What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-10 compared with 2021-08-13 · 192 added, 195 removed, 663 unchanged (37% of the section changed)

52 unchanged sentences

The program includes penetration testing and vulnerability assessment, technological defenses such as antivirus software, patch management, firewall management, email and web protections, an intrusion prevention system, a cybersecurity insurance policy which covers some but not all losses arising from cybersecurity breaches, as well as ongoing employee training. 

The costs of these measures were $95 for the three months ended June 30, 2021 and $95 for the three months ended June 30, 2020.

For the six months ended June 30, 2021 and June 30, 2020, the expense was $193 and $188 respectively.

The costs of these measures were $82 for the three months ended September 30, 2021 and $95 for the three months ended September 30, 2020.

For the nine months ended September 30, 2021 and September 30, 2020, the expense was $272 and $283 respectively.

These costs are included in various categories of noninterest expense.

4 unchanged sentences

Response to COVID-19 Pandemic

The COVID-19 pandemic has affected the global economy for approximately 15 months.

The COVID-19 pandemic has affected the global economy since the first quarter of 2020.

The Company has complied with national, state and local guidelines to help reduce the spread of the virus, including implementing social distancing measures for employees and customers.

6 unchanged sentences

Controls over cash and physical assets have remained in place and internal controls over financial reporting and disclosure have been maintained.

The Company continues to monitor the impact of the pandemic on significant estimates, including the allowance for loan losses, valuation of goodwill and pension obligations.

The impact to the allowance for loan losses is discussed under the “Asset Quality”

Analysis as of June 30, 2021 did not indicate negative impacts to the valuation of goodwill or pension obligations.

National Bankshares, Inc.

3 unchanged sentences

NBB is a community bank and does business as National Bank from twenty-five office locations and one loan production office.

The Company recently analyzed its branch locations and determined to close one of its Blacksburg, Virginia offices.

The office will close on November 19, 2021 and all business will be transferred to nearby locations.

NBB is the source of nearly all of the Company’s revenue.

14 unchanged sentences

$ in thousands

Three months ended June 30,

Three months ended September 30,

Items deemed non-recurring by management:

Securities gains, net of tax of $3 in 2020

Provision recovery, net of tax of $82 in 2021

Adjusted net income

2 unchanged sentences

Securities gains, net of tax of ($3) in 2020

Provision recovery, net of tax of ($82) in 2021

Annualized net income for ratio calculation

$ in thousands

Six months ended June 30,

Nine months ended September 30,

Items deemed non-recurring by management:

1 unchanged sentence

Securities gains, net of tax of $1 in 2021 and $20 in 2020

Provision recovery, net of tax of $71 in 2021

Adjusted net income

3 unchanged sentences

Securities gains, net of tax of ($1) in 2021 and ($20) in 2020

Provision recovery, net of tax of ($71) in 2021

Annualized net income for ratio calculation

12 unchanged sentences

$ in thousands

Three months ended June 30,

Three months ended September 30,

GAAP measures:

13 unchanged sentences

$ in thousands

Six months ended June 30,

Nine months ended September 30,

GAAP measures:

18 unchanged sentences

$ in thousands

Three months ended June 30,

Three months ended September 30,

Noninterest expense

5 unchanged sentences

$ in thousands

Six months ended June 30,

Nine months ended September 30,

Noninterest expense

11 unchanged sentences

The reconciliation of adjusted noninterest income and adjusted noninterest expense, which are not measurements under GAAP, is reflected in the table below.

Three months ended June 30,

Three months ended September 30,

Noninterest expense under GAAP

6 unchanged sentences

Noninterest margin

Six months ended June 30,

Nine months ended September 30,

Noninterest expense under GAAP

33 unchanged sentences

All TDRs are impaired loans.

TDRs are impaired loans and are measured for impairment under the same valuation methods as other impaired loans.

In the ordinary course of business, the Company grants modification requests when deemed appropriate.

Modifications may be granted for competitive reasons or to strengthen repayment prospects for borrowers who may or may not be experiencing financial difficulty.

The Company reviews all modifications to determine whether, at the time of the modification, the borrower is experiencing financial difficulty and whether the Company provided a concession that it would not otherwise consider.

Loans with modifications that meet these criteria are designated TDR.

The CARES Act, the CAA as well as regulatory agencies, provided guidance allowing banks to forego TDR designation for COVID-19 related accommodations to loans that met certain criteria.

Loan modifications are reviewed to determine whether, at the time of the modification, the borrower is experiencing financial difficulty and whether the Company provided a concession that it would not otherwise consider.

With the exception of borrowers affected by COVID-19 who fall under the provisions of the CARES Act and CAA, modified loans that meet this criteria are designated TDRs.

The CARES Act, the CAA and regulatory agencies provided guidance allowing banks to forego TDR designation for COVID-19 related accommodations to loans that met certain criteria.

Under the legislation, short-term modifications to loans that were not more than 30 days past due as of December 31, 2019 are not considered for TDR designation.

1 unchanged sentence

Additional tracking mechanisms implemented at the beginning of the pandemic continue to aid the Company in monitoring COVID-19 related modifications.

When the Company grants subsequent modifications to a loan that received a COVID-19 modification, in accordance with accounting guidance, it considers whether the totality of the accommodations along with the evaluation of borrower financial difficulty, exceed the criteria provided by the CARES Act and/or result in TDR status.

Every modification is reviewed for TDR indicators with additional evaluation and documentation requirements for all COVID-19 related modifications to loans over $250.

When the Company grants subsequent modifications to a loan that had received a previous modification, in accordance with accounting guidance, it considers whether the totality of the accommodations along with the evaluation of borrower financial difficulty meet TDR criteria.

Loans that received multiple COVID-19 related modifications were evaluated to determine whether the totality of COVID-19 related accommodations exceed the criteria provided by the CARES Act and CAA and/or result in TDR status.

The Company performs additional evaluation and documentation for all COVID-19 related modifications to loans over $250.

Individual evaluation

2 unchanged sentences

Cash flow method

Fair value measurement under the cash flow method incorporates assumptions specific to each loan for expected cash flows, timing of cash flows and the discount rate.

For TDR loans, the discount rate used is the rate immediately prior to the modification that resulted in a TDR.

The cash flow method measures fair value using assumptions specific to each loan, including expected amount and timing of cash flows and discount rate.

For TDR loans, the discount rate is the rate immediately prior to the modification that resulted in a TDR.

Collateral method

6 unchanged sentences

Multiple sources of data contribute to the estimate of market value, including physical inspection, independent third-party automated tools, comparable sales analysis and local market information.

Updated appraisals or evaluations are ordered when the loan becomes impaired if the appraisal or evaluation on file is more than 24 months old.

Updated appraisals or evaluations are ordered when a loan becomes impaired if the appraisal or evaluation on file is more than 24 months old.

Appraisals and evaluations are reviewed for propriety and reasonableness and may be discounted if the Company determines that the value exceeds reasonable levels.

If an updated appraisal or evaluation has been ordered but has not been received by a reporting date, the fair value may be based on the most recent available appraisal or evaluation, discounted for age.

The appraisal or evaluation value for a collateral-dependent loan for which recovery is expected solely from the sale of collateral is reduced by estimated selling costs.

The appraisal or evaluation value is reduced by selling costs if recovery is expected solely from the sale of collateral.

Estimated losses on collateral-dependent loans, as well as any other impairment loss considered uncollectible, are charged against the allowance for loan losses.

22 unchanged sentences

These factors include the risk from changes in lending policies, loan officers’

average years of experience, and economic factors including unemployment levels, bankruptcy rates, interest rate environment, and competition/legal/regulatory environments.

average years of experience, and economic factors including unemployment levels, bankruptcy rates, interest rate environment, and competition/legal/regulatory environments.

Qualitative factors incorporate economic data targeted to the Company’s market.

2 unchanged sentences

national unemployment filings.

Since local data is not available timely and historical analysis determined that local unemployment filings were closely correlated to national unemployment filings, the Company elected to allocate based upon national unemployment filings.

Due to continuous developments related to the pandemic, current data is valuable in assessing risk.

Local unemployment data lags the reporting date but historical analysis determined that local unemployment filings were closely correlated to national unemployment filings.

Allocations specific to each class

Factors analyzed for each class, with resultant allocations based upon the level of risk assessed for each class, include the risk from changes in loan review, levels of past due loans, levels of nonaccrual loans, current class balance as a percentage of total loans, loans that received COVID-related modifications at are still in the modification period, and the percentage of high risk loans within the class.

Factors analyzed for each class, with resultant allocations based upon the level of risk assessed for each class, include the risk from changes in loan review, levels of past due loans, levels of nonaccrual loans, current class balance as a percentage of total loans, loans that received COVID-related modifications that are still in the modification period, and the percentage of high risk loans within the class.

Nonaccrual status

21 unchanged sentences

The estimate of the allowance accrual determines the amount of provision expense and directly affects our financial results.

The estimate of the allowance for June 30, 2021 considered market conditions as of June 30, 2021 where possible, and the most recent available information when data was not available as of June 30, 2021, portfolio conditions and levels of delinquencies at June 30, 2021, and net charge-offs in the eight quarters prior to the quarter ended June 30, 2021.

The estimate of the allowance for September 30, 2021 considered market conditions as of September 30, 2021 where possible, and the most recent available information when data was not available as of September 30, 2021, portfolio conditions and levels of delinquencies at September 30, 2021, and net charge-offs in the eight quarters prior to the quarter ended September 30, 2021.

Some of the available economic data lags the reporting date by one to three months.

Delinquency levels at June 30, 2021 are lower than they might otherwise have been due to modifications granted to qualifying borrowers in accordance with regulatory guidance and legislative provisions in the CARES Act and CAA, including loan payment extensions, interest only periods and rate reductions to borrowers.

Past due status will not occur during the period in which a payment is extended.

Providing an interest only period affords borrowers lower payments during the interest only period.

When extension periods and interest only periods expire, there may be increases in past dues that will increase the requirement for the allowance for loan loss.

Management used its best judgement and efforts in incorporating possible impacts as of June 30, 2021 in estimating the allowance for loan losses, but if the current economic challenges worsen, the ultimate amount of loss could vary from that estimate.

As of September 30, 2021, all loans that received payment extensions or interest only periods related to COVID-19 have returned to their contractual terms.

Management used its best judgement and efforts in incorporating possible impacts as of September 30, 2021 in estimating the allowance for loan losses, but if the current economic challenges worsen, the ultimate amount of loss could vary from that estimate.

For additional discussion of the allowance, see Note 3 to the consolidated financial statements and “Asset Quality,”

13 unchanged sentences

Performance Summary

The following table presents the Company’s key performance ratios for the three and six months ended June 30, 2021 and June 30, 2020.

The following table presents the Company’s key performance ratios for the three and nine months ended September 30, 2021 and September 30, 2020.

Income and expense items are annualized for the ratios, except for basic and fully diluted earnings per share.

Three Months Ended

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

Return on average assets (1)

4 unchanged sentences

Efficiency ratio (5)

The following table presents the Company’s key performance ratios for the six months ended June 30, 2021 and June 30, 2020 and the year ended December 31, 2020.

The measures for June 30, 2021 and June 30, 2020 are annualized, except for basic and fully diluted earnings per share.

Six Months Ended

June 30, 2021

Six Months Ended

June 30, 2020

The following table presents the Company’s key performance ratios for the nine months ended September 30, 2021 and September 30, 2020 and the year ended December 31, 2020.

The measures for September 30, 2021 and September 30, 2020 are annualized, except for basic and fully diluted earnings per share.

Nine Months Ended

September 30, 2021

Nine Months Ended

September 30, 2020

Twelve Months Ended

19 unchanged sentences

See “Non-GAAP Financial Measures” above.

During the three months ended June 30, 2021, the Company repurchased 150,130 shares under its publicly announced stock repurchase plan.

The repurchase reduced shareholders equity by $5,363 during the second quarter.

During the six months ended June 30, 2021, the Company repurchased 261,962 shares under its publicly announced stock repurchase plan.

The repurchase reduced shareholders equity by $9,354 during the first six months of 2021.

During the three months ended September 30, 2021, the Company repurchased 73,100 shares under its publicly announced stock repurchase plan.

The repurchase reduced shareholders equity by $2,731 during the third quarter.

During the nine months ended September 30, 2021, the Company repurchased 335,062 shares under its publicly announced stock repurchase plan.

The repurchase reduced shareholders equity by $12,085 during the first nine months of 2021.

See “Non-GAAP Financial Measures” above.

2 unchanged sentences

See “Non-GAAP Financial Measures” above.

NBI’s key assets and liabilities and their growth from December 31, 2020 are shown in the following table.

June 30, 2021

NBI’s key assets and liabilities and their change from December 31, 2020 are shown in the following table.

September 30, 2021

December 31, 2020

4 unchanged sentences

Key indicators of the Company’s asset quality are presented in the following table.

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

December 31, 2020

7 unchanged sentences

Ratio of allowance for loan losses to nonperforming loans

The Company’s risk analysis at June 30, 2021 determined an allowance for loan losses of $8,077 or 1.00% of loans net of unearned income and deferred fees and costs.

The Company’s risk analysis at September 30, 2021 determined an allowance for loan losses of $7,698 or 0.97% of loans net of unearned income and deferred fees and costs.

Included in loans net of unearned income and deferred fees and costs are $12,086 in Paycheck Protection Program loans.

4 unchanged sentences

Excluding PPP loans, the ratio of the allowance to loans net of unearned income and deferred fees and costs at December 31, 2020 was 1.16%.

The determination of the appropriate level for the allowance for loan losses resulted in a provision of $54 for the six months ended June 30, 2021, compared with a provision of $1,831 for the six month period ended June 30, 2020.

The determination of the appropriate level for the allowance for loan losses resulted in a recovery of $338 for the nine months ended September 30, 2021, compared with a provision of $1,985 for the nine month period ended September 30, 2020.

To determine the appropriate level of the allowance for loan losses, the Company considers credit risk for certain loans designated as impaired and for non-impaired (“collectively evaluated”) loans.

Individually Evaluated Impaired Loans

Individually evaluated impaired loans at June 30, 2021 were $6,774 gross and $6,776 net of unearned income and deferred fees and costs.

Individually evaluated impaired loans at September 30, 2021 were $6,084 gross and $6,086 net of unearned income and deferred fees and costs.

There were no specific allocations to the allowance for loan losses.

6 unchanged sentences

Collectively Evaluated Loans

Collectively evaluated loans totaled $800,432 gross and $798,418 net of unearned income and deferred fees and costs, with an allowance of $8,077 or 1.01% of collectively-evaluated loans net of unearned income and deferred fees and costs at June 30, 2021.

Excluding PPP loans, the collectively evaluated allowance ratio was 1.05% at June 30, 2021.

Collectively evaluated loans totaled $792,522 gross and $791,409 net of unearned income and deferred fees and costs, with an allowance of $7,698 or 0.97% of collectively-evaluated loans net of unearned income and deferred fees and costs at September 30, 2021.

Excluding PPP loans, the collectively evaluated allowance ratio was 0.98% at September 30, 2021.

At December 31, 2020, collectively evaluated loans totaled $765,124 gross and $763,894 net of unearned income and deferred fees and costs, with an allowance of $8,406 or 1.10%.

6 unchanged sentences

Charge-off rates are calculated and applied on a class level.

On a portfolio level, net charge-offs were $458 for the six months ended June 30, 2021, or 0.12% of average loans.

Net charge-offs for the six months ended June 30, 2020 were $386 or 0.10% of average loans, while net charge-offs for the 12 months ended December 31, 2020 were $373 or 0.05% of average loans.

The 8-quarter average historical loss rate was 0.07% as of June 30, 2021, 0.07% as of December 31, 2020 and 0.09% as of June 30, 2020.

On a portfolio level, net charge-offs were $445 for the nine months ended September 30, 2021, or 0.08% (annualized) of average loans.

Net charge-offs for the nine months ended September 30, 2020 were $420 or 0.07% (annualized) of average loans, while net charge-offs for the 12 months ended December 31, 2020 were $373 or 0.05% of average loans.

The 8-quarter average historical loss rate was 0.06% as of September 30, 2021, 0.07% as of December 31, 2020 and 0.08% as of September 30, 2020.

Economic Factors

9 unchanged sentences

National unemployment claims escalated sharply beginning in the latter half of March 2020.

Weekly claims peaked at the beginning of April 2020 and have fallen since, but for the six months ended June 30, 2021, are almost three times pre-pandemic levels.

The Company assessed this as a significant impact to credit risk at June 30, 2021, but lower than at December 31, 2020.

Weekly claims peaked at the beginning of April 2020 and have fallen since, but for the nine months ended September 30, 2021, are almost three times pre-pandemic levels.

The Company assessed this as a significant impact to credit risk at September 30, 2021, but lower than at December 31, 2020.

The Company continues to monitor the most recently available economic indicators for its market and their effect on credit risk.

As of June 30, 2021, the unemployment rate for the Company’s market area was measured as of April 30, 2021 and decreased from the measurement available at December 31, 2020, decreasing the allocation to the allowance for loan losses.

Business and personal bankruptcy filing data was available as of March 2021.

As of September 30, 2021, the unemployment rate for the Company’s market area was measured as of August 31, 2021 and decreased from the measurement available at December 31, 2020, decreasing the allocation to the allowance for loan losses.

Business and personal bankruptcy filing data was available as of June 2021.

Higher bankruptcy filings indicate heightened credit risk and increase the allowance for loan losses, while lower bankruptcy filings have a beneficial impact on credit risk.

Compared with data available at December 31, 2020, business bankruptcies were slightly lower and resulted in a slightly lower allocation, while personal bankruptcies were slightly higher and resulted in a slightly higher allocation.

Compared with data available at December 31, 2020, business bankruptcies and personal bankruptcies were slightly lower and resulted in a slightly lower allocation.

Residential vacancy rates and housing inventory impact the Company’s residential construction customers and the consumer real estate market.

Higher levels increase credit risk.

The residential vacancy rate at June 30, 2021 was measured as of the first quarter of 2021 and while still lower than normal levels, worsened slightly from the data incorporated into the December 31, 2020 calculation, resulting in a higher allocation.

Housing inventory data was available as of June 30, 2021.

Levels are historically low but were slightly higher than those at December 31, 2020, resulting in a slightly higher allocation.

The residential vacancy rate at September 30, 2021 was measured as of the second quarter of 2021 and while still lower than normal levels, worsened slightly from the data incorporated into the December 31, 2020 calculation, resulting in a higher allocation.

Housing inventory data was available as of September 30, 2021.

Levels are historically low and similar to those at December 31, 2020.

Asset Quality Indicators

2 unchanged sentences

Increases in past due and nonaccrual loans increase the required level of the allowance for loan losses and decreases in past due and nonaccrual loans reduce the required level of the allowance for loan losses.

Accruing loans past due 30-89 days were 0.14% of total loans net of unearned income and deferred fees and costs at June 30, 2021, a decrease from 0.19% at December 31, 2020.

Accruing loans past due 90 days or more were 0.00% of total loans, net of unearned income and deferred fees and costs at June 30, 2021 and December 31, 2020.

Nonaccrual loans at June 30, 2021 were 0.47% of total loans net of unearned income and deferred fees and costs, slightly lower than 0.48% at December 31, 2020.

Accruing loans past due 30-89 days were 0.15% of total loans net of unearned income and deferred fees and costs at September 30, 2021, a decrease from 0.19% at December 31, 2020.

Accruing loans past due 90 days or more were 0.01% of total loans, net of unearned income and deferred fees and costs at September 30, 2021 compared to 0.00% at December 31, 2020.

Nonaccrual loans at September 30, 2021 were 0.39% of total loans net of unearned income and deferred fees and costs, lower than 0.48% at December 31, 2020.

Loans rated special mention and classified (together, “criticized assets”) indicate heightened credit risk.

Higher levels of criticized assets increase the required level of the allowance for collectively-evaluated loans, while lower levels of criticized assets reduce the required level of the allowance for collectively-evaluated loans.

Collectively evaluated loans rated special mention were $5,276 at June 30, 2021, slightly lower than $8,035 at December 31, 2020.

Collectively evaluated loans rated classified were $618 at June 30, 2021, an increase from $473 at December 31, 2020.

Collectively evaluated loans rated special mention were $4,376 at September 30, 2021, lower than $8,035 at December 31, 2020.

Collectively evaluated loans rated classified were $492 at September 30, 2021 and $473 at December 31, 2020.

The Company provided COVID-19 related accommodations to qualifying borrowers.

The Company followed its normal risk rating practices and in keeping with the regulatory guidance, did not automatically downgrade the risk rating on loans that received COVID-19 accommodations.

Without the regulatory provision, additional loans may have been included in past due data and criticized assets as of June 30, 2021.

Other Factors

2 unchanged sentences

If interest rates increase, the payment on variable rate loans increases, which may increase credit risk.

The interest rate environment is at a low level as of June 30, 2021, unchanged from the level at December 31, 2020.

The interest rate environment is at a low level as of September 30, 2021, unchanged from the level at December 31, 2020.

The low level of interest rates indicates no additional credit risk.

9 unchanged sentences

In light of COVID-19 related modifications, the Company considers the impact to credit risk of certain loans granted COVID-19 related modifications.

The loans captured in the analysis were granted COVID-19 related modifications subsequent to initial COVID-19 related modifications that remained in their modification period at the reporting date and were flagged by credit review procedures for additional monitoring.

The loans within this population at June 30, 2021 decreased significantly from December 31, 2020, resulting in a decreased allocation.

The loans captured in the analysis were granted COVID-19 related modifications subsequent to initial COVID-19 related modifications that remained in their modification period at the reporting date and were flagged by credit review procedures for additional monitoring.

As of September 30, 2021, there were no loans that met this criteria and no allocation was taken.

Unallocated Surplus

The unallocated surplus at June 30, 2021 is $373 or 4.8% in excess of the calculated requirement.

The unallocated surplus at September 30, 2021 is $365 or 5.0% in excess of the calculated requirement.

The unallocated surplus at December 31, 2020 was $396 or 4.9% in excess of the calculated requirement.

1 unchanged sentence

The calculation of the appropriate level for the allowance for loan losses incorporates analysis of multiple factors and requires management’s prudent and informed judgment.

The most recently available data showed improvements that decreased the required level of the allowance for loan losses at June 30, 2021 from December 31, 2020 including loans considered high risk, business bankruptcy filings, the unemployment rate and certain loans with COVID-19 related modifications.

Other indicators showed worsening from levels at December 31, 2020 and increased the required level of the allowance for loan losses, including some asset quality indicators.

Continued high national unemployment filings contributed to the allowance for loan losses.

The Company also maintained its unallocated surplus at 4.8% to mitigate some of the uncertainty caused by the pandemic.

Based on analysis of historical indicators, asset quality and economic factors, management believes the level of allowance for loan losses is reasonable for the credit risk in the loan portfolio as of June 30, 2021.

The most recently available data showed improvements that decreased the required level of the allowance for loan losses at September 30, 2021 from December 31, 2020 including loans considered high risk, business and personal bankruptcy filings, the unemployment rate and certain loans with COVID-19 related modifications.

Other indicators, including accruing loans past due 90 days or more, residential vacancy and classified loans, showed worsening from levels at December 31, 2020 and increased the required level of the allowance for loan losses.

Continued high national unemployment filings contributed to the allowance for loan losses, though lower than at December 30, 2020.

The Company also increased its unallocated surplus to 5.0% to mitigate some of the uncertainty caused by the pandemic.

Please refer to Note 3:

3 unchanged sentences

Other Real Estate Owned (1)

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

December 31, 2020

4 unchanged sentences

 Net of valuation allowance.

OREO decreased $546 when the balance at June 30, 2021 is compared with the balance at December 31, 2020 and June 30, 2020.

As of June 30, 2021, loans in in various stages of foreclosure totaled $140 and were secured by residential real estate.

OREO decreased $596 when the balance at September 30, 2021 is compared with the balance at December 31, 2020 and September 30, 2020.

As of September 30, 2021, loans in in various stages of foreclosure totaled $124 and were secured by residential real estate.

Loans currently in process of foreclosure may impact OREO in future quarters.

1 unchanged sentence

The Company continues to monitor risk levels within the loan portfolio, including any effect on collateral values from the COVID-19 pandemic.

As of June 30, 2021, the effect of the COVID-19 pandemic has not impacted real estate values in the Company’s market and has not impacted current OREO values.

As of September 30, 2021, the effect of the COVID-19 pandemic has not impacted real estate values in the Company’s market and has not impacted current OREO values.

Modifications and TDRs

8 unchanged sentences

The Company codes modifications to assist in identifying TDRs.

During the six months ended June 30, 2021, the Company provided 454 modifications for competitive reasons to loans totaling $47,573.

When the COVID-19 pandemic began, the Company added coding to identify modifications to borrowers experiencing COVID-19 related hardship.

Modifications Made for Competitive Purposes

During the nine months ended September 30, 2021, the Company provided 659 modifications for competitive reasons to loans totaling $72,327.

The modifications were not TDRs and were not related to COVID-19.

For the six months ended June 30, 2020, the Company provided non-TDR modifications for competitive reasons to 583 loans totaling $89,899.

For the nine months ended September 30, 2020, the Company provided non-TDR modifications for competitive reasons to 798 loans totaling $128,821.

For the twelve months ended December 31, 2020, the Company provided non-TDR modifications for competitive reasons to 1,047 loans totaling $152,681.

COVID-19 Modifications

The COVID-19 pandemic has negatively impacted a significant number of the Company’s borrowers, and may continue to adversely impact some borrowers for the foreseeable future.

Modifications Related to COVID-19

The COVID-19 pandemic negatively impacted a significant number of the Company’s borrowers, and may adversely impact some borrowers for the foreseeable future.

Since the pandemic began in March 2020, the Company provided modifications related to COVID-19 financial difficulty, including payment extensions and interest only periods.

The CARES Act, the CAA and regulatory guidance specify criteria that, if met, provide an election not to designate the loans as TDRs.

The TDRs designated during the three months ended June 30, 2021 resulted from COVID-19 related modifications that did not meet the legal and regulatory criteria to avoid designation as TDR.

The TDRs designated during the nine months ended September 30, 2021 resulted from COVID-19 related modifications that did not meet the legal and regulatory criteria to avoid designation as TDR.

All of the Company’s other COVID-19 related modifications met the criteria and were not designated TDR.

The Company followed its normal risk rating and nonaccrual designation procedures and did not automatically downgrade or designate as nonaccrual if the loan was modified for COVID-19 related difficulty.

The following tables provide information regarding COVID-19 related modifications for the three and six months ended June 30, 2021 and June 30, 2020, and the 12 months ended December 31, 2020.

Three Months Ended June 30,

Modifications To Borrowers Experiencing COVID-19 Related Financial Difficulty

The following tables provide information regarding COVID-19 related modifications for the three and nine months ended September 30, 2021 and September 30, 2020, and the 12 months ended December 31, 2020.

Three Months Ended September 30,

Modifications To Borrowers Impacted by the

COVID-19 Pandemic

(in thousands)

2 unchanged sentences

Interest-only period for amortizing loans (1)

Rate reductions (2)

Six Months Ended June 30,

Modifications To Borrowers Experiencing COVID-19 Related Financial Difficulty

Nine Months Ended September 30,

Modifications To Borrowers Impacted by the

COVID-19 Pandemic

(in thousands)

4 unchanged sentences

Twelve Months Ended December 31, 2020

Modifications To Borrowers Impacted by the COVID-19 Pandemic

Modifications To Borrowers Impacted by the

COVID-19 Pandemic

(in thousands)

6 unchanged sentences

Rate reductions were provided to alleviate COVID-19 hardship and also to remain competitive in the current low interest rate environment.

All COVID-19 related modifications for payment extensions and interest-only periods have returned to contractual terms as of September 30, 2021.

A loan that received multiple modifications as part of one request, for instance, a rate reduction and a payment extension, is presented only under one modification category.

1 unchanged sentence

For example, a loan that received a payment extension under a first request and a rate reduction under a second request is counted in the rate reduction category and again in the payment extension category.

Loans Remaining Within the Modification Period at June 30, 2021

Of the loans modified for pandemic related hardships, 5 loans remained in their modification period at June 30, 2021:

one loan totaling $1 thousand remained in deferral and another four loans totaling $5.7 million remained on interest-only payments.

To account for the possible increase in credit risk from loans that have not emerged from their modification period, the Company provided an allocation to the allowance for loan losses.

TDR Designation

Modifications of loan terms to borrowers experiencing financial difficulty are made in an attempt to protect as much of the Company’s investment in the loan as possible.

Restructuring generally results in a loan with either lower payments or a maturity extended beyond that originally required, and is expected to result in a lower risk of loss associated with nonperformance than the pre-modified loan.

The Company restructured loan terms for certain qualified financially distressed borrowers who agreed to work in good faith and demonstrated the ability to make the restructured payments.

The determination of whether a modification should be designated a TDR requires consideration of all facts and circumstances surrounding the transaction.

With the exception of borrowers affected by COVID-19 who fall under the legislative provisions discussed above, modifications in which the borrower is experiencing financial difficulty and for which the Company makes a concession to the original contractual loan terms are designated TDRs.

Concessions may include one or a combination of the following:

a reduction of the stated interest rate below market rate for loans of similar terms and credit quality, an extension of the maturity date at an interest rate below a comparable market rate, restructuring an amortizing loan to interest only for a period, or forgiveness of principal or accrued interest.

All TDR loans are individually evaluated for impairment for purposes of determining the allowance for loan losses.

TDR loans that do not demonstrate current payments for at least six months are maintained on nonaccrual until the borrower demonstrates sustained repayment history under the restructured terms and continued repayment is not in doubt.

Otherwise, interest income is recognized using a cost recovery method.

The Company’s TDRs were $6,120 at June 30, 2021, an increase from $4,249 at December 31, 2020.

Accruing TDR loans amounted to $3,011 at June 30, 2021 and $1,410 at December 31, 2020.

The Company’s TDRs were $6,084 at September 30, 2021, an increase from $4,249 at December 31, 2020.

Accruing TDR loans amounted to $3,009 at September 30, 2021 and $1,410 at December 31, 2020.

The following tables present the past due status of TDRs as of the dates indicated.

TDR Status as of June 30, 2021

TDR Status as of September 30, 2021

Consumer real estate

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Please refer to Note 3:

Allowance for Loan Losses, Nonperforming Assets and Impaired Loans for information on TDRs.       

Net Interest Income

The net interest income analysis for the three and six months ended June 30, 2021 and 2020 follows:

The net interest income analysis for the three and nine months ended September 30, 2021 and 2020 follows:

Three Months Ended

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

Interest-earning assets:

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Net yield on average interest‑earning assets

Six Months Ended

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

Interest-earning assets:

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Interest on nontaxable loans and securities is computed on a fully taxable equivalent basis using a Federal income tax rate of 21%.

For the three months ended June 30, 2021, interest income includes loan fees of $386, of which $344 was related to the PPP loans.

For the three months ended June 30, 2020, interest income includes loan fees of $251, of which $225 was related to the PPP loans.

For the six months ended June 30, 2021, interest income includes loan fees of $944 of which $894 was related to the PPP loans.

For the six months ended June 30, 2020, interest income includes loan fees of $272, of which $225 was related to PPP loans.

For the three months ended September 30, 2021, interest income includes loan fees of $911, of which $882 was related to the PPP loans.

For the three months ended September 30, 2020, interest income includes loan fees of $323, of which $285 was related to the PPP loans.

For the nine months ended September 30, 2021, interest income includes loan fees of $1,855 of which $1,776 was related to the PPP loans.

For the nine months ended September 30, 2020, interest income includes loan fees of $595, of which $509 was related to PPP loans.

Nonaccrual loans are included in average balances for yield computations.

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Includes restricted stock.

The net interest margin for the three and six month periods ended June 30, 2021 declined when compared with the comparable periods of 2020.

The net interest margin for the three and nine month periods ended September 30, 2021 declined when compared with the comparable periods of 2020.

The decline is due to high levels of loan re-finance activity, spurred by the Federal Reserve rate cuts in March 2020.

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Fees and interest income from PPP loans helped increase the net interest margin.

For the three months ended June 30, 2021, PPP loans increased average loans by $37,937, and provided $98 in interest and $344 in fee recognition.

For the six months ended June 30, 2021, PPP loans increased average loans by $38,079 and provided $198 in interest and $894 in fee recognition.

If PPP loans are excluded, the net interest margin for the three months ended June 30, 2021 would have been 2.60% and for the six months ended June 30, 2021 would have been 2.66%.

Net deferred fees that will be recognized over the life of the PPP loans at June 30, 2021 were $1,591.

For the three months ended September 30, 2021, PPP loans increased average loans by $20,913, and provided $55 in interest and $882 in fee recognition.

For the three months ended September 30, 2020, PPP loans increased average loans by $58,036, and provided $146 in interest and $285 in fee recognition.

If PPP loans are excluded, the net interest margin for the three months ended September 30, 2021 would have been 2.60% and the net interest margin for the three months ended September 30, 2020 would have been 2.72%.

For the nine months ended September 30, 2021, PPP loans increased average loans by $32,294 and provided $253 in interest and $1,776 in fee recognition.

For the nine months ended September 30, 2020, PPP loans increased average loans by $32,560 and provided $263 in interest and $509 in fee recognition.

If PPP loans are excluded, the net interest margin for the nine months ended September 30, 2021 would have been 2.64% and the net interest margin for the nine months ended September 30, 2020 would have been 2.91%.

Net deferred fees that will be recognized over the life of the PPP loans at September 30, 2021 were $709.

Provision and Allowance for Loan Losses

The provision for loan losses was $4 and $54 for the three and six month periods ended June 30, 2021, respectively, compared with $1,352 and $1,831 for the three and six month periods ended June 30, 2020, respectively.

The provision for the three and six months ended June 30, 2020 was increased by the addition of a qualitative factor to reflect the impact of the beginning of the pandemic.

This and other factors have improved significantly during 2021, resulting in lower provision in 2021.

The provision for loan losses is the result of a detailed analysis to estimate an adequate allowance for loan losses.

The recovery for loan losses was $392 and $338 for the three and nine month periods ended September 30, 2021, respectively, compared with provision expense of $154 and $1,985 for the three and nine month periods ended September 30, 2020, respectively.

To reflect the impact of the pandemic, beginning with the March 31, 2020 calculation of the allowance for loan loss, the Company added a qualitative factor for national unemployment filings.

During 2020, national unemployment filings increased dramatically from pre-pandemic levels and was the source of most of the provision taken for the nine months ended September 30, 2020.

During the nine months ended September 30, 2021, unemployment filings have declined substantially.

Combined with improvements in other qualitative factors, the required allowance for loan losses declined, resulting in a recovery for the three and nine months ended September 30, 2021.

The provision for loan losses is the result of a detailed analysis to estimate an adequate allowance for loan losses.

See “Asset Quality”

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Three Months Ended

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

Percent Change

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Realized securities gain, net

Six Months Ended

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

Percent Change

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Realized securities gain, net

Service charges on deposit accounts increased $94 when the three month periods ended June 30, 2021 and June 30, 2020 are compared, primarily due to increases in NSF and overdraft fee income and ATM fee income.

When the six month periods ended June 30, 2021 and June 30, 2020 are compared, service charges on deposits decreased $19, primarily due to lower NSF and overdraft fee income.

NSF and overdraft activity declined at the beginning of the COVID-19 pandemic in 2020 and has begun to increase in 2021.

Other service charges and fees increased $6 and $8 for the three and six month periods ended June 30, 2021 compared with the same periods ended June 30, 2020.

Service charges on deposit accounts increased $77 when the three month periods ended September 30, 2021 and September 30, 2020 are compared, and increased $58 when the nine month periods ended September 30, 2021 and September 30, 2020 are compared.

Higher income on account service charges for demand deposit accounts and savings accounts and higher income from ATM fees contributed to the increases when the three and nine month periods are compared.

The three month period ended September 30, 2021 also benefitted from increased NSF and overdraft fee income.

Other service charges and fees increased $13 and $21 for the three and nine month periods ended September 30, 2021 compared with the same periods ended September 30, 2020.

Other service charges include charges for official checks, income from the sale of checks to customers, safe deposit box rent, fees for letters of credit and the income earned from commissions on the sale of credit life, accident and health insurance.

Credit and debit card fees are presented net of interchange expense.

Credit and debit card fees increased $93 and $221 for the three and six month periods ended June 30, 2021 when compared with the same periods last year.

Credit and debit card fees increased $121 and $342 for the three and nine month periods ended September 30, 2021 when compared with the same periods last year.

Credit and debit card fees are based on volume and other factors.

Income from trust fees increased $47 and $28 for the three and six month periods ended June 30, 2021 when compared with the same periods ended June 30, 2020.

Income from trust fees increased $10 and $38 for the three and nine month periods ended September 30, 2021 when compared with the same periods ended September 30, 2020.

Trust income varies depending on the total assets held in trust accounts, the type of accounts under management and financial market conditions.

BOLI income decreased $9 and $24 when the three and six month periods ended June 30, 2021 and June 30, 2020 are compared.

BOLI income increased $29 and $5 when the three and nine month periods ended September 30, 2021 and September 30, 2020 are compared.

The Company purchased an additional $5 million in BOLI investments during June 2021.

Gain on sale of mortgage loans decreased $83 and $40 when the three and six month periods ended June 30, 2021 and June 30, 2020 are compared.

The Federal Reserve cut interest rates in March, 2020 in response to the pandemic, which spurred a high level of real estate refinance and purchase financing activity.

Gain on sale of mortgage loans decreased $89 and $129 when the three and nine month periods ended September 30, 2021 and September 30, 2020 are compared.

During 2020, Federal Reserve rate cuts spurred a high level of real estate refinance and purchase financing activity, resulting in higher income.

This activity is beginning to normalize in 2021.

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These areas fluctuate with market conditions and competitive factors.

Other income increased $110 for the three month periods ended June 30, 2021 when compared with the same period ended June 30, 2020 due to increased commissions on securities sales, a one-time bonus payment from a vendor and an increase in dividends on a partnership investment.

When the six month periods are compared, other income increased $298, primarily due to increased commissions on securities sales, dividends, a one-time commission and a one-time bonus payment.

The Company did not have a gain or loss on securities during the three months ended June 30, 2021, and realized a gain on securities of $5 during the six months ended June 30, 2021.

During 2020, the Company realized a gain of $62 for the three months ended June 30, 2020 and $82 during the six month period ended June 30, 2020.

Other income decreased $81 for the three month periods ended September 30, 2021 when compared with the same period ended September 30, 2020, primarily due to lower commissions on investment sales and lower income recognized on derivatives associated with the secondary mortgage market.

When the nine month periods are compared, other income increased $217, primarily due to increased commissions on securities sales, dividends, a one-time commission and a one-time bonus payment.

The Company did not have a gain or loss on securities during the three months ended September 30, 2021, and realized a gain on securities of $5 during the nine months ended September 30, 2021.

During 2020, the Company realized a gain of $14 for the three months ended September 30, 2020 and $96 during the nine month period ended September 30, 2020.

Noninterest Expense

Three Months Ended

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

Percent Change

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FDIC assessment

Net (gains on) costs of other real estate owned

Net costs of other real estate owned

Franchise taxes

Other operating expenses

Six Months Ended

June 30, 2021

June 30, 2020

Nine Months Ended

September 30, 2021

September 30, 2020

Percent Change

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Other operating expenses

Total noninterest expense increased $370 or 6.09% when the three month periods ended June 30, 2021 and June 30, 2020 are compared, and increased $439 or 3.50% when the six month period ended June 30, 2021 is compared with the same period of 2020.

Salaries and employee benefits increased $454 when the three month periods ended June 30, 2021 and June 30, 2020 are compared and increased $487 when the six month period ended June 30, 2021 is compared with the same period in 2020.

Total noninterest expense increased $247 or 4.04% when the three month periods ended September 30, 2021 and September 30, 2020 are compared, and increased $686 or 3.68% when the nine month period ended September 30, 2021 is compared with the same period of 2020.

Salaries and employee benefits increased $398 when the three month periods ended September 30, 2021 and September 30, 2020 are compared and increased $885 when the nine month period ended September 30, 2021 is compared with the same period in 2020.

This expense category includes employee salaries, payroll taxes, insurance and fringe benefits, ESOP contribution accruals, the service component of net periodic pension cost, and salary continuation expenses.

The service component of net periodic pension cost increased $248 when the three and six month periods ended June 30, 2021 and June 30, 2020 are compared.

Occupancy, furniture and fixtures expense decreased $15 when the three month periods ended June 30, 2021 and June 30, 2020 are compared, and increased $23 when the six month periods ended June 30, 2021 and June 30, 2020 are compared.

Data processing and ATM expense decreased $20 and $33 when the three and six month periods ended June 30, 2021 are compared with the same periods in 2020. 

Federal Deposit Insurance (“FDIC”) assessment expense increased $53 and $136 when the three and six month periods ended June 30, 2021 are compared with the same periods of 2020.

The service component of net periodic pension cost increased $156 and $404 when the three and nine month periods ended September 30, 2021 and September 30, 2020 are compared.

Federal Deposit Insurance Corporation (“FDIC”) assessment expense increased $33 and $169 when the three and nine month periods ended September 30, 2021 are compared with the same periods of 2020.

The FDIC assessment is accrued based on a method provided by the FDIC.

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The credits fully offset the Bank’s September 30, 2019, December 31, 2019 and March 31, 2020 assessment payments, and partially offset the June 30, 2020 assessment.

Net costs of OREO increased $5 and $20 when the three and six month periods ended June 30, 2021 are compared with the same periods in 2020.

Net costs of OREO decreased $7 when the three month period ended September 30, 2021 and September 30, 2020 are compared, and increased $13 when the nine month period ended September 30, 2021 is compared with the same periods in 2020.

The cost of OREO includes maintenance costs as well as valuation write-downs and gains and losses on the sale of properties.

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Declines in market value are recognized through valuation expense.

Franchise tax expense increased $22 when the three month periods ended June 30, 2021 and June 30, 2020 are compared.

Franchise tax expense increased $14 when the six month periods ended June 30, 2021 and June 30, 2020 are compared.

Franchise tax expense increased $36 when the three month periods ended September 30, 2021 and September 30, 2020 are compared.

Franchise tax expense increased $50 when the nine month periods ended September 30, 2021 and September 30, 2020 are compared.

Franchise tax is primarily based on capital levels of the subsidiary bank, and is also affected by investment levels in securities issued by U.S.

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The category of other operating expenses includes noninterest expense items such as professional services, stationery and supplies, telephone costs, postage, charitable donations, losses and other expenses.

Other operating expense decreased $129 and $208 when the three and six month periods ended June 30, 2021 are compared with the same periods ended June 30, 2020.

Other operating expense decreased $137 and $345 when the three and nine month periods ended September 30, 2021 are compared with the same periods ended September 30, 2020.

The decrease in other operating expense stemmed primarily from a lower non-service pension cost and cost control measures.

Income tax expense was $940 for the three months ended June 30, 2021 and $486 for the same period of 2020.

For the six months ended June 30, 2021 and 2020, income tax expense was $1,949 and $1,288 respectively.

Income tax expense was $1,202 for the three months ended September 30, 2021 and $772 for the same period of 2020.

For the nine months ended September 30, 2021 and 2020, income tax expense was $3,151 and $2,060 respectively.

The Company’s federal statutory tax rate is 21%.

The Company’s effective tax rate was 16.93% and 17.21% for the three and six month periods ended June 30, 2021, compared with 14.01% and 15.61% for the three and six month periods ended June 30, 2020.

The Company’s effective tax rate was 17.29% and 17.24% for the three and nine month periods ended September 30, 2021, compared with 15.63% and 15.62% for the three and nine month periods ended September 30, 2020.

Balance Sheet

Year-to-date daily averages for the major balance sheet categories are as follows:

June 30, 2021

September 30, 2021

December 31, 2020

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Stockholders’

Securities at September 30, 2021 increased compared with December 31, 2020, in both ending balance and year-to-date average balance.

Securities growth stems from investment of excess liquidity provided by increased deposit balances.

Securities available for sale are measured at fair value on a recurring basis.

Market conditions at June 30, 2021 are reflected in the presentation of securities available for sale.

Market conditions at September 30, 2021 are reflected in the presentation of securities available for sale.

While we do not expect significant changes in future judgements or methodologies used to determine the fair value of the securities portfolio, market volatility associated with the COVID-19 pandemic, or any future national or global concern, will impact the value of securities.

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Securities for additional information.

June 30, 2021

September 30, 2021

December 31, 2020

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Loans, net of unearned income and deferred fees and costs

The Company’s loans, net of unearned income and deferred fees and costs, increased $36,395 or 4.73% from $768,799 at December 31, 2020 to $805,194 at June 30, 2021.

The Company’s loans, net of unearned income and deferred fees and costs, increased $28,695 or 3.73% from $768,799 at December 31, 2020 to $797,494 at September 30, 2021.

Real estate construction, consumer real estate, commercial real estate and public sector and IDA loans increased from December 31, 2020.

Included in commercial non real estate loans are PPP loans of $31,514 at June 30, 2021 and $36,903 at December 31, 2020.

Included in commercial non real estate loans are PPP loans of $12,795 at September 30, 2021 and $36,903 at December 31, 2020.

Excluding PPP loans, commercial non real estate loans increased $4,419.

June 30, 2021

September 30, 2021

December 31, 2020

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Total deposits

Total deposits increased $152,481 or 11.76% from $1,297,143 at December 31, 2020 to $1,449,624 at June 30, 2021.

Total deposits increased $135,591 or 10.45% from $1,297,143 at December 31, 2020 to $1,432,734 at September 30, 2021.

The increase is due in large part to government stimulus funds received by municipal depositors and other depositors.

Deposits do not include any brokered deposits.

The Company’s deposits do not include any brokered deposits.

Liquidity measures the Company’s ability to meet its financial commitments at a reasonable cost.

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The Company has diverse liquidity sources, including customer and purchased deposits, customer repayments of loan principal and interest, sales, calls and maturities of securities, Federal Reserve discount window borrowing, short-term borrowing, and FHLB advances.

At June 30, 2021, the Bank did not have discount window borrowings, short-term borrowings, or FHLB advances.  To assure that short-term borrowing is readily available, the Company tests accessibility annually.

At September 30, 2021, the Bank did not have discount window borrowings, short-term borrowings, or FHLB advances.  To assure that short-term borrowing is readily available, the Company tests accessibility annually.

The Company considers its security portfolio for typical liquidity needs, within accounting, legal and strategic parameters.

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Regulatory capital levels at the subsidiary bank determine the Bank’s ability to use purchased deposits and the Federal Reserve discount window.

At June 30, 2021, the Bank is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve discount window.

At September 30, 2021, the Bank is considered well capitalized and does not have any restrictions on purchased deposits or borrowing ability at the Federal Reserve discount window.

The Company monitors factors that may increase its liquidity needs.

Some of these factors include deposit trends, large depositor activity, maturing deposit promotions, interest rate sensitivity, maturity and repricing timing gaps between assets and liabilities, the level of unfunded loan commitments, loan growth and share repurchase activity within the Company’s own stock.

At June 30, 2021, the Company’s liquidity is sufficient to meet projected trends in these areas.

At September 30, 2021, the Company’s liquidity is sufficient to meet projected trends in these areas.

To monitor and estimate liquidity levels, the Company performs stress testing under varying assumptions on credit sensitive liabilities and the sources and amounts of balance sheet and external liquidity available to replace outflows.

The Company’s Contingency Funding Plan sets forth avenues for rectifying liquidity shortfalls.

At June 30, 2021, the analysis indicated adequate liquidity under the tested scenarios.

At September 30, 2021, the analysis indicated adequate liquidity under the tested scenarios.

The Company utilizes several other strategies to maintain sufficient liquidity.

Loan and deposit growth are managed to keep the loan to deposit ratio within the Company’s own target range of 65% to 75%.

At June 30, 2021, the loan to deposit ratio was 55.55%.

At September 30, 2021, the loan to deposit ratio was 55.66%.

The investment strategy takes into consideration the term of the investment, and securities in the available for sale portfolio are laddered based upon projected funding needs.

The Company’s liquidity position was strong prior to the COVID-19 pandemic and has increased due to government stimulus payments received by depositors.

Further, securities with an amortized cost of $1,289 will mature within one year or less, and up to $116,909 may be called.

The Company continues to monitor liquidity as the impact of the pandemic evolves.

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Total stockholders’

equity at June 30, 2021 was $191,235, a decrease of $9,372 or 4.67%, from the $200,607 at December 31, 2020.

Shareholders equity was impacted by payment of $4,319 in dividends and $9,354 in share repurchases.

equity at September 30, 2021 was $190,853, a decrease of $9,754 or 4.86%, from the $200,607 at December 31, 2020.

Shareholders’

equity was impacted by payment of $4,319 in dividends and $12,085 in share repurchases.

The Company repurchased 335,062 shares under a program approved by the Company’s Board of Directors on May 13, 2020 for up to 1,000,000 shares.

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Banks are subject to an additional capital conservation buffer in order to make capital distributions or discretionary bonus payments.

The Bank’s ratios are well above the required minimums and the capital conservation buffer at June 30, 2021.

The Bank’s ratios are well above the required minimums and the capital conservation buffer at September 30, 2021.

Off-Balance Sheet Arrangements

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The Company has determined that its risk in this area is not significant because of a low volume of secondary market mortgage loans and high underwriting standards.

The Company estimates a potential loss reserve for recourse provisions that is not material as of June 30, 2021.

The Company estimates a potential loss reserve for recourse provisions that is not material as of September 30, 2021.

To date, no recourse provisions have been invoked.

If funds were needed, the Company would access the same sources as noted above for funding lines and letters of credit.

There were no material changes in off-balance sheet arrangements during the six months ended June 30, 2021, except for normal seasonal fluctuations in the total of mortgage loan commitments.

There were no material changes in off-balance sheet arrangements during the nine months ended September 30, 2021, except for normal seasonal fluctuations in the total of mortgage loan commitments.

Contractual Obligations

The Company had no finance lease or purchase obligations and no long-term debt at June 30, 2021.

The Company had no finance lease or purchase obligations and no long-term debt at September 30, 2021.

Quantitative and Qualitative Disclosures About Market Risk

The Company considers interest rate risk to be a significant market risk and has systems in place to measure the exposure of net interest income to adverse movement in interest rates.

Interest rate shock analyses provide management with an indication of potential economic loss due to future rate changes.

There have not been any changes which would significantly alter the results disclosed as of December 31, 2020 in the Company’s 2020 Form 10-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis