What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-05 compared with 2021-08-05 · 202 added, 178 removed, 1085 unchanged (26% of the section changed)

4 unchanged sentences

(In thousands, except number of shares)

SEPTEMBER 30,

Interest-bearing deposits in other financial institutions

2 unchanged sentences

Mortgage loans held for sale

Loans receivable, net of allowance for credit losses of $ 66,602 – June 2021;

Loans receivable, net of allowance for credit losses of $ 63,629 – September 2021;

net of allowance for loan losses of $ 55,743 - December 2020

20 unchanged sentences

authorized 1,000,000 shares;

issued and outstanding June 2021 and December 2020 - - 0 - shares

issued and outstanding September 2021 and December 2020 - - 0 - shares

Common stock, $ .01 par value;

authorized 20,000,000 shares;

issued and outstanding June 2021 – 13,659,357 shares;

issued and outstanding September 2021 – 13,366,737 shares;

December 2020 – 13,752,605 shares

10 unchanged sentences

THREE MONTHS ENDED

SEPTEMBER 30,

INTEREST INCOME

8 unchanged sentences

PROVISION (CREDIT) FOR CREDIT LOSSES ON LOANS

PROVISION (CREDIT) FOR UNFUNDED COMMITMENTS

NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR CREDIT LOSSES AND PROVISION (CREDIT) FOR UNFUNDED COMMITMENTS

PROVISION FOR UNFUNDED COMMITMENTS

NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR CREDIT LOSSES AND PROVISION FOR UNFUNDED COMMITMENTS

NON-INTEREST INCOME

3 unchanged sentences

Late charges and fees on loans

Gain (loss) on derivative interest rate products

Net realized gains on sales of available-for-sale securities

Gain on derivative interest rate products

TOTAL NON-INTEREST INCOME

19 unchanged sentences

(In thousands, except per share data)

SIX MONTHS ENDED

NINE MONTHS ENDED

SEPTEMBER 30,

INTEREST INCOME

8 unchanged sentences

PROVISION (CREDIT) FOR CREDIT LOSSES ON LOANS

PROVISION (CREDIT) FOR UNFUNDED COMMITMENTS

NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR CREDIT LOSSES AND PROVISION (CREDIT) FOR UNFUNDED COMMITMENTS

CREDIT FOR UNFUNDED COMMITMENTS

NET INTEREST INCOME AFTER PROVISION (CREDIT) FOR CREDIT LOSSES AND CREDIT FOR UNFUNDED COMMITMENTS

NON-INTEREST INCOME

27 unchanged sentences

THREE MONTHS ENDED

Unrealized appreciation on available-for-sale securities, net of taxes of $ 1,806 and $ 1,602 , for 2021 and 2020, respectively

Reclassification adjustment for gains included in net income, net of taxes of $ 0 and $ 18 , for 2021 and 2020, respectively

SEPTEMBER 30,

Unrealized depreciation on available-for-sale securities, net of taxes (credit) of $( 1,011 ) and $( 531 ), for 2021 and 2020, respectively

Amortization of realized gain on termination of cash flow hedge, net of taxes (credit) of $( 468 ) and $( 467 ), for 2021 and 2020, respectively

Comprehensive Income

SIX MONTHS ENDED

NINE MONTHS ENDED

SEPTEMBER 30,

Unrealized appreciation (depreciation) on available-for-sale securities, net of taxes (credit) of $( 3,314 ) and $ 4,482 , for 2021 and 2020, respectively

8 unchanged sentences

(In thousands, except per share data)

THREE MONTHS ENDED JUNE 30, 2020

THREE MONTHS ENDED SEPTEMBER 30, 2020

Comprehensive

1 unchanged sentence

Income (Loss)

Balance, March 31, 2020

Balance, June 30, 2020

Stock issued under Stock Option Plan

Common dividends declared, $ 0.34 per share

Other comprehensive gain

Other comprehensive loss

Purchase of the Company’s common stock

Reclassification of treasury stock per Maryland law

Balance, June 30, 2020

THREE MONTHS ENDED JUNE 30, 2021

Balance, September 30, 2020

THREE MONTHS ENDED SEPTEMBER 30, 2021

Comprehensive

1 unchanged sentence

Income (Loss)

Balance, March 31, 2021

Balance, June 30, 2021

Stock issued under Stock Option Plan

Common dividends declared, $ 0.36 per share

Other comprehensive gain

Other comprehensive loss

Purchase of the Company’s common stock

Reclassification of treasury stock per Maryland law

Balance, June 30, 2021

Balance, September 30, 2021

See Notes to Consolidated Financial Statements

3 unchanged sentences

(In thousands, except per share data)

SIX MONTHS ENDED JUNE 30, 2020

NINE MONTHS ENDED SEPTEMBER 30, 2020

Comprehensive

7 unchanged sentences

Reclassification of treasury stock per Maryland law

Balance, June 30, 2020

SIX MONTHS ENDED JUNE 30, 2021

Balance, September 30, 2020

NINE MONTHS ENDED SEPTEMBER 30, 2021

Comprehensive

8 unchanged sentences

Reclassification of treasury stock per Maryland law

Balance, June 30, 2021

Balance, September 30, 2021

See Notes to Consolidated Financial Statements

3 unchanged sentences

(In thousands)

SIX MONTHS ENDED

NINE MONTHS ENDED

SEPTEMBER 30,

CASH FLOWS FROM OPERATING ACTIVITIES

34 unchanged sentences

Net increase in checking and savings deposits

Net decrease in short-term borrowings

Net increase (decrease) in short-term borrowings

Advances from borrowers for taxes and insurance

Proceeds from issuance of subordinated notes

Redemption of subordinated notes

Dividends paid

1 unchanged sentence

Stock options exercised

Net cash provided by financing activities

Net cash provided by (used in) financing activities

INCREASES IN CASH AND CASH EQUIVALENTS

10 unchanged sentences

Those adjustments consist only of normal recurring adjustments.

Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full year.

Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the full year.

The consolidated statement of financial condition of the Company as of December 31, 2020, has been derived from the audited consolidated statement of financial condition of the Company as of that date.

17 unchanged sentences

The Update amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities.

For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.

For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses.

The Update affects entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.

28 unchanged sentences

EARNINGS PER SHARE

Three Months Ended June 30,

Three Months Ended September 30,

(In Thousands, Except Per Share Data)

8 unchanged sentences

Per common share amount

Six Months Ended June 30,

Nine Months Ended September 30,

(In Thousands, Except Per Share Data)

8 unchanged sentences

Per common share amount

Options outstanding at June 30, 2021 and 2020, to purchase 452,918 and 653,794 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for each of the three month periods because the exercise prices of such options were greater than the average market prices of the common stock for the three months ended June 30, 2021 and 2020, respectively.

Options outstanding at June 30, 2021 and 2020, to purchase 452,918 and 565,401 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for the six month periods because the exercise prices of such options were greater than the average market prices of the common stock for the six months ended June 30, 2021 and 2020, respectively.

Options outstanding at September 30, 2021 and 2020, to purchase 448,256 and 654,369 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for each of the three month periods because the exercise prices of such options were greater than the average market prices of the common stock for the three months ended September 30, 2021 and 2020, respectively.

Options outstanding at September 30, 2021 and 2020, to purchase 448,256 and 650,869 shares of common stock, respectively, were not included in the computation of diluted earnings per common share for the nine month periods because the exercise prices of such options were greater than the average market prices of the common stock for the nine months ended September 30, 2021 and 2020, respectively.

INVESTMENT SECURITIES

The amortized cost and fair values of securities classified as available-for-sale were as follows:

June 30, 2021

September 30, 2021

(In Thousands)

11 unchanged sentences

Small Business Administration securities

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

The amortized cost and fair value of available-for-sale securities at September 30, 2021, by contractual maturity, are shown below.

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

5 unchanged sentences

Securities not due on a single maturity date

There were no securities classified as held to maturity at June 30, 2021 or December 31, 2020.

There were no securities classified as held to maturity at September 30, 2021 or December 31, 2020.

Certain investments in debt securities are reported in the financial statements at an amount less than their historical cost.

Total fair value of these investments at June 30, 2021 and December 31, 2020, was approximately $ 93.1 million and $ 24.2 million, respectively, which is approximately 20.7 % and 5.8 % of the Company’s available-for-sale investment portfolio, respectively.

Total fair value of these investments at September 30, 2021 and December 31, 2020, was approximately $ 99.0 million and $ 24.2 million, respectively, which is approximately 22.9 % and 5.8 % of the Company’s available-for-sale investment portfolio, respectively.

Based on an evaluation of available evidence, including recent changes in market interest rates, credit rating information and information obtained from regulatory filings, management believes any declines in fair value for these debt securities are temporary.

The following table shows the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2021 and December 31, 2020:

June 30, 2021

September 30, 2021

Less than 12 Months

14 unchanged sentences

States and political subdivisions securities

There were no sales of available-for-sale securities during the three or six months ended June 30, 2021.

Gross gains of $ 78,000 resulting from sales of available-for-sale securities were realized during the three and six months ended June 30, 2020.

There were no sales of available-for-sale securities during the three or nine months ended September 30, 2021.

There were no sales of available-for-sale securities during the three months ended September 30, 2020.Gross gains of $ 78,000 resulting from sales of available-for-sale securities were realized during the nine months ended September 30, 2020.

Gains and losses on sales of securities are determined on the specific-identification method.

12 unchanged sentences

Amounts Reclassified Out of Accumulated Other Comprehensive Income.

There were no amounts reclassified from accumulated other comprehensive income during the three or six months ended June 30, 2021 and 2020.

There were no amounts reclassified from accumulated other comprehensive income during the three or nine months ended September 30, 2021 and 2020.

LOANS AND ALLOWANCE FOR CREDIT LOSSES

9 unchanged sentences

The after-tax effect decreased retained earnings by $ 14.2 million.

The adjustment was based upon the Company’s analysis of current conditions, assumptions and economic forecasts at January 1, 2021.

The adjustment was based upon the Company’s analysis of then-current conditions, assumptions and economic forecasts at January 1, 2021.

The Company adopted ASC 326 using the prospective transition approach for financial assets purchased with credit deterioration (PCD) that were previously classified as purchased credit impaired (PCI) and accounted for under ASC 310-30.

31 unchanged sentences

however, the liability for unfunded lending commitments incorporates assumptions for the portion of unfunded commitments that are expected to be funded.

Classes of loans at June 30, 2021 and December 31, 2020 were as follows:

Classes of loans at September 30, 2021 and December 31, 2020 were as follows:

September 30,

(In Thousands)

17 unchanged sentences

Weighted average interest rate

(1) Loans acquired and accounted for under ASC 310-30 of $ 84.4 million have been included in the totals by loan class as of June 30, 2021.

(1) Loans acquired and accounted for under ASC 310-30 of $ 79.5 million have been included in the totals by loan class as of September 30, 2021.

At the date of CECL adoption, the Company did not reassess whether PCI loans met the criteria of PCD loans.

The following tables present the classes of loans by aging.

Loans originally acquired and accounted for under ASC 310-30 of $ 84.4 million have been included in the totals by loan class as of June 30, 2021.

June 30, 2021

Loans originally acquired and accounted for under ASC 310-30 of $ 79.5 million have been included in the totals by loan class as of September 30, 2021.

September 30, 2021

> 90 Days Past

14 unchanged sentences

Home equity lines of credit

FDIC-acquired loans

FDIC-assisted acquired loans

December 31, 2020

22 unchanged sentences

Consumer loans are charged-off at specified delinquency dates consistent with regulatory guidelines.

Non-accruing loans as of December 31, 2020 shown below exclude $ 3.8 million in loans acquired and accounted for under ASC 310-30, while the non-accruing loans as of June 30, 2021 shown below include $ 2.4 million in loans acquired through various FDIC-assisted transactions in the loan classes listed.

Non-accruing loans as of December 31, 2020 shown below exclude $ 3.8 million in loans acquired and accounted for under ASC 310-30, while the non-accruing loans as of September 30, 2021 shown below include $ 1.9 million in loans acquired through various FDIC-assisted transactions in the loan classes listed.

September 30,

(In Thousands)

13 unchanged sentences

Total non-accruing loans

FDIC-acquired loans

Total non-accruing loans net of FDIC-acquired loans

No interest income was recorded on these loans for the three and six months ended June 30, 2021 and 2020, respectively.

Nonaccrual loans for which there is no related allowance for credit losses as of June 30, 2021 had an amortized cost of $ 3.2 million.

FDIC-assisted acquired loans

Total non-accruing loans net of FDIC-assisted acquired loans

No interest income was recorded on these loans for the three and nine months ended September 30, 2021 and 2020, respectively.

Nonaccrual loans for which there is no related allowance for credit losses as of September 30, 2021 had an amortized cost of $ 2.7 million.

These loans are individually assessed and do not require an allowance due to being adequately collateralized under the collateral-dependent valuation method.

A collateral-dependent loan is a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company’s assessment as of the reporting date.

A collateral-dependent loan is a financial asset for which the repayment is expected to be

provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty based on the Company’s assessment as of the reporting date.

Collateral-dependent loans are identified by either a classified risk rating or TDR status and a loan balance equal to or greater than $ 100,000 , including, but not limited to, any loan in process of foreclosure or repossession.

The following tables present the activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2021.

On January 1, 2021, the Company adopted the CECL methodology, which added $ 11.6 million to the total Allowance for Credit Loss, which included $ 1.9 million remaining discount on loans that were previously accounted for as PCI.

During the three months ended June 30, 2021, the Company recorded a negative provision expense of $ 1 .0 million on its portfolio of outstanding loans, compared to a $ 6 .0 million provision expense recorded for the quarter ended June 30, 2020.

During the six months ended June 30, 2021, the Company recorded a negative provision expense of $ 700,000 on its portfolio of outstanding loans, compared to a $ 9.9 million provision expense recorded for the six months ended June 30, 2020.

The following tables present the activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2021.

On January 1, 2021, the Company adopted the CECL methodology, which added $ 11.6 million to the total Allowance for Credit Loss, including $ 1.9 million of remaining discount on loans that were previously accounted for as PCI.

During the three months ended September 30, 2021, the Company recorded a credit (negative expense) of $ 3.0 million on its portfolio of outstanding loans, compared to a $ 4.5 million provision expense recorded for the quarter ended September 30, 2020.

During the nine months ended September 30, 2021, the Company recorded a credit (negative expense) of $ 3.7 million on its portfolio of outstanding loans, compared to a $ 14.4 million provision expense recorded for the nine months ended September 30, 2020.

One- to Four-

2 unchanged sentences

Allowance for credit losses

Balance, March 31, 2021

Provision charged to expense

Losses charged off

Balance, June 30, 2021

Provision (credit) charged to expense

Losses charged off

Balance, September 30, 2021

Allowance for credit losses

2 unchanged sentences

Balance, January 1, 2021

Provision charged to expense

Provision (credit) charged to expense

Losses charged off

Balance, June 30, 2021

The following table presents the activity in the allowance for unfunded commitments by portfolio segment for the three and six months ended June 30, 2021.

Balance, September 30, 2021

The following table presents the activity in the allowance for unfunded commitments by portfolio segment for the three and nine months ended September 30, 2021.

On January 1, 2021, the Company adopted the CECL methodology, which created an $ 8.7 million allowance for unfunded commitments.

The provision for losses on unfunded commitments for the three and six months ended June 30, 2021 was a credit of $ 307,000 and $ 981,000 , respectively, as the level and mix of unfunded commitments resulted in a decrease in the required reserve for such potential losses.

The provision for losses on unfunded commitments for the three and nine months ended September 30, 2021 was a provision expense of $ 643,000 and a credit (negative expense) of $ 338,000 , respectively, as the level and mix of unfunded commitments resulted in a decrease in the required reserve for such potential losses in the nine-month period.

One- to Four-

2 unchanged sentences

Allowance for unfunded commitments

Balance, March 31, 2021

Provision (benefit) charged to expense

Balance, June 30, 2021

Provision (credit) charged to expense

Balance, September 30, 2021

Allowance for unfunded commitments

2 unchanged sentences

Balance, January 1, 2021

Provision (benefit) charged to expense

Balance, June 30, 2021

The following table presents the activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2020, prepared using the previous GAAP incurred loss method prior to the adoption of ASU 2016-13.

Provision (credit) charged to expense

Balance, September 30, 2021

The following table presents the activity in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2020, prepared using the previous GAAP incurred loss method prior to the adoption of ASU 2016-13.

One- to Four-

2 unchanged sentences

Allowance for loan losses

Balance, April 1, 2020

Provision (benefit) charged to expense

Balance, July 1, 2020

Provision (credit) charged to expense

Losses charged off

Balance, June 30, 2020

Balance, September 30, 2020

Allowance for loan losses

Balance, January 1, 2020

Provision (benefit) charged to expense

Provision charged to expense

Losses charged off

Balance, June 30, 2020

Balance, September 30, 2020

The following table presents the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2020, prepared using the previous GAAP incurred loss method prior to the adoption of ASU 2016-13.

16 unchanged sentences

● The consumer segment includes the consumer auto, consumer other and home equity lines of credit classes.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of June 30, 2021:

June 30, 2021

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2021:

September 30, 2021

(In Thousands)

14 unchanged sentences

A loan is considered impaired, in accordance with the impairment accounting guidance (FASB ASC 310-10-35-16), when based on current information and events, it is probable the Company will be unable to collect all amounts due from the borrower in accordance with the contractual terms of the loan.

Impaired loans include not only nonperforming loans but also loans modified in TDRs where concessions have been granted to borrowers experiencing financial difficulties.

Impaired loans include not only nonperforming loans or classified loans, but also loans modified in TDRs where concessions have been granted to borrowers experiencing financial difficulties.

At or for the Year Ended December 31, 2020

13 unchanged sentences

Home equity lines of credit

June 30, 2020

September 30, 2020

(In Thousands)

13 unchanged sentences

Three Months Ended

Six Months Ended

June 30, 2020

Nine Months Ended

September 30, 2020

(In Thousands)

13 unchanged sentences

At December 31, 2020, $ 4.8 million of impaired loans had specific valuation allowances totaling $ 713,000 .

TDRs by class are presented below as of June 30, 2021 and December 31, 2020.

The December 31, 2020 table excludes $ 1.7 million of FDIC-acquired loans accounted for under ASC 310-30, while the June 30, 2021 table includes the loans acquired through various FDIC-assisted transactions in the loan classes listed.

June 30, 2021

TDRs by class are presented below as of September 30, 2021 and December 31, 2020.

The December 31, 2020 table excludes $ 1.7 million of FDIC-assisted acquired loans accounted for under ASC 310-30, while the September 30, 2021 table includes the loans acquired through various FDIC-assisted transactions in the loan classes listed.

September 30, 2021

Accruing TDR Loans

14 unchanged sentences

Other residential

The following tables present newly restructured loans, which were considered TDRs, during the three and six months ended June 30, 2021 and 2020, respectively, by type of modification:

Three Months Ended June 30, 2021

The following tables present newly restructured loans, which were considered TDRs, during the three and nine months ended September 30, 2021 and 2020, respectively, by type of modification:

Three Months Ended September 30, 2021

Interest Only

1 unchanged sentence

One- to four-family residential

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Interest Only

(In Thousands)

Six Months Ended June 30, 2021

One- to four-family residential

Commercial real estate

Commercial business

Nine Months Ended September 30, 2021

Interest Only

2 unchanged sentences

One- to four-family residential

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Interest Only

1 unchanged sentence

One- to four-family residential

At June 30, 2021, of the $ 4 .0 million in TDRs, $ 3.1 million were classified as substandard using the Company’s internal grading system, which is described below.

The Company had no TDRs that were modified in the previous 12 months and subsequently defaulted during the six months ended June 30, 2021.

Commercial real estate

Commercial business

At September 30, 2021, of the $ 3.8 million in TDRs, $ 2.9 million were classified as substandard using the Company’s internal grading system, which is described below.

The Company had no TDRs that were modified in the previous 12 months and subsequently defaulted during the nine months ended September 30, 2021.

At December 31, 2020, of the $ 3.3 million in TDRs, $ 1.6 million were classified as substandard using the Company’s internal grading system.

The Company had no TDRs that were modified in the previous 12 months and subsequently defaulted during the year ended December 31, 2020.

During the three and six months ended June 30, 2021, $ 310,000 and $ 337,000 of loans, respectively, met the criteria for placement back on accrual status.

During the three and nine months ended September 30, 2021, $ 96,000 and $ 433,000 of loans, respectively, met the criteria for placement back on accrual status.

The criteria are generally a minimum of six months of consistent and timely payment performance under original or modified terms.

During the three and six months ended June 30, 2020, there were no loans designated as TDRs that met the criteria for placement back on accrual status.

In addition to the above loans considered TDRs, at June 30, 2021, the Company had remaining 15 modified commercial loans with an aggregate principal balance outstanding of $ 91 million and 30 modified consumer and mortgage loans with an aggregate principal balance outstanding of $ 876,000 .

At June 30, 2021, the largest total modified loans by collateral type were in the following categories:

During the three and nine months ended September 30, 2020, one $ 155,000 one- to four-family loan designated as a TDR met the criteria for placement back on accrual status.

In addition to the above loans considered TDRs, at September 30, 2021, the Company had remaining eight modified commercial loans with an aggregate principal balance outstanding of $ 38.2 million and 16 modified consumer and mortgage loans with an aggregate principal balance outstanding of $ 1.6 million.

At September 30, 2021, the largest total modified loans by collateral type were in the following categories:

healthcare - $ 11.6 million;

hotel/motel - $ 10.9 million;

retail - $ 7.7 million;

healthcare - $ 18 million;

multifamily - $ 11 million.

office - $ 6.9 million.

At December 31, 2020, the Company had remaining 65 modified commercial loans with an aggregate principal balance outstanding of $ 232.4 million and 581 modified consumer and mortgage loans with an aggregate principal balance outstanding of $ 18.2 million.

The loan modifications are within the guidance provided by the CARES Act and subsequent legislation, the federal banking regulatory agencies, the SEC and the FASB;

therefore, they are not considered troubled debt restructurings.

A portion of the loans modified at June 30, 2021, may be further modified, and new loans may be modified, within the guidance provided by the CARES Act (and subsequent legislation enacted in December 2020), the federal banking regulatory agencies, the SEC and the FASB if a more severe or lengthier deterioration in economic conditions occurs in future periods.

The loan modifications discussed in the preceding two paragraphs are within the guidance provided by the CARES Act and subsequent legislation, the federal banking regulatory agencies, the SEC and the FASB;

therefore, they are not considered TDRs.

A portion of the loans modified at September 30, 2021, may be further modified, and new loans may be modified, within the guidance provided by the CARES Act (and subsequent legislation enacted in December 2020), the federal banking regulatory agencies, the SEC and the FASB if a more severe or lengthier deterioration in economic conditions occurs in future periods.

The Company utilizes an internal risk rating system comprised of a series of grades to categorize loans according to perceived risk associated with the expectation of debt repayment.

The analysis of the borrower’s ability to repay considers specific information, including but not limited to current financial information, historical payment experience, industry information, collateral levels and collateral types.

The analysis of the borrower’s ability to repay considers specific information,

including but not limited to current financial information, historical payment experience, industry information, collateral levels and collateral types.

A risk rating is assigned at loan origination and then monitored throughout the contractual term for possible risk rating changes.

Satisfactory loans range from Excellent to Moderate Risk, but generally are loans supported by strong recent financial statements.

Character and capacity of individuals or company are strong, including reasonable project performance, good industry experience, liquidity and/or net worth of individuals or company.

Character and capacity of borrower are strong, including reasonable project performance, good industry experience, liquidity and/or net worth.

Probability of financial deterioration seems unlikely.

3 unchanged sentences

Margins of debt service coverage may be narrow, historical patterns of financial performance may be erratic, collateral margins may be diminished and the borrower may be a new and/or thinly capitalized company.

Some management weakness may also exist, the borrowers may have somewhat limited access to other financial institutions, and that ability may diminish in difficult economic times.

Some management weakness may also exist, the borrower may have somewhat limited access to other financial institutions, and that ability may diminish in difficult economic times.

Special Mention loans have weaknesses that deserve management’s close attention.

10 unchanged sentences

In addition to the regular monitoring performed by the lending personnel and credit committees, loans are subject to review by the credit review department, which verifies the appropriateness of the risk ratings for the loans chosen as part of its risk-based review plan.

The following tables present a summary of loans by risk category and past due status separated by origination and loan class as of June 30, 2021.

The first table, which is as of June 30, 2021, was prepared using the CECL methodology and includes $ 84.4 million in FDIC-assisted acquired loans included in the loan class categories.

The following tables present a summary of loans by risk category and past due status separated by origination and loan class as of September 30, 2021.

The first table, which is as of September 30, 2021, was prepared using the CECL methodology and includes $ 79.5 million in FDIC-assisted acquired loans included in the loan class categories.

The remaining accretable discount of $ 606,000 has not been included in this table.

See Note 7 for further discussion of the FDIC-acquired loans and related discount.

See Note 7 for further discussion of the FDIC-assisted acquired loans and related discount.

The undisbursed portions of loans in process have been netted against the gross loan balances for presentation in this table.

The second table, which is as of December 31, 2020, was prepared using the previous GAAP incurred loss methodology prior to the adoption of ASU 2016-13.

72 unchanged sentences

Based upon the acquisition date fair values of the net assets acquired, no goodwill was recorded.

The following table presents the balances of the acquired loans related to the various FDIC-assisted transactions at June 30, 2021 and December 31, 2020.

The following table presents the balances of the acquired loans related to the various FDIC-assisted transactions at September 30, 2021 and December 31, 2020.

(In Thousands)

June 30, 2021

September 30, 2021

Gross loans receivable

16 unchanged sentences

Because the balance of these adjustments to accretable yield will be recognized generally over the remaining lives of the loan pools, they will impact future periods as well.

As of June 30, 2021, the remaining accretable yield adjustment that will affect interest income was $ 885,000 .

Of the remaining adjustments affecting interest income, we expect to recognize approximately $ 453,000 of interest income during the remainder of 2021.

As of January 1, 2021, we adopted the new accounting standard related to accounting for credit losses.

1 unchanged sentence

All adjustments made prior to January 1, 2021 will continue to be accreted to interest income.

The impact to income of adjustments on the Company’s financial results is shown below:

As of September 30, 2021, the remaining accretable yield adjustment that will affect interest income was $ 606,000 .

Of the remaining adjustments affecting interest income, we expect to recognize approximately $ 178,000 of interest income during the remainder of 2021.

The impact of these adjustments on the Company’s financial results is shown below:

Three Months Ended

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

(In Thousands, Except Per Share Data and Basis Points Data)

4 unchanged sentences

Impact to diluted earnings per share

Six Months Ended

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

(In Thousands, Except Per Share Data and Basis Points Data)

6 unchanged sentences

Major classifications of other real estate owned were as follows:

September 30,

(In Thousands)

12 unchanged sentences

Other real estate owned and repossessions

At June 30, 2021 other real estate owned not acquired through foreclosure included three properties, all of which were branch locations that were closed and held for sale.

At September 30, 2021 other real estate owned not acquired through foreclosure included three properties, all of which were branch locations that were closed and held for sale.

At December 31, 2020, other real estate owned not acquired through foreclosure included seven properties, all of which were branch locations that were closed and held for sale.

At June 30, 2021, residential mortgage loans totaling $ 283,000 were in the process of foreclosure, $ 86,000 of which were acquired loans related to FDIC-assisted transactions.

Pursuant to Section 4022 of the CARES Act, the Company has suspended all foreclosure proceedings.

Under this provision, no mortgage servicer of any federally-backed mortgage loan is permitted to initiate any foreclosure process, whether judicial or non-judicial, move for a foreclosure judgment or order of sale, or execute a foreclosure- related eviction or foreclosure sale for a 60-day period, beginning March 18, 2020.

This provision was subsequently extended through July 31, 2021.

At September 30, 2021, residential mortgage loans totaling $ 39,000 were in the process of foreclosure, none of which were acquired loans related to FDIC-assisted transactions.

Pursuant to Section 4022 of the CARES Act, the Company suspended all foreclosure proceedings.

Under this provision, no mortgage servicer of any federally-backed mortgage loan was permitted to initiate any foreclosure process, whether judicial or non-judicial, move for a foreclosure judgment or order of sale, or execute a foreclosure- related eviction or foreclosure sale for a 60-day period, beginning March 18, 2020.

This provision’s foreclosure moratorium was subsequently extended through July 31, 2021, and its eviction moratorium was subsequently extended through September 30, 2021.

At December 31, 2020, residential mortgage loans totaling $ 602,000 were in the process of foreclosure, $ 518,000 of which were acquired loans related to FDIC-assisted transactions.

1 unchanged sentence

Three Months Ended

September 30,

(In Thousands)

2 unchanged sentences

Operating expenses, net of rental income

Six Months Ended

Nine Months Ended

September 30,

(In Thousands)

4 unchanged sentences

Major classifications of premises and equipment, stated at cost, were as follows:

September 30,

(In Thousands)

7 unchanged sentences

The amount of the right of use asset and corresponding lease liability will fluctuate based on the Company’s lease terminations, new leases and lease modifications and renewals.

As of June 30, 2021, the lease right of use asset value was $ 8.2 million and the corresponding lease liability was $ 8.3 million.

As of September 30, 2021, the lease right of use asset value was $ 7.9 million and the corresponding lease liability was $ 8.1 million.

As of December 31, 2020, the lease right of use asset value was $ 8.5 million and the corresponding lease liability was $ 8.7 million.

12 unchanged sentences

The Company’s short-term leases related to offsite ATMs have both fixed and variable lease payment components, based on the number of transactions at the various ATMs.

The variable portion of these lease payments is not material and the total lease expense related to ATMs for the three months ended June 30, 2021 and 2020 was $ 86,000 and $ 65,000 , respectively.

The total lease expense related to ATMs for the six months ended June 30, 2021 and 2020, was $ 151,000 and $ 126,000 , respectively.

The variable portion of these lease payments is not material and the total lease expense related to ATMs for the three months ended September 30, 2021 and 2020 was $ 79,000 and $ 76,000 , respectively.

The total lease expense related to ATMs for the nine months ended September 30, 2021 and 2020, was $ 230,000 and $ 202,000 , respectively.

The calculated amounts of the right of use assets and lease liabilities in the table below are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments.

8 unchanged sentences

At or For the Three Months Ended

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

(In Thousands)

9 unchanged sentences

Operating leases

At or For the Six Months Ended

June 30, 2021

June 30, 2020

At or For the Nine Months Ended

September 30, 2021

September 30, 2020

(In Thousands)

9 unchanged sentences

Operating leases

For the three months ended June 30, 2021 and 2020, lease expense was $ 394,000 and $ 400,000 , respectively.

For the six months ended June 30, 2021 and 2020, lease expense was $ 768,000 and $ 785,000 , respectively.

At June 30, 2021, future expected lease payments for leases with terms exceeding one year were as follows (In Thousands):

For the three months ended September 30, 2021 and 2020, lease expense was $ 386,000 and $ 397,000 , respectively.

For both the nine months ended September 30, 2021 and 2020, lease expense was $ 1.2 million.

At September 30, 2021, future expected lease payments for leases with terms exceeding one year were as follows (In Thousands):

Future lease payments expected

4 unchanged sentences

In terms of being the lessor in these circumstances, all of these lease agreements are classified as operating leases.

In the three months ended June 30, 2021 and 2020, income recognized from these lessor agreements was $ 290,000 and $ 271,000 , respectively, and was included in occupancy and equipment expense.

In the six months ended June 30, 2021 and 2020, income recognized from these lessor agreements was $ 580,000 and $ 570,000 , respectively, and was included in occupancy and equipment expense.

In the three months ended September 30, 2021 and 2020, income recognized from these lessor agreements was $ 323,000 and $ 294,000 , respectively, and was included in occupancy and equipment expense.

In the nine months ended September 30, 2021 and 2020, income recognized from these lessor agreements was $ 903,000 and $ 864,000 , respectively, and was included in occupancy and equipment expense.

September 30,

(In Thousands)

9 unchanged sentences

ADVANCES FROM FEDERAL HOME LOAN BANK

At June 30, 2021 and December 31, 2020, there were no outstanding term advances from the Federal Home Loan Bank of Des Moines (FHLBank advances).

There were no overnight funds from the Federal Home Loan Bank of Des Moines as of June 30, 2021 or December 31, 2020.

At September 30, 2021 and December 31, 2020, there were no outstanding term advances from the Federal Home Loan Bank of Des Moines (FHLBank advances).

There were no overnight funds from the Federal Home Loan Bank of Des Moines as of September 30, 2021 or December 31, 2020.

SECURITIES SOLD UNDER REVERSE REPURCHASE AGREEMENTS AND SHORT-TERM BORROWINGS

September 30,

(In Thousands)

Notes payable – Community Development Equity Funds

Other interest bearing liabilities

Securities sold under reverse repurchase agreements

5 unchanged sentences

The following table represents the Company’s securities sold under reverse repurchase agreements, by collateral type and remaining contractual maturity.

June 30, 2021

September 30, 2021

December 31, 2020

5 unchanged sentences

On August 8, 2016, the Company completed the public offering and sale of $ 75.0 million of its subordinated notes.

The notes are due August 15, 2026, and have a fixed interest rate of 5.25 % until August 15, 2021, at which time the rate becomes floating at a rate equal to three-month LIBOR plus 4.087 %.

The Company may call the notes at par beginning on August 15, 2021, and on any scheduled interest payment date thereafter.

The notes were due August 15, 2026 and had a fixed interest rate of 5.25 % until August 15, 2021, at which time the rate was to become floating at a rate equal to three-month LIBOR plus 4.087 %.

The notes were sold at par, resulting in net proceeds, after underwriting discounts and commissions, legal, accounting and other professional fees, of approximately $ 73.5 million.

Total debt issuance costs of approximately $ 1.5 million were deferred and are being amortized over the expected life of the notes, which is five years .

On June 30, 2021, the Company announced that it will redeem, on August 15, 2021, all of the Company’s outstanding 5.25 % fixed-to-floating rate subordinated notes due August 15, 2026, with an aggregate principal balance of $ 75 million.

The total redemption price will be 100 % of the aggregate principal balance of the subordinated notes plus accrued and unpaid interest.

Total debt issuance costs of approximately $ 1.5 million were deferred and amortized over the five-year expected life of the notes.

On August 15, 2021, in accordance with the terms of the notes, the Company redeemed all $ 75.0 million aggregate principal amount of the notes at a redemption price equal to 100 % of their principal amount, plus accrued and unpaid interest.

On June 10, 2020, the Company completed the public offering and sale of $ 75.0 million of its subordinated notes.

3 unchanged sentences

Total debt issuance costs of approximately $ 1.5 million were deferred and are being amortized over the expected life of the notes, which is five years .

Amortization of the debt issuance costs during the three months ended June 30, 2021 and 2020 of both subordinated notes offerings totaled $ 183,000 and $ 134,000 , respectively.

Amortization of the debt issuance costs during the six months ended June 30, 2021 and 2020 totaled $ 366,000 and $ 242,000 , respectively.

Amortization of the debt issuance costs during the three months ended September 30, 2021 and 2020 of both subordinated notes offerings totaled $ 146,000 and $ 186,000 , respectively.

Amortization of the debt issuance costs during the nine months ended September 30, 2021 and 2020 totaled $ 512,000 and $ 428,000 , respectively.

Amortization of the debt issuance costs is included in interest expense on subordinated notes in the consolidated statements of income, resulting in an imputed interest rate of 5.98 %.

At June 30, 2021 and December 31, 2020, subordinated notes are summarized as follows:

June 30, 2021

At September 30, 2021 and December 31, 2020, subordinated notes are summarized as follows:

September 30, 2021

December 31, 2020

3 unchanged sentences

Reconciliations of the Company’s effective tax rates to the statutory corporate tax rates were as follows:

Three Months Ended June 30,

Three Months Ended September 30,

Tax at statutory rate

Nontaxable interest and dividends

Six Months Ended June 30,

Nine Months Ended September 30,

Tax at statutory rate

23 unchanged sentences

Recurring Measurements

The following table presents the fair value measurements of assets recognized in the accompanying statements of financial condition measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fell at June 30, 2021 and December 31, 2020:

Fair value measurements using

2 unchanged sentences

(In Thousands)

June 30, 2021

September 30, 2021

Agency mortgage-backed securities

11 unchanged sentences

Interest rate derivative liability

The following is a description of inputs and valuation methodologies used for assets recorded at fair value on a recurring basis and recognized in the accompanying statements of financial condition at June 30, 2021 and December 31, 2020, as well as the general classification of such assets pursuant to the valuation hierarchy.

There have been no significant changes in the valuation techniques during the six -month period ended June 30, 2021.

The following is a description of inputs and valuation methodologies used for assets recorded at fair value on a recurring basis and recognized in the accompanying statements of financial condition at September 30, 2021 and December 31, 2020, as well as the general classification of such assets pursuant to the valuation hierarchy.

There have been no significant changes in the valuation techniques during the nine-month period ended September 30, 2021.

For assets classified within Level 3 of the fair value hierarchy, the process used to develop the reported fair value is described below.

6 unchanged sentences

Additional inputs include indicative values derived from the independent pricing service’s proprietary computerized models.

There were no recurring Level 3 securities at June 30, 2021 or December 31, 2020.

There were no recurring Level 3 securities at September 30, 2021 or December 31, 2020.

Interest Rate Derivatives.

1 unchanged sentence

Nonrecurring Measurements

The following table presents the fair value measurements of assets measured at fair value on a nonrecurring basis and the level within the fair value hierarchy in which the fair value measurements fall at June 30, 2021 and December 31, 2020:

Fair Value Measurements Using

2 unchanged sentences

(In Thousands)

June 30, 2021

September 30, 2021

Collateral-dependent loans

Foreclosed assets held for sale

10 unchanged sentences

The Company typically does not have commercial loans held for sale.

At June 30, 2021 and December 31, 2020, the aggregate fair value of mortgage loans held for sale exceeded their cost.

At September 30, 2021 and December 31, 2020, the aggregate fair value of mortgage loans held for sale was not materially different than their cost.

Accordingly, no mortgage loans held for sale were marked down and reported at fair value.

19 unchanged sentences

Foreclosed assets held for sale are classified within Level 3 of the fair value hierarchy.

The foreclosed assets represented in the table above have been re-measured during the six months ended June 30, 2021 or the year ended December 31, 2020, subsequent to their initial transfer to foreclosed assets.

The foreclosed assets represented in the table above have been re-measured during the nine months ended September 30, 2021 or the year ended December 31, 2020, subsequent to their initial transfer to foreclosed assets.

Fair Value of Financial Instruments

25 unchanged sentences

Because no market exists for certain of these financial instruments and because management does not intend to sell these financial instruments, the Company does not know whether the fair values shown below represent values at which the respective financial instruments could be sold individually or in the aggregate.

June 30, 2021

September 30, 2021

December 31, 2020

33 unchanged sentences

Five of the seven acquired loans with interest rate swaps have paid off.

The aggregate notional amount of the two remaining Valley swaps was $ 534,000 and $ 584,000 at June 30, 2021 and December 31, 2020, respectively.

At June 30, 2021, excluding the Valley Bank swaps, the Company had 14 interest rate swaps totaling $ 124.7 million in notional amount with commercial customers, and 14 interest rate swaps with the same aggregate notional amount with third parties related to its program.

The aggregate notional amount of the two remaining Valley swaps was $ 508,000 and $ 584,000 at September 30, 2021 and December 31, 2020, respectively.

At September 30, 2021, excluding the Valley Bank swaps, the Company had 15 interest rate swaps totaling $ 124.0 million in notional amount with commercial customers, and 15 interest rate swaps with the same aggregate notional amount with third parties related to its program.

In addition, the Company has four participation loans purchased totaling $ 27.3 million, in which the lead institution has an interest rate swap with its customer and the economics of the counterparty swap are passed along to the Company through the loan participation.

At December 31, 2020, excluding the Valley Bank swaps, the Company had 19 interest rate swaps totaling $ 142.8 million in notional amount with commercial customers, and 19 interest rate swaps with the same notional amount with third parties related to its program.

During the three months ended June 30, 2021, the Company recognized a net loss of $ 179,000 , compared to net losses of $ 106,000 during the three months ended June 30, 2020, in noninterest income related to changes in the fair value of these swaps.

During the six months ended June 30, 2021, the Company recognized a net gain of $ 295,000 , compared to net losses of $ 514,000 during the six months ended June 30, 2020, in noninterest income related to changes in the fair value of these swaps.

During the three months ended September 30, 2021, the Company recognized net gains of $ 45,000 , compared to net gains of $ 89,000 during the three months ended September 30, 2020, in noninterest income related to changes in the fair value of these swaps.

During the nine months ended September 30, 2021, the Company recognized net gains of $ 340,000 , compared to net losses of $ 424,000 during the nine months ended September 30, 2020, in noninterest income related to changes in the fair value of these swaps.

Cash Flow Hedges

6 unchanged sentences

If USD-LIBOR exceeded the fixed rate of interest in future periods, the Company was required to pay net settlements to the counterparty and recorded those net payments as a reduction of interest income on loans.

The Company recorded loan interest income of $ 2.0 million and $ 2.0 million on this interest rate swap during the three months ended June 30, 2021 and 2020, respectively.

The Company recorded loan interest income of $ 4.0 million and $ 3.6 million on this interest rate swap during the six months ended June 30, 2021 and 2020, respectively.

The effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income and reclassified into earnings in the same period or periods during which the hedged transaction affected earnings.

Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

During each of the three and six months ended June 30, 2021 and 2020, the Company recognized no noninterest income related to changes in the fair value of this derivative.

On March 2, 2020, the Company and its swap counterparty mutually agreed to terminate the swap, effective on that date.

3 unchanged sentences

In each quarterly period, commencing with the quarter ended June 30, 2020, until the original contract termination date, the Company expects to record loan interest income related to this swap transaction of approximately $ 2.0 million, based on the termination value of the swap.

As such, the Company recorded loan interest income of $ 2.0 million and $ 2.0 million on this interest rate swap during the three months ended September 30, 2021 and 2020, respectively.

The Company recorded loan interest income of $ 6.1 million and $ 5.6 million on this interest rate swap during the nine months ended September 30, 2021 and 2020, respectively.

Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in current earnings.

During each of the three and nine months ended September 30, 2021 and 2020, the Company recognized no noninterest income related to changes in the fair value of this derivative.

The Company currently expects to have an amount of eligible variable rate loans to continue to accrete this interest income in future periods.

2 unchanged sentences

Consolidated Statements

September 30,

of Financial Condition

12 unchanged sentences

Recognized in AOCI

Three Months Ended June 30,

Three Months Ended September 30,

Cash Flow Hedges

3 unchanged sentences

Recognized in AOCI

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flow Hedges

2 unchanged sentences

The following table presents the effect of cash flow hedge accounting on the statements of income:

Three Months Ended June 30,

Three Months Ended September 30,

Cash Flow Hedges

1 unchanged sentence

Interest rate swap

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flow Hedges

6 unchanged sentences

Similarly, the Company could be required to settle its obligations under certain of its agreements if certain regulatory events occurred, such as the issuance of a formal directive, or if the Company’s credit rating is downgraded below a specified level.

At June 30, 2021, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers) in an overall net liability position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $ 1.3 million.

At September 30, 2021, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers) in an overall net liability position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $ 689,000 .

The Company has minimum collateral posting thresholds with its derivative dealer counterparties.

At June 30, 2021, the Company’s activity with two of its derivative counterparties met the level at which the minimum collateral posting thresholds take effect (collateral to be given by the Company) and the Company had posted collateral totaling $ 1.5 million to the derivative counterparties to satisfy the loan level agreements.

At September 30, 2021, the Company’s activity with one of its derivative counterparties met the level at which the minimum collateral posting thresholds take effect (collateral to be given by the Company) and the Company had posted collateral totaling $ 1.2 million to the derivative counterparty to satisfy the loan level agreements.

In addition, as of September 30, 2021, the activity with one of its derivative counterparties met the level at which the minimum collateral posting thresholds take effect (collateral to be received by the Company) and the derivative counterparty had given cash collateral of $ 490,000 to the Company to satisfy the loan level agreements.

At December 31, 2020, the termination value of derivatives with our derivative dealer counterparties (related to loan level swaps with commercial lending customers) in a net liability position, which included accrued interest but excluded any adjustment for nonperformance risk, related to these agreements was $ 391,000 .

Additionally, the Company’s activity with two of its derivative counterparties met the level at which the minimum collateral posting thresholds take effect (collateral to be given by the Company) and the Company had posted collateral of $ 5.3 million to the derivative counterparties to satisfy the loan level agreements.

If the Company had breached any of these provisions at June 30, 2021 or December 31, 2020, it could have been required to settle its obligations under the agreements at the termination value.

If the Company had breached any of these provisions at September 30, 2021 or December 31, 2020, it could have been required to settle its obligations under the agreements at the termination value.

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