What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 246 added, 160 removed, 520 unchanged (44% of the section changed)

5 unchanged sentences

Such forward-looking statements are inherently subject to many uncertainties in the Company’s operations and business environment.

Factors that could affect actual results or outcomes include the matters described under the caption “Risk Factors” in Item 1A of our annual report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 8, 2021 (“2020 10-K”), the matters described in “Risk Factors” in Item 1A of our Form 10Q and the following:

• conditions in the financial markets and economic conditions generally;

28 unchanged sentences

The forward-looking statements made herein are only made as of the date of this filing and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances occurring after the date of this report.

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of March 31, 2021, and our consolidated results of operations for the three months ended March 31, 2021, compared to the same period in the prior fiscal year for the three months ended March 31, 2020.

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of June 30, 2021, and our consolidated results of operations for the three and six months ended June 30, 2021, compared to the same period in the prior fiscal year for the three and six months ended June 30, 2020.

This discussion should be read in conjunction with the interim consolidated financial statements and the condensed notes thereto included with this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the financial statements and notes related thereto included in our 2020 10-K.

24 unchanged sentences

The Company does not amortize goodwill, but reviews goodwill for impairment at a reporting unit level on an annual basis, or when events or changes in circumstances indicate that the carrying amounts may be impaired.

A reporting unit is defined as any distinct, separately identifiable component of the Company’s one operating segment for which complete, discrete financial information is available and reviewed regularly by the segment’s management.

The Company has one reporting unit as of March 31, 2021 which is related to its banking activities.

The Company performed the required goodwill

impairment test and determined that goodwill was not impaired as of December 31, 2020.

The Company performed a goodwill impairment analysis as of March 31, 2021 and determined that goodwill was not impaired.

A reporting unit is

defined as any distinct, separately identifiable component of the Company’s one operating segment for which complete, discrete financial information is available and reviewed regularly by the segment’s management.

The Company has one reporting unit as of June 30, 2021, which is related to its banking activities.

The Company performed the required goodwill impairment test and determined that goodwill was not impaired as of December 31, 2020.

Fair Value Measurements and Valuation Methodologies.

18 unchanged sentences

We believe that the deferred tax assets and liabilities are adequate and properly recorded in the accompanying consolidated financial statements.

As of March 31, 2021, management does not believe a valuation allowance related to the realizability of its deferred tax assets is necessary.

As of June 30, 2021, management does not believe a valuation allowance related to the realizability of its deferred tax assets is necessary.

STATEMENT OF OPERATIONS ANALYSIS

6 unchanged sentences

Net interest margin currently exceeds interest rate spread because non-interest-bearing sources of funds (“net free funds”), principally demand deposits and stockholders’ equity, also support interest earning assets.

The narrative below discusses net interest income, interest rate spread, and net interest margin for the three-month periods ended March 31, 2021 and March 31, 2020, respectively.

Net interest income was $12.8 million for the three months ended March 31, 2021, compared to $12.7 million for the three months ended March 31, 2020.

For the three months ended March 31, 2021, net interest income benefited from the accretion of $1.75 million of deferred fees related to SBA Paycheck Protection Program (“PPP”) loans and organic loan growth from March 31, 2020, partially offset by lower accretion associated with reductions in purchase credit impaired loans.

In addition, net interest income for the quarter ended March 31, 2021 was negatively impacted by:

(1) Federal Reserve actions to offset the impact of the pandemic in March 2020, during which it lowered overnight interest rates by 125 basis points in 6 days;

and (2) market reactions to decreasing longer-term interest rates on loans, investments and cash and cash equivalents security yields;

partially offset by lower deposit rates due to management action to reduce interest rates.

The net interest margin for the three-month period ended March 31, 2021 was 3.31%, compared to 3.64% for the three-month period ended March 31, 2020.

The narrative below discusses net interest income, interest rate spread, and net interest margin for the three and six-month periods ended June 30, 2021, and June 30, 2020, respectively.

Net interest income was $12.8 million for the three months ended June 30, 2021 and $25.6 million for the six months ended June 30, 2021, compared to $12.3 million for the three months ended June 30, 2020 and $25.0 million for the six months ended June 30, 2020.

For the three and six months ended June 30, 2021, net interest income benefited from:

1) the accretion of $1.31 million and $3.06 million, respectively, of deferred fees related to the SBA Paycheck Protection Program (“SBA PPP”) loans, compared to $0.5 million for both the three and six months ended June 30, 2020;

2) lower liability costs;

and 3) organic loan growth from June 30, 2020.

Net interest income for the three and six months ended June 30, 2021 was negatively impacted by:

1) lower accretion associated with reductions in purchased credit impaired loans;

2) the impact of Federal Reserve actions to offset the impact of the pandemic in March 2020, during which it lowered overnight interest rates by 125 basis points in 6 days;

and 3) market reactions to decreasing longer-term interest rates on loans, investments and cash and cash equivalent security yields.

The net interest margin for the three-month period ended June 30, 2021, was 3.22%, compared to 3.34% for the three-month period ended June 30, 2020.

The net interest margin decreased due to:

1) a 19 basis point increase in SBA PPP deferred loan fee accretion and 2) 6 basis points of lower liability costs in the three months ended June 30, 2021, compared to the three months ended June 2020.

These increases were more than offset by decreases in net interest margin largely due to:

1) the impact of higher cash and cash equivalent balances, which decreased the interest margin percentage by 12 basis points;

2) 7 basis points of lower accretion associated with reductions in purchased credit impaired loans;

and 3) market reactions to decreasing longer-term interest rates and the related impact on yields on loans, investments and cash and cash equivalent security yields.

The net interest margin for the six-month period ended June 30, 2021 was 3.26%, compared to 3.48% for the six-month period ended June 30, 2020.

The decrease in net interest margin was largely due to:

(1) the impact of the Federal Reserve actions to offset the impact of the pandemic in March 2020, during which it lowered overnight interest rates by 125 basis points in 6 days (2) market reactions to decreasing longer-term interest rates on loans, investments and cash and cash equivalents security yields, (3) 26 basis points of lower accretion associated with reduction in purchase credit impaired loans and (4) the impact of higher cash and cash equivalents balances decreased the interest margin percentage by 21 basis points.

These were partially offset by lower deposit rates due to management action to reduce interest rates and 45 basis of higher SBA PPP accretion.

1) 14 basis points of lower accretion associated with reductions in purchased credit impaired loans;

2) the impact of higher cash and cash equivalent balances, which decreased the interest margin percentage by 17 basis points;

3) the impact of Federal Reserve actions to offset the impact of the pandemic in March 2020, during which it lowered overnight interest rates by 125 basis points in 6 days;

and 4) market reactions to lower yields on new originations of loans, purchases of investments and reduced yields on cash and cash equivalents.

These decreases were partially offset by lower deposit rates due to management action to reduce interest rates on deposits and a 36 basis point increase in loans due to higher SBA PPP deferred loan fee accretion.

Average Balances, Net Interest Income, Yields Earned and Rates Paid.

The following net interest income analysis table presents interest income from average interest earning assets, expressed in dollars and yields, and interest expense on average interest-bearing liabilities, expressed in dollars and rates on a tax equivalent basis.

Shown below is the weighted average tax equivalent yield on interest earning assets, rates paid on interest-bearing liabilities and the resultant spread at or during the three month periods ended March 31, 2021 and March 31, 2020.

Shown below is the weighted average tax equivalent yield on interest earning assets, rates paid on interest-bearing liabilities and the resultant spread at or during the three- and six-month periods ended June 30, 2021 and June 30, 2020.

Non-accruing loans have been included in the table as loans carrying a zero yield.

1 unchanged sentence

(Dollar amounts in thousands)

Three months ended March 31, 2021 compared to the three months ended March 31, 2020:

Three months ended March 31, 2021 Three months ended March 31, 2020

Three months ended June 30, 2021 compared to the three months ended June 30, 2020:

Three months ended June 30, 2021 Three months ended June 30, 2020

Balance Interest

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(1) Fully taxable equivalent (FTE).

The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21.0% for the quarters ended March 31, 2021 and March 31, 2020.

The FTE adjustment to net interest income included in the rate calculations totaled $1 and $0 thousand for the three months ended March 31, 2021 and March 31, 2020, respectively.

The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21.0% for the quarters ended June 30, 2021 and June 30, 2020.

The FTE adjustment to net interest income included in the rate calculations totaled $1 and $0 thousand for the three months ended June 30, 2021 and June 30, 2020, respectively.

NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS

(Dollar amounts in thousands)

Six months ended June 30, 2021 compared to the six months ended June 30, 2020:

Six months ended June 30, 2021 Six months ended June 30, 2020

Balance Interest

Expense Average

Rate (1) Average

Balance Interest

Expense Average

Average interest earning assets:

Cash and cash equivalents $ 121,557 $ 57 0.09 % $ 25,532 $ 123 0.97 %

Loans 1,199,925 28,477 4.79 % 1,219,905 30,146 4.97 %

Interest-bearing deposits 2,591 29 2.26 % 4,075 50 2.47 %

Investment securities (1) 243,492 2,193 1.82 % 177,081 2,119 2.41 %

Other investments 15,029 342 4.59 % 15,083 356 4.75 %

Total interest earning assets (1) $ 1,582,594 $ 31,098 3.96 % $ 1,441,676 $ 32,794 4.57 %

Average interest bearing liabilities:

Savings accounts $ 208,787 $ 182 0.18 % $ 162,941 $ 250 0.31 %

Demand deposits 345,576 507 0.3 % 251,125 635 0.51 %

Money market 256,391 384 0.3 % 239,867 959 0.80 %

CD’s 253,063 1,911 1.52 % 341,319 3,552 2.09 %

IRA’s 40,421 251 1.25 % 42,406 391 1.85 %

Total deposits $ 1,104,238 $ 3,235 0.59 % $ 1,037,658 $ 5,787 1.12 %

FHLB Advances and other borrowings 175,922 2,268 2.6 % 180,927 2033 2.26 %

Total interest bearing liabilities $ 1,280,160 $ 5,503 0.87 % $ 1,218,585 $ 7,820 1.29 %

Net interest income $ 25,595 $ 24,974

Interest rate spread 3.09 % 3.28 %

Net interest margin (1) 3.26 % 3.48 %

Average interest earning assets to average interest bearing liabilities 1.24 1.18

(1) Fully taxable equivalent (FTE).

The average yield on tax exempt securities is computed on a tax equivalent basis using a tax rate of 21.0% for the six months ended June 30, 2021 and June 30, 2020.

The FTE adjustment to net interest income included in the rate calculations totaled $2 and $1 thousand for the six months ended June 30, 2021 and June 30, 2020, respectively.

Rate/Volume Analysis.

4 unchanged sentences

Rate changes have been discussed previously.

For the three months ended March 31, 2021, compared to the three months ended March 31, 2020, the loan volume increase is primarily due to SBA PPP originations, and the impact of organic growth since March 31, 2020.

The decrease in certificate volumes is due to planned runoff of brokered CD’s and to a lesser extent, retail CD’s, partially offset by growth in non-maturity deposits.

For the three and six months ended June 30, 2021, compared to the same periods in 2020, the loan volume decrease is primarily due to reductions in SBA PPP loans, partially offset by the impact of organic growth since the same period in 2020.

The decrease in certificate volumes is due to planned runoff of brokered CDs and to a lesser extent, retail CDs, partially offset by growth in non-maturity deposits .

RATE / VOLUME ANALYSIS

(Dollar amounts in thousands)

Three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Three months ended June 30, 2021 compared to the three months ended June 30, 2020.

Increase (decrease) due to

17 unchanged sentences

Net interest income $ (38) $ 566 $ 528

Six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Increase (decrease) due to

Volume Rate Net

Interest income:

Cash and cash equivalents $ 267 $ (333) $ (66)

Loans (487) (1,182) (1,669)

Interest-bearing deposits (17) (4) (21)

Investment securities 691 (617) 74

Other investments (1) (13) (14)

Total interest earning assets 453 (2,149) (1,696)

Interest expense:

Savings accounts 60 (128) (68)

Demand deposits 199 (327) (128)

Money market accounts 62 (637) (575)

CD’s (776) (865) (1,641)

IRA’s (17) (123) (140)

Total deposits (472) (2,080) (2,552)

FHLB Advances and other borrowings (57) 292 235

Total interest bearing liabilities (529) (1,788) (2,317)

Net interest income $ 982 $ (361) $ 621

Provision for Loan Losses.

1 unchanged sentence

We continue to monitor adverse general economic conditions that could affect our commercial and agricultural portfolios in the future.

Total provision for loan losses expense for the three months ended March 31, 2021 was $0.

The provision for loan losses was impacted by reductions in nonperforming and substandard assets, lower loan deferral balances associated with Section 4013 of the Cares Act, a smaller balance of loans receivable and low net loan charge offs.

The provision for loans losses for the three months ended March 31, 2020 of $2 million was due to loan growth, the impact of net charge-offs and increase in Q-Factors due to uncertain market conditions, Pandemic-related adverse economic impacts, including various “Stay-at-Home Orders” were beginning to result in temporary business closures, reduced operating capacity and uncertainty regarding potential future revenue and cash flows for certain businesses, including bank borrowers.

Management believes that the provision taken for the current year three-month period is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our non-performing loans.

Total provision for loan losses for both the three and six months ended June 30, 2021, was $0.

The ALL and related need for provision for loan losses was impacted by reductions in nonperforming and substandard assets, lower loan deferral balances associated with Section 4013 of the Cares Act, a smaller balance of loans receivable and low net loan charge offs.

In addition, in the second quarter of 2021, the Bank reduced the allocation of the allowance for loan losses for general economic conditions, which offset increases in the allocation of the allowance for loan losses due to loan growth and specific reserve increases.

Note that in discussing ALL allocations, the entire ALL balance is available for any loan that, in management’s judgment, should be charged off.

The provision for loans losses for the three and six months ended June 30, 2020 of $1.75 million and $3.75 million, respectively, was due to loan growth, the impact of net charge-offs and increase in Q-Factors due to uncertain market conditions.

Pandemic-related adverse economic impacts, including various “Stay-at-Home Orders”, were beginning to result in temporary business closures, reduced operating capacity and uncertainty regarding potential future revenue and cash flows for certain businesses, including bank borrowers.

Management believes that the provision recorded for the current year three and six-month periods is adequate in view of the present condition of our loan portfolio and the sufficiency of collateral supporting our non-performing loans.

We continually monitor non-performing loan relationships and will adjust our provision, as necessary, if changing facts and circumstances require a change in the ALL.

2 unchanged sentences

Non-interest Income .

The following table reflects the various components of non-interest income for the three month periods ended March 31, 2021 and 2020, respectively.

Three months ended March 31,

2021 2020 % Change

The following table reflects the various components of non-interest income for the three and six month periods ended June 30, 2021 and 2020, respectively.

Three months ended June 30, Six months ended June 30,

2021 2020 % Change 2021 2020 % Change

Non-interest Income:

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Net gains on investment securities 37 25 48.00 % 272 98 177.55 %

Net gain on sale of acquired business lines — 252 N/M — 252 N/M

Settlement proceeds — 131 N/M — 131 N/M

Other 216 199 8.54 % 463 484 (4.34) %

Total non-interest income $ 3,793 $ 5,013 (24.34) % $ 7,969 $ 8,616 (7.51) %

Service charges on deposit accounts decreased to $398 for the three months ended March 31, 2021, from $560 in the comparable prior year period.

This decrease was due to higher average balances of retail checking accounts, which lowered service charges assessed.

Loan servicing income increased largely due to increased capitalized mortgage servicing rights due to higher mortgage loan origination fees in the quarter ending March 31, 2021.

Gain on sale of loans increased in the current three period due to higher mortgage loan origination sold volumes.

The change in loan fees and service charges for the three months ended March 31, 2021, is largely due to decreases in commercial loan customer activity from the first quarter of 2020.

The decrease in insurance commission income is due to the sale of the Wells Insurance Agency change in June 2020.

The change in net gains on investment securities in March 31, 2021 is due to unrealized gains on equity securities with readily determinable fair value during the three months ended March 31, 2021, while the gains in the first quarter of 2020 were largely due to the sale of a $10.7 million of fixed-rate mortgage-backed certificates (“MBS”).

Service charges on deposit accounts increased modestly to $395 for the three months ended June 20, 2021, from $345 from the prior quarter year period due to higher customer spending activity during the quarter.

For the six months ended June 30, 2021, service charges decreased to $793, compared to $905 in the comparable prior year period, due to higher average deposit balances.

Interchange income increased to $647 and $1,177 for the three and six months ended June 30, 2021, compared to $489 and $953, respectively, for the similar prior year periods.

Customer spending activity increased due to a stronger general economy, as our regional economies benefited from lower unemployment and were less impacted by business shutdowns as a result of the pandemic.

Loan servicing income decreased with reduced capitalization of mortgage servicing rights due to lower mortgage loan origination fees in the three- and six-month periods ended June 30, 2021.

Gain on sale of loans decreased in the current three-month period ended June 30, 2021, compared to June 30, 2020, due to lower mortgage loan origination volumes, partially offset by an increase on the gain on sale of SBA and FSA loans.

For the six-month period ended June 30, 2021, gain on sale of loans increased $519 thousand largely due to the gain on sale of SBA and FSA loans and a modest increase in gain on sale of mortgage loans, primarily due to higher gain on sale percentages.

The change in loan fees and service charges for the three and six months ended June 30, 2021, is largely due to decreases in commercial loan customer activity.

The decrease in insurance commission income is due to the sale of the Wells Insurance Agency in June 2020.

The net gains on investment securities in the three- and six-month periods ended June 30, 2021, is largely due to unrealized gains on equity securities with readily determinable fair value recorded in the first quarter of 2021 and a realized $36 gain on sale of one of its trust-preferred securities in the second quarter of 2021.

In 2020, the gains in the six month period ended June 30, 2020, were due to the sale of $10.7 million of fixed-rate mortgage-backed certificates (“MBS”) in the first quarter of 2020 and unrealized gain on equity security valuations in the second quarter of 2020.

Non-interest Expense.

The following table reflects the various components of non-interest expense for the three month periods ended March 31, 2021 and 2020, respectively.

Three months ended March 31,

2021 2020 % Change

The following table reflects the various components of non-interest expense for the three and six month periods ended June 30, 2021 and 2020, respectively.

Three months ended June 30, Six months ended June 30,

2021 2020 % Change 2021 2020 % Change

Non-interest Expense:

11 unchanged sentences

Non-interest expense (annualized) / Average assets 2.41 % 2.89 % (15.45) % 2.34 % 2.86 % (18.08) %

Compensation expense for the three-month period ended March 31, 2021 was higher than the comparable prior year period due primarily to higher variable mortgage production compensation related to higher mortgage loan origination activity, higher incentive compensation accrued based on improved performance, partially offset by the sale of Wells Insurance Agency in June 2020 and lower salaries paid due to fewer FTE’s.

Data processing expense increases were due primarily the impact of larger loans and deposit balances.

Mortgage servicing rights expense decreased during the three months ended March 31, 2021 by $1.2 million, compared to the comparable prior year period.

The Company reversed previously recognized impairment charges of $0.9 million, largely due to the impact of lower forecasted prepayment rates.

The remaining decrease is due to higher amortization based on the current interest rate environment.

FDIC insurance premium increased during the three months ended March 31, 2021 from the prior year comparable quarter due to the realization of the FDIC insurance credit in the first quarter of 2020 and the impact of higher assets, which increase the asset base.

The decrease in professional services expense was primarily due to lower audit fees, public accounting fees and lower costs to prepare Form 10-K.

Other expenses for the three-month period ended March 31, 2021 decreased compared to March 31, 2020, largely due to lower loan origination and collection expenses, partially offset by the debt termination cost of $0.1 million.

Compensation expense for the three and six-month periods ended June 30, 2021, was lower than the comparable prior year period due to:

1) lower variable mortgage production compensation related to lower mortgage loan origination activity;

2) lower compensation due to fewer FTEs, including the sale of Wells Insurance Agency in June of 2020;

and 3) the closure of three branches in November 2020, partially offset by higher accrued incentive compensation from improved Bank performance.

Data processing expense increases were due primarily to the impact of larger loan and deposit balances.

Mortgage servicing rights expense, net decreased during the three and six-months ended June 30, 2021, compared to the comparable prior year periods.

The Company reversed previously recognized impairment charges of $0.9 million, largely due to the impact of lower forecasted prepayment rates with over 95% of this impairment reversal done in the first quarter of 2021.

The Bank recorded MSR impairment charges of $0.7 million and $1.2 million for the three- and six-month periods ended June 30, 2020, respectively.

The remaining change is due to higher amortization in 2021.

Advertising, marketing and public relations expense decreased in both the three- and six-month periods ended June 30, 2021, from the same periods in 2020 largely due to the pandemic related charitable contribution made in the second quarter of 2020 to local non-profit organizations

The FDIC insurance premium decreased during the three months ended June 30, 2021 and six-months ended June 30, 2021, from the comparable prior year periods due to the impact of increased capital ratios stronger earnings performance and lower levels of non-performing assets, which more than offset the impact of a larger asset base.

The Bank also realized a $56 FDIC insurance credit in the first quarter of 2020.

Other expenses for the three- and six-month periods ended June 30, 2021, decreased compared to the comparable prior period, largely due to lower loan origination and collection expenses, recognized in the similar periods in 2020.

Income Taxes.

Income tax expense was $1.9 million for the three months ended March 31, 2021 compared to $0.9 million for the three-month period ended March 31, 2020.

The effective tax rate was 26.1% for the quarter ended March 31, 2021 compared to 26.4% for the quarter ended March 31, 2020.

Income tax expense was $1.7 million and $3.7 million for the three and six-months ended June 30, 2021, respectively, compared to $1.1 million and $2.0 million for the three and six-months ended June 30, 2020.

The effective tax rate was 26.8% and 26.4% for the three and six-month periods ended June 30, 2021 compared to 26.5% and 26.5% for the comparable prior periods.

BALANCE SHEET ANALYSIS

Cash and Cash Equivalents.

Cash and cash equivalents increased to $196.0 million at March 31, 2021 from $119.4 million at December 31, 2020.

Deposit levels grew, while interest earning assets remained flat as loans receivable reductions were offset by securities purchases.

As a result, interest-bearing cash at the Federal Reserve increased.

Investment Securities.

1 unchanged sentence

Our investment portfolio is comprised of securities available for sale and securities held to maturity.

Securities available for sale, which represent the majority of our investment portfolio, were $185.2 million at March 31, 2021, compared with $144.2 million at December 31, 2020.

The increase in the available for sale portfolio is due to purchases of mortgage-backed securities and corporate debt securities.

Securities held to maturity increased to $57.4 million at March 31, 2021, compared to $43.6 million at December 31, 2020.

This increase was largely due to the purchase of agency mortgage-backed securities in the first quarter of 2021.

Securities available for sale, which represent the majority of our investment portfolio, were $243.7 million at June 30, 2021, compared with $144.2 million at December 31, 2020.

The increase in the available for sale portfolio is due to purchases of mortgage-backed securities and corporate debt securities, which consisted of bank holding company-issued subordinated debt.

The Bank sold $1.9 million of trust preferred securities at a gain of $36 in the second quarter of 2021.

Securities held to maturity increased to $59.6 million at June 30, 2021, compared to $43.6 million at December 31, 2020.

This increase was largely due to the purchase of agency mortgage-backed securities.

The amortized cost and market values of our available for sale securities by asset categories as of the dates indicated below were as follows:

Available for sale securities Amortized

March 31, 2021

June 30, 2021

government agency obligations $ 30,126 $ 30,728

15 unchanged sentences

Held to maturity securities Amortized

March 31, 2021

June 30, 2021

government agency obligations $ 3,500 $ 3,501

7 unchanged sentences

The composition of our available for sale portfolios by credit rating as of the dates indicated below was as follows:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Available for sale securities Amortized

8 unchanged sentences

The composition of our held to maturity portfolio by credit rating as of the dates indicated was as follows:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Held to maturity securities Amortized

1 unchanged sentence

government agency $ 51,482 $ 50,266 $ 42,951 $ 43,182

AAA 3,500 3,501 — —

AA 4,000 4,001 — —

Non-rated — — — —

A 600 594 600 602

Total $ 59,582 $ 58,362 $ 43,551 $ 43,784

As of March 31, 2021, the Bank has pledged U.S.

As of June 30, 2021, the Bank has pledged U.S.

Government Agency securities with a carrying value $0.5 million and mortgage-backed securities with a carrying value of $3.7 million as collateral against specific municipal deposits.

At March 31, 2021, the Bank has pledged mortgage-backed securities with a carrying value of $1.1 million as collateral against a borrowing line of credit with the Federal Reserve Bank.

However, as of March 31, 2021, there were no borrowings outstanding on this Federal Reserve Bank line of credit.

As of March 31, 2021, the Bank also has mortgage-backed securities with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

At December 31, 2020, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $1,209 as collateral to secure a line of credit with the Federal Reserve Bank.

At June 30, 2021, the Bank has pledged mortgage-backed securities with a carrying value of $1.2 million as collateral against a borrowing line of credit with the Federal Reserve Bank.

However, as of June 30, 2021, there were no borrowings outstanding on this Federal Reserve Bank line of credit.

As of June 30, 2021, the Bank also has mortgage-backed securities with a carrying value of $0.4 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

At December 31, 2020, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $1.2 million as collateral to secure a line of credit with the Federal Reserve Bank.

As of December 31, 2020, there were no borrowings outstanding on this Federal Reserve Bank line of credit.

As of December 31, 2020, the Bank has pledged certain of its U.S.

Government Agency securities with a carrying value of $576 and mortgage-backed securities with a carrying value of $3,028 as collateral against specific municipal deposits.

As of December 31, 2020, the Bank also has mortgage-backed securities with a carrying value of $468 pledged as collateral to the Federal Home Loan Bank of Des Moines

Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, decreased by $45.5 million, to $1.19 billion as of March 31, 2021, from $1.24 billion at December 31, 2020.

The originated loan portfolio before SBA PPP loans decreased $18.3 million in the quarter.

This decrease included the repayment of $5.5 million of draws on a Line credit originated the last business day of December and repaid on the first business day of January.

Government Agency securities with a carrying value of $0.6 million and mortgage-backed securities with a carrying value of $3.0 million as collateral against specific municipal deposits.

As of December 31, 2020, the Bank also has mortgage-backed securities with a carrying value of $0.5 million pledged as collateral to the Federal Home Loan Bank of Des Moines

Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, decreased by $56.0 million, to $1.18 billion as of June 30, 2021, from $1.24 billion at December 31, 2020.

The originated loan portfolio before SBA PPP loans increased $42.2 million in the six month period.

This increase included the repayment of $5.5 million of draws on a line of credit originated the last business day of December and repaid on the first business day of January.

Total SBA PPP loans decreased $48.8 million due to debt forgiveness of $104.6 million, offset by strong new SBA PPP second round loan originations of $55.8 million.

Acquired loans decreased by $49.3 million.

This decrease was partially due to reductions in agricultural real estate, due to borrowers requesting a long-term fixed-rate loan which the Bank facilitated using Farmer Mac financing.

The following table reflects the composition, or mix of our loan portfolio at March 31, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020

The following table reflects the composition, or mix of our loan portfolio at June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

Amount Percent Amount Percent

25 unchanged sentences

Total loans receivable, net $ 1,164,713 $ 1,220,538

The following table summarizes SBA PPP loans by round at March 31, 2021 and December 31, 2020 and includes additional round 2 activity in April 2021:

Balance Net Deferred Fee Income

SBA PPP Loans - Round 1 $ 124 $ 3.0

SBA PPP Loans - Round 2 — —

Total SBA PPP Loans, December 31, 2020 124 3.0

SBA PPP Loans - Round 1 $ 72 $ 1.3

SBA PPP Loans - Round 2 47 1.7

Total SBA PPP Loans, March 31, 2021 119 3.0

Net deferred fees collected after March 31, 2021 from Q1 SBA PPP loan originations — 0.9

SBA PPP Pipeline Round 2, April 2021 8 0.8

March 31, 2021 plus SBA PPP Pipeline - Round 2, April 2021 $ 127 $ 4.7

The following table summarizes SBA PPP loans by origination year at June 30, 2021:

2020 Originations 2021 Originations Total

Balance Net Deferred Fee Income Balance Net Deferred Fee Income Balance Net Deferred Fee Income

SBA PPP Loans, December 31, 2020 $ 123,702 $ 2,991 $ — $ — $ 123,702 $ 2,991

2021 SBA PPP Loan Originations — — 55,790 3,485 55,790 3,485

2021 SBA PPP Loan Forgiveness and Fee Accretion (102,295) (2,683) (2,272) (376) (104,567) (3,059)

Balance, June 30, 2021 $ 21,407 $ 308 $ 53,518 $ 3,109 $ 74,925 $ 3,417

Allowance for Loan Losses.

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In compliance with ASC 310-10, the fair value of the loan is determined based on either the present value of expected cash flows discounted at the loan’s effective interest rate, the market price of the loan, or, if the loan is collateral dependent, the fair value of the underlying collateral less the expected cost of sale for such collateral.

At March 31, 2021, the Company had identified impaired loans of $40.2 million, consisting of $17.4.

million TDR loans, the carrying amount of purchased credit impaired loans of $16.5 million and $6.3 million of substandard non-TDR loans.

The $40.2 million total of impaired loans includes $11.8 million of performing TDR loans.

At June 30, 2021, the Company had identified impaired loans of $38.9 million, consisting of $16.6 million TDR loans, the carrying amount of purchased credit impaired loans of $15.6 million and $6.7 million of substandard non-TDR loans.

Included in impaired loans is $11.6 million of performing TDR loans.

At December 31, 2020, the Company had identified impaired loans of $43.4 million, consisting of $18.5 million TDR loans, the carrying amount of purchased credit impaired loans of $16.9 million and $8.0 million of substandard non-TDR loans.

The $43.4 million total of impaired loans includes $11.7 million of performing TDR loans.

At March 31, 2020 and December 31, 2020, we had 292 and 325 such impaired loans, respectively, all secured by real estate or personal property.

Of the impaired loans, there were 12 individual loans where estimated fair value was less than their book value (i.e., we deemed impairment to exist) totaling $6.0 million for which $1.3 million in specific ALL was recorded as of March 31, 2021.

The allowance for loan and losses modestly decreased to $16.9 million at March 31, 2021 representing 1.57% of loans receivable, less the 100% SBA guaranteed PPP loans.

A significant portion of the current loan portfolio includes loans

purchased through whole bank acquisitions in recent years resulting in purchased credit impairments which are not included in the allowance for loan losses.

At June 30, 2021, and December 31, 2020, we had 271 and 325 such impaired loans, respectively, all secured by real estate or personal property.

Of the impaired loans, there were 13 individual loans where the estimated fair value was less than their book value (i.e., we deemed impairment to exist) totaling $5.0 million for which $1.5 million in specific ALL was recorded as of June 30, 2021.

The allowance for loan losses modestly decreased to $16.8 million at June 30, 2021, representing 1.52% of loans receivable, less the 100% SBA guaranteed PPP loans.

A significant portion of the current loan portfolio includes loans purchased through whole bank acquisitions in recent years resulting in purchased credit impairments which are not included in the allowance for loan losses.

The allowance for loan losses was $17.0 million at December 31, 2020, representing 1.53% of loans receivable, less the 100% SBA guaranteed PPP loans.

The decrease in the allowance was due to loan payoffs, increases in unallocated, increases in specific reserves on impaired loans and continued anticipation of pandemic-related adverse economic impacts, including various “Stay-at-Home Orders” which continued to result in temporary business closures, reduced operating capacity and uncertainty regarding potential future revenue and cash flows for certain businesses, including bank borrowers.

The decrease in the allowance was due to modest loan charge-offs.

Allowance for Loan Losses to Loans, net of SBA PPP Loans

(in thousands, except ratios)

2021 Decmber 31, 2020

2021 December 31,

Loans, end of period $ 1,181,558 $ 1,237,581

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The following table identifies the various components of nonperforming assets and other balance sheet information as of the dates indicated below and changes in the ALL for the periods then ended:

March 31, 2021 and Three Months Then Ended December 31, 2020 and Twelve Months Then Ended

June 30, 2021 and Six Months Then Ended December 31, 2020 and Twelve Months Then Ended

Nonperforming assets:

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(in thousands, except ratios)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020 June 30, 2020

Nonperforming assets:

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Acquired NPAs to total assets 0.36 % 0.45 % 0.73 %

Nonperforming assets decreased by $2.2 million to $9.3 million at March 31, 2021 from December 31, 2020.

Nonperforming assets decreased by $2.7 million to $8.8 million at June 30, 2021 from December 31, 2020.

This decrease is largely due to reductions in acquired non-performing loans.

Refer to the “Allowance for Loan Losses” and “Nonperforming Loans, Potential Problem Loans and Foreclosed Properties” sections below for more information related to nonperforming loans.

Refer to the “Allowance for Loan Losses” and “Nonperforming Loans, Potential Problem Loans and Foreclosed Properties” sections above for more information related to nonperforming loans.

Nonaccrual Loans Roll forward:

Quarter Ended

March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020

June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020

Balance, beginning of period $ 8,678 $ 10,747 $ 13,154 $ 14,787 $ 16,090

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Balance, end of period $ 8,075 $ 8,678 $ 10,747 $ 13,154 $ 14,787

Nonaccrual TDR loans decreased to $5.7 million at March 31, 2021 from $6.7 million at December 31, 2020.

March 31, 2021 December 31, 2020

Nonaccrual TDR loans decreased to $4.9 million at June 30, 2021 from $6.7 million at December 31, 2020.

June 30, 2021 December 31, 2020 June 30, 2020

Modifications Recorded

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Modifications Recorded

Investment Number of

Modifications Recorded

Troubled debt restructurings:

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Total loans 67 $ 11,736 71 $ 11,742 71 $ 6,127

Classified assets decreased to $26.1 million at March 31, 2021, from $28.5 million at December 31, 2020 largely due to the reduction in nonperforming assets discussed above, with a modest increase in newly classified assets.

Nonperforming assets decreased to $9.3 million or 0.54% of total assets at March 31, 2021 compared to $11.5 million or 0.70% of total assets at December 31, 2020.

Included in nonperforming assets at March 31, 2021 are $6.5 million of nonperforming assets acquired during recent whole-bank acquisitions.

The table below shows a summary of the decrease in substandard loans by quarter since the first impact of the F&M acquisition on September 30, 2019 levels.

While special mention loans increased in the first quarter of 2020 and more modestly in the second quarter of 2020, the balances decreased in the third quarter of 2020 due to resolution.

Classified assets decreased to $25.9 million at June 30, 2021, from $28.5 million at December 31, 2020 largely due to the reduction in nonperforming assets discussed above, with a modest increase in newly classified assets.

Nonperforming assets decreased to $8.8 million or 0.51% of total assets at June 30, 2021 compared to $11.5 million or 0.70% of total assets at December 31, 2020.

Included in nonperforming assets at June 30, 2021 are $6.2 million of nonperforming assets acquired during recent whole-bank acquisitions.

The table below shows a summary of criticized loans for the past five quarters.

Substandard loans, largely due to reductions in non-performing loans, have decreased each quarter.

Special mention loans have increased in 2021 due to a single hotel loan.

See Note 3, “Loans, Allowance for Loan Losses and Impaired Loans” for additional information.

(in thousands)

2021 March 31,

2021 December 31,

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2020 June 30,

2020 March 31,

Special mention loan balances $ 12,308 $ 13,659 $ 6,672 $ 7,777 $ 19,958

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Hotels and restaurants represent our portfolio’s two industry sectors most directly and adversely affected by the recent pandemic and related government actions.

These sector loans totaled approximately $93 million and $39 million, respectively at March 31, 2021.

The weighted-average loan-to-value percentage and debt service coverage ratio on these hotel industry sector loans was 56% and 2.3 times.

These sector loans totaled approximately $93 million and $39 million, respectively at June 30, 2021.

The weighted-average loan-to-value percentage and debt service coverage ratio on these hotel industry sector loans was 53% and 2.3 times, respectively.

Approximately $23.3 million of restaurant sector loans are to franchise quick-service restaurants.

As of March 31, 2021 the Bank had $57.3 million of loan modifications remaining due to pandemic-related borrower requests.

Approximately $39 million of modifications are scheduled to resume their regular principal and interest payments in the second quarter and 45% had made their contractual payment as of April 30, 2021.

Hotel industry sector loans represent

approximately $49 million of the approved deferrals projected at March 31, 2021.

Of these, $49 million represent a second or third deferral under the CARES ACT, with the customer making an interest only payment and the Bank generally receives the reserve accounts pledge.

While the Company has no indication that any of the modified credits are specifically impaired, additional risk and uncertainty inherent in the current pandemic-affected environment has been considered.

As of June 30, 2021, the Bank had $35.7 million of remaining loan modifications, due to pandemic-related borrower requests.

Approximately $14.3 million of modifications are scheduled to resume their regular principal and interest payments in

the third quarter.

Hotel industry sector loans represent approximately $31.1 million of the approved deferrals at June 30, 2021.

Of this amount, $11.9 million are second deferrals and $19.2 million are third deferrals under the CARES ACT.With this third deferral, the customer will make interest only payments which were funded by deposits made with the Bank at the time of modification.

See “Allowance for Loan Losses” section above for discussion of pandemic-related qualitative factor, and related provision for loan losses.

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Although management believes that the assumptions used to evaluate the MSRs for impairment are reasonable, future adjustment may be necessary if future economic conditions differ substantially from the economic assumptions used to determine the value of MSRs.

The fair market value of the Company’s MSR asset increased from $3.3 million at December 31, 2020 to $4.0 million at March 31, 2021, primarily due to $0.9 million of impairment reversal recorded on the MSR asset due to the impact of a lower projected prepayment rate.

Higher long-term interest rates as of at March 31, 2021 compared to December 31, 2020 resulted in the reduction in projected prepayment rates.

The unpaid balances of one- to four-family residential real estate loans serviced for others as of March 31, 2021 and December 31, 2020 were $551.6 million and $553.7 million, respectively.

The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at March 31, 2021 and December 31, 2020 was 0.73% and 0.59%, respectively.

Deposits increased $84.9 million to $1.380 billion at March 31, 2021, from $1.295 billion at December 31, 2020.

The fair market value of the Company’s MSR asset increased from $3.3 million at December 31, 2020, to $3.9 million at June 30, 2021, primarily due to higher future forecasted interest rates and resulting lower forecasted prepayment.

As a result, $0.9 million of previously recorded impairments on the MSR asset was reversed.

The unpaid balances of one- to four-family residential real estate loans serviced for others as of June 30, 2021, and December 31, 2020, were $554.5 million and $553.7 million, respectively.

The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at June 30, 2021, and December 31, 2020, was 0.70% and 0.59%, respectively.

Deposits increased $76.0 million to $1.37 billion at June 30, 2021, from $1.30 billion at December 31, 2020.

This growth is due to non-maturity deposit growth, split between both retail and commercial deposits.

This growth was partially offset by retail certificates of deposit decreasing by $54.2 million, as the Company chose not to match higher rate local retail certificate competition.

The following is a summary of deposits by type at March 31, 2021 and December 31, 2020, respectively:

March 31, 2021 December 31, 2020

The following is a summary of deposits by type at June 30, 2021 and December 31, 2020, respectively:

June 30, 2021 December 31, 2020

Non-interest bearing demand deposits $ 253,097 $ 238,348

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Federal Home Loan Bank (FHLB) advances (borrowings) and Other Borrowings.

A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at March 31, 2021 and December 31, 2020 is as follows:

March 31, 2021 December 31, 2020

A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at June 30, 2021 and December 31, 2020 is as follows:

June 30, 2021 December 31, 2020

Stated Maturity Amount Range of Stated Rates Amount Range of Stated Rates

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Totals $ 169,876 $ 181,826

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $720,008 and $723,862 at March 31, 2021 and December 31, 2020, respectively.

At March 31, 2021, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $122,791 compared to $118,391 as of December 31, 2020.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $123,530 and $162,530, during the three months ended March 31, 2021 and the twelve months ended December 31, 2020, respectively.

(3) The weighted-average interest rates on FHLB borrowings maturing within twelve months as of March 31, 2021 and December 31, 2020 were 1.80% and 0.50%, respectively.

(1) The FHLB advances bear fixed rates, require interest-only monthly payments, and are collateralized by a blanket lien on pre-qualifying first mortgages, home equity lines, multi-family loans and certain other loans which had a pledged balance of $740,586 and $723,862 at June 30, 2021 and December 31, 2020, respectively.

At June 30, 2021, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $144,714 compared to $118,391 as of December 31, 2020.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $123,530 and $162,530, during the six months ended June 30, 2021 and the twelve months ended December 31, 2020, respectively.

(3) The weighted-average interest rates on FHLB borrowings maturing within twelve months as of June 30, 2021 and December 31, 2020 were 1.97% and 1.02%, respectively.

(4) FHLB term notes totaling $55,000, with various maturity dates in 2029 and 2030, can be called or replaced by the FHLB on a quarterly basis, beginning approximately three months after the initial advance.

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Interest-only payments are due semi-annually each year during the fixed interest period and quarterly during the floating interest period.

FHLB advances decreased $8.0 million to $115.5 million as of March 31, 2021 compared to $123.5 million as of December 31, 2020.

The Bank terminated $8.0 million of advances in the quarter, incurring a $0.1 million prepayment penalty, as we continue to utilize these advances, only as necessary, to supplement core deposits to meet our funding and liquidity needs, and as we evaluate all options to manage the Bank’s cost of funds.

FHLB advances decreased $12.0 million to $111.5 million as of June 30, 2021, compared to $123.5 million as of December 31, 2020.

The Bank terminated $8.0 million of advances in the quarter ended March 31, 2021, incurring a $0.1 million prepayment penalty, as we modestly reduced excess liquidity.

In the second quarter of 2021, a $4 million advance matured.

The Bank has an irrevocable Standby Letter of Credit Master Reimbursement Agreement with the Federal Home Loan Bank.

This irrevocable standby letter of credit (“LOC”) is supported by loan collateral as an alternative to directly pledging investment securities on behalf of a municipal customer as collateral for their interest-bearing deposit balances.

The Bank’s current unused borrowing capacity, supported by loan collateral as of March 31, 2021 is approximately $122.8 million.

The Bank’s origination of SBA PPP loans allowed the Bank to gain access to the Federal Reserve Bank Paycheck Protection Program Liquidity Facility (“PPPLF”), whereby the Bank can pledge SBA PPP loans, by day of origination, up to the contractual maturity of the Bank’s SBA PPP loans with no collateral haircut.

Due to the strong growth in non-maturity deposits discussed above, the Bank had no outstanding borrowings under this facility at any time during the quarters ending March 31, 2021 and December 31, 2020, respectively.

The Bank borrowing capacity was $118.9 million after pledging the underlying loans at March 31, 2021.

At both March 31, 2021 and December 31, 2020, the Bank had $55 million of 10-year, three-month callable advances.

The Bank’s current unused borrowing capacity, supported by loan collateral as of June 30, 2021, is approximately $167.4 million.

The Bank’s origination of SBA PPP loans allowed the Bank to gain access to the Federal Reserve Bank Paycheck Protection Program Liquidity Facility (“FRB PPPLF”), whereby the Bank can pledge SBA PPP loans, by date of origination, up to the contractual maturity of the Bank’s SBA PPP loans with no collateral haircut.

Due to the strong growth in non-maturity deposits discussed above, the Bank had no outstanding borrowings under this facility at any time during the quarters ended June 30, 2021 and December 31, 2020, respectively.

The Bank’s borrowing capacity would be $74.9 million after pledging the underlying loans at June 30, 2021.

This FRB PPPLF program is scheduled to expire on July 30, 2021.

In July 2021, the Bank pledged these SBA PPP loans to the FHLB.

At both June 30, 2021 and December 31, 2020, the Bank had $55 million of 10-year, three-month callable advances.

See Note 7, “Federal Home Loan Bank and Federal Reserve Bank Advances and Other Borrowings” for more information.

At March 31, 2021, the Bank has pledged $720.0 million of loans to secure the current FHLB outstanding advances, letters of credit and to provide the unused borrowing capacity compared to $723.8 million of loans pledged at December 31, 2020.

At June 30, 2021, the Bank has pledged $740.6 million of loans to secure the current FHLB outstanding advances and letters of credit and to provide the unused borrowing capacity, compared to $723.9 million of loans pledged at December 31, 2020.

Stockholders’ Equity.

Total stockholders’ equity was $160.7 million at March 31, 2021 compared to $160.6 million at December 31, 20120.

The Company’s net income of $5.5 million was largely offset by to the payment of the annual cash dividend paid in February to common stockholders of $0.23 per share, the first quarter repurchase of approximately 224,000 shares of its common stock at a weighted average price of $11.47 per share and decrease in the unrealized gain on sale of securities of approximately $0.5 million.

Under the December 2020 stock buyback program, the company has repurchased approximately 322,000 shares as of March 31, 2021 and is authorized to repurchase up to approximately 236,000 additional shares.

Total stockholders’ equity was $164.0 million at June 30, 2021, compared to $160.6 million at December 31, 2020.

The increase in stockholder’s equity was due to:

1) the Company’s net income of $10.2 million;

and 2) an increase in the unrealized gain on available for sale securities of $0.57 million.

These increases were partially offset by 1) the payment of the annual cash dividend paid in February to common stockholders of $0.23 per share or $2.5 million;

and 2) the repurchase of approximately 423 thousand shares of its common stock at a weighted average price of $12.26 per share, which reduced equity by $5.2 million.

Under the November 2020 stock buyback program, the company has repurchased approximately 521,000 shares as of June 30, 2021 and is authorized to repurchase up to approximately 36,000 additional shares.

In July 2021, the Board of Directors of the Company approved an additional stock repurchase program.

Under this program, the Company may repurchase up to 532 thousand shares of its common stock, or 5% of the current outstanding shares, after the existing repurchase program is completed.

Liquidity and Asset / Liability Management .

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We consider our interest-bearing cash and unpledged investment securities to be our sources of on-balance sheet liquidity.

At March 31, 2021, our on-balance sheet liquidity ratio was 23.3%.

At June 30, 2021, our on-balance sheet liquidity ratio was 22.8%.

While scheduled payments from the amortization of loans and maturing short-term investments are relatively predictable sources of funds, deposit flows and loan prepayments are influenced by factors partially outside of the Bank’s control, including general interest rates, economic conditions and competition.

Although $217.4 million of our $289.5 million (75.1%) CD portfolio as of March 31, 2021 will mature within the next 12 months, we have historically retained a majority of our maturing CD’s.

Although $221.2 million of our $259.0 million (85.4%) CD portfolio as of June 30, 2021, will mature within the next 12 months, we have historically retained a majority of our maturing CDs.

However, due to strategic pricing decisions regarding rate matching based on currently liquidity levels, our retention rate may decrease in the future.

At March 31, 2021, the Bank had approximately $160 million of certificate of deposit accounts maturing in 2021 with a weighted average cost of approximately 1.1% and approximately $110 million of certificate of deposit accounts maturing in 2022 with a weighted average cost of approximately 2.0%.

The 2021 maturities are approximately evenly spread throughout the year, with approximately 85% of the 2022 maturities occurring in the first half of 2022.

The approximate weighted average cost of new certificates in the first quarter of 2021 was below 0.5%.Through new deposit product offerings to our branch and commercial customers, we are currently attempting to strengthen customer relationships to attract additional non-rate sensitive deposits.

At June 30, 2021, the Bank had approximately $110.5 million of certificate of deposit accounts maturing in 2021 with a weighted average cost of approximately 1.0% and approximately $127.5 million of certificate of deposit accounts maturing in 2022 with a weighted average cost of approximately 1.8%.

The 2021 maturities are approximately evenly spread throughout the year, with

approximately 85% of the 2022 maturities occurring in the first half of 2022.

The approximate weighted average cost of new certificates in the first half of 2021 was below 0.50%.

Through new deposit product offerings to our branch and commercial customers, we are currently attempting to strengthen customer relationships to attract additional non-rate sensitive deposits.

In our present interest rate environment, and based on maturing yields, this is intended to also reduce our cost of funds.

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Our borrowing arrangement with the FHLB calls for pledging certain qualified real estate loans and borrowing up to 75% of the value of those loans, not to exceed 35% of the Bank’s total assets.

As of March 31, 2021, we had approximately $122.8 million available under this arrangement, supported by loan collateral, as compared to $118.4 million at December 31, 2020.

In the quarter ended June 30, 2020, the Bank’s origination of SBA PPP loans allowed the Bank to gain access to the Federal Reserve’s PPPLF facility, whereby the Bank can pledge SBA PPP loans, by day of origination, up to the contractual maturity of the Bank’s SBA PPP loans with no collateral haircut.

Due to the strong growth in non-maturity deposits discussed above, the Bank had no outstanding borrowings under this facility at, or at any time during the quarters ended, March 31, 2021 and December 31, 2020, respectively.

The Bank could borrow $123.7 million under this facility at March 31, 2021.

As of June 30, 2021, we had approximately $144.7 million available under this arrangement, supported by loan collateral, as compared to $118.4 million at December 31, 2020.

In the quarter ended June 30, 2020, the Bank’s origination of SBA PPP loans allowed the Bank to gain access to the Federal Reserve’s PPPLF facility, whereby the Bank can pledge SBA PPP loans, by date of origination, up to the contractual maturity of the Bank’s SBA PPP loans with no collateral haircut.

Due to the strong growth in non-maturity deposits discussed above, the Bank had no outstanding borrowings under this facility at, or at any time during the quarters ended, June 30, 2021 and December 31, 2020, respectively.

The Bank could borrow $74.9 million under this facility at June 30, 2021.

This FRB PPPLF program is scheduled to expire on July 30, 2021.

In July 2021, the Bank pledged these SBA PPP loans to the FHLB.

As the SBA PPP loans are forgiven, the collateral will reduce and our borrowing capacity under this facility will be reduced.

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In reviewing our adequacy of liquidity, we review and evaluate historical financial information, including information regarding general economic conditions, current ratios, management goals and the resources available to meet our anticipated liquidity needs.

Management believes that our liquidity is adequate, and, to management’s knowledge, there are no known events or uncertainties that will result or are likely to reasonably result in a material increase or decrease in our liquidity.

Management believes that our liquidity is adequate.

To management’s knowledge, there are no known events or uncertainties that will result, or are likely to reasonably result, in a material increase or decrease in our liquidity.

Off-Balance Sheet Liabilities .

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These instruments include unused commitments for lines of credit, overdraft protection lines of credit and home equity lines of credit, as well as commitments to extend credit.

As of March 31, 2021, the Company had $209.5 million in unused commitments, compared to $247.3 million in unused commitments as of December 31, 2020.

As of June 30, 2021, the Company had $238.3 million in unused commitments, compared to $247.3 million in unused commitments as of December 31, 2020.

Capital Resources.

As of March 31, 2021, as shown in the table below, the Bank’s Tier 1 and Risk-based capital levels exceeded levels necessary to be considered “Well Capitalized” under Prompt Corrective Action provisions.

As of June 30, 2021, as shown in the table below, the Bank’s Tier 1 and Risk-based capital levels exceeded levels necessary to be considered “Well Capitalized” under Prompt Corrective Action provisions.

Below are the amounts and ratios for our capital levels as of the dates noted below for the Bank:

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Amount Ratio Amount Ratio Amount Ratio

As of March 31, 2021 (Unaudited)

As of June 30, 2021 (Unaudited)

Total capital (to risk weighted assets) $ 177,444 14.7 % $ 96,484 > = 8.0 % $ 120,606 > = 10.0 %

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Tier 1 leverage ratio (to adjusted total assets) 157,081 9.9 % 63,718 > = 4.0 % 79,647 > = 5.0 %

At March 31, 2021, the Bank was categorized as “Well Capitalized” under Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator.

At June 30, 2021, the Bank was categorized as “Well Capitalized” under Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator.

Below are the amounts and ratios for our capital levels as of the dates noted below for the Company:

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Amount Ratio Amount Ratio

As of March 31, 2021 (Unaudited)

As of June 30, 2021 (Unaudited)

Total capital (to risk weighted assets) $ 170,860 14.2 % $ 96,484 > = 8.0 %

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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