What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 184 added, 66 removed, 245 unchanged (51% of the section changed)

52 unchanged sentences

In estimating other-than-temporary impairment losses, the Company considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent of the Company to not sell the securities and whether it is more likely than not that it will not have to sell the securities before recovery of their cost basis.

The Company believes that all unrealized losses on securities at March 31, 2021 and December 31, 2020 represent temporary impairment of the securities, related to changes in interest rates.

The Company believes that all unrealized losses on securities at June 30, 2021 and December 31, 2020 represent temporary impairment of the securities, related to changes in interest rates.

In connection with acquisitions, the Company recorded goodwill in the amount of $29.3 million, representing the excess of amounts paid over the fair value of net assets of the institutions acquired in purchase transactions, at its fair value at the date of acquisition.

4 unchanged sentences

Changes in Financial Condition

Total assets as of March 31, 2021 were $2.010 billion compared to $1.852 billion as of December 31, 2020.

The increase was due primarily to a $97.8 million increase in interest-bearing deposits with banks resulting from deposit growth related to economic stimulus programs.

The fair value of securities available for sale as of March 31, 2021 was $275.2 million compared to $226.6 million as of December 31, 2020.

Total assets as of June 30, 2021 were $2.026 billion compared to $1.852 billion as of December 31, 2020.

The increase was due primarily to a $107.0 million increase in securities available-for-sale and a $78.1 million increase in interest-bearing deposits with banks.

Both increases resulted from deposit growth related to economic stimulus programs.

The fair value of securities available for sale as of June 30, 2021 was $333.6 million compared to $226.6 million as of December 31, 2020.

The increase in the securities portfolio is the result of purchases executed to invest excess liquidity and to provide pledging for public deposits.

The carrying value of the Company’s securities portfolio (Available-for Sale) consisted of the following:

March 31, 2021

June 30, 2021

December 31, 2020

2 unchanged sentences

% of portfolio

Treasury securities

Government agencies

6 unchanged sentences

Management believes that the unrealized losses on all holdings represent temporary impairment of the securities, as the Company has the intent and ability to hold these investments until maturity or market price recovery.

Loans receivable totaled $1.422 billion at March 31, 2021 compared to $1.411 billion as of December 31, 2020.

The loan growth recorded during the first three months of 2021 includes a $24.2 million increase in PPP loans.

Organic loan growth for the three-month period ended March 31, 2021 was negatively impacted by the effects of the COVID-19 pandemic as social distancing constraints and business closures resulted in a significant slowing of new loan originations.

The allowance for loan losses totaled $14,509,000 as of March 31, 2021, and represented 1.02% of total loans outstanding, compared to $13,150,000, or 0.93% of total loans, at December 31, 2020.

The Company had net charge-offs for the three months ended March 31, 2021 of $141,000 compared to $121,000 in the corresponding period in 2020.

Loans receivable totaled $1.387 billion at June 30, 2021 compared to $1.411 billion as of December 31, 2020.

The $24.1 million decrease recorded during the first six months of 2021 includes a $20.8 million reduction in PPP loans due to loan forgiveness.

Organic loan growth for the six-month period ended June 30, 2021 resulted in a $3.3 million reduction in total loans.

Commercial real estate loans increased $18.8 million during the six-month period ended June 30, 2021, but this was offset by limited growth or reductions in other loan categories.

The Company also sold $7.3 million of residential mortgage loans during the six-month period ended June 30, 2021.

The allowance for loan losses totaled $15,340,000 as of June 30, 2021, and represented 1.11% of total loans outstanding, compared to $13,150,000, or 0.93% of total loans, at December 31, 2020.

The Company had net charge-offs for the six months ended June 30, 2021 of $810,000 compared to $197,000 in the corresponding period in 2020.

The Company’s management assesses the adequacy of the allowance for loan losses on a quarterly basis.

3 unchanged sentences

In addition, management has included qualitative factors during 2021 which are specifically related to the economic impact of the COVID-19 pandemic.

Management considers the allowance adequate at March 31, 2021 based on the Company’s criteria.

However, there can be no assurance that the allowance for loan losses will be adequate to cover significant losses, if any, that might be incurred in the future.

As of March 31, 2021, non-performing loans totaled $3,198,000 or 0.22% of total loans compared to $3,391,000, or 0.24%, of total loans at December 31, 2020.

At March 31, 2021, non-performing assets totaled $4.0 million, or 0.20%, of total assets, compared to $4.4 million, or 0.24%, of total assets at December 31, 2020.

Management considers the allowance adequate at June 30, 2021 based on the Company’s criteria.

However, there can be no assurance that the allowance for loan losses will be adequate to cover significant losses, if any, which might be incurred in the future.

As of June 30, 2021, non-performing loans totaled $3,940,000 or 0.28% of total loans compared to $3,391,000, or 0.24%, of total loans at December 31, 2020.

At June 30, 2021, non-performing assets totaled $4,784,000 million, or 0.24%, of total assets, compared to $4,356,000, or 0.24%, of total assets at December 31, 2020.

The following table sets forth information regarding non-performing loans and foreclosed real estate at the dates indicated:

(dollars in thousands)

March 31, 2021

June 30, 2021

December 31, 2020

15 unchanged sentences

Non-performing assets to total assets(a)

*Includes non-accrual TDRs of $75,000 as of March 31, 2021 and $75,000 as of December 31, 2020.

There were no accruing TDRs as of March 31, 2021 or as of December 31, 2020.

*Includes non-accrual TDRs of $0 as of June 30, 2021 and $75,000 as of December 31, 2020.

There were no accruing TDRs as of June 30, 2021 or as of December 31, 2020.

(a) Purchased impaired loans are loans obtained in acquisition transactions that as of the acquisition date were specifically identified as displaying signs of credit deterioration and for which the Company did not expect to collect all contractually required principal and interest payments.

4 unchanged sentences

In accordance with interagency guidance and the CARES Act issued in March 2020, these short-term deferrals are not considered troubled debt restructurings (“TDRs”) unless the borrower was previously experiencing financial difficulty.

As of March 31, 2021, 111 loans with an outstanding balance of $41.8 million remain in forbearance.

As of June 30, 2021, twelve loans with an outstanding balance of $1.0 million remain in forbearance.

In addition, the risk-rating on COVID-19 modified loans did not change, and these loans will not be considered past due until after the deferral period is over and scheduled payments resume.

The credit quality of these loans will be reevaluated after the deferral period ends.

During the three-month period ended March 31, 2021, total deposits increased $149.8 million due primarily to the impact from the PPP and other economic stimulus programs.

During the six-month period ended June 30, 2021, total deposits increased $153.6 million due primarily to the impact from the PPP and other economic stimulus programs.

The following table sets forth deposit balances as of the dates indicated:

(dollars in thousands)

March 31, 2021

June 30, 2021

December 31, 2020

4 unchanged sentences

Time deposits >$100,000

Other borrowings as of March 31, 2021, totaled $39.4 million compared to $42.5 million as of December 31, 2020.

Other borrowings as of June 30, 2021, totaled $36.3 million compared to $42.5 million as of December 31, 2020.

Short-term borrowings, which consist of securities sold under agreements to repurchase and overnight borrowings from the FHLB, increased $20.3 million due to a $20.3 million increase in repurchase agreements.

1 unchanged sentence

(dollars in thousands)

March 31, 2021

June 30, 2021

December 31, 2020

9 unchanged sentences

Stockholders’ Equity and Capital Ratios

As of March 31, 2021, stockholders’ equity totaled $195.1 million, compared to $194.8 million as of December 31, 2020.

As of June 30, 2021, stockholders’ equity totaled $200.5 million, compared to $194.8 million as of December 31, 2020.

The net change in stockholders’ equity included $11.3 million of net income, which was partially offset by $4.3 million of dividends declared.

3 unchanged sentences

A comparison of the Company’s consolidated regulatory capital ratios is as follows:

March 31, 2021

June 30, 2021

December 31, 2020

11 unchanged sentences

The capital conservation buffer requirement was phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement became effective.

The Company and the Bank are in compliance with their respective new capital requirements, including the capital conservation buffer, as of March 31, 2021.

As of March 31, 2021, the Company had cash and cash equivalents of $210.5 million in the form of cash, due from banks and short-term deposits with other institutions.

The Company and the Bank are in compliance with their respective new capital requirements, including the capital conservation buffer, as of June 30, 2021.

As of June 30, 2021, the Company had cash and cash equivalents of $205.2 million in the form of cash, due from banks and short-term deposits with other institutions.

In addition, the Company had total securities available for sale of $333.6 million which could be used for liquidity needs.

This totals $538.8 million of liquidity and represents 26.6% of total assets compared to $338.3 million and 18.3% of total assets as of December 31, 2020.

The Company also monitors other liquidity measures, all of which were within the Company’s policy guidelines as of March 31, 2021 and December 31, 2020.

The Company also monitors other liquidity measures, all of which were within the Company’s policy guidelines as of June 30, 2021 and December 31, 2020.

Based upon these measures, the Company believes its liquidity is adequate.

1 unchanged sentence

The Company has a line of credit commitment from Atlantic Community Bankers Bank for $7,000,000 which expires June 30, 2022.

There were no borrowings under this line as of March 31, 2021 and December 31, 2020.

There were no borrowings under this line as of June 30, 2021 and December 31, 2020.

The Company has a line of credit commitment available which has no stated expiration date from PNC Bank for $16,000,000.

There were no borrowings under this line as of March 31, 2021 and December 31, 2020.

There were no borrowings under this line as of June 30, 2021 and December 31, 2020.

The Company has a line of credit commitment available which has no stated expiration date from Zions Bank for $17,000,000.

There were no borrowings under this line as of March 31, 2021 and December 31, 2020.

The Bank’s maximum borrowing capacity with the Federal Home Loan Bank was approximately $585,130,000 as of March 31, 2021, of which $39,366,000 was outstanding in the form of borrowings.

There were no borrowings under this line as of June 30, 2021 and December 31, 2020.

The Bank’s maximum borrowing capacity with the Federal Home Loan Bank was approximately $586,850,000 as of June 30, 2021, of which $36,259,000 was outstanding in the form of borrowings.

As of December 31, 2020, the maximum borrowing capacity was $686,360,000, of which $42,459,000 of borrowings was outstanding.

Additionally, as of March 31, 2021, the Bank had secured Letters of Credit from the Federal Home Loan Bank in the amount of $204,550,000 million as collateral for specific

municipal deposits.

Additionally, as of June 30, 2021, the Bank had secured Letters of Credit from the Federal Home Loan Bank in the amount of $169,916,000 as collateral for specific municipal deposits.

These Letters of Credit reduce the availability under the maximum borrowing capacity.

5 unchanged sentences

We believe the presentation of interest income (fte) and net interest income (fte) ensures comparability of interest income and net interest income arising from both taxable and tax-exempt sources and is consistent with industry practice.

Interest income (fte) and Net interest income (fte) is reconciled to GAAP interest income and net interest income on page 39.

Interest income (fte) and Net interest income (fte) is reconciled to GAAP interest income and net interest income on pages 44 and 48.

Fully taxable equivalent interest income and net interest income is also reflected in the tables on pages 45 and 49.

Although the Company believes that these non-GAAP financial measures enhance investors’ understanding of our business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP measures.

3 unchanged sentences

(Tax-Equivalent Basis,

Three Months Ended March 31,

Three Months Ended June 30,

dollars in thousands)

35 unchanged sentences

Increase/(Decrease)

Three months ended March 31, 2021 Compared to

Three months ended March 31, 2020

Three months ended June 30, 2021 Compared to

Three months ended June 30, 2020

Variance due to

15 unchanged sentences

Changes in net interest income that could not be specifically identified as either a rate or volume change were allocated proportionately to changes in volume and changes in rate.

Comparison of Operating Results for the Three Months Ended March 31, 2021 to March 31, 2020

For the three months ended March 31, 2021, net income totaled $5,542,000 compared to $3,079,000 earned in the similar period in 2020.

The increase in net income for the three months ended March 31, 2021 was due primarily to a $6.1 million increase in net interest income which reflects the benefits realized from the acquisition of UpState.

This increase was partially offset by an $800,000 increase in the provision for loan losses and a $2.4 million increase in other operating expenses.

Earnings per share for the three-months ended March 31, 2021 were $0.68 per share for basic shares and $0.67 per share for fully diluted shares compared to $0.49 per share for basic shares and fully diluted shares for the three months ended March 31, 2020.

The resulting annualized return on average assets and annualized return on average equity for the three months ended March 31, 2021 were 1.18% and 11.39%, respectively, compared to 1.01% and 8.79%, respectively, for the same period in 2020.

Comparison of Operating Results for the Three Months Ended June 30, 2021 to June 30, 2020

For the three months ended June 30, 2021, net income totaled $5,755,000 compared to $1,488,000 earned in the similar period in 2020.

The increase in net income for the three months ended June 30, 2021 was due primarily to a $6,186,000 increase in net interest income which reflects the benefits realized from the acquisition of UpState.

This increase was partially offset by a $200,000 increase in the provision for loan losses and a $1.4 million increase in other operating expenses.

Earnings per share for the three-months ended June 30, 2021 were $0.70 per share for basic shares and fully diluted shares compared to $0.24 per share for basic shares and fully diluted shares for the three months ended June 30, 2020.

The resulting annualized return on average assets and annualized return on average equity for the three months ended June 30, 2021 were 1.15% and 11.59%, respectively, compared to 0.45% and 4.17%, respectively, for the same period in 2020.

The following table sets forth changes in net income:

1 unchanged sentence

Three months ended

March 31, 2021 to March 31, 2020

Net income three months ended March 31, 2020

June 30, 2021 to June 30, 2020

Net income three months ended June 30, 2020

Change due to:

2 unchanged sentences

Net gains on sales of securities and loans

Earnings and proceeds on bank-owned life insurance policies

Service charges and fees

Salaries and employee benefits

3 unchanged sentences

Professional fees

Merger related

All other expenses

Income tax expense

Net income three months ended March 31, 2021

Net income three months ended June 30, 2021

Net Interest Income

Net interest income on a fully taxable equivalent basis (fte) for the three months ended March 31, 2021 totaled $15,981,000 which was $6,078,000 higher than the comparable period in 2020.

Net interest income on a fully taxable equivalent basis (fte) for the three months ended June 30, 2021 totaled $16,263,000 which was $6,175,000 higher than the comparable period in 2020.

The increase in net interest income was due primarily to a $5,316,000 increase in interest income (fte) on loans acquired in the acquisition of UpState.

The fte net interest spread and net interest margin were 3.32% and 3.44%, respectively, for the three months ended June 30, 2021 compared to 3.03% and 3.25%, respectively, for the same period in 2020.

The increase in the net interest spread reflects the growth in average interest-earning assets.

See “Non-GAAP Financial Measures” above.

For the three-months ended June 30, 2021, interest income (fte) totaled $17,727,000 with a yield on average earning assets of 3.75% compared to $12,070,000 and 3.89% for the 2020 period.

Average loans increased $424.5 million during the three-months ended June 30, 2021, over the comparable period of 2020, while average securities increased $118.0 million.

Average earning assets totaled $1.890 billion for the three months ended June 30, 2021, an increase of $647.4 million over the average for the same period in 2020.

All increases reflect asset growth resulting from the merger with UpState and growth in PPP loans.

See “Non-GAAP Financial Measures” above.

Interest expense for the three months ended June 30, 2021 totaled $1,464,000 at an average cost of 0.43% compared to $1,982,000 and 0.86% for the same period in 2020.

The decrease in interest expense during the three-months ended June 30, 2021 reflects the overall lower level of interest rates.

The average cost of time deposits, which is the most significant component of funding costs, decreased 0.88% during the three months ended June 30, 2021.

Provision for Loan Losses

The Company’s provision for loan losses for the three months ended June 30, 2021 was $1,500,000, compared to $1,300,000 for the three months ended June 30, 2020.

The increased provision includes the increased risk related to the economic impact of the

COVID-19 pandemic.

The Company makes provisions for loan losses in an amount necessary to maintain the allowance for loan losses at an acceptable level.

Net charge-offs were $669,000 for the quarter ended June 30, 2021, compared to $76,000 for the similar period in 2020.

At June 30, 2021, the allowance for loan losses represented 1.11% of loans receivable.

Additionally, the allowance for loan losses represented 389% of non-performing loans, excluding loans acquired with credit quality deterioration.

Other income totaled $2,187,000 for the three months ended June 30, 2021, compared to $1,392,000 for the same period in 2020.

The increase was due primarily to a $695,000 increase in service charges and fees.

Net gains on the sale of loans totaled $109,000 for the three months ended June 30, 2021 compared to $65,000 in the three months ended June 30, 2020.

Other Expense

Other expense for the three months ended June 30, 2021 totaled $9,492,000, which was $1,400,000 higher than the same period of 2020, due primarily to the costs associated with the operation of four community offices acquired in the UpState merger.

Income Tax Expense

Income tax expense totaled $1,493,000 for an effective tax rate of 20.6% for the three months ended June 30, 2021 compared to $379,000 for an effective tax rate of 20.3% for the three months ended June 30, 2020.

The increase in the effective tax rate in the 2021 period reflects the increased level of taxable income.

Results of Operations

NORWOOD FINANCIAL CORP

Consolidated Average Balance Sheets with Resultant Interest and Rates

(Tax-Equivalent Basis,

Six Months Ended June 30,

dollars in thousands)

Interest-earning assets:

Interest bearing deposits with banks

Securities available for sale:

Tax-exempt (1)

Total securities available for sale (1)

Loans receivable (1) (4) (5)

Total interest-earning assets

Non-interest earning assets:

Cash and due from banks

Allowance for loan losses

Total non-interest earning assets

Liabilities and Stockholders'

Interest-bearing liabilities:

Interest-bearing demand and money market

Total interest-bearing deposits

Short-term borrowings

Other borrowings

Total interest-bearing liabilities

Non-interest bearing liabilities:

Demand deposits

Other liabilities

Total non-interest bearing liabilities

Stockholders'

Total Liabilities and Stockholders'

Net interest income/spread (tax equivalent basis)

Tax-equivalent basis adjustment

Net interest income

Net interest margin (tax equivalent basis)

(1) Interest and yields are presented on a tax-equivalent basis using a marginal tax rate of 21%.

(2) Average balances have been calculated based on daily balances.

(3) Annualized

(4) Loan balances include non-accrual loans and are net of unearned income.

(5) Loan yields include the effect of amortization of deferred fees, net of costs.

Rate/Volume Analysis.

The following table shows the fully taxable equivalent effect of changes in volumes and rates on interest income and interest expense.

Increase/(Decrease)

Six months ended June 30, 2021 Compared to

Six months ended June 30, 2020

Variance due to

(dollars in thousands)

Interest-earning assets:

Interest-bearing deposits with banks

Securities available for sale:

Tax-exempt securities

Total securities

Loans receivable

Total interest-earning assets

Interest-bearing liabilities:

Interest-bearing demand and money market

Total interest-bearing deposits

Short-term borrowings

Other borrowings

Total interest-bearing liabilities

Net interest income (tax-equivalent basis)

Comparison of Operating Results for the Six Months Ended June 30, 2021 to June 30, 2020

For the six months ended June 30, 2021, net income totaled $11,296,000 compared to $4,567,000 earned in the same period in 2020.

The increase in net income for the six months ended June 30, 2021 was due primarily to a $12,297,000 million increase in net interest income which reflects the benefits realized from the acquisition of UpState.

This increase was partially offset by a $1,000,000 increase in the provision for loan losses and a $3.8 million increase in other operating expenses.

Earnings per share for the six months ended June 30, 2021 were $1.38 per share for basic shares and for fully diluted shares compared to $0.73 per share for basic shares and fully diluted shares for the six months ended June 30, 2020.

The resulting annualized return on average assets and annualized return on average equity for the six months ended June 30, 2021 were 1.16% and 11.49%, respectively, compared to 0.72% and 6.46%, respectively, for the same period in 2020.

The following table sets forth changes in net income:

(dollars in thousands)

Six months ended

June 30, 2021 to June 30, 2020

Net income six months ended June 30, 2020

Change due to:

Net interest income

Provision for loan losses

Service charges and fees

Net gains on sales

Earnings and proceeds on bank-owned life insurance

Salaries and employee benefits

Occupancy, furniture and equipment

Data processing related

Professional fees

FDIC insurance assessment

Merger related

All other expenses

Income tax expense

Net income six months ended June 30, 2021

Net Interest Income

Net interest income on a fully taxable equivalent basis (fte) for the six months ended June 30, 2021 totaled $32,244,000 which was $12,253,000 higher than the comparable period in 2020.

The increase in net interest income was due primarily to a $10,757,000 increase in interest income (fte) on loans resulting from the acquisition of UpState.

The fte net interest spread and net interest margin were 3.46% and 3.59%, respectively, for the three months ended March 31, 2021 compared to 3.23% and 3.48%, respectively, for the same period in 2020.

The fte net interest spread and net interest margin were 3.39% and 3.51%, respectively, for the six months ended June 30, 2021 compared to 3.12% and 3.36%, respectively, for the same period in 2020.

The increase in the net interest spread reflects the growth in average interest-earning assets.

See “Non-GAAP Financial Measures” above.

For the three-months ended March 31, 2021, interest income (fte) totaled $17,506,000 with a yield on average earning assets of 3.93% compared to $12,106,000 and 4.25% for the 2020 period.

Average loans increased $491.3 million during the three-months ended March 31, 2021, over the comparable period of 2020, while average securities increased $38.8 million.

Average earning assets totaled $1.780 billion for the three months ended March 31, 2021, an increase of $642.0 million over the average for the same period in 2020.

For the six-months ended June 30, 2021, interest income (fte) totaled $35,233,000 with a yield on average earning assets of 3.84% compared to $24,176,000 and 4.06% for the 2020 period.

Average loans increased $457.9 million during the six-months ended June 30, 2021, over the comparable period of 2020, while average securities increased $78.6 million.

Average earning assets totaled $1.835 billion for the six months ended June 30, 2021, an increase of $644.9 million over the average for the same period in 2020.

All increases reflect growth resulting from the merger with UpState and growth in PPP loans.

See “Non-GAAP Financial Measures” above.

Interest expense for the three months ended March 31, 2021 totaled $1,525,000 at an average cost of 0.47% compared to $2,203,000 and 1.02% for the same period in 2020.

The decrease in average cost during the 2021 quarter reflects the overall lower level of interest rates.

Interest expense for the six months ended June 30, 2021 totaled $2,989,000 at an average cost of 0.45% compared to $4,185,000 and 0.94% for the same period in 2020.

The decrease in average cost during the 2021 quarter reflects the overall lower level of market interest rates.

The average cost of time deposits, which is the most significant component of funding, decreased 0.94% during the period.

Provision for Loan Losses

The Company’s provision for loan losses for the three months ended March 31, 2021 was $1,500,000, compared to $700,000 for the three months ended March 31, 2020.

The Company’s provision for loan losses for the six months ended June 30, 2021 was $3,000,000, compared to $2,000,000 for the six months ended June 30, 2020.

The increased provision includes the increased risk related to the economic impact of the COVID-19 pandemic.

The Company makes provisions for loan losses in an amount necessary to maintain the allowance for loan

losses at an acceptable level.

Net charge-offs were $141,000 for the quarter ended March 31, 2021, compared to $121,000 for the similar period in 2020.

At March 31, 2021, the allowance for loan losses represented 1.02% of loans receivable.

The Company makes provisions for loan losses in an amount necessary to maintain the allowance for loan losses at an acceptable level.

Net charge-offs were $810,000 for the six months ended June 30, 2021, compared to $197,000 for the similar period in 2020.

At June 30, 2021, the allowance for loan losses represented 1.11% of loans receivable.

Additionally, the allowance for loan losses represented 389% of non-performing loans, excluding loans acquired with credit quality deterioration.

Other income totaled $1,989,000 for the three months ended March 31, 2021, compared to $1,654,000 for the same period in 2020.

The increase was due primarily to a $184,000 increase in service charges and fees.

Net gains from the sale of securities totaled $21,000 for the three-months ended March 31, 2021, compared to $38,000 in the three-months ended March 31, 2020.

Net gains on the sale of loans totaled $29,000 for the three-months ended March 31, 2021 compared to $56,000 in the three-months ended March 31, 2020.

Other Expense

Other expense for the three months ended March 31, 2021 totaled $9,452,000, which was $2,393,000 higher than the same period of 2020, due primarily to the costs associated with the operation of four community offices acquired in the UpState merger.

Other income totaled $4,176,000 for the six months ended June 30, 2021, compared to $3,047,000 for the same period in 2020.

The increase was due primarily to an $881,000 increase in service charges and fees.

Net gains from the sale of securities totaled $21,000 for the six-months ended June 30, 2021, compared to $38,000 in the six-months ended June 30, 2020.

Net gains on the sale of loans totaled $138,000 for the six-months ended June 30, 2021 compared to $121,000 in the six-months ended June 30, 2020.

Income Tax Expense

Income tax expense totaled $1,271,000 for an effective tax rate of 18.7% for the period ended March 31, 2021 compared to $481,000 for an effective tax rate of 13.5% for the similar period in 2020.

Income tax expense totaled $2,765,000 for an effective tax rate of 19.7% for the six months ended June 30, 2021 compared to $860,000 for an effective tax rate of 15.8% for the six months ended June 30, 2020.

The increase in the effective tax rate in the 2021 period reflects the increased level of taxable income.

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