What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-08 compared with 2021-08-05 · 180 added, 159 removed, 607 unchanged (36% of the section changed)

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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 for the quarter ended March 31, 2021 and in Item 1A of this Form 10-Q, and the following:

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 for the quarters ended March 31, 2021 and June 30, 2021, and in Item 1A of this Form 10-Q, and the following:

• conditions in the financial markets and economic conditions generally;

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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 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.

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

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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 has one reporting unit as of September 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.

6 unchanged sentences

The use of different assumptions could produce significantly different results, which could have material positive or negative effects on the Company’s results of operations, financial condition or disclosures of fair value information.

In addition to valuation, the Company must assess whether there are any declines in value below the carrying value of assets that should be considered other than temporary or otherwise require an adjustment in carrying value and recognition of a loss in the consolidated statement of income.

Examples include but are not limited to;

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

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

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

STATEMENT OF OPERATIONS ANALYSIS

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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 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;

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

Net interest income was $13.7 million for the three months ended September 30, 2021, and $39.3 million for the nine months ended September 30, 2021, compared to $11.9 million for the three months ended September 30, 2020 and $36.9 million for the nine months ended September 30, 2020.

For the three and nine months ended September 30, 2021, net interest income benefited from:

1) the accretion of $1.9 million and $4.9 million, respectively, of deferred fees related to the SBA Paycheck Protection Program (“SBA PPP”) loans, compared to $0.6 and $1.1 million for the three and nine months ended September 30, 2020, respectively;

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:

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

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

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

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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:

The net interest margin for the three-month period ended September 30, 2021, was 3.34%, compared to 3.11% for the three-month period ended September 30, 2020.

The net interest margin increased due to:

1) a 29 basis point increase in SBA PPP deferred loan fee accretion and 2) 37 basis points of lower deposit costs in the three months ended September 30, 2021, compared to the three months ended September 2020.

These increases were partially 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 10 basis points;

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

2) 1 basis point 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 net interest margin for the nine-month period ended September 30, 2021, was 3.29%, compared to 3.36% for the nine-month period ended September 30, 2020.

The decrease in net interest margin was largely due to:

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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- and six-month periods ended June 30, 2021 and June 30, 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 nine-month periods ended September 30, 2021, and September 30, 2020.

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

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(Dollar amounts in thousands)

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

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

Three months ended September 30, 2021 Three months ended September 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 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.

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 September 30, 2021 and September 30, 2020.

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

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020:

Nine months ended September 30, 2021 Nine months ended September 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 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.

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

The FTE adjustment to net interest income included in the rate calculations totaled $3 and $1 thousand for the nine months ended September 30, 2021 and September 30, 2020, respectively.

Rate/Volume Analysis.

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Rate changes have been discussed previously.

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.

For the three and nine months ended September 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 loan growth.

Investment securities volume increases are due to an increase in portfolio balances, largely due to purchases of mortgage-backed securities.

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.

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(Dollar amounts in thousands)

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

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

Increase (decrease) due to

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Net interest income $ 156 $ 1,623 $ 1,779

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

Nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Increase (decrease) due to

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

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.

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

The ALL and related need for provision for loan losses for both the three and nine months ended September 30, 2021, was positively impacted by reductions in both the second and third quarter in the allocation of the allowance for loan losses for general economic conditions and the impact of lower loan deferral balances associated with Section 4013 of the Cares Act, which offset increases.

These positive impacts were offset by the allocation of the allowance for loan losses due to loan growth, increases in specific reserve and modest net loan charge offs.

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.

The provision for loans losses for the three and nine months ended September 30, 2020, of $1.50 million and $5.25 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.

Management believes that the provision recorded for the current year three and nine-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.

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Non-interest Income .

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,

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

Three months ended September 30, Nine months ended September 30,

2021 2020 % Change 2021 2020 % Change

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Loan fees and service charges 118 320 (63.13) % 547 1,041 (47.45) %

Insurance commission income — 195 (100.00) % — 474 (100.00) %

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

Insurance commission income — — N/M — 474 N/M

Net gains (losses) on investment securities 73 (1) N/M 344 97 254.64 %

Net gain on sale of acquired business lines — 180 N/M — 432 N/M

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Total non-interest income $ 3,448 $ 5,062 (31.88) % $ 11,415 $ 13,678 (16.54) %

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.

Service charges on deposit accounts increased modestly to $463 for the three months ended September 30, 2021, from $431 for the prior year quarter due to higher customer spending activity during the quarter.

For the nine months ended September 30, 2021, service charges decreased to $1,256, compared to $1,336 in the comparable prior year period, due to higher average deposit balances.

Interchange income increased to $600 and $1,776 for the three and nine months ended September 30, 2021, compared to $556 and $1,509, 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.

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

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

For the nine-month period ended September 30, 2021, gain on sale of loans decreased $454 thousand largely due to lower mortgage loan origination volumes, partially offset by gains on sale of SBA and FSA loans.

The change in loan fees and service charges for the three and nine months ended September 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.

The net gains on investment securities in the three- and nine-month periods ended September 30, 2021, is largely due to unrealized gains on equity securities with readily determinable fair value recorded in the first quarter of 2021, a net realized $36 gain on sale of trust-preferred security in the second quarter of 2021, and a $42 net gain on the sale of trust-preferred securities and bank subordinated debt realized in the third quarter of 2021.

In 2020, the gains in the nine-month period ended September 30, 2020, were due to the sale of $10.8 million of fixed-rate mortgage-backed securities (“MBS”) in the first quarter of 2020 and unrealized gain on equity security valuations in the second quarter of 2020.

In the third quarter of 2020, the bank recognized a $180 gain on the sale of a previously acquired wealth management business.

Non-interest income for the nine-months ended September 30, 2020, also included the $252 gain on sale of Wells Insurance Agency in June 2020.

During the quarter ended June 30, 2020, the Company recognized $131 of non-interest income related to a private mortgage-backed security claim.

The $131 distribution represented a supplement to the proceeds received in March, 2017 from this security, previously owned by the Bank, and sold in 2011.

Non-interest Expense.

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,

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

Three months ended September 30, Nine months ended September 30,

2021 2020 % Change 2021 2020 % Change

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Non-interest expense (annualized) / Average assets 2.34 % 2.62 % (10.60) % 2.34 % 2.78 % (15.80) %

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

Compensation expense for the three-month period ended September 30, 2021, was higher than the comparable prior year period primarily due to higher incentive compensation based on performance metrics, including items such as net income and loan growth which more than offset lower variable mortgage production compensation.

Compensation expense for the nine-month period ended September 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.

2) lower compensation due to fewer FTEs, including those related to 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 as discussed above.

Data processing expense increases from the prior year quarter and year-to- date periods were due primarily to the impact of larger loan and deposit balances, and the impact of additional costs for new products offered to our customers.

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

This decrease is primarily due to the reversal of previously recognized impairment charges of $1.3 million, resulting largely from the impact of lower future forecasted prepayment rates.

30% of this impairment reversal occurred in the third quarter of 2021 and 70% in the first quarter of 2021.

The Bank recorded MSR impairment charges of $0.3 million and $1.4 million for the three- and nine-month periods ended September 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.

Advertising, marketing and public relations expense decreased in both the three- and nine-month periods ended September 30, 2021, from the same periods in 2020 largely due to the pandemic related charitable contributions made in the second and third quarters of 2020 to local non-profit organizations.

The FDIC insurance premium decreased during the three months ended September 30, 2021, and nine-months ended September 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 thousand FDIC insurance credit in the first quarter of 2020.

Other expenses for the three- and nine-month periods ended September 30, 2021, decreased from the comparable prior year periods, largely due to lower loan origination and collection expenses, recognized in the similar periods in 2020.

Income Taxes.

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.

Income tax expense was $1.8 million and $5.5 million for the three and nine months ended September 30, 2021, respectively, compared to $1.3 million and $3.3 million for the three and nine months ended September 30, 2020.

The effective tax rate was 26.7% and 26.5% for the three and nine-month periods ended September 30, 2021 compared to 26.7% and 26.5% for the comparable prior year periods.

BALANCE SHEET ANALYSIS

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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 $243.7 million at June 30, 2021, compared with $144.2 million at December 31, 2020.

Securities available for sale, which represent the majority of our investment portfolio, were $234.4 million at September 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.

The Bank sold $7.2 million of trust preferred securities and bank subordinated debt at a gain of $42 in the third quarter of 2021.

Securities held to maturity increased to $67.7 million at September 30, 2021, compared to $43.6 million at December 31, 2020.

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

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Available for sale securities Amortized

June 30, 2021

September 30, 2021

government agency obligations $ 27,862 $ 28,410

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Held to maturity securities Amortized

June 30, 2021

government agency obligations $ 3,500 $ 3,501

September 30, 2021

Obligations of states and political subdivisions $ 4,600 $ 4,599

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Available for sale securities Amortized

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Held to maturity securities Amortized

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government agency $ 63,139 $ 61,268 $ 42,951 $ 43,182

AAA 3,500 3,501 — —

AA 4,000 4,000 — —

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Total $ 67,739 $ 65,867 $ 43,551 $ 43,784

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

As of September 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 $3.6 million as collateral against specific municipal deposits.

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 September 30, 2021, the Bank has pledged mortgage-backed securities with a carrying value of $0.9 million as collateral against a borrowing line of credit with the Federal Reserve Bank.

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

As of September 30, 2021, the Bank also has mortgage-backed securities with a carrying value of $0.3 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.

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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.

Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, increased by $11.1 million, to $1.25 billion as of September 30, 2021, from $1.24 billion at December 31, 2020.

The originated loan portfolio before SBA PPP loans increased $171.1 million in the nine 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.

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Acquired loans decreased by $69.4 million.

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

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

September 30, 2021 December 31, 2020

Amount Percent Amount Percent

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Total loans receivable, net $ 1,231,822 $ 1,220,538

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

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

2020 Originations 2021 Originations Total

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2021 SBA PPP loan forgiveness and fee accretion (52,238) (1,750) — — (52,238) (1,750)

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

SBA PPP loans, March 31, 2021 71,464 1,241 47,467 1,770 118,931 3,011

2021 SBA PPP loan originations — — 8,323 1,715 8,323 1,715

2021 SBA PPP loan forgiveness and fee accretion (50,057) (933) (2,272) (376) (52,329) (1,309)

SBA PPP loans, June 30, 2021 21,407 308 53,518 $ 3,109 74,925 3,417

2021 SBA PPP loan originations — — 64 9 64 9

2021 SBA PPP loan forgiveness and fee accretion (18,286) (279) (25,402) (1,599) (43,688) (1,878)

SBA PPP loans, September 30, 2021 $ 3,121 $ 29 $ 28,180 $ 1,519 $ 31,301 $ 1,548

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 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 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.

At September 30, 2021, the Company individually evaluated loans for impairment with a recorded investment of $37.2 million, consisting of (1) $11.5 million purchased credit impaired (“PCI”) loans, with a carrying amount of $10.8 million;

(2) $13.2 million TDR loans, net of TDR PCI loans;

and (3) $12.5 million of substandard non-TDR, non-PCI loans.

The $37.2 million total of loans individually evaluated for impairment includes $11.3 million of performing TDR loans.

At December 31, 2020, the Company individually evaluated loans for impairment with a recorded investment of $43.4 million, consisting of (1) $17.9 million PCI loans, with a carrying amount of $16.9 million;

(2) $15.6 million TDR loans, net of TDR PCI loans;

and (3) $9.8 million of substandard non-TDR, non-PCI loans.

The $43.4 million total of loans individually evaluated for impairment includes $11.7 million of performing TDR loans.

At September 30, 2021, and December 31, 2020, we had 258 and 325 loans individually evaluated for impairment, respectively, all secured by real estate or personal property.

Of the originated loans individually evaluated for impairment, there were 9 loans where the estimated fair value was less than their book value (i.e., we deemed impairment to exist) totaling $9.3 million for which $1.4 million in specific ALL was recorded as of September 30, 2021.

The allowance for loan losses modestly decreased to $16.8 million at September 30, 2021, representing 1.38% of loans receivable, less the 100% SBA guaranteed PPP loans.

A 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.

As the originated portfolio grows and the acquired portfolio shrinks, the percentage of originated loans to total loans grows, as does the overall percentage of the allowance to total loans.

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 modest loan charge-offs.

The decrease in the allowance at September 30, 2021, was due to modest loan charge-offs.

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

(in thousands, except ratios)

September 30,

2021 December 31,

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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:

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

September 30, 2021 and Nine Months Then Ended December 31, 2020 and Twelve Months Then Ended

Nonperforming assets:

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(in thousands, except ratios)

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

September 30, 2021 December 31, 2020 September 30, 2020

Nonperforming assets:

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Acquired NPAs to total assets 0.31 % 0.45 % 0.65 %

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.

Nonperforming assets increased by $0.6 million to $12.1 million at September 30, 2021 from December 31, 2020.

This increase is largely due to a $4.5 million commercial real estate loan secured by a senior living facility, partially offset by reductions in acquired non-performing 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.

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Quarter Ended

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

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

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

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Balance, end of period $ 11,706 $ 8,075 $ 8,678 $ 10,747 $ 13,154

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

Nonaccrual TDR loans decreased to $4.3 million at September 30, 2021 from $6.7 million at December 31, 2020.

September 30, 2021 December 31, 2020 September 30, 2020

Modifications Recorded

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Total loans 61 $ 11,365 71 $ 11,742 73 $ 12,579

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.

Classified assets decreased to $27.1 million at September 30, 2021, from $28.5 million at December 31, 2020, largely due to the reduction in accruing substandard loans, partially offset by the modest increase in nonperforming assets, which are substandard assets.

Nonperforming assets increased to $12.1 million or 0.69% of total assets at September 30, 2021 compared to $11.5 million or 0.70% of total assets at December 31, 2020.

Included in nonperforming assets at September 30, 2021 are $5.4 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.

Substandard loans, largely due to reductions in non-performing loans, have decreased each quarter, except for the current quarter ended September 30, 2021.

This increase was largely due to a $4.5 million commercial real estate loan secured by a senior living facility, as noted above.

Special mention loans increased during the first and second quarters in 2021 due to a single hotel loan.

Due to improving cash flow, this hotel loan was rated a pass loan during the quarter ended September 30, 2021.

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

(in thousands)

September 30,

2021 June 30,

2021 March 31,

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2020 September 30,

2020 June 30,

Special mention loan balances $ 2,548 $ 12,308 $ 13,659 $ 6,672 $ 7,777

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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 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.

These sector loans totaled approximately $109 million and $41 million, respectively, at September 30, 2021.

The weighted-average loan-to-value percentage and debt service coverage ratio on these hotel industry

sector loans were 56% and 2.3 times, respectively.

Approximately $23.8 million of restaurant sector loans are to franchise quick-service restaurants.

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.

As of September 30, 2021, the Bank had $20.6 million of remaining loan modifications, due to pandemic-related borrower requests.

Hotel industry sector loans represent approximately $19.2 million of the approved deferrals at September 30, 2021 and represented the only remaining commercial loan deferrals.

Approximately $6.0 million of the hotel modifications are scheduled to resume their regular principal and interest payments in the fourth quarter, with the remaining loan scheduled to resume their regular payment in the first quarter of 2022.

The hotel modifications were 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.

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 have been considered.

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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 $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.

The fair market value of the Company’s MSR asset increased from $3.3 million at December 31, 2020, to $4.2 million at September 30, 2021, primarily due to higher future forecasted interest rates and resulting lower forecasted prepayment.

As a result, $1.3 million of previously recorded impairments on the MSR asset was reversed during the nine-month period ended September 30, 2021.

The unpaid balances of one- to four-family residential real estate loans serviced for others as of September 30, 2021, and December 31, 2020, were $557.1 million and $553.7 million, respectively.

The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at September 30, 2021, and December 31, 2020, was 0.75% and 0.59%, respectively.

Deposits increased $113.1 million to $1.41 billion at September 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 $87.7 million, as the Company chose not to match higher rate local retail certificate competition.

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

June 30, 2021 December 31, 2020

Some of the decrease in retail certificates has moved to money markets.

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

September 30, 2021 December 31, 2020

Non-interest bearing demand deposits $ 280,611 $ 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 June 30, 2021 and December 31, 2020 is as follows:

June 30, 2021 December 31, 2020

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

September 30, 2021 December 31, 2020

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

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Totals $ 169,912 $ 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 $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.

(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 $782,715 and $723,862 at September 30, 2021 and December 31, 2020, respectively.

At September 30, 2021, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $162,875 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 nine months ended September 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 September 30, 2021 and December 31, 2020 were 2.45% 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.

(5) Senior notes, entered into by the Company in June 2019 consist of the following:

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

FHLB advances decreased $12.0 million to $111.5 million as of September 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.

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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 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.

The Bank’s current unused borrowing capacity, supported by loan collateral as of September 30, 2021, is approximately $162.9 million.

The Bank’s origination of SBA PPP loans allowed the Bank to gain access to the Federal Reserve’s PPPLF facility, whereby the Bank could pledge SBA PPP loans, by date of origination, up to the contractual maturity of the Bank’s SBA PPP loans with no collateral haircut.

This FRB PPPLF program expired on July 30, 2021.

Due to the program expiration and 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 September 30, 2021, or December 31, 2020, respectively or nine months ended September 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.

At both September 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 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.

At September 30, 2021, the Bank has pledged $782.7 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 $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.

Total stockholders’ equity was $165.9 million at September 30, 2021, compared to $160.6 million at December 31, 2020.

The increase in stockholder’s equity was due to the Company’s net income of $15.2 million.

This increase was partially offset by:

1) the repurchase of approximately 604 thousand shares of its common stock, which reduced equity by $7.7 million;

2) the payment of the annual cash dividend paid in February to common stockholders of $0.23 per share or $2.5 million;

and 3) a decrease in the unrealized gain on available for sale securities of $0.26 million.

The Company repurchased all remaining authorized shares of the Company’s stock under the November 2020 share repurchase program during the three months ended September 30, 2021.

On July 23, 2021, the Board of Directors adopted a new share repurchase program.

Under this new share repurchase program, approximately 144 thousand shares, were repurchased during the quarter ended September 30, 2021.

The Company is authorized to repurchase an additional 389 thousand shares under this July 2021 share repurchase program.

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 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 $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 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%.

At September 30, 2021, our on-balance sheet liquidity ratio was 20.7%.

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 $198.4 million of our $225.5 million (87.99%) September 30, 2021 CD portfolio matures within the next 12 months, we have historically retained a majority of our maturing CDs.

Due to strategic pricing decisions regarding rate matching based on currently liquidity levels, our retention rate may decrease in the future, although some deposits may be retained and moved to money market accounts.

At September 30, 2021, the Bank had approximately $47.2 million of certificate of deposit accounts maturing in the fourth quarter of 2021, with a weighted average cost of approximately 0.8%, and approximately $155.7 million of certificate of deposit accounts maturing in 2022, with a weighted average cost of approximately 1.5%.

Approximately 80% of the 2022 maturities occur in the first half of 2022.

The approximate weighted average cost of new certificates in the first three quarter 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.

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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 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.

As of September 30, 2021, we had approximately $162.9 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 could pledge SBA PPP loans, by date of origination, up to the contractual maturity of the Bank’s SBA PPP loans with no collateral haircut.

This FRB PPPLF program expired on July 30, 2021.

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

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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 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.

As of September 30, 2021, the Company had $320.1 million in unused commitments, compared to $247.3 million in unused commitments as of December 31, 2020.

Capital Resources.

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.

As of September 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 June 30, 2021 (Unaudited)

As of September 30, 2021 (Unaudited)

Total capital (to risk weighted assets) $ 181,257 13.6 % $ 106,602 > = 8.0 % $ 133,252 > = 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 June 30, 2021, the Bank was categorized as “Well Capitalized” under Prompt Corrective Action Provisions, as determined by the OCC, our primary regulator.

At September 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 June 30, 2021 (Unaudited)

As of September 30, 2021 (Unaudited)

Total capital (to risk weighted assets) $ 175,558 13.2 % $ 106,602 > = 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