What changed in this filing

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Item 1. Financial Statements

2021-08-06 compared with 2021-05-07 · 205 added, 131 removed, 563 unchanged (37% of the section changed)

5 unchanged sentences

Interest earning deposits with other banks (restricted cash of $ 0

at March 31, 2021 and December 31, 2020)

at June 30, 2021 and December 31, 2020)

Investment securities, available for sale, at fair value

14 unchanged sentences

Principal amount $ 10,000 (less unamortized debt issuance costs of $ 0

and $ 7 at March 31, 2021 and December 31, 2020, respectively)

and $ 7 at June 30, 2021 and December 31, 2020, respectively)

Junior subordinated debentures

Principal amount $ 3,609 (less unamortized debt issuance costs of $ 24

and $ 25 at March 31, 2021 and December 31, 2020, respectively)

and $ 25 at June 30, 2021 and December 31, 2020, respectively)

Deferred compensation

5 unchanged sentences

Preferred stock, no par value:

25,000,000 shares at March 31, 2021 and December 31, 2020;

25,000,000 shares at June 30, 2021 and December 31, 2020;

issued and outstanding:

zero shares at March 31, 2021 and December 31, 2020

zero shares at June 30, 2021 and December 31, 2020

Common stock, no par value:

300,000,000 shares at March 31, 2021 and December 31, 2020;

11,988,636 shares at March 31, 2021 issued and outstanding

300,000,000 shares at June 30, 2021 and December 31, 2020;

12,007,669 shares at June 30, 2021 issued and outstanding

and 11,954,327 shares at December 31, 2020 issued and outstanding

Retained earnings

Accumulated other comprehensive income (loss), net of tax

Accumulated other comprehensive income, net of tax

Total shareholders’ equity

4 unchanged sentences

(dollars in thousands, except for per share data)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

INTEREST AND DIVIDEND INCOME

17 unchanged sentences

Gain on sales of loans, net

Gain on sale of branch, net

Total noninterest income

18 unchanged sentences

(dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

OTHER COMPREHENSIVE INCOME, before tax

11 unchanged sentences

Income (Loss)

BALANCE, March 31, 2020

Issuance of restricted stock awards

Forfeiture of restricted stock awards

Exercise of stock options

Stock-based compensation

Other comprehensive loss, net of tax

BALANCE, June 30, 2020

BALANCE, December 31, 2019

3 unchanged sentences

Stock-based compensation

Other comprehensive income

Other comprehensive income, net of tax

BALANCE, June 30, 2020

BALANCE, March 31, 2021

Issuance of restricted stock awards

Vesting of restricted stock units

Exercise of stock options

Stock-based compensation

Other comprehensive loss, net of tax

BALANCE, June 30, 2021

BALANCE, December 31, 2020

3 unchanged sentences

Stock-based compensation

Other comprehensive loss

BALANCE, March 31, 2021

Other comprehensive loss, net of tax

BALANCE, June 30, 2021

S ee accompanying Notes to Condensed Consolidated Financial Statements.

2 unchanged sentences

(dollars in thousands)

Three months ended March 31,

Six months ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES

2 unchanged sentences

Depreciation and amortization

Loss on disposition of fixed assets

(Gain) loss on disposition of fixed assets

Decrease in operating lease right-of-use assets

1 unchanged sentence

Gain on sales of loans

Proceeds from sale of loans

Net premium amortization (discount accretion) on investment securities

Stock-based compensation

Gain on sale of branch

Increase in bank-owned life insurance value

9 unchanged sentences

Maturities and calls of investment securities available-for-sale

Proceeds from sale of loans

Increase in loans receivable, net

Net cash transfer for branch sale

Purchases of premises and equipment, net

2 unchanged sentences

Net increase in demand deposits, NOW and money market, and savings

Net (decrease) increase in time deposits

Net decrease in time deposits

Net repayments from short term FHLB borrowing

Net advances from long term FHLB borrowing

Net advances from Paycheck Protection Program Liquidity Facility

Net (repayments) advances from Paycheck Protection Program Liquidity Facility

Proceeds from exercise of stock options

5 unchanged sentences

Interest paid

Income taxes paid

SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS

10 unchanged sentences

The Company is a Washington state corporation that was organized in 2003.

The Bank was incorporated and commenced operations in 1997 and is a Washington state-chartered commercial bank that is a Federal Reserve member bank.

Arlington Olympic LLC was formed in 2019 and owns the Company’s Arlington branch, which the Bank leases from the LLC.

The Bank was incorporated and commenced operations in 1997 and is a Washington state-chartered commercial bank that is a member bank of the Federal Reserve system.

Arlington Olympic LLC was formed in 2019 and owns the Company’s Arlington branch site, which the Bank leases from the LLC.

The Company provides a full range of banking products and services to small and medium-sized businesses, professionals, and individuals throughout the greater Puget Sound area through its branches in Snohomish, Island, and King Counties, the Internet, and its mobile banking application.

The Company previously announced the sale of its Freeland Branch, which was effective April 30, 2021, which brought the total branch locations to 14 .

The Bank’s main branch and the headquarters of the Bank and Company are located in Everett, Washington.

The Bank’s deposits are insured in whole or in part by the Federal Deposit Insurance Corporation (the “FDIC”).

The Bank’s main office and the headquarters of the Bank and Company are located in Everett, Washington.

The Bank’s deposits are insured to applicable legal limits by the Federal Deposit Insurance Corporation (the “FDIC”).

The Bank’s loans and deposits are primarily within the greater Puget Sound area, and the Bank’s primary funding source is deposits from customers.

The CCBX division provides banking as a service (“BaaS”) that allows our broker-dealer and digital financial service partners to offer their customers banking services.

In addition, the Bank expects to introduce a digital bank offering in collaboration with Google.

In addition, the Bank expects to introduce a digital bank offering, through our CCDB division, in collaboration with Google.

The Bank is subject to regulation and supervision by the Board of Governors of the Federal Reserve System (“Federal Reserve”) and the Washington State Department of Financial Institutions Division of Banks.

The Federal Reserve also has regulatory and supervisory authority over the Company.

As previously announced, effective at the close of business on April 30, 2021, the Freeland branch was sold to a third party financial institution that acquired certain branch assets and assumed certain branch liabilities including deposits.

The assets and liabilities of the Freeland branch that were sold in this transaction primarily consisted of $ 24.1 million in deposits, and included $ 1.9 million in loans, $ 900,000 for the branch building and $ 100,000 in cash and cash equivalents .

The transaction resulted in a net cash payment to the third party financial institution of $ 20.0 million , and a gain on sale of $ 1.3 million as a component of other noninterest income in the condensed consolidated statements of income .

Financial statement presentation - The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S.

2 unchanged sentences

Securities and Exchange Commission (“SEC”) on March 12, 2021.

Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for future periods.

Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for future periods.

Amounts presented in the consolidated financial statements and footnote tables are rounded and presented in thousands of dollars except per-share amounts, which are presented in dollars.

7 unchanged sentences

Actual results could differ significantly from those estimates.

Subsequent Events - The Company has evaluated events and transactions subsequent to March 31, 2021 for potential recognition or disclosure.

To the extent any events and conditions exist, disclosures are made regarding the nature of events and the estimated financial effects for those events and conditions.

As referenced above, the sale of the Freeland branch was effective April 30, 2021, which included approximately $ 1.9 million in loans and $ 24.1 million in deposits.

Other than the sale of the Freeland branch, the Company is not aware of any subsequent events which would require recognition or disclosure in the consolidated financial statements.

Subsequent Events - The Company has evaluated events and transactions subsequent to June 30, 2021 for potential recognition or disclosure.

To the extent any events and conditions exist, disclosures are made regarding the nature of events and the estimated

financial effects for those events and conditions.

The Company is not aware of any subsequent events which would require recognition or disclosure in the consolidated financial statements.

Reclassifications - Certain amounts reported in prior quarters' consolidated financial statements have been reclassified to conform to the current presentation with no effect on stockholders’ equity or net income.

2 unchanged sentences

Under Accounting Standards Codification (“ASC”) Subtopic 310-40, Receivables – Troubled Debt Restructurings by Creditors , a restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider.

The CARES Act specified that, to be eligible not to be considered a TDR, a loan modification must be (1) related to the COVID-19 pandemic;

The CARES Act, as amended by the Consolidated Appropriations Act, 2021, specified that, to be eligible not to be considered a TDR, a loan modification must be (1) related to the COVID-19 pandemic;

(2) executed on a loan that was not more than 30 days past due as of December 31, 2019;

and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the federal national emergency or (B) December 31, 2020 (which has since been extended to January 1, 2022 by the Consolidated Appropriations Act, 2021, as discussed below).

Additionally, under guidance from the federal bank regulatory agencies, including the Federal Reserve and the Federal Deposit Insurance Corporation, other short-term modifications made on a good faith basis in response to COVID-19 to borrowers that were current prior to any relief are not TDRs under ASC Subtopic 310-40.

and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the federal national emergency or (B) January 1, 2022.

Additionally, under guidance from the federal bank regulatory agencies, including the Federal Reserve and the FDIC, other short-term modifications made on a good faith basis in response to COVID-19 to borrowers that were current prior to any relief are not TDRs under ASC Subtopic 310-40.

These modifications include short-term modifications such as payment deferrals, fee waivers, extensions of repayment terms, or delays in payment that are insignificant.

1 unchanged sentence

See Note 4 of the Condensed Consolidated Financial Statements of this Report for disclosure of the impact to date .

Consolidated Appropriations Act, 2021.

In response to the COVID-19 pandemic, Congress, through the enactment of the Consolidated Appropriations Act, 2021 on December 27, 2020, took a series of actions to provide national emergency economic relief measures.

Such action included extending the relief offered under the CARES Act related to TDRs as a result of COVID-19 through January 1, 2022 or 60 days after the end of the national emergency declared by the President, whichever is earlier.

The suspension of GAAP is applicable for the entire term of the modification.

The Bank is applying this guidance to qualifying COVID-19 Modifications.

Recent Accounting Guidance Not Yet Effective

9 unchanged sentences

(dollars in thousands)

March 31, 2021

June 30, 2021

Available-for-sale

18 unchanged sentences

Total investment securities

The amortized cost and fair value of debt securities at March 31, 2021, by contractual maturity, are shown below.

The amortized cost and fair value of debt securities at June 30, 2021, by contractual maturity, are shown below.

Expected maturities will differ from contractual maturities because issuers or the underlying borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

3 unchanged sentences

(dollars in thousands)

March 31, 2021

June 30, 2021

Amounts maturing in

3 unchanged sentences

collateralized mortgage obligations

Investment securities with carrying values of $ 21.5 million and $ 22.0 million at March 31, 2021 and December 31, 2020, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

During the quarter ended March 31, 2021 three U.S.

Treasury Bills were purchased for a total of $ 15.0 million, to replace maturing securities.

There were no sales of securities during the three months ended March 31, 2021 or 2020.

There were no gross unrealized losses or securities in an unrealized loss position as of the quarter ended March 31, 2021, or December 31, 2020.

Investment securities with an amortized cost of $ 27.3 million and $ 22.0 million at June 30, 2021 and December 31, 2020, respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

During the quarter ended June 30, 2021, one U.S.

Treasury Bill was purchased for $ 5.0 million, to pledge as security for public funds.

During the six months

ended June 30, 2021, a total of four U.S.

Treasury Bills were purchased for a total of $ 20.0 million, to replace maturing securities and to pledge as security for public funds.

There were no sales of securities during the three or six months ended June 30, 2021 or 2020.

There were four securities with an unrealized loss as of June 30, 2021.

There were no gross unrealized losses or securities in an unrealized loss position as of December 31, 2020.

The following table shows the investments’ gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

Less Than 12 Months

12 Months or Greater

(dollars in thousands)

June 30, 2021

Available-for-sale

Treasury securities

Total investment securities

Management has evaluated the above securities and does not believe that any individual unrealized loss as of June 30, 2021, represents an other-than-temporary impairment (“OTTI”).

The decline in fair market value of these securities was generally due to changes in market interest rates since purchase and was not related to any known decline in the credit worthiness of the issuer.

Management does not intend to sell any impaired securities nor does evidence suggest that it is more likely than not that management will be required to sell any impaired securities.

Management believes there is a high probability of collecting all contractual amounts due, because the majority of the securities in the portfolio are backed by government agencies or government sponsored enterprises.

However, a recovery in value may not occur for some time, if at all, and may be delayed for greater than the one year time horizon or perhaps even until maturity.

Note 4 - Loans and Allowance for Loan Losses

9 unchanged sentences

Loans receivable

Included in commercial and industrial loans are Paycheck Protection Program (“PPP”) loans of $ 543.8 million at March 31, 2021 and $ 365.8 million at December 31, 2020.

Included in commercial and industrial loans are Paycheck Protection Program (“PPP”) loans of $ 398.0 million at June 30, 2021 and $ 365.8 million at December 31, 2020.

PPP loans are 100 % guaranteed by the Small Business Administration (“SBA”).

Also included in commercial and industrial loans as of March 31, 2021 and December 31, 2020, is $ 102.2 million and $ 65.6 million, respectively in capital call lines, provided to venture capital firms through one of our BaaS clients.

PPP loans had net deferred origination fees and premiums of $ 12.4 million as of June 30, 2021, largely contributing to the increase in net deferred origination fees and premiums, compared to December 31, 2020.

Also included in commercial and industrial loans as of June 30, 2021 and December 31, 2020, is $ 98.9 million and $ 65.6 million, respectively in capital call lines, provided to venture capital firms through one of our BaaS clients.

These loans are secured by the capital call rights and are individually underwritten to the Bank’s credit standards by our BaaS client and the underwriting is reviewed and approved by the Bank on every loan.

Included in consumer and other loans are overdrafts of $ 11,000 and $ 31,000 at March 31, 2021 and December 31, 2020, respectively.

The Company has pledged loans totaling $ 346.1 million and $ 326.8 million at March 31, 2021 and December 31, 2020, respectively, for borrowing lines at the FHLB and Federal Reserve Bank (“FRB”).

The balance of SBA and United States Department of Agriculture (“USDA”) loans and participations sold and serviced for others totaled was $ 21.6 million and $ 20.6 million at March 31, 2021 and December 31, 2020, respectively.

The balance of Main Street Lending Program (“MSLP”) loans participated and serviced totaled $ 56.3 million at March 31, 2021 and December 31, 2020.

Included in consumer and other loans are overdrafts of $ 16,000 and $ 31,000 at June 30, 2021 and December 31, 2020, respectively.

The Company has pledged loans totaling $ 202.4 million and $ 326.8 million at June 30, 2021 and December 31, 2020, respectively, for borrowing lines at the FHLB and Federal Reserve Bank.

Paycheck Protection Program Liquidity Facility (“PPPLF”) borrowings

require that an equal amount of PPP loans be pledged for any outstanding balance.

All PPPLF borrowings were paid in full as of June 30, 2021, compared to a balance of $ 153.7 million at December 31, 2020, resulting in a decrease in the amount of pledged loans as of June 30, 2021.

The PPPLF expired on July 31, 2021.

The balance of SBA and United States Department of Agriculture (“USDA”) loans and participations sold and serviced for others totaled was $ 20.0 million and $ 20.6 million at June 30, 2021 and December 31, 2020, respectively.

The balance of Main Street Lending Program (“MSLP”) loans participated and serviced totaled $ 56.3 million at June 30, 2021 and December 31, 2020.

The Company, at times, purchases individual loans at fair value as of the acquisition date.

Purchased loans with remaining balances totaled $ 18.6 million and $ 19.3 million as of March 31, 2021 and December 31, 2020, respectively.

Unamortized premiums totaled $ 302,000 and $ 306,000 as of March 31, 2021 and December 31, 2020, respectively, and are amortized into interest income over the life of the loans.

The Company has purchased participation loans with remaining balances totaling $ 46.7 million and $ 44.9 million as of March 31, 2021 and December 31, 2020, respectively.

Purchased loans with remaining balances totaled $ 15.7 million and $ 19.3 million as of June 30, 2021 and December 31, 2020, respectively.

Unamortized premiums totaled $ 253,000 and $ 306,000 as of June 30, 2021 and December 31, 2020, respectively, and are amortized into interest income over the life of the loans.

The Company has purchased participation loans with remaining balances totaling $ 46.8 million and $ 44.9 million as of June 30, 2021 and December 31, 2020, respectively.

The following is a summary of the Company’s loan portfolio segments:

7 unchanged sentences

The Company also has capital call lines which are provided to venture capital firms through one of our BaaS clients.

Also included in this category are SBA 7(a) loans, which allow small business owners to apply for financial assistance via the PPP as prescribed in the CARES Act.

These loans have a contractual rate of 1.0 %, with maturity terms of two to five years , are unsecured, 100 % guaranteed and loan proceeds may be forgiven by the U.S.

Government / SBA if used for certain purposes.

To bolster the effectiveness of the SBA’s PPP loan program, the Federal Reserve is supplying liquidity to participating financial institutions through term financing backed by PPP loans to small businesses.

The Paycheck Protection Program Liquidity Facility (“PPPLF”) extends credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value.

Also included in this category are SBA 7(a) loans, which includes PPP loans.

PPP loans have a contractual rate of 1.0 %, with maturity terms of two to five years , are unsecured, and 100 % guaranteed by the SBA.

PPP loans may be forgiven by the U.S.

Government / SBA if loan proceeds are used for certain purposes.

To bolster the effectiveness of the SBA’s PPP loan program, the Federal Reserve PPPLF supplied liquidity to participating financial institutions through term financing backed by PPP loans to small businesses.

The PPPLF, which expired on July 31, 2021, extended credit to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value.

The interest rate is 0.35 % and as PPP loans are paid down, the PPPLF borrowing line must also be paid down.

16 unchanged sentences

(dollars in thousands)

March 31, 2021

June 30, 2021

Commercial and industrial loans

18 unchanged sentences

(dollars in thousands)

March 31, 2021

June 30, 2021

Commercial and industrial loans

5 unchanged sentences

Residential real estate

The following tables summarize the Company’s average recorded investment and interest income recognized on impaired loans by loan class for the three months ended March 31, 2021 and 2020:

The following tables summarize the Company’s average recorded investment and interest income recognized on impaired loans by loan class for the three and six months ended June 30, 2021 and 2020:

Three Months Ended

March 31, 2021

March 31, 2020

June 30, 2021

June 30, 2020

Interest Income

3 unchanged sentences

Real estate loans:

Construction, land and land development

Residential real estate

Consumer loans

Commercial real estate

Six Months Ended

June 30, 2021

June 30, 2020

Interest Income

(dollars in thousands)

Commercial and industrial loans

Real estate loans:

Construction, land and land development

Residential real estate

Commercial real estate

Consumer and other loans

The Company grants restructurings in response to borrower financial difficulty, and generally provides for a temporary modification of loan repayment terms.

1 unchanged sentence

In order for a restructured loan to be considered for accrual status, the loan’s collateral coverage generally will be greater than or equal to 100 % of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow for an extended period of time, usually at least six months in duration.

No loans were restructured in the three months ended March 31, 2021 and March 31, 2020 that qualified as TDRs.

The Company has no commitments to loan additional funds to borrowers whose loans were classified as TDRs at March 31, 2021, as there were no outstanding TDRs at March 31, 2021.

Pursuant to federal guidance, the Company deferred or modified payments on existing loans to assist customers financially during the COVID-19 pandemic and economic shutdown.

There are three loans, representing $ 13.3 million in outstanding loans, that remain on deferred or modified payment status as of March 31, 2021.

In accordance with GAAP and interagency guidance issued on March 22, 2020, these short-term modifications, made on a good faith basis in response to the COVID-19 pandemic to borrowers that were current prior to any relief, are not considered troubled debt restructurings.

No loans were restructured in the three or six months ended June 30, 2021 and June 30, 2020 that qualified as TDRs.

The Company has no commitments to loan additional funds to borrowers whose loans were classified as TDRs at June 30, 2021, as there were no outstanding TDRs at June 30, 2021.

Pursuant to guidance from the federal bank regulatory agencies, the Company deferred or modified payments on existing loans to assist customers financially during the COVID-19 pandemic and economic shutdown.

There are two loans, representing $ 11.7 million in outstanding loans, that remain on deferred or modified payment status as of June 30, 2021.

In accordance with GAAP, the CARES Act, as amended by the Consolidated Appropriations Act, 2021, and interagency guidance issued on March 22, 2020 and April 7, 2020, these short-term modifications, made on a good faith basis in response to the COVID-19 pandemic to borrowers that were current prior to any relief, are not considered TDRs.

When loans are placed on nonaccrual status, all accrued interest is reversed from current period earnings.

22 unchanged sentences

(dollars in thousands)

March 31, 2021

June 30, 2021

Commercial and industrial loans

22 unchanged sentences

An estimated loss rate calculated from the Company’s actual historical loss rates adjusted for current portfolio trends, economic conditions, and other relevant internal and external factors, is applied to each group’s aggregate loan balances.

The $ 543.8 million in PPP loans as of March 31, 2021 are 100% guaranteed and were not subject to the allowance analysis or assigned an allowance.

The Company’s provision for credit losses of $ 357,000 for the three months ended March 31, 2021, is primarily the result of growth in the loan portfolio.

The $ 1.6 million provision for credit losses during the three months ended March 31, 2020, is related to an increase in qualitative factors primarily related to the uncertainties in the economic outlook from the COVID-19 pandemic and growth in the loan portfolio.

The $ 398.0 million in PPP loans as of June 30, 2021 are 100% guaranteed by the SBA and were not subject to the allowance analysis or assigned an allowance.

The Company’s provision for credit losses of $ 361,000 and $ 718,000 for the three and six months ended June 30, 2021, is primarily the result of growth in the loan portfolio.

The $ 1.9 million and $ 3.5 million provision for credit losses during the three and six months ended June 30, 2020, is related to the uncertainties in the economic outlook from the COVID-19 pandemic and growth in the loan portfolio.

The Company is not required to implement the provisions of the Current Expected Credit Loss (“CECL”) accounting standard until January 1, 2023 and is continuing to account for the allowance for loan losses under the incurred loss model.

The following tables summarize the allocation of the ALLL, as well as the activity in the ALLL attributed to various segments in the loan portfolio, as of and for the three months ended March 31, 2021:

The following tables summarize the allocation of the ALLL, as well as the activity in the ALLL attributed to various segments in the loan portfolio, as of and for the three and six months ended June 30, 2021:

Construction,

(dollars in thousands)

Three Months Ended March 31, 2021

ALLL balance, December 31, 2020

Three Months Ended June 30, 2021

Balance, March 31, 2021

Provision for loan losses or (recapture)

2 unchanged sentences

Net (charge-offs) recoveries

ALLL balance, March 31, 2021

As of March 31, 2021

Balance, June 30, 2021

Six Months Ended June 30, 2021

Balance, December 31, 2020

Provision for loan losses or (recapture)

Loans charged-off

Recoveries of loans previously charged-off

Net (charge-offs) recoveries

Balance, June 30, 2021

As of June 30, 2021

ALLL amounts allocated to

1 unchanged sentence

Collectively evaluated for impairment

ALLL balance, March 31, 2021

ALLL balance, June 30, 2021

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

Loan balance, March 31, 2021

Loan balance, June 30, 2021

Construction,

(dollars in thousands)

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

ALLL balance, March 31, 2020

Provision for loan losses or (recapture)

Loans charged-off

Recoveries of loans previously charged-off

Net (charge-offs) recoveries

ALLL balance, June 30, 2020

Six Months Ended June 30, 2020

ALLL balance, December 31, 2019

3 unchanged sentences

Net (charge-offs) recoveries

ALLL balance, March 31, 2020

As of March 31, 2020

ALLL balance, June 30, 2020

As of June 30, 2020

ALLL amounts allocated to

1 unchanged sentence

Collectively evaluated for impairment

ALLL balance, March 31, 2020

ALLL balance, June 30, 2020

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

Loan balance, March 31, 2020

Loan balance, June 30, 2020

The following table summarizes the allocation of the ALLL attributed to various segments in the loan portfolio as of December 31, 2020.

19 unchanged sentences

Total deposits

The following table presents the maturity distribution of time deposits as of March 31, 2021 (dollars in thousands):

The following table presents the maturity distribution of time deposits as of June 30, 2021 (dollars in thousands):

(dollars in thousands)

10 unchanged sentences

The Company’s leases do not provide an implicit interest rate, therefore the Company used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine the present value of operating lease liabilities.

There was one lease that renewed during the quarter ended March 31, 2021.

There was one lease that renewed during the six months ended June 30, 2021.

The Company’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately.

2 unchanged sentences

Operating lease terms include options to extend when it is reasonably certain that the Company will exercise such options, determined on a lease-by-lease basis .

As of March 31, 2021, the Company does no t have any leases that have not yet commenced.

At March 31, 2021, lease expiration dates ranged from nine months to 24 years , with additional renewal options on certain leases typically ranging from 5 to 10 years .

At March 31, 2021, the weighted average remaining lease term for the Company’s operating leases was 8.8 years.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $ 341,000 and $ 343,000 , respectively, for the three months ended March 31, 2021 and 2020.

As of June 30, 2021, the Company does no t have any leases that have not yet commenced.

At June 30, 2021, lease expiration dates ranged from six months to 23.6 years, with additional renewal options on certain leases typically ranging from 5 to 10 years .

At June 30, 2021, the weighted average remaining lease term for the Company’s operating leases was 8.7 years.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $ 341,000 and $ 334,000 , respectively, for the three months ended June 30, 2021 and 2020 and $ 682,000 and $ 678,000 for the six months ended June 30, 2021 and 2020, respectively.

Variable lease components, such as inflation adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

The following table presents the minimum annual lease payments under the terms of these leases, inclusive of renewal options that the Company is reasonably certain to renew, at March 31, 2021:

The following table presents the minimum annual lease payments under the terms of these leases, inclusive of renewal options that the Company is reasonably certain to renew, at June 30, 2021:

(dollars in thousands)

April 1, 2021 to December 31, 2021

July 1, 2021 to December 31, 2021

2026 and thereafter

2 unchanged sentences

Present value of lease liabilities

The following table presents the components of total lease expense and operating cash flows for the three months ended March 31, 2021:

The following table presents the components of total lease expense and operating cash flows for the three and six months ended June 30, 2021 and 2020:

Three Months Ended

Six Months Ended

(dollars in thousands)

7 unchanged sentences

The equipment is recorded as fixed assets on the Company’s balance sheet and depreciation expense is recognized on a straight-line basis over the term of the lease.

Depreciation expense was $ 33,000 for the three months ended March 31, 2021, with $ 599,000 remaining as of March 31, 2021.

This capital lease began in October 2020, therefore there was no depreciation expense for the ATM capital lease as of March 31, 2020.

Depreciation expense was $ 33,000 and $ 66,000 for the three and six months ended June 30, 2021, with $ 565,000 remaining as of June 30, 2021.

This capital lease began in October 2020, therefore there was no depreciation expense for the ATM capital lease as of June 30, 2020.

Note 7 - Stock-Based Compensation

2 unchanged sentences

The 2018 Plan authorizes the Company to grant awards, including but not limited to, stock options, restricted stock units, and restricted stock awards, to eligible employees, directors or individuals that provide service to the Company, up to an aggregate of 500,000 shares of common stock.

The 2018 Plan replaces both the Company’s 2006 Stock Option and Equity Compensation Plan (“2006 Plan”) and its Directors’ Stock Bonus Plan.

On May 24, 2021, the Company’s shareholders approved the First Amendment to the 2018 Plan, which increased the authorized plan shares by 600,000 .

The 2018 Plan replaced both the Company’s 2006 Stock Option and Equity Compensation Plan (“2006 Plan”) and its Directors’ Stock Bonus Plan.

Existing awards under the previous plans will vest under the terms granted and no further awards will be made under these plans.

Shares available to be granted under the 2018 Plan totaled 175,304 at March 31, 2021.

Shares available to be granted under the 2018 Plan totaled 769,928 at June 30, 2021.

Stock Option Awards

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model.

Expected volatilities are based on historical volatility of the Company’s stock and other factors.

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Compensation expense related to unvested stock option awards is reversed at date of forfeiture.

There were no new stock options granted in the three months ended March 31, 2021 and 2020.

A summary of stock option activity under the 2018 Plan and 2006 Plan during the three months ended March 31, 2021:

There were no new stock options granted in the three and six months ended June 30, 2021 and 2020.

A summary of stock option activity under the 2018 Plan and 2006 Plan during the six months ended June 30, 2021:

Intrinsic Value

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Forfeited or expired

Outstanding at March 31, 2021

Vested or expected to vest at March 31, 2021

Exercisable at March 31, 2021

The total or aggregate intrinsic value (which is the amount by which the stock price exceeds the exercise price) of options exercised during the three months ended March 31, 2021 and 2020, was $ 357,000 and $ 91,000 , respectively.

As of March 31, 2021, there was $ 1.8 million of total unrecognized compensation cost related to nonvested stock options granted under the 2018 Plan and 2006 Plan.

Outstanding at June 30, 2021

Vested or expected to vest at June 30, 2021

Exercisable at June 30, 2021

The total or aggregate intrinsic value (which is the amount by which the stock price exceeds the exercise price) of options exercised during the three and six months ended June 30, 2021 $ 317,000 and $ 674,000 , respectively, and was $ 3,000 and $ 94,000 for the three and six months ended June 30, 2020, respectively.

As of June 30, 2021, there was $ 1.7 million of total unrecognized compensation cost related to nonvested stock options granted under the 2018 Plan and 2006 Plan.

Total unrecognized compensation costs are adjusted for unvested forfeitures.

The Company expects to recognize that cost over a weighted-average period of approximately 6.3 years.

Compensation expense recorded related to stock options was $ 89,000 and $ 94,000 for the three months ended March 31, 2021 and 2020, respectively.

Compensation expense recorded related to stock options was $ 92,000 and $ 181,000 for the three and six months ended June 30, 2021, respectively and $ 92,000 and $ 187,000 for the three and six months ended June 30, 2020, respectively.

Restricted Stock Units

In January 2021, the Company granted 84,258 restricted stock units under the 2018 Plan to employees, which vest ratably over 5 years.

In April 2021, the Company granted 1,000 restricted stock units under the 2018 Plan to an employee, which vest ratably over 5 years.

The fair value of restricted stock units is equal to the fair value of the Company’s stock at the date of grant.

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Restricted stock units are nonparticipating securities.

As of March 31, 2021, there was $ 3.1 million of total unrecognized compensation cost related to nonvested restricted stock units.

As of June 30, 2021, there was $ 3.0 million of total unrecognized compensation cost related to nonvested restricted stock units.

The Company expects to recognize that cost over the remaining weighted-average vesting period of approximately 6.1 years.

Compensation expense recorded related to restricted stock units was $ 101,000 and $ 23,000 for the three months ended March 31, 2021 and 2020, respectively.

A summary of the Company’s nonvested shares at March 31, 2021 and changes during the three-month period is presented below:

Compensation expense recorded related to restricted stock units was $ 133,000 and $ 234,000 for the three and six months ended June 30, 2021, respectively and $ 34,000 and $ 57,000 for the three and six months ended June 30, 2020, respectively.

A summary of the Company’s nonvested shares at June 30, 2021 and changes during the six-month period is presented below:

Nonvested shares

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Nonvested shares at December 31, 2020

Nonvested shares at March 31, 2021

Nonvested shares at June 30, 2021

Restricted Stock Awards

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Restricted stock awards are participating securities.

As of March 31, 2021, there was $ 61,000 of total unrecognized compensation cost related to nonvested restricted stock awards.

As of June 30, 2021, there was $ 59,000 of total unrecognized compensation cost related to nonvested restricted stock awards.

The Company expects to recognize that cost over the remaining weighted-average vesting period of approximately 6.6 years.

Compensation expense recorded related to restricted stock awards was $ 127,000 and $ 3,000 for the three months ended March 31, 2021 and 2020, respectively.

Director’s Stock Bonus

Compensation expense recorded related to restricted stock awards was $ 2,000 and $ 129,000 for the three and six months ended June 30, 2021, respectively and $ 1,000 and $ 3,000 for the three and six months ended June 30, 2020, respectively.

Director’s Stock Compensation

Stock was previously granted to directors who attended at least 75 % of the scheduled board meetings during the prior year.

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During the vesting period, the grants are considered participating securities.

Under the 2018 Plan, eligible directors are granted stock with a total market value of $ 15,000 , and the Board Chair is granted stock with a total market value of $ 25,000 .

Eligible directors are now granted stock with a total market value of $ 15,000 , and the Board Chair is granted stock with a total market value of $ 25,000 .

Stock will be granted as of each annual meeting date and will cliff vest one day prior to the next annual meeting date.

For stock granted in 2020, $ 5,000 is subject to a two-year cliff vesting period, and the remaining stock will cliff vest one day prior to the next annual meeting date.

For stock granted in 2020, $ 5,000 was subject to a two-year cliff vesting period, and the remaining stock cliff vested one day prior to this year’s annual meeting date.

Directors unable to receive stock will receive cash in lieu upon completion of the vesting period.

Cash awards are recognized over the vesting period and recorded in other liabilities until paid.

No new shares have been granted for the three months ended March 31, 2021.

Compensation expense recorded related to the 2018 Plan totaled $ 46,000 and $ 9,000 for the three months ended March 31, 2021 and 2020, respectively.

A summary of the Company’s nonvested shares at March 31, 2021 and changes during the three-month period is presented below:

On May 24, 2021, 4,736 new shares were granted to nine directors at an estimated fair value of $ 30.67 per share, and will cliff vest one day prior to the 2022 annual shareholder meeting date.

Director compensation expense recorded related to the 2018 Plan totaled $ 44,000 and $ 90,000 for the three and six months ended June 30, 2021, respectively and $ 9,000 and $ 18,000 for the three and six months ended June 30, 2020, respectively.

A summary of the Company’s nonvested shares at June 30, 2021 and changes during the six-month period is presented below:

Nonvested shares

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Nonvested shares at December 31, 2020

Nonvested shares at March 31, 2021

Nonvested shares at June 30, 2021

Note 8 - Fair Value Measurements

The following tables present estimated fair values of the Company’s financial instruments as of the period indicated, whether or not recognized or recorded in the consolidated balance sheets at the period indicated:

March 31, 2021

June 30, 2021

Fair Value Measurements Using

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FHLB advances

Paycheck Protection Program Liquidity Facility

Subordinated debt

37 unchanged sentences

(dollars in thousands)

March 31, 2021

June 30, 2021

Available-for-sale

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Investment securities - The fair value of securities is based on quoted market prices, pricing models, quoted prices of similar securities, independent pricing sources, and discounted cash flows.

The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2021 and December 31, 2020.

The fair value estimates presented herein are based on pertinent information available to management as of June 30, 2021 and December 31, 2020.

The factors used in the fair values estimates are subject to change subsequent to the dates the fair value estimates are completed, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

3 unchanged sentences

Unobservable Inputs

March 31, 2021

June 30, 2021

December 31, 2020

4 unchanged sentences

(dollars in thousands)

March 31, 2021

June 30, 2021

Impaired loans

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Three Months Ended

March 31, 2021

March 31, 2020

Six Months Ended

June 30, 2021

June 30, 2020

June 30, 2021

June 30, 2020

(dollars in thousands, except share data)

Basic weighted average number common shares outstanding

Dilutive effect of share-based compensation

Diluted weighted average number common shares outstanding

Dilutive effect of equity-based awards

Diluted weighted average number common shares

Basic earnings per share

3 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 1. Financial Statements