What changed in this filing

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Item 1. Financial Statements

2021-07-30 compared with 2021-04-30 · 200 added, 128 removed, 1175 unchanged (22% of the section changed)

32 unchanged sentences

Preferred stock, $ 0.01 par value, 2,500,000 shares authorized, no ne issued or outstanding

Common stock, $ 0.01 par value, 25,000,000 shares authorized, 9,320,490 and 9,234,460 shares issued, 8,638,195 and 8,566,960 shares outstanding at March 31, 2021 and December 31, 2020, respectively

Common stock, $ 0.01 par value, 25,000,000 shares authorized, 9,323,605 and 9,234,460 shares issued, 8,617,761 and 8,566,960 shares outstanding at June 30, 2021 and December 31, 2020, respectively

Additional paid-in capital 84,343 83,125

1 unchanged sentence

Accumulated other comprehensive loss ( 763 ) ( 933 )

Treasury stock, 682,295 and 667,500 shares at March 31, 2021 and December 31, 2020, respectively, at cost

Treasury stock, 705,844 and 667,500 shares at June 30, 2021 and December 31, 2020, respectively, at cost

( 17,521 ) ( 16,553 )

4 unchanged sentences

Consolidated Statements of Income (Unaudited)

For the Three Months Ended March 31,

For the Three Months Ended June 30, For the Six Months Ended June 30,

2021 2020 2021 2020

(In Thousands, Except Per Share Data)

18 unchanged sentences

Increase in cash surrender value of bank-owned life insurance

Net loss on sale of securities — ( 4 )

350 377 699 672

Net gain (loss) on sale of securities 29 — 29 ( 4 )

Swap fees — 1,655 684 3,336

11 unchanged sentences

Collateral liquidation costs 84 115 178 236

Net loss on foreclosed properties 3 102

Net (gain) loss on foreclosed properties ( 1 ) 348 1 450

Impairment of tax credit investments — 1,841 — 1,954

SBA recourse (benefit) provision ( 130 ) 25

SBA recourse provision (benefit) 245 ( 30 ) 115 ( 5 )

Loss on early extinguishment of debt — 744 — 744

Other non-interest expense 176 545 582 1,359

Total non-interest expense 18,184 18,343 35,514 34,488

Income before income tax expense 12,796 4,136

Income tax expense 3,065 858

Income before income tax expense (benefit) 10,747 1,395 23,543 5,531

Income tax expense (benefit) 2,512 ( 1,928 ) 5,577 ( 1,070 )

Net income $ 8,235 $ 3,323 $ 17,966 $ 6,601

6 unchanged sentences

Consolidated Statements of Comprehensive Income (Unaudited)

For the Three Months Ended March 31,

For the Three Months Ended June 30, For the Six Months Ended June 30,

2021 2020 2021 2020

(In Thousands)

Net income $ 8,235 $ 3,323 $ 17,966 $ 6,601

Other comprehensive (loss) income, before tax

Other comprehensive income (loss), before tax

Securities available-for-sale:

Unrealized securities (losses) gains arising during the period ( 2,238 ) 4,501

Reclassification adjustment for net loss realized in net income — 4

Unrealized securities gains (losses) arising during the period 662 ( 264 ) ( 1,576 ) 4,237

Reclassification adjustment for net (gain) loss realized in net income ( 29 ) — ( 29 ) 4

Securities held-to-maturity:

1 unchanged sentence

Interest rate swaps:

Unrealized gains (losses) on interest rate swaps arising during the period 2,089 ( 3,625 )

Income tax benefit (expense) 36 ( 227 )

Total other comprehensive (loss) gain ( 105 ) 663

Unrealized (losses) gains on interest rate swaps arising during the period ( 271 ) ( 418 ) 1,818 ( 4,043 )

Income tax (expense) benefit ( 94 ) 171 ( 58 ) ( 56 )

Total other comprehensive income (loss) 275 ( 501 ) 170 162

Comprehensive income $ 8,510 $ 2,822 $ 18,136 $ 6,763

19 unchanged sentences

Balance at March 31, 2020 8,571,134 $ 92 $ 81,605 $ 130,973 $ ( 685 ) $ ( 16,328 ) $ 195,657

Net income — — — 3,323 — — 3,323

Other comprehensive loss — — — — ( 501 ) — ( 501 )

Share-based compensation - restricted shares, net 5,357 — 516 — — — 516

Cash dividends ( $ 0.165 per share)

— — — ( 1,414 ) — — ( 1,414 )

Treasury stock purchased ( 1,357 ) — — — — ( 19 ) ( 19 )

Balance at June 30, 2020 8,575,134 $ 92 $ 82,121 $ 132,882 $ ( 1,186 ) $ ( 16,347 ) $ 197,562

Common Shares Outstanding Common

14 unchanged sentences

Balance at March 31, 2021 8,638,195 $ 93 $ 83,694 $ 148,621 $ ( 1,038 ) $ ( 16,879 ) $ 214,491

Net income — — — 8,235 — — 8,235

Other comprehensive income — — — — 275 — 275

Share-based compensation - restricted shares and employee stock purchase plan 1,421 — 607 — — — 607

Issuance of common stock under the employee stock purchase plan 1,694 — 42 — — — 42

Cash dividends ($ 0.18 per share)

— — — ( 1,556 ) — — ( 1,556 )

Treasury stock purchased ( 23,549 ) — — — — ( 642 ) ( 642 )

Balance at June 30, 2021 8,617,761 $ 93 $ 84,343 $ 155,300 $ ( 763 ) $ ( 17,521 ) $ 221,452

See accompanying Notes to Unaudited Consolidated Financial Statements.

1 unchanged sentence

Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

(In Thousands)

5 unchanged sentences

Provision for loan and lease losses ( 3,026 ) 8,651

SBA recourse (benefit) provision ( 130 ) 25

SBA recourse provision (benefit) 115 ( 5 )

Derivative credit valuation adjustment ( 376 ) —

Depreciation, amortization and accretion, net 1,845 1,637

Loss on disposal of equipment 56 —

Share-based compensation 1,138 933

Net loss on sale of securities — 4

Net (gain) loss on sale of securities ( 29 ) 4

Increase in bank-owned life insurance policies ( 699 ) ( 672 )

3 unchanged sentences

Net loss on foreclosed properties, including impairment valuation 1 450

Excess tax benefit from share-based compensation ( 7 ) 18

Loan servicing right impairment valuation ( 78 ) —

Excess tax (benefit) expense from share-based compensation ( 16 ) 19

Payments on operating lease liabilities ( 788 ) ( 775 )

1 unchanged sentence

Net increase in accrued interest receivable and other assets ( 1,152 ) ( 50,989 )

Net increase in accrued interest payable and other liabilities 2,789 35,138

Net (decrease) increase in accrued interest payable and other liabilities ( 1,345 ) 42,042

Net cash provided by operating activities 14,971 1,306

5 unchanged sentences

Proceeds from sale of foreclosed properties — 1,160

Net increase in loans and leases ( 86,613 ) ( 28,719 )

Net decrease (increase) in loans and leases 2,444 ( 343,016 )

Returns of investments in limited partnerships 60 —

5 unchanged sentences

Purchases of leasehold improvements and equipment, net ( 135 ) ( 141 )

Proceeds from sale of leasehold improvements and equipment 12 —

Purchases of bank-owned life insurance policies — ( 8,000 )

Net cash used in investing activities ( 79,492 ) ( 33,747 )

Net cash provided (used) in investing activities 15,937 ( 347,356 )

Financing activities

Net increase (decrease) in deposits 47,202 ( 30,253 )

Net increase in deposits 305,191 179,996

Proceeds from Federal Home Loan Bank advances 510,300 498,500

Repayment of Federal Home Loan Bank advances ( 517,000 ) ( 383,243 )

Loss on early extinguishment of debt — 744

Proceeds from the Federal Reserve Paycheck Protection Program Lending Facility — 29,605

Net increase in long-term borrowed funds 7,653 27

3 unchanged sentences

Net cash provided by financing activities 302,160 321,339

Net decrease in cash and cash equivalents 1,965 27,884

Net increase (decrease) in cash and cash equivalents 333,068 ( 24,711 )

Cash and cash equivalents at the beginning of the period 56,909 67,102

4 unchanged sentences

Income taxes paid 7,658 1,356

Non-cash investing and financing activities:

Increase in right-of-use exchange for operating lease liability 316 —

Transfer from loans and leases to foreclosed properties 149 80

See accompany Notes to Unaudited Consolidated Financial Statements

22 unchanged sentences

Material estimates that could significantly change in the near-term include the value of securities and interest rate swaps, level of the allowance for loan and lease losses, lease residuals, property under operating leases, goodwill, level of the Small Business Administration (“SBA”) recourse reserve, and income taxes.

The results of operations for the three months ended March 31, 2021, are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending December 31, 2021.

The results of operations for the three and six months ended June 30, 2021, are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year ending December 31, 2021.

Certain amounts in prior periods may have been reclassified to conform to the current presentation.

32 unchanged sentences

introduced various measures to try to limit or slow the spread of the virus, including travel restrictions, nonessential business closures, stay-at-home orders, and strict social distancing.

The Corporation activated its Pandemic Preparedness Plan to protect the health of employees and clients, which includes temporarily limiting lobby hours and transitioning the vast majority of the Corporation’s workforce to remote work.

The Corporation has not incurred any significant disruptions to its business activities.

The Corporation activated its Pandemic Preparedness Plan to protect the health of employees and clients, which included temporarily limiting lobby hours and transitioning the vast majority of the Corporation’s workforce to remote work.

The Corporation did not incur any significant disruptions to its business activities during this time of transition and extended remote work.

The second half of 2020 saw improvements in economic trends, but continued waves of new cases of COVID-19 created continued uncertainty in the economic environment.

However, at the end of the fourth quarter of 2020 and into the first quarter of 2021, the rollout of new vaccines and the ratification of two additional stimulus laws resulted in lower infection rates and significant improvement in the outlook of the economy.

In the second quarter of 2021, the Corporation communicated return to office plans to employees.

Based on the national and local guidelines, the Corporation developed a phased-in approach for returning to the office.

Under this phased-in approach, offices opened in early June 2021.

The return to office included enhanced safety protocols and processes to provide the best working environment possible for employees.

The full long-term impact of the COVID-19 pandemic is unknown and continues to evolve.

2 unchanged sentences

The outbreak has had a significant adverse impact on certain industries the Corporation serves, including retail, restaurants and food services, hospitality, and entertainment.

As of March 31, 2021, the Corporation’s aggregate outstanding exposure in these segments was $ 194.5 million, or 9.9 % of the Corporation’s gross loans and leases.

As of June 30, 2021, the Corporation’s aggregate outstanding exposure in these segments was $ 195.5 million, or 9.6 % of the Corporation’s gross loans and leases less net PPP loans.

Because of the significant uncertainties related to the ultimate duration of the COVID-19 pandemic and its effects on clients and prospects, and on the national and local economy as a whole, there can be no assurances as to how the crisis may ultimately affect the Corporation’s loan portfolio.

The Corporation provided loan payment deferrals for certain borrowers impacted by COVID-19 who were current in their payments at the inception of the Corporation’s loan modification program.

As of March 31, 2021, the Corporation had seven deferral requests outstanding, representing $ 13.0 million in total loans, or 0.7 % of gross loans and leases, excluding gross PPP loans, compared to $ 27.0 million, or 1.4 % of gross loans and leases, excluding gross PPP loans as of December 31, 2020.

For loans subject to the program, each borrower is required to resume making regularly scheduled loan payment at the end of the modification period and the deferred amounts will be moved to the end of the loan term.

The loan will not be reported as past due during the deferral period.

As of June 30, 2021, the Corporation had five deferral requests outstanding, representing $ 20.5 million in total loans, or 1.0 % of gross loans and leases, excluding net PPP loans, compared to $ 27.0 million, or 1.4 % of gross loans and leases, excluding net PPP loans as of December 31, 2020.

Of the $ 20.5 million of deferred loans outstanding as of June 30, 2021, $ 19.8 million relate to two hospitality credits which went on deferral during the second quarter of 2021 and are both accruing interest and current on payments.

For loans subject to the program, each borrower is required to resume making regularly scheduled loan payments at the end of the modification period and the deferred amounts will be moved to the end of the loan term.

The loans will not be reported as past due during the deferral period.

On December 27, 2020, the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law.

2 unchanged sentences

Like the original program, loan proceeds are available to help fund payroll and group health benefit costs, as well as certain mortgage interest, rent and utilities.

In addition, authorized costs now also include COVID-19 related worker protection costs, uninsured property damage costs due to looting or vandalism during 2020 and certain supplier costs and expenses for operations.

In addition, authorized costs now also include

COVID-19 related worker protection costs, uninsured property damage costs due to looting or vandalism during 2020 and certain supplier costs and expenses for operations.

The CAA also expands benefit costs to include group dental, vision, life and disability benefits.

1 unchanged sentence

The Corporation began accepting and processing applications for second draw PPP loans on January 13, 2021.

As of March 31, 2021, the Corporation had $ 272.7 million in gross PPP loans outstanding and deferred processing fees outstanding of $ 5.1 million.

As of June 30, 2021, the Corporation had $ 123.8 million in gross PPP loans outstanding and deferred processing fees outstanding of $ 3.1 million.

The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method.

During the three months ended March 31, 2021, $ 2.2 million was recognized in loans and leases interest income in the unaudited Consolidated Statements of Income.

The SBA provides a

guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement.

During the three and six months ended June 30, 2021, $ 2.5 million and $ 4.8 million, respectively, was recognized in loans and leases interest income in the unaudited Consolidated Statements of Income.

The SBA provides a guaranty to the lender of 100% of principal and interest, unless the lender violated an obligation under the agreement.

As loan losses are expected to be immaterial, if any, due to the guaranty, management excluded the PPP loans from the allowance for loan and lease losses calculation.

6 unchanged sentences

Diluted earnings per share are computed by dividing net income allocated to common shares adjusted for reallocation of undistributed earnings of unvested restricted shares by the weighted average number of shares determined for the basic earnings per common share computation plus the dilutive effect of common stock equivalents using the treasury stock method.

For the Three Months Ended March 31,

For the Three Months Ended June 30, For the Six Months Ended June 30,

2021 2020 2021 2020

(Dollars in Thousands, Except Share Data)

13 unchanged sentences

The Corporation adopted the 2019 Equity Incentive Plan (the “Plan”) during the quarter ended June 30, 2019.

At the 2021 annual shareholders meeting, an amendment to the 2019 equity plan was approved, increasing the number of shares in the plan by 180,000.

The Plan is administered by the Compensation Committee of the Board of Directors of the Corporation and provides for the grant of equity ownership opportunities through incentive stock options and nonqualified stock options (“Stock Options”), restricted stock, restricted stock units, dividend equivalent units, and any other type of award permitted by the Plan.

As of March 31, 2021, 40,953 shares were available for future grants under the Plan.

As of June 30, 2021, 219,531 shares were available for future grants under the Plan.

Shares covered by awards that expire, terminate, or lapse will again be available for the grant of awards under the Plan.

8 unchanged sentences

The Corporation may issue a combination of performance-based restricted stock units and restricted stock awards to its executive officers.

Vesting of the performance based restricted stock units will be measured on Total Shareholder Return

(“TSR”) and Return on Average Equity (“ROAE”) and will cliff-vest after a three-year measurement period based on the Corporation’s performance relative to a custom peer group.

Vesting of the performance based restricted stock units will be measured on Total Shareholder Return (“TSR”) and Return on Average Equity (“ROAE”) and will cliff-vest after a three-year measurement period based on the Corporation’s performance relative to a custom peer group.

At the end of the performance period, the number of actual shares to be awarded varies between 0% and 200% of target amounts.

3 unchanged sentences

The compensation expense for the awards expected to vest for the percentage of performance based restricted stock units subject to the TSR metric are never adjusted, and are amortized utilizing the accounting fair value provided using a Monte Carlo pricing model.

Restricted stock activity for the year ended December 31, 2020 and the three months ended March 31, 2021 was as follows:

Restricted stock activity for the year ended December 31, 2020 and the six months ended June 30, 2021 was as follows:

Restricted Shares Weighted Average

5 unchanged sentences

Forfeited ( 4,379 ) 23.39

Nonvested balance as of March 31, 2021 246,162 $ 23.94

Nonvested balance as of June 30, 2021 239,410 $ 24.21

(1) The number of restricted shares/units shown includes the shares that would be granted if the target level of performance is achieved related to the performance based restricted stock units.

The number of shares actually issued may vary.

As of March 31, 2021, the Corporation had $ 4.7 million of unvested compensation expense, which the Corporation expects to recognize over a weighted-average period of approximately 2.54 years.

As of June 30, 2021, the Corporation had $ 4.1 million of unvested compensation expense, which the Corporation expects to recognize over a weighted-average period of approximately 2.4 years.

Employee Stock Purchase Plan

During 2020, an employee stock purchase plan ("ESPP") was approved by the Corporation’s shareholders and is offered to all qualifying employees, the Company is authorized to issue up to 250,000 shares under the ESPP.

During 2020, an employee stock purchase plan ("ESPP") was approved by the Corporation’s shareholders and is offered to all qualifying employees.

The Company is authorized to issue up to 250,000 shares of common stock under the ESPP.

The plan qualifies as an employee stock purchase plan under section 423 of the Internal Revenue Code of 1986.

2 unchanged sentences

The ESPP is treated as a compensatory item for purposes of share-based compensation expense.

During the three months ended March 31, 2021, the Corporation issued 1,775 shares of common stock under the ESPP.

As of March 31, 2021, 244,258 shares remained available for issuance under the ESPP.

For the three months ended March 31, 2021 and 2020, share-based compensation expense related to restricted stock and the ESPP included in the unaudited Consolidated Statements of Income was $ 531,000 and $ 417,000 , respectively.

During the six months ended June 30, 2021, the Corporation issued 3,469 shares of common stock under the ESPP.

As of June 30, 2021, 242,564 shares remained available for issuance under the ESPP.

Share-based compensation expense related to restricted stock included in the unaudited Consolidated Statements of Income was as follows:

For the Three Months Ended June 30, For the Six Months Ended June 30,

2021 2020 2021 2020

(In Thousands)

Share-based compensation expense $ 607 $ 516 $ 1,138 $ 933

Note 5 — Securities

The amortized cost and fair value of securities available-for-sale and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:

As of March 31, 2021

As of June 30, 2021

Amortized Cost Gross

31 unchanged sentences

The amortized cost and fair value of securities held-to-maturity and the corresponding amounts of gross unrealized gains and losses were as follows:

As of March 31, 2021

As of June 30, 2021

Amortized Cost Gross

27 unchanged sentences

Other securities represent certificates of deposit of insured banks and savings institutions with an original maturity greater than three months.

There were no sales of available-for-sale securities that occurred during the three months ended March 31, 2021 and one sale of available-for-sale securities that occurred during the three months ended March 31, 2020.

At March 31, 2021 and December 31, 2020, securities with a fair value of $ 29.7 million and $ 73.7 million, respectively, were pledged to secure various obligations, including interest rate swap contracts and municipal deposits.

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

There were seven sales of available-for-sale securities that occurred during the three and six months ended June 30, 2021.

There were no sales of available-for-sale securities that occurred during three months ended June 30, 2020 and one sale that occurred during the six months ended June 30, 2020.

At June 30, 2021 and December 31, 2020, securities with a fair value of $ 37.0 million and $ 73.7 million, respectively, were pledged to secure various obligations, including interest rate swap contracts.

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

Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations with or without call or prepayment penalties.

7 unchanged sentences

$ 168,480 $ 171,219 $ 22,382 $ 23,113

The tables below show the Corporation’s gross unrealized losses and fair value of available-for-sale investments aggregated by investment category and length of time that individual investments were in a continuous loss position at March 31, 2021 and December 31, 2020.

At March 31, 2021, the Corporation held 26 available-for-sale securities that were in an unrealized loss position.

At June 30, 2021, the Corporation held 23 available-for-sale securities that were in an unrealized loss position.

Such securities have not experienced credit rating downgrades;

however, they have primarily declined in value due to the current interest rate environment.

At March 31, 2021, the Corporation held four available-for-sale securities that had been in a continuous unrealized loss position for twelve months or greater.

At June 30, 2021, the Corporation held no available-for-sale securities that had been in a continuous unrealized loss position for twelve months or greater.

The Corporation also has not specifically identified available-for-sale securities in a loss position that it intends to sell in the near term and does not believe that it will be required to sell any such securities.

2 unchanged sentences

Based on the Corporation’s evaluation, it is expected that the Corporation will recover the entire amortized cost basis of each security.

Accordingly, no other-than-temporary impairment was recorded in the unaudited Consolidated Statements of Income for the three months ended March 31, 2021 and 2020.

Accordingly, no other-than-temporary impairment was recorded in the unaudited Consolidated Statements of Income for the three and six months ended June 30, 2021 and 2020.

A summary of unrealized loss information for securities available-for-sale, categorized by security type and length of time for which the security has been in a continuous unrealized loss position, follows:

As of March 31, 2021

As of June 30, 2021

Less than 12 Months 12 Months or Longer Total

27 unchanged sentences

$ 33,543 $ 98 $ 4,031 $ 34 $ 37,574 $ 132

The tables below show the Corporation’s gross unrealized losses and fair value of held-to-maturity investments, aggregated by investment category and length of time that individual investments were in a continuous loss position at March 31, 2021 and December 31, 2020.

At March 31, 2021, the Corporation held three held-to-maturity securities that were in an unrealized loss position.

At June 30, 2021, the Corporation held two held-to-maturity securities that were in an unrealized loss position and had been in a continuous loss position for twelve months or greater.

Such securities have not experienced credit rating downgrades;

however, they have primarily declined in value due to the current interest rate environment.

There were two held-to-maturity securities that had been in a continuous loss position for twelve months or greater as of March 31, 2021.

It is expected that the Corporation will recover the entire amortized cost basis of each held-to-maturity security based upon an evaluation of aforementioned factors.

Accordingly, no other-than-temporary impairment was recorded in the unaudited Consolidated Statements of Income for the three months ended March 31, 2021 and 2020.

Accordingly, no other-than-temporary impairment was recorded in the unaudited Consolidated Statements of Income for the three and six months ended June 30, 2021 and 2020.

A summary of unrealized loss information for securities held-to-maturity, categorized by security type and length of time for which the security has been in a continuous unrealized loss position, follows:

As of March 31, 2021

As of June 30, 2021

Less than 12 Months 12 Months or Longer Total

6 unchanged sentences

$ — $ — $ 493 $ 10 $ 493 $ 10

Residential mortgage-backed securities - government issued

$ 5 $ — $ 484 $ 19 $ 489 $ 19

As of December 31, 2020

36 unchanged sentences

$ 2,117,886 $ 2,117,449

As of March 31, 2021 and December 31, 2020, the Corporation had $ 272.7 million and $ 228.9 million, respectively, in gross PPP loans outstanding included in the commercial and industrial loan category and deferred processing fees outstanding of $ 5.1 million and $ 3.5 million, respectively, included in deferred loan fees.

As of June 30, 2021 and December 31, 2020, the Corporation had $ 123.8 million and $ 228.9 million, respectively, in gross PPP loans outstanding included in the commercial and industrial loan category and deferred processing fees outstanding of $ 3.1 million and $ 3.5 million, respectively, included in deferred loan fees.

The processing fees are deferred and recognized over the contractual life of the loan, or accelerated at forgiveness, as an adjustment of yield using the interest method.

2 unchanged sentences

Management funded these short-term loans primarily through a combination of excess cash held at the Federal Reserve and from an increase in in-market deposits.

The total amount of the Corporation’s ownership of SBA loans comprised of the following:

The total amount of the Corporation’s ownership of SBA loans is comprised of the following:

2021 December 31,

5 unchanged sentences

Total SBA loans $ 186,517 $ 292,714

As of March 31, 2021 and December 31, 2020, $ 8.6 million and $ 9.3 million of SBA loans were considered impaired, respectively.

As of June 30, 2021 and December 31, 2020, $ 3.4 million and $ 9.3 million of SBA loans were considered impaired, respectively.

Loans transferred to third parties consist of the guaranteed portions of SBA loans which the Corporation sold in the secondary market and participation interests in other, non-SBA originated loans.

The total principal amount of the guaranteed portions of SBA loans sold during the three months ended March 31, 2021, and 2020, was $ 10.6 million and $ 2.7 million, respectively.

Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred during the three months ended March 31, 2021, and 2020, have been derecognized in the unaudited Consolidated Financial Statements.

The total principal amount of the guaranteed portions of SBA loans sold during the three months ended June 30, 2021, and 2020, was $ 9.0 million and $ 6.5 million, respectively.

The total principal amount of the guaranteed portions of SBA loans sold during the six months ended June 30, 2021, and 2020, was $ 19.6 million and $ 9.2 million, respectively.

Each of the transfers of these financial assets met the qualifications for sale accounting, and therefore all of the loans transferred during the three and six months ended June 30, 2021, and 2020, have been derecognized in the unaudited Consolidated Financial Statements.

The guaranteed portions of SBA loans were transferred at their fair value and the related gain was recognized upon the transfer as non-interest income in the unaudited Consolidated Financial Statements.

The total outstanding balance of sold SBA loans at March 31, 2021, and December 31, 2020, was $ 82.7 million and $ 79.5 million, respectively.

The total principal amount of transferred participation interests in other, non-SBA originated loans during the three months ended March 31, 2021, and 2020, was $ 5.2 million and $ 11.9 million, respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer.

The total outstanding balance of sold SBA loans at June 30, 2021, and December 31, 2020, was $ 87.8 million and $ 79.5 million, respectively.

The total principal amount of transferred participation interests in other, non-SBA originated loans during the three months ended June 30, 2021, and 2020, was $ 11.8 million and $ 10.3 million, respectively.

The total principal amount of transferred participation interests in other, non-SBA originated loans during the six months ended June 30, 2021, and 2020, was $ 16.9 million and $ 22.2 million, respectively, all of which were treated as sales and derecognized under the applicable accounting guidance at the time of transfer.

No gain or loss was recognized on participation interests in other, non-SBA originated loans as they were transferred at or near the date of loan origination and the payments received for servicing the portion of the loans participated represents adequate compensation.

The total outstanding balance of these transferred loans at March 31, 2021, and December 31, 2020, was $ 151.3 million and $ 153.6 million, respectively.

As of March 31, 2021, and December 31, 2020, the total amount of the Corporation’s partial ownership of these transferred loans on the unaudited Consolidated Balance Sheets was $ 259.9 million and $ 276.5 million, respectively.

As of March 31, 2021 and December 31, 2020, the non-SBA originated participation portfolio contained an impaired loan totaling $ 3.0 million with a sold portion of $ 4.2 million.

The total outstanding balance of these transferred loans at June 30, 2021, and December 31, 2020, was $ 157.9 million and $ 153.6 million, respectively.

As of June 30, 2021, and December 31, 2020, the total amount of the Corporation’s partial ownership of these transferred loans on the unaudited Consolidated Balance Sheets was $ 269.5 million and $ 276.5 million, respectively.

As of June 30, 2021 and December 31, 2020, the non-SBA originated participation portfolio contained an impaired loan totaling $ 3.0 million with a sold portion of $ 4.2 million.

The Corporation does not share in the participant’s portion of any potential charge-offs.

There were no loan participations purchased on the unaudited Consolidated Balance Sheets as of March 31, 2021, and the total of loan participations purchased as of December 31, 2020 was $ 410,000 .

There were no loan participations purchased on the unaudited Consolidated Balance Sheets as of June 30, 2021, and the total of loan participations purchased as of December 31, 2020 was $ 410,000 .

The following tables illustrate ending balances of the Corporation’s loan and lease portfolio, including impaired loans by class of receivable, and considering certain credit quality indicators:

March 31, 2021

June 30, 2021

I II III IV Total

38 unchanged sentences

The risk rating grades follow a consistent definition and are then applied to specific loan types based on the nature of the loan.

Each risk rating is subjective and, depending on the size and nature of the credit, subject to various levels of review and concurrence on the stated risk rating.

Each risk rating is subjective and, depending on the size and nature of the credit, subject to various levels of review and concurrence on

the stated risk rating.

In addition to its nine grade risk rating system, the Corporation groups loans into four loan and related risk categories which determine the level and nature of review by management.

11 unchanged sentences

Impaired loans and leases, with the exception of performing troubled debt restructurings, have been placed on non-accrual as management has determined that it is unlikely that the Bank will receive the contractual principal and interest in accordance with the original terms of the agreement.

loans are individually evaluated to assess the need for the establishment of specific reserves or charge-offs.

Impaired loans are individually evaluated to assess the need for the establishment of specific reserves or charge-offs.

When analyzing the adequacy of collateral, the Corporation obtains external appraisals at least annually for impaired loans and leases.

3 unchanged sentences

The delinquency aging of the loan and lease portfolio by class of receivable was as follows:

March 31, 2021

June 30, 2021

Days Past Due 60-89

121 unchanged sentences

Allowance for loan and lease losses to non-accrual loans and leases 224.79 107.15

As of March 31, 2021, and December 31, 2020, $ 4.8 million and $ 6.5 million of the non-accrual loans and leases were considered troubled debt restructurings, respectively.

The Corporation has allocated $ 765,000 and $ 760,000 of specific reserves to troubled debt restructurings as of March 31, 2021 and December 31, 2020, respectively.

There were no unfunded commitments associated with troubled debt restructured loans and leases as of March 31, 2021.

As of June 30, 2021, and December 31, 2020, $ 523,000 and $ 6.5 million of the non-accrual loans and leases were considered troubled debt restructurings, respectively.

No specific reserves were allocated to troubled debt restructurings as of June 30, 2021 and $ 760,000 were allocated as of December 31, 2020.

There were no unfunded commitments associated with troubled debt restructured loans and leases as of June 30, 2021.

All loans and leases modified as a troubled debt restructuring are measured for impairment.

The nature and extent of the impairment of restructured loans, including those which have experienced a default, is considered in the determination of an appropriate level of the allowance for loan and lease losses.

During the three and six months ended June 30, 2021, no loans were modified to a troubled debt restructuring.

The following table provides the number of loans modified in a troubled debt restructuring and the pre- and post-modification recorded investment by class of receivable:

For the Three Months Ended March 31,

For the Three Months Ended June 30, For the Six Months Ended June 30,

Number of Loans Pre-Modification

Investment Post-Modification

Investment Number of Loans Pre-Modification

Investment Post-Modification

(Dollars in Thousands)

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Total 1 $ 4,986 $ 4,986 5 $ 6,306 $ 6,028

During the three months ended March 31, 2021, no loans were modified to a troubled debt restructuring.

Restructured loan modifications may include payment schedule modifications, interest rate concessions, maturity date extensions, principal reduction, or some combination of these concessions.

During the three months ended March 31, 2020, the modification of terms primarily consisted of payment schedule modifications or principal reductions.

There were no loans modified in troubled debt restructurings during the previous 12 months which subsequently defaulted during the three months ended March 31, 2021.

There was one commercial and industrial loan for $ 2.1 million and two owner-occupied commercial real estate loans for $ 3.6 million modified in a troubled debt restructuring during the previous 12 months which subsequently defaulted during the three months ended March 31, 2020.

During the three and six months ended June 30, 2020, the modification of terms primarily consisted of payment schedule modifications or principal reductions.

There were no loans modified in troubled debt restructurings during the previous 12 months which subsequently defaulted during the three and six months ended June 30, 2021.

There were two commercial and industrial loans totaling $ 2.7 million and four owner-occupied commercial real estate loans totaling $ 3.8 million modified in a troubled debt restructuring which subsequently defaulted during the three and six months ended June 30, 2020.

The following represents additional information regarding the Corporation’s impaired loans and leases, including performing troubled debt restructurings, by class:

As of and for the Three Months Ended March 31, 2021

As of and for the Six Months Ended June 30, 2021

Investment (1)

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(2) Average recorded investment is calculated primarily using daily average balances.

The difference between the recorded investment of loans and leases and the unpaid principal balance of $ 5.5 million and $ 14.6 million as of March 31, 2021, and December 31, 2020, respectively, represents partial charge-offs of loans and leases resulting from losses due to the valuation of the collateral securing the loans and leases being below the carrying values of the loans and leases.

Impaired loans and leases also included $ 59,000 and $ 46,000 of loans as of March 31, 2021, and December 31, 2020, respectively, that were performing troubled debt restructurings, and although not on non-accrual, were reported as impaired due to the concession in terms.

The difference between the recorded investment of loans and leases and the unpaid principal balance of $ 3.9 million and $ 14.6 million as of June 30, 2021, and December 31, 2020, respectively, represents partial charge-offs of loans and leases resulting from losses due to the valuation of the collateral securing the loans and leases being below the carrying values of the loans and leases.

Impaired loans and leases also included $ 56,000 and $ 46,000 of loans as of June 30, 2021, and December 31, 2020, respectively, that were performing troubled debt restructurings, and although not on non-accrual, were reported as impaired due to the concession in terms.

When a loan is placed on non-accrual, interest accrual is discontinued and previously accrued but uncollected interest is deducted from interest income.

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A summary of the activity in the allowance for loan and lease losses by portfolio segment is as follows:

As of and for the Three Months Ended March 31, 2021

As of and for the Three Months Ended June 30, 2021

Real Estate Commercial

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Recoveries 84 460 1 545

Net recoveries 2,219 309 1 2,529

Net charge-offs ( 165 ) ( 2,161 ) ( 23 ) ( 2,349 )

Provision for loan and lease losses ( 1,404 ) 498 ( 52 ) ( 958 )

Ending balance $ 16,876 $ 7,881 $ 918 $ 25,675

As of and for the Three Months Ended March 31, 2020

As of and for the Three Months Ended June 30, 2020

Real Estate Commercial

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Recoveries 2 62 — 64

Net charge-offs ( 25 ) ( 722 ) ( 6 ) ( 753 )

Provision for loan and lease losses 3,866 1,579 24 5,469

Ending balance $ 16,438 $ 10,179 $ 847 $ 27,464

As of and for the Six Months Ended June 30, 2021

Real Estate Commercial

Industrial Consumer

and Other Total

(In Thousands)

Beginning balance $ 17,157 $ 10,593 $ 771 $ 28,521

Charge-offs ( 249 ) ( 2,765 ) ( 24 ) ( 3,038 )

Recoveries 2,303 913 2 3,218

Net recoveries (charge-offs) 2,054 ( 1,852 ) ( 22 ) 180

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Ending balance $ 16,876 $ 7,881 $ 918 $ 25,675

As of and for the Six Months Ended June 30, 2020

Real Estate Commercial

Industrial Consumer

and Other Total

(In Thousands)

Beginning balance $ 10,852 $ 8,078 $ 590 $ 19,520

Charge-offs ( 27 ) ( 909 ) ( 12 ) ( 948 )

Recoveries 3 238 — 241

Net charge-offs ( 24 ) ( 671 ) ( 12 ) ( 707 )

Provision for loan and lease losses 5,610 2,772 269 8,651

Ending balance $ 16,438 $ 10,179 $ 847 $ 27,464

The following tables provide information regarding the allowance for loan and lease losses and balances by type of allowance methodology.

As of March 31, 2021

As of June 30, 2021

Real Estate Commercial

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Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term.

The Corporation entered into a sublease for vacated office space which expires in 2023.

During 2021, the Corporation extended the term of two of its office spaces by one and three years, resulting in a $ 316,000 increase in the right-of-use assets in exchange for a lease liability.

The Corporation entered into a sublease for office space it vacated in its Kansas City Metro market which expires in 2023.

The components of total lease expense were as follows:

For the Three Months Ended March 31,

For the Three Months Ended June 30, For the Six Months Ended June 30,

2021 2020 2021 2020

(In Thousands)

Operating lease cost

$ 374 $ 372 $ 749 $ 745

Short-term lease cost

Variable lease cost

111 126 239 253

sublease income

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Total lease cost, net

$ 491 $ 518 $ 994 $ 1,064

Quantitative information regarding the Corporation’s operating leases was as follows:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Weighted-average remaining lease term (in years)

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A summary of accrued interest receivable and other assets was as follows:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

(In Thousands)

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Average balances represent year to date averages.

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Balance Average

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Total deposits $ 2,160,707 $ 1,893,441 0.21 $ 1,855,516 $ 1,711,092 0.52

A summary of annual maturities of in-market and wholesale certificates of deposit at March 31, 2021 is as follows:

A summary of annual maturities of in-market and wholesale certificates of deposit at June 30, 2021 is as follows:

(In Thousands)

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2021 $ 41,925

Wholesale deposits include $ 40.5 million and $ 125.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at March 31, 2021, compared to $ 47.5 million and $ 125.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at December 31, 2020.

Deposits include $ 12.9 million and $ 28.7 million of certificates of deposit and wholesale deposits which are denominated in amounts of $250,000 or more at March 31, 2021 and December 31, 2020, respectively.

Thereafter 356

Wholesale deposits include $ 29.5 million and $ 115.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at June 30, 2021, compared to $ 47.5 million and $ 125.0 million of wholesale certificates of deposit and non-reciprocal interest-bearing transaction accounts, respectively, at December 31, 2020.

Deposits include $ 12.4 million and $ 28.7 million of certificates of deposit and wholesale deposits which are denominated in amounts of $250,000 or more at June 30, 2021 and December 31, 2020, respectively.

Note 10 — FHLB Advances, Other Borrowings and Junior Subordinated Notes

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Average balances represent year to date averages.

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Balance Weighted Average

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387,800 386,371 1.31 394,500 379,891 1.45

Line of credit — 151 2.88 — — —

Other borrowings 8,545 5,979 4.34 920 676 12.60

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$ 430,182 $ 426,321 1.84 $ 429,229 $ 429,624 1.91

A summary of annual maturities of borrowings at March 31, 2021 is as follows:

A summary of annual maturities of borrowings at June 30, 2021 is as follows:

(In Thousands)

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On April 28, 2020, the Corporation borrowed $ 29.6 million from the PPPLF at a rate of 0.35 %.

The borrowing was fully collateralized by a tranche of PPP loans originated by the Bank on April 15, 2020 and matures on April 15, 2022, or when the tranche of PPP loans utilized to collateralize the PPPLF borrowing are forgiven, whichever comes first.

As of November 2, 2020, the borrowing was paid in full.

As of March 31, 2021 and December 31, 2020, the Corporation had other borrowings of $ 8.9 million and $ 920,000 respectively, which consisted of $7.9 million of sold loans accounted for as secured borrowings because they did not qualify for true sale accounting, and borrowings associated with our investment in a community development entity.

As of March 31, 2021 and December 31, 2020, the Corporation was in compliance with its debt covenants under its third-party secured senior line of credit.

As of June 30, 2021, the Corporation had other borrowings of $ 8.5 million, which consisted of $ 7.6 million of sold loans accounted for as secured borrowings because they did not qualify for true sale accounting, and borrowings associated with our investment in a community development entity.

As of June 30, 2021 and December 31, 2020, the Corporation was in compliance with its debt covenants under its third-party secured senior line of credit.

Per the promissory note dated February 19, 2021, the Corporation pays a fee on this line of credit.

During both the three months ended March 31, 2021 and 2020, the Corporation incurred interest expense of $ 3,000 due to this fee.

During the six months ended June 30, 2021 and 2020, the Corporation incurred interest expense of $ 6,600 and $ 7,000 , respectively, due to this fee.

Note 11 — Commitments and Contingencies

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In addition, the Corporation retains the option to repurchase the sold guaranteed portion of an SBA loan if the loan defaults.

Management has assessed estimated losses inherent in the outstanding guaranteed portions of SBA loans sold in accordance with ASC 450, Contingencies , and determined a recourse reserve based on the probability of future losses for these loans to be $ 593,000 at March 31, 2021, which is reported in accrued interest payable and other liabilities on the unaudited Consolidated Balance Sheets.

Management has assessed estimated losses inherent in the outstanding guaranteed portions of SBA loans sold in accordance with ASC 450, Contingencies , and determined a recourse reserve based on the probability of future losses for these loans to be $ 830,000 at June 30, 2021, which is reported in accrued interest payable and other liabilities on the unaudited Consolidated Balance Sheets.

The summary of the activity in the SBA recourse reserve is as follows:

As of and for the Three Months Ended March 31,

As of and for the Three Months Ended June 30, As of and for the Six Months Ended June 30,

2021 2020 2021 2020

(In Thousands)

Balance at the beginning of the period $ 593 $ 1,086 $ 723 $ 1,345

SBA recourse (benefit) provision ( 130 ) 25

SBA recourse provision (benefit) 245 ( 30 ) 115 ( 5 )

Charge-offs, net ( 8 ) ( 49 ) ( 8 ) ( 333 )

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Assets and liabilities measured at fair value on a recurring basis, segregated by fair value hierarchy level, are summarized below:

March 31, 2021

June 30, 2021

Fair Value Measurements Using

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Interest rate swaps — 54,927 — 54,927

For assets and liabilities measured at fair value on a recurring basis, there were no transfers between the levels during the three months ended March 31, 2021 or the year ended December 31, 2020 related to the above measurements.

For assets and liabilities measured at fair value on a recurring basis, there were no transfers between the levels during the three and six months ended June 30, 2021 or the year ended December 31, 2020 related to the above measurements.

Assets and liabilities measured at fair value on a non-recurring basis, segregated by fair value hierarchy are summarized below:

March 31, 2021

June 30, 2021

Fair Value Measurements Using

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Loan servicing rights — — 1,325 1,325

Impaired loans were written down to the fair value of their underlying collateral less costs to sell of $ 12.9 million and $ 17.2 million at March 31, 2021 and December 31, 2020, respectively, through the establishment of specific reserves or by recording charge-offs when the carrying value exceeded the fair value of the underlying collateral of impaired loans.

Impaired loans were written down to the fair value of their underlying collateral less costs to sell of $ 7.9 million and $ 17.2 million at June 30, 2021 and December 31, 2020, respectively, through the establishment of specific reserves or by recording charge-offs when the carrying value exceeded the fair value of the underlying collateral of impaired loans.

Valuation techniques consistent with the market approach, income approach, or cost approach were used to measure fair value.

These techniques included observable inputs for the individual impaired loans being evaluated, such as current appraisals, recent sales of similar assets, or other observable market data, and unobservable inputs, typically when discounts are applied to appraisal values to adjust such values to current market conditions or to reflect net realizable values.

The quantification of unobservable inputs for Level 3 impaired loan values range from 10 % - 91 % as of the measurement date of March 31, 2021.

The quantification of unobservable inputs for Level 3 impaired loan values range from 10 % - 90 % as of the measurement date of June 30, 2021.

The weighted average of those unobservable inputs was 25 %.

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Fair value estimates, methods, and assumptions, consistent with exit price concepts for fair value measurements, are set forth below:

March 31, 2021

June 30, 2021

Amount Fair Value

81 unchanged sentences

When evaluating the fair value of its derivative contracts for the effects of non-performance and credit risk, the Corporation considered the impact of netting and any applicable credit enhancements such as collateral postings, thresholds, and guarantees.

During the three months ended March 31, 2021, a credit valuation adjustment was recognized resulting in a $170,000 benefit.

At March 31, 2021, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was $ 645.1 million.

During the three and six months ended June 30, 2021, the credit valuation adjustment was adjusted resulting in a benefit of $206,000 and $376,000, respectively.

At June 30, 2021, the aggregate amortizing notional value of interest rate swaps with various commercial borrowers was $ 637.0 million.

The Corporation receives fixed rates and pays floating rates based upon LIBOR on the swaps with commercial borrowers.

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These commercial borrower swaps were reported on the unaudited Consolidated Balance Sheet as a derivative asset of $ 32.4 million and a derivative liability of $ 4.7 million.

At March 31, 2021, the aggregate amortizing notional value of interest rate swaps with dealer counterparties was also $ 645.1 million.

At June 30, 2021, the aggregate amortizing notional value of interest rate swaps with dealer counterparties was also $ 637.0 million.

The Corporation pays fixed rates and receives floating rates based upon LIBOR on the swaps with dealer counterparties.

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The gross amount of dealer counterparty swaps, without regard to the enforceable master netting agreement, was a gross derivative liability of $ 32.4 million and $ 4.7 million gross derivative asset.

No right of offset existed with dealer counterparty swaps as of March 31, 2021.

No right of offset existed with dealer counterparty swaps as of June 30, 2021.

All changes in the fair value of these instruments are recorded in other non-interest income.

Given the mirror-image terms of the outstanding derivative portfolio, the change in fair value for the three months ended March 31, 2021 and 2020 had an insignificant impact on the unaudited Consolidated Statements of Income.

Given the mirror-image terms of the outstanding derivative portfolio, the change in fair value for the three and six months ended June 30, 2021 and 2020 had an insignificant impact on the unaudited Consolidated Statements of Income.

The Corporation also enters into interest rate swaps to manage interest rate risk and reduce the cost of match-funding certain long-term fixed rate loans.

2 unchanged sentences

The change in the fair value of these hedging instruments is recorded in accumulated other comprehensive income and is subsequently reclassified into earnings in the period that the hedged transactions affects earnings.

As of March 31, 2021, the aggregate notional value of interest rate swaps designated as cash flow hedges was $ 114.0 million.

As of June 30, 2021, the aggregate notional value of interest rate swaps designated as cash flow hedges was $ 114.0 million.

These interest rate swaps mature between December 2021 and December 2027.

A pre-tax unrealized gain of $ 2.1 million was recognized in other comprehensive income for the three months ended March 31, 2021, and there was no ineffective portion of these hedges.

A pre-tax unrealized loss of $ 271,000 and gain of $ 1.8 million was recognized in other comprehensive income for the three and six months ended June 30, 2021, and there was no ineffective portion of these hedges.

Information about the balance sheet location and fair value of the Corporation’s derivative instruments below:

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Derivatives not designated as hedging instruments

March 31, 2021 Derivatives $ 26,104 Derivatives $ 26,104

June 30, 2021 Derivatives $ 32,377 Derivatives $ 32,377

December 31, 2020 Derivatives $ 49,377 Derivatives $ 49,377

Derivatives designated as hedging instruments

March 31, 2021 Accumulated other comprehensive income (1)

June 30, 2021 Accumulated other comprehensive income (1)

$ 3,732 Derivatives $ 3,732

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These risk-based capital requirements presently address credit risk related to both recorded and off-balance sheet commitments and obligations.

As of March 31, 2021, the Corporation’s capital levels exceeded the regulatory minimums and the Bank’s capital levels remained characterized as well capitalized under the regulatory framework.

As of June 30, 2021, the Corporation’s capital levels exceeded the regulatory minimums and the Bank’s capital levels remained characterized as well capitalized under the regulatory framework.

The following tables summarize both the Corporation’s and the Bank’s capital ratios and the ratios required by their federal regulators:

As of March 31, 2021

As of June 30, 2021

Actual Minimum Required for Capital Adequacy Purposes For Capital Adequacy Purposes Plus Capital Conservation Buffer Minimum Required to Be Well

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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 1. Financial Statements