What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-05 compared with 2022-05-06 · 258 added, 167 removed, 1193 unchanged (26% of the section changed)

5 unchanged sentences

We have reviewed the accompanying interim consolidated financial information of The First Bancorp, Inc.

and Subsidiary as of March 31, 2022 and 2021 and for the three-months periods then ended, and the related notes (collectively referred to as the "interim financial information").

and Subsidiary as of June 30, 2022 and 2021 and for the three-month and six-month periods then ended, and the related notes (collectively referred to as the "interim financial information").

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for them to be in conformity with accounting principles generally accepted in the United States of America.

7 unchanged sentences

Portland, Maine

August 5, 2022

Consolidated Balance Sheets (Unaudited)

1 unchanged sentence

and Subsidiary

2022 December 31, 2021 March 31,

2022 December 31, 2021 June 30,

Cash and cash equivalents $ 23,453,000 $ 20,634,000 $ 27,092,000

1 unchanged sentence

Securities available for sale 301,737,000 320,566,000 306,247,000

Securities to be held to maturity (fair value of $ 353,191,000 at March 31, 2022, $ 375,327,000 at December 31, 2021 and $ 388,836,000 at March 31, 2021)

Securities to be held to maturity (fair value of $ 335,950,000 at June 30, 2022, $ 375,327,000 at December 31, 2021 and $ 383,454,000 at June 30, 2021)

379,693,000 370,040,000 376,181,000

28 unchanged sentences

Net unrealized loss on securities transferred from available for sale to held to maturity ( 73,000 ) ( 87,000 ) ( 113,000 )

Net unrealized loss on cash flow hedging derivative instruments — — ( 1,463,000 )

Net unrealized gain (loss) on cash flow hedging derivative instruments 146,000 — ( 2,083,000 )

Net unrealized gain on postretirement costs 105,000 105,000 28,000

7 unchanged sentences

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Income and Comprehensive Income (Unaudited)

Consolidated Statements of Income and Comprehensive Income (Loss) (Unaudited)

The First Bancorp, Inc.

and Subsidiary

For the quarter ended

March 31, 2022 December 31, 2021 March 31, 2021

For the six months ended June 30, For the quarter ended June 30,

2022 2021 2022 2021

Interest income

Interest and fees on loans (includes tax-exempt income of $ 291,000 for March 31, 2022, $ 271,000 for December 31, 2021 and $ 290,000 for March 31, 2021)

Interest and fees on loans (includes YTD tax-exempt income of $ 582,000 for June 30, 2022 and $ 577,000 for June 30, 2021)

$ 33,899,000 $ 29,959,000 $ 17,286,000 $ 14,840,000

Interest on deposits with other banks 71,000 24,000 62,000 12,000

Interest and dividends on investments (includes tax-exempt income of $ 1,803,000 for March 31, 2022, $ 1,846,000 for December 31, 2021 and $ 1,956,000 for March 31, 2021)

Interest and dividends on investments (includes YTD tax-exempt income of $ 3,657,000 for June 30, 2022 and $ 3,894,000 for June 30, 2021)

7,994,000 7,511,000 4,083,000 3,689,000

5 unchanged sentences

Net interest income 37,318,000 31,596,000 18,698,000 15,723,000

Provision (credit) for loan losses 450,000 ( 1,950,000 ) 525,000

Provision for loan losses 900,000 1,050,000 450,000 525,000

Net interest income after provision for loan losses 36,418,000 30,546,000 18,248,000 15,198,000

2 unchanged sentences

Service charges on deposit accounts 904,000 719,000 467,000 382,000

Net securities gains 2,000 1,000 119,000

Net securities gains (losses) 1,000 164,000 ( 1,000 ) 45,000

Mortgage origination and servicing income, net of amortization 878,000 3,321,000 380,000 1,354,000

16 unchanged sentences

Other comprehensive income (loss) net of tax

Net unrealized loss on securities available for sale, net of taxes $ ( 18,343,000 ) $ ( 1,091,000 ) $ ( 4,790,000 )

Net unrealized gain (loss) on securities available for sale, net of taxes $ ( 31,077,000 ) $ ( 3,819,000 ) $ ( 12,734,000 ) $ 971,000

Net unrealized gain on transferred securities, net of taxes 14,000 20,000 5,000 11,000

Net unrealized gain on cash flow hedging derivative instruments — 1,537,000 3,469,000

Unrecognized transition obligation for postretirement benefits, net of taxes — 77,000 —

Net unrealized gain (loss) on cash flow hedging derivative instruments 146,000 2,849,000 146,000 ( 620,000 )

Other comprehensive income (loss) ( 30,917,000 ) ( 950,000 ) ( 12,583,000 ) 362,000

5 unchanged sentences

and Subsidiary

Six Month Period Ended June 30, 2022 and 2021

Common stock and

2 unchanged sentences

comprehensive

income (loss) Total

shareholders'

12 unchanged sentences

Proceeds from sale of common stock 12,263 340,000 — — 340,000

Balance at March 31, 2021 10,983,258 $ 65,865,000 $ 163,659,000 $ ( 1,340,000 ) $ 228,184,000

Balance at June 30, 2021 10,987,680 $ 66,225,000 $ 168,908,000 $ ( 978,000 ) $ 234,155,000

Balance at December 31, 2021 10,998,765 $ 66,940,000 $ 180,417,000 $ ( 1,700,000 ) $ 245,657,000

2 unchanged sentences

Net unrealized gain on securities transferred from available for sale to held to maturity, net of tax — — — 14,000 14,000

Net unrealized gain on cash flow hedging derivative instruments, net of tax — — — 146,000 146,000

Comprehensive income (loss) — — 19,702,000 ( 30,917,000 ) ( 11,215,000 )

5 unchanged sentences

Proceeds from sale of common stock 12,619 385,000 — — 385,000

Balance at June 30, 2022 11,030,236 $ 67,737,000 $ 192,565,000 $ ( 32,617,000 ) $ 227,685,000

Three Month Period Ended June 30, 2022 and 2021

Common stock and

additional paid-in capital Retained

earnings Accumulated

comprehensive

shareholders'

Shares Amount

Balance at March 31, 2021 10,983,258 $ 65,865,000 $ 163,659,000 $ ( 1,340,000 ) $ 228,184,000

Net income — — 8,787,000 — 8,787,000

Net unrealized gain on securities available for sale, net of tax — — — 971,000 971,000

Net unrealized gain on securities transferred from available for sale to held to maturity, net of tax — — — 11,000 11,000

Net unrealized loss on cash flow hedging derivative instruments, net of tax — — — ( 620,000 ) ( 620,000 )

Comprehensive income — — 8,787,000 362,000 9,149,000

Cash dividends declared ($ 0.32 per share)

— — ( 3,516,000 ) — ( 3,516,000 )

Equity compensation expense — 201,000 — — 201,000

Payment to repurchase common stock ( 1,004 ) — ( 22,000 ) — ( 22,000 )

Proceeds from sale of common stock 5,426 159,000 — — 159,000

Balance at June 30, 2021 10,987,680 $ 66,225,000 $ 168,908,000 $ ( 978,000 ) $ 234,155,000

Balance at March 31, 2022 11,024,086 $ 67,356,000 $ 186,324,000 $ ( 20,034,000 ) $ 233,646,000

Net income — — 9,997,000 — 9,997,000

Net unrealized loss on securities available for sale, net of tax — — — ( 12,734,000 ) ( 12,734,000 )

Net unrealized gain on securities transferred from available for sale to held to maturity, net of tax — — — 5,000 5,000

Net unrealized gain on cash flow hedging derivative instruments, net of tax — — — 146,000 146,000

Comprehensive income (loss) — — 9,997,000 ( 12,583,000 ) ( 2,586,000 )

Cash dividends declared ($ 0.34 per share)

— — ( 3,750,000 ) — ( 3,750,000 )

Equity compensation expense — 195,000 — — 195,000

Payment to repurchase common stock ( 199 ) — ( 6,000 ) — ( 6,000 )

Proceeds from sale of common stock 6,349 186,000 — — 186,000

Balance at June 30, 2022 11,030,236 $ 67,737,000 $ 192,565,000 $ ( 32,617,000 ) $ 227,685,000

See Report of Independent Registered Public Accounting Firm.

3 unchanged sentences

and Subsidiary

For the three months ended

March 31, 2022 March 31, 2021

For the six months ended June 30,

Cash flows from operating activities

13 unchanged sentences

Net increase (decrease) in other liabilities 2,103,000 ( 4,926,000 )

Net loss on disposal of premises and equipment — 1,000

Net (gain) loss on disposal of premises and equipment ( 14,000 ) 2,000

Amortization of investment in limited partnership 152,000 154,000

2 unchanged sentences

Cash flows from investing activities

(Increase) decrease in interest-bearing deposits in other banks 48,251,000 ( 48,451,000 )

Decrease in interest-bearing deposits in other banks 43,807,000 13,936,000

Proceeds from sales of securities available for sale — 15,692,000

5 unchanged sentences

Redemption of restricted equity securities 645,000 1,706,000

Purchase of restricted equity securities ( 37,000 ) —

Net increase in loans ( 140,977,000 ) ( 111,772,000 )

Capital expenditures ( 1,107,000 ) ( 3,297,000 )

Proceeds from disposal of premises and equipment 37,000 —

Net cash used by investing activities ( 128,246,000 ) ( 107,971,000 )

1 unchanged sentence

Net increase (decrease) in demand, savings, and money market accounts ( 9,480,000 ) 126,093,000

Net increase in certificates of deposit 43,742,000 28,745,000

Net decrease in short-term borrowings ( 2,628,000 ) ( 32,388,000 )

Net increase (decrease) in certificates of deposit 138,205,000 ( 9,383,000 )

Net increase (decrease) in short-term borrowings 45,250,000 ( 33,386,000 )

Repayment on long-term borrowings ( 55,004,000 ) ( 4,000 )

3 unchanged sentences

Net cash provided by financing activities 111,810,000 76,510,000

Net increase (decrease) in cash and cash equivalents 1,417,000 ( 6,183,000 )

Net increase in cash and cash equivalents 2,819,000 880,000

Cash and cash equivalents at beginning of period 20,634,000 26,212,000

Cash and cash equivalents at end of period $ 23,453,000 $ 27,092,000

For the three months ended

March 31, 2022 March 31, 2021

For the six months ended June 30,

Interest paid $ 4,503,000 $ 6,282,000

Income taxes paid 3,216,000 2,633,000

Non-cash transactions

Right of use lease asset $ 319,000 $ —

Operating lease liability ( 319,000 ) —

Change in net unrealized gain on available for sale securities, net of tax 18,343,000 4,790,000

Change in net unrealized loss on available for sale securities, net of tax 31,077,000 3,819,000

Net transfer from loans to other real estate owned $ 51,000 $ —

See Report of Independent Registered Public Accounting Firm.

21 unchanged sentences

in 2021 the tourism industry rebounded and by all accounts businesses in the sector generally enjoyed a strong year.

The milder Omicron variants of COVID-19 have become the dominant strains with outbreaks resulting in modest levels of disruption.

Milder variants of COVID-19 have become the dominant strains with outbreaks resulting in modest levels of disruption.

The severity of any potential future outbreaks could have an impact on the Company's operating results, though the degree is indeterminable at this time.

Government economic programs intended to backstop and bolster the economy through the pandemic, such as the Payroll Protection Program (PPP) have ended, and the nation's economy has entered an inflationary phase.

The Consumer Price Index has risen at levels not experienced since the 1980s while the labor market remains very tight, contributing additional inflationary pressure.

To address the inflation problem, the Federal Reserve has reversed course on its previously accommodative monetary policies and aggressively increased short-term interest rates.

These actions are intended to slow overall economic activity and risk entering the economy into a recession.

The conflict between Russia and Ukraine has exacerbated pandemic-related supply chain issues, upset numerous global markets including energy and certain raw materials, and generally added to economic uncertainty and geopolitical instability.

1 unchanged sentence

Subsequent Events

Events occurring subsequent to March 31, 2022, have been evaluated as to their potential impact to the financial statements.

Events occurring subsequent to June 30, 2022, have been evaluated as to their potential impact to the financial statements.

Note 2 – Investment Securities

The following table summarizes the amortized cost and estimated fair value of investment securities at March 31, 2022:

The following table summarizes the amortized cost and estimated fair value of investment securities at June 30, 2022:

Cost Unrealized Gains Unrealized Losses Fair Value (Estimated)

34 unchanged sentences

$ 5,365,000 $ — $ — $ 5,365,000

The following table summarizes the amortized cost and estimated fair value of investment securities at March 31, 2021:

The following table summarizes the amortized cost and estimated fair value of investment securities at June 30, 2021:

Cost Unrealized Gains Unrealized Losses Fair Value (Estimated)

15 unchanged sentences

$ 8,839,000 $ — $ — $ 8,839,000

The following table summarizes the contractual maturities of investment securities at March 31, 2022:

The following table summarizes the contractual maturities of investment securities at June 30, 2022:

Securities available for sale Securities to be held to maturity

15 unchanged sentences

$ 322,741,000 $ 320,566,000 $ 370,040,000 $ 375,327,000

The following table summarizes the contractual maturities of investment securities at March 31, 2021:

The following table summarizes the contractual maturities of investment securities at June 30, 2021:

Securities available for sale Securities to be held to maturity

6 unchanged sentences

$ 304,740,000 $ 306,247,000 $ 376,181,000 $ 383,454,000

At March 31, 2022, securities with a fair value of $ 288,761,000 were pledged to secure public deposits, repurchase agreements, and for other purposes as required by law.

This compares to securities with a fair value of $ 297,456,000 as of December 31, 2021 and $ 241,990,000 at March 31, 2021, pledged for the same purposes.

At June 30, 2022, securities with a fair value of $ 318,833,000 were pledged to secure public deposits, repurchase agreements, and for other purposes as required by law.

This compares to securities with a fair value of $ 297,456,000 as of December 31, 2021 and $ 241,913,000 at June 30, 2021, pledged for the same purposes.

Gains and losses on the sale of securities are computed by subtracting the amortized cost at the time of sale from the security's selling price, net of accrued interest to be received.

The following table shows securities gains and losses for the three months ended March 31, 2022 and 2021:

For the three months ended March 31,

The following table shows securities gains and losses for the six months and quarters ended June 30, 2022 and 2021:

For the six months ended June 30, For the quarter ended June 30,

2022 2021 2022 2021

Proceeds from sales of securities $ — $ 15,692,000 $ — $ 14,478,000

1 unchanged sentence

Gross realized losses ( 1,000 ) ( 462,000 ) ( 1,000 ) ( 462,000 )

Net gain $ 2,000 $ 119,000

Net gain (loss) $ 1,000 $ 164,000 $ ( 1,000 ) $ 45,000

Related income taxes $ — $ 34,000 $ — $ 9,000

Management reviews securities with unrealized losses for other than temporary impairment.

As of March 31, 2022, there were 548 securities with unrealized losses held in the Company's portfolio.

As of June 30, 2022, there were 773 securities with unrealized losses held in the Company's portfolio.

These securities were temporarily impaired as a result of changes in interest rates reducing their fair value, of which 83 had been temporarily impaired for 12 months or more.

The Company has the ability and intent to hold its impaired securities until a recovery of their amortized cost, which may be at maturity.

Information regarding securities temporarily impaired as of March 31, 2022 is summarized below:

Information regarding securities temporarily impaired as of June 30, 2022 is summarized below:

Less than 12 months 12 months or more Total

16 unchanged sentences

$ 273,453,000 $ ( 6,144,000 ) $ 55,942,000 $ ( 2,297,000 ) $ 329,395,000 $ ( 8,441,000 )

As of March 31, 2021, there were 140 securities with unrealized losses held in the Company's portfolio.

As of June 30, 2021, there were 112 securities with unrealized losses held in the Company's portfolio.

These securities were temporarily impaired as a result of changes in interest rates reducing their fair value, of which 11 had been temporarily impaired for 12 months or more.

Information regarding securities temporarily impaired as of March 31, 2021 is summarized below:

Information regarding securities temporarily impaired as of June 30, 2021 is summarized below:

Less than 12 months 12 months or more Total

10 unchanged sentences

The amortization of the net unrealized loss reported in accumulated other comprehensive income (loss) will offset the effect on interest income of the discount for the transferred securities.

The remaining unamortized balance of the net unrealized losses for the securities transferred from available for sale to held to maturity was $ 78,000 , net of taxes, at March 31, 2022.

This compares to $ 87,000 and $ 124,000 , net of taxes, at December 31, 2021 and March 31, 2021, respectively.

The remaining unamortized balance of the net unrealized losses for the securities transferred from available for sale to held to maturity was $ 73,000 , net of taxes, at June 30, 2022.

This compares to $ 87,000 and $ 113,000 , net of taxes, at December 31, 2021 and June 30, 2021, respectively.

These securities were transferred as a part of the Company's overall investment and balance sheet strategies.

2 unchanged sentences

The Bank uses the FHLB for a portion of its wholesale funding needs.

As of March 31, 2022 and 2021, and December 31, 2021, the Bank's investment in FHLB stock totaled $ 4,365,000 , $ 9,068,000 and $ 4,328,000 , respectively.

As of June 30, 2022 and 2021, and December 31, 2021, the Bank's investment in FHLB stock totaled $ 3,683,000 , $ 7,802,000 and $ 4,328,000 , respectively.

FHLB stock is a non-marketable equity security and therefore is reported at cost, which equals par value.

2 unchanged sentences

The Bank uses FRB for certain correspondent banking services and maintains borrowing capacity at its discount window.

The Bank's investment in FRB stock totaled $ 1,037,000 at March 31, 2022 and 2021 and December 31, 2021, respectively.

The Bank's investment in FRB stock totaled $ 1,037,000 at June 30, 2022 and 2021 and December 31, 2021, respectively.

The Company periodically evaluates its investment in FHLB and FRB stock for impairment based on, among other factors, the capital adequacy of the Banks and their overall financial condition.

No impairment losses have been recorded through March 31, 2022.

No impairment losses have been recorded through June 30, 2022.

The Bank will continue to monitor its investment in these restricted equity securities.

Note 3 – Loans

The following table shows the composition of the Company's loan portfolio by class of financing receivable as of March 31, 2022 and 2021 and at December 31, 2021:

March 31, 2022 December 31, 2021 March 31, 2021

The following table shows the composition of the Company's loan portfolio by class of financing receivable as of June 30, 2022 and 2021 and at December 31, 2021:

June 30, 2022 December 31, 2021 June 30, 2021

Real estate $ 617,488,000 34.5 % $ 576,198,000 35.0 % $ 527,415,000 33.2 %

7 unchanged sentences

Total $ 1,788,355,000 100.0 % $ 1,647,649,000 100.0 % $ 1,588,264,000 100.0 %

Loan balances include net deferred loan costs of $ 9,299,000 as of March 31, 2022, $ 7,890,000 as of December 31, 2021, and $ 5,328,000 as of March 31, 2021.

Net deferred loan costs have increased from a year ago and year-to-date due to loan origination unit volume over the period and wind-down of unearned fees and deferred costs associated with US Small Business Administration ("SBA") Payroll Protection Program ("PPP") loans originated in 2020 and during the first and second quarters of 2021.

Pursuant to collateral agreements, qualifying first mortgage loans and commercial real estate loans, which totaled $ 455,229,000 at March 31, 2022, were used to collateralize borrowings from the FHLB.

This compares to qualifying loans which totaled $ 364,968,000 at December 31, 2021, and $ 362,271,000 at March 31, 2021.

In addition, commercial, residential construction and home equity loans totaling $ 338,463,000 at March 31, 2022, $ 295,090,000 at December 31, 2021, and $ 275,993,000 at March 31, 2021, were used to collateralize a standby line of credit at the FRB.

Loan balances include net deferred loan costs of $ 9,738,000 as of June 30, 2022, $ 7,890,000 as of December 31, 2021, and $ 5,447,000 as of June 30, 2021.

Net deferred loan costs have increased from a year ago and year-to-date due to loan origination unit volume over the period.

Unearned fees and deferred costs associated with US Small Business Administration ("SBA") Payroll Protection Program ("PPP") loans originated in 2020 and 2021 were fully recognized as of June 30, 2022.

Pursuant to collateral agreements, qualifying first mortgage loans and commercial real estate loans, which totaled $ 461,756,000 at June 30, 2022, were used to collateralize borrowings from the FHLB.

This compares to qualifying loans which totaled $ 364,968,000 at December 31, 2021, and $ 356,811,000 at June 30, 2021.

In addition, commercial, residential construction and home equity loans totaling $ 345,798,000 at June 30, 2022, $ 295,090,000 at December 31, 2021, and $ 259,312,000 at June 30, 2021, were used to collateralize a standby line of credit at the FRB.

For all loan classes, loans over 30 days past due are considered delinquent.

Information on the past-due status of loans by class of financing receivable as of March 31, 2022, is presented in the following table:

Information on the past-due status of loans by class of financing receivable as of June 30, 2022, is presented in the following table:

Past Due 60-89 Days

14 unchanged sentences

So long as modified terms are met, loans in an active modification are not included in past due loan totals and continue to accrue interest.

As of March 31, 2022, COVID-19 related loan modifications have nearly all been resolved, with $ 1,100,000 in retail loan balances remaining in modification status at the end of the first quarter, representing just 0.07 % of the loan portfolio.

As of June 30, 2022, COVID-19 related loan modifications have nearly all been resolved, with just four loans remaining in modification status at the end of the second quarter, representing less than $ 400,000 in total balances.

Each of the four are residential mortgage loans and each is scheduled to exit modification within the next two months.

Information on the past-due status of loans by class of financing receivable as of December 31, 2021, is presented in the following table:

11 unchanged sentences

Total $ 1,548,000 $ 543,000 $ 2,254,000 $ 4,345,000 $ 1,643,304,000 $ 1,647,649,000 $ 32,000

Information on the past-due status of loans by class of financing receivable as of March 31, 2021, is presented in the following table:

Information on the past-due status of loans by class of financing receivable as of June 30, 2021, is presented in the following table:

Past Due 60-89 Days

15 unchanged sentences

As a general rule, a loan may be restored to accrual status when payments are current for a substantial period of time, generally six months, and repayment of the remaining contractual amounts is expected, or when it otherwise becomes well secured and in the process of collection.

Information on nonaccrual loans as of March 31, 2022 and 2021 and at December 31, 2021 is presented in the following table:

March 31, 2022 December 31, 2021 March 31, 2021

Information on nonaccrual loans as of June 30, 2022 and 2021 and at December 31, 2021 is presented in the following table:

June 30, 2022 December 31, 2021 June 30, 2021

Real estate $ 197,000 $ 242,000 $ 1,029,000

10 unchanged sentences

If the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, a specific reserve is established for the difference, or, in certain situations, if the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, the difference is written off.

A breakdown of impaired loans by class of financing receivable as of and for the period ended March 31, 2022 is presented in the following table:

For the three months ended March 31, 2022

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income

A breakdown of impaired loans by class of financing receivable as of and for the period ended June 30, 2022 is presented in the following table:

For the six months ended June 30, 2022 For the quarter ended June 30, 2022

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income Average Recorded Investment Recognized Interest Income

With No Related Allowance

59 unchanged sentences

$ 12,052,000 $ 13,760,000 $ 576,000 $ 13,121,000 $ 242,000

A breakdown of impaired loans by class of financing receivable as of and for the period ended March 31, 2021 is presented in the following table:

For the three months ended March 31, 2021

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income

A breakdown of impaired loans by class of financing receivable as of and for the period ended June 30, 2021 is presented in the following table:

For the six months ended June 30, 2021 For the quarter ended June 30, 2021

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income Average Recorded Investment Recognized Interest Income

With No Related Allowance

34 unchanged sentences

common concession types include maturity date extension, interest rate adjustments to below market pricing, and deferment of payments.

As of March 31, 2022, the Company had 56 loans with a balance of $ 7,790,000 that have been classified as TDRs.

This compares to 60 loans with a balance of $ 8,341,000 and 73 loans with a balance of $ 11,306,000 classified as TDRs as of December 31, 2021 and March 31, 2021, respectively.

As of June 30, 2022, the Company had 53 loans with a balance of $ 7,484,000 that have been classified as TDRs.

This compares to 60 loans with a balance of $ 8,341,000 and 72 loans with a balance of $ 10,782,000 classified as TDRs as of December 31, 2021 and June 30, 2021, respectively.

The impairment carried as a specific reserve in the allowance for loan losses is calculated by present valuing the expected cash flows on the loan at the original interest rate, or, for collateral-dependent loans, using the fair value of the collateral less costs to sell.

The following table shows TDRs by class and the specific reserve as of March 31, 2022:

The following table shows TDRs by class and the specific reserve as of June 30, 2022:

Number of Loans Balance Specific Reserves

19 unchanged sentences

60 $ 8,341,000 $ 532,000

The following table shows TDRs by class and the specific reserve as of March 31, 2021:

The following table shows TDRs by class and the specific reserve as of June 30, 2021:

Number of Loans Balance Specific Reserves

8 unchanged sentences

72 $ 10,782,000 $ 660,000

As of March 31, 2022, five of the loans classified as TDRs with a total balance of $ 380,000 were more than 30 days past due.

As of June 30, 2022, nine of the loans classified as TDRs with a total balance of $ 641,000 were more than 30 days past due.

Of these loans, one had been placed on TDR status in the previous 12 months.

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of March 31, 2022:

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of June 30, 2022:

Number of Loans Balance Specific Reserves

8 unchanged sentences

9 $ 641,000 $ 230,000

As of March 31, 2021, 11 of the loans classified as TDRs with a total balance of $ 1,017,000 were more than 30 days past due.

As of June 30, 2021, 11 of the loans classified as TDRs with a total balance of $ 737,000 were more than 30 days past due.

Of these loans, none had been placed on TDR status in the previous 12 months.

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of March 31, 2021:

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of June 30, 2021:

Number of Loans Balance Specific Reserves

8 unchanged sentences

11 $ 737,000 $ 117,000

For the three months ended March 31, 2022, no loans were placed on TDR status.

For the three months ended March 31, 2021, one loan was placed on TDR status.

The following table shows this TDR by class and associated specific reserves included in the allowance for loan losses as of March 31, 2021:

For the six months ended June 30, 2022, no loans were placed on TDR status.

For the six months ended June 30, 2021, three loans were placed on TDR status.

The following table shows this TDR by class and associated specific reserves included in the allowance for loan losses as of June 30, 2021:

Number of Loans Pre-Modification

5 unchanged sentences

Municipal — — — —

Term 1 9,000 4,000 —

Construction — — — —

2 unchanged sentences

3 $ 350,000 $ 345,000 $ 261,000

As of March 31, 2022, Management is aware of eight loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $ 938,000 .

For the quarter ended June 30, 2022, no loans were placed on TDR status.

For the quarter ended June 30, 2021, two loans were placed on TDR status.

The following table shows this TDR by class and the associated specific reserve included in the allowance for loan losses as of June 30, 2021:

Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Specific Reserves

Real estate — $ — $ — $ —

Construction 1 80,000 80,000 —

Other — — — —

Municipal — — — —

Term 1 9,000 4,000 —

Construction — — — —

Home equity line of credit — — —

Consumer — — — —

2 $ 89,000 $ 84,000 $ —

As of June 30, 2022, Management is aware of six loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $ 885,000 .

There were also 14 loans with an outstanding balance of $ 1,341,000 that were classified as TDRs and on non-accrual status, of which no loans were in the process of foreclosure.

Residential Mortgage Loans in Process of Foreclosure

As of March 31, 2022, there were six mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 714,000 .

This compares to 14 mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 1,067,000 as of March 31, 2021.

As of June 30, 2022, there were five mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 537,000 .

This compares to 12 mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 912,000 as of June 30, 2021.

Allowance for Loan Losses

23 unchanged sentences

All outstanding loans are considered in evaluating the appropriateness of the allowance.

A breakdown of the allowance for loan losses as of March 31, 2022, December 31, 2021, and March 31, 2021, by class of financing receivable and allowance element, is presented in the following tables:

As of March 31, 2022 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

A breakdown of the allowance for loan losses as of June 30, 2022, December 31, 2021, and June 30, 2021, by class of financing receivable and allowance element, is presented in the following tables:

As of June 30, 2022 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

Reserves Total Reserves

21 unchanged sentences

$ 576,000 $ 1,856,000 $ 11,307,000 $ 1,782,000 $ 15,521,000

As of March 31, 2021 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

As of June 30, 2021 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

Reserves Total Reserves

21 unchanged sentences

these qualitative factors are also considered in connection with the unallocated portion of our allowance for loan losses.

The qualitative portion of the allowance for loan losses was 0.67 % of related loans as of March 31, 2022, compared to 0.69 % of related loans as of December 31, 2021.

The qualitative portion increased $ 137,000 between December 31, 2021 and March 31, 2022 due to a mix of factors.

The qualitative portion of the allowance for loan losses was 0.66 % of related loans as of June 30, 2022, compared to 0.69 % of related loans as of December 31, 2021.

The qualitative portion increased $ 465,000 between December 31, 2021 and June 30, 2022 due to a mix of factors.

These factors included changes in various macroeconomic measures used in the qualitative model, volume changes in certain portfolio segments, ongoing analysis of the loan portfolio in multiple stress scenarios, and performance of COVID-19 related loan modifications.

The unallocated component of the allowance totaled $ 1,732,000 at March 31, 2022, or 11.0 % of the total reserve.

The unallocated component of the allowance totaled $ 1,850,000 at June 30, 2022, or 11.4 % of the total reserve.

This compares to $ 1,782,000 or 11.5 % as of December 31, 2021.

Maintenance of an unallocated component reflects general imprecision related to portfolio growth along with lingering uncertainty regarding the potential impacts of COVID-19 on the loan portfolio.

The allowance for loan losses as a percent of total loans stood at 0.92 % as of March 31, 2022, 0.94 % at December 31, 2021 and 1.09 % as of March 31, 2021.

Maintenance of an unallocated component reflects general imprecision related to portfolio growth along with lingering uncertainty regarding the potential impacts of COVID-19 and wind-down of related government stimulus programs on the loan portfolio.

The allowance for loan losses as a percent of total loans stood at 0.91 % as of June 30, 2022, 0.94 % at December 31, 2021 and 1.07 % as of June 30, 2021.

Commercial loans are comprised of three major classes;

8 unchanged sentences

Payment structures during the construction period are typically on an interest only basis, although principal payments may be established depending on the type of construction project being financed.

During the construction phase, commercial construction loans are primarily paid by cash flow generated from the construction project or other operating cash flows from the borrower or guarantors,

if applicable.

During the construction phase, commercial construction loans are

primarily paid by cash flow generated from the construction project or other operating cash flows from the borrower or guarantors, if applicable.

At the end of the construction period, loan repayment typically comes from a third party source in the event that the Company will not be providing permanent term financing.

30 unchanged sentences

Consumer loans may be secured or unsecured.

Construction, land, and land development loans, both commercial and residential, comprise a small portion of the portfolio, and at 58.7 % of Bank capital are below the regulatory guidance limit of 100.0 % of capital at March 31, 2022.

Construction loans and non-owner-occupied commercial real estate loans are at 211.8 % of total Bank capital, below the regulatory limit of 300.0 % of capital at March 31, 2022.

Construction, land, and land development (CLLD) loans, both commercial and residential, comprise a growing portion of the portfolio.

CLLD loans represented 70.7 % of total Bank capital as of June 30, 2022 and remain below the regulatory guidance of 100.0 % of total Bank capital.

Construction loans and non-owner-occupied commercial real estate loans represented 223.8 % of total Bank capital at June 30, 2022 , below the regulatory guidance of 300.0 % of total Bank capital.

The process of establishing the allowance with respect to the commercial loan portfolio begins when a Loan Officer or Senior Officer (or designee) initially assigns each loan a risk rating, using established credit criteria.

22 unchanged sentences

The possibility of loss is high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of March 31, 2022:

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of June 30, 2022:

Real Estate Commercial

25 unchanged sentences

Total $ 576,198,000 $ 79,365,000 $ 264,570,000 $ 48,362,000 $ 968,495,000

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of March 31, 2021:

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of June 30, 2021:

Real Estate Commercial

28 unchanged sentences

This is subject to completion of a current assessment of the value of the collateral with any outstanding loan balance in excess of the fair value of the property, less costs to sell, written down or charged-off.

There were no changes to the Company's accounting policies or methodology used to estimate the allowance for loan losses during the three months ended March 31, 2022.

The following table presents allowance for loan losses activity by class for the three months ended March 31, 2022, and allowance for loan loss balances by class and related loan balances by class as of March 31, 2022:

There were no changes to the Company's accounting policies or methodology used to estimate the allowance for loan losses during the six months ended June 30, 2022.

The following table presents allowance for loan losses activity by class for the six months and quarter ended June 30, 2022, and allowance for loan loss balances by class and related loan balances by class as of June 30, 2022:

Commercial Municipal Residential Home Equity Line of Credit Consumer Unallocated Total

Real Estate Construction Other Term Construction

For the three months ended March 31, 2022

For the six months ended June 30, 2022

Beginning balance $ 5,367,000 $ 746,000 $ 2,830,000 $ 157,000 $ 2,733,000 $ 148,000 $ 925,000 $ 833,000 $ 1,782,000 $ 15,521,000

3 unchanged sentences

Ending balance $ 5,480,000 $ 1,151,000 $ 2,948,000 $ 157,000 $ 2,592,000 $ 191,000 $ 966,000 $ 866,000 $ 1,850,000 $ 16,201,000

Allowance for loan losses as of March 31, 2022

For the three months ended June 30, 2022

Beginning balance $ 5,369,000 $ 939,000 $ 2,956,000 $ 156,000 $ 2,648,000 $ 161,000 $ 939,000 $ 866,000 $ 1,732,000 $ 15,766,000

Charge offs — — 42,000 — — — — 70,000 — 112,000

Recoveries 1,000 — 1,000 — 3,000 — — 92,000 — 97,000

Provision (credit) 110,000 212,000 33,000 1,000 ( 59,000 ) 30,000 27,000 ( 22,000 ) 118,000 450,000

Ending balance $ 5,480,000 $ 1,151,000 $ 2,948,000 $ 157,000 $ 2,592,000 $ 191,000 $ 966,000 $ 866,000 $ 1,850,000 $ 16,201,000

Allowance for loan losses as of June 30, 2022

Ending balance specifically evaluated for impairment $ — $ 8,000 $ 502,000 $ — $ 103,000 $ — $ — $ — $ — $ 613,000

Ending balance collectively evaluated for impairment $ 5,480,000 $ 1,143,000 $ 2,446,000 $ 157,000 $ 2,489,000 $ 191,000 $ 966,000 $ 866,000 $ 1,850,000 $ 15,588,000

Related loan balances as of March 31, 2022

Related loan balances as of June 30, 2022

Ending balance $ 617,488,000 $ 128,927,000 $ 275,714,000 $ 46,835,000 $ 582,313,000 $ 44,011,000 $ 71,711,000 $ 21,356,000 $ — $ 1,788,355,000

17 unchanged sentences

Ending balance collectively evaluated for impairment $ 574,770,000 $ 78,676,000 $ 263,267,000 $ 48,362,000 $ 542,610,000 $ 31,763,000 $ 73,175,000 $ 22,974,000 $ — $ 1,635,597,000

The following table presents allowance for loan losses activity by class for the three months ended March 31, 2021, and allowance for loan loss balances by class and related loan balances by class as of March 31, 2021:

The following table presents allowance for loan losses activity by class for the six months and quarter ended June 30, 2021, and allowance for loan loss balances by class and related loan balances by class as of June 30, 2021:

Commercial Municipal Residential Home Equity Line of Credit Consumer Unallocated Total

Real Estate Construction Other Term Construction

For the three months ended March 31, 2021

For the six months ended June 30, 2021

Beginning balance $ 5,178,000 $ 662,000 $ 3,438,000 $ 171,000 $ 2,579,000 $ 102,000 $ 1,211,000 $ 778,000 $ 2,134,000 $ 16,253,000

3 unchanged sentences

Ending balance $ 6,088,000 $ 750,000 $ 3,757,000 $ 187,000 $ 2,896,000 $ 160,000 $ 959,000 $ 892,000 $ 1,345,000 $ 17,034,000

Allowance for loan losses as of March 31, 2021

For the three months ended June 30, 2021

Beginning balance $ 5,741,000 $ 649,000 $ 4,080,000 $ 185,000 $ 2,962,000 $ 131,000 $ 947,000 $ 872,000 $ 1,027,000 $ 16,594,000

Charge offs — — 144,000 — 12,000 — — 44,000 — 200,000

Recoveries 30,000 — 2,000 — 3,000 — 47,000 33,000 — 115,000

Provision (credit) 317,000 101,000 ( 181,000 ) 2,000 ( 57,000 ) 29,000 ( 35,000 ) 31,000 318,000 525,000

Ending balance $ 6,088,000 $ 750,000 $ 3,757,000 $ 187,000 $ 2,896,000 $ 160,000 $ 959,000 $ 892,000 $ 1,345,000 $ 17,034,000

Allowance for loan losses as of June 30, 2021

Ending balance specifically evaluated for impairment $ 167,000 $ 19,000 $ 403,000 $ — $ 118,000 $ — $ — $ — $ — $ 707,000

Ending balance collectively evaluated for impairment $ 5,921,000 $ 731,000 $ 3,354,000 $ 187,000 $ 2,778,000 $ 160,000 $ 959,000 $ 892,000 $ 1,345,000 $ 16,327,000

Related loan balances as of March 31, 2021

Related loan balances as of June 30, 2021

Ending balance $ 527,415,000 $ 65,794,000 $ 298,747,000 $ 41,079,000 $ 523,344,000 $ 29,818,000 $ 77,709,000 $ 24,358,000 $ — $ 1,588,264,000

9 unchanged sentences

Other compensation under the 2020 Plan qualifies as performance-based for purposes of Section 162(m) of the Internal Revenue Code, and satisfies NASDAQ guidelines relating to equity compensation.

As of March 31, 2022, 184,487 shares of restricted stock had been granted under the 2010 Plan and 67,684 shares under the 2020 Plan, of which 80,527 shares remain restricted as of March 31, 2022 as detailed in the following table:

As of June 30, 2022, 184,487 shares of restricted stock had been granted under the 2010 Plan and 67,684 shares under the 2020 Plan, of which 80,527 shares remain restricted as of June 30, 2022 as detailed in the following table:

Granted Vesting Term

6 unchanged sentences

The compensation cost related to these non-vested restricted stock grants is $ 2,281,000 and is recognized over the vesting terms of each grant.

In the three months ended March 31, 2022, $ 217,000 of expense was recognized for these restricted shares, leaving $ 1,350,000 in unrecognized expense as of March 31, 2022.

In the three months ended March 31, 2021, $ 288,000 of expense was recognized for restricted shares, leaving $ 1,252,000 in unrecognized expense as of March 31, 2021.

In the six months ended June 30, 2022, $ 412,000 of expense was recognized for these restricted shares, leaving $ 1,155,000 in unrecognized expense as of June 30, 2022.

In the six months ended June 30, 2021, $ 490,000 of expense was recognized for restricted shares, leaving $ 1,044,000 in unrecognized expense as of June 30, 2021.

Note 6 – Common Stock

Proceeds from sale of common stock totaled $ 199,000 and $ 182,000 for the three months ended March 31, 2022 and 2021, respectively.

Proceeds from sale of common stock totaled $ 385,000 and $ 340,000 for the six months ended June 30, 2022 and 2021, respectively.

Note 7 – Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (EPS) for the three months ended March 31, 2022 and 2021:

The following table sets forth the computation of basic and diluted earnings per share (EPS) for the six months ended June 30, 2022 and 2021:

Income (Numerator) Shares (Denominator) Per-Share Amount

For the three months ended March 31, 2022

For the six months ended June 30, 2022

Net income as reported $ 19,702,000

3 unchanged sentences

Income available to common shareholders plus assumed conversions $ 19,702,000 11,022,087 $ 1.79

For the three months ended March 31, 2021

For the six months ended June 30, 2021

Net income as reported $ 17,709,000

3 unchanged sentences

Income available to common shareholders plus assumed conversions $ 17,709,000 10,980,291 $ 1.61

The following table sets forth the computation of basic and diluted earnings per share (EPS) for the quarters ended June 30, 2022 and 2021:

Income (Numerator) Shares (Denominator) Per-Share Amount

For the quarter ended June 30, 2022

Net income as reported $ 9,997,000

Income available to common shareholders 9,997,000 10,927,887 $ 0.91

Effect of dilutive securities:

restricted stock 100,142

Income available to common shareholders plus assumed conversions $ 9,997,000 11,028,029 $ 0.91

For the quarter ended June 30, 2021

Net income as reported $ 8,787,000

Income available to common shareholders 8,787,000 10,902,013 $ 0.81

Effect of dilutive securities:

restricted stock 84,685

Income available to common shareholders plus assumed conversions $ 8,787,000 10,986,698 $ 0.80

Note 8 – Employee Benefit Plans

3 unchanged sentences

The Company adopted the safe harbor form of 401(k) plan in 2020 and made a 3.0 % safe harbor contribution to the plan in 2021 and 2020.

The expense related to the 401(k) plan was $ 324,000 and $ 217,000 for the three months ended March 31, 2022 and 2021, respectively.

The expense related to the 401(k) plan was $ 550,000 and $ 405,000 for the six months ended June 30, 2022 and 2021, respectively.

Deferred Compensation and Supplemental Retirement Benefits

3 unchanged sentences

The costs for these benefits are recognized over the service periods of the participating officers in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 712 "Compensation – Nonretirement Postemployment Benefits".

The expense of these supplemental retirement benefits was $ 77,000 and $ 42,000 for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, the associated accrued liability included in other liabilities in the balance sheet was $ 2,877,000 compared to $ 2,872,000 and $ 2,961,000 at December 31, 2021 and March 31, 2021, respectively.

The expense of these supplemental retirement benefits was $ 154,000 and $ 84,000 for the six months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022, the associated accrued liability included in other liabilities in the balance sheet was $ 2,882,000 compared to $ 2,872,000 and $ 2,932,000 at December 31, 2021 and June 30, 2021, respectively.

Postretirement Benefit Plans

6 unchanged sentences

The following table sets forth the accumulated postretirement benefit obligation and funded status:

At or for the three months ended March 31,

At or for the six months ended June 30,

Change in benefit obligation

8 unchanged sentences

The following table sets forth the net periodic pension cost:

For the three months ended March 31,

For the six months ended June 30, For the quarter ended June 30,

2022 2021 2022 2021

Components of net periodic benefit cost

2 unchanged sentences

Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income are as follows:

2022 December 31, 2021 March 31,

2022 December 31, 2021 June 30,

Unamortized net actuarial gain $ 133,000 $ 133,000 $ 35,000

8 unchanged sentences

Note 9 - Other Comprehensive Income (Loss)

The following table summarizes activity in the unrealized gain or loss on available for sale securities included in other comprehensive income (loss) for the three months ended March 31, 2022 and 2021.

For the three months ended March 31,

The following table summarizes activity in the unrealized gain or loss on available for sale securities included in other comprehensive income (loss) for the six months and quarters ended June 30, 2022 and 2021.

For the six months ended June 30, For the quarter ended June 30,

2022 2021 2022 2021

Balance at beginning of period $ ( 1,718,000 ) $ 5,009,000 $ ( 20,061,000 ) $ 1,556,000

Unrealized losses arising during the period ( 39,337,000 ) ( 4,670,000 ) ( 16,120,000 ) ( 417,000 )

Reclassification of net realized gains during the period ( 2,000 ) ( 119,000 )

Reclassification of net realized (gains) losses during the period ( 1,000 ) ( 164,000 ) 1,000 ( 45,000 )

Related deferred taxes 8,261,000 1,015,000 3,385,000 96,000

2 unchanged sentences

The reclassification of realized gains is included in the net securities gains line of the consolidated statements of income and comprehensive income and the tax effect is included in the income tax expense line of the same statement.

The following table summarizes activity in the unrealized loss on securities transferred from available for sale to held to maturity included in other comprehensive income (loss) for the three months ended March 31, 2022 and 2021.

For the three months ended March 31,

For the six months ended June 30, For the quarter ended June 30,

2022 2021 2022 2021

Balance at beginning of period $ ( 87,000 ) $ ( 133,000 ) $ ( 78,000 ) $ ( 124,000 )

3 unchanged sentences

Balance at end of period $ ( 73,000 ) $ ( 113,000 ) $ ( 73,000 ) $ ( 113,000 )

The following table presents the effect of the Company's derivative financial instruments included in other comprehensive income (loss) for the three months ended March 31, 2022 and 2021.

For the three months ended March 31,

The following table presents the effect of the Company's derivative financial instruments included in other comprehensive income (loss) for the six months and quarters ended June 30, 2022 and 2021.

For the six months ended June 30, For the quarter ended June 30,

2022 2021 2022 2021

Balance at beginning of period $ — $ ( 4,932,000 ) $ — $ ( 1,463,000 )

Unrealized gains on cash flow hedging derivatives arising during the period — 4,390,000

Unrealized gains (losses) on cash flow hedging derivatives arising during the period 185,000 3,606,000 185,000 ( 784,000 )

Related deferred taxes ( 39,000 ) ( 757,000 ) ( 39,000 ) 164,000

1 unchanged sentence

Balance at end of period $ 146,000 $ ( 2,083,000 ) $ 146,000 $ ( 2,083,000 )

There was no activity in the unrealized gain or loss on postretirement benefits included in other comprehensive income (loss) for the three months ended March 31, 2022 and 2021.

There was no activity in the unrealized gain or loss on postretirement benefits included in other comprehensive income (loss) for the six months and quarters ended June 30, 2022 and 2021.

Note 10 - Financial Derivative Instruments

4 unchanged sentences

The Bank recognizes its derivative instruments in the consolidated balance sheet at fair value.

On the date the derivative instrument is entered into, the Bank designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge).

On the date the derivative instrument is entered into, the Bank designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair

value hedge).

The Bank formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions.

4 unchanged sentences

The details of the interest rate swap agreements are as follows:

March 31, 2022 December 31, 2021 March 31, 2021

June 30, 2022 December 31, 2021 June 30, 2021

Effective Date Maturity Date Variable Index Received Fixed Rate Paid Presentation on Consolidated Balance Sheet Notional Amount Fair Value

7 unchanged sentences

03/13/2020 03/13/2025 3-Month USD Libor 0.855 % Other Liabilities — — — — 25,000,000 ( 139,000 )

06/28/2021 06/28/2026 1-Month USD Libor 1.158 % Other Liabilities — — — — 50,000,000 ( 352,000 )

03/13/2020 03/13/2025 3-Month USD Libor 0.855 % Other Liabilities — — — — 25,000,000 ( 99,000 )

03/13/2020 03/13/2030 3-Month USD Libor 1.029 % Other Assets — — — — 20,000,000 482,000

1 unchanged sentence

04/07/2020 04/07/2024 3-Month USD Libor 0.643 % Other Liabilities — — — — 20,000,000 ( 79,000 )

04/27/2022 10/27/2023 USD-SOFR-COMPOUND 2.498 % Other Assets 10,000,000 65,000 — — — —

04/24/2022 01/27/2024 USD-SOFR-COMPOUND 2.576 % Other Assets 10,000,000 62,000 — — — —

04/27/2022 04/27/2024 USD-SOFR-COMPOUND 2.619 % Other Assets 10,000,000 58,000 — — — —

$ 30,000,000 $ 185,000 $ — $ — $ 210,000,000 $( 2,637,000 )

The Company would reclassify unrealized gains or losses accounted for within accumulated other comprehensive income (loss) into earnings if the interest rate swaps were to become ineffective or the swaps were to terminate.

In the fourth quarter 2021, the Bank took advantage of market opportunities to terminate its interest rate swap position in order to de-lever the balance sheet and reset wholesale funding costs.

A one-time gain of $ 336,000 was recognized in non-interest income.

In the fourth quarter 2021, the Bank took advantage of market opportunities to terminate its then open interest rate swap positions in order to de-lever the balance sheet and reset wholesale funding costs.

A one-time gain of $ 336,000 was recognized in non-interest income in the fourth quarter 2021.

Amounts paid or received under the swaps are reported in interest expense in the consolidated statement of income, and in interest paid in the consolidated statement of cash flows.

3 unchanged sentences

Such loan level arrangements are not designated as hedges for accounting purposes, and are recorded at fair value in the Company’s consolidated balance sheet.

At March 31, 2022, there were six customer loan swap arrangements in place, detailed below:

March 31, 2022 December 31, 2021 March 31, 2021

At June 30, 2022 and 2021, and December 31, 2021, there were six customer loan swap arrangements in place, detailed below:

June 30, 2022 December 31, 2021 June 30, 2021

Presentation on Consolidated Balance Sheet Number of Positions Notional Amount Fair Value Number of Positions Notional Amount Fair Value Number of Positions Notional Amount Fair Value

9 unchanged sentences

The Bank's arrangement with its institutional counterparty requires it to post cash or other assets as collateral for its various loan swap contracts in a net liability position based on their fair values and the Bank's credit rating or receive cash collateral for contracts in a net asset position as requested.

At March 31, 2022, there was no collateral posted on its swap contracts or required amount to be pledged.

At June 30, 2022, there was no collateral posted on its swap contracts or required amount to be pledged.

Cessation of LIBOR

The Company is aware that 1) certain tenors of US Dollar ("USD") denominated London Interbank Offering Rate ("LIBOR") indices will no longer be published after December 31, 2021, while other tenors are expected to continue being published until June 30, 2023, and 2) no new contracts referencing LIBOR are to be written after December 31, 2021.

The Company is aware that 1) certain tenors of US Dollar ("USD") denominated London Interbank Offering Rate ("LIBOR") indices ceased to be published after December 31, 2021, while other tenors are expected to continue being published until June 30, 2023, and 2) no new contracts referencing LIBOR are to be written after December 31, 2021.

The Federal Reserve formed the Alternative Reference Rates Committee ("ARRC") to guide the transition process in the United States.

2 unchanged sentences

The Company has adopted SOFR as its replacement reference rate index for new transactions.

Each of the interest rate swap contracts the Company has in place as of March 31, 2022 is tied to a LIBOR tenor expected to be published until June 2023.

The six customer loan swap contracts shown in the table immediately above have maturity dates of December 19, 2029, August 21, 2030, April 1, 2031, July 1, 2035, October 1, 2035 and October 1, 2039.

Each of the customer loan interest rate swap contracts the Company has in place as of June 30, 2022 is tied to a LIBOR tenor expected to be published until June 2023.

The six contracts shown in the table immediately above have maturity dates of December 19, 2029, August 21, 2030, April 1, 2031, July 1, 2035, October 1, 2035 and October 1, 2039.

It is anticipated that necessary actions to amend these legacy contracts and designate a replacement reference rate index will be undertaken in late 2022.

3 unchanged sentences

In evaluating the carrying values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, type, and term of the underlying loans.

The model utilizes several assumptions, the most significant of which is loan prepayments, calculated using a three-months moving average of weekly prepayment data published by the Public Securities Association (PSA) and modeled against the serviced loan portfolio, and the discount rate to discount future cash flows.

As of March 31, 2022, the prepayment assumption using the PSA model was 169, which translates into an anticipated prepayment rate of 8.11 %.

The model utilizes several assumptions, the most significant of which is loan prepayments,

calculated using a three-months moving average of weekly prepayment data published by the Public Securities Association (PSA) and modeled against the serviced loan portfolio, and the discount rate to discount future cash flows.

As of June 30, 2022, the prepayment assumption using the PSA model was 132, which translates into an anticipated prepayment rate of 6.34 %.

The discount rate is 9.00 %.

2 unchanged sentences

Amortization of mortgage servicing rights, as well as write-offs due to prepayments of the related mortgage loans, are recorded as a charge against mortgage servicing fee income.

For the three months ended March 31, 2022 and 2021, servicing rights capitalized totaled $ 169,000 and $ 328,000 , respectively.

Servicing rights amortized for the three-month periods ended March 31, 2022 and 2021 were $ 183,000 and $ 151,000 , respectively.

The fair value of servicing rights was $ 3,435,000 , $ 3,041,000 , and $ 2,608,000 at March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

The Bank serviced loans for others totaling $ 357,494,000 , $ 356,522,000 , and $ 335,938,000 at March 31, 2022, December 31, 2021, and March 31, 2021, respectively.

The Bank recorded an impairment reserve as of March 31, 2022, 2021 and December 31, 2021 for strata with a fair value lower than cost.

For the six months ended June 30, 2022 and 2021, servicing rights capitalized totaled $ 237,000 and $ 646,000 , respectively.

Servicing rights amortized for the six-month periods ended June 30, 2022 and 2021 were $ 291,000 and $ 319,000 , respectively.

The fair value of servicing rights was $ 3,751,000 , $ 3,041,000 , and $ 2,777,000 at June 30, 2022, December 31, 2021 and June 30, 2021, respectively.

The Bank serviced loans for others totaling $ 354,308,000 , $ 356,522,000 , and $ 348,862,000 at June 30, 2022, December 31, 2021, and June 30, 2021, respectively.

The Bank recorded an impairment reserve as of June 30, 2021 and December 31, 2021 for strata with a fair value lower than cost.

There was no impairment reserve as of June 30, 2022.

Mortgage servicing rights are included in other assets and detailed in the following table:

2022 December 31,

2021 March 31,

2021 June 30,

Mortgage servicing rights $ 8,579,000 $ 8,341,000 $ 7,945,000

8 unchanged sentences

Note 13 - Certificates of Deposit

The following table represents the breakdown of certificates of deposit at March 31, 2022 and 2021, and at December 31, 2021:

March 31, 2022 December 31, 2021 March 31, 2021

The following table represents the breakdown of certificates of deposit at June 30, 2022 and 2021, and at December 31, 2021:

June 30, 2022 December 31, 2021 June 30, 2021

Certificates of deposit < $100,000 $ 340,876,000 $ 252,568,000 $ 226,924,000

44 unchanged sentences

Servicing assets and servicing liabilities are reported using the amortization method and compared to fair value for impairment.

In evaluating the fair values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, type, and term of the underlying loans.

In evaluating the fair

values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, type, and term of the underlying loans.

As such, the Company classifies mortgage servicing rights as Level 2.

9 unchanged sentences

The credit value adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties.

As of March 31, 2022 and 2021, and December 31, 2021, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall

valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives due to collateral postings.

As of June 30, 2022 and 2021, and December 31, 2021, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives due to collateral postings.

Customer Loan Derivatives

12 unchanged sentences

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present the balances of assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2022, December 31, 2021 and March 31, 2021.

At March 31, 2022

The following tables present the balances of assets and liabilities that were measured at fair value on a recurring basis as of June 30, 2022, December 31, 2021 and June 30, 2021.

At June 30, 2022

Level 1 Level 2 Level 3 Total

5 unchanged sentences

Total securities available for sale — 301,737,000 — 301,737,000

Interest rate swap agreements — 185,000 — 185,000

Customer loan interest swap agreements — 3,440,000 — 3,440,000

Total interest rate swap agreements — 3,625,000 — 3,625,000

Total assets $ — $ 305,362,000 $ — $ 305,362,000

At March 31, 2022

At June 30, 2022

Level 1 Level 2 Level 3 Total

15 unchanged sentences

Total liabilities $ — $ 2,591,000 $ — $ 2,591,000

At March 31, 2021

At June 30, 2021

Level 1 Level 2 Level 3 Total

9 unchanged sentences

Total assets $ — $ 309,556,000 $ — $ 309,556,000

At March 31, 2021

At June 30, 2021

Level 1 Level 2 Level 3 Total

4 unchanged sentences

The following tables include assets measured at fair value on a nonrecurring basis that have had a fair value adjustment since their initial recognition.

Mortgage servicing rights are presented net of an impairment reserve of $ 8,000 at March 31, 2022, $ 26,000 at December 31, 2021 and $ 92,000 at March 31, 2021.

Other real estate owned is presented net of an allowance of 45,000 at March 31, 2021.

The Company had no other real estate owned or related allowance at March 31, 2022 and December 31, 2021.

Mortgage servicing rights are presented net of an impairment reserve of $ 26,000 at December 31, 2021 and $ 93,000 at June 30, 2021.

There was no impairment reserve as of June 30, 2022.

Other real estate owned is presented net of an allowance of $ 0 at June 30, 2022 and 2021.

The Company had no other real estate owned or related allowance at December 31, 2021.

Only collateral-dependent impaired loans with a related specific allowance for loan losses or a partial charge off are included in impaired loans for purposes of fair value disclosures.

Impaired loans below are presented net of specific allowances of $ 417,000 , $ 441,000 and $ 641,000 at March 31, 2022, December 31, 2021, and March 31, 2021, respectively.

At March 31, 2022

Impaired loans below are presented net of specific allowances of $ 335,000 , $ 441,000 and $ 473,000 at June 30, 2022, December 31, 2021, and June 30, 2021, respectively.

At June 30, 2022

Level 1 Level 2 Level 3 Total

Mortgage servicing rights $ — $ 3,751,000 $ — $ 3,751,000

Other real estate owned — 51,000 — 51,000

Impaired loans — 5,000 — 5,000

5 unchanged sentences

Total assets $ — $ 3,265,000 $ — $ 3,265,000

At March 31, 2021

At June 30, 2021

Level 1 Level 2 Level 3 Total

16 unchanged sentences

Carrying value is used because the accounts have no stated maturity and the customer has the ability to withdraw funds immediately.

The carrying amount and estimated fair values for financial instruments as of March 31, 2022 were as follows:

The carrying amount and estimated fair values for financial instruments as of June 30, 2022 were as follows:

Carrying value Estimated fair value Level 1 Level 2 Level 3

41 unchanged sentences

Total borrowed funds 136,342,000 135,063,000 — 135,063,000 —

The carrying amount and estimated fair values for financial instruments as of March 31, 2021 were as follows:

The carrying amount and estimated fair values for financial instruments as of June 30, 2021 were as follows:

Carrying value Estimated fair value Level 1 Level 2 Level 3

31 unchanged sentences

It continues to evaluate the impact of the adoption of the ASU on its consolidated financial statements, and continues to anticipate that it may have a material impact upon adoption.

The Bank has formed an implementation committee for ASU No.

To date, committee members have participated in educational seminars on the new standards, identified the historical data sets that will be necessary to implement the new standard, and have chosen a third-party vendor who provides software solutions for ASU No.

The Bank formed an implementation committee for ASU No.

Committee members participated in educational seminars on the new standards, identified the historical data sets that will be necessary to implement the new standard, and chose a third-party vendor who provides software solutions for ASU No.

2016-13 modeling and calculation.

The Bank is in the late stages of implementing this software and plans to run incurred loss and current expected credit loss models in parallel until adoption of ASU No.

An Allowance for Credit Loss Committee has been formed to guide the late stages of implementing the software and and eventual adoption of the new standard.

The Bank plans to run incurred loss and current expected credit loss models in parallel until adoption of ASU No.

2016-13 on January 1, 2023.

18 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements