weight category of 0% (lowest risk assets), 20%, 50%, 100% or 150% (highest risk assets) is assigned to each asset on the balance sheet. Detailed information concerning our risk-based capital ratios can be found in Supervision and Regulation in Item 1 - Business and Note 15 - Regulatory Capital Requirements accompanying the consolidated financial statements included elsewhere in this report. AtDecember 31, 2021 , the Bank's risk-based capital ratios were above the minimum standards for a well-capitalized institution. The total risk-based capital ratio of 16.7% atDecember 31, 2021 is above the well capitalized standard of 10%. The Tier 1 risk-based capital ratio of 15.8% atDecember 31, 2021 also exceeded the well capitalized minimum of 8%. The common equity Tier 1 capital ratio of 15.8% atDecember 31, 2021 is above the well capitalized standard of 6.5%. The leverage ratio atDecember 31, 2021 was 11.6% and was also above the well capitalized standard of 5%. Management believes that capital continues to provide a strong base for profitable growth. Tangible book value ("TBV") per common share was$22.17 and$19.73 as ofDecember 31, 2021 and 2020, respectively. TBV per common share is a non-U.S. GAAP measure that we believe is helpful to interpreting financial results. A reconciliation of TBV per common share is included below. December 31, 2021 December 31, 2020 Goodwill $ 3,988 $ 2,350 Intangibles 2,316 2,400 Total intangibles $ 6,304 $ 4,750
Total equity attributable to parent $274,328
239,483 Less: Preferred equity - (7,334) Less: Total intangibles (6,304) (4,750) Tangible common equity $ 268,024 $ 227,399 Tangible common equity $ 268,024 $ 227,399 Common shares outstanding (000s) 12,087
11,526
Tangible book value per common share $ 22.17 $ 19.73 Liquidity Maintenance of a sufficient level of liquidity is a primary objective of the ALCO. Liquidity, as defined by the ALCO, is the ability to meet anticipated operating cash needs, loan demand and deposit withdrawals, without incurring a sustained negative impact on net interest income. It is our policy to manage liquidity so that there is no need to make unplanned sales of assets or to borrow funds under emergency conditions.
The Bank’s main source of liquidity comes from the growth of deposits. Liquidity also comes from cash generated by
50 -------------------------------------------------------------------------------- investment maturities, principal payments from loans and income from loans and investment securities. During the year endedDecember 31, 2021 , cash provided by financing activities totaled$580.7 million , while outflows from investing activity totaled$572.0 million . When appropriate, the Bank has the ability to take advantage of external sources of funds such as advances from the FHLB, national market certificate of deposit issuance programs, theFederal Reserve discount window, brokered deposits and Certificate of Deposit Account Registry Services. These external sources often provide attractive interest rates and flexible maturity dates that enable the Bank to match funding with contractual maturity dates of assets. Securities in the investment portfolio are classified as available-for-sale and can be utilized as an additional source of liquidity. We have an effective shelf registration covering$75 million of debt and equity securities, all of which is available, subject to authorization from the Board of Directors and market conditions, to issue debt or equity securities at our discretion. While we seek to preserve flexibility with respect to cash requirements, there can be no assurance that market conditions would permit us to sell securities on acceptable terms, or at all.
We continue to face increasing concentrations of deposits from emerging industries and have instituted policies and procedures to ensure that we maintain adequate liquidity to manage these levels of deposits.
Significant Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance withU.S. GAAP. Our significant accounting policies are described in Note 1 - Summary of Significant Accounting Policies accompanying the consolidated financial statements included elsewhere in this report. The preparation of these statements requires us to make certain assumptions, judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities and commitments as of the date of our financial statements. We analyze and base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Changes in facts and circumstances or additional information may result in revised estimates, and actual results may differ from these estimates. We have identified the following estimates as critical to the understanding of our financial position and results of operations and which require the application of significant judgment by management.
Allowance for loan losses
The ALL represents management's estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the ALL requires significant judgment and the use of estimates related to the amount and timing of losses inherent in the loan portfolio consisting of specific and general components. We estimate the general component of the ALL based on the Bank's historical loss experience and consideration of qualitative factors, both internal and external, all of which may be susceptible to significant change. The qualitative factors include items such as the nature and volume of the portfolio; the volume and severity of problem credits; collateral values; portfolio concentrations; economic and business conditions; lending policies and procedures; experience of lending management and staff; and quality of the loan review system. Within each of our eight portfolio segments, each of these individual factors are assigned a rating between zero and seven, representing a measure of the risk that we believe each factor creates for the Bank's loan portfolio. Each factor is also weighted based on the relative risk we believe it poses to the Bank's portfolio to determine a proportionate risk rating. As ofDecember 31, 2021 , the "economic and business conditions" factor was generally the highest weighted qualitative factor, with a weighting of 25% to 30%, and given a risk grade of two out of seven for seven of the eight portfolio segments. Increasing the risk grade by one for all segments would have resulted in an additional allowance of approximately$2.0 million atDecember 31, 2021 , and decreasing the risk grade to three would have resulted in a reduction to the allowance of approximately$1.8 million . In addition to the above judgments and estimates, the specific reserves on impaired loans is an important input to the ALL due to the increased risks inherent in those loans. This evaluation requires significant judgment and estimates related to the amount and timing of expected future cash flows and collateral values. To the extent actual outcomes differ from our estimates, we may need additional provisions for credit losses. Any such additional provisions for credit losses will be a direct charge to our earnings.
Recent accounting pronouncements and developments
Recent accounting pronouncements and developments applicable to us are described
further in Note 1 - Summary of Significant Accounting Policies accompanying the
consolidated financial statements included elsewhere in this report.
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