Partners Bancorp (NASDAQ: PTRS) (the “Company”), the parent company
of The Bank of Delmarva (“Delmarva”), Seaford, Delaware, and
Virginia Partners Bank (“Virginia Partners”), Fredericksburg,
Virginia, reported net income attributable to the Company of $2.1
million, or $0.12 per share, for the three months ended March 31,
2022, a $1.0 million or 93.5% increase when compared to net income
attributable to the Company of $1.1 million, or $0.06 per share,
for the same period in 2021.
As previously disclosed, on November 4, 2021,
the Company and OceanFirst Financial Corp. (“OceanFirst”) announced
that they have entered into a definitive agreement and plan of
merger pursuant to which the Company will merge into OceanFirst,
with OceanFirst surviving, and following which Virginia Partners
and Delmarva will each successively merge with and into OceanFirst
Bank, N.A., with OceanFirst Bank surviving each bank merger. The
mergers remain subject to receipt of all required regulatory
approvals and fulfillment of other customary closing
conditions.
The Company’s results of operations for the
three months ended March 31, 2022 were directly impacted by the
following:
Positive Impacts:
- An increase in net interest income due primarily to lower rates
paid on average interest-bearing deposit balances, a decrease in
average borrowings balances, an increase in average loan balances,
and an increase in average investment securities balances and
yields earned, which were partially offset by lower loan yields
earned, an increase in average cash and cash equivalents balances,
and an increase in average interest-bearing deposit balances. Net
interest income was negatively impacted during the three months
ended March 31, 2022 due to lower net loan fees earned related to
the forgiveness of loans originated and funded under the Paycheck
Protection Program (“PPP”) of the Small Business Administration;
and
- A significantly lower provision for credit losses due to the
current economic environment and the milder impact of the COVID-19
pandemic compared to the three months ended March 31, 2021.
Negative Impacts:
- A lower net interest margin (tax equivalent basis);
- Lower gains on sales and calls of investment securities;
- Reduced operating results from Virginia Partners’ majority
owned subsidiary Johnson Mortgage Company, LLC and lower mortgage
division fees at Delmarva;
- Expenses associated with Virginia Partners’ new key hires and
expansion into the Greater Washington market, including opening its
new full-service branch and commercial banking office in Reston,
Virginia during the third quarter of 2021, and Delmarva opening its
twelfth full-service branch at 26th Street in Ocean City, Maryland
during the second quarter of 2021; and
- Merger related expenses of $396 thousand were incurred during
the first quarter of 2022 in connection with the Company’s pending
merger with OceanFirst.
As previously disclosed, on April 27, 2022, the
Company’s board of directors declared a cash dividend of $0.025 per
share, which is payable on May 16, 2022, to holders of record of
its common stock as of the close of business on May 11, 2022.
For the three months ended March 31, 2022, the
Company’s annualized return on average assets, annualized return on
average equity and efficiency ratio were 0.51%, 6.17% and 78.41%,
respectively, as compared to 0.29%, 3.28% and 74.36%, respectively,
for the same period in 2021.
The increase in net income attributable to the
Company for the three months ended March 31, 2022, as compared to
the same period in 2021, was driven by an increase in net interest
income and a lower provision for credit losses, and was partially
offset by a decrease in other income and higher other expenses and
federal and state income taxes.
Interest Income and Expense – Three
Months Ended March 31, 2022 and 2021
Net interest income and net interest margin
Net interest income in the first quarter of 2022
increased by $971 thousand, or 8.9%, when compared to the first
quarter of 2021. The Company's net interest margin (tax equivalent
basis) decreased to 3.01%, representing a decrease of 2 basis
points for the three months ended March 31, 2022 as compared to the
same period in 2021. The decrease in the net interest margin (tax
equivalent basis) was primarily due to a decrease in the yields
earned on average loans, due primarily to lower net loan fees
earned related to the forgiveness of loans originated and funded
under the PPP, and higher average balances of interest-bearing
liabilities, which were partially offset by higher average balances
of loans, higher average balances of and yields earned on average
investment securities, and lower rates paid on average
interest-bearing liabilities. The Company’s net interest margin
(tax equivalent basis) was also negatively impacted by higher
average balances of cash and due from banks, interest bearing
deposits in other financial institutions and federal funds sold,
each of which are lower yielding interest-earning assets. Total
interest income increased by $254 thousand, or 1.9%, for the three
months ended March 31, 2022, while total interest expense decreased
by $716 thousand, or 29.1%, both as compared to the same period in
2021.
The most significant factors impacting net
interest income during the three month period ended March 31, 2022
were as follows:
Positive Impacts:
- Increases in average loan balances, primarily due to organic
loan growth, which was partially offset by the forgiveness of loans
originated and funded under the PPP;
- Increases in average investment securities balances and higher
investment securities yields, primarily due to management of the
investment securities portfolio in light of the Company's liquidity
needs, lower accelerated pre-payments on mortgage-backed investment
securities and higher interest rates over the comparable periods,
partially offset by calls on higher yielding investment securities
in the low interest rate environment;
- Decrease in the rate paid on average interest-bearing deposit
balances, primarily due to lower rates paid on average interest
bearing demand, money market and time deposits, partially offset by
increases in average interest-bearing deposit balances, primarily
due to organic deposit growth; and
- Decrease in average borrowings balances, primarily due to a
decrease in the average balance of Federal Home Loan Bank advances
resulting from maturities and payoffs of borrowings that were not
replaced, a decrease in average borrowings at the Federal Reserve
Bank Discount Window under the PPP Liquidity Facility in which the
loans under the PPP originated by the Company were previously
pledged as collateral, the early redemption of $2.0 million in
subordinated notes payable, net, in early July 2021, and offset by
higher rates paid. The increase in average rates paid was primarily
due to the decreases in the average balances of Federal Home Loan
Bank advances and borrowings at the Federal Reserve Bank Discount
Window under the PPP Liquidity Facility, both of which were lower
cost interest-bearing liabilities, partially offset by the early
redemption of subordinated notes payable, which was a higher cost
interest-bearing liability.
Negative Impacts:
- Lower loan yields, primarily due to lower net loan fees earned
related to the forgiveness of loans originated and funded under the
PPP; and
- Increases in average cash and due from banks, interest bearing
deposits in other financial institutions and federal funds sold,
primarily due to deposit growth outpacing loan growth, and higher
yields on each.
Loans
Average loan balances increased by $72.7
million, or 6.8%, and average yields earned decreased by 0.32% to
4.61% for the three months ended March 31, 2022, as compared to the
same period in 2021. The increase in average loan balances was
primarily due to organic loan growth, including average growth of
approximately $51.5 million in loans related to Virginia Partners’
recent expansion into the Greater Washington market, which was
partially offset by the forgiveness of loans originated and funded
under the PPP. Organic loan growth continued to be negatively
impacted by higher pay-offs and tempered loan demand due to the
uncertainty surrounding the COVID-19 pandemic. The decrease in
average yields earned was primarily due to lower net loan fees
earned related to the forgiveness of loans originated and funded
under the PPP, pay-offs of higher yielding fixed rate loans,
repricing of variable rate loans, and lower average yields on new
loan originations, including loans originated under the PPP at an
interest rate of 1%. Total average loans were 70.3% of total
average interest-earning assets for the three months ended March
31, 2022, compared to 72.2% for the three months ended March 31,
2021.
Investment securities
Average total investment securities balances
increased by $5.3 million, or 4.1%, and average yields earned
increased by 0.52% to 2.07% for the three months ended March 31,
2022, as compared to the same period in 2021. The increases in
average total investment securities balances and average yields
earned was primarily due to management of the investment securities
portfolio in light of the Company's liquidity needs, lower
accelerated pre-payments on mortgage-backed investment securities
and higher interest rates over the comparable periods, partially
offset by calls on higher yielding investment securities in the low
interest rate environment. During the first quarter of 2021,
accelerated pre-payments on mortgage-backed investment securities
caused the premiums paid on these investment securities to be
amortized into expense on an accelerated basis thereby reducing
income and yield earned. Total average investment securities were
8.3% of total average interest-earning assets for the three months
ended March 31, 2022, compared to 8.8% for the three months ended
March 31, 2021.
Interest-bearing deposits
Average total interest-bearing deposit balances
increased by $48.7 million, or 5.5%, and average rates paid
decreased by 0.31% to 0.54% for the three months ended March 31,
2022, as compared to the same period in 2021, primarily due to
organic deposit growth, including average growth of approximately
$28.1 million in interest-bearing deposits related to Virginia
Partners’ recent expansion into the Greater Washington market, and
a decrease in the average rate paid on interest bearing demand,
money market and time deposits due to the decline in interest rates
beginning late in the first quarter of 2020 that continued until
late in the fourth quarter of 2021.
Borrowings
Average total borrowings decreased by $33.2
million, or 40.3%, and average rates paid increased by 1.13% to
4.04% for the three months ended March 31, 2022, as compared to the
same period in 2021. The decrease in average total borrowings
balances was primarily due to a decrease in the average balance of
Federal Home Loan Bank advances resulting from maturities and
payoffs of borrowings that were not replaced, a decrease in average
borrowings at the Federal Reserve Bank Discount Window under the
PPP Liquidity Facility in which the loans under the PPP originated
by the Company were previously pledged as collateral, and the early
redemption of $2.0 million in subordinated notes payable, net, in
early July 2021. The increase in average rates paid was primarily
due to the decreases in the average balances of Federal Home Loan
Bank advances and borrowings at the Federal Reserve Bank Discount
Window under the PPP Liquidity Facility, which were lower cost
interest-bearing liabilities, partially offset by the early
redemption of subordinated notes payable, which was a higher cost
interest-bearing liability.
Provision for Credit Losses
The provision for credit losses in the first
quarter of 2022 was $65 thousand, a decrease of $1.7 million, or
96.3%, when compared to the provision for credit losses of $1.7
million in the first quarter of 2021. The decrease in the provision
for credit losses during the three months ended March 31, 2022, as
compared to the same period of 2021, was primarily due to a
reduction of qualitative adjustment factors that had previously
been increased in the allowance for credit losses related to the
COVID-19 pandemic and the uncertainty in the economic environment,
the reversal of a specific reserve on one loan relationship due to
a large principal curtailment and improved performance, and lower
net charge-offs, which were partially offset by loans acquired in
the Virginia Partners acquisition that have converted from acquired
to originated status, and organic loan growth.
The provision for credit losses during the three
months ended March 31, 2022, as well as the allowance for credit
losses as of March 31, 2022, represents management’s best estimate
of the impact of the COVID-19 pandemic on the ability of the
Company’s borrowers to repay their loans. Management continues to
carefully assess the exposure of the Company’s loan portfolio to
COVID-19 pandemic related factors, economic trends and their
potential effect on asset quality. As of March 31, 2022, the
Company’s delinquencies and nonperforming assets had not been
materially impacted by the COVID-19 pandemic. In addition, as of
March 31, 2022, all of the loan balances that were approved by the
Company, on a consolidated basis, for loan payment deferrals or
payments of interest only have either resumed regular payments or
have been paid off.
Other Income
Other income in the first quarter of 2022
decreased by $962 thousand, or 42.7%, when compared to the first
quarter of 2021. Key changes in the components of other income for
the three months ended March 31, 2022, as compared to the same
period in 2021, are as follows:
- Service charges on deposit accounts increased by $54 thousand,
or 31.9%, due primarily to increases in overdraft fees as a result
of the easing of restrictions and the lifting of lockdowns in the
Company’s markets of operation and Virginia Partners no longer
automatically waiving overdraft fees which was previously done in
an effort to provide all necessary financial support and services
to its customers and communities, both as related to the ongoing
COVID-19 pandemic as compared to the same period of 2021;
- Gains on sales and calls of investment securities decreased by
$14 thousand, or 100.0%, due primarily to Virginia Partners
recording gains of $14 thousand on sales or calls of investment
securities during the first quarter of 2021, as compared to
recording no gains on sales or calls of investment securities
during the same period of 2022;
- Mortgage banking income decreased by $877 thousand, or 75.1%,
due primarily to Virginia Partners’ majority owned subsidiary
Johnson Mortgage Company, LLC having a lower volume of loan
closings as compared to the same period in 2021;
- Gains on sales of other assets decreased by less than $1
thousand as a result of Delmarva selling its VISA credit card
portfolio during the first quarter of 2021. There were no gains on
sales of other assets for the same period of 2022; and
- Other income decreased by $124 thousand, or 13.7%, due
primarily to lower mortgage division fees at Delmarva, and Virginia
Partners recording lower fees from its participation in a loan
hedging program with a correspondent bank, which were partially
offset by increases in debit card income and ATM fees and Delmarva
recording higher earnings on bank owned life insurance policies due
to additional purchases made in 2021.
Other Expenses
Other expenses in the first quarter of 2022
increased by $546 thousand, or 5.6%, when compared to the first
quarter of 2021. Key changes in the components of other expenses
for the three months ended March 31, 2022, as compared to the same
period in 2021, are as follows:
- Salaries and employee benefits increased by $105 thousand, or
1.9%, primarily due to increases related to staffing changes,
including expenses associated with Virginia Partners’ new key hires
and expansion into the Greater Washington market and Delmarva
opening its new full-service branch at 26th Street in Ocean City,
Maryland, merit increases, stock-based compensation expense,
payroll taxes and benefit costs. In addition, due to the decrease
in mortgage banking income from Virginia Partners’ majority owned
subsidiary Johnson Mortgage Company, LLC, salaries and employee
benefits decreased due to a decrease in commissions expense
paid;
- Premises and equipment increased by $224 thousand, or 17.8%,
primarily due to increases related to Delmarva opening its new
full-service branch at 26th Street in Ocean City, Maryland during
the second quarter of 2021 and Virginia Partners opening its new
full-service branch and commercial banking office in Reston,
Virginia during the third quarter of 2021;
- Amortization of core deposit intangible decreased by $20
thousand, or 12.9%, primarily due to lower amortization related to
the $2.7 million and $1.5 million, respectively, in core deposit
intangibles recognized in the Virginia Partners and Liberty Bell
Bank acquisitions;
- (Gains) on other real estate owned increased by $3 thousand, or
77.6%, primarily due to gains being recorded on the sales of two
properties during the first quarter of 2022, as compared to a gain
being recorded on the sale of one property during the same period
of 2021;
- Merger related expenses increased by $396 thousand, or 100.0%,
primarily due to legal fees and other costs associated with the
pending merger with OceanFirst; and
- Other expenses decreased by $156 thousand, or 5.3%, primarily
due to lower expenses related to legal, subscriptions and
publications, insurance, data and item processing, and other
losses, which were partially offset by higher expenses related to
advertising, printing and postage, FDIC insurance assessments,
consulting, loans, Virginia Partners state franchise tax, and
debit/credit/merchant card transactions.
Federal and State Income
Taxes
Federal and state income taxes for the three
months ended March 31, 2022 increased by $363 thousand, or 109.0%,
when compared to the three months ended March 31, 2021. This
increase was due primarily to higher consolidated income before
taxes, higher merger related expenses, which are typically
non-deductible, and lower earnings on tax-exempt income, primarily
tax-exempt investment securities. For the three months ended March
31, 2022, the Company’s effective tax rate was approximately 24.8%
as compared to 23.4% for the same period in 2021.
Virginia Partners is not subject to Virginia
state income tax, but instead pays Virginia franchise tax. The
Virginia franchise tax paid by Virginia Partners is recorded in the
“Other expenses” line item on the Consolidated Statements of Income
for the three months ended March 31, 2022 and
2021.
Balance Sheet
Changes in key balance sheet components as of
March 31, 2022 compared to December 31, 2021 were as follows:
- Total assets as of March 31, 2022 were $1.69 billion, an
increase of $44.3 million, or 2.7%, from December 31, 2021. Key
drivers of this change were increases in cash and cash equivalents
and total loans held for investment;
- Interest bearing deposits in other financial institutions as of
March 31, 2022 were $308.0 million, an increase of $10.1 million,
or 3.4%, from December 31, 2021. Key drivers of this change were
total deposit growth outpacing total loan growth and the Company
repositioning its excess liquidity in order to earn higher amounts
of interest income, which were partially offset by an increase in
investment securities available for sale, at fair value;
- Federal funds sold as of March 31, 2022 were $24.0 million, a
decrease of $4.1 million, or 14.5%, from December 31, 2021. Key
drivers of this change were the aforementioned items noted in the
analysis of interest bearing deposits in other financial
institutions;
- Investment securities available for sale, at fair value as of
March 31, 2022 were $125.1 million, an increase of $3.1 million, or
2.5%, from December 31, 2021. Key drivers of this change were
management of the investment securities portfolio in light of the
Company's liquidity needs, which were partially offset by a higher
yielding investment security being called, and an increase in
unrealized losses on the investment securities available for sale
portfolio;
- Loans, net of unamortized discounts on acquired loans of $2.0
million as of March 31, 2022 were $1.15 billion, an increase of
$36.2 million, or 3.2%, from December 31, 2021. The key driver of
this change was an increase in organic growth, including growth of
approximately $17.8 million in loans related to Virginia Partners’
recent expansion into the Greater Washington market, which was
partially offset by forgiveness payments received of approximately
$2.3 million under round two of the PPP. As of March 31, 2022,
approximately $5.8 million in loans under round two of the PPP were
still outstanding;
- Total deposits as of March 31, 2022 were $1.49 billion, an
increase of $48.6 million, or 3.4%, from December 31, 2021. Key
drivers of this change were organic growth as a result of our
continued focus on total relationship banking and Virginia
Partners’ recent expansion into the Greater Washington market, and
customers seeking the liquidity and safety of deposit accounts in
light of continuing economic uncertainty surrounding the COVID-19
pandemic;
- Total borrowings as of March 31, 2022 were $49.1 million, a
decrease of $158 thousand, or 0.3%, from December 31, 2021. The key
driver of this change was a decrease in long-term borrowings with
the Federal Home Loan Bank resulting from scheduled principal
curtailments; and
- Total stockholders’ equity as of March 31, 2022 was $137.3
million, a decrease of $4.1 million, or 2.9%, from December 31,
2021. Key drivers of this change were an increase in accumulated
other comprehensive (loss), net of tax, and cash dividends paid to
shareholders, which were partially offset by the net income
attributable to the Company for the three months ended March 31,
2022, the proceeds from stock option exercises, and stock-based
compensation expense related to restricted stock awards.
Changes in key balance sheet components as of
March 31, 2022 compared to March 31, 2021 were as follows:
- Total assets as of March 31, 2022 were $1.69 billion, an
increase of $113.8 million, or 7.2%, from March 31, 2021. Key
drivers of this change were increases in cash and cash equivalents,
investment securities available for sale, at fair value, and total
loans held for investment;
- Interest bearing deposits in other financial institutions as of
March 31, 2022 were $308.0 million, an increase of $76.0 million,
or 32.8%, from March 31, 2021. Key drivers of this change were
total deposit growth outpacing total loan growth and the Company
repositioning its excess liquidity in order to earn higher amounts
of interest income, which were partially offset by an increase in
investment securities available for sale, at fair value, and
decreases in long-term borrowings with the Federal Home Loan Bank
and subordinated notes payable, net;
- Federal funds sold as of March 31, 2022 were $24.0 million, a
decrease of $36.4 million, or 60.3%, from March 31, 2021. Key
drivers of this change were the aforementioned items noted in the
analysis of interest bearing deposits in other financial
institutions;
- Investment securities available for sale, at fair value as of
March 31, 2022 were $125.1 million, an increase of $7.1 million, or
6.0%, from March 31, 2021. Key drivers of this change were
management of the investment securities portfolio in light of the
Company's liquidity needs and lower accelerated prepayments on
mortgage-backed investment securities in the low interest rate
environment, which were partially offset by higher yielding
investment securities being called and an increase in unrealized
losses on the investment securities available for sale
portfolio;
- Loans, net of unamortized discounts on acquired loans of $2.0
million as of March 31, 2022 were $1.15 billion, an increase of
$74.5 million, or 6.9%, from March 31, 2021. Key drivers of this
change were an increase in organic growth, including growth of
approximately $55.8 million in loans related to Virginia Partners’
recent expansion into the Greater Washington market, and the
origination and funding of approximately $4.7 million in loans
under round two of the PPP, which were partially offset by
forgiveness payments received of approximately $49.9 million under
rounds one and two of the PPP. As of March 31, 2022, approximately
$5.8 million in loans under round two of the PPP were still
outstanding;
- Total deposits as of March 31, 2022 were $1.49 billion, an
increase of $119.7 million, or 8.7%, from March 31, 2021. Key
drivers of this change were organic growth as a result of our
continued focus on total relationship banking and Virginia
Partners’ recent expansion into the Greater Washington market, and
customers seeking the liquidity and safety of deposit accounts in
light of continuing economic uncertainty surrounding the COVID-19
pandemic;
- Total borrowings as of March 31, 2022 were $49.1 million, a
decrease of $8.8 million, or 15.2%, from March 31, 2021. Key
drivers of this change were a decrease in long-term borrowings with
the Federal Home Loan Bank resulting from the maturity of a
borrowing that was not replaced and scheduled principal
curtailments, and the early redemption of $2.0 million in
subordinated notes payable, net, in early July 2021; and
- Total stockholders’ equity as of March 31, 2022 was $137.3
million, an increase of $1.6 million, or 1.2%, from March 31, 2021.
Key drivers of this change were the net income attributable to the
Company for the period April 1, 2021 through March 31, 2022, the
proceeds from stock option exercises, and stock-based compensation
expense related to restricted stock awards, which were partially
offset by the increase in accumulated other comprehensive (loss),
net of tax, and cash dividends paid to shareholders.
As of March 31, 2022, all of the capital ratios
of Delmarva and Virginia Partners continue to exceed regulatory
requirements, with total risk-based capital substantially above
well-capitalized regulatory requirements.
Asset Quality
The asset quality measures depicted below
continue to reflect the Company’s efforts to prudently charge-off
loans as losses are identified and maintain an appropriate
allowance for credit losses.
The following table depicts the net charge-off
activity for the three months ended March 31, 2022 and 2021:
Net Charge-off Activity |
|
Three Months Ended |
|
|
March 31, |
Dollars in Thousands |
|
2022 |
|
2021 |
|
|
|
|
|
Net charge-offs |
|
$ |
155 |
|
|
$ |
192 |
|
Net charge-offs /Average loans* |
|
|
0.06 |
% |
|
|
0.07 |
% |
* Annualized for the three months ended March 31, 2022 and 2021,
respectively. |
|
The following table depicts the level of the
allowance for credit losses as of March 31, 2022, December 31, 2021
and March 31, 2021:
|
|
|
|
|
|
|
Allowance for Credit Losses |
|
|
|
|
|
|
|
|
|
|
|
Dollars in Thousands |
|
March 31, 2022 |
|
December 31, 2021 |
|
March 31, 2021 |
|
|
|
|
|
|
|
Allowance
for credit losses |
|
$ |
14,565 |
|
|
$ |
14,656 |
|
|
$ |
14,751 |
|
Allowance
for credit losses/Period end loans |
|
|
1.26 |
% |
|
|
1.31 |
% |
|
|
1.37 |
% |
Allowance
for credit losses/Period end loans (excluding PPP loans) |
|
|
1.27 |
% |
|
|
1.32 |
% |
|
|
1.44 |
% |
Allowance
for credit losses/Nonaccrual loans |
|
|
237.06 |
% |
|
|
163.55 |
% |
|
|
321.05 |
% |
Allowance
for credit losses/Nonperforming loans |
|
|
237.06 |
% |
|
|
163.55 |
% |
|
|
278.49 |
% |
|
|
|
|
|
|
|
As of March 31, 2022, the Company has not yet
adopted FASB ASU No. 2016-13, “Financial Instruments – Credit
Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments.” The adoption of this accounting standard will require
the Company to calculate its allowance for credit losses on the
basis of the current expected credit losses over the lifetime of
our loans, or the CECL model, which is expected to be applicable to
the Company beginning in 2023.
The following table depicts the unamortized
discounts on acquired loans related to the acquisitions of Liberty
Bell Bank and Virginia Partners:
Unamortized Discounts on Acquired Loans |
|
|
|
|
|
|
|
|
|
|
|
Dollars in Thousands |
|
March 31, 2022 |
|
December 31, 2021 |
|
March 31, 2021 |
|
|
|
|
|
|
|
Unamortized discounts on acquired loans |
|
$ |
2,008 |
|
|
$ |
2,329 |
|
|
$ |
3,603 |
|
|
|
|
|
|
|
|
The following table depicts the level of
nonperforming assets as of March 31, 2022, December 31, 2021 and
March 31, 2021:
Nonperforming Assets |
|
|
|
|
|
|
|
|
|
|
|
Dollars in Thousands |
|
March 31, 2022 |
|
December 31, 2021 |
|
March 31, 2021 |
|
|
|
|
|
|
|
Nonaccrual loans |
|
$ |
6,144 |
|
|
$ |
8,961 |
|
|
$ |
4,595 |
|
Loans past due 90 days and accruing interest |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
702 |
|
Total nonperforming loans |
|
$ |
6,144 |
|
|
$ |
8,961 |
|
|
$ |
5,297 |
|
Other real estate owned, net |
|
$ |
- |
|
|
$ |
837 |
|
|
$ |
2,397 |
|
Total nonperforming assets |
|
$ |
6,144 |
|
|
$ |
9,798 |
|
|
$ |
7,693 |
|
Nonperforming assets/Total assets |
|
|
0.36 |
% |
|
|
0.60 |
% |
|
|
0.49 |
% |
Nonperforming assets/Total loans and other real estate owned,
net |
|
|
0.53 |
% |
|
|
0.88 |
% |
|
|
0.71 |
% |
|
|
|
|
|
|
|
COVID-19 Pandemic Update
In connection with the ongoing COVID-19
pandemic, both Delmarva and Virginia Partners continue to follow
their pandemic response plans, which were enacted in February 2020.
To date, management believes that the plans have been implemented
successfully. As of March 31, 2022, both Delmarva and Virginia
Partners branch operations were operating under normal lobby and
drive-thru hours. In addition, the majority of Delmarva’s and
Virginia Partners’ employees, with a few exceptions, have shifted
from remote work to returning to the office on either a full-time
or hybrid basis. Delmarva and Virginia Partners continue to take
necessary precautions in order to protect their staffs, customers
and their families as well as their communities, and to limit the
ongoing impact of the COVID-19 pandemic.
The Company’s focus from the beginning has been
ensuring the health and safety of its employees and customers,
providing all necessary financial support and services to its
customers and communities, continuing to operate Delmarva and
Virginia Partners in a safe and sound manner, and protecting the
investment its shareholders have made in the Company. Beginning
late in the first quarter of 2020, both Delmarva and Virginia
Partners began assisting their customers in obtaining loans under
the PPP in order to further assist their communities. During round
one of this program, on a consolidated basis, the Company directly
originated and funded almost 700 loans totaling approximately $64.2
million, all of which were previously pledged as collateral to the
Federal Reserve Bank Discount Window under the PPP Liquidity
Facility. Beginning in the fourth quarter of 2020 and continuing
through the fourth quarter of 2021, the Company received
forgiveness payments from the Small Business Administration related
to all of these loans. As of March 31, 2022, on a consolidated
basis, the Company had no loans outstanding under round one of this
program.
Beginning early in the first quarter of 2021,
both Delmarva and Virginia Partners began assisting their customers
in obtaining loans under round two of this program. As of March 31,
2022, on a consolidated basis, the Company has directly originated
and funded over 430 loans totaling approximately $30.9 million,
none of which have been pledged as collateral to the Federal
Reserve Bank Discount Window under the PPP Liquidity Facility. As
of March 31, 2022, on a consolidated basis, the Company had
approximately $5.8 million in loans still outstanding under round
two of this program. Aggregate fees, net of costs to originate,
from the Small Business Administration of approximately $246
thousand will continue to be recognized in interest income over the
life of these loans. Upon forgiveness of these loans, the remaining
aggregate fees, net of costs to originate, will be recognized in
interest income on an accelerated basis.
In addition, in an effort to support the
Company’s borrowers in their times of need, the Company has granted
loan payment deferrals to certain borrowers, who were current on
their payments prior to the COVID-19 pandemic, on a short-term
basis of three to six months. At the peak, which occurred during
the second quarter of 2020, the Company, on a consolidated basis,
had approved loan payment deferrals or payments of interest only
for 548 loans totaling $286.6 million, which represented
approximately 28.8% of total loan balances outstanding. As of March
31, 2022, all of the loan balances that were approved by the
Company, on a consolidated basis, for loan payment deferrals or
payments of interest only have either resumed regular payments or
have been paid off. As of March 31, 2022, on a consolidated basis,
there were no loans outstanding with respect to which the Company
has granted loan payment deferrals or payments of interest
only.
The Company continues to closely monitor credit
risk and its exposure to increased loan losses resulting from the
impact of the COVID-19 pandemic on its borrowers. The Company has
identified nine specific higher risk industries for credit exposure
monitoring during this crisis.
The table below identifies these higher risk
industries and the Company’s exposure to them as of March 31,
2022:
As of March 31, 2022 |
Higher Risk Industries |
Loan balances outstanding (dollars inthousands) |
Number of loansoutstanding |
As a percentage of totalloan balancesoutstanding (%)* |
Hospitality (Hotels) |
$87,264 |
37 |
7.60% |
Amusement Services |
10,127 |
10 |
0.88% |
Restaurants |
50,786 |
70 |
4.42% |
Retail Commercial Real
Estate |
53,764 |
69 |
4.68% |
Movie Theatres |
6,140 |
2 |
0.53% |
Aviation |
0 |
0 |
0.00% |
Charter Boats/Cruises |
1,661 |
4 |
0.14% |
Commuter Services |
59 |
4 |
0.01% |
Manufacturing/Distribution |
2,471 |
8 |
0.22% |
Totals |
$212,272 |
204 |
18.48% |
* Excludes loans
originated under the PPP of the Small Business
Administration. |
|
|
|
|
As of March 31, 2022, there were no loans within
these higher risk industries with respect to which the Company has
granted loan payment deferrals.
Lloyd B. Harrison, III, the Company’s Chief
Executive Officer, commented, “I am pleased with our start to 2022
as both loan and deposit growth came in ahead of our internal
targets. During the first quarter of 2022, the Company generated
loan growth of 3.2% and finished the period maintaining strong
asset quality. As a company, we have continued to focus on
expanding and attracting new relationships in our existing and
expansion markets. As a result of these efforts, the Company
generated deposit growth of 3.4% during the three months ended
March 31, 2022, including growth in non-interest bearing demand
deposits of 10.3%, which now represent 36.5% of total deposits at
March 31, 2022 as compared to 34.2% of total deposits at December
31, 2021. The Company’s expansion into the Greater Washington
market has continued to occur faster than originally projected. As
of March 31, 2022, that expansion has added $68.0 million in net
loans and $85.5 million in total deposits, including $53.4 million
in non-interest bearing demand deposits. Despite the impact of $396
thousand in merger related expenses, lower net loan fees earned
related to PPP loan forgiveness, and reduced operating results from
Virginia Partners’ majority owned subsidiary Johnson Mortgage
Company, LLC due to a lower volume of loan closings during the
first quarter of 2022, we are reporting improved earnings for the
three months ended March 31, 2022, with net income attributable to
the Company increasing by 93.5% when compared to the same period of
2021.”
Harrison continued, “As previously disclosed,
during the first quarter of 2022 we announced the receipt of the
requisite approval of the Company’s stockholders related to our
pending merger with OceanFirst. We continue to be very excited
about becoming part of OceanFirst and are focused on the steps
necessary to successfully complete the merger. Throughout the
balance of 2022, our focus will continue to be finding ways to
increase the efficiencies of our combined organization, maintaining
asset quality, prudently growing our loan portfolio and deploying
excess liquidity. While we expect that we will continue to face
numerous economic and operational challenges related to the ongoing
COVID-19 pandemic, geopolitical disruption in financial markets and
economies, and inflationary pressures, we believe we are poised to
benefit from the recent rise in interest rates through an expanded
net interest margin. Despite these challenges, with our current
levels of liquidity and capital, combined with our emphasis on
total relationship banking as well as our current pipeline of
opportunities, we believe we are well positioned to deliver solid
growth, increased profitability and enhanced shareholder
value.”
About Partners Bancorp
Partners Bancorp is the holding company for The
Bank of Delmarva and Virginia Partners Bank. The Bank of Delmarva
commenced operations in 1896. The Bank of Delmarva’s main office is
in Seaford, Delaware and it conducts full service commercial
banking through twelve branch locations in Maryland and Delaware,
and three branches, operating under the name Liberty Bell Bank, in
the South Jersey/Philadelphia metro market. The Bank of Delmarva
focuses on serving its local communities, knowing its customers and
providing superior customer service. Virginia Partners Bank,
headquartered in Fredericksburg, Virginia, was founded in 2008 and
has three branches in Fredericksburg, Virginia and operates a full
service branch and commercial banking office in Reston, Virginia.
In Maryland, Virginia Partners Bank trades under the name Maryland
Partners Bank (a division of Virginia Partners Bank), and operates
a full service branch and commercial banking office in La Plata,
Maryland and a Loan Production Office in Annapolis, Maryland.
Virginia Partners Bank also owns a controlling stake in Johnson
Mortgage Company, LLC, which is a residential mortgage company
headquartered in Newport News, Virginia, with branch offices in
Fredericksburg and Williamsburg, Virginia. For more information,
visit www.partnersbancorp.com, www.bankofdelmarvahb.com and
www.vapartnersbank.com.
For further information, please contact Lloyd B.
Harrison, III, Chief Executive Officer, at 540-899-2234, John W.
Breda, President and Chief Operating Officer, at 410-548-1100
x18112, J. Adam Sothen, Chief Financial Officer, at 540-322-5521,
or Betsy Eicher, Chief Accounting Officer, at 667-253-2904.
Forward-Looking Statements
Certain statements in this press release may
constitute “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking
statements are statements that include, without limitation,
projections, predictions, expectations, or beliefs about future
events or results that are not statements of historical
fact. Statements in this press release which express
“belief,” “intention,” “expectation,” “potential” and similar
expressions, or which use the words “believe,” “expect,”
“anticipate,” “estimate,” “plan,” “may,” “will,” “intend,”
“should,” “could,” or similar expressions, identify forward-looking
statements. These forward-looking statements are based on the
beliefs of the Company’s management, as well as assumptions made
by, and information currently available to, the Company’s
management. These statements are inherently uncertain, and there
can be no assurance that the underlying assumptions will prove to
be accurate. Actual results could differ materially from those
anticipated or implied by such statements. Forward-looking
statements in this release may include, without limitation,
statements related to the completion and benefits of the merger
with OceanFirst, Mr. Harrison’s quotes and statements regarding
expected future financial performance, potential effects of the
COVID-19 pandemic, strategic business initiatives including growth
in the Greater Washington market and the anticipated effects
thereof, margin expansion, technology initiatives, asset quality,
adequacy of allowances for credit losses and the level of future
charge-offs, capital levels, the effect of future market and
industry trends and the effects of future interest rate
fluctuations. Factors that could have a material adverse effect on
the operations and future prospects of the Company include, but are
not limited to: (1) the risk that the cost savings, any revenue
synergies and other anticipated benefits of the proposed merger
with OceanFirst may not be realized or may take longer than
anticipated to be realized, including as a result of the impact of,
or problems arising from, the integration of the two companies or
as a result of the condition of the economy and competitive factors
in areas where OceanFirst and the Company do business, (2) deposit
attrition, operating costs, customer losses and other disruptions
to the parties’ businesses as a result of the announcement and
pendency of the proposed merger, and diversion of management’s
attention from ongoing business operations and opportunities, (3)
the occurrence of any event, change or other circumstances that
could give rise to the right of one or both of the parties to
terminate the merger agreement, (4) the risk that the integration
of OceanFirst and the Company’s operations will be materially
delayed or will be more costly or difficult than expected or that
OceanFirst and the Company are otherwise unable to successfully
integrate their businesses, (5) the outcome of any legal
proceedings instituted against OceanFirst and/or the Company, (6)
the failure to obtain required governmental approvals (and the risk
that such governmental approvals may result in the imposition of
conditions that could adversely affect the combined company or the
expected benefits of the proposed transaction), (7) reputational
risk and potential adverse reactions of OceanFirst and/or the
Company’s customers, suppliers, employees or other business
partners, including those resulting from the announcement or
completion of the proposed merger, (8) the failure of any of the
closing conditions in the merger agreement to be satisfied on a
timely basis or at all, (9) changes in interest rates, such as
volatility in yields on U.S. Treasury bonds and increases or
volatility in mortgage rates, (10) general business conditions, as
well as conditions within the financial markets, including the
impact thereon of geopolitical conflicts such as the military
conflict between Russian and Ukraine, (11) general economic
conditions, in the United States generally and particularly in the
markets in which the Company operates and which its loans are
concentrated, including the effects of declines in real estate
values, an increase in unemployment levels and slowdowns in
economic growth, including as a result of the COVID-19 pandemic,
(12) the effect of steps the Company takes in response to the
COVID-19 pandemic, the severity and duration of the pandemic and
the distribution and efficacy of vaccines, the pace of recovery
when the pandemic subsides and the heightened impact it has on many
of the risks described herein, (13) legislative or regulatory
changes and requirements, including further legislative and
regulatory changes related to the COVID-19 pandemic, (14) monetary
and fiscal policies of the U.S. Government, including policies of
the U.S. Treasury and the Federal Reserve Board, and the effect of
these policies on interest rates and business in our markets, (15)
changes in the value of securities held in the Company’s investment
portfolios, (16) changes in the quality or composition of the loan
portfolios and the value of the collateral securing those loans,
(17) changes in the level of net charge-offs on loans and the
adequacy of our allowance for credit losses, (18) demand for loan
products, (19) deposit flows, (20) the strength of the Company’s
counterparties, (21) competition from both banks and non-banks,
(22) demand for financial services in the Company’s market area,
(23) reliance on third parties for key services, (24) changes in
the commercial and residential real estate markets, (25) cyber
threats, attacks or events, (26) expansion of Delmarva’s and
Virginia Partners’ product offerings, (27) changes in accounting
principles, policies and guidelines, and elections by the Company
thereunder, and (28) potential claims, damages, and fines related
to litigation or government actions, including litigation or
actions arising from the Company’s participation in and
administration of programs related to the COVID-19 pandemic. These
risks and uncertainties should be considered in evaluating the
forward-looking statements contained herein, and readers are
cautioned not to place undue reliance on any forward-looking
statements, which speak only as of the date of this release. For
additional information on risk factors that could affect the
forward-looking statements contained herein, see the Company’s most
recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
and other reports filed with the Securities and Exchange Commission
(“SEC”).
|
PARTNERS BANCORP |
CONSOLIDATED BALANCE SHEETS |
|
|
|
|
|
|
|
March 31, |
March 31, |
December 31, |
|
|
|
2022 |
|
2021 |
2021 |
|
(Unaudited) |
(Unaudited) |
* |
|
|
|
|
|
ASSETS |
|
|
|
Cash and due from banks |
$ |
13,915,637 |
|
$ |
19,301,506 |
$ |
12,886,968 |
Interest bearing deposits in other financial institutions |
|
308,016,402 |
|
|
231,982,121 |
|
297,901,913 |
Federal funds sold |
|
23,982,322 |
|
|
60,412,678 |
|
28,039,854 |
|
Cash and cash equivalents |
|
345,914,361 |
|
|
311,696,305 |
|
338,828,735 |
Investment securities available for sale, at fair value |
|
125,128,610 |
|
|
117,996,439 |
|
122,020,826 |
Loans held for sale |
|
1,341,719 |
|
|
6,540,808 |
|
4,064,312 |
Loans, less allowance for credit losses of $14,565,282 at March 31,
2022, |
|
|
|
$14,751,062 at March 31, 2021 and $14,655,654 at December 31,
2021 |
|
1,138,798,890 |
|
|
1,064,073,157 |
|
1,102,538,982 |
Accrued interest receivable |
|
4,112,985 |
|
|
5,006,074 |
|
4,313,207 |
Premises and equipment, less accumulated depreciation |
|
15,970,144 |
|
|
16,202,937 |
|
16,174,870 |
Restricted stock |
|
4,934,656 |
|
|
5,170,756 |
|
4,869,456 |
Operating lease right-of-use assets |
|
5,770,304 |
|
|
4,104,340 |
|
6,009,025 |
Finance lease right-of-use assets |
|
1,652,833 |
|
|
1,789,739 |
|
1,687,059 |
Other investments |
|
4,983,459 |
|
|
5,063,239 |
|
5,064,801 |
Bank owned life insurance |
|
18,365,558 |
|
|
14,932,183 |
|
18,254,339 |
Other real estate owned, net |
|
- |
|
|
2,396,623 |
|
837,000 |
Core deposit intangible, net |
|
1,925,529 |
|
|
2,505,222 |
|
2,060,463 |
Goodwill |
|
9,581,668 |
|
|
9,581,668 |
|
9,581,668 |
Other assets |
|
10,833,335 |
|
|
8,463,705 |
|
8,675,237 |
|
Total assets |
$ |
1,689,314,051 |
|
$ |
1,575,523,195 |
$ |
1,644,979,980 |
|
|
|
|
|
LIABILITIES |
|
|
|
Deposits: |
|
|
|
Non-interest bearing demand |
$ |
544,688,000 |
|
$ |
464,068,509 |
$ |
493,913,054 |
Interest bearing demand |
|
149,186,558 |
|
|
136,159,619 |
|
159,420,637 |
Savings and money market |
|
441,372,634 |
|
|
345,731,978 |
|
410,286,409 |
Time |
|
356,206,716 |
|
|
425,771,057 |
|
379,255,563 |
|
|
|
1,491,453,908 |
|
|
1,371,731,163 |
|
1,442,875,663 |
Accrued interest payable on deposits |
|
267,372 |
|
|
360,521 |
|
279,943 |
Long-term borrowings with the Federal Home Loan Bank |
|
26,148,571 |
|
|
32,807,143 |
|
26,313,214 |
Subordinated notes payable, net |
|
22,179,887 |
|
|
24,113,560 |
|
22,168,305 |
Other borrowings |
|
750,133 |
|
|
957,371 |
|
755,403 |
Operating lease liabilities |
|
6,166,269 |
|
|
4,424,781 |
|
6,372,332 |
Finance lease liabilities |
|
2,095,747 |
|
|
2,212,898 |
|
2,125,347 |
Other liabilities |
|
2,988,933 |
|
|
3,265,640 |
|
2,722,266 |
|
Total liabilities |
|
1,552,050,820 |
|
|
1,439,873,077 |
|
1,503,612,473 |
|
|
|
|
|
COMMITMENTS & CONTINGENCIES |
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY |
|
|
|
Common stock, par value $.01, authorized 40,000,000 shares, issued
and outstanding 17,961,699 |
|
|
|
|
|
as of March 31, 2022, 17,726,648 as of March 31, 2021 and
17,941,604 as of December 31, 2021, |
|
|
|
|
|
including 28,000 nonvested shares as of March 31, 2022, 0 nonvested
shares as of March 31, 2021 and |
|
|
|
|
|
28,000 nonvested shares as of December 31, 2021, respectively |
|
179,337 |
|
|
177,266 |
|
179,136 |
Surplus |
|
88,528,646 |
|
|
86,995,639 |
|
88,389,831 |
Retained earnings |
|
52,964,556 |
|
|
46,319,906 |
|
51,304,840 |
Noncontrolling interest in consolidated subsidiaries |
|
1,118,457 |
|
|
1,530,848 |
|
1,179,042 |
Accumulated other comprehensive (loss) income, net of tax |
|
(5,527,765 |
) |
|
626,459 |
|
314,658 |
|
Total stockholders' equity |
|
137,263,231 |
|
|
135,650,118 |
|
141,367,507 |
|
Total liabilities and stockholders' equity |
$ |
1,689,314,051 |
|
$ |
1,575,523,195 |
$ |
1,644,979,980 |
|
|
|
|
|
* Derived from audited consolidated financial statements. |
|
|
|
The amounts presented in the Consolidated Balance Sheets as of
March 31, 2022 and 2021 are unaudited but include all
adjustments |
which, in management's opinion, are necessary for fair
presentation. |
|
|
|
|
|
PARTNERS BANCORP |
CONSOLIDATED STATEMENTS OF INCOME |
(Unaudited) |
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
|
|
2022 |
|
|
2021 |
|
|
|
|
|
|
INTEREST INCOME ON: |
|
|
|
Loans, including fees |
$ |
12,894,469 |
|
$ |
12,906,062 |
|
|
Investment securities: |
|
|
|
|
Taxable |
|
396,136 |
|
|
120,963 |
|
|
|
Tax-exempt |
|
183,784 |
|
|
224,601 |
|
|
Federal funds sold |
|
17,074 |
|
|
10,107 |
|
|
Other interest income |
|
162,191 |
|
|
137,536 |
|
|
|
|
|
13,653,654 |
|
|
13,399,269 |
|
|
|
|
|
|
INTEREST EXPENSE ON: |
|
|
|
Deposits |
|
1,243,230 |
|
|
1,858,540 |
|
|
Borrowings |
|
505,554 |
|
|
606,559 |
|
|
|
|
|
1,748,784 |
|
|
2,465,099 |
|
|
|
|
|
|
NET INTEREST INCOME |
|
11,904,870 |
|
|
10,934,170 |
|
|
Provision for credit losses |
|
65,000 |
|
|
1,740,000 |
|
|
|
|
|
|
NET INTEREST INCOME AFTER PROVISION |
|
|
|
FOR CREDIT LOSSES |
|
11,839,870 |
|
|
9,194,170 |
|
|
|
|
|
|
OTHER INCOME: |
|
|
|
Service charges on deposit accounts |
|
223,093 |
|
|
169,111 |
|
|
Gains on sales and calls of investment securities |
|
- |
|
|
14,234 |
|
|
Mortgage banking income |
|
291,257 |
|
|
1,168,481 |
|
|
Gains on sales of other assets |
|
- |
|
|
699 |
|
|
Other income |
|
777,917 |
|
|
901,585 |
|
|
|
|
|
1,292,267 |
|
|
2,254,110 |
|
|
|
|
|
|
OTHER EXPENSES: |
|
|
|
Salaries and employee benefits |
|
5,575,256 |
|
|
5,470,019 |
|
|
Premises and equipment |
|
1,480,538 |
|
|
1,256,924 |
|
|
Amortization of core deposit intangible |
|
134,934 |
|
|
154,823 |
|
|
(Gains) on other real estate owned |
|
(7,325 |
) |
|
(4,125 |
) |
|
Merger related expenses |
|
395,895 |
|
|
- |
|
|
Other expenses |
|
2,807,225 |
|
|
2,962,784 |
|
|
|
|
|
10,386,523 |
|
|
9,840,425 |
|
|
|
|
|
|
INCOME BEFORE TAXES ON INCOME |
|
2,745,614 |
|
|
1,607,855 |
|
|
|
|
|
|
Federal and state income taxes |
|
696,335 |
|
|
333,194 |
|
|
|
|
|
|
NET INCOME |
$ |
2,049,279 |
|
$ |
1,274,661 |
|
Net loss (income) attributable to noncontrolling
interest |
$ |
59,481 |
|
$ |
(185,015 |
) |
Net income attributable to Partners Bancorp |
$ |
2,108,760 |
|
$ |
1,089,646 |
|
|
|
|
|
|
Earnings per common share: |
|
|
|
Basic |
$ |
0.117 |
|
$ |
0.061 |
|
|
Diluted |
$ |
0.117 |
|
$ |
0.061 |
|
|
|
|
|
|
The amounts presented in these Consolidated Statements of Income
for the three months ended March 31, 2022 and 2021 are
unaudited |
but include all adjustments which, in management's opinion, are
necessary for fair presentation. |
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