Partners Bancorp(PTRS) - 2022 Q2 - Quarterly Report

Financial Performance - The Company reported its financial condition as of June 30, 2022, compared to December 31, 2021, with operating results for the three and six months ended June 30, 2022, not necessarily indicative of the full year results [214]. - Net income attributable to the Company for the three months ended June 30, 2022, was $3.2 million, a 47.0% increase from $2.2 million in the same period in 2021 [237]. - Total assets as of June 30, 2022, were $1.69 billion, an increase of $45.3 million, or 2.8%, from December 31, 2021 [246]. - Total deposits as of June 30, 2022, were $1.50 billion, an increase of $52.5 million, or 3.6%, from December 31, 2021 [253]. - Loans, net of unamortized discounts, were $1.17 billion as of June 30, 2022, an increase of $52.3 million, or 4.7%, from December 31, 2021 [247]. - Net interest income increased by $1.2 million, or 10.0%, to $12.889 million for the three months ended June 30, 2022, compared to $11.713 million in 2021 [259]. - The Company's annualized return on average assets for the three months ended June 30, 2022, was 0.76%, up from 0.55% in the same period in 2021 [242]. - The total interest income increased by $519 thousand, or 3.7%, to $14.5 million for the three months ended June 30, 2022 [262]. - The total interest expense decreased by $656 thousand, or 28.7%, to $1.6 million for the three months ended June 30, 2022 [262]. Loan and Credit Quality - The Company maintains an allowance for credit losses to absorb probable losses on existing loans, which is a critical accounting policy [224]. - The allowance for credit losses stood at $14,553 thousand as of June 30, 2022, slightly up from $14,498 thousand in the previous year, indicating a stable credit quality assessment [285]. - The provision for credit losses in Q2 2022 was $319 thousand, a decrease of $539 thousand, or 62.8%, compared to $858 thousand in Q2 2021 [299]. - Total nonperforming assets decreased to $4.6 million at June 30, 2022, from $9.8 million at December 31, 2021 [309]. - The ratio of nonperforming assets to total assets was 0.27% at June 30, 2022, compared to 0.60% at December 31, 2021 [306]. - The net charge-off ratio for total loans receivable was 0.29% for the quarter ended June 30, 2022, compared to 0.11% for the same period in 2021 [321]. - The Company continues to assess the impact of the COVID-19 pandemic and macroeconomic factors on its loan portfolio, with no material impact on delinquencies or nonperforming assets as of June 30, 2022 [300]. Market and Economic Conditions - The ongoing COVID-19 pandemic has disrupted operations and is expected to impact financial results throughout the remainder of fiscal year 2022 [227]. - The Company’s financial performance is highly dependent on the business environment in its primary markets and the overall U.S. economy [225]. - The Company is subject to various risks, including changes in interest rates, economic conditions, and competition from both banks and non-banks [219]. - The Federal Open Markets Committee raised Federal Funds target rates by a total of 150 basis points from March to July 2022, with a current target rate range of 2.25% to 2.50% [280]. - The Company anticipates an expanded net interest margin due to the current and projected interest rate environment [280]. Mergers and Acquisitions - The Company is in the process of merging with OceanFirst Financial Corp., with regulatory approvals pending and no timeline provided for completion [226]. - Merger-related expenses incurred during the three and six months ended June 30, 2022, were $157 thousand and $553 thousand, respectively [246]. - The Company has implemented internal policies to manage liquidity and limit the use of non-core funding sources [374]. Deposits and Funding - Average total deposits increased from $1.38 billion to $1.49 billion, an increase of $109.6 million, or 7.9%, for the three months ended June 30, 2022 compared to the same period in 2021 [355]. - Non-interest bearing demand deposits increased to $561.4 million at June 30, 2022, a $67.5 million, or 13.7%, increase from $493.9 million at December 31, 2021 [355]. - The Company's loan-to-deposit ratio was 78.2% at June 30, 2022, compared to 77.4% at December 31, 2021 [357]. - Core deposits were $1.42 billion at June 30, 2022, an increase of $60.4 million, or 4.4%, from $1.36 billion at December 31, 2021 [357]. Investment Securities - The investment securities portfolio averaged $146.6 million for the three months ended June 30, 2022, compared to $131.6 million for the same period in 2021, representing an increase of 11.4% [348]. - Investment securities available for sale at fair value totaled $135.4 million as of June 30, 2022, an increase of $13.4 million, or 11.0%, from $122.0 million at December 31, 2021 [349]. - The net unrealized losses in the Company's investment securities available for sale portfolio increased by approximately $14.4 million, or 3,009.7%, to $14.0 million at June 30, 2022 [353]. Operational Metrics - The Company plans to continue organic growth, including potential expansion into new market areas, such as the Greater Washington market [225]. - As of June 30, 2022, both Delmarva and Virginia Partners have returned to normal operations, with most employees back in the office [229]. - The Company has identified nine specific higher risk industries for credit exposure monitoring due to the impact of the COVID-19 pandemic [325].