2021 Annual Report

recognition of tax credits. The Company’s future effective income tax rate will fluctuate based on the mix of taxable and tax-free investments and loans, the recognition and availability of tax credit investments, and overall taxable income. 2021 Compared to 2020 Income tax expense was $15.9 million for the year ended December 31, 2021, compared to $8.5 million for the year ended December 31, 2020. The effective combined federal and state income tax rate for the year ended December 31, 2021 was 25.8%, compared to 23.8% for the year ended December 31, 2020. The higher effective combined rate was primarily due to fewer tax credits being recognized during 2021. 2020 Compared to 2019 Income tax expense was $8.5 million for the year ended December 31, 2020, compared to $6.9 million for the year ended December 31, 2019. The effective combined federal and state income tax rate for the year ended December 31, 2020 was 23.8%, compared to 18.1% for the year ended December 31, 2019. The higher effective combined rate was primarily due to fewer tax credits being recognized during 2020. Financial Condition Overview Total assets at December 31, 2021 were $3.48 billion, an increase of $550.3 million, or 18.8%, compared to December 31, 2020. The increase in total assets was primarily due to robust organic loan growth, as well as the continued purchases of investment securities. Total gross loans were $2.82 billion, an increase of $493.0 million, or 21.2%, compared to December 31, 2020. Total liabilities at December 31, 2021 were $3.10 billion, an increase of $436.4 million, or 16.4%, compared to December 31, 2020. Total deposits were $2.95 billion, an increase of $444.6 million, or 17.8%, compared to December 31, 2020. Total borrowings were $134.7 million, a decrease of $7.5 million, or 5.3%, compared to December 31, 2020. Investment Securities Portfolio The investment securities portfolio is used to make various term investments and is intended to provide the Company with adequate liquidity, a source of stable income, and at times, serve as collateral for certain types of deposits. Investment balances in the investment securities portfolio are subject to change over time based on funding needs and interest rate risk management objectives. The liquidity levels take into account anticipated future cash flows and are maintained at levels management believes are appropriate to ensure future flexibility in meeting anticipated funding needs. The investment securities portfolio consists primarily of municipal securities, U.S. government agency mortgage-backed securities, SBA securities, asset-backed securities, and corporate securities comprised primarily of subordinated debentures of banks and financial holding companies. In addition, the Company also holds U.S. treasury securities and other debt securities, all with varying contractual maturities. These maturities do not necessarily represent the expected life of the securities as the securities may be called or paid down without penalty prior to their stated maturities. All investment securities are held as available for sale. Securities available for sale were $439.4 million at December 31, 2021, compared to $390.6 million at December 31, 2020, an increase of $48.7 million, or 12.5%. At December 31, 2021, municipal securities represented 36.0% of the investment securities portfolio, government agency mortgage-backed securities represented 26.1% of the portfolio, SBA securities represented 6.9% of the portfolio, corporate securities represented 19.2% of the portfolio, U.S.

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