Forward Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements, which
can be identified by the use of such words as estimate, project, believe,
intend, anticipate, plan, seek, expect and similar expressions. These
forward-looking statements include:
• statements of our goals, intentions and expectations;
• statements regarding our business plans and prospects and growth and
operating strategies; • statements regarding the asset quality of our loan and investment portfolios; and • estimates of our risks and future costs and benefits. By identifying these forward-looking statements for you in this manner, we are alerting you to the possibility that our actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause our actual results and financial condition to differ from those indicated in the forward-looking statements include, among others, those discussed under "Risk Factors" in Part I, Item 1A of the Company's Annual Report on Form 10-K and Part II, Item 1A of this and any previous Quarterly Report on Form 10-Q filed since our most recent Annual Report on Form 10-K, as well as the following factors:
• significantly increased competition among depository and other financial
• inflation and changes in the interest rate environment that reduce our
margins or reduce the fair value of financial instruments;
• general economic conditions, either nationally or in our market areas, that
are worse than expected; • adverse changes in the securities markets; • legislative or regulatory changes that adversely affect our business;
• our ability to enter new markets successfully and take advantage of growth
opportunities, and the possible short-term dilutive effect of potential
acquisitions or de novo branches, if any; • changes in consumer spending, borrowing and savings habits;
• changes in accounting policies and practices, as may be adopted by the bank
regulatory agencies and the FASB; and • changes in our organization, compensation and benefit plans. Further, the COVID-19 pandemic has caused local and national economic disruption and has had and may continue to have an impact on the Company's operations and financial results. Given its ongoing and dynamic nature, it is difficult to predict what effects the pandemic will have on our business and results of operations in the future. The pandemic and related local and national economic disruption may, among other effects, result in a decline in demand for our products and services; increased levels of loan delinquencies, problem assets and foreclosures; branch closures, work stoppages and unavailability of personnel; and increased cybersecurity risks, as employees increasingly work remotely.
These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements.
Comparison of Financial Condition at
Total Assets. Total assets increased by
$6.9 million, or 0.4%, to $1.87 billionat December 31, 2021from $1.86 billionat September 30, 2021due primarily to increases in cash and due from banks and investments securities held to maturity partially offset by decreases in investment securities available for sale and loans receivable. At the onset of the pandemic, the Company moved quickly to build its liquidity as an offset to the economic uncertainty caused by the resulting economic slowdown. The Company has and will continue to maintain a strong liquidity position against the changing economic forecasts through daily monitoring. Total Cash and Cash Equivalents. Total cash and cash equivalents increased $39.5 million, or 24.8%, to $198.4 millionat December 31, 2021from $158.9 millionat September 30, 2021. Decreases in investment and loan balances outstanding accounted for the majority of the increase. The Company built the majority of its cash position in the fiscal second quarter of 2020 and has maintained that position through the first quarter of fiscal 2022 to remain prepared for ongoing economic uncertainties. 33
-------------------------------------------------------------------------------- Net Loans. Net loans decreased
$1.6 million, or 0.1%, to $1.34 billionat December 31, 2021. During this period, residential loans decreased $21,000to $580.3 million, construction loans increased $4.0 millionto $18.0 million, commercial real estate loans increased $24.5 millionto $615.6 million, commercial loans decreased $7.0 millionto $56.5 millionpartially due to the repayment and forgiveness of $9.4 millionin PPP loans carried in the commercial loan portfolio, obligations of states and political subdivisions decreased $18.4 millionto $37.8 million, home equity loans and lines of credit decreased $1.0 millionto $37.4 million, auto loans decreased $3.5 millionto $10.3 millionreflecting expected runoff of the portfolio following the Company's previously announced discontinuation of indirect auto lending in July 2018, and other loans decreased $48,000to $1.5 million. The Company sold $12.8 millionin residential mortgage loans to the Federal Home Loan Bank of Pittsburghduring the three month period ended December 31, 2021, recording gains on the sale of these loans in noninterest income. Investment Securities Available for Sale. Investment securities available for sale decreased $68.4 million, or 28.4%, to $172.2 millionat December 31, 2021from $240.6 millionat September 30, 2021due primarily to the maturity of securities in the portfolio. The Company has continued to maintain a liquid position in cash and cash equivalents and has limited its investment purchases. Investment Securities Held to Maturity. Investment securities held to maturity increased to $55.7 millionat December 31, 2021from $21.5 millionat September 30, 2021. The Company carries some investment as held to maturity to manage fluctuations in comprehensive loss caused by interest rate changes. Deposits. Deposits decreased $1.4 million, or 0.1%, to $1.63 billionat December 31, 2021from $1.64 billionat September 30, 2021. Decreases in interest bearing demand accounts of $42.9 millionand certificates of deposit of $10.3 millionwere offset in part by increases in money market accounts of $30.5 million, savings and club accounts of $4.0 millionand non-interest bearing demand accounts of $17.3 million. The overall decrease in certificates of deposit reflected a decrease in brokered certificates of $15.0 million. Stockholders' Equity. Stockholders' equity increased by $5.8 million, or 2.9%, to $207.6 millionat December 31, 2021from $201.8 millionat September 30, 2021. The increase in stockholders' equity was primarily due to net income of $4.6 millionand other comprehensive income of $1.9 millionwhich was partially offset by regular cash dividends of $0.12per share, which reduced stockholders' equity by $1.2 million. 34
Average Balance Sheets for the Three Months Ended
The following tables set forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances, the yields set forth below include the effect of deferred fees and discounts and premiums that are amortized or accreted to interest income. For the Three Months Ended December 31, 2021 2020 Interest Income/ Interest Income/ Average Balance Expense Yield/Cost Average Balance Expense Yield/Cost (dollars in thousands) Interest-earning assets: Loans(1)
$ 1,363,548$ 13,259 3.87 % $ 1,419,348$ 13,760 3.86 % Investment SecuritiesTaxable(2) 130,338 597 1.82 % 94,568 632 2.66 % Exempt from federal income tax(2)(3) 3,956 19 2.42 % 8,474 40 2.38 % Total investment securities 134,294 616 1.84 % 103,042 672 2.64 % Mortgage-backed securities 103,046 414 1.60 % 100,070 365 1.45 % Federal Home Loan Bank stock 4,707 54 4.56 % 5,428 77 5.64 % Other 172,678 65 0.15 % 178,228 38 0.08 % Total interest-earning assets 1,778,273 14,408 1,806,116 14,912 Allowance for loan losses (18,162 ) 3.22 % (15,678 ) 3.29 % Noninterest-earning assets 111,107 118,985 Total assets $ 1,871,218 $ 1,909,423Interest-bearing liabilities: NOW accounts $ 305,440 $ 36 0.05 % $ 261,026 $ 97 0.15 % Money market accounts 449,909 141 0.12 % 412,381 201 0.19 % Savings and club accounts 192,111 25 0.05 % 163,805 22 0.05 % Certificates of deposit 422,867 644 0.61 % 536,021 1,452 1.08 % Borrowed funds - - - 64,471 228 1.41 % Total interest-bearing liabilities 1,370,327 846 0.24 % 1,437,704 2,000 0.55 % Non-interest-bearing NOW accounts 270,111 247,345 Non-interest-bearing liabilities 25,252 30,269 Total liabilities 1,665,690 1,715,318 Equity 205,528 194,105 Total liabilities and equity $ 1,871,218 $ 1,909,423Net interest income $ 13,562 $ 12,912 Interest rate spread 2.98 % 2.74 % Net interest-earning assets $ 407,946 $ 368,412 Net interest margin(4) 3.03 % 2.84 % Average interest-earning assets to average interest-bearing liabilities 129.77 % 125.63 % _____________________
(1) Non-accruing loans are included in the outstanding loan balances.
(2) Available for sale securities are reported at fair value.
(3) Yields on tax exempt securities have been calculated on a fully tax
equivalent basis assuming a tax rate of 21.00% for the three months ended
(4) Represents the difference between interest earned and interest paid, divided
by average total interest earning assets. 35
Comparison of Operating Results for the Three Months Ended
Net Income. Net income increased
$478,000, or 11.6%, to $4.6 millionfor the three months ended December 31, 2021compared to net income of $4.1 millionfor the comparable period in 2020. The increase was primarily due to an increase in net interest income and a decline in the provision for loan losses partially offset by increases in non-interest expense and the income tax provision and a decrease in non-interest income. Net Interest Income. Net interest income increased $650,000, or 5.0%, to $13.6 millionfor the three months ended December 31, 2021compared to $12.9 millionfor the comparable period in 2020. Interest Income. Total interest income was $14.4 millionfor the three months ended December 31, 2021compared with $14.9 millionfor the three months ended December 31, 2020reflecting a decline in interest rates and a decrease in the total yield on average interest earning assets from 3.29% for the quarter ended December 31, 2020to 3.22% for the quarter ended December 31, 2021. A decline of $27.8 millionin average interest earning assets also contributed to the decline in interest income. Interest Expense. Interest expense was $846,000for the quarter ended December 31, 2021compared to $2.0 millionfor the same period in 2020. The cost of interest-bearing liabilities declined to 0.24% in the quarter ended December 31, 2021from 0.55% a year earlier, reflecting lower interest rates, timely repricing of deposits and roll-off of higher-cost borrowings. Average interest-bearing liabilities decreased $67.4 millionyear-over-year. Provision for Loan Losses. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect a borrower's ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are subject to interpretation and revision as more information becomes available or as future events occur. After an evaluation of these factors, management made no provision for loan losses for the three month period ended December 31, 2021compared to $900,000for the three month period ended December 31, 2020. The allowance for loan losses was $18.2 million, or 1.34% of loans outstanding, at December 31, 2021, compared to $18.1 million, or 1.33% of loans outstanding, at September 30, 2021. As the economic impact of the COVID-19 pandemic continues to evolve, our customers may experience decreased cash flows, which may correlate to an inability to make timely loan payments. This, in turn may require increases in our allowance for loan losses and increases in the level of charge-offs in our loan portfolio. Non-interest Income. Noninterest income decreased 25.7% to $2.3 millionfor the three months ended December 31, 2021, compared with $3.1 millionfor the three months ended December 31, 2020. Decreases in loan swap fees of $64,000, earnings on bank-owned life insurance of $150,000, other income of $48,000and gains on sales of residential mortgages of $599,000were partially offset by an increase in trust and investment fees of $95,000in the quarter ended December 31, 2021compared with the comparable period in 2020. Non-interest Expense. Noninterest expense increased $126,000or 1.2% to $10.3 millionfor the three months ended December 31, 2021compared with $10.2 millionfor the comparable period a year earlier primarily reflecting increases in professional fees of $162,000, occupancy and equipment of $27,000, data processing of $98,000and other expenses of $31,000which were partially offset by decreases in Federal Deposit Insurance Corporationpremiums of $109,000, compensation and employee benefits of $62,000and gains on foreclosed real estate of $12,000. Income Taxes. Income tax expense increased $139,000to $973,000for the three months ended December 31, 2021from $834,000for the comparable 2020 period. The effective tax rate for the three months ended December 31, 2021was 17.4% compared to 16.8% for the 2020 period. 36
The following table provides information with respect to the Bank’s
non-performing assets at the dates indicated (dollars in thousands).
September 30, December 31, 2021 2021 Non-performing assets: Non-accruing loans $ 18,921
$ 15,864Non-accruing purchased credit impaired loans 3 3 Total non-performing loans 18,924 15,867 Foreclosed real estate 193 461 Total non-performing assets $ 19,117 $ 16,328Ratio of non-performing loans to total loans 1.39 % 1.17 % Ratio of non-performing loans to total assets 1.01 % 0.85 % Ratio of non-performing assets to total assets 1.02 % 0.88 % Ratio of allowance for loan losses to total loans 1.34 % 1.33 % Loans are reviewed on a regular basis and are placed on non-accrual status when they become 90 days delinquent. When loans are placed on non-accrual status, unpaid accrued interest is fully reserved, and further income is recognized only to the extent received. Non-performing assets increased $2.8 millionfrom September 30, 2021to December 31, 2021. The primary reason for the increase in nonperforming assets at December 31, 2021as compared to September 30, 2021was the addition of one non-performing commercial loan relationship of $3.9 million. Also included in non-performing assets are two nonperforming commercial real estate loans totaling $8.8 million. These loans are well collateralized and carry personal guarantees. The number of nonperforming residential loans was 31 at December 31, 2021compared to 38 at September 30, 2021. The $18.9 millionof non-accruing loans at December 31, 2021included 31 residential loans with an aggregate outstanding balance of $2.3 million, 20 commercial and commercial real estate loans with aggregate outstanding balances of $16.2 millionand 27 consumer loans with aggregate balances of $489,000. Within the residential loan balance were $788,000of loans past due less than 90 days. In the quarter ended December 31, 2021, the Company identified eight residential loans which, although paying as agreed, have a high probability of default. Foreclosed real estate decreased $268,000to $193,000at December 31, 2021. Foreclosed real estate consists of five residential properties and one commercial property.
December 31, 2021, TDRs were comprised of nine residential loans totaling $1.1 million, seven commercial and commercial real estate loans totaling $8.3 millionand four consumer loans (home equity loans, home equity lines and credit, indirect auto and other loans) totaling $53,000.
For the three month period ended
to completion of one year of consecutive on time payments.
The Company continues to closely monitor all customer credit positions, particularly loans requesting payment relief. As of
December 31, 2021, approximately eight of our commercial clients had requested loan payment deferrals or payments of interest only on loans totaling $19.2 million. In accordance with interagency guidance issued in March 2020, these short-term deferrals are not considered TDRs unless the borrower was previously experiencing financial difficulty. As the economic impact of the COVID-19 pandemic continues to evolve, our customers may experience decreased cash flows, which may correlate to an inability to make timely loan payments. This, in turn may require increases in our allowance for loan losses and increases in the level of chargeoffs in our loan portfolio.
Liquidity and Capital Resources
We maintain liquid assets at levels we consider adequate to meet both our short-term and long-term liquidity needs. We adjust our liquidity levels to fund deposit outflows, repay our borrowings and to fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives. Our primary sources of liquidity are deposits, prepayment and repayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and earnings and funds provided from operations, as well as access to FHLB advances and other borrowing sources. While scheduled principal repayments on loans and mortgage-backed securities are a relatively 37 -------------------------------------------------------------------------------- predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. We set the interest rates on our deposits to maintain a desired level of total deposits. A portion of our liquidity consists of cash and cash equivalents and borrowings, which are a product of our operating, investing and financing activities. At
December 31, 2021, $198.4 millionof our assets were invested in cash and cash equivalents. Our primary sources of cash are principal repayments on loans, proceeds from the maturities of investment securities, principal repayments of mortgage-backed securities and increases in deposit accounts and borrowings. As of December 31, 2021, we had no borrowings outstanding from the Pittsburgh FHLB. We have access to total FHLB advances of up to approximately $723.4 million. At December 31, 2021, we had $352.8 millionin loan commitments outstanding, which included, in part, $165.3 millionin undisbursed construction loans and land development loans, $51.3 millionin unused home equity lines of credit, $103.3 millionin commercial lines of credit and commitments to originate commercial loans, $16.9 millionin performance standby letters of credit and $16.0 millionin other unused commitments which are primarily to originate residential mortgage loans and multifamily loans. Certificates of deposit due within one year of December 31, 2021totaled $145.3 million, or 72.8% of certificates of deposit. If these maturing deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the certificates of deposit due on or before December 31, 2022. We believe, however, based on past experience that a significant portion of our certificates of deposit will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered. As reported in the Consolidated Statements of Cash Flow, our cash flows are classified for financial reporting purposes as operating, investing or financing cash flows. Net cash provided by operating activities was $3.6 millionand $3.9 millionfor the three months ended December 31, 2021and 2020, respectively. These amounts differ from our net income because of a variety of cash receipts and disbursements that did not affect net income for the respective periods. Net cash provided by investing activities was $34.6 millionand $83.5 millionfor the three months ended December 31, 2021and 2020, respectively, principally reflecting our loan and investment security activities. Deposit and borrowing cash flows have comprised most of our financing activities, which resulted in net cash provided by (used for), of $1.3 millionand $(26.1) millionfor the three months ended December 31, 2021and 2020, respectively.
Critical Accounting Policies
We consider accounting policies that require management to exercise significant judgment or discretion or make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income, to be critical accounting policies. We consider the following to be our critical accounting policies: Allowance for Loan Losses. The allowance for loan losses is the estimated amount considered necessary to cover credit losses inherent in the loan portfolio at the balance sheet date. The allowance is established through the provision for loan losses which is charged against income. In determining the allowance for loan losses, management makes significant estimates and has identified this policy as one of our most critical. The methodology for determining the allowance for loan losses is considered a critical accounting policy by management due to the high degree of judgment involved, the subjectivity of the assumptions utilized and the potential for changes in the economic environment that could result in changes to the amount of the recorded allowance for loan losses. As a substantial amount of our loan portfolio is collateralized by real estate, appraisals of the underlying value of property securing loans and discounted cash flow valuations of properties are critical in determining the amount of the allowance required for specific loans. Assumptions for appraisals and discounted cash flow valuations are instrumental in determining the value of properties. Overly optimistic assumptions or negative changes to assumptions could significantly impact the valuation of a property securing a loan and the related allowance determined. The assumptions supporting such appraisals and discounted cash flow valuations are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable on the related loans. Management performs a quarterly evaluation of the adequacy of the allowance for loan losses. Consideration is given to a variety of factors in establishing this estimate including, but not limited to, current economic conditions, delinquency statistics, geographic and industry concentrations, the adequacy of the underlying collateral, the financial strength of the borrower, results of internal and external loan reviews and other relevant factors. This evaluation is inherently subjective, as it requires material estimates that may be susceptible to significant revision based on changes in economic and real estate market conditions. The analysis of the allowance for loan losses has two components: specific and general allocations. Specific allocations are made for loans that are determined to be impaired. Impairment is measured by determining the present value of expected future cash flows or, for collateral-dependent loans, the fair value of the collateral adjusted for market conditions and selling expenses. The general allocation is determined by segregating the remaining loans by type of loan, risk weighting (if applicable) and payment 38 -------------------------------------------------------------------------------- history. We also analyze historical loss experience, delinquency trends, general economic conditions and geographic and industry concentrations. This analysis establishes factors that are applied to the loan groups to determine the amount of the general allocations. Actual loan losses may be significantly more than the allowance for loan losses we have established which could have a material negative effect on our financial results.
Goodwilland Intangible Assets. Goodwillis not amortized, but it is tested at least annually for impairment in the fourth quarter, or more frequently if indicators of impairment are present. If the estimated current fair value of a reporting unit exceeds its carrying value, no additional testing is required and an impairment loss is not recorded. The Company uses market capitalization and multiples of tangible book value methods to determine the estimated current fair value of its reporting unit. Based on this analysis, no impairment was recorded in 2021 or 2020. The other intangibles assets are assigned useful lives, which are amortized on an accelerated basis over their weighted-average lives. The Company periodically reviews the intangible assets for impairment as events or changes in circumstances indicate that the carrying amount of such asset may not be recoverable. Based on these reviews, no impairment was recorded in 2021 or 2020. Derivative Instruments and Hedging Activities. The Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
Fair Value Measurements. We group our assets at fair value in three levels,
based on the markets in which the assets are traded and the reliability of the
assumptions used to determine fair value. These levels are:
• Level I – Valuation is based upon quoted prices for identical instruments
traded in active markets.
• Level II – Valuation is based upon quoted prices for similar instruments in
active markets, quoted prices for identical or similar instruments in
markets that are not active, and model-based valuation techniques for which
all significant assumptions are observable in the market.
• Level III – Valuation is generated from model-based techniques that use
significant assumptions not observable in the market. These unobservable
assumptions reflect the Company’s own estimates of assumptions that market
participants would use in pricing the asset.
We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is our policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy in generally accepted accounting principles. Fair value measurements for most of our assets are obtained from independent pricing services that we have engaged for this purpose. When available, we, or our independent pricing service, use quoted market prices to measure fair value. If market prices are not available, fair value measurement is based upon models that incorporate available trade, bid, and other market information. Subsequently, all of our financial instruments use either of the foregoing methodologies to determine fair value adjustments recorded to our financial statements. In certain cases, however, when market observable inputs for model-based valuation techniques may not be readily available, we are required to make judgments about assumptions market participants would use in estimating the fair value of financial instruments. The degree of management judgment involved in determining the fair value of a financial instrument is dependent upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. In addition, changes in the market conditions may reduce the availability of quoted prices or observable data. When market data is not available, we use valuation techniques requiring more management judgment to estimate the appropriate fair value measurement. Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset. 39 -------------------------------------------------------------------------------- Additionally, there may be inherent weaknesses in any calculation technique, and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, that could significantly affect the results of current or future valuations. Other-than-Temporary Investment Security Impairment. Securities are evaluated periodically to determine whether a decline in their value is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition to the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term "other-than-temporary" is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized. Deferred Income Taxes. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. If current available information raises doubt as to the realization of the deferred tax assets, a valuation allowance is established. We consider the determination of this valuation allowance to be a critical accounting policy because of the need to exercise significant judgment in evaluating the amount and timing of recognition of deferred tax liabilities and assets, including projections of future taxable income. These judgments and estimates are reviewed on a continual basis as regulatory and business factors change. A valuation allowance for deferred tax assets may be required if the amount of taxes recoverable through loss carryback declines, or if we project lower levels of future taxable income. Such a valuation allowance would be established through a charge to income tax expense that would adversely affect our operating results.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements (as such term is defined in applicable
Securities and Exchange Commissionrules) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
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