What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-04 compared with 2022-05-04 · 215 added, 142 removed, 553 unchanged (39% 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, 2021, filed with the SEC on March 2, 2022 (“2021 10-K”), the matters described in “Risk Factors” in Item 1A of this Form 10-Q, and the following:

• conditions in the financial markets and economic conditions generally;

30 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, 2022, and our consolidated results of operations for the three months ended March 31, 2022, compared to the same period in the prior fiscal year for the three months ended March 31, 2021.

The following discussion sets forth management’s discussion and analysis of our consolidated financial condition as of June 30, 2022, and our consolidated results of operations for the three and six months ended June 30, 2022, compared to the same periods in the prior fiscal year for the three and six months ended June 30, 2021.

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 2021 10-K.

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In our opinion, the allowance, when taken as a whole, reflects estimated probable loan losses in our loan portfolio.

We will adopt ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), “Measurement of Credit Losses on Financial Instruments” through a cumulative-effect adjustment on January 1, 2023.

We have selected a loss estimation methodology, utilizing a third-party model, and are currently finalizing our process for model utilization.

The impact of adoption on our financial condition and results of operations cannot yet be definitively determined due to the sensitivity of the model to various inputs and changing economic forecasts.

We account for goodwill and other intangible assets in accordance with ASC Topic 350, “Intangibles - Goodwill and Other.” The Company records the excess of the cost of acquired entities over the fair value of identifiable tangible and intangible assets acquired, less liabilities assumed, as goodwill.

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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, 2022, which is related to its banking activities.

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, 2022, 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, 2021.

19 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, 2022, management does not believe a valuation allowance related to the realizability of its deferred tax assets is necessary.

As of June 30, 2022, 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-month periods ended March 31, 2022, and March 31, 2021, respectively.

Net interest income was $13.2 million for the three months ended March 31, 2022, compared to $12.8 million for the three months ended March 31, 2021.

Net interest income for the three months ended March 31, 2022, increased from the same period one year ago due to:

1) both the organic loan and investment growth from March 31, 2021;

2) the increase in loans as a percentage of total interest-earning assets, partially due to lower levels of low-yielding cash and cash equivalent;

The narrative below discusses net interest income, interest rate spread, and net interest margin for the three and six-month periods ended June 30, 2022, and June 30, 2021, respectively.

Net interest income was $14.3 million for the three months ended June 30, 2022, and $27.4 million for the six months ended June 30, 2022, compared to $12.8 million for the three months ended June 30, 2021, and $25.6 million for the six months ended June 30, 2021.

Net interest income for the three and six months ended June 30, 2022, increased from the same period one year ago due to 1) both organic loan and investment growth from June 30, 2021;

2) the positive impact of nonaccrual loan payoffs and purchased loan credit impairment accretion;

3) increases in loan and investment yields due to both contractual repricing and higher coupons on new loans in excess of portfolio yield;

and 4) lower liability costs.

This was partially offset by a $1.5 million dollar decrease in the accretion of deferred fees related to SBA Paycheck Protection Program (“SBA PPP”) loans for the quarter ended March 31, 2022, compared to the prior year quarter.

The net interest margin for the three-month period ended March 31, 2022, was 3.25%, compared to 3.31% for the three-month period ended March 31, 2021.

The net interest margin decrease was due to a 36-basis point decrease in SBA PPP deferred loan fee accretion in loan yields, partially offset by 1) the positive impact of investing lower yield cash into investment securities, 2) lower liability costs, and 3) the favorable impact of lower yielding deposits increasing as a percentage of interest-bearing liabilities.

This was partially offset by $1.3 million and $2.8 million decreases in the accretion of deferred fees related to SBA Paycheck Protection Program (“SBA PPP”) loans for the three and six months ended June 30, 2022, respectively, compared to the prior year periods.

The net interest margin for the three-month period ended June 30, 2022, was 3.46%, compared to 3.22% for the three-month period ended June 30, 2021.

The net interest margin increase was due to 1) the positive impact of nonaccrual loan payoffs with purchased loan credit impairment accretion and interest income recognition of 10bp;

2) increases in loan and investment yields due to both contractual repricing and higher coupons on new loans in excess of portfolio yield;

and 3) lower deposit costs, partially offset by 1) a 32-basis point decrease in SBA PPP deferred loan fee accretion in loan yields and 2) the impact of additional interest expense on the subordinated debt issued in March of 2022.

The net interest margin for the six-month period ended June 30, 2022, was 3.35%, compared to 3.26% for the six-month period ended June 30, 2021.

The net interest margin increase was due to 1) the positive impact of nonaccrual loan payoffs with purchased loan credit impairment accretion and interest income recognition of 5bp ;

2) increases in loan and investment yields due to both contractual repricing and higher coupons on new loans in excess of portfolio yield;

3) lower deposit costs and 4) the positive impact of investing lower yield cash into investment securities;

partially offset by a 35-basis point decrease in SBA PPP deferred loan fee accretion in loan yields and the impact of additional interest expense of the subordinated debt issued in March 2022.

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, 2022, and March 31, 2021.

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, 2022, and June 30, 2021.

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 March 31, 2022 compared to the three months ended March 31, 2021:

Three months ended March 31, 2022 Three months ended March 31, 2021

Three months ended June 30, 2022 compared to the three months ended June 30, 2021:

Three months ended June 30, 2022 Three months ended June 30, 2021

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, 2022 and March 31, 2021.

The FTE adjustment to net interest income included in the rate calculations totaled $1 thousand for both the three months ended March 31, 2022 and March 31, 2021, 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, 2022 and June 30, 2021.

The FTE adjustment to net interest income included in the rate calculations totaled $0 and $1 thousand for the three months ended June 30, 2022 and June 30, 2021, respectively.

NET INTEREST INCOME ANALYSIS ON A TAX EQUIVALENT BASIS

(Dollar amounts in thousands)

Six months ended June 30, 2022 compared to the six months ended June 30, 2021:

Six months ended June 30, 2022 Six months ended June 30, 2021

Balance Interest

Expense Average

Rate (1) Average

Balance Interest

Expense Average

Average interest earning assets:

Cash and cash equivalents $ 30,174 $ 56 0.37 % $ 121,557 $ 57 0.09 %

Loans 1,316,469 28,660 4.39 % 1,199,925 28,477 4.79 %

Interest-bearing deposits 1,510 15 2 % 2,591 29 2.26 %

Investment securities (1) 286,789 3,009 2.1 % 243,492 2,193 1.82 %

Other investments 15,112 339 4.52 % 15,029 342 4.59 %

Total interest earning assets (1) $ 1,650,054 $ 32,079 3.92 % $ 1,582,594 $ 31,098 3.96 %

Average interest bearing liabilities:

Savings accounts $ 227,687 $ 219 0.19 % $ 208,787 $ 182 0.18 %

Demand deposits 410,678 517 0.25 % 345,576 507 0.30 %

Money market 311,524 503 0.33 % 256,391 384 0.30 %

CD’s 147,696 687 0.94 % 253,063 1,911 1.52 %

IRA’s 36,381 127 0.70 % 40,421 251 1.25 %

Total deposits $ 1,133,966 $ 2,053 0.37 % $ 1,104,238 $ 3,235 0.59 %

FHLB Advances and other borrowings 176,139 2,592 2.97 % 175,922 2268 2.60 %

Total interest bearing liabilities $ 1,310,105 $ 4,645 0.71 % $ 1,280,160 $ 5,503 0.87 %

Net interest income $ 27,434 $ 25,595

Interest rate spread 3.21 % 3.09 %

Net interest margin (1) 3.35 % 3.26 %

Average interest earning assets to average interest bearing liabilities 1.26 1.24

(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, 2022 and June 30, 2021.

The FTE adjustment to net interest income included in the rate calculations totaled $1 and $2 thousand for the six-month periods ended June 30, 2022 and June 30, 2021, respectively.

Rate/Volume Analysis.

The following table presents the dollar amount of changes in interest income and interest expense for the components of interest earning assets and interest-bearing liabilities that are presented in the preceding table.

The following tables presents the dollar amount of changes in interest income and interest expense for the components of interest earning assets and interest-bearing liabilities that are presented in the preceding table.

For each category of interest earning assets and interest-bearing liabilities, information is provided on changes attributable to:

2 unchanged sentences

Rate changes have been discussed previously in the net interest income section above.

For the three months ended March 31, 2022, compared to the same periods in 2021, the loan volume increased due to strong organic growth.

For the three and six months ended June 30, 2022, compared to the same periods in 2021, the loan volume increased due to strong organic 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 CD shrinkage.

The decrease in certificate volumes is due to CD shrinkage, with some of this decrease moving to money markets.

RATE / VOLUME ANALYSIS

(Dollar amounts in thousands)

Three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Three months ended June 30, 2022 compared to the three months ended June 30, 2021.

Increase (decrease) due to

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Net interest income $ 1,629 $ (193) $ 1,436

Six months ended June 30, 2022 compared to the six months ended June 30, 2021.

Increase (decrease) due to

Volume Rate Net

Interest income:

Cash and cash equivalents $ (107) $ 106 $ (1)

Loans 2,648 (2,465) 183

Interest-bearing deposits (11) (3) (14)

Investment securities 420 396 816

Other investments 2 (5) (3)

Total interest earning assets 2,952 (1,971) 981

Interest expense:

Savings accounts 17 20 37

Demand deposits 88 (78) 10

Money market accounts 87 32 119

CD’s (597) (627) (1,224)

IRA’s (23) (101) (124)

Total deposits (428) (754) (1,182)

FHLB Advances and other borrowings 3 321 324

Total interest bearing liabilities (425) (433) (858)

Net interest income $ 3,377 $ (1,538) $ 1,839

Provision for Loan Losses.

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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 months ended March 31, 2022, and March 31, 2021, was $0.

The ALL and related need for provision for loan losses for the three months ended March 31, 2022, was positively impacted by reductions in the allocation of the allowance for loan losses for general economic conditions utilizing a Q-factor and the impact of lower loan deferral balances associated with Section 4013 of the Cares Act.

These positive impacts offset increases in specific reserve and modest net loan charge offs.

Total provision for loan losses for both the three and six months ended June 30, 2022, was $0.4 million, compared to no provision for the three and six months ended June 30, 2021.

Based on loan growth alone, the provision would have been $0.950 million for the second quarter.

However, upgrades in the classification of substandard loans due to improving collateral positions and loan payoffs, with $0.55 million of specific reserves at March 31, 2022, partially offset the growth-related provision.

In addition, the majority of the second quarter charge-offs of $0.4 million had been provided for in previous quarters and the charge-offs reduced specific reserves.

There were no loan loss provisions for the quarters ended March 31, 2022, June 30, 2021, or March 31, 2021.

Continued improving economic conditions in our markets, as evidenced by unemployment rates below the national average in our two largest population centers, have resulted in improving overall economic trends for businesses.

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 ALL and related need for no provision was due to loan shrinkage and low net charge-offs.

Management believes that the provision recorded 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.

The ALL and related need for no provision was due to loan shrinkage and low net charge-offs in the previous quarter.

Management believes that the provision recorded for the current year three and six-month period 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 month periods ended March 31, 2022 and 2021, respectively.

Three months ended March 31,

2022 2021 % Change

The following table reflects the various components of non-interest income for the three and six- month periods ended June 30, 2022 and 2021, respectively.

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

2022 2021 % Change 2022 2021 % Change

Non-interest Income:

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Total non-interest income $ 2,372 $ 3,793 (37.46) % $ 5,085 $ 7,969 (36.19) %

Service charges on deposit accounts increased modestly to $488 for the three months ended March 31, 2022, from $398 for the prior year quarter due to higher customer spending activity during the quarter.

Loan servicing income decreased with reduced capitalization of mortgage servicing rights due to lower mortgage loan origination fees in the three-month period ended March 31, 2022.

Gain on sale of loans decreased in the current three-month period ended March 31, 2022, compared to March 31, 2021, due to lower mortgage loan origination volumes, partially offset by a modest increase on the gain on sale of SBA loans.

The change in loan fees and service charges for the three ended March 31, 2022, is largely due to decreases in commercial loan-related customer activity

The change in net gains (losses) on investment securities between the three-month period ended March 31, 2022 and the three-month period ended March 31, 2021, is primarily due to the corresponding change in unrealized gains/losses on equity securities with readily determinable fair value.

Service charges on deposit accounts increased to $482 for the three months ended June 30, 2022, from $395 for the prior year quarter.

For the six months ended June 30, 2022, service charges increased to $970, compared to $793 in the comparable prior year period.

The increase for both periods is due to higher customer spending activity.

Loan servicing income decreased with reduced capitalization of mortgage servicing rights due to lower mortgage loan origination fees in both the three and six-month periods ended June 30, 2022, compared to the same periods in the prior year.

Gain on sale of loans decreased in the current three and six-month periods ended June 30, 2022, compared to the three and six months ended June 30, 2021, due to lower mortgage loan origination volumes.

The change in loan fees and service charges for the three and six months ended June 30, 2022 and 2021, is largely due to decreases in commercial loan-related customer activity.

The change in net gains (losses) on investment securities between the three and six months ended June 30, 2022, and the three and six months ended June 30, 2021, respectively, is primarily due to unrealized losses on equity securities with readily determinable fair value in 2022 and modest realized gain on sale of available for sale securities in 2021.

The change in net gains (losses) on investment securities for the six-month periods ended June 30, 2022 and 2021, is primarily due to the corresponding changes in unrealized gains on equity securities with readily determinable fair value and to a lesser extent, the realized gain on sale of AFS securities in the second quarter of 2021.

Non-interest Expense.

The following table reflects the various components of non-interest expense for the three-month periods ended March 31, 2022 and 2021, respectively.

Three months ended March 31,

2022 2021 % Change

The following table reflects the various components of non-interest expense for the six-month periods ended June 30, 2022 and 2021, respectively.

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

2022 2021 % Change 2022 2021 % Change

Non-interest Expense:

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Amortization of intangible assets 399 399 — % 798 798 — %

Mortgage servicing rights expense, net (327) (450) 27.33 %

Mortgage servicing rights expense, net 195 441 (55.78) % (132) (9) NM

Advertising, marketing and public relations 250 194 28.87 % 462 357 29.41 %

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Gains on repossessed assets, net (2) (29) 93.10 % (9) (146) 93.84 %

New market tax credit depletion 163 — NM

New market tax credit depletion 162 — NM 325 — NM

Other 625 564 10.82 % 1,272 1,136 11.97 %

1 unchanged sentence

Non-interest expense (annualized) / Average assets 2.38 % 2.41 % (1.24) % 2.31 % 2.34 % (1.28) %

Compensation expense for the three-month period ended March 31, 2022, was lower than the comparable prior year period due to 1) lower variable mortgage production compensation related to lower mortgage loan origination activity;

and 2) lower incentive compensation based on performance metrics, including items such as net income and loan growth.

Net mortgage servicing rights expense increased during the three months ended March 31, 2022, compared to the comparable prior year period.

This increase is primarily due to the reversal of previously recognized impairment charges of $1.3 million in 2021, resulting largely from the impact of lower future forecasted prepayment rates.

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

The FDIC insurance premium decreased during the three months ended March 31, 2022, from the comparable prior year period due to the favorable impact of increased bank capital ratios.

Professional services costs decreased due to the need for fewer outside professionals.

Compensation expense for the three-month period ended June 30, 2022, was higher than the comparable prior year period primarily due to merit and benefit increases in late March of 2022, partially offset by lower variable mortgage compensation related to lower mortgage activity.

Compensation expense for the six-month period ended June 30, 2022, was lower than the comparable prior year periods due to lower variable mortgage production compensation related to lower mortgage loan origination activity, partially offset by the impact of the merit raise in 2022.

Net mortgage servicing rights expense decreased during the three months ended June 30, 2022, compared to the comparable prior year period as amortization expense decreased, resulting largely from the impact of lower future forecasted prepayment rates and the quarter ended June 30, 2021, had $23 thousand of impairment reversal.

Amortization expense decreased in the six months ended June 30, 2022, compared to the six months ended June 30, 2021, by $469 thousand.

This was partially offset by a decrease in MSR impairment reversals for the six months ended June 30, 2022, of $566 thousand, compared to the comparable prior year period reversal of $912 thousand.

The FDIC insurance premium increased during the three months ended June 30, 2022, from the comparable prior year periods due to an increase in the assessment base.

The FDIC insurance premium decreased during the six months ended June 30, 2022, from the comparable prior year periods due to the favorable impact of increased bank capital ratios.

Professional services costs decreased during the six months ended June 30, 2022, from the comparable prior year period due to the need for fewer outside professionals, primarily in the first quarter of 2022 compared to the first quarter of 2021, due to lower fees from our independent registered public accounting firm and other costs to prepare our Form 10-K.

Net gains on repossessed assets decreased due to fewer and lower value repossessed property sales resulting in lower corresponding gains on sale.

In the first quarter of 2022, the Bank invested $4.1 million in a New Market Tax Credit.

The related non-tax-deductible asset depletion will occur over a 5-year period in lockstep with the recognition of the tax credit.

Based on current accounting guidance, the related non-tax-deductible asset depletion will occur over a 5-year period in lockstep with the recognition of the tax credit.

The Emerging Issues Task Force of the Financial Accounting Standards Board is in the process of reviewing this accounting and is expected to issue guidance that would change the depletion to seven years proportional with the tax credit.

Income Taxes.

Income tax expense was $1.5 million for the three months ended March 31, 2022, compared to $1.9 million for the three months March 31, 2021.

The effective tax rate was 24.2% for the three-month period ended March 31, 2022, compared to 26.1% for the comparable prior year period.

The lower effective tax rate is due to the impact of the New Markets Tax Credit.

Income tax expense was $1.4 and $2.9 million for the three and six months ended June 30, 2022, respectively, compared to $1.7 and $3.7 million for the three and six months ended June 30, 2021.

The effective tax rate was 24.4% and 24.3% for the three and six-month periods ended June 30, 2022, compared to 26.8% and 26.4% for the comparable prior year periods.

The lower effective tax rate is due to the impact of the New Market Tax Credit.

The lower tax expense is due to both the lower effective tax rate and lower pre-tax income.

1 unchanged sentence

Cash and Cash Equivalents.

This balance increased $36.7 million in the first quarter of 2022 as the net cash increase resulting from deposit growth and loan shrinkage was not yet fully invested in our securities portfolios.

Our cash balances decreased $15.9 million to $31.7 million in the first half of 2022 as we deployed cash to support loan growth.

Investment Securities.

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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 $187.9 million at March 31, 2022, compared with $203.1 million at December 31, 2021.

The decrease in the available for sale portfolio is due to unrealized losses of $9.8 million and principal repayments.

Securities held to maturity increased to $104.9 million at March 31, 2022, compared to $71.1 million at December 31, 2021.

Securities available for sale, which represent the majority of our investment portfolio, were $177.1 million at June 30, 2022, compared with $203.1 million at December 31, 2021.

The decrease in the available for sale portfolio is due to unrealized losses of $17.2 million and principal repayments, partially offset by purchases of corporate debt securities and mortgage-backed certificates.

Securities held to maturity increased to $99.2 million at June 30, 2022, compared to $71.1 million at December 31, 2021.

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

The unrealized loss on this portfolio increased by $7.0 million in the quarter.

The unrealized loss on the held to maturity portfolio increased by $12.5 million in the first half of 2022, to $14.5 million.

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, 2022

June 30, 2022

government agency obligations $ 21,677 $ 21,862

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Held to maturity securities Amortized

March 31, 2022

June 30, 2022

Obligations of states and political subdivisions $ 600 $ 561

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

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:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Held to maturity securities Amortized

4 unchanged sentences

Total $ 99,249 $ 84,788 $ 71,141 $ 69,177

As of March 31, 2022, the Bank has pledged U.S.

At June 30, 2022, the Bank has pledged mortgage-backed securities with a carrying value of $5.6 million as collateral against a borrowing line of credit with the Federal Reserve Bank with no borrowings outstanding on this line of credit.

As of June 30, 2022, the Bank has pledged U.S.

Government Agency securities with a carrying value of $3.0 million and mortgage-backed securities with a carrying value of $2.5 million as collateral against specific municipal deposits.

At March 31, 2022, the Bank has pledged mortgage-backed securities with a carrying value of $5.8 million as collateral against a borrowing line of credit with the Federal Reserve Bank.

However, as of March 31, 2022, there were no borrowings outstanding on this Federal Reserve Bank line of credit.

As of March 31, 2022, the Bank also has mortgage-backed securities with a carrying value of $0.2 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

As of June 30, 2022, the Bank also has mortgage-backed securities with a carrying value of $0.2 million pledged as collateral to the Federal Home Loan Bank of Des Moines.

At December 31, 2021, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $0.9 million as collateral to secure a line of credit with the Federal Reserve Bank with no borrowings outstanding on this line of credit.

As of December 31, 2021, the Bank has pledged certain of its U.S.

Government Agency securities with a carrying value of $3.9 million and mortgage-backed securities with a carrying value of $2.9 million as collateral against specific municipal deposits.

At December 31, 2021, the Bank has pledged certain of its mortgage-backed securities with a carrying value of $0.8 million as collateral to secure a line of credit with the Federal Reserve Bank.

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

As of December 31, 2021, the Bank also has mortgage-backed securities with a carrying value of $0.2 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 $20.8 million, to $1.29 billion as of March 31, 2022, from $1.31 billion at December 31, 2021.

The originated loan portfolio, before SBA PPP loans, decreased $1.1 million in the three-month period.

We experienced approximately $27 million of loan payoffs in the originated loan portfolio during the quarter ended March 31, 2022, that we expected to be received in the fourth quarter of 2021.

Total loans outstanding, net of deferred loan fees and costs and unamortized discount on acquired loans, increased by $35.9 million, to $1.35 billion as of June 30, 2022, from $1.31 billion at December 31, 2021.

The originated loan portfolio, before SBA PPP loans, increased $67.3 million in the six-month period of 2022.

Total SBA PPP loans decreased $8.8 million, entirely due to debt forgiveness.

Acquired loans decreased by $23.8 million.

The following table reflects the composition, or mix, of our loan portfolio at March 31, 2022, and December 31, 2021:

March 31, 2022 December 31, 2021

The following table reflects the composition, or mix, of our loan portfolio at June 30, 2022, and December 31, 2021:

June 30, 2022 December 31, 2021

Amount Percent Amount Percent

25 unchanged sentences

Total loans receivable, net $ 1,330,030 $ 1,294,050

The following table summarizes SBA PPP loans by origination year at March 31, 2022:

The following table summarizes SBA PPP loans by origination year at June 30, 2022:

2020 Originations 2021 Originations Total

5 unchanged sentences

2022 SBA PPP loan forgiveness and fee accretion (2,128) (4) (6,627) (293) (8,755) (297)

SBA PPP loans, March 31, 2022 $ 1,242 $ 1 $ 829 $ 38 $ 2,071 $ 39

SBA PPP loans, June 30, 2022 $ — $ — $ — $ — $ — $ —

Allowance for Loan Losses.

19 unchanged sentences

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, 2022, the Company individually evaluated loans for impairment with a recorded investment of $33.7 million, consisting of (1) $10.7 million purchased credit impaired (“PCI”) loans, with a carrying amount of $10.2 million;

At June 30, 2022, the Company individually evaluated loans for impairment with a recorded investment of $29.4 million, consisting of (1) $8.5 million purchased credit impaired (“PCI”) loans, with a carrying amount of $8.1 million;

(2) $7.1 million TDR loans, net of TDR PCI loans;

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The $31.7 million total of loans individually evaluated for impairment includes $8.0 million of performing TDR loans.

At March 31, 2022, and December 31, 2021, we had 237 and 235 loans individually evaluated for impairment, respectively, all secured by real estate or personal property.

Of the originated loans individually evaluated for impairment, there were 13 loans where the estimated fair value was less than their book value (i.e., we deemed impairment to exist) totaling $7.2 million for which $1.7 million in specific ALL was recorded as of March 31, 2022.

The allowance for loan losses modestly decreased $0.1 million to $16.8 million at March 31, 2022, representing 1.31% of loans receivable, less the 100% SBA guaranteed PPP loans.

At June 30, 2022, and December 31, 2021, we had 201 and 235 loans individually evaluated for impairment, respectively, all secured by real estate or personal property.

Of the originated loans individually evaluated for impairment, there were 43 loans where the estimated fair value was less than their book value (i.e., we deemed impairment to exist) totaling $5.5 million for which $0.26 million in specific ALL was recorded as of June 30, 2022.

The allowance for loan losses modestly decreased $0.1 million to $16.8 million at June 30, 2022, representing 1.25% of loans receivable.

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

$16.9 million at December 31, 2021, representing 1.30% of loans receivable, less the 100% SBA guaranteed PPP loans.

The decrease in the allowance at March 31, 2022, was due to modest loan charge-offs.

The allowance for loan losses was $16.9 million at December 31, 2021, representing

1.30% of loans receivable, less the 100% SBA guaranteed PPP loans.

The decrease in the allowance at June 30, 2022, was due to net loan charge-offs, partially offset by a provision of $0.4 million.

Approximately $350 thousand of the charge-offs in the second quarter had specific reserves previously established, so there was no impact on the provision for loan losses.

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

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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, 2022 and Three Months Then Ended December 31, 2021 and Twelve Months Then Ended

June 30, 2022 and Six Months Then Ended December 31, 2021 and Twelve Months Then Ended

Nonperforming assets:

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(in thousands, except ratios)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Nonperforming assets:

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Acquired NPAs to total assets 0.23 % 0.39 %

Nonperforming assets increased by $0.4 million to $13.6 million at March 31, 2022 from December 31, 2021.

This increase is largely due to an increase in accruing loans past due 90 days or more.

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, 2022 December 31, 2021 September 30, 2021 June 30, 2021 March 31, 2021

June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021 June 30, 2021

Balance, beginning of period $ 11,858 $ 11,665 $ 11,706 $ 8,075 $ 8,678

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Balance, end of period $ 10,434 $ 11,858 $ 11,665 $ 11,706 $ 8,075

Nonaccrual TDR loans increased to $4.6 million at March 31, 2022 from $4.5 million at December 31, 2021.

Accruing troubled debt restructurings decreased $2.4 million to $5.6 million largely due to the payoff of a $3.5 million loan, partially offset by modest additions.

March 31, 2022 December 31, 2021

Nonperforming loans decreased by $0.7 million to $11.1 million at June 30, 2022, from December 31, 2021.

This decrease is largely due to payoffs of acquired nonaccrual loans, partially offset by increases in originated nonaccrual loans and originated accruing loans past due 90 days or more.

Nonperforming assets decreased to $12.6 million or 0.71% of total assets at June 30, 2022, compared to $13.2 million, or 0.76% of total assets at December 31, 2021.

Included in nonperforming assets at June 30, 2022, are $4.1 million of nonperforming assets acquired during recent whole-bank acquisitions.

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.

Included in the above table are nonaccrual TDR loans.

Nonaccrual TDR loans decreased to $2.5 million at June 30, 2022, from $4.5 million at December 31, 2021.

June 30, 2022 December 31, 2021

Modifications Recorded

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Total loans 53 $ 6,163 56 $ 7,984

Classified assets increased to $24.8 million at March 31, 2022, from $22.8 million at December 31, 2021, largely due to the new classification of $3.8 million in five agricultural relationships, with residential non-performing loans (nonaccrual and ninety days delinquent) and other smaller relationships offsetting the payoff of a substandard accruing troubled debt restructuring of $3.5 million.

Nonperforming assets increased to $13.6 million or 0.77% of total assets at March 31, 2022 compared to $13.2 million, or 0.76% of total assets at December 31, 2021.

Included in nonperforming assets at March 31, 2022, are $6.6 million of nonperforming assets acquired during recent whole-bank acquisitions.

Accruing troubled debt restructurings decreased $1.8 million to $6.2 million largely due to the payoff of a $3.3 million loan in the first quarter, partially offset by modest additions.

The table below shows a summary of criticized loans for the past five quarters, with the decrease largely due to decreases in special mention loans.

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(in thousands)

2022 March 31,

2022 December 31,

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2021 June 30,

2021 March 31,

Special mention loan balances $ 17,274 $ 1,849 $ 4,536 $ 2,548 $ 12,308

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Criticized loans, end of period $ 37,954 $ 26,671 $ 27,353 $ 29,685 $ 38,198

Classified assets decreased to $20.7 million at June 30, 2022, from $22.8 million at December 31, 2021, largely due to non-accruing loan payoffs, along with the first quarter payoff of a substandard accruing troubled debt restructuring loan of $3.3 million partially offset by the new classification of $3.8 million of five agricultural relationships in the first quarter.

Special mention loans increased $15.4 million in the quarter, primarily due to the addition of two loans in the second quarter of 2022.

One is a commercial real estate loan for $5.4 million secured by a hotel (50% LTV at origination) and has rebounded more slowly from the pandemic due to reliance on seasonal events and company meetings.

Performance year to date and bookings show good progress.

The second special mention loan is a $10.4 million C&I fully secured working capital loan.

Negotiations are ongoing with the borrower to improve the loan structure and cash flow of the business.

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 $96 million and $47 million, respectively, at March 31, 2022.

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

sector loans were 58% and 2.5 times, respectively.

These sector loans totaled approximately $97 million and $48 million, respectively, at June 30, 2022.

The weighted-average loan-to-value percentage and debt service coverage ratio on these hotel industry sector loans were 61% and 2.6 times, respectively.

Approximately $35.0 million of restaurant sector loans are to franchise quick-service restaurants.

As of March 31, 2022, the Bank had $0.4 million of remaining residential mortgage loan modifications, due to pandemic-related borrower requests.

As of March 31, 2022, all previously deferred commercial loans have exited deferral status.

As of June 30, 2022, the Bank had $0.4 million of remaining residential mortgage loan modifications, due to pandemic-related borrower requests.

As of June 30, 2022, all previously deferred commercial loans have exited deferral status.

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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In addition, the Company has $1.35 million of accretable discount from purchased impaired loans with the original non-accretable discount transferred to accretable discount.

The scheduled accretion on this balance is estimated to be $100 thousand per year;

The scheduled accretion on this balance is estimated to be approximately $100 thousand per year;

however, large balance payoffs, as seen in 2021 and 2020, would accelerate this accretion.

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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 $4.3 million at December 31, 2021, to $5.3 million at March 31, 2022, primarily due to higher future forecasted interest rates and resulting lower forecasted prepayments.

As a result, $0.6 million of previously recorded impairments on the MSR asset was reversed during the three-month period ended March 31, 2022.

At March 31, 2022, the Company had no MSR impairment, or related valuation allowance.

The unpaid balances of one- to four-family residential real estate loans serviced for others as of March 31, 2022, and December 31, 2021, were $552.2 million and $556.1 million, respectively.

The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at March 31, 2022, and December 31, 2021, was 0.95% and 0.78%, respectively.

Deposits increased $40.7 million to $1.43 billion at March 31, 2022, from $1.39 billion at December 31, 2021.

The fair market value of the Company’s MSR asset increased from $4.3 million at December 31, 2021, to $5.5 million at June 30, 2022, primarily due to higher future forecasted interest rates and resulting lower forecasted prepayments.

As a result, $0.6 million of previously recorded impairment on the MSR asset was reversed during the three-month period ended March 31, 2022.

At June 30, 2022, the Company did not have an MSR impairment, or related valuation allowance.

The unpaid balances of one- to four-family residential real estate loans serviced for others as of June 30, 2022, and December 31, 2021, were $544.7 million and $556.1 million, respectively.

The fair market value of the Company’s MSR asset as a percentage of its servicing portfolio at June 30, 2022, and December 31, 2021, was 1.01% and 0.78%, respectively.

Deposits increased $12.7 million to $1.40 billion at June 30, 2022, from $1.39 billion at December 31, 2021.

The increase was due in part to seasonal factors related to taxes and two large retail and one large commercial deposit.

These large deposits totaling $19 million are approximately evenly split between retail and commercial deposits and are expected to decrease substantially over the next three quarters.

This growth was partially offset by retail certificates of deposit decreasing by $30.0 million, as the Company chose not to match higher rate local retail certificate competition.

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

The following is a summary of deposits by type at March 31, 2022 and December 31, 2021, respectively:

March 31, 2022 December 31, 2021

large deposits totaling $19 million are approximately evenly split between retail and commercial deposits and are expected to decrease substantially over the next three quarters.

This growth was partially offset by retail certificate of deposit account balances decreasing by $49.5 million from December 31, 2021, as the Company chose not to match higher rate local retail certificate competition.

In addition, some of the decrease in retail certificates has moved to money market accounts.

The following is a summary of deposits by type at June 30, 2022 and December 31, 2021, respectively:

June 30, 2022 December 31, 2021

Non-interest bearing demand deposits $ 276,815 $ 276,631

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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, 2022 and December 31, 2021 is as follows:

March 31, 2022 December 31, 2021

A summary of Federal Home Loan Bank (FHLB) advances and other borrowings at June 30, 2022 and December 31, 2021 is as follows:

June 30, 2022 December 31, 2021

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

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Totals $ 189,154 $ 169,953

(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 $931,498 and $861,900 at March 31, 2022 and December 31, 2021, respectively.

At March 31, 2022, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $240,412 compared to $204,271 as of December 31, 2021.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $111,530 and $123,530, during the three months ended March 31, 2022 and the twelve months ended December 31, 2021, respectively.

(3) There are no FHLB borrowings maturing within twelve months of March 31, 2022.

The weighted-average interest rate on FHLB borrowings maturing within twelve months as of and December 31, 2021 was 2.45%.

(4) FHLB term notes totaling $55,000 can be called or replaced by the FHLB on a quarterly basis, and if not called, will mature at various dates in 2029 and 2030.

(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 $920,774 and $861,900 at June 30, 2022 and December 31, 2021, respectively.

At June 30, 2022, the Bank’s available and unused portion under the FHLB borrowing arrangement was approximately $230,585 compared to $204,271 as of December 31, 2021.

(2) Maximum month-end borrowed amounts outstanding under this borrowing agreement were $111,530 and $123,530, during the six months ended June 30, 2022 and the twelve months ended December 31, 2021, respectively.

(3) The weighted-average interest rate on FHLB borrowings maturing within twelve months as of June 30, 2022 and December 31, 2021 were 1.66% and 2.45%, respectively.

(4) At June 30, 2022, FHLB term notes totaling $27,500 can be called or replaced by the FHLB on a quarterly basis, and if not called, will mature at various dates in 2029.

At December 31, 2021, FHLB term notes totaling $55,000 could be called or replaced by the FHLB on a quarterly basis, and if not called, would mature at various dates in 2029 and 2030.

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

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Interest is variable, based on US Prime rate minus 75 basis points with a floor rate of 3.00%.

(b) A $5,000 line of credit, maturing in August 2022, that remains undrawn upon.

(b) A $5,000 line of credit, maturing August 1, 2022, that remains undrawn upon.

The line was renewed on August 1, 2022 and will mature on August 1, 2023.

(6) Subordinated notes resulted from the following:

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Interest-only payments are due quarterly.

The company sent the required notice to the note holders in June 2022, and this subordinated note will be called and repaid in full on August 10, 2022.

(b) The Company’s Subordinated Note Purchase Agreement entered into with certain purchasers in August 2020, which bears a fixed interest rate of 6.00% for five years.

6 unchanged sentences

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

FHLB advances decreased $26.0 million to $85.5 million as of March 31, 2022, compared to $111.5 million as of December 31, 2021.

FHLB advances decreased $9.5 million to $102.0 million as of June 30, 2022, compared to $111.5 million as of December 31, 2021.

The Bank terminated $15.0 million of advances in the quarter ended March 31, 2022, incurring a $0.002 million prepayment penalty, as we modestly reduced excess liquidity.

In addition, $11 million of FHLB advances matured in the quarter and were not replaced.

In the quarter ended June 30, 2022, $27.5 million of FHLB advances were called by the FHLB.

The remaining callable term notes are expected to be called in the third quarter of 2022.

The Bank added a $5 million advance maturing in the second quarter of 2023 and the Bank had $34 million of FHLB advances maturing overnight.

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, 2022, is approximately $240.4 million.

At both March 31, 2022 and December 31, 2021, 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, 2022, is approximately $190.4 million.

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

At March 31, 2022, the Bank has pledged $931.5 million of loans to secure the current FHLB outstanding advances and letters of credit and to provide the unused borrowing capacity, compared to $861.9 million of loans pledged at December 31, 2021.

At June 30, 2022, the Bank has pledged $920.8 million of loans to secure the current FHLB outstanding advances and letters of credit and to provide the unused borrowing capacity, compared to $861.9 million of loans pledged at December 31, 2021.

Stockholders’ Equity.

Total stockholders’ equity was $165.5 million at March 31, 2022, compared to $170.9 million at December 31, 2021.

The decrease in stockholder’s equity was attributable to 1) the $7.1 million decrease in accumulated other comprehensive income, as the previously unrealized gain on available for sale securities of $0.16 million transitioned to a $6.96 million unrealized loss;

Total stockholders’ equity was $164.7 million at June 30, 2022, compared to $170.9 million at December 31, 2021.

The decrease in stockholder’s equity was attributable to 1) the $12.4 million decrease in accumulated other comprehensive income due to an increase in unrealized loss on available for sale securities;

2) the payment of the annual cash dividend paid in February to common stockholders of $0.26 per share or $2.7 million, and 3) the repurchase of approximately 18 thousand shares of the Company’s common stock, which reduced equity by $0.3 million.

This was partially offset by net income of $4.7 million.

These reductions to equity were partially offset by net income of $9.1 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 eighteen thousand shares, were repurchased during the quarter ended March 31, 2022.

Under this new share repurchase program, no shares were repurchased during the current quarter and approximately eighteen thousand shares were repurchased during the six months ended June 30, 2022.

The Company is authorized to repurchase an additional 354 thousand shares under this July 2021 share repurchase program.

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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, 2022, our on-balance sheet liquidity ratio was 18.7%.

At June 30, 2022, our on-balance sheet liquidity ratio was 14.7%.

While scheduled payments from the amortization of loans and investment securities 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 $149.6 million of our $173.0 million (86.49%) March 31, 2022, 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 March 31, 2022, the Bank had approximately $72.5

million of certificate of deposit accounts maturing in the second quarter of 2022, with a weighted average cost of approximately 1.50%, and approximately $56.3 million of certificate of deposit accounts maturing in the second half of 2022.

Although $101.2 million of our $153.5 million (65.9%) June 30, 2022, 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 June 30, 2022, the Bank had approximately $65.1 million of certificate of deposit accounts maturing in the second half of 2022, with a weighted average cost of approximately 0.67%.

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 March 31, 2022, we had approximately $240.4 million available under this arrangement, supported by loan collateral, as compared to $204.2 million at December 31, 2021.

In July 2021, the Bank pledged the remaining 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.

As of June 30, 2022, we had approximately $230.6 million available under this arrangement, supported by loan collateral, as compared to $204.2 million at December 31, 2021.

We maintain a line of credit with the Federal Reserve Bank which has a $1.0 million capacity, based on our current pledged collateral position.

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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, 2022, the Company had $288.0 million in unused commitments, compared to $271.0 million in unused commitments as of December 31, 2021.

As of June 30, 2022, the Company had $257.5 million in unused commitments, compared to $271.0 million in unused commitments as of December 31, 2021.

Capital Resources.

As of March 31, 2022 and December 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, 2022 and December 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.

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, 2022 (Unaudited)

As of June 30, 2022 (Unaudited)

Total capital (to risk weighted assets) $ 213,799 14.3 % $ 119,200 > = 8.0 % $ 149,000 > = 10.0 %

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Tier 1 leverage ratio (to adjusted total assets) 170,870 10.0 % 68,323 > = 4.0 % 85,403 > = 5.0 %

At March 31, 2022 and December 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, 2022 and December 31, 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, 2022 (Unaudited)

As of June 30, 2022 (Unaudited)

Total capital (to risk weighted assets) $ 224,247 15.1 % $ 119,200 > = 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