Partners Bancorp(PTRS) - 2023 Q2 - Quarterly Report

Financial Performance - Net income attributable to the Company for Q2 2023 was $3.8 million, or $0.21 per share, an 18.4% increase from $3.2 million, or $0.18 per share, in Q2 2022 [251]. - For the first half of 2023, net income attributable to the Company was $7.1 million, or $0.39 per share, a 34.1% increase from $5.3 million, or $0.29 per share, in the same period of 2022 [251]. - The increase in net income for the first half of 2023 was primarily driven by an increase in net interest income, partially offset by a higher provision for credit losses and increased expenses [260]. - Net interest income increased by $2.0 million, or 15.1%, compared to the second quarter of 2022, with a net interest margin of 4.03%, an increase of 84 basis points [276]. - Net interest income increased by $5.2 million, or 21.0%, with the net interest margin rising to 4.09%, an increase of 98 basis points for the six months ended June 30, 2023 [287]. - Total interest income increased by $8.6 million, or 30.7%, while total interest expense increased by $3.4 million, or 101.3%, for the six months ended June 30, 2023 [287]. - The net yield on interest-earning assets increased to 4.09% for the six months ended June 30, 2023, compared to 3.12% for the same period in 2022 [307]. Deposits and Liquidity - The Company's total deposits decreased by 1.6% as of June 30, 2023, compared to December 31, 2022, indicating minimal deposit outflow in the first half of 2023 [233]. - Total deposits as of June 30, 2023 were $1.32 billion, a decrease of $21.1 million, or 1.6%, from December 31, 2022, primarily due to deposit outflows [261]. - Average total deposits decreased by $184.0 million, or 12.3%, to $1.31 billion for the three months ended June 30, 2023, compared to the same period in 2022 [372]. - Core deposits decreased by $66.8 million, or 5.2%, to $1.21 billion at June 30, 2023 [377]. - The Company anticipates that a stable base of deposits will be its primary source of funding for both short-term and long-term liquidity needs in the future [377]. Credit Quality - The Company maintains an allowance for credit losses to absorb expected losses on loans, which is charged against operating earnings as needed [231]. - The allowance for credit losses increased by $1.3 million due to the adoption of the CECL Standard, reflecting a proactive approach to managing credit risk [311]. - The provision for credit losses in Q2 2023 was $93 thousand, a decrease of $226 thousand or 70.8% compared to $319 thousand in Q2 2022, primarily due to changes in economic assessments and lower net charge-offs [315]. - Nonperforming assets totaled $2.7 million, an increase of $543 thousand from December 31, 2022, with nonperforming loans as a percentage of total assets at 0.18% [267]. - The allowance for credit losses to total loans ratio was 1.27% at June 30, 2023, compared to 1.16% at December 31, 2022 [268]. - The net charge-off ratio for total loans receivable was (0.01)% for the six months ended June 30, 2023, compared to 0.17% for the same period in 2022 [338]. Mergers and Acquisitions - The Company and LINK announced a merger agreement, with the Company's shareholders expected to own approximately 56% of the combined entity upon completion [235]. - Merger-related expenses for Q2 2023 amounted to $428 thousand, compared to $157 thousand in the same period of 2022 [256]. - For the first half of 2023, merger-related expenses totaled $1.5 million, compared to $553 thousand in the same period of 2022 [257]. - Merger-related expenses increased by $271 thousand, or 173.0%, due to higher legal fees associated with the pending merger with LINK [344]. Economic Environment and Strategy - The Company is actively monitoring balance sheet trends, deposit flows, and liquidity needs in light of recent banking industry events and a rising interest rate environment [234]. - The Company is focused on growth in the Greater Washington market as part of its strategic business initiatives [224]. - The Company is closely monitoring the impact of inflation, rising interest rates, and economic uncertainty on its financial condition and results of operations [238]. - The Company anticipates that overall costs of funds will continue to increase throughout the balance of 2023, likely leading to a compression of the net interest margin [297]. - The company's management continues to assess the impact of economic trends and potential recession risks on the loan portfolio, with no material impact on delinquencies or nonperforming assets as of June 30, 2023 [316].