Village Bank and Trust Financial (VBFC) - 2023 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the company's financial statements and management's discussion for the periods ended June 30, 2023, and December 31, 2022 ITEM 1. FINANCIAL STATEMENTS Presents unaudited consolidated financial statements including balance sheets, income statements, cash flows, and detailed notes for periods ended June 30, 2023, and December 31, 2022 Consolidated Balance Sheets Provides a snapshot of the company's assets, liabilities, and shareholders' equity at specific dates | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $754,655 | $723,270 | | Total Liabilities | $690,641 | $662,159 | | Total Shareholders' Equity | $64,014 | $61,111 | | Loans, net | $553,660 | $535,645 | | Total Deposits | $628,382 | $624,743 | | Federal Home Loan Bank advances | $45,000 | $20,000 | Consolidated Statements of Income Details the company's revenues, expenses, and net income over specific reporting periods | Metric | 3 Months Ended June 30, 2023 (in thousands) | 3 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net income | $1,239 | $2,190 | $2,779 | $3,990 | | Earnings per share, basic | $0.83 | $1.48 | $1.87 | $2.71 | | Total interest income | $8,099 | $6,731 | $15,682 | $12,999 | | Total interest expense | $1,975 | $410 | $3,193 | $818 | | Net interest income | $6,124 | $6,321 | $12,489 | $12,181 | | Total noninterest income | $1,221 | $1,938 | $2,478 | $3,567 | | Total noninterest expense | $5,832 | $5,514 | $11,589 | $11,196 | Consolidated Statements of Comprehensive Income (Loss) Reports net income and other comprehensive income items, reflecting changes in equity not from transactions with owners | Metric | 3 Months Ended June 30, 2023 (in thousands) | 3 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net income | $1,239 | $2,190 | $2,779 | $3,990 | | Net change in unrealized holding gains (losses) on securities available for sale, net of tax | $(1,036) | $(3,532) | $446 | $(7,139) | | Total comprehensive income (loss) | $205 | $(1,340) | $3,229 | $(3,145) | Consolidated Statements of Shareholders' Equity Outlines changes in the company's equity accounts, including common stock, retained earnings, and accumulated other comprehensive loss | Metric | Balance, December 31, 2022 (in thousands) | Balance, June 30, 2023 (in thousands) | | :--- | :--- | :--- | | Common Stock | $5,868 | $5,883 | | Additional Paid-in Capital | $55,167 | $55,420 | | Retained Earnings | $10,957 | $13,142 | | Accumulated Other Comprehensive Loss | $(10,881) | $(10,431) | | Total Shareholders' Equity | $61,111 | $64,014 | - The adoption of ASC 326 resulted in a $119,000 reduction in retained earnings for the six months ended June 30, 2023[20] Consolidated Statements of Cash Flows Categorizes cash inflows and outflows from operating, investing, and financing activities | Metric | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(1,511) | $(159) | | Net cash used in investing activities | $(17,349) | $(47,741) | | Net cash provided by financing activities | $28,164 | $10,180 | | Net decrease in cash and cash equivalents | $9,304 | $(37,720) | | Cash and cash equivalents, end of period | $25,982 | $54,896 | Notes to Consolidated Financial Statements Provides detailed explanations and disclosures supporting the consolidated financial statements Note 1 – Principles of presentation Explains the basis of financial statement preparation and significant accounting policies, including CECL adoption - The Company adopted ASU 2016-13 (CECL methodology) on January 1, 2023, resulting in a net decrease to retained earnings of $119,000, net of taxes[30] - The CECL methodology utilizes a weighted average remaining maturity (WARM) approach, segments the loan portfolio by risk characteristics, and forecasts expected losses based on a twelve-month unemployment rate projection[31] Impact of CECL Adoption | Metric | December 31, 2022 (As Previously Reported) | Impact of CECL Adoption | January 1, 2023 (As Reported Under CECL) | | :--- | :--- | :--- | :--- | | Allowance for credit losses (loans) | $3,370 | $(127) | $3,243 | | Allowance for credit losses on unfunded credit exposure | $0 | $277 | $277 | | Total Allowance for credit losses | $3,370 | $150 | $3,520 | Note 2 – Use of estimates Discusses management's use of estimates and judgments in preparing financial statements, particularly for credit losses - Material estimates particularly susceptible to significant change include the determination of the allowance for credit losses and its related provision, including collateral-dependent loans[35] Note 3 – Earnings per common share Presents the calculation of basic and diluted earnings per share for the reporting periods | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income - basic and diluted (in thousands) | $1,239 | $2,190 | $2,779 | $3,990 | | Weighted average shares outstanding - basic (in thousands) | 1,486 | 1,477 | 1,485 | 1,476 | | Earnings per share - basic | $0.83 | $1.48 | $1.87 | $2.71 | | Earnings per share - diluted | $0.83 | $1.48 | $1.87 | $2.70 | Note 4 – Investment securities available for sale Details the amortized cost, fair value, and unrealized gains/losses of investment securities available for sale | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Amortized Cost | $145,421 | $147,603 | | Fair Value | $132,235 | $133,853 | | Gross Unrealized Losses | $(13,210) | $(13,790) | - All unrealized losses are attributed to movements in interest rates, not credit deterioration, and the Company does not consider these investments impaired[43] - No sales of available for sale securities occurred for the three and six months ended June 30, 2023 and 2022[40] Note 5 – Loans and allowance for credit losses Provides a breakdown of the loan portfolio and the methodology and balances for the allowance for credit losses - The Company adopted ASC 326 (CECL) on January 1, 2023, and all loan information presented as of June 30, 2023, is in accordance with this standard[45] Loan Portfolio Composition | Loan Type | June 30, 2023 (in thousands) | % of Total | December 31, 2022 (in thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Total loans | $556,170 | 100.0% | $538,427 | 100.0% | | Commercial real estate | $282,921 | 50.86% | $284,617 | 52.86% | | Commercial and industrial loans | $91,394 | 16.43% | $90,348 | 16.78% | | Consumer real estate | $106,532 | 19.16% | $93,680 | 17.40% | Nonaccrual Loans | Loan Type | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total nonaccrual loans | $286 | $654 | - Loans greater than 90 days past due are primarily guaranteed student loans (98% by DOE) and USDA loans (100% guarantee), which are not placed on nonaccrual status[56] Allowance for Credit Losses Rollforward | Metric | Beginning Balance (Dec 31, 2022) | Impact of adopting ASC 326 | Provision for Credit Losses | Charge-offs | Recoveries | Ending Balance (June 30, 2023) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Allowance for Credit Losses (in thousands) | $3,370 | $(127) | $1 | $(7) | $19 | $3,256 | - The provision for credit losses for loans was $1,000 for the six months ended June 30, 2023, due to loan growth being offset by improved credit metrics (non-performing loans decreased from 0.13% to 0.06%)[78] Note 6 – Deposits Presents a detailed breakdown of the company's deposit categories and their respective balances | Deposit Type | June 30, 2023 (in thousands) | % of Total | December 31, 2022 (in thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Demand accounts | $249,059 | 39.6% | $255,236 | 40.9% | | Interest checking accounts | $88,330 | 14.1% | $90,252 | 14.4% | | Money market accounts | $196,603 | 31.3% | $179,036 | 28.6% | | Savings accounts | $44,378 | 7.0% | $55,695 | 8.9% | | Time deposits | $49,012 | 7.8% | $44,524 | 7.2% | | Total Deposits | $628,382 | 100.0% | $624,743 | 100.0% | Note 7 – Borrowings Details the company's short-term and long-term borrowings, including FHLB advances and available credit lines | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | FHLB advances | $45,000 | $20,000 | - The Company's unused lines of credit for future borrowings totaled approximately $45.3 million at June 30, 2023[87] Note 8 – Trust preferred securities Describes the outstanding trust preferred capital notes and the transition from LIBOR to SOFR for interest rates - The Company has $8.76 million in Trust Preferred Capital Notes outstanding[10] - Due to the discontinuation of 3-month LIBOR, the floating interest rate for these securities will be replaced with the three-month term SOFR plus an applicable tenor spread adjustment of 0.26161 percent[88][89] Note 9 – Subordinated Debt Details the company's subordinated notes, including their fixed-to-floating interest rate structure and LIBOR transition - The Company issued $5.7 million of fixed-to-floating rate subordinated notes due March 31, 2028[92] - The interest rate transitioned from a fixed 6.50% to a floating rate (3-month LIBOR plus 3.73%) after March 21, 2023, and will now use SOFR plus a spread adjustment due to LIBOR's discontinuation[92] Note 10 – Stock incentive plan Reports stock-based compensation expense and the number of non-vested restricted stock units | Metric | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | | Stock-based compensation expense | $268 | $210 | - The total number of shares underlying non-vested restricted stock was 25,752 at June 30, 2023, compared to 23,051 at June 30, 2022[96] Note 11 – Fair value Explains the fair value hierarchy and classification of financial instruments based on input observability - The Company uses a fair value hierarchy (Level 1, 2, 3) to classify financial instruments based on the observability of inputs[100][101] - Investment securities available for sale, loans held for sale, Interest Rate Lock Commitments (IRLCs), and forward sale commitments are primarily classified as Level 2[102][104][105][108] - Loans (held for investment) are classified as Level 3 for fair value measurement[111] Note 12 – Segment Reporting Provides financial performance details for the company's commercial banking and mortgage banking segments - The Company has two reportable segments: traditional commercial banking and mortgage banking[112] Segment Net Income | Segment | 3 Months Ended June 30, 2023 (in thousands) | 3 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Commercial Banking | $1,478 | $2,137 | $3,336 | $4,136 | | Mortgage Banking | $(239) | $53 | $(557) | $(146) | | Consolidated Net Income | $1,239 | $2,190 | $2,779 | $3,990 | Note 13 – Shareholders' Equity and Regulatory Matters Discusses shareholders' equity components and the company's compliance with regulatory capital requirements | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total accumulated other comprehensive loss | $(10,431) | $(10,881) | - The Bank exceeded the minimum capital ratios under the Basel III Capital Rules and the "prompt corrective action" regulations to be classified as "well capitalized" as of June 30, 2023[120][121] Capital Ratios | Capital Ratio | Actual Ratio | Minimum Capital Requirements Including Conservation Buffer | To Be Well Capitalized | | :--- | :--- | :--- | :--- | | Total capital (to risk-weighted assets) | 14.97% | 10.50% | 10.00% | | Tier 1 capital (to risk-weighted assets) | 14.36% | 8.50% | 8.00% | | Leverage ratio (Tier 1 capital to average assets) | 11.18% | 4.00% | 5.00% | | Common equity tier 1 (to risk-weighted assets) | 14.36% | 7.00% | 6.50% | Note 14 – Commitments and contingencies Discloses off-balance sheet commitments, credit lines, and potential contingent liabilities | Instrument | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Undisbursed credit lines | $121,237 | $119,454 | | Commitments to extend or originate credit | $11,206 | $9,899 | | Standby letters of credit | $1,164 | $922 | | Total commitments to extend credit | $133,607 | $130,275 | - A substantial portion of the Company's credit risk is reliant upon the economic stability of the Richmond, Virginia area[127] Note 15 – Mortgage Banking and Derivatives Details loans held for sale, interest rate lock commitments, and forward sales commitments as derivatives - Loans held for sale (LHFS) totaled $6.9 million at June 30, 2023, and are accounted for at fair value (Level 2)[128] - Interest Rate Lock Commitments (IRLCs) and Forward Sales Commitments are considered derivatives and are measured at fair value, classified as Level 2[129][131] Derivative Instruments | Instrument | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | IRLC (Fair Value) | $205 | $142 | | IRLC (Notional Amount) | $11,200 | $9,900 | | Forward Sales Commitment (Fair Value) | $370 | $207 | | Forward Sales Commitment (Notional Amount) | $18,000 | $12,100 | Note 16 Recent Accounting Pronouncements Discusses the impact of recently adopted and issued accounting pronouncements on the financial statements - ASU 2022-06 defers the sunset date of Topic 848 (Reference Rate Reform) to December 31, 2024, to provide relief during the transition away from LIBOR, with the Company assessing its impact[134][135] - ASU 2023-03, related to presentation of financial statements, is not expected to have a material impact on the consolidated financial statements[133] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Provides management's perspective on financial performance, condition, and key drivers for the reported periods Caution about forward-looking statements Warns that forward-looking statements are subject to various risks and uncertainties that could affect future results - Forward-looking statements are subject to numerous risks and uncertainties, including changes in interest rates, economic conditions, legislative and regulatory changes, cybersecurity threats, and market conditions (e.g., real estate market declines)[138] General Outlines the company's primary earnings source, interest rate risk, and the importance of allowance for credit losses - Net interest income is the Company's primary source of earnings, and interest rate risk is its principal market risk exposure[140] - The adequacy of the allowance for credit losses depends on management's assumptions and judgments about loan collectability; incorrect assessments could negatively impact net income[141] Results of operations Summarizes the company's net income and earnings per share, noting the adoption of the CECL methodology | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net income (in thousands) | $1,239 | $2,190 | $2,779 | $3,990 | | Diluted EPS | $0.83 | $1.48 | $1.87 | $2.70 | - The Company adopted the CECL methodology on January 1, 2023, increasing the Allowance for Credit Losses to $3.52 million, which included $3.24 million for loans and $277,000 for unfunded commitments[144] Net interest income Analyzes changes in net interest income, net interest margin, and the yields and costs of interest-earning assets and liabilities Three Months Ended June 30 | Metric | June 30, 2023 | June 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Net interest income (in thousands) | $6,124 | $6,321 | $(197) | | Net interest margin | 3.52% | 3.57% | (0.05)% | | Yield on interest-earning assets | 4.66% | 3.80% | 0.86% | | Cost of interest-bearing liabilities | 1.86% | 0.40% | 1.46% | Six Months Ended June 30 | Metric | June 30, 2023 | June 30, 2022 | Change | | :--- | :--- | :--- | :--- | | Net interest income (in thousands) | $12,489 | $12,181 | $308 | | Net interest margin | 3.66% | 3.47% | 0.19% | | Yield on interest-earning assets | 4.59% | 3.70% | 0.89% | | Cost of interest-bearing liabilities | 1.55% | 0.40% | 1.15% | - The increase in earning asset yields was due to an improved asset mix and rising interest rates, while the increase in funding costs was driven by variable rate debt and market pressures on deposit rates[149][151] Provision for (recovery of) Credit losses Discusses the provision or recovery of credit losses and the total allowance for credit losses - For the three months ended June 30, 2023, the Company recorded a recovery of credit losses for loans of $22,000 due to improved credit metrics (non-performing loans decreased from 0.12% to 0.06%)[161] - For the six months ended June 30, 2023, the Company recorded a provision for credit losses for loans of $1,000, resulting from loan growth offset by improved credit metrics[162] - The Allowance for Credit Losses was $3.53 million at June 30, 2023, including $3.26 million for loans and $277,000 for unfunded commitments[159] Noninterest income Details the components and changes in noninterest income, particularly mortgage banking income Noninterest Income (3 Months Ended June 30) | Metric | 3 Months Ended June 30, 2023 (in thousands) | 3 Months Ended June 30, 2022 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total noninterest income | $1,221 | $1,938 | $(717) | (37.0)% | | Mortgage banking income, net | $386 | $1,090 | $(704) | (64.6)% | Noninterest Income (6 Months Ended June 30) | Metric | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total noninterest income | $2,478 | $3,567 | $(1,089) | (30.5)% | | Mortgage banking income, net | $864 | $1,969 | $(1,105) | (56.1)% | - The decrease in mortgage banking income was driven by lower mortgage originations, down 22.66% for the three months and 38.27% for the six months, due to rising mortgage rates and low housing inventory[171][174] Noninterest expense Presents a breakdown of noninterest expenses and their period-over-period changes Noninterest Expense (3 Months Ended June 30) | Metric | 3 Months Ended June 30, 2023 (in thousands) | 3 Months Ended June 30, 2022 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total noninterest expense | $5,832 | $5,514 | $318 | 5.8% | | Professional and outside services | $838 | $738 | $100 | 13.6% | | Other operating expense | $733 | $607 | $126 | 20.8% | Noninterest Expense (6 Months Ended June 30) | Metric | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total noninterest expense | $11,589 | $11,196 | $393 | 3.5% | | Professional and outside services | $1,651 | $1,463 | $188 | 12.9% | | Other operating expense | $1,423 | $1,213 | $210 | 17.3% | Income taxes Reports income tax expense and the effective tax rates for the respective periods | Metric | 3 Months Ended June 30, 2023 (in thousands) | 3 Months Ended June 30, 2022 (in thousands) | 6 Months Ended June 30, 2023 (in thousands) | 6 Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Income tax expense | $274 | $555 | $599 | $962 | | Effective tax rate | 18.1% | 20.2% | 17.7% | 19.4% | Balance Sheet Analysis Provides a detailed analysis of key balance sheet components, including investments, loans, and allowances Investment securities Focuses on the classification and characteristics of the company's investment securities portfolio - All investment securities are classified as available for sale[178] Loans Details the composition and geographic concentration of the company's loan portfolio - Approximately 79.2% of all loans are secured by real property located principally in the Commonwealth of Virginia[180] - Commercial and industrial loans represent approximately 16.4% of the total loan portfolio, while guaranteed student loans account for 3.6%[180] Loan Portfolio Breakdown | Loan Type | June 30, 2023 (in thousands) | % | December 31, 2022 (in thousands) | % | | :--- | :--- | :--- | :--- | :--- | | Total loans | $556,170 | 100.00% | $538,427 | 100.00% | | Construction and land development | $50,938 | 9.16% | $45,127 | 8.38% | | Commercial real estate | $282,921 | 50.86% | $284,617 | 52.86% | | Consumer real estate | $106,532 | 19.16% | $93,680 | 17.40% | | Commercial and industrial loans | $91,394 | 16.43% | $90,348 | 16.78% | | Guaranteed student loans | $20,002 | 3.60% | $20,617 | 3.83% | Allowance for Credit losses Discusses the adequacy and components of the allowance for credit losses under the CECL methodology - The Allowance for Credit Losses was $3.53 million at June 30, 2023, comprising $3.26 million for loans and $277,000 for unfunded commitments, following the adoption of the CECL methodology[184] - Management believes the current level of allowance for credit losses is sufficient, despite economic challenges due to higher inflation and rising interest rates[163] Asset quality Reviews key asset quality metrics, including nonaccrual loans and nonperforming assets | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Nonaccrual loans | $286 | $654 | | Total nonperforming assets | $286 | $654 | | Nonaccrual loans to total loans | 0.05% | 0.12% | | Nonperforming assets to total assets | 0.04% | 0.09% | - Loans past due 90 days and still accruing ($1.98 million at June 30, 2023) are primarily rehabilitated student loans, which have a 98% guarantee by the DOE[190][196] Deposits Analyzes changes in deposit balances across different categories, including noninterest-bearing and time deposits | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total deposits | $628,382 | $624,743 | $3,639 | 0.58% | | Noninterest bearing demand accounts | $249,059 | $255,236 | $(6,177) | (2.42)% | | Low cost relationship deposits (interest checking, money market, savings) | $329,311 | $325,083 | $4,228 | 1.30% | | Time deposits | $49,012 | $44,524 | $4,488 | 10.08% | - The decrease in noninterest-bearing demand accounts was driven by consumers and businesses drawing down balances due to increased pressure from high inflation and investing in higher-yielding products[198] Borrowings Explains the company's use of borrowings to manage funding and liability duration needs - The Company utilizes borrowings to supplement deposits and address funding or liability duration needs[202] Capital resources Presents the company's shareholders' equity and regulatory capital ratios, demonstrating compliance | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | Change ($) | | :--- | :--- | :--- | :--- | | Shareholders' equity | $64,014 | $61,111 | $2,903 | Capital Ratios | Capital Ratio | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Leverage ratio | 11.18% | 10.95% | | Common equity tier 1 capital ratio (CET 1) | 14.36% | 14.22% | | Tier 1 capital to risk-weighted assets | 14.36% | 14.22% | | Total capital to risk-weighted assets | 14.97% | 14.81% | Liquidity Assesses the company's liquid assets, total liquidity sources, and coverage of uninsured deposits - Liquid assets, consisting of cash, cash equivalents, and investment securities available for sale, totaled $158.22 million, or 20.97% of total assets, at June 30, 2023[207] - Total liquidity sources ($179.5 million) covered 90.66% of uninsured deposits ($198.0 million) at June 30, 2023[208] - The Company has an unused borrowing capacity of $3.5 million from the FHLB, which can be increased to $138.5 million by pledging additional collateral[210] Interest rate sensitivity Describes management's strategies for monitoring and managing interest rate risk to stabilize net interest margin - Management actively monitors interest sensitivity risk to maximize and stabilize the net interest margin by limiting exposure to interest rate changes[213] - Strategies to manage interest rate risk include the sale of fixed-rate loans and regular evaluation of adjustable-rate mortgage loans[215] Impact of inflation and changing prices Discusses the greater impact of interest rate changes compared to inflation on financial institutions - Changes in interest rates affect the financial condition of a financial institution to a far greater degree than changes in the inflation rate[216] - Interest rates are highly sensitive to factors beyond the Company's control, including inflation, economic conditions, and government monetary and fiscal policies[216] LIBOR and Other Benchmark Rates Explains the transition from LIBOR to SOFR for financial instruments and its impact on the company - The Company replaced the LIBOR leg of calculated floating rates for its financial instruments with the corresponding term SOFR plus an applicable tenor spread adjustment, following LIBOR's discontinuation on June 30, 2023[218] - This transition did not have a significant impact on the Company's consolidated financial statements[219] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK States that this section is not applicable, indicating no material market risk disclosures beyond other sections - This section is marked 'Not Applicable' by the registrant[220] ITEM 4. CONTROLS AND PROCEDURES Confirms the effectiveness of disclosure controls and procedures and the absence of material changes in internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023[221] - No material changes in internal control over financial reporting were identified during the last fiscal quarter[222] PART II – OTHER INFORMATION Contains disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, other information, exhibits, and signatures ITEM 1. LEGAL PROCEEDINGS Confirms the absence of any material pending legal proceedings involving the company - There are no material pending legal proceedings involving the Company[225] ITEM 1A. RISK FACTORS States that there have been no material changes to the risk factors previously disclosed in the annual report - No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for December 31, 2022[226] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS States that this section is not applicable, indicating no unregistered equity sales or use of proceeds to disclose - This section is marked 'Not applicable' by the registrant[227] ITEM 3. DEFAULTS UPON SENIOR SECURITIES States that this section is not applicable, indicating no defaults upon senior securities to disclose - This section is marked 'Not applicable' by the registrant[228] ITEM 4. MINE SAFETY DISCLOSURES States that this section is not applicable, indicating no mine safety disclosures are required - This section is marked 'None' by the registrant[229] ITEM 5. OTHER INFORMATION States that this section is not applicable, indicating no other information to disclose - This section is marked 'Not applicable' by the registrant[230] ITEM 6. EXHIBITS Lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, and XBRL formatted financial statements - Exhibits include certifications from the Chief Executive Officer and Chief Financial Officer, and XBRL formatted financial statements[232] Signatures Provides the official signatures of the company's President, CEO, EVP, and CFO, along with the signing date - The report was signed by James E. Hendricks, Jr. (President and CEO) and Donald M. Kaloski, Jr. (EVP and CFO) on August 11, 2023[235]