What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-06 compared with 2021-11-08 · 85 added, 190 removed, 316 unchanged (47% of the section changed)

22 unchanged sentences

• Disciplined focus on risk management.

Impact of COVID-19

The COVID-19 pandemic has resulted in significant economic disruption affecting our business and the clients we serve.

As vaccination efforts continue, restrictions on businesses have been lifted and a return to more normal economic activity has begun.

However, a significant degree of uncertainty still exists concerning the ultimate duration and magnitude of the COVID-19 pandemic and subsequent outbreaks, including whether restrictions that have been lifted will need to be imposed again or tightened in the future.

Given the ongoing and dynamic nature of the circumstances, it is still difficult to predict the full impact of the COVID-19 pandemic on our business.

The extent of such impact will depend on future developments, including but not limited to the continued roll-out of vaccinations, which play an important role as to when the coronavirus can be controlled and abated.

Critical Accounting Policies and Estimates

4 unchanged sentences

Earnings and Performance Overview

For the three months ended September 30, 2021, we had net interest income of $17.7 million, an increase of $4.1 million or 30.2% when compared to the same period in 2020.

For the nine months ended September 30, 2021, we had net interest income of $49.0 million, an increase of $8.4 million, or 20.8% when compared to the same period in 2020.

The increase in net interest income for the three and nine months ended September 30, 2021 was primarily due to lower interest expense on deposits and an increase in interest and fees on loans due to loan growth when compared to the same periods in 2020.

Noninterest income increased $0.8 million to $1.4 million for the three months ended September 30, 2021 compared to the same period in 2020.

Noninterest income increased $2.6 million to $4.8 million for the nine months ended September 30, 2021 compared to the same period in 2020.

The increase in noninterest income was primarily a result of the resumption of loan sales.

In the fourth quarter of 2020, the Company recognized a $3.9 million one-time charge recorded in noninterest expense for office consolidation, vendor contract termination and employee severance costs.

As of September 30, 2021, the Company has paid a total of $0.7 million in employee severance costs and a total of $1.1 million in vendor contract termination costs.

Reference the 2020 Form 10-K for further discussion on these charges.

Net income available to common shareholders was $6.9 million, or $0.87 per diluted share, and $3.0 million, or $0.38 per diluted share, for the three months ended September 30, 2021 and 2020, respectively.

Net income available to common shareholders was $18.8 million, or $2.37 per diluted share, and $5.6 million, or $0.71 per diluted share, for the nine months ended September 30, 2021 and 2020, respectively.

The increase in net income was primarily impacted by the aforementioned increases in net interest income and noninterest income and a decrease in the provision for loan losses resulting from lower loan loss reserves in 2021 when compared to 2020, which saw a large increase in reserves due to the COVID-19 pandemic.

Returns on average stockholders' equity and average assets for the three months ended September 30, 2021 were 14.09% and 1.22%, respectively, compared to 6.87% and 0.55%, respectively, for the three months ended September 30, 2020.

Returns on average stockholders' equity and average assets for the nine months ended September 30, 2021 were 13.29% and 1.12%, respectively, compared to 4.23% and 0.36%, respectively, for the nine months ended September 30, 2020.

For the three months ended March 31, 2022, net interest income was $19.5 million, an increase of $4.9 million or 33.1% when compared to the same period in 2021.

The increase in net interest income for the three months ended March 31, 2022 was primarily due to an increase in interest and fees on loans due to loan growth and higher overall loan yields and from lower interest expense on deposits when compared to the same period in 2021.

Noninterest income decreased $1.0 million to $1.0 million for the three months ended March 31, 2022 compared to the same period in 2021.

The decrease in noninterest income was primarily a result of a one-time federal payroll tax credit for COVID-19 of $0.9 million recognized during the three months ended March 31, 2021.

Net income available to common shareholders was $8.2 million, or $1.04 per diluted share, and $5.7 million, or $0.71 per diluted share, for the three months ended March 31, 2022 and 2021, respectively.

The increase in net income was primarily impacted by the aforementioned increase in net interest income, partially offset by a decrease in noninterest income and an increase in the provision for loan losses driven by loan growth and a slight increase in noninterest expense.

Returns on average shareholders' equity and average assets for the three months ended March 31, 2022 were 16.05% and 1.35%, respectively, compared to 12.67% and 1.02%, respectively, for the three months ended March 31, 2021.

Results of Operations

7 unchanged sentences

Premium amortization and discount accretion are included in the respective interest income and interest expense amounts.

FTE net interest income for the three months ended September 30, 2021 and 2020 was $17.8 million and $13.7 million, respectively.

FTE net interest income for the nine months ended September 30, 2021 and 2020 was $49.1 million and $40.7 million, respectively.

FTE interest income for the three months ended September 30, 2021 increased by $1.7 million, or 8.9%, to $20.7 million, compared to FTE interest income for the three months ended September 30, 2020.

FTE interest income for the nine months

ended September 30, 2021 increased by $1.1 million, or 1.9%, to $59.6 million, compared to FTE interest income for the nine months ended September 30, 2020.

This increase was due to commercial real estate and commercial business loan growth.

Interest expense for the three months ended September 30, 2021 decreased by $2.4 million, or 45.6%, compared to interest expense for the three months ended September 30, 2020.

Interest expense for the nine months ended September 30, 2021 decreased by $7.3 million, or 40.9%, compared to interest expense for the nine months ended September 30, 2020.

FTE net interest income for the three months ended March 31, 2022 and 2021 was $19.6 million and $14.7 million, respectively.

FTE interest income for the three months ended March 31, 2022 increased by $3.5 million, or 18.7%, to $22.4 million, compared to FTE interest income for the three months ended March 31, 2021.

This increase was due to commercial loan growth and higher yields on commercial business loans.

Interest expense for the three months ended March 31, 2022 decreased by $1.3 million, or 32.3%, compared to interest expense for the three months ended March 31, 2021.

This decrease is due to lower interest rates on deposits.

The net interest margin increased by 72 basis points to 3.39% for the three months ended September 30, 2021, compared to the three months ended September 30, 2020 and the net interest margin increased by 27 basis points to 3.08% for the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020.

The increase in net interest margin was primarily due to lower interest expense on deposits and a greater percentage of noninterest bearing deposits.

In addition, the net interest margin for the three months ended September 30, 2021 was positively impacted by a reduction in excess liquidity when compared to the three months ended September 30, 2020.

Distribution of Assets, Liabilities and Stockholders’ Equity;

The net interest margin increased by 56 basis points to 3.30% for the three months ended March 31, 2022, compared to the three months ended March 31, 2021.

The increase in the net interest margin was due to lower interest expense from a decrease in rates on interest bearing deposits, a greater proportion of noninterest bearing deposits and, to a lesser extent, an increase in overall loan yields.

Distribution of Assets, Liabilities and Shareholders’ Equity;

Interest Rates and Interest Differential

The following tables present the average balances and yields earned on interest earning assets and average balances and weighted average rates paid on our funding liabilities for the three and nine months ended September 30, 2021 and 2020.

Three Months Ended September 30,

(Dollars in thousands) Average Balance Interest Yield / Rate (4)

Average Balance Interest Yield / Rate (4)

Cash and Fed funds sold $ 209,500 $ 88 0.17 % $ 312,078 $ 96 0.12 %

Securities (1)

105,030 766 2.92 96,448 776 3.22

Commercial real estate 1,270,375 14,345 4.42 1,087,765 12,570 4.52

Residential real estate 95,100 809 3.40 125,069 1,097 3.51

Construction 88,728 845 3.73 94,984 1,029 4.24

Commercial business 314,484 3,707 4.61 322,066 3,329 4.04

Consumer 8,870 89 3.99 121 2 7.37

Total loans 1,777,557 19,795 4.36 1,630,005 18,027 4.33

Federal Home Loan Bank stock 3,133 16 2.04 7,835 77 3.91

Total earning assets 2,095,220 $ 20,665 3.86 % 2,046,366 $ 18,976 3.63 %

Other assets 131,670 132,617

Total assets $ 2,226,890 $ 2,178,983

Liabilities and shareholders' equity:

Interest bearing liabilities:

NOW $ 111,813 $ 51 0.18 % $ 87,890 $ 40 0.18 %

Money market 824,203 1,053 0.51 517,638 859 0.66

Savings 182,848 96 0.21 163,135 237 0.58

Time 448,218 1,187 1.05 757,176 2,968 1.56

Total interest bearing deposits 1,567,082 2,387 0.60 1,525,839 4,104 1.07

Borrowed money 72,960 503 2.70 200,237 1,210 2.36

Total interest bearing liabilities 1,640,042 $ 2,890 0.70 % 1,726,076 $ 5,314 1.22 %

Noninterest bearing deposits 341,303 226,473

Other liabilities 52,552 53,272

Total Liabilities 2,033,897 2,005,821

Shareholders' equity 192,993 173,162

Total liabilities and shareholders' equity $ 2,226,890 $ 2,178,983

Net interest income (2)

$ 17,775 $ 13,662

Interest rate spread 3.16 % 2.41 %

Net interest margin (3)

3.39 % 2.67 %

(1) Average balances and yields for securities are based on amortized cost.

(2) The adjustment for securities and loans taxable equivalency amounted to $51 thousand and $54 thousand for the three months ended September 30, 2021 and 2020, respectively.

(3) Annualized net interest income as a percentage of earning assets.

(4) Yields are calculated using the contractual day count convention for each respective product type.

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in thousands) Average Balance Interest Yield / Rate (4)

33 unchanged sentences

(1) Average balances and yields for securities are based on amortized cost.

(2) The adjustment for securities and loans taxable equivalency amounted to $151 thousand and $159 thousand for the nine months ended September 30, 2021 and 2020, respectively.

(2) The adjustment for securities and loans taxable equivalency amounted to $49 thousand and $50 thousand for the three months ended March 31, 2022 and 2021, respectively.

(3) Annualized net interest income as a percentage of earning assets.

7 unchanged sentences

Changes attributable to both volume and rate have been allocated proportionately based on the relationship of the absolute dollar amount of change in each.

Three Months Ended September 30, 2021 vs 2020

Increase (Decrease) Nine Months Ended September 30, 2021 vs 2020

Three Months Ended March 31, 2022 vs 2021

Increase (Decrease)

(In thousands) Volume Rate Total Volume Rate Total

(In thousands) Volume Rate Total

Interest and dividend income:

10 unchanged sentences

Interest expense:

NOW 11 — 11 46 3 49

Money market 286 (56) 230

8 unchanged sentences

The provision for loan losses is charged against earnings in order to maintain our allowance for loan losses and reflects management’s best estimate of probable losses inherent in our loan portfolio as of the balance sheet date.

The provision for loan losses for the three months ended September 30, 2021 was $0.1 million compared to a provision for loan losses of $0.7 million for the three months ended September 30, 2020.

The credit for loan losses for the nine months ended September 30, 2021 was $0.2 million compared to a provision for loan losses of $6.9 million for the nine months ended September 30, 2020.

The decrease in the provision for loan losses for the three and nine months ended September 30, 2021 was driven by lower loan loss reserves in 2021 when compared to 2020, which saw a large increase in reserves due to the COVID-19 pandemic.

The provision for loan losses for the three months ended March 31, 2022 was $0.2 million compared to a credit for loan losses of $0.3 million for the three months ended March 31, 2021.

The increase in the provision for loan losses for the three months ended March 31, 2022 was driven by loan growth.

Noninterest Income

Noninterest income is a component of our revenue and is comprised primarily of fees generated from deposit relationships with our customers, fees generated from sales and referrals of loans, income earned on bank-owned life insurance and gains on sales of investment securities.

The following tables compare noninterest income for the three and nine months ended September 30, 2021 and 2020:

The following table compares noninterest income for the three months ended March 31, 2022 and 2021:

Three Months Ended

September 30, Change

(Dollars in thousands) 2021 2020 $ %

Gains and fees from sales of loans $ 924 $ 27 $ 897 3,322.2 %

Bank-owned life insurance 271 242 29 12.0

Service charges and fees 199 190 9 4.7

Gain on sale of other real estate owned, net — 19 (19) (100.0)

Other 43 136 (93) (68.4)

Total noninterest income $ 1,437 $ 614 $ 823 134.0 %

Nine Months Ended

September 30, Change

March 31, Change

(Dollars in thousands) 2022 2021 $ %

2 unchanged sentences

Service charges and fees 240 199 41 20.6

Gain on sale of other real estate owned, net — 19 (19) (100.0)

Other (173) 1,013 (1,186) (117.1)

Total noninterest income $ 958 $ 1,956 $ (998) (51.0) %

Noninterest income increased by $0.8 million to $1.4 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Noninterest income increased by $2.6 million to $4.8 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The increase in noninterest income was driven by resumed loan sales, totaling $0.9 million and $2.3 million for the three and nine months ended September 30, 2021, respectively.

In addition, the increase in noninterest income for the nine months ended September 30, 2021 was impacted by a one-time federal payroll tax credit for COVID-19 of $0.9 million, partially offset by $0.4 million of non-recurring interest rate swap fees recognized during the nine months ended September 30, 2020.

Noninterest income decreased by $1.0 million to $1.0 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The decrease in noninterest income was driven by a one-time federal payroll tax credit for COVID-19 of $0.9 million recognized during the three months ended March 31, 2021.

Noninterest Expense

The following tables compare noninterest expense for the three and nine months ended September 30, 2021 and 2020:

The following table compares noninterest expense for the three months ended March 31, 2022 and 2021:

Three Months Ended

September 30, Change

March 31, Change

(Dollars in thousands) 2022 2021 $ %

1 unchanged sentence

Occupancy and equipment 2,150 2,406 (256) (10.6)

Data processing 632 529 103 19.5

Professional services 981 587 394 67.1

Director fees 324 301 23 7.6

FDIC insurance 298 176 122 69.3

Marketing 186 151 35 23.2

Other 1,035 637 398 62.5

Total noninterest expense $ 10,370 $ 9,729 $ 641 6.6 %

Nine Months Ended

September 30, Change

(Dollars in thousands) 2021 2020 $ %

Salaries and employee benefits $ 13,511 $ 15,902 $ (2,391) (15.0) %

Occupancy and equipment 8,271 6,410 1,861 29.0

Data processing 654 512 142 27.7

Professional services 1,632 1,519 113 7.4

FDIC insurance 1,001 529 472 89.2

Director fees 352 317 35 11.0

Marketing 317 512 (195) (38.1)

FDIC insurance 223 403 (180) (44.7)

Marketing 45 (9) 54 N/M (1)

Other 580 653 (73) (11.2)

Total noninterest expense $ 9,925 $ 9,638 $ 287 3.0 %

Noninterest expense increased by $0.6 million to $10.4 million for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

The increase in noninterest expense was primarily driven by an increase in occupancy and equipment expense and other expense, partially offset by a decrease in salaries and employee benefits expense.

Noninterest expense increased by $1.0 million to $30.1 million for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

The increase in noninterest expense was primarily driven by an increase in occupancy and equipment expense, data processing expense, FDIC insurance expense and other expense, partially offset by a decrease in salaries and employee benefits expense.

Occupancy and equipment expense totaled $2.6 million for the quarter ended September 30, 2021, an increase of $0.3 million when compared to the same period in 2020.

Occupancy and equipment expense totaled $8.3 million for the nine months ended September 30, 2021, an increase of $1.9 million when compared to the same period in 2020.

The increase in occupancy and equipment expense was primarily due to additional one-time charges associated with office consolidation activity (previously disclosed in the fourth quarter of 2020) and an increase in lease expense resulting from the commencement of the lease on the Company's new headquarters building.

Data processing expense totaled $2.0 million for the nine months ended September 30, 2021, an increase of $0.4 million when compared to the same period in 2020.

The increase in data processing expense was primarily due to $0.4 million in costs associated with the conversion to a new online banking system implemented in the second quarter of 2021.

FDIC insurance expense totaled $1.0 million for the nine months ended September 30, 2021, an increase of $0.5 million when compared to the same period in 2020.

The increase in FDIC insurance expense was due to the absence of available FDIC insurance credits recognized in the first quarter of 2020 and elevated expense due to liquidity driven balance sheet growth in the first half 2021.

Salaries and employee benefits expense totaled $4.8 million for the quarter ended September 30, 2021, a decrease of $0.5 million when compared to the same period in 2020.

Salaries and employee benefits expense totaled $13.5 million for the nine months ended September 30, 2021, a decrease of $2.4 million when compared to the same period in 2020.

The decrease in salaries and employee benefits expense was primarily driven by a decrease in full time equivalent employees as a direct result of the Voluntary Early Retirement Incentive Plan offered to eligible employees and other employee actions taken during the fourth quarter of 2020.

Full time equivalent employees totaled 134 at September 30, 2021 compared to 142 for the same period in 2020.

Average full time equivalent employees totaled 127 for the nine months ended September 30, 2021 compared to 151 for the same period in 2020.

In addition, salaries and employee benefits expense also benefited by one-time deferrals of $0.6 million for the nine months ended September 30, 2021 in costs associated with a new online banking and other systems.

Income tax expense for the three months ended September 30, 2021 and 2020 totaled $1.8 million and $0.8 million, respectively.

The effective tax rates for the three months ended September 30, 2021 and 2020 were 20.8% and 20.9%, respectively.

Income tax expense for the nine months ended September 30, 2021 and 2020 totaled $5.1 million and $1.2 million, respectively.

The effective tax rates for the nine months ended September 30, 2021 and 2020 were 21.5% and 18.0%, respectively.

The increase in the effective tax rate for the nine months ended September 30, 2021 was primarily attributable to the absence of a discrete benefit recognized in the first quarter of 2020, and to a lesser extent, other permanent differences.

The impact of these items on the effective tax rate varies with changes in pre-tax income.

(1) Metric not meaningful

Noninterest expense increased by $0.3 million to $9.9 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The increase in noninterest expense was primarily driven by an increase in professional services expense and data processing expense.

Professional services expense totaled $1.0 million for the three months ended March 31, 2022, an increase of $0.4 million when compared to the same period in 2021.

The increase in professional services expense was primarily driven by consulting fees associated with various projects, including our core system conversion.

Data processing expense totaled $0.7 million for the three months ended March 31, 2022, an increase of $0.1 million when compared to the same period in 2021.

The increase in data processing expense was primarily driven by costs associated with our new online banking system.

Income tax expense for the three months ended March 31, 2022 and 2021 totaled $2.1 million and $1.6 million, respectively.

The effective tax rates for the three months ended March 31, 2022 and 2021 were 20.4% and 21.7%, respectively.

The decrease in the effective tax rate was primarily attributable to an increase in the valuation of state deferred tax assets as a result of expanding taxable business activity in various states.

Financial Condition

At September 30, 2021 total assets were $2.2 billion, a $27.1 million decrease, or 1.2%, compared to December 31, 2020.

The change in assets remained relatively flat as the decrease in excess liquidity was offset by an increase in loans.

Gross loans totaled $1.8 billion at September 30, 2021, an increase of $198.9 million compared to December 31, 2020.

Excluding PPP loans, gross loans increased by $232.1 million at September 30, 2021 when compared to December 31, 2020.

Deposits totaled $1.9 billion at September 30, 2021, compared to $1.8 billion at December 31, 2020.

Total shareholders’ equity at September 30, 2021 and December 31, 2020 was $196.2 million and $176.6 million, respectively.

The increase in shareholders' equity was primarily driven by (i) net income of $18.8 million for the nine months ended September 30, 2021 and (ii) a $6.2 million favorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate swaps.

At March 31, 2022 total assets were $2.5 billion, a $40.6 million increase, or 1.7%, compared to December 31, 2021.

The increase in assets was primarily due to loan growth, partially offset by a decrease in excess liquidity.

Gross loans totaled $2.0 billion at March 31, 2022, an increase of $90.4 million compared to December 31, 2021.

Deposits totaled $2.2 billion at March 31, 2022, compared to $2.1 billion at December 31, 2021.

Total shareholders’ equity at March 31, 2022 and December 31, 2021 was $210.2 million and $202.0 million, respectively.

The increase in shareholders' equity was primarily driven by (i) net income of $8.2 million for the three months ended March 31, 2022 and (ii) a $4.9 million favorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate swaps.

The Company's interest rate swaps are used to hedge interest rate risk.

4 unchanged sentences

Our loan portfolio is the largest category of our earning assets.

Total loans before deferred loan fees and the allowance for loan losses were $1.82 billion at September 30, 2021 and $1.63 billion at December 31, 2020.

Total gross loans increased $198.9 million as of September 30, 2021 compared to the year ended December 31, 2020.

Total loans before deferred loan fees and the allowance for loan losses were $1.99 billion at March 31, 2022 and $1.89 billion at December 31, 2021.

Total gross loans increased $90.4 million as of March 31, 2022 compared to the year ended December 31, 2021.

The following table compares the composition of our loan portfolio for the dates indicated:

(In thousands) At September 30, 2021 At December 31, 2020 Change

(In thousands) At March 31, 2022 At December 31, 2021 Change

Real estate loans:

30 unchanged sentences

The following table presents nonperforming assets and additional asset quality data for the dates indicated:

(In thousands) At September 30, 2021 At December 31, 2020

(In thousands) At March 31, 2022 At December 31, 2021

Nonaccrual loans:

10 unchanged sentences

Total past due loans to total gross loans 0.85 % 1.72 %

Nonperforming assets totaled $28.9 million and represented 1.30% of total assets at September 30, 2021, compared to $33.4 million and 1.48% of total assets at December 31, 2020.

Nonaccrual loans totaled $28.9 million at September 30, 2021 and $33.4 million at December 31, 2020.

The decrease in nonaccrual loans was partially a result of charge-offs primarily consisting of previously reserved commercial real estate exposure.

The Bank continues work-out activity on its nonaccrual loan population.

There was no other real estate owned at September 30, 2021 or December 31, 2020.

Nonperforming assets totaled $15.7 million and represented 0.63% of total assets at March 31, 2022, compared to $16.6 million and 0.68% of total assets at December 31, 2021.

Nonaccrual loans totaled $15.7 million at March 31, 2022 and $16.6 million at December 31, 2021.

There was no other real estate owned at March 31, 2022 or December 31, 2021.

Allowance for Loan Losses

9 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(Dollars in thousands) 2022 2021

1 unchanged sentence

Commercial real estate — (163)

Commercial business — — (51) (7)

Consumer (4) (14)

1 unchanged sentence

Commercial business 13 —

Consumer 1 2 10 2

Total recoveries 14 9

Net charge-offs (3) (2) (4,024) (33)

Net recoveries (charge-offs) 10 (168)

Provision (credit) charged to earnings 229 (296)

2 unchanged sentences

Allowance for loan losses to total gross loans 0.86 % 1.23 %

At September 30, 2021, our allowance for loan losses was $16.8 million and represented 0.92% of total gross loans, compared to $21.0 million, or 1.29% of total gross loans, at December 31, 2020.

At March 31, 2022, our allowance for loan losses was $17.1 million and represented 0.86% of total gross loans, compared to $16.9 million, or 0.89% of total gross loans, at December 31, 2021.

The following table presents the allocation of the allowance for loan losses and the percentage of these loans to total loans for the dates indicated:

At September 30, 2021 At December 31, 2020

At March 31, 2022 At December 31, 2021

(Dollars in thousands) Amount Percent of Loan Portfolio Amount Percent of Loan Portfolio

5 unchanged sentences

Total allowance for loan losses $ 17,141 100.00 % $ 16,902 100.00 %

The allocation of the allowance for loan losses at September 30, 2021 reflects our assessment of credit risk and probable loss within each portfolio.

We believe that the level of the allowance for loan losses at September 30, 2021 is appropriate to cover probable losses.

The allocation of the allowance for loan losses at March 31, 2022 reflects our assessment of credit risk and probable loss within each portfolio.

We believe that the level of the allowance for loan losses at March 31, 2022 is appropriate to cover probable losses.

Reserve for Unfunded Commitments

4 unchanged sentences

Investment Securities

At September 30, 2021, the carrying value of our investment securities portfolio totaled $105.9 million and represented 4.8% of total assets, compared to $106.9 million, or 4.7% of total assets, at December 31, 2020.

The net unrealized gain position on our investment portfolio at September 30, 2021 was $5.0 million and included gross unrealized losses of $0.4 million.

The net unrealized gain position on our investment portfolio at December 31, 2020 was $7.5 million and included no gross unrealized losses.

At March 31, 2022, the carrying value of our investment securities portfolio totaled $116.8 million and represented 4.7% of total assets, compared to $108.4 million, or 4.4% of total assets, at December 31, 2021.

The net unrealized loss position on our investment portfolio at March 31, 2022 was $2.3 million and included gross unrealized losses of $3.5 million.

The net unrealized gain position on our investment portfolio at December 31, 2021 was $4.5 million and included gross unrealized losses of $0.5 million.

Deposit Activities and Other Sources of Funds

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(Dollars in thousands) Amount Percent Amount Percent

5 unchanged sentences

Total deposits $ 2,166,204 100.00 % $ 2,123,998 100.00 %

Total deposits were $1.9 billion at September 30, 2021, an increase of $55.5 million, from the balance at December 31, 2020.

Brokered certificates of deposits totaled $200.1 million at September 30, 2021 and $238.9 million at December 31, 2020.

were no certificates of deposits from national listing services at September 30, 2021.

Certificates of deposits from national listing services totaled $18.4 million at December 31, 2020.

Brokered money market accounts totaled $104.0 million at September 30, 2021 and $13.5 million at December 31, 2020.

Total deposits were $2.2 billion at March 31, 2022, an increase of $42.2 million, from the balance at December 31, 2021.

Brokered certificates of deposits totaled $249.4 million at March 31, 2022 and $249.4 million at December 31, 2021.

There were no certificates of deposits from national listing services at March 31, 2022 or December 31, 2021.

Brokered money market accounts totaled $100.3 million at March 31, 2022 and $104.0 million at December 31, 2021.

Brokered deposits represent brokered certificates of deposit, brokered money market accounts, one way buy Certificate of Deposit Account Registry Service (CDARS), and one way buy Insured Cash Sweep (ICS).

At September 30, 2021 and December 31, 2020, time deposits with a denomination of $100 thousand or more, including CDARS and brokered deposits, totaled $348.3 million and $519.8 million, respectively, maturing during the periods indicated in the table below:

(Dollars in thousands) September 30, 2021 December 31, 2020

At March 31, 2022 and December 31, 2021, time deposits with a denomination of $100 thousand or more, including CDARS and brokered deposits, totaled $383.6 million and $391.2 million, respectively, maturing during the periods indicated in the table below:

(Dollars in thousands) March 31, 2022 December 31, 2021

Within 3 months $ 73,414 $ 80,417

4 unchanged sentences

We utilize advances from the Federal Home Loan Bank of Boston, or FHLB, as part of our overall funding strategy and to meet short-term liquidity needs, and to a lesser degree, manage interest rate risk arising from the difference in asset and liability maturities.

Total FHLB advances were $80.0 million and $175.0 million at September 30, 2021 and December 31, 2020, respectively.

The decrease of $95.0 million, or 54.3%, primarily reflects the substitution of lower cost brokered deposits in lieu of FHLB advances totaling $75.0 million and a permanent reduction in wholesale funding totaling $20.0 million.

Total FHLB advances were $50.0 million and $50.0 million at March 31, 2022 and December 31, 2021, respectively.

The Bank has additional borrowing capacity at the FHLB up to a certain percentage of the value of qualified collateral.

In accordance with agreements with the FHLB, the qualified collateral must be free and clear of liens, pledges and encumbrances.

At September 30, 2021, the Bank had pledged $719.1 million of eligible loans as collateral to support borrowing capacity at the FHLB of Boston.

As of September 30, 2021, the Bank had immediate availability to borrow an additional $359.2 million based on qualified collateral.

At March 31, 2022, the Bank had pledged $691.6 million of eligible loans as collateral to support borrowing capacity at the FHLB of Boston.

As of March 31, 2022, the Bank had immediate availability to borrow an additional $314.5 million based on qualified collateral.

Liquidity and Capital Resources

10 unchanged sentences

We employ a stress testing methodology to estimate needs for contingent funding that could result from unexpected outflows of funds in excess of “business as usual” cash flows.

The Bank has established unsecured borrowing capacity with the Atlantic Community Bankers Bank ("ACBB") (formerly Bankers’ Bank Northeast), Zion’s Bank and Texas Capital Bank and also maintains additional collateralized borrowing capacity with the FHLB in excess of levels used in the ordinary course of business.

The Bank has established unsecured borrowing capacity with the Atlantic Community Bankers Bank ("ACBB"), Zion’s Bank and Texas Capital Bank and also maintains additional collateralized borrowing capacity with the FHLB in excess of levels used in the ordinary course of business.

Our sources of liquidity include cash, unpledged investment securities, borrowings from the FHLB, lines of credit from ACBB, Zion’s Bank and Texas Capital Bank, the brokered deposit market and national CD listing services.

The Company anticipates that it will have sufficient funds available to meet its current loan and other commitments.

As of September 30, 2021, the Company had cash and cash equivalents of $177.5 million and available-for-sale securities of $87.6 million.

At September 30, 2021, outstanding commitments to originate loans totaled $137.0 million and undisbursed funds from approved lines of credit, home equity lines of credit and secured commercial lines of credit totaled $268.3 million.

As of March 31, 2022, the Company had cash and cash equivalents of $299.5 million and available-for-sale securities of $98.7 million.

At March 31, 2022, outstanding commitments to originate loans totaled $148.3 million and undisbursed funds from approved lines of credit, home equity lines of credit and secured commercial lines of credit totaled $301.7 million.

Capital Resources

Shareholders’ equity totaled $196.2 million as of September 30, 2021, an increase of $19.6 million compared to December 31, 2020, primarily a result of (i) net income of $18.8 million for the nine months ended September 30, 2021 and (ii) a $6.2 million favorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate swaps.

Shareholders’ equity totaled $210.2 million as of March 31, 2022, an increase of $8.2 million compared to December 31, 2021, primarily a result of (i) net income of $8.2 million for the three months ended March 31, 2022 and (ii) a $4.9 million favorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate

The Company's interest rate swaps are used to hedge interest rate risk.

1 unchanged sentence

The increase in shareholders’ equity was partially offset by dividends paid of $1.6 million and common stock repurchases of $3.8 million.

As of September 30, 2021, the tangible common equity ratio and tangible book value per share were 8.70% and $25.25, respectively.

As of March 31, 2022, the tangible common equity ratio and fully diluted tangible book value per share were 8.32% and $26.75, respectively.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.

At September 30, 2021, the Bank met all capital adequacy requirements to which it was subject and exceeded the regulatory minimum capital levels to be considered well-capitalized under the regulatory framework for prompt corrective action.

At September 30, 2021, the Bank’s ratio of Common Equity Tier 1 capital to risk-weighted assets was 10.59%, total capital to risk-weighted assets was 11.44%, Tier 1 capital to risk-weighted assets was 10.59% and Tier 1 capital to average assets was 9.61%.

At March 31, 2022, the Bank met all capital adequacy requirements to which it was subject and exceeded the regulatory minimum capital levels to be considered well-capitalized under the regulatory framework for prompt corrective action.

At March 31, 2022, the Bank’s ratio of Common Equity Tier 1 capital to risk-weighted assets was 11.20%, total capital to risk-weighted assets was 12.00%, Tier 1 capital to risk-weighted assets was 11.20% and Tier 1 capital to average assets was 9.80%.

In July 2013, the Federal Reserve published Basel III rules establishing a new comprehensive capital framework of U.S.

28 unchanged sentences

Per Company policy, the Bank should not be outside these limits for twelve consecutive months unless the Bank's forecasted capital ratios are considered to be "well capitalized".

As of September 30, 2021, the Bank has met all minimum regulatory capital requirements to be considered "well capitalized" (reference footnote 7 to the consolidated financial statements for more detail).

The following tables set forth the estimated percentage change in our net interest income at risk over one-year simulation periods beginning September 30, 2021 and December 31, 2020:

As of March 31, 2022, the Bank has met all minimum regulatory capital requirements to be considered "well capitalized" (reference footnote 7 to the consolidated financial statements for more detail).

The following tables set forth the estimated percentage change in our net interest income at risk over one-year simulation periods beginning March 31, 2022 and December 31, 2021:

Parallel Ramp Estimated Percent Change in Net Interest Income

Rate Changes (basis points) September 30, 2021 December 31, 2020

Rate Changes (basis points) March 31, 2022 December 31, 2021

-100 (1.70) % (0.80) %

1 unchanged sentence

Parallel Shock Estimated Percent Change in Net Interest Income

Rate Changes (basis points) September 30, 2021 December 31, 2020

Rate Changes (basis points) March 31, 2022 December 31, 2021

-100 (3.70) % (1.70) %

2 unchanged sentences

+300 (4.50) (2.40)

The net interest income at risk simulation results indicate that, as of September 30, 2021, we remain liability sensitive.

The net interest income at risk simulation results indicate that, as of March 31, 2022, we remain liability sensitive.

The liability sensitivity is due to the fact that there are more liabilities than assets subject to repricing as market rates change.

10 unchanged sentences

Estimated Percent Change in Economic Value of Equity ("EVE")

Rate Changes (basis points) September 30, 2021 December 31, 2020

Rate Changes (basis points) March 31, 2022 December 31, 2021

-100 (12.30) % (21.40) %

7 unchanged sentences

In the minus 100 scenario above, the change in EVE of (12.3)% is outside of policy parameters, however, the Bank continues to be well-capitalized.

The result of this simulation was discussed with the ALCO and the Company has decided to not take any further action at this time as this scenario is deemed unlikely in the current interest rate environment.

The result of this simulation was discussed with the ALCO and

the Company has decided to not take any further action at this time as this scenario is deemed unlikely in the current interest rate environment.

It should be noted that the static balance sheet assumption does not necessarily reflect our expectation for future balance sheet growth, which is a function of the business environment and customer behavior.

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis