Citizens Holding(CIZN) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements of Citizens Holding Company for the quarter ended June 30, 2022, along with management's discussion and analysis of financial condition, results of operations, market risk disclosures, and controls and procedures ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS. This section provides the core unaudited consolidated financial statements, including the statements of financial condition, income, comprehensive loss, and cash flows, along with detailed notes explaining significant accounting policies, commitments, equity compensation, income taxes, securities, loans, allowance for loan losses, secured line of credit, shareholders' equity, and fair value measurements Consolidated Statements of Financial Condition Consolidated Statements of Financial Condition (in thousands) | ASSETS | June 30, 2022 (Unaudited) | December 31, 2021 (Audited) | | :---------------------------------------- | :------------------------ | :-------------------------- | | Cash and cash equivalents | $41,282 | $79,236 | | Investment securities available for sale | 563,796 | 631,835 | | Net LHFI | 584,495 | 567,334 | | TOTAL ASSETS | $1,299,081 | $1,361,309 | | LIABILITIES | | | | Total deposits | $1,117,987 | $1,111,892 | | Total liabilities | 1,273,155 | 1,255,409 | | SHAREHOLDERS' EQUITY | | | | Total shareholders' equity | 25,926 | 105,900 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY| $1,299,081 | $1,361,309 | Consolidated Statements of Income Consolidated Statements of Income (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total interest income | $9,560 | $9,816 | $18,614 | $18,895 | | Total interest expense | 797 | 1,322 | 1,564 | 2,768 | | NET INTEREST INCOME | 8,763 | 8,494 | 17,050 | 16,127 | | PROVISION FOR LOAN LOSSES | 56 | 232 | 149 | 319 | | Total other income | 2,763 | 2,989 | 5,296 | 6,221 | | Total other expenses | 8,432 | 8,982 | 16,733 | 17,450 | | INCOME BEFORE PROVISION FOR INCOME TAXES | 3,038 | 2,269 | 5,464 | 4,579 | | PROVISION FOR INCOME TAXES | 497 | 362 | 887 | 775 | | NET INCOME | $2,541 | $1,907 | $4,577 | $3,804 | | NET INCOME PER SHARE - Basic | $0.45 | $0.34 | $0.82 | $0.68 | | NET INCOME PER SHARE - Diluted | $0.45 | $0.34 | $0.82 | $0.68 | | DIVIDENDS PAID PER SHARE | $0.24 | $0.24 | $0.48 | $0.48 | Consolidated Statements of Comprehensive Loss Consolidated Statements of Comprehensive Loss (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $2,541 | $1,907 | $4,577 | $3,804 | | Net unrealized holding (losses) gains | (50,978) | 2,927 | (109,182) | (15,810) | | Income tax effect | 12,719 | (730) | 27,241 | 3,944 | | Net unrealized (losses) gains | (38,259) | 2,197 | (81,941) | (11,866) | | Reclassification adjustment for gains included in net income | — | 393 | — | 919 | | Income tax effect | — | (98) | — | (229) | | Net gains included in net income | — | 295 | — | 690 | | Total other comprehensive (loss) gain | (38,259) | 2,492 | (81,941) | (11,176) | | Comprehensive (loss) gain | $(35,718) | $4,399 | $(77,364) | $(7,372) | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $6,778 | $12,387 | | Net cash (used in) provided by investing activities | (59,541) | 134,005 | | Net cash provided by (used in) financing activities | 14,809 | (106,497) | | Net (decrease) increase in cash and cash equivalents | (37,954) | 39,895 | | Cash and cash equivalents, beginning of period | 79,236 | 42,308 | | Cash and cash equivalents, end of period | $41,282 | $82,203 | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering the company's business nature, significant accounting policies, commitments, equity compensation, income taxes, securities portfolio, loan portfolio details, allowance for loan losses, secured line of credit, shareholders' equity, and fair value measurements of financial instruments Note 1. Nature of Business and Summary of Significant Accounting Policies - Citizens Holding Company operates The Citizens Bank of Philadelphia, offering full-service commercial banking and title insurance services through an affiliate. The Bank serves east central Mississippi and surrounding counties[25] - The interim financial statements are unaudited and prepared in accordance with GAAP, reflecting management's necessary adjustments. Results for Q2 2022 are not necessarily indicative of future periods[26] - The Company plans to implement the new Current Expected Credit Loss (CECL) impairment model, effective January 1, 2023, which will significantly impact accounting policies, internal controls, and disclosures[32][33] Note 2. Commitments and Contingent Liabilities Loan Commitments and Letters of Credit (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :------------------------ | :------------ | :---------------- | | Unused loan commitments | $95,059 | $112,292 | | Letters of credit outstanding | $5,432 | $4,432 | - Management believes that the final resolution of pending legal proceedings will not likely have a material impact on the Company's consolidated financial condition or results of operations[35] Note 3. Net Income per Share Net Income per Share Calculation (in thousands, except share and per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic weighted average shares outstanding | 5,592,782 | 5,584,441 | 5,589,958 | 5,581,662 | | Dilutive effect of granted options | — | 240 | — | 596 | | Diluted weighted average shares outstanding | 5,592,782 | 5,584,681 | 5,589,958 | 5,582,258 | | Net income | $2,541 | $1,907 | $4,577 | $3,804 | | Net income per share-basic | $0.45 | $0.34 | $0.82 | $0.68 | | Net income per share-diluted | $0.45 | $0.34 | $0.82 | $0.68 | Note 4. Equity Compensation Plans - The Company uses the 2013 Incentive Compensation Plan for future equity grants. All remaining outstanding options under the prior Directors' Plan expired on April 25, 2022, with no options outstanding under the 2013 Plan as of June 30, 2022[38][39] - During 2022, directors received 8,250 shares of common stock as restricted stock grants under the 2013 Plan, vesting over one year and granting voting and dividend rights. The grant date fair value was $157 thousand[40] Note 5. Income Taxes Provision for Income Taxes and Effective Tax Rates (in thousands) | Period | Provision for Income Taxes | Effective Tax Rate | | :------------------------------------ | :------------------------- | :----------------- | | Three months ended June 30, 2022 | $497 | 16.36% | | Three months ended June 30, 2021 | $362 | 15.95% | | Six months ended June 30, 2022 | $887 | 16.23% | | Six months ended June 30, 2021 | $775 | 16.93% | - The effective tax rate differs from the statutory rate primarily due to favorable permanent differences related to tax-free municipal investments[44] Note 6. Securities Securities Available-for-Sale (in thousands) | Category | June 30, 2022 Amortized Cost | June 30, 2022 Estimated Fair Value | December 31, 2021 Amortized Cost | December 31, 2021 Estimated Fair Value | | :-------------------------------------- | :--------------------------- | :--------------------------------- | :------------------------------- | :------------------------------------- | | Obligations of U.S. Government agencies | $4,970 | $3,989 | $4,969 | $4,700 | | Mortgage backed securities | 441,600 | 373,209 | 411,729 | 399,591 | | State, County, Municipals | 241,673 | 186,148 | 230,359 | 227,051 | | Other securities | 500 | 450 | 500 | 493 | | Total | $688,743 | $563,796 | $647,557 | $631,835 | - At June 30, 2022, securities with a carrying value of $546,919 thousand were pledged to secure government and public deposits and securities sold under agreement to repurchase, an increase from $371,190 thousand at December 31, 2021[46] - Unrealized losses on securities are primarily due to an upward trend in interest rates since purchase, not credit deterioration. The Company does not intend to sell these securities and does not expect to be required to sell them before recovery of amortized cost[50] Note 7. Loans held for investment Composition of Net Loans (in thousands) | Loan Category | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Real Estate Loans | $482,962 | $464,776 | | Business Loans | 91,317 | 93,122 | | Consumer Loans | 15,262 | 13,949 | | Total Gross Loans | 589,541 | 571,847 | | Allowance for Loan Losses | (5,046) | (4,513) | | Loans, net | $584,495 | $567,334 | Nonaccrual Loans by Class (in thousands) | Loan Category | June 30, 2022 | December 31, 2021 | | :-------------------------------- | :------------ | :---------------- | | Land Development and Construction | $156 | $171 | | Farmland | 104 | 118 | | 1-4 Family Mortgages | 1,801 | 1,891 | | Commercial Real Estate | 1,244 | 1,249 | | Total Real Estate Loans | 3,305 | 3,429 | | Commercial and Industrial Loans | 271 | 386 | | Farm Production and Other Farm Loans | 1 | 3 | | Total Business Loans | 272 | 389 | | Other Consumer Loans | 3 | 8 | | Total Consumer Loans | 3 | 8 | | Total Nonaccrual Loans | $3,580 | $3,826 | - The Company uses a 9-grade risk grading matrix for loans, updated continually, to assess overall quality and potential loss exposure. Loans are classified from Minimal Risk (Grade 1) to Loss (Grade 9)[64][76][77] Note 8. Allowance for Loan Losses - The allowance for loan losses is determined by applying a historical charge-off percentage, adjusted for economic factors, to current loan balances by segment, and by establishing specific reserves for individually impaired loans[83][84][85] Allowance for Loan Losses Activity (in thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Beginning Balance, January 1 | $4,513 | $4,735 | | Provision for (reversal of) loan losses | 149 | 319 | | Chargeoffs | 103 | 847 | | Recoveries | 487 | 144 | | Net (recoveries) chargeoffs | (384) | 703 | | Ending Balance, June 30 | $5,046 | $4,351 | Recorded Investment in Loans by Impairment Methodology (in thousands) | Impairment Methodology | June 30, 2022 | December 31, 2021 | | :------------------------------------------ | :------------ | :---------------- | | Loans individually evaluated for specific impairment | $5,005 | $2,334 | | Loans collectively evaluated for general impairment | 584,536 | 569,513 | | Total Recorded Investment | $589,541 | $571,847 | Note 9. Secured Line of Credit - The Company has a $20 million secured revolving line of credit with First Horizon Bank, obtained on June 9, 2021, bearing interest at WSJ Prime Rate (4.75% at June 30, 2022) and secured by the Bank's common stock[89] Secured Line of Credit (in thousands) | Item | June 30, 2022 | December 31, 2021 | | :------------------ | :------------ | :---------------- | | Funded balance | $18,000 | $18,000 | | Unfunded balance | 2,000 | 2,000 | | Total credit facility | $20,000 | $20,000 | Note 10. Shareholders' Equity Shareholders' Equity Activity (in thousands, except share data) | Metric | Balance, January 1, 2022 | Balance, March 31, 2022 | Balance, June 30, 2022 | | :-------------------------------------- | :----------------------- | :---------------------- | :--------------------- | | Number of Shares Issued | 5,595,320 | 5,595,320 | 5,603,570 | | Common Stock | $1,120 | $1,120 | $1,121 | | Additional Paid-In Capital | $18,293 | $18,332 | $18,370 | | Accumulated Other Comprehensive (Loss) Income | $(11,795) | $(55,477) | $(93,736) | | Retained Earnings | $98,282 | $98,975 | $100,171 | | Total | $105,900 | $62,950 | $25,926 | - Total shareholders' equity significantly decreased from $105,900 thousand at January 1, 2022, to $25,926 thousand at June 30, 2022, primarily due to a substantial increase in accumulated other comprehensive loss, net, from $(11,795) thousand to $(93,736) thousand[91] Note 11. Fair Value of Financial Instruments - The Company categorizes fair value measurements into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs), and Level 3 (significant unobservable inputs)[93][94] Assets Measured at Fair Value on a Recurring Basis (in thousands) - June 30, 2022 | Securities available for sale | Level 1 | Level 2 | Level 3 | Totals | | :---------------------------- | :------ | :--------- | :------ | :--------- | | Obligations of U.S. Government Agencies | $— | $3,989 | $— | $3,989 | | Mortgage-backed securities | — | 373,209 | — | 373,209 | | State, county and municipal | — | 186,148 | — | 186,148 | | Other securities | 450 | — | — | 450 | | Total | $450 | $563,346 | $— | $563,796 | - Impaired loans and Other Real Estate Owned (OREO) are measured at fair value on a nonrecurring basis, primarily using Level 3 inputs based on appraisals adjusted for selling costs[96][97][98] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This section provides management's perspective on the Company's financial performance and condition, including forward-looking statements, an overview of the business, analysis of liquidity, capital resources, results of operations (net interest income, credit loss experience, other income, other expenses), and balance sheet changes FORWARD-LOOKING STATEMENTS - The report contains forward-looking statements based on management's beliefs and expectations, identified by words like "may," "should," "expect," and "anticipate"[104] - Key risks and uncertainties include interest rate movements (Federal Reserve actions), asset quality and loan demand, adverse changes in banking conditions (including pandemics like COVID-19), increasing inflation, extensive regulation, increased competition, operational risks (risk management, third-party vendors, security breaches, technology), climate change, capital and liquidity maintenance, and reputation[105][106] OVERVIEW - Citizens Holding Company is a one-bank holding company, sole shareholder of The Citizens Bank of Philadelphia, which offers full-service commercial banking and title insurance services[109][110] - As of June 30, 2022, the Bank was the largest bank headquartered in Neshoba County, Mississippi, with total assets of $1,298,752 thousand and total deposits of $1,118,523 thousand[110] LIQUIDITY Liquidity Measurement and Key Sources (in thousands) | Metric | June 30, 2022 | December 31, 2021 | Change (%) | | :---------------------------------------- | :------------ | :---------------- | :--------- | | Liquidity Ratio (Net deposits & short-term liabilities / Net cash, short-term investments & marketable assets) | 19.11% | 39.71% | (51.88%) | | Customer deposits | $1,117,987 | $1,111,892 | 0.55% | | Available-for-sale investment securities | $688,743 | $647,557 | 6.36% | | Interest bearing deposits at other banks | $27,008 | $68,563 | (60.61%) | | Unused FHLB line of credit | $197,280 | $221,088 | (10.77%) | | Unused FHN secured line of credit | $2,000 | $2,000 | 0.00% | - The decrease in the liquidity ratio was due to a decrease in interest-bearing cash and cash equivalents and a decline in the fair market value of investment securities, coupled with increased pledging requirements for public deposit funds[112] CAPITAL RESOURCES Shareholders' Equity and Dividends (in thousands, except per share data) | Metric | June 30, 2022 | December 31, 2021 | Change (%) | | :------------------------------------ | :------------ | :---------------- | :--------- | | Total shareholders' equity | $25,926 | $105,900 | (75.52%) | | Aggregate cash dividends paid (6 months) | $2,688 | $2,684 | 0.15% | | Dividends paid per share (6 months) | $0.48 | $0.48 | 0.00% | - The significant decrease in shareholders' equity was primarily due to an accumulated other comprehensive loss (AOCL) resulting from investment securities market value adjustments, partially offset by earnings exceeding dividends[117] - Both the Company and the Bank meet all capital adequacy requirements under Basel III as of June 30, 2022, and are considered "well capitalized"[119][127] RESULTS OF OPERATIONS This section analyzes the Company's financial performance, highlighting changes in net interest income and margin, credit loss experience, and trends in other income and expenses for the three and six months ended June 30, 2022, compared to the prior year NET INTEREST INCOME / NET INTEREST MARGIN Net Interest Income and Margin (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :---------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net interest income | $8,763 | $8,494 | $17,050 | $16,127 | | Annualized net interest margin | 2.78% | 2.57% | 2.74% | 2.45% | | Cost of funds | 33 bps | 50 bps | 33 bps | 52 bps | - The increase in net interest margin was primarily due to the reallocation of the investment portfolio into higher-yielding securities and a decrease in the cost of funds, which offset a decline in interest income on loans[134] - The Company expects to benefit from anticipated interest rate hikes by the Federal Reserve due to assets set to reprice and the less immediate impact on interest-bearing demand and savings deposits[135][143] CREDIT LOSS EXPERIENCE - The Company manages credit risk through thorough loan application/approval procedures and systematic review, grading loans for quality, and monthly review of significant problem loans by management and the Board[149][150] Allowance for Loan Losses and Ratios (in thousands) | Metric | June 30, 2022 | December 31, 2021 | Change (Amount) | Change (%) | | :------------------------------------ | :------------ | :---------------- | :-------------- | :--------- | | Gross Loans | $589,541 | $571,847 | $17,694 | 3.09% | | Allowance for Loan Losses | $5,046 | $4,513 | $533 | 11.81% | | Nonaccrual Loans | $3,580 | $3,826 | $(246) | (6.43%) | | Allowance for loan losses to gross loans | 0.86% | 0.79% | | | | Net loans (recovered) charged off to allowance for loan losses (6 months) | (7.61%) | 20.56% | | | - Net loan losses recovered totaled $384 thousand for the six months ended June 30, 2022, a significant increase in net recoveries compared to $703 thousand charged off in the same period of 2021, primarily due to a recovery on a significant charged-off credit[155] OTHER INCOME Other Income (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total other income | $2,763 | $2,989 | $5,296 | $6,221 | | Service charges on deposit accounts | $967 | $768 | $1,912 | $1,582 | | Overdraft income (included in service charges) | (increase of $197, 39.46%) | | (increase of $321, 30.63%) | | | Mortgage Loan Origination Income | $210 | $323 | $414 | $718 | - Total other income decreased by 7.56% for the three months and 14.87% for the six months ended June 30, 2022, compared to the same periods in 2021, primarily due to a decline in mortgage loan origination income caused by increased mortgage interest rates[158][159] OTHER EXPENSES Other Expenses (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Aggregate non-interest expenses | $8,432 | $8,982 | $16,733 | $17,450 | | Salaries and employee benefits | $4,412 | $4,585 | $8,851 | $9,153 | | Occupancy expense | $1,711 | $1,791 | $3,486 | $3,608 | | Other expense | $2,309 | $2,606 | $4,396 | $4,689 | Efficiency Ratio | Period | Efficiency Ratio | | :------------------------------------ | :--------------- | | Three months ended June 30, 2022 | 71.83% | | Three months ended June 30, 2021 | 77.61% | | Six months ended June 30, 2022 | 73.51% | | Six months ended June 30, 2021 | 76.80% | - Overall other expenses decreased for both the three and six months ended June 30, 2022, compared to the same periods in 2021, reflecting management's focus on expense management initiated in 2020[163] BALANCE SHEET ANALYSIS This section analyzes key changes in the Company's balance sheet components, including cash and cash equivalents, investment securities, loans, and deposits, comparing June 30, 2022, to December 31, 2021 CASH AND CASH EQUIVALENTS Cash and Cash Equivalents (in thousands) | Metric | June 30, 2022 | December 31, 2021 | Change (Amount) | Change (%) | | :------------------------------------ | :------------ | :---------------- | :-------------- | :--------- | | Cash and due from banks | $14,274 | $10,673 | $3,601 | 33.74% | | Interest bearing deposits with other banks | $27,008 | $68,563 | $(41,555) | (60.61%) | INVESTMENT SECURITIES Investment Securities (in thousands) | Metric | June 30, 2022 | December 31, 2021 | Change (Amount) | Change (%) | | :------------------------------------ | :------------ | :---------------- | :-------------- | :--------- | | Fair value of investment securities | $563,796 | $631,835 | $(68,039) | (10.77%) | | Amortized cost of investment securities | $688,743 | $647,557 | $41,186 | 6.36% | | Unrealized losses (net of tax benefit) | $81,941 | | | | - The decrease in the fair value of investment securities is due to recent increases in medium-term interest rates, resulting in $81,941 thousand in unrealized losses (net of tax benefit) on the consolidated statements of comprehensive loss. However, the amortized cost of the portfolio increased as the Company deployed excess cash into higher-yielding securities[169] LOANS Gross Loan Balance (in thousands) | Metric | June 30, 2022 | December 31, 2021 | Change (Amount) | Change (%) | | :------------------------------------ | :------------ | :---------------- | :-------------- | :--------- | | Gross loan balance | $589,541 | $571,847 | $17,694 | 3.09% | | PPP loans | $1,356 | $5,789 | $(4,433) | (76.58%) | | Total loans (excluding PPP) | $588,185 | $566,058 | $22,127 | 3.91% | - The year-to-date loan growth, excluding PPP loans, primarily reflects increases in construction and development, commercial real estate, and consumer loans[170] DEPOSITS Deposit Balances (in thousands) | Deposit Type | June 30, 2022 | December 31, 2021 | Change (Amount) | Change (%) | | :---------------------------- | :------------ | :---------------- | :-------------- | :--------- | | Noninterest-Bearing Deposits | $304,640 | $302,707 | $1,933 | 0.64% | | Interest-Bearing Deposits | $478,844 | $451,809 | $27,035 | 5.98% | | Savings Deposits | $135,503 | $127,217 | $8,286 | 6.51% | | Certificates of Deposit | $199,000 | $230,159 | $(31,159) | (13.54%) | | Total deposits | $1,117,987 | $1,111,892 | $6,095 | 0.55% | - Total deposits increased modestly, driven by increases in noninterest-bearing, interest-bearing, and savings deposits, while certificates of deposit decreased due to management's strategy to reduce higher interest-bearing accounts and customers moving to transactional accounts[172] OFF-BALANCE SHEET ARRANGEMENTS - The Company's off-balance sheet arrangements consist solely of commitments to fund loans and letters of credit, as detailed in Note 2 to the Consolidated Financial Statements[173] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. This section details the Company's approach to managing market risk, primarily interest rate risk, through its asset and liability management program. It includes disclosures on the sensitivity of net interest income and economic value of equity to hypothetical interest rate changes Asset/Liability Management and Interest Rate Risk - The Company's primary market risk is interest rate volatility, which impacts income, expense, and fair value of interest-earning assets and interest-bearing liabilities[176] - Interest rate risk is managed by structuring the balance sheet; the Company does not typically use derivative contracts for this purpose. An interest rate risk simulation model is used to test sensitivity of net interest income and economic value of equity to rate changes[177][178] Simulated Change in Net Interest Income (Static Balance Sheet) | Rate Shift | June 30, 2022 Following 12 months | June 30, 2022 Months 13-24 | December 31, 2021 Following 12 months | December 31, 2021 Months 13-24 | | :------------------ | :-------------------------------- | :------------------------- | :------------------------------------ | :----------------------------- | | +400 basis points | -6.6% | 0.6% | -3.7% | 6.6% | | +300 basis points | -4.3% | 1.0% | -1.3% | 6.9% | | +200 basis points | -2.1% | 1.4% | -0.1% | 5.8% | | +100 basis points | -0.5% | 1.3% | -0.8% | 2.6% | | Flat rates | — | — | — | — | | -100 basis points | -4.2% | -7.4% | -5.5% | -7.7% | | -200 basis points | -8.2% | -14.8% | -10.9% | -13.6% | Change in Economic Value of Equity (Immediate Parallel Shifts) | Rate Shift | June 30, 2022 Economic Value of Equity at Risk (%) | December 31, 2021 Economic Value of Equity at Risk (%) | | :------------------ | :------------------------------------------------- | :----------------------------------------------------- | | +400 basis points | -24.7% | -20.4% | | +300 basis points | -19.2% | -13.8% | | +200 basis points | -13.1% | -7.8% | | +100 basis points | -6.6% | -3.1% | | Flat rates | — | — | | -100 basis points | 1.1% | -13.0% | | -200 basis points | -3.7% | -33.1% | ITEM 4. CONTROLS AND PROCEDURES. This section confirms that management, including the principal executive and financial officers, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of June 30, 2022. No material changes to internal control over financial reporting occurred during the six months ended June 30, 2022 - Management concluded that disclosure controls and procedures were effective as of June 30, 2022[182] - There were no material changes to the Company's internal control over financial reporting during the six months ended June 30, 2022[183] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and a list of exhibits filed with the report ITEM 1. LEGAL PROCEEDINGS. - The Company is involved in lawsuits and claims arising in the ordinary course of business, which are being vigorously contested. Management believes, based on legal counsel, that the final resolution will not materially impact the Company's financial condition or results of operations[185] ITEM 1A. RISK FACTORS. - The Company's business is subject to various factors, risks, and uncertainties, as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021, and further elaborated in the notes to financial statements and MD&A in this Quarterly Report[186] ITEM 6. EXHIBITS. - The report includes exhibits such as the Revolving Credit Loan Agreement, certifications of the CEO and CFO (pursuant to Rule 13a-14(a)/15d-14(a) and 18 U.S.C. § 1350), and financial statements in Inline XBRL format[187][188][189] SIGNATURES This section contains the official signatures of the registrant's authorized officers, including the President and Chief Executive Officer, and the Treasurer and Chief Financial Officer, certifying the report as of August 5, 2022 - The report is signed by Greg L. McKee, President and Chief Executive Officer, and Phillip R. Branch, Treasurer and Chief Financial Officer, on August 5, 2022[194]