Partners Bancorp(PTRS) - 2022 Q4 - Annual Report

Merger and Acquisition - The Company announced a merger agreement with LINK, where each share of the Company's common stock will be converted into the right to receive 1.150 shares of LINK common stock[138]. - The merger is subject to various regulatory approvals, which may impose unforeseen conditions or delays, potentially affecting the completion timeline[139]. - If the merger is not completed by February 22, 2024, either party may terminate the agreement, which could adversely impact the Company's financial condition and stock price[141]. - The Company has incurred substantial expenses related to the merger negotiations, which would be recognized without realizing the expected benefits if the merger fails[142]. - The ongoing merger process may create uncertainties that could affect employee retention and customer relationships, potentially harming the Company's operations[143]. Economic Conditions and Risks - Changes in interest rates, influenced by the Federal Reserve's actions, could impact the Company's net interest income, which is crucial for its earnings[155]. - The Federal Open Market Committee has raised the federal funds rate to a range of 4.75% to 5.00% as of March 2023, with further increases expected in 2023[155]. - The COVID-19 pandemic has led to economic disruptions, contributing to higher inflation and potential recessionary trends that could adversely affect the Company's financial results[150]. - The Company faces risks from general economic conditions, including inflation, employment levels, and geopolitical developments, which could lead to increased loan delinquencies and decreased demand for its products[157]. - A future economic downturn could adversely affect the Company's net income or loss due to increased loan charge-offs and provisions for credit losses[165]. Credit Losses and Allowance - The Company maintains an allowance for credit losses, which is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio[160]. - The Company evaluates its allowance for credit losses based on various factors, including local economic conditions and delinquency trends[168]. - The adoption of the Current Expected Credit Losses (CECL) model in 2023 may require the Company to significantly increase its allowance for credit losses[179]. - The Company’s allowance for credit losses is based on management's estimates of probable losses inherent in the loan portfolio, adjusted for qualitative factors[405]. - The Company aims to minimize the unallocated portion of the allowance for credit losses through refined methodologies[436]. Financial Performance - Net income attributable to Partners Bancorp increased to $13,615 thousand in 2022, up 83.9% from $7,411 thousand in 2021[413]. - Basic and diluted earnings per share rose to $0.76 in 2022, compared to $0.42 in 2021, reflecting an increase of 80.95%[413]. - Net interest income after provision for credit losses was $54,648 thousand in 2022, up 23.8% from $44,107 thousand in 2021[413]. - Total assets decreased from $1,644,979 thousand in 2021 to $1,574,612 thousand in 2022, a decline of approximately 4.25%[411]. - Total liabilities decreased from $1,503,611 thousand in 2021 to $1,435,283 thousand in 2022, a reduction of approximately 4.54%[411]. Regulatory and Compliance - The Company is subject to regulatory actions that could impose fines or restrictions on its business activities[222]. - The company’s total assets and liabilities are subject to periodic examinations by regulatory authorities, ensuring compliance with federal and state regulations[420]. - The Company currently maintains regulatory capital ratios exceeding the levels established for "well-capitalized" institutions[202]. Competition and Market Risks - The financial services industry is highly competitive, and the Company faces competition from both traditional and nontraditional financial institutions[173]. - Negative perceptions about the financial services industry, such as Moody's rating change of the U.S. banking system outlook from "stable" to "negative," could lead to increased volatility in bank securities[185]. - The Company may face challenges in accessing adequate funding sources due to market-wide phenomena such as inflation and rising interest rates[184]. Operational Risks - The Company faces risks related to cybersecurity, including potential costs from cyber-attacks and the need for additional resources to enhance protective measures[209]. - The financial performance of the Company may suffer if its information technology does not keep pace with industry developments and customer demands[213]. - The Company has developed a comprehensive business continuity plan to mitigate risks from disruptions or failures of financial systems due to external events[228]. Investment and Securities - As of December 31, 2022, the total investment securities with unrealized losses amounted to $132.136 million, with gross unrealized losses of $17.039 million[475]. - The Company has four agency investment securities, five municipal investment securities, and twenty-three mortgage-backed securities that have been in a continuous unrealized loss position for more than twelve months, but no evidence of other-than-temporary impairment (OTTI) was found[477]. - The Company sold one investment security in 2022, resulting in a loss of $5 thousand, compared to a gain of $17 thousand from fourteen securities sold in 2021[478]. Employee and Talent Management - The ability to attract and retain skilled employees is critical for the Company's success, with competition for talent being intense[221].