Mercantile Bank (MBWM) - 2022 Q1 - Quarterly Report

PART I. Financial Information Item 1. Financial Statements This section presents the unaudited consolidated financial statements of Mercantile Bank Corporation, including balance sheets, income statements, comprehensive income statements, statements of changes in shareholders' equity, and cash flow statements, along with detailed notes explaining significant accounting policies and specific financial instrument details Consolidated Balance Sheets (Unaudited) Total assets decreased to $5,175.9 million, driven by lower cash and deposits, offset by loan growth; liabilities and equity also declined | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Total assets | $5,175,899 | $5,257,749 | $(81,850) | | Total cash and cash equivalents | $770,204 | $975,160 | $(204,956) | | Loans, net | $3,520,637 | $3,418,096 | $102,541 | | Total deposits | $3,976,251 | $4,083,193 | $(106,942) | | Total liabilities | $4,739,428 | $4,801,190 | $(61,762) | | Total shareholders' equity | $436,471 | $456,559 | $(20,088) | Consolidated Statements of Income (Unaudited) Net income decreased to $11.5 million in Q1 2022, driven by lower noninterest income, despite higher net interest income and reduced credit loss provision | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | YoY Change (%) | | :-------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | :------------- | | Total interest income | $35,882 | $34,785 | $1,097 | 3.15% | | Total interest expense | $4,997 | $5,252 | $(255) | -4.86% | | Net interest income | $30,885 | $29,533 | $1,352 | 4.58% | | Provision for credit losses | $100 | $300 | $(200) | -66.67% | | Total noninterest income | $9,277 | $13,463 | $(4,186) | -31.09% | | Total noninterest expenses | $25,742 | $25,117 | $625 | 2.49% | | Net income | $11,492 | $14,239 | $(2,747) | -19.29% | | Basic earnings per share | $0.73 | $0.87 | $(0.14) | -16.09% | | Diluted earnings per share | $0.73 | $0.87 | $(0.14) | -16.09% | | Cash dividends per share | $0.31 | $0.29 | $0.02 | 6.90% | Consolidated Statements of Comprehensive Income (Unaudited) Comprehensive income shifted from a gain to a $16.7 million loss in Q1 2022, driven by significant unrealized losses on available-for-sale securities | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | | :------------------------------------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | | Net income | $11,492 | $14,239 | $(2,747) | | Unrealized holding gains (losses) on securities available for sale | $(35,650) | $(9,168) | $(26,482) | | Tax effect of unrealized holding gains (losses) on securities AFS | $7,487 | $1,925 | $5,562 |\n| Other comprehensive income (loss), net of tax effect | $(28,163) | $(7,243) | $(20,920) | | Comprehensive income (loss) | $(16,671) | $6,996 | $(23,667) | Consolidated Statements of Changes in Shareholders' Equity (Unaudited) Shareholders' equity decreased to $436.5 million, primarily due to a $28.2 million net unrealized loss on available-for-sale securities, offsetting net income | Metric | Balances, January 1, 2022 (in thousands) | Balances, March 31, 2022 (in thousands) | Change (in thousands) | | :------------------------------------------------------------------ | :--------------------------------------- | :-------------------------------------- | :-------------------- | | Common Stock | $285,752 | $286,831 | $1,079 | | Retained Earnings | $174,536 | $181,532 | $6,996 | | Accumulated Other Comprehensive Income (Loss) | $(3,729) | $(31,892) | $(28,163) | | Total Shareholders' Equity | $456,559 | $436,471 | $(20,088) | - The change in net unrealized holding gain/(loss) on securities available for sale, net of tax effect, was a significant negative impact of $(28,163) thousand on shareholders' equity during Q1 2022[19] Consolidated Statements of Cash Flows (Unaudited) Cash and cash equivalents significantly decreased by $205.0 million in Q1 2022, driven by net cash used in investing and financing activities | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | | :-------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :-------------------- | | Net cash from (for) operating activities | $27,888 | $(1,421) | $29,309 | | Net cash for investing activities | $(151,130) | $(237,925) | $86,795 | | Net cash from (for) financing activities | $(81,714) | $265,684 | $(347,398) | | Net change in cash and cash equivalents | $(204,956) | $26,338 | $(235,304) | | Cash and cash equivalents at end of period | $770,204 | $652,344 | $117,860 | Notes to Consolidated Financial Statements (Unaudited) This section details disclosures for financial statements, covering accounting policies, financial instruments, regulatory capital, CECL adoption, pandemic impact, and fair value measurements Note 1. Significant Accounting Policies This note outlines financial statement presentation, pandemic impact, PPP accounting, and CECL adoption, detailing key policies for securities, loans, and credit losses - The company adopted the CECL methodology effective January 1, 2022, using the modified retrospective method. This resulted in a $0.4 million decrease in the allowance for credit losses and a $0.3 million increase to retained earnings[55][211] - The Coronavirus Pandemic continues to pose stress and uncertainty, potentially impacting financial condition and results of operations through declining asset quality and negative effects on net interest income due to an asset-sensitive position[33][222] | PPP Loan Program | Originated Loans (approx.) | Forgiveness Transactions (as of March 31, 2022) | Net Loan Origination Fees (Q1 2022) | | :--------------- | :------------------------- | :---------------------------------------------- | :---------------------------------- | | First Draw | $553 million (2,200 loans) | All but 6 loans ($0.9 million) | < $0.1 million | | Second Draw | $208 million (1,200 loans) | All but 38 loans ($11.3 million) | $0.8 million | Note 2. Securities Debt securities, classified as available for sale, are carried at fair value and experienced a significant increase in unrealized losses in Q1 2022 due to changing interest rates | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :-------------------------------------- | :---------------------------- | :------------------------------- | :-------------------- | | Securities available for sale (Fair Value) | $605,661 | $592,743 | $12,918 | | Gross Unrealized Gains | $776 | $5,238 | $(4,462) | | Gross Unrealized Losses | $(41,146) | $(9,958) | $(31,188) | | Net Unrealized Loss | $(40,370) | $(4,720) | $(35,650) | - At March 31, 2022, 527 debt securities had unrealized losses aggregating $41.1 million, up from $10.0 million (333 securities) at December 31, 2021. These losses are attributed to changing interest rate environments, and the company does not intend to sell them before recovery[102] Note 3. Loans and Allowance for Credit Losses Total loans increased by $102 million to $3.56 billion, driven by commercial and retail growth, while nonperforming loans decreased and the allowance for credit losses remained stable | Loan Category | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | % Change | | :---------------------------------------------- | :---------------------------- | :------------------------------- | :-------------------- | :------- | | Total loans | $3,555,790 | $3,453,459 | $102,331 | 3.0% | | Commercial and industrial (incl. PPP) | $1,153,814 | $1,137,419 | $16,395 | 1.4% | | Vacant land, land development, residential construction | $52,693 | $43,239 | $9,454 | 21.9% | | 1-4 family mortgages | $522,556 | $442,547 | $80,009 | 18.1% | | Other consumer loans | $28,672 | $60,488 | $(31,816) | -52.6% | | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :------------------------------------ | :---------------------------- | :------------------------------- | :-------------------- | | Total nonperforming loans | $1,612 | $2,468 | $(856) | | Allowance for credit losses | $35,153 | $35,363 | $(210) | | Allowance for credit losses as % of total loans | 0.99% | 1.02% | -0.03% | - Net loan recoveries totaled $0.1 million in Q1 2022 (0.01% of average total loans annualized), resulting from $0.3 million in recoveries offsetting $0.2 million in charge-offs[132][253] Note 4. Premises and Equipment, Net Net premises and equipment decreased by $1.2 million to $56.1 million due to depreciation expense, with details on operating lease commitments for banking facilities | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :-------------------------- | :---------------------------- | :------------------------------- | :-------------------- | | Premises and equipment, net | $56,078 | $57,298 | $(1,220) | | Depreciation expense (Q1) | $1,600 | $1,400 | $200 | - The company has operating lease liabilities and right-of-use assets of $2.6 million as of March 31, 2022, for ten banking facilities with maturities ranging from June 2022 through December 2026[144][146] Note 5. Deposits Total deposits decreased by $107 million to $3.98 billion, mainly due to lower money market and time deposits, with a single customer withdrawal impacting local deposits | Deposit Type | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | % Change | | :---------------------------- | :---------------------------- | :------------------------------- | :-------------------- | :------- | | Total deposits | $3,976,251 | $4,083,193 | $(106,942) | -2.6% | | Noninterest-bearing checking | $1,686,203 | $1,677,952 | $8,251 | 0.5% | | Interest-bearing checking | $544,221 | $538,838 | $5,383 | 1.0% | | Money market | $943,246 | $1,040,176 | $(96,930) | -9.3% | | Savings | $406,545 | $394,330 | $12,215 | 3.1% | | Time, under $100,000 | $127,755 | $132,776 | $(5,021) | -3.8% | | Time, $100,000 and over | $252,088 | $275,208 | $(23,120) | -8.4% | - The decrease in local deposits primarily reflected a single customer's withdrawal of a majority of funds deposited in late 2021. Excluding this, local deposits were up approximately $50 million[231][266] Note 6. Securities Sold Under Agreements to Repurchase Repurchase agreements increased to $204.3 million at March 31, 2022, from $197.5 million, with the average interest rate remaining low | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :-------------------------------------- | :---------------------------- | :------------------------------- | :-------------------- | | Outstanding balance at end of period | $204,271 | $197,463 | $6,808 | | Average interest rate at end of period | 0.10% | 0.11% | -0.01% | | Average daily balance during the period | $198,949 | $158,855 | $40,094 | Note 7. Federal Home Loan Bank of Indianapolis Advances FHLBI advances increased by $8.3 million to $382.3 million, including new amortizing advances, used for interest rate risk management and loan growth | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :------------------------------------ | :---------------------------- | :------------------------------- | :-------------------- | | Total FHLBI advances | $382,263 | $374,000 | $8,263 | | FHLBI bullet advances | $354,000 | $374,000 | $(20,000) | | FHLBI amortizing advances | $28,300 | $0 | $28,300 | | Average rate on FHLBI bullet advances | 1.98% | 2.00% | -0.02% | - The company's borrowing line of credit with FHLBI totaled $932 million as of March 31, 2022, with $544 million remaining availability based on collateral[155] Note 8. Commitments and Off-Balance Sheet Risk Off-balance sheet commitments totaled $1.54 billion, primarily commercial unused lines and loan commitments, with an allowance for credit exposures maintained | Off-Balance Sheet Item | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :------------------------------------------------------ | :---------------------------- | :------------------------------- | :-------------------- | | Commercial unused lines of credit | $1,115,888 | $1,098,951 | $16,937 | | Unused lines of credit secured by 1–4 family residential properties | $65,112 | $64,313 | $799 | | Commitments to make loans | $158,102 | $212,476 | $(54,374) | | Standby letters of credit | $32,954 | $33,109 | $(155) | | Total off-balance sheet commitments | $1,540,413 | $1,565,871 | $(25,458) | - The calculated allowance for retail lines of credit and credit cards as of March 31, 2022, was less than $0.1 million[160] Note 9. Derivatives and Hedging Activities Interest rate swaps manage commercial loan interest rate risk, not for trading, with a $338.2 million notional amount and a $0.2 million net liability as of March 31, 2022 | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :-------------------------------------- | :---------------------------- | :------------------------------- | :-------------------- | | Notional Amount of Interest Rate Swaps | $338,231 | $279,419 | $58,812 | | Derivative Assets (Fair Value) | $10,053 | $4,609 | $5,444 | | Derivative Liabilities (Fair Value) | $10,246 | $4,857 | $5,389 | | Net Fair Value (Liabilities - Assets) | $(193) | $(248) | $55 | - The effect of interest rate swaps not designated as hedging instruments resulted in noninterest income of less than $0.1 million during Q1 2022[165] Note 10. Fair Values of Financial Instruments This note presents carrying and fair values for financial instruments, with valuations based on market prices, dealer quotes, exit price models, and valuation models | Financial Instrument | March 31, 2022 Carrying Value (in thousands) | March 31, 2022 Fair Value (in thousands) | December 31, 2021 Carrying Value (in thousands) | December 31, 2021 Fair Value (in thousands) | | :------------------------------ | :------------------------------------------- | :--------------------------------------- | :---------------------------------------------- | :------------------------------------------ | | Securities available for sale | $605,661 | $605,661 | $592,743 | $592,743 | | Loans, net | $3,520,637 | $3,542,217 | $3,418,096 | $3,498,345 | | Deposits | $3,976,251 | $3,795,104 | $4,083,193 | $4,028,249 | | FHLBI advances | $382,263 | $372,887 | $374,000 | $384,927 | | Interest rate swaps (assets) | $10,053 | $10,053 | $4,609 | $4,609 | | Interest rate swaps (liabilities) | $10,246 | $10,246 | $4,857 | $4,857 | Note 11. Fair Values This note defines fair value and outlines the Level 1, 2, and 3 hierarchy, describing methodologies for valuing securities, derivatives, and impaired loans - The company uses a fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (significant other observable inputs), and Level 3 (significant unobservable inputs)[177][178][179] | Asset Type (Recurring Fair Value) | Total (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | | :-------------------------------------- | :------------------- | :--------------------- | :--------------------- | :--------------------- | | March 31, 2022 | | | | | | U.S. Government agency debt obligations | $410,578 | $0 | $410,578 | $0 | | Mortgage-backed securities | $37,746 | $0 | $37,746 | $0 | | Municipal general obligation bonds | $134,671 | $0 | $133,994 | $677 | | Municipal revenue bonds | $22,166 | $0 | $22,166 | $0 | | Interest rate swaps | $10,053 | $0 | $10,053 | $0 | | December 31, 2021 | | | | | | U.S. Government agency debt obligations | $390,371 | $0 | $390,371 | $0 | | Mortgage-backed securities | $41,803 | $0 | $41,803 | $0 | | Municipal general obligation bonds | $137,594 | $0 | $136,917 | $677 | | Municipal revenue bonds | $22,475 | $0 | $22,475 | $0 | | Interest rate swaps | $4,609 | $0 | $4,609 | $0 | | Asset Type (Nonrecurring Fair Value) | Total (in thousands) | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | | :----------------------------------- | :------------------- | :--------------------- | :--------------------- | :--------------------- | | March 31, 2022 | | | | | | Loans | $1,338 | $0 | $0 | $1,338 | | December 31, 2021 | | | | | | Impaired loans | $3,807 | $0 | $0 | $3,807 | Note 12. Regulatory Matters The company and its bank were "well capitalized" at March 31, 2022, exceeding all minimum regulatory capital ratios, with details on dividends and stock repurchase programs - Both Mercantile Bank Corporation (consolidated) and Mercantile Bank (bank) were categorized as "well capitalized" under regulatory frameworks as of March 31, 2022, and December 31, 2021[193] | Capital Ratio (Consolidated) | Actual Ratio (March 31, 2022) | Minimum Required for Capital Adequacy | | :--------------------------------------- | :---------------------------- | :------------------------------------ | | Total capital (to risk weighted assets) | 14.1% | 8.0% | | Tier 1 capital (to risk weighted assets) | 11.1% | 6.0% | | Common equity tier 1 (to risk weighted assets) | 10.0% | 4.5% | | Tier 1 capital (to average assets) | 9.0% | 4.0% | - The Board of Directors declared a cash dividend of $0.31 per share for Q1 2022, paid on March 16, 2022, and another $0.31 per share dividend declared on April 14, 2022, to be paid on June 15, 2022[200] - As of March 31, 2022, the company had $6.8 million remaining under a $20.0 million common stock repurchase program authorized in May 2021. No shares were repurchased in Q1 2022[201][313][315] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2022 financial performance and condition, covering critical accounting policies, pandemic impact, liquidity, capital, and operations, highlighting loan growth, declining mortgage income, and CECL adoption Forward-Looking Statements This section notes the report contains forward-looking statements subject to risks and uncertainties, where actual results may differ materially, with no obligation to update - The report contains forward-looking statements that are not guarantees of future performance and involve risks, uncertainties, and assumptions that could cause actual results to differ materially[203] - Future factors influencing performance include adverse changes in interest rates, inflation, real estate values, market volatility, competition, regulatory changes, cyber-attacks, litigation, and the ongoing impact of the Coronavirus Pandemic[204] Introduction This section introduces the management's discussion, comparing financial condition at March 31, 2022, and December 31, 2021, and Q1 2022 and Q1 2021 results - The discussion compares financial condition at March 31, 2022, and December 31, 2021, and results of operations for the three months ended March 31, 2022, and March 31, 2021[205] Critical Accounting Policies Critical accounting policies, including CECL, Income Tax, Debt Securities, Mortgage Servicing Rights, and Goodwill, involve significant judgment and estimates that can materially impact financial statements - Critical accounting policies, including Allowance for Credit Losses, Income Tax Accounting, Debt Securities Available for Sale, Mortgage Servicing Rights, and Goodwill, involve significant judgment and estimates, with potential for material impact on financial statements[206] - The company adopted the CECL model effective January 1, 2022, replacing the "incurred loss" approach, which resulted in a $0.4 million decrease in the allowance for credit losses and a $0.3 million increase to retained earnings[209][210][211] Coronavirus Pandemic The Coronavirus Pandemic continues to create economic stress and uncertainty, potentially impacting financial condition and operations due to asset sensitivity, with details on PPP and regulatory deferrals - The Coronavirus Pandemic continues to cause significant stress and uncertainty, potentially leading to declining asset quality and negative impacts on net interest income due to the company's asset-sensitive position[221][222] - The company participated in the PPP, originating approximately 2,200 loans ($553 million) in the first draw and 1,200 loans ($208 million) in the second draw. As of March 31, 2022, most loans had forgiveness transactions recorded[223][224] - Regulatory relief for Troubled Debt Restructuring (TDR) and Current Expected Credit Loss (CECL) methodology adoption was extended, with the company electing to postpone CECL adoption until January 1, 2022[225] First Quarter 2022 Financial Overview Net income for Q1 2022 was $11.5 million ($0.73 diluted EPS), down from $14.2 million in Q1 2021, primarily due to decreased mortgage banking revenue, despite strong loan growth | Metric | Q1 2022 (in millions) | Q1 2021 (in millions) | Change (in millions) | YoY Change (%) | | :-------------------------- | :-------------------- | :-------------------- | :------------------- | :------------- | | Net income | $11.5 | $14.2 | $(2.7) | -19.01% | | Diluted EPS | $0.73 | $0.87 | $(0.14) | -16.09% | | Provision for credit losses | $0.1 | $0.3 | $(0.2) | -66.67% | - Core commercial loans increased by $82.0 million (over 11% annualized) in Q1 2022, while PPP payment activities aggregated $27.9 million[227] - Nonperforming loans were very low at 0.05% of total loans as of March 31, 2022, and the company had no foreclosed properties. Net loan recoveries totaled $0.1 million in Q1 2022[228] - Elevated interest-earning balances (primarily at the Federal Reserve Bank of Chicago) negatively impacted net interest margin due to increased local deposits from federal stimulus and reduced spending[230] Financial Condition Total assets decreased by $81.9 million to $5.18 billion, driven by lower interest-earning deposits, partially offset by increased loans and securities, with nonperforming assets remaining low | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | Change (in millions) | | :-------------------------------------- | :--------------------------- | :------------------------------ | :------------------- | | Total assets | $5,180 | $5,258 | $(78) | | Total loans | $3,556 | $3,453 | $103 | | Securities available for sale | $606 | $593 | $13 | | Interest-earning deposits | $699 | $916 | $(217) | | Total deposits | $3,976 | $4,083 | $(107) | | Nonperforming assets | $1.6 | $2.5 | $(0.9) | - Commercial loans increased $54.1 million in Q1 2022, with core commercial loans growing $82.0 million (11% annualized), while PPP loan activities reduced by $27.9 million[236] - Residential mortgage loans increased $48.1 million to $523 million, representing 14.7% of total loans. Originations declined by almost 32% YoY, with refinance activity decreasing significantly[239] - The allowance for credit losses was $35.2 million, or 0.99% of total loans, and 2,181% of nonperforming loans, as of March 31, 2022[253] Liquidity The company manages liquidity through deposits, borrowed funds, and capital, with wholesale funds stable at $398 million, sweep accounts increasing, and FHLBI advances rising, maintaining significant borrowing capacity - Wholesale funds, comprising out-of-market deposits and FHLBI advances, totaled $398 million (8.7% of combined deposits and borrowed funds) as of March 31, 2022, stable from December 31, 2021[273] | Metric | March 31, 2022 (in thousands) | | :-------------------------------------- | :---------------------------- | | Repurchase agreements outstanding balance | $204,271 | | FHLBI advances | $382,263 | | Correspondent bank unsecured federal funds purchased lines of credit | $70,000 | | Federal Reserve Bank of Chicago Discount Window availability | $31,100 | - The company had $1.51 billion in unfunded loan commitments and $33.0 million in unfunded standby letters of credit as of March 31, 2022[277] Capital Resources Shareholders' equity decreased to $436 million due to a $28.2 million after-tax decline in available-for-sale securities, while the bank's total risk-based capital ratio exceeded minimums | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | Change (in millions) | | :-------------------------------------- | :--------------------------- | :------------------------------ | :------------------- | | Shareholders' equity | $436 | $457 | $(21) | | After-tax decline in AFS securities market value | $(28.2) | N/A | N/A | - The bank's total risk-based capital ratio was 13.8% at March 31, 2022, exceeding the 10.0% minimum for "well capitalized" status by $157 million[282] - The company had $6.8 million remaining under its $20.0 million common stock repurchase program as of March 31, 2022, with no repurchases made in Q1 2022[201][313][315] Results of Operations Net income for Q1 2022 was $11.5 million, down from $14.2 million in Q1 2021, driven by decreased noninterest income and increased noninterest expense, offset by improved net interest income | Metric | Q1 2022 (in millions) | Q1 2021 (in millions) | Change (in millions) | YoY Change (%) | | :-------------------------- | :-------------------- | :-------------------- | :------------------- | :------------- | | Net income | $11.5 | $14.2 | $(2.7) | -19.01% | | Net interest income | $30.9 | $29.5 | $1.4 | 4.75% | | Noninterest income | $9.3 | $13.5 | $(4.2) | -31.11% | | Noninterest expense | $25.7 | $25.1 | $0.6 | 2.39% | | Provision for credit losses | $0.1 | $0.3 | $(0.2) | -66.67% | | Metric | Q1 2022 | Q1 2021 | Change | | :-------------------------------------- | :------ | :------ | :----- | | Net interest margin on earning assets | 2.57% | 2.77% | -0.20% | | Yield on average earning assets | 2.99% | 3.26% | -0.27% | | Weighted average cost of interest-bearing liabilities | 0.66% | 0.82% | -0.16% | - Mortgage banking income significantly decreased due to reduced refinance activity (down 59% YoY) and rising interest rates, despite a 24% increase in purchase mortgage originations[292] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate risk, managed via GAP analysis and net interest income simulation, projecting increased net interest income with rising rates and showing cumulative positive GAP - The company's primary market risk exposure is interest rate risk, managed using GAP analysis and net interest income simulation[295][296] | Interest Rate Scenario (over next 12 months) | Dollar Change in Net Interest Income (in thousands) | Percent Change in Net Interest Income | | :------------------------------------------- | :-------------------------------------------------- | :------------------------------------ | | Interest rates down 100 basis points | $9,100 | 7.0% | | Interest rates up 100 basis points | $7,400 | 5.7% | | Interest rates up 200 basis points | $15,100 | 11.7% | | Interest rates up 300 basis points | $22,800 | 17.6% | | Interest rates up 400 basis points | $30,500 | 23.6% | | GAP Position (March 31, 2022) | Cumulative GAP (in thousands) | Percent of Cumulative GAP to Total Assets | | :---------------------------- | :---------------------------- | :---------------------------------------- | | Within Three Months | $(424,904) | (8.2)% | | Within Twelve Months | $(320,956) | (6.2)% | | One to Five Years | $752,338 | 14.5% | | After Five Years | $1,863,270 | 36.0% | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2022[306] - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2022[307] PART II. Other Information Item 1. Legal Proceedings The company is not a party to any current legal proceedings material to its financial condition - The company is not involved in any material legal proceedings[310] Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's annual report on Form 10-K - No material changes to risk factors from the prior annual report on Form 10-K[311] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or common stock repurchases occurred in Q1 2022, with $6.8 million remaining under the repurchase program - No unregistered sales of equity securities were made during Q1 2022[312] | Metric | Q1 2022 | | :-------------------------------------- | :------ | | Total Number of Shares Purchased | 0 | | Approximate Dollar Value Remaining Under Repurchase Program | $6,818,000 | Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reported period - Not applicable[316] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reported period - Not applicable[317] Item 5. Other Information This item is not applicable to the company for the reported period - Not applicable[318] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including Articles of Incorporation, Bylaws, Certifications, and Inline XBRL financial information - The report includes various exhibits such as Articles of Incorporation, Bylaws, Rule 13a-14(a) Certifications, Section 1350 Certifications, and Inline XBRL financial information[320] Signatures The report was signed by Robert B. Kaminski, Jr. (President and CEO) and Charles E. Christmas (EVP, CFO, and Treasurer) on May 6, 2022 - The report was signed by Robert B. Kaminski, Jr. (President and CEO) and Charles E. Christmas (EVP, CFO, and Treasurer) on May 6, 2022[322][323]