What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-08 compared with 2022-05-06 · 176 added, 85 removed, 316 unchanged (45% of the section changed)

28 unchanged sentences

Earnings and Performance Overview

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.

For the three months ended June 30, 2022, net interest income was $23.8 million, an increase of $7.2 million or 43.7% when compared to the same period in 2021.

For the six months ended June 30, 2022, net interest income was $43.3 million, an increase of $12.1 million or 38.7% when compared to the same period in 2021.

The increase in net interest income for the three and six months ended June 30, 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.

The increase in loan yields was aided by loan prepayment fees, which totaled $1.8 million for the quarter ended June 30, 2022, compared to $0.8 million for the quarter ended June 30, 2021.

Noninterest income decreased $0.3 million to $1.2 million for the three months ended June 30, 2022 compared to the same period in 2021.

Noninterest income decreased $1.3 million to $2.1 million for the six months ended June 30, 2022 compared to the same period in 2021.

The decrease in noninterest income was driven by a reduction in loan sales for the three and six months ended June 30, 2022 when compared to the same periods in the prior year.

Loan sales decreased $0.2 million and $0.1 million for the three and six months ended June 30, 2022, respectively.

In addition, noninterest income declined due to the absence of rental income recognized during the three and six months ended June 30, 2021, as a result of the disposition of the Company's former headquarters building.

Noninterest income also declined for the six months ended June 30, 2022 due to a one-time federal payroll tax credit for COVID-19 of $0.9 million recognized in the three months ended March 31, 2021.

Net income available to common shareholders was $12.0 million, or $1.55 per diluted share, and $6.2 million, or $0.79 per diluted share, for the three months ended June 30, 2022 and 2021, respectively.

Net income available to common shareholders was $20.2 million, or $2.58 per diluted share, and $11.9 million, or $1.50 per diluted share, for the six months ended June 30, 2022 and 2021, respectively.

The increase in net income was primarily impacted by the aforementioned increases in net interest income and a decrease in the provision for loan losses primarily driven by the release of specific reserves on impaired loans that showed improved performance or paid off, partially offset by a decrease in the aforementioned noninterest income.

Returns on average shareholders' equity and average assets for the three months ended June 30, 2022 were 22.09% and 1.96%, respectively, compared to 13.06% and 1.11%, respectively, for the three months ended June 30, 2021.

Returns on average shareholders' equity and average assets for the six months ended June 30, 2022 were 19.16% and 1.65%, respectively, compared to 12.87% and 1.07%, respectively, for the six months ended June 30, 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 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 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.

FTE net interest income for the three months ended June 30, 2022 and 2021 was $23.9 million and $16.6 million, respectively.

FTE net interest income for the six months ended June 30, 2022 and 2021 was $43.4 million and $31.3 million, respectively.

FTE interest income for the three months ended June 30, 2022 increased by $6.3 million, or 31.1%, to $26.4 million, compared to FTE interest income for the three months ended June 30, 2021.

FTE interest income for the six months ended June 30, 2022 increased by $9.8 million, or 25.1%, to $48.8 million, compared to FTE interest income for the six months ended June 30, 2021.

This increase was due to an increase in interest and fees on loans due to loan growth and higher overall loan yields.

The increase in loan yields was aided by loan prepayment fees, which totaled $1.8 million for the quarter ended June 30, 2022, compared to $0.8 million for the quarter ended June 30, 2021.

Interest expense for the three months ended June 30, 2022 decreased by $1.0 million, or 27.7%, compared to interest expense for the three months ended June 30, 2021.

Interest expense for the six months ended June 30, 2022 decreased by $2.3 million, or 30.2%, compared to interest expense for the six months ended June 30, 2021.

This decrease was due to lower interest rates on deposits.

The net interest margin increased by 89 basis points to 4.01% for the three months ended June 30, 2022, compared to the three months ended June 30, 2021 and the net interest margin increased by 72 basis points to 3.65% for the six months ended June 30, 2022, compared to the six months ended June 30, 2021.

The increase in the net interest margin was due to lower interest expense from a decrease in rates on interest bearing deposits, elevated loan prepayment fees, and 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 months ended March 31, 2022 and 2021.

Three Months Ended March 31,

Three Months Ended June 30,

(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 $49 thousand and $50 thousand for the three months ended March 31, 2022 and 2021, respectively.

(2) The adjustment for securities and loans taxable equivalency amounted to $50 thousand and $50 thousand for the three months ended June 30, 2022 and 2021, 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.

Six Months Ended June 30,

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

Average Balance Interest Yield / Rate (4)

Cash and Fed funds sold $ 296,239 $ 603 0.41 % $ 368,779 $ 198 0.11 %

Securities (1)

115,452 1,563 2.71 102,252 1,549 3.03

Commercial real estate 1,393,836 32,273 4.61 1,146,258 26,354 4.57

Residential real estate 70,125 1,224 3.49 109,003 1,996 3.66

Construction 104,176 2,971 5.67 102,459 1,916 3.72

Commercial business 388,249 9,954 5.10 295,682 6,763 4.55

Consumer 5,666 147 5.25 6,956 137 3.96

Total loans 1,962,052 46,569 4.72 1,660,358 37,166 4.45

Federal Home Loan Bank stock 3,051 29 1.94 5,356 56 2.11

Total earning assets 2,376,794 $ 48,764 4.08 % 2,136,745 $ 38,969 3.64 %

Other assets 89,866 115,718

Total assets $ 2,466,660 $ 2,252,463

Liabilities and shareholders' equity:

Interest bearing liabilities:

NOW $ 124,361 $ 106 0.17 % $ 109,990 $ 97 0.18 %

Money market 950,131 2,326 0.49 759,435 1,891 0.50

Savings 196,400 204 0.21 164,630 217 0.27

Time 452,676 1,553 0.69 574,876 3,653 1.28

Total interest bearing deposits 1,723,568 4,189 0.49 1,608,931 5,858 0.73

Borrowed money 84,770 1,144 2.68 126,886 1,777 2.79

Total interest bearing liabilities 1,808,338 $ 5,333 0.59 % 1,735,817 $ 7,635 0.89 %

Noninterest bearing deposits 406,707 284,226

Other liabilities 38,683 45,756

Total Liabilities 2,253,728 2,065,799

Shareholders' equity 212,932 186,664

Total liabilities and shareholders' equity $ 2,466,660 $ 2,252,463

Net interest income (2)

$ 43,431 $ 31,334

Interest rate spread 3.49 % 2.75 %

Net interest margin (3)

3.65 % 2.93 %

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

(2) The adjustment for securities and loans taxable equivalency amounted to $98 thousand and $100 thousand for the six months ended June 30, 2022 and 2021, 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.

Effect of changes in interest rates and volume of average earning assets and average interest bearing liabilities

5 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 March 31, 2022 vs 2021

Three Months Ended June 30, 2022 vs 2021

Increase (Decrease) Six Months Ended June 30, 2022 vs 2021

Increase (Decrease)

(In thousands) Volume Rate Total

(In thousands) Volume Rate Total Volume Rate Total

Interest and dividend income:

10 unchanged sentences

Interest expense:

NOW 8 (3) 5 12 (3) 9

Money market 183 22 205 467 (32) 435

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 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.

The credit for loan losses for the three months ended June 30, 2022 was $1.4 million compared to a credit for loan losses of $20.0 thousand for the three months ended June 30, 2021.

The credit for loan losses for the six months ended June 30, 2022 was $1.2 million compared to a credit for loan losses of $0.3 million for the six months ended June 30, 2021.

The decrease in the provision for loan losses for the three and six months ended June 30, 2022 was primarily driven by the release of specific reserves on impaired loans that showed improved performance or paid off.

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

The following tables compare noninterest income for the three and six months ended June 30, 2022 and 2021:

Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2022 2021 $ %

4 unchanged sentences

Total noninterest income $ 1,152 $ 1,440 $ (288) (20.0) %

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.

Six Months Ended

June 30, Change

(Dollars in thousands) 2022 2021 $ %

Gains and fees from sales of loans $ 1,239 $ 1,327 $ (88) (6.6) %

Bank-owned life insurance 525 482 43 8.9

Service charges and fees 489 416 73 17.5

Other (143) 1,170 (1,313) (112.2)

Total noninterest income $ 2,110 $ 3,395 $ (1,285) (37.8) %

Noninterest income decreased by $0.3 million to $1.2 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Noninterest income decreased by $1.3 million to $2.1 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

The decrease in noninterest income was driven by a reduction in loan sales for the three and six months ended June 30, 2022 when compared to the same periods in the prior year.

Loan sales decreased $0.2 million and $0.1 million for the three and six months ended June 30, 2022, respectively.

Noninterest income also declined for the six months ended June 30, 2022 due to a one-time federal payroll tax credit for COVID-19 of $0.9 million recognized in the quarter ended March 31, 2021.

Noninterest Expense

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

The following tables compare noninterest expense for the three and six months ended June 30, 2022 and 2021:

Three Months Ended

March 31, Change

June 30, Change

(Dollars in thousands) 2022 2021 $ %

5 unchanged sentences

FDIC insurance 262 300 (38) (12.7)

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

Marketing 107 140 (33) (23.6)

Other 913 695 218 31.4

Total noninterest expense $ 10,936 $ 10,052 $ 884 8.8 %

(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.

Six Months Ended

June 30, Change

(Dollars in thousands) 2022 2021 $ %

Salaries and employee benefits $ 10,373 $ 8,729 $ 1,644 18.8 %

Occupancy and equipment 4,343 5,656 (1,313) (23.2)

Professional services 1,981 1,134 847 74.7

Data processing 1,343 1,345 (2) (0.1)

Director fees 691 644 47 7.3

FDIC insurance 485 703 (218) (31.0)

Marketing 152 131 21 16.0

Other 1,493 1,348 145 10.8

Total noninterest expense $ 20,861 $ 19,690 $ 1,171 5.9 %

Noninterest expense increased by $0.9 million to $10.9 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Noninterest expense increased by $1.2 million to $20.9 million for the six months ended June 30, 2022 compared to the six months ended June 30, 2021.

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

Salaries and employee benefits expense totaled $5.4 million for the quarter ended June 30, 2022, an increase of $1.5 million when compared to the same period in 2021.

Salaries and employee benefits expense totaled $10.4 million for the six months ended June 30, 2022, an increase of $1.6 million when compared to the same period in 2021.

The increase in salaries and employee benefits expense was primarily driven by an increase in full time equivalent employees.

Full time equivalent employees totaled 132 at June 30, 2022 compared to 125 for the same period in 2021.

Average full time equivalent employees totaled 128 for the six months ended June 30, 2022 compared to 124 for the same period in 2021.

The increase in salaries and employee benefits expense was also impacted by an increase in variable compensation accruals as a result of the Bank's overall improved performance.

The increase in salaries and employee benefits expense was partially offset by increased expense deferrals driven by higher loan originations.

Professional services expense totaled $1.0 million for the quarter ended June 30, 2022, an increase of $0.5 million when compared to the same period in 2021.

Professional services expense totaled $2.0 million for the six months ended June 30, 2022, an increase of $0.8 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.

Occupancy and equipment expense totaled $2.2 million for the quarter ended June 30, 2022, a decrease of $1.1 million when compared to the same period in 2021.

Occupancy and equipment expense totaled $4.3 million for the six months ended June 30, 2022, a decrease of $1.3 million when compared to the same period in 2021.

The decrease in occupancy and equipment expense was primarily driven by the curtailment of additional cleaning costs associated with precautions taken to prevent the spread of COVID-19 during the six months ended June 30, 2021.

Income tax expense for the three months ended June 30, 2022 and 2021 totaled $3.5 million and $1.8 million, respectively.

The effective tax rates for the three months ended June 30, 2022 and 2021 were 22.4% and 22.0%, respectively.

Income tax expense for the six months ended June 30, 2022 and 2021 totaled $5.6 million and $3.3 million, respectively.

The effective tax rates for the six months ended June 30, 2022 and 2021 were 21.6% and 21.9%, respectively.

Financial Condition

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.

At June 30, 2022 total assets were $2.4 billion, a $20.7 million, or 0.8% decrease, compared to December 31, 2021.

The decrease in assets was primarily due to a decrease in deposits while excess liquidity funded additional loan growth.

Gross loans totaled $2.1 billion at June 30, 2022, an increase of $161.7 million compared to December 31, 2021.

Deposits totaled $2.0 billion at June 30, 2022, compared to $2.1 billion at December 31, 2021.

Total shareholders’ equity at June 30, 2022 and December 31, 2021 was $225.5 million and $202.0 million, respectively.

The increase in shareholders' equity was primarily driven by (i) net income of $20.2 million for the six months ended June 30, 2022 and (ii) an $8.9 million favorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate swaps, partially offset by fair value marks on the Company's investment portfolio.

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

The Company's current interest rate swap positions will cause a decrease to other comprehensive income in a falling interest rate environment and an increase in a rising interest rate environment.

The increase in Shareholders’ equity was partially offset by dividends paid of $3.1 million and common stock repurchases of $3.8 million.

2 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 $1.99 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.

Total loans before deferred loan fees and the allowance for loan losses were $2.06 billion at June 30, 2022 and $1.89 billion at December 31, 2021.

Total gross loans increased $161.7 million as of June 30, 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 March 31, 2022 At December 31, 2021 Change

(In thousands) At June 30, 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 March 31, 2022 At December 31, 2021

(In thousands) At June 30, 2022 At December 31, 2021

Nonaccrual loans:

10 unchanged sentences

Total past due loans to total gross loans 1.40 % 1.72 %

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.

Nonperforming assets totaled $15.3 million and represented 0.63% of total assets at June 30, 2022, compared to $16.6 million and 0.68% of total assets at December 31, 2021.

Nonaccrual loans totaled $15.3 million at June 30, 2022 and $16.6 million at December 31, 2021.

There was no other real estate owned at June 30, 2022 or December 31, 2021.

Past due loans decreased to $28.8 million, or 1.40% of total loans, as of June 30, 2022, compared to $32.6 million, or 1.72% of total loans, as of December 31, 2021.

As of June 30, 2022, past due loans include one $10.5 million commercial real estate loan, representing 0.51% of total loans, that had reached maturity and is in active negotiations to be refinanced.

Allowance for Loan Losses

9 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(Dollars in thousands) 2022 2021 2022 2021

1 unchanged sentence

Commercial real estate — (3,814) — (3,977)

Commercial business — (51) — (51)

Consumer — (4) (4) (18)

Total charge-offs — (3,869) (4) (4,046)

Commercial real estate 77 — 77 —

Commercial business — 16 13 16

Consumer — — 1 9

Total recoveries 77 16 91 25

Net recoveries (charge-offs) 77 (3,853) 87 (4,021)

Provision (credit) charged to earnings 229 (296)

Credit charged to earnings (1,445) (20) (1,216) (316)

Balance at end of period $ 15,773 $ 16,672 $ 15,773 $ 16,672

1 unchanged sentence

Allowance for loan losses to total gross loans 0.77 % 0.96 % 0.77 % 0.96 %

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.

At June 30, 2022, our allowance for loan losses was $15.8 million and represented 0.77% 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 March 31, 2022 At December 31, 2021

At June 30, 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 $ 15,773 100.00 % $ 16,902 100.00 %

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.

The allocation of the allowance for loan losses at June 30, 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 June 30, 2022 is appropriate to cover probable losses.

Reserve for Unfunded Commitments

4 unchanged sentences

Investment Securities

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.

At June 30, 2022, the carrying value of our investment securities portfolio totaled $113.0 million and represented 4.6% 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 June 30, 2022 was $5.0 million and included gross unrealized losses of $5.5 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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(Dollars in thousands) Amount Percent Amount Percent

5 unchanged sentences

Total deposits $ 2,033,525 100.00 % $ 2,123,998 100.00 %

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.

Total deposits were $2.0 billion at June 30, 2022, a decrease of $90.5 million, from the balance at December 31, 2021.

The decrease in deposits is primarily a result of seasonal fluctuations in several municipal and commercial deposit relationships.

Brokered certificates of deposits totaled $299.4 million at June 30, 2022 and $249.4 million at December 31, 2021.

There were no certificates of deposits from national listing services at June 30, 2022 or December 31, 2021.

Brokered money market accounts totaled $50.0 million at June 30, 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 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

At June 30, 2022 and December 31, 2021, time deposits with a denomination of $100 thousand or more, including CDARS and other brokered deposits, totaled $418.5 million and $391.2 million, respectively, maturing during the periods indicated in the table below:

(Dollars in thousands) June 30, 2022 December 31, 2021

Within 3 months $ 113,511 $ 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 $50.0 million and $50.0 million at March 31, 2022 and December 31, 2021, respectively.

Total FHLB advances were $105.0 million and $50.0 million at June 30, 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 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.

At June 30, 2022, the Bank had pledged $731.9 million of eligible loans as collateral to support borrowing capacity at the FHLB of Boston.

As of June 30, 2022, the Bank had immediate availability to borrow an additional $286.0 million based on qualified collateral.

Liquidity and Capital Resources

13 unchanged sentences

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

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.

As of June 30, 2022, the Company had cash and cash equivalents of $171.0 million and available-for-sale securities of $94.9 million.

At June 30, 2022, outstanding commitments to originate loans totaled $181.2 million and undisbursed funds from approved lines of credit, home equity lines of credit and secured commercial lines of credit totaled $336.6 million.

Capital Resources

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.

The Company's current interest rate swap positions will cause a decrease to other comprehensive income in a falling interest rate environment and an increase in a rising interest rate environment.

Shareholders’ equity totaled $225.5 million as of June 30, 2022, an increase of $23.5 million compared to December 31, 2021, primarily a result of (i) net income of $20.2 million for the six months ended June 30, 2022 and (ii) an $8.9 million favorable impact to accumulated other comprehensive income driven by fair value marks related to hedge positions involving interest rate swaps, partially offset by fair value marks on the Company's investment portfolio.

The Company's interest rate swaps are used

to hedge interest rate risk.

The increase in shareholders’ equity was partially offset by dividends paid of $3.1 million and common stock repurchases of $3.8 million.

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.

As of June 30, 2022, the tangible common equity ratio and fully diluted tangible book value per share were 9.16% and $28.75, 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 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%.

At June 30, 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 June 30, 2022, the Bank’s ratio of Common Equity Tier 1 capital to risk-weighted assets was 11.10%, total capital to risk-weighted assets was 11.80%, Tier 1 capital to risk-weighted assets was 11.10% and Tier 1 capital to average assets was 10.15%.

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 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:

As of June 30, 2022, the Bank 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 June 30, 2022 and December 31, 2021:

Parallel Ramp Estimated Percent Change in Net Interest Income

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

Rate Changes (basis points) June 30, 2022 December 31, 2021

-100 (1.80) % (0.80) %

1 unchanged sentence

Parallel Shock Estimated Percent Change in Net Interest Income

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

Rate Changes (basis points) June 30, 2022 December 31, 2021

-100 (4.20) % (1.70) %

2 unchanged sentences

+300 (8.50) (2.40)

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

The net interest income at risk simulation results indicate that, as of June 30, 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) March 31, 2022 December 31, 2021

Rate Changes (basis points) June 30, 2022 December 31, 2021

-100 (7.70) % (21.40) %

6 unchanged sentences

ALCO has modeled increased costs of deposits in the rising rate simulation scenarios presented above.

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.

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