What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-04 · 171 added, 153 removed, 408 unchanged (44% of the section changed)

46 unchanged sentences

In mid-May 2021, as the number of COVID-19 cases decreased and COVID-19 vaccinations increased and new guidance was issued by the Center for Disease Control for fully vaccinated individuals, the COVID-19 restrictions were primarily lifted in North Carolina allowing businesses to operate in a manner in which they operated prior to the COVID-19 pandemic.

In mid-July 2021, despite vaccinations being readily available to all individuals living in North Carolina over the age of 12, COVID-19 vaccinations have slowed and the number of COVID-19 cases have started to rise.

We are unable to predict if COVID-19 cases will continue to rise and the impact that such rise will have on businesses and whether additional public health guidelines, restrictions and limitations will be implemented.

In mid-July 2021, despite vaccinations being readily available to all individuals living in North Carolina over the age of 12, COVID-19 vaccinations rates slowed and the number of COVID-19 cases started to rise and continued to rise through September 2021.

During that time frame, several local communities re-instated mask requirements and strongly encouraged North Carolinians to get vaccinated, while some companies and government agencies adopted policies and procedures regarding vaccination and regular COVID-19 testing.

Since mid-October 2021, COVID-19 cases have started to decrease.

We are unable to predict if COVID-19 cases will continue to decrease, if additional policies, procedures, restrictions, limitations and mandates will be implemented requiring employees to be vaccinated and/or be subject to regular COVID-19 testing and the impact that the foregoing will have on businesses, including the business of the Company and its customers.

Policy and Regulatory Developments .

1 unchanged sentence

The Federal Reserve decreased the range for the federal funds target rate by 0.5 percent on March 3, 2020, and by another 1.0 percent on March 16, 2020, reaching a current range of 0.0 - 0.25 percent.

On March 27, 2020, President Trump signed the CARES Act, which established a $2 trillion economic stimulus package, including cash payments to individuals, supplemental unemployment insurance benefits and a $349 billion loan program administered through the Small Business Administration (“SBA”), referred to as the Paycheck Protection Program (“PPP”).

Under the PPP, small businesses, sole proprietorships, independent contractors and self-employed individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enrolled in the program, subject to numerous limitations and eligibility criteria.

Under the PPP, small businesses, sole proprietorships, independent contractors and self-employed individuals could apply for loans from existing SBA lenders and other approved regulated lenders that enrolled in the PPP loan program, subject to numerous limitations and eligibility criteria.

After the initial $349 billion in funds for the PPP was exhausted, an additional $320 billion in funding for PPP loans was authorized.

1 unchanged sentence

The Economic Aid Act reopened and expanded the PPP loan program.

The changes to the PPP program allowed new borrowers to apply for a loan under the original PPP loan program and the creation of an additional PPP loan for eligible borrowers.

The changes to the PPP loan program allowed new borrowers to apply for a loan under the original PPP loan program and the creation of an additional PPP loan for eligible borrowers.

The Economic Aid Act also revised certain PPP requirements, including aspects of loan forgiveness on existing PPP loans.

1 unchanged sentence

however, the PPP Extension Act which was signed into law on March 30, 2021 extended the PPP loan program until May 31, 2021.

The Bank participated as a lender in the PPP.

In addition, the CARES Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to troubled debt restructured (“TDR”) loans for a limited period of time to account for the effects of COVID-19.

See Note 3 of the financial statements for additional disclosure of loan modifications as of June 30, 2021.

The Bank participated as a lender in the PPP loan program.

In addition, the CARES Act provides financial institutions the option to temporarily suspend certain requirements under GAAP related to TDR loans for a limited period of time to account for the effects of COVID-19.

See Note 3 of the financial statements for additional disclosure of loan modifications as of September 30, 2021.

On April 7, 2020, federal banking regulators issued a revised Interagency Statement on Loan Modifications and Reporting for Financial Institutions, which, among other things, encouraged financial institutions to work prudently with borrowers who are or may be unable to meet their contractual payment obligations because of the effects of COVID-19, and stated that institutions generally do not need to categorize COVID-19-related modifications as TDRs and that the agencies will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as TDRs.

See Note 3 of the financial statements for additional disclosure of loan modifications as of June 30, 2021.

See Note 3 of the financial statements for additional disclosure of loan modifications as of September 30, 2021.

On April 9, 2020, the Federal Reserve announced additional measures aimed at supporting small and mid-sized businesses, as well as state and local governments impacted by COVID-19.

23 unchanged sentences

The Federal Reserve also issued guidance encouraging banking institutions to utilize its discount window for loans and intraday credit extended by its Reserve Banks to help households and businesses impacted by the pandemic and announced numerous funding facilities.

The FDIC has also acted to mitigate the deposit insurance assessment effects of participating in the PPP and the Federal Reserve’s PPP Liquidity Facility and Money Market Mutual Fund Liquidity Facility.

The FDIC has also acted to mitigate the deposit insurance assessment effects of participating in the PPP loan program and the Federal Reserve's PPP Liquidity Facility and Money Market Mutual Fund Liquidity Facility.

Effects on Our Business.

7 unchanged sentences

We used available physical resources to achieve appropriate social distancing protocols in all facilities;

in addition, we established mandatory remote work to isolate certain personnel essential to critical business continuity operations.

in addition, we established mandatory remote work through June 30, 2021 to isolate certain personnel essential to critical business continuity operations.

We also expanded and tested remote access for the core banking system, funds transfer and loan operations.

2 unchanged sentences

Customers are encouraged to utilize online and mobile banking tools, and our customer service and retail departments are fully staffed and available to assist customers remotely.

We were a participating lender in the PPP.

We were a participating lender in the PPP loan program.

We believed it was our responsibility as a community bank to assist the SBA in the distribution of funds authorized under the CARES Act to our customers and communities.

7 unchanged sentences

Employees working on-site are observing current public health guidelines.

Effective August 19, 2021, the Company implemented mask requirements for employees.

Summary of Significant Accounting Policies

11 unchanged sentences

Results of Operations

Net earnings were $4.6 million or $0.82 basic net earnings per share and $0.80 diluted net earnings per share for the three months ended June 30, 2021, as compared to $2.6 million or $0.46 basic net earnings per share and $0.44 diluted net earnings per share for the same period one year ago.

The increase in second quarter net earnings is primarily due to an increase in net interest income, a decrease in the provision for loan losses and an increase in non-interest income, which were partially offset by an increase in non-interest expense during the three months ended June 30, 2021, compared to the three months ended June 30, 2020, as discussed below.

The annualized return on average assets was 1.18% for the three months ended June 30, 2021, compared to 0.76% for the same period one year ago, and annualized return on average shareholders’ equity was 13.11% for the three months ended June 30, 2021, compared to 7.64% for the same period one year ago.

Net earnings were $3.4 million or $0.61 basic net earnings per share and $0.59 diluted net earnings per share for the three months ended September 30, 2021, as compared to $4.5 million or $0.80 basic net earnings per share and $0.78 diluted net earnings per share for the same period one year ago.

The decrease in third quarter net earnings is primarily the result of a decrease in net interest income, a decrease in non-interest income and an increase in non-interest expense, which were partially offset by a decrease in the provision for loan losses during the three months ended September 30, 2021, compared to the three months ended September 30, 2020, as discussed below.

The annualized return on average assets was 0.83% for the three months ended September 30, 2021, compared to 1.25% for the same period one year ago, and annualized return on average shareholders’ equity was 9.30% for the three months ended September 30, 2021, compared to 12.81% for the same period one year ago.

Year-to-date net earnings as of September 30, 2021 were $12.1 million or $2.16 basic net earnings per share and $2.10 diluted net earnings per share for the nine months ended September 30, 2021, as compared to $9.4 million or $1.67 basic net earnings per share and $1.62 diluted net earnings per share for the same period one year ago.

The increase in year-to-date net earnings is primarily attributable to an increase in net interest income, a decrease in the provision for loan losses and an increase in non-interest income, which were partially offset by an increase in non-interest expense during the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020, as discussed below.

The annualized return on average assets was 1.05% for the nine months ended September 30, 2021, compared to 0.95% for the same period one year ago, and annualized return on average shareholders’ equity was 11.04% for the nine months ended September 30, 2021, compared to 8.99% for the same period one year ago.

Net Interest Income.

Net interest income, the major component of the Company’s net earnings, was $11.7 million for the three months ended June 30, 2021, compared to $10.7 million for the three months ended June 30, 2020.

The increase in net interest income was due to a $879,000 increase in interest income and a $70,000 decrease in interest expense.

The increase in interest income was primarily due to a $823,000 increase in interest income and fees on loans, which was primarily due to a $1.5 million increase in fee income on SBA PPP loans.

The decrease in interest expense was primarily due to a decrease in Federal Home Loan Bank (“FHLB”) borrowings.

Interest income was $12.5 million for the three months ended June 30, 2021, compared to $11.6 million for the three months ended June 30, 2020.

The increase in interest income was primarily due to a $823,000 increase in interest income and fees on loans, which was primarily due to a $1.5 million increase in fee income on SBA PPP loans.

During the three months ended June 30, 2021, average loans decreased $30.9 million to $916.4 million from $947.3 million for the three months ended June 30, 2020.

During the three months ended June 30, 2021, average investment securities available for sale increased $151.8 million to $346.9 million from $195.1 million for the three months ended June 30, 2020.

The average yield on loans for the three months ended June 30, 2021 and 2020 was 4.82% and 4.32%, respectively.

The average yield on investment securities available for sale was 1.80% and 3.09% for the three months ended June 30, 2021 and 2020, respectively.

The average yield on earning assets was 3.43% and 3.77% for the three months ended June 30, 2021 and 2020, respectively.

Interest expense was $842,000 for the three months ended June 30, 2021, compared to $912,000 for the three months ended June 30, 2020.

The decrease in interest expense was primarily due to a decrease in FHLB borrowings.

During the three months ended June 30, 2021, average interest-bearing non-maturity deposits increased $164.8 million to $735.0 million from $570.2 million for the three months ended June 30, 2020.

During the three months ended June 30, 2021, average certificates of deposit increased $6.6 million to $106.7 million from $100.1 million for the three months ended June 30, 2020.

Average FHLB borrowings decreased $70.0 million to zero for the three months ended June 30, 2021 from $70.0 million for the three months ended June 30, 2020.

The average rate paid on interest-bearing checking and savings accounts was 0.30% and 0.32% for the three months ended June 30, 2021 and 2020, respectively.

The average rate paid on certificates of deposit was 0.72% for the three months ended June 30, 2021, compared to 0.90% for the same period one year ago.

The average rate paid on interest-bearing liabilities was 0.38% for the three months ended June 30, 2021, compared to 0.47% for the same period one year ago.

The following table sets forth for each category of interest-earning assets and interest-bearing liabilities, the average amounts outstanding, the interest incurred on such amounts and the average rate earned or incurred for the three months ended June 30, 2021 and 2020.

Net interest income, the major component of the Company’s net earnings, was $10.6 million for the three months ended September 30, 2021, compared to $10.9 million for the three months ended September 30, 2020.

The decrease in net interest income is due to a $447,000 decrease in interest income, which was partially offset by a $81,000 decrease in interest expense.

The decrease in interest income is primarily due to a $700,000 decrease in interest income and fees on loans, which was partially offset by an increase in interest income on investment securities.

The decrease in interest income and fees on loans is primarily due to a decrease in total loans.

The increase in interest income on investment securities is primarily due to additional securities purchases due to an increase in excess cash.

The decrease in interest expense is primarily due to a decrease in Federal Home Loan Bank (“FHLB”) borrowings and a reduction in rates paid on time deposits, partially offset by an increase in interest bearing demand, Money Market and savings deposits.

Interest income was $11.4 million for the three months ended September 30, 2021, compared to $11.9 million for the three months ended September 30, 2020.

The decrease in interest income is primarily due to a $700,000 decrease in interest income and fees on loans, which was partially offset by an increase in interest income on investment securities.

The decrease in interest income and fees on loans is primarily due to a decrease in total loans.

During the three months ended September 30, 2021, average loans decreased $81.0 million to $889.5 million from $970.5 million for the three months ended September 30, 2020.

During the three months ended September 30, 2021, average investment securities available for sale increased $178.7 million to $378.8 million from $200.1 million for the three months ended September 30, 2020.

The average yield on loans for the three months ended September 30, 2021 and 2020 was 4.37% and 4.31%, respectively.

The average yield on investment securities available for sale was 1.70% and 2.82% for the three months ended September 30, 2021 and 2020, respectively.

The average yield on earning assets was 2.98% and 3.56% for the three months ended September 30, 2021 and 2020, respectively.

Interest expense was $861,000 for the three months ended September 30, 2021, compared to $942,000 for the three months ended September 30, 2020.

The decrease in interest expense is primarily due to a decrease in Federal Home Loan Bank (“FHLB”) borrowings and a reduction in rates paid on time deposits, which was partially offset by an increase in interest bearing demand, Money Market and savings deposits.

During the three months ended September 30, 2021, average interest-bearing non-maturity deposits increased $180.9 million to $788.0 million from $607.1 million for the three months ended September 30, 2020.

During the three months ended September 30, 2021, average certificates of deposit increased $928,000 to $103.8 million from $102.9 million for the three months ended September 30, 2020.

Average FHLB borrowings decreased $70.0 million to zero for the three months ended September 30, 2021 from $70.0 million for the three months ended September 30, 2020.

The average rate paid on interest-bearing checking and savings accounts was 0.29% and 0.32% for the three months ended September 30, 2021 and 2020, respectively.

The average rate paid on certificates of deposit was 0.68% for the three months ended September 30, 2021, compared to 0.86% for the same period one year ago.

The average rate paid on interest-bearing liabilities was 0.36% for the three months ended September 30, 2021, compared to 0.45% for the same period one year ago.

The table also sets forth the average rate earned on total interest-earning assets, the average rate paid on total interest-bearing liabilities, and the net yield on total average interest-earning assets for the same periods.

Yield information does not give effect to changes in fair value that are reflected as a component of shareholders’ equity.

Yields and interest income on tax-exempt investments for the three months ended June 30, 2021 and 2020 have been adjusted to a tax equivalent basis using an effective tax rate of 22.98% for securities that are both federal and state tax exempt and an effective tax rate of 20.48% for federal tax-exempt securities.

Yields and interest income on tax-exempt investments for the three months ended September 30, 2021 and 2020 have been adjusted to a tax equivalent basis using an effective tax rate of 22.98% for securities that are both federal and state tax exempt and an effective tax rate of 20.48% for federal tax-exempt securities.

Non-accrual loans and the interest income that was recorded on non-accrual loans, if any, are included in the yield calculations for loans in all periods reported.

4 unchanged sentences

Three months ended

June 30, 2021

June 30, 2020

September 30, 2021

September 30, 2020

(Dollars in thousands)

29 unchanged sentences

A tax rate of 2.50% was used to calculate the tax equivalent yield on these securities in 2021 and 2020.

Year-to-date net interest income as of June 30, 2021 was $22.8 million, compared to $21.9 million for the same period one year ago.

The increase in net interest income was due to a $551,000 increase in interest income and a $296,000 decrease in interest expense.

The increase in interest income was primarily due to a $807,000 increase in interest income and fees on loans, which was primarily due to a $2.5 million increase in fee income on SBA PPP loans.

Year-to-date net interest income as of September 30, 2021 was $33.3 million, compared to $32.9 million for the same period one year ago.

The increase in net interest income is due to a $104,000 increase in interest income and a $377,000 decrease in interest expense.

The increase in interest income was primarily due to a $107,000 increase in interest income and fees on loans, which was primarily due to an increase in fee income on SBA PPP loans, which was partially offset by a decrease in interest income on loans primarily due to a decrease in total loans.

Fee income on SBA PPP loans totaled $3.0 million during the nine months ended September 30, 2021, compared to $361,000 for the same period one year ago.

The decrease in interest expense was primarily due to a decrease in rates paid on interest-bearing liabilities and a decrease in FHLB borrowings.

Interest income was $24.4 million for the six months ended June 30, 2021, compared to $23.9 million for the six months ended June 30, 2020.

The increase in interest income was primarily due to a $807,000 increase in interest income and fees on loans, which was primarily due to a $2.5 million increase in fee income on SBA PPP loans.

During the six months ended June 30, 2021, average loans increased $27.2 million to $931.7 million from $904.5 million for the six months ended June 30, 2020.

During the six months ended June 30, 2021, average investment securities available for sale increased $113.1 million to $305.1 million from $192.0 million for the six months ended June 30, 2020.

The average yield on loans for the six months ended June 30, 2021 and 2020 was 4.69% and 4.64%, respectively.

The average yield on investment securities available for sale was 1.87% and 3.12% for the six months ended June 30, 2021 and 2020, respectively.

The average yield on earning assets was 3.49% and 4.12% for the six months ended June 30, 2021 and 2020, respectively.

Interest expense was $1.7 million for the six months ended June 30, 2021, compared to $2.0 million for the six months ended June 30, 2020.

Interest income was $35.9 million for the nine months ended September 30, 2021, compared to $35.8 million for the nine months ended September 30, 2020.

During the nine months ended September 30, 2021, average loans increased $9.2 million to $917.5 million from $926.7 million for the nine months ended September 30, 2020.

During the nine months ended September 30, 2021, average investment securities available for sale increased $135.3 million to $330.0 million from $194.7 million for the nine months ended September 30, 2020.

The average yield on loans for the nine months ended September 30, 2021 and 2020 was 4.59% and 4.52%, respectively.

The average yield on investment securities available for sale was 1.81% and 3.02% for the nine months ended September 30, 2021 and 2020, respectively.

The average yield on earning assets was 3.31% and 3.92% for the nine months ended September 30, 2021 and 2020, respectively.

Interest expense was $2.5 million for the nine months ended September 30, 2021, compared to $2.9 million for the nine months ended September 30, 2020.

The decrease in interest expense was primarily due to a decrease in rates paid on interest-bearing liabilities and a decrease in FHLB borrowings.

During the six months ended June 30, 2021, average interest-bearing non-maturity deposits increased $157.9 million to $703.6 million from $545.7 million for the six months ended June 30, 2020.

During the six months ended June 30, 2021, average certificates of deposit increased $4.2 million to $107.3 million from $103.1 million for the six months ended June 30, 2020.

Average FHLB borrowings decreased $56.9 million to zero for the six months ended June 30, 2021 from $56.9 million for the six months ended June 30, 2020.

The average rate paid on interest-bearing checking and savings accounts was 0.30% and 0.36% for the six months ended June 30, 2021 and 2020, respectively.

The average rate paid on certificates of deposit was 0.76% for the six months ended June 30, 2021, compared to 0.98% for the same period one year ago.

The average rate paid on interest-bearing liabilities was 0.39% for the six months ended June 30, 2021, compared to 0.43% for the same period one year ago.

During the nine months ended September 30, 2021, average interest-bearing non-maturity deposits increased $165.7 million to $732.0 million from $556.3 million for the nine months ended September 30, 2020.

During the nine months ended September 30, 2021, average certificates of deposit increased $3.2 million to $106.2 million from $103.0 million for the nine months ended September 30, 2020.

Average FHLB borrowings decreased $61.3 million to zero for the nine months ended September 30, 2021 from $61.3 million for the nine months ended September 30, 2020.

The average rate paid on interest-bearing checking and savings accounts was 0.30% and 0.34% for the nine months ended September 30, 2021 and 2020, respectively.

The average rate paid on certificates of deposit was 0.74% for the nine months ended September 30, 2021, compared to 0.94% for the same period one year ago.

The average rate paid on interest-bearing liabilities was 0.38% for the nine months ended September 30, 2021, compared to 0.50% for the same period one year ago.

Yield information does not give effect to changes in fair value that are reflected as a component of shareholders’ equity.

Yields and interest income on tax-exempt investments for the six months ended June 30, 2021 and 2020 have been adjusted to a tax equivalent basis using an effective tax rate of 22.98% for securities that are both federal and state tax exempt and an effective tax rate of 20.48% for federal tax-exempt securities.

Yields and interest income on tax-exempt investments for the nine months ended September 30, 2021 and 2020 have been adjusted to a tax equivalent basis using an effective tax rate of 22.98% for securities that are both federal and state tax exempt and an effective tax rate of 20.48% for federal tax-exempt securities.

Non-accrual loans and the interest income that was recorded on non-accrual loans, if any, are included in the yield calculations for loans in all periods reported.

2 unchanged sentences

The reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are presented below.

Six months ended

June 30, 2021

June 30, 2020

Nine months ended

September 30, 2021

September 30, 2020

(Dollars in thousands)

32 unchanged sentences

The changes in interest due to both volume and rate have been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the changes in each.

Three months ended June 30, 2021 compared to three months ended June 30, 2020

Six months ended June 30, 2021 compared to six months ended June 30, 2020

Three months ended September 30, 2021

compared to three months ended

September 30, 2020

Nine months ended September 30, 2021

compared to nine months ended

September 30, 2020

(Dollars in thousands)

12 unchanged sentences

Interest expense:

NOW, MMDA & savings deposits

Interest-bearing demand, MMDA

& savings deposits

Time deposits

4 unchanged sentences

Provision for Loan Losses.

The provision for loan losses for the three months ended June 30, 2021 was a recovery of $226,000, compared to a provision of $1.4 million for the three months ended June 30, 2020.

The decrease in the provision for loan losses is primarily attributable to a decrease in reserves on loans with payment modifications made as a result of the COVID-19 pandemic and a decrease in reserves due to a net decrease in the volume of loans in the general reserve pool.

At June 30, 2021, the balance of loans with existing modifications as a result of the COVID-19 pandemic was $283,000.

The provision for loan losses for the three months ended September 30, 2021 was a recovery of $182,000, compared to a provision of $522,000 for the three months ended September 30, 2020.

At September 30, 2021, there were no loans with existing modifications as a result of the COVID-19 pandemic.

At December 31, 2020, the balance of loans with existing modifications as a result of the COVID-19 pandemic was $18.3 million.

The Company continues to track all loans that are currently modified or have been modified as a result of the COVID-19 pandemic.

The loan balances associated with COVID-19 pandemic related modifications have been grouped into their own pool within the Company’s ALLL model as they have a higher likelihood of risk, and a higher reserve rate has been applied to that pool.

Of all loans modified as a result of the COVID-19 pandemic, $108.2 million have returned to their original terms;

however, the effects of stimulus in the current environment are still unknown, and additional losses may be present in loans that are currently modified and/or loans that were once modified.

The loan balances associated with COVID-19 pandemic related modifications have been grouped into their own pool within the Company’s Allowance for Loan and Lease Losses (“ALLL”) model as they have a higher likelihood of risk, and a higher reserve rate has been applied to that pool.

All loans modified as a result of the COVID-19 pandemic, totaling $100.9 million at September 30, 2021, have returned to their original terms;

however, the effects of stimulus in the current environment are still unknown, and additional losses may be present in loans that were once modified.

At December 31, 2020, the balance for all loans that were then currently modified or previously modified but returned to their original terms was $119.6 million.

The $11.4 million decrease from December 31, 2020 to June 30, 2021 in the balance of currently or previously modified loans that had returned to their original terms is primarily due to loans paid off during the six months ended June 30, 2021.

The $18.7 million decrease from December 31, 2020 to September 30, 2021 in the balance of currently or previously modified loans that had returned to their original terms is primarily due to loans paid off during the nine months ended September 30, 2021.

Loan payment modifications associated with the COVID-19 pandemic are not classified as TDR due to Section 4013 of the CARES Act, which provides that a qualified loan modification is exempt by law from classification as a TDR pursuant to GAAP.

The provision for loan losses for the six months ended June 30, 2021 was a recovery of $681,000, compared to a provision of $2.9 million for the six months ended June 30, 2020.

The provision for loan losses for the nine months ended September 30, 2021 was a recovery of $863,000, compared to a provision of $3.5 million for the nine months ended September 30, 2020.

Non-Interest Income.

Total non-interest income was $6.0 million for the three months ended June 30, 2021, compared to $5.2 million for the three months ended June 30, 2020.

The increase in non-interest income is primarily attributable to a $572,000 increase in miscellaneous non-interest income primarily due to an increase in debit card income resulting from increased debit card activity and an increase in income on Small Business Investment Company (“SBIC”) investments, and a $271,000 increase in appraisal management fee income due to an increase in the volume of appraisals.

Non-interest income was $11.9 million for the six months ended June 30, 2021, compared to $9.8 million for the six months ended June 30, 2020.

The increase in non-interest income is primarily attributable to a $708,000 increase in mortgage banking income due to an increased in mortgage loan volume, a $737,000 increase in appraisal management fee income due to an increase in the volume of appraisals and a $1.0 million increase in miscellaneous non-interest income primarily due to an increase in debit card income resulting from increased debit card activity and an increase in income on SBIC investments.

Total non-interest income was $6.0 million for the three months ended September 30, 2021, compared to $7.1 million for the three months ended September 30, 2020.

The decrease in non-interest income is primarily attributable to a $1.7 million decrease in gains on sale of securities.

Non-interest income was $18.0 million for the nine months ended September 30, 2021, compared to $17.0 million for the nine months ended September 30, 2020.

The increase in non-interest income is primarily attributable to a $474,000 increase in mortgage banking income due to an increase in mortgage loan volume, a $820,000 increase in appraisal management fee income due to an increase in the volume of appraisals and a $1.4 million increase in miscellaneous non-interest income primarily due to an increase in debit card income resulting from increased debit card activity and an increase in income on Small Business Investment Company (“SBIC”) investments.

These increases in non-interest income were partially offset by a $2.1 million decrease in gains on sale of securities.

Non-Interest Expense.

Total non-interest expense was $12.1 million for the three months ended June 30, 2021, compared to $11.5 million for the three months ended June 30, 2020.

The increase in non-interest expense was primarily attributable to a $301,000 increase in appraisal management fee expense due to an increase in the volume of appraisals and a $116,000 increase in FDIC insurance expense.

Non-interest expense was $24.4 million for the six months ended June 30, 2021, compared to $22.9 million for the six months ended June 30, 2020.

The increase in non-interest expense was primarily attributable to a $723,000 increase in appraisal management fee expense due to an increase in the volume of appraisals and a $590,000 increase in salaries and employee benefits expense primarily due to increases in insurance costs and incentive compensation.

Total non-interest expense was $12.6 million for the three months ended September 30, 2021, compared to $11.9 million for the three months ended September 30, 2020.

The increase in non-interest expense was primarily attributable to a $317,000 increase in salaries and employee benefits expense primarily due to increases in incentive compensation and restricted stock expense and a $208,000 increase in professional fees.

Non-interest expense was $37.0 million for the nine months ended September 30, 2021, compared to $34.8 million for the nine months ended September 30, 2020.

The increase in non-interest expense was primarily attributable to a $907,000 increase in salaries and employee benefits expense primarily due to increases in insurance costs and incentive compensation and a $801,000 increase in appraisal management fee expense due to an increase in the volume of appraisals.

Income Taxes.

Income tax expense was $1.2 million for the three months ended June 30, 2021, compared to $535,000 for the three months ended June 30, 2020.

The effective tax rate was 20.55% for the three months ended June 30, 2021, compared to 17.28% for the three months ended June 30, 2020.

Income tax expense was $2.2 million for the six months ended June 30, 2021, compared to $1.0 million for the six months ended June 30, 2020.

The effective tax rate was 20.41% for the six months ended June 30, 2021, compared to 16.90% for the six months ended June 30, 2020.

The increase in the effective tax rate is primarily due to a reduction in non-taxable investments combined with an increase in earnings before income taxes.

Income tax expense was $824,000 for the three months ended September 30, 2021, compared to $1.1 million for the three months ended September 30, 2020.

The effective tax rate was 19.55% for the three months ended September 30, 2021, compared to 19.80% for the three months ended September 30, 2020.

Income tax expense was $3.1 million for the nine months ended September 30, 2021, compared to $2.1 million for the nine months ended September 30, 2020.

The effective tax rate was 20.17% for the nine months ended September 30, 2021, compared to 18.31% for the nine months ended September 30, 2020.

The increase in the year to date effective tax rate is primarily due to a reduction in non-taxable investments combined with an increase in earnings before income taxes.

Analysis of Financial Condition

Investment Securities.

Available for sale securities were $367.5 million at June 30, 2021, compared to $245.2 million at December 31, 2020.

Available for sale securities were $402.9 million at September 30, 2021, compared to $245.2 million at December 31, 2020.

The increase in available for sale securities is primarily due to additional securities purchases due to an increase in excess cash.

Average investment securities available for sale for the six months ended June 30, 2021 were $305.1 million, compared to $200.8 million for the year ended December 31, 2020.

At June 30, 2021, loans were $888.4 million, compared to $948.6 million at December 31, 2020.

The decrease in loans is primarily due to a $38.3 million decrease in PPP loans primarily due to PPP loans being forgiven by the SBA during the six months ended June 30, 2021 and a $33.7 decrease in commercial loans due to loan payoffs during the six months ended June 30, 2021.

The Company had $37.5 million and $75.8 million in PPP loans at June 30, 2021 and December 31, 2020, respectively.

Average loans represented 65% and 74% of average earning assets for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively.

The Company had $5.5 million and $9.1 million in mortgage loans held for sale as of June 30, 2021 and December 31, 2020, respectively.

Average investment securities available for sale for the nine months ended September 30, 2021 were $378.8 million, compared to $200.8 million for the year ended December 31, 2020.

At September 30, 2021, loans were $891.0 million, compared to $948.6 million at December 31, 2020.

The decrease in loans is primarily due to a $50.2 million decrease in PPP loans due to PPP loans being forgiven by the SBA during the nine months ended September 30, 2021 and a $37.2 million decrease in commercial loans due to loan payoffs during the nine months ended September 30, 2021.

The Company had $25.6 million and $75.8 million in PPP loans at September 30, 2021 and December 31, 2020, respectively.

Average loans represented 63% and 74% of average earning assets for the nine months ended September 30, 2021 and the year ended December 31, 2020, respectively.

The Company had $9.1 million in mortgage loans held for sale as of September 30, 2021 and December 31, 2020.

Although the Company has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by real estate, which is dependent upon the real estate market.

Real estate mortgage loans include both commercial and residential mortgage loans.

At June 30, 2021, the Company had $93.3 million in residential mortgage loans, $88.3 million in home equity loans and $498.7 million in commercial mortgage loans, which include $391.4 million secured by commercial property and $107.3 million secured by residential property.

Residential mortgage loans at June 30, 2021 include $25.2 million in non-traditional mortgage loans from the former Banco division of the Bank.

At September 30, 2021, the Company had $87.5 million in residential mortgage loans, $86.5 million in home equity loans and $526.9 million in commercial mortgage loans, which include $416.8 million secured by commercial property and $110.1 million secured by residential property.

Residential mortgage loans at September 30, 2021 include $24.5 million in non-traditional mortgage loans from the former Banco division of the Bank.

At December 31, 2020, the Company had $104.2 million in residential mortgage loans, $96.6 million in home equity loans and $476.7 million in commercial mortgage loans, which include $375.0 million secured by commercial property and $101.7 million secured by residential property.

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All residential mortgage loans are originated as fully amortizing loans, with no negative amortization.

The Company had $90.6 million and $94.1 million in construction and land development loans at June 30, 2021 and December 31, 2020, respectively.

The Company had $80.0 million and $94.1 million in construction and land development loans at September 30, 2021 and December 31, 2020, respectively.

The following tables present a breakout of these loans.

June 30, 2021

September 30, 2021

(Dollars in thousands)

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Total construction and land development

Current year TDR modifications, past due TDR loans and non-accrual TDR loans totaled $2.2 million and $3.8 million at June 30, 2021 and December 31, 2020, respectively.

Past due TDR loans and non-accrual TDR loans totaled $1.6 million and $3.8 million at September 30, 2021 and December 31, 2020, respectively.

The terms of these loans have been renegotiated to provide a concession to original terms, including a reduction in principal or interest as a result of the deteriorating financial position of the borrower.

There were no performing loans classified as TDR loans at June 30, 2021 and December 31, 2020.

There were no performing loans classified as TDR loans at September 30, 2021 and December 31, 2020.

There were no new TDR modifications during the three and nine months ended September 30, 2021 and 2020.

Allowance for Loan Losses.

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Qualitative factors applied in the Bank’s ALLL model include the impact to the economy from the COVID-19 pandemic and reserves on loans with payment modifications as a result of the COVID-19 pandemic.

At June 30, 2021, the balance of loans with existing modifications as a result of the COVID-19 pandemic was $283,000.

At December 31, 2020, the balance of loans with existing modifications as a result of COVID-19 was $18.3 million.

The Company continues to track all loans that are currently modified or have been modified under COVID-19.

At June 30, 2021, the balance for all loans that are currently modified or previously modified but have returned to their original terms was $108.2 million.

The loan balances associated with COVID-19 related modifications have been grouped into their own pool within the Company’s ALLL model as they have a higher likelihood of risk, and a higher reserve rate has been applied to that pool.

Of all loans modified as a result of COVID-19, $108.2 million have returned to their original terms;

however, the effects of stimulus in the current environment are still unknown, and additional losses may be present in loans that are currently modified and/or loans that were once modified.

At September 30, 2021, there were no loans with existing modifications as a result of the COVID-19 pandemic.

At December 31, 2020, the balance of loans with existing modifications as a result of the COVID-19 pandemic was $18.3 million.

The Company continues to track all loans that are currently modified or have been modified as a result of the COVID-19 pandemic.

All loans modified as a result of the COVID-19 pandemic, totaling $100.9 million at September 30, 2021, have returned to their original terms;

however, the effects of stimulus in the current environment are still unknown, and additional losses may be present in loans that were once modified.

The unallocated allowance is determined through management’s assessment of probable losses that are in the portfolio but are not adequately captured by the other two components of the allowance, including consideration of current economic and business conditions and regulatory requirements.

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Due to the subjectivity involved in determining the overall allowance, including the unallocated portion, the unallocated portion may fluctuate from period to period based on management’s evaluation of the factors affecting the assumptions used in calculating the allowance.

There were no significant changes in the estimation methods or fundamental assumptions used in the evaluation of the allowance for loan losses for the six months ended June 30, 2021, as compared to the six months ended June 30, 2020.

There were no significant changes in the estimation methods or fundamental assumptions used in the evaluation of the allowance for loan losses for the three and nine months ended September 30, 2021, as compared to the three and nine months ended September 30, 2020.

Revisions, estimates and assumptions may be made in any period in which the supporting factors indicate that loss levels may vary from the previous estimates.

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Management believes it has established the allowance for credit losses pursuant to GAAP, and has taken into account the views of its regulators and the current economic environment.

Management considers the allowance for loan losses adequate to cover the estimated losses inherent in the Bank’s loan portfolio as of the date

Management considers the allowance for loan losses adequate to cover the estimated losses inherent in the Bank’s loan portfolio as of the date of the financial statements.

Although management uses the best information available to make evaluations, significant future additions to the allowance may be necessary based on changes in economic and other conditions, thus adversely affecting the operating results of the Company.

Percentage of Loans

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Risk Grade 8 (Loss)

At June 30, 2021, including non-accrual loans, there were three relationships exceeding $1.0 million in the Watch risk grade (which totaled $8.3 million).

At December 31, 2020, including non-accrual loans, there were three relationships exceeding $1.0 million in the Watch risk grade (which totaled $7.9 million).

There were no relationships exceeding $1.0 million in the Substandard risk grade at June 30, 2021 and December 31, 2020.

At September 30, 2021, including non-accrual loans, there were three relationships exceeding $1.0 million in the Watch risk grade, which totaled $8.1 million.

There were no relationships exceeding $1.0 million in the Substandard risk grade.

Non-performing Assets.

Non-performing assets totaled $3.4 million at June 30, 2021 or 0.21% of total assets, compared to $3.8 million or 0.27% of total assets at December 31, 2020.

Non-accrual loans were $3.4 million at June 30, 2021 and $3.9 million at December 31, 2020.

As a percentage of total loans outstanding, non-accrual loans were 0.38% at June 30, 2021, compared to 0.40% at December 31, 2020.

Non-performing assets include $3.3 million in commercial and residential mortgage loans and $67,000 in other loans at June 30, 2021, compared to $3.5 million in commercial and residential mortgage loans, $226,000 in other loans and $128,000 in other real estate owned at December 31, 2020.

The Bank had no loans 90 days past due and still accruing at June 30, 2021 and December 31, 2020.

The Bank had no other real estate owned at June 30, 2021.

Total deposits at June 30, 2021 were $1.4 billion compared to $1.2 billion at December 31, 2020.

Core deposits, which include demand deposits, savings accounts and non-brokered certificates of deposits of denominations less than $250,000, amounted to $1.4 billion at June 30, 2021, compared to $1.2 billion at December 31, 2020.

Non-performing assets totaled $2.7 million at September 30, 2021 or 0.17% of total assets, compared to $3.9 million or 0.27% of total assets at December 31, 2020.

Non-accrual loans were $2.7 million at September 30, 2021 and $3.8 million at December 31, 2020.

As a percentage of total loans outstanding, non-accrual loans were 0.30% at September 30, 2021, compared to 0.40% at December 31, 2020.

Non-performing assets include $2.6 million in commercial and residential mortgage loans and $59,000 in other loans at September 30, 2021, compared to $3.5 million in commercial and residential mortgage loans, $226,000 in other loans and $128,000 in other real estate owned at December 31, 2020.

The Bank had no loans 90 days past due and still accruing at September 30, 2021 and December 31, 2020.

The Bank had no other real estate owned at September 30, 2021.

Total deposits at September 30, 2021 were $1.4 billion compared to $1.2 billion at December 31, 2020.

Core deposits, which include demand deposits, savings accounts and non-brokered certificates of deposits of denominations less than $250,000, amounted to $1.4 billion at September 30, 2021, compared to $1.2 billion at December 31, 2020.

Borrowed Funds.

There were no FHLB borrowings outstanding at June 30, 2021 and December 31, 2020.

Securities sold under agreements to repurchase were $31.2 million at June 30, 2021, compared to $26.2 million at December 31, 2020.

There were no FHLB borrowings outstanding at September 30, 2021 and December 31, 2020.

Securities sold under agreements to repurchase were $32.3 million at September 30, 2021, compared to $26.2 million at December 31, 2020.

Junior Subordinated Debentures (related to Trust Preferred Securities).

Junior subordinated debentures were $15.5 million at June 30, 2021 and December 31, 2020.

Junior subordinated debentures were $15.5 million at September 30, 2021 and December 31, 2020.

In June 2006, the Company formed a wholly owned Delaware statutory trust, PEBK Capital Trust II (“PEBK Trust II”), which issued $20.0 million of guaranteed preferred beneficial interests in the Company’s junior subordinated deferrable interest debentures.

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dollar-denominated (USD) LIBOR rates will retire on December 31, 2021.

The overnight, one-month, three-month, six-month, and 12-month USD LIBOR rates will continue to be published through June 30, 2023.

The overnight, one-month, three-month, nine-month, and 12-month USD LIBOR rates will continue to be published through June 30, 2023.

Asset Liability and Interest Rate Risk Management.

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This is to be done in conjunction with the need to maintain adequate liquidity and the overall goal of maximizing net interest income.

The Company manages its exposure to fluctuations in interest rates through policies established by our Asset/Liability Committee (“ALCO”).

The Company manages its exposure to fluctuations in interest rates through policies established by its Asset/Liability Committee (“ALCO”).

ALCO meets quarterly and has the responsibility for approving asset/liability management policies, formulating and implementing strategies to improve balance sheet positioning and/or earnings and reviewing the interest rate sensitivity of the Company.

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Rate sensitive liabilities include interest-bearing checking accounts, money market deposit accounts, savings accounts, time deposits and borrowed funds.

Average rate sensitive assets for the six months ended June 30, 2021 totaled $1.4 billion, exceeding average rate sensitive liabilities of $855.3 million by $655.5 million.

Average rate sensitive assets for the nine months ended September 30, 2021 totaled $1.5 billion, exceeding average rate sensitive liabilities of $936.9 million by $597.8 million.

The Company has an overall interest rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility.

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The Company minimizes the credit risk in derivative instruments by entering into transactions with high-quality counterparties that are reviewed periodically by the Company.

The Company did not have any interest rate derivatives outstanding as of June 30, 2021.

The Company did not have any interest rate derivatives outstanding as of September 30, 2021.

Included in the rate sensitive assets are $203.1 million in variable rate loans indexed to prime rate subject to immediate repricing upon changes by the FOMC.

The Company utilizes interest rate floors on certain variable rate loans to protect against further downward movements in the prime rate.

At June 30, 2021, the Company had $134.5 million in loans with interest rate floors.

At September 30, 2021, the Company had $126.9 million in loans with interest rate floors.

The floors were in effect on $100.9 million of these loans pursuant to the terms of the promissory notes on these loans.

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In addition, the Company’s liquidity is affected by off-balance sheet commitments to lend in the form of unfunded commitments to extend credit and standby letters of credit.

As of June 30, 2021, such unfunded commitments to extend credit were $312.1 million, while commitments in the form of standby letters of credit totaled $5.1 million.

As of September 30, 2021, such unfunded commitments to extend credit were $300.0 million, while commitments in the form of standby letters of credit totaled $5.1 million.

As of December 31, 2020, such unfunded commitments to extend credit were $299.0 million, while commitments in the form of standby letters of credit totaled $4.7 million.

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The Company considers these to be a stable portion of the Company’s liability mix and the result of on-going consumer and commercial banking relationships.

As of June 30, 2021, the Company’s core deposits totaled $1.4 billion, or 98.09% of total deposits.

As of September 30, 2021, the Company’s core deposits totaled $1.4 billion, or 98.13% of total deposits.

As of December 31, 2020, the Company’s core deposits totaled $1.2 billion, or 97.89% of total deposits.

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The Company’s wholesale funding includes FHLB borrowings, FRB borrowings, brokered deposits, internet certificates of deposit and certificates of deposit issued to the State of North Carolina.

The Company’s ratio of wholesale funding to total assets was 0.69% and 0.88% as of June 30, 2021 and December 31, 2020, respectively.

The Company’s ratio of wholesale funding to total assets was 0.69% and 0.88% as of September 30, 2021 and December 31, 2020, respectively.

The Bank has a line of credit with the FHLB equal to 20% of the Bank’s total assets.

There were no FHLB borrowings outstanding at June 30, 2021 and December 31, 2020.

At June 30, 2021, the carrying value of loans pledged as collateral to the FHLB totaled $144.6 million compared to $165.1 million at December 31, 2020.

The remaining availability under the line of credit with the FHLB was $95.1 million at June 30, 2021 compared to $111.4 million at December 31, 2020.

The Bank had no borrowings from the FRB at June 30, 2021 or December 31, 2020.

There were no FHLB borrowings outstanding at September 30, 2021 and December 31, 2020.

At September 30, 2021, the carrying value of loans pledged as collateral to the FHLB totaled $140.0 million compared to $165.1 million at December 31, 2020.

The remaining availability under the line of credit with the FHLB was $94.6 million at September 30, 2021 compared to $111.4 million at December 31, 2020.

The Bank had no borrowings from the FRB at September 30, 2021 or December 31, 2020.

FRB borrowings are collateralized by a blanket assignment on all qualifying loans that the Bank owns which are not pledged to the FHLB.

At June 30, 2021, the carrying value of loans pledged as collateral to the FRB totaled $468.2 million compared to $469.5 million at December 31, 2020.

Availability under the line of credit with the FRB was $337.1 million and $340.0 million at June 30, 2021 and December 31, 2020, respectively.

The Bank also had the ability to borrow up to $110.5 million for the purchase of overnight federal funds from five correspondent financial institutions as of June 30, 2021.

The liquidity ratio for the Bank, which is defined as net cash, interest-bearing deposits, federal funds sold and certain investment securities, as a percentage of net deposits and short-term liabilities was 42.71% at June 30, 2021 and 28.12% at December 31, 2020.

The minimum required liquidity ratio as defined in the Bank’s Asset/Liability and Interest Rate Risk Management Policy was 10% at June 30, 2021 and December 31, 2020.

At September 30, 2021, the carrying value of loans pledged as collateral to the FRB totaled $478.3 million compared to $469.5 million at December 31, 2020.

Availability under the line of credit with the FRB was $348.7 million and $340.0 million at September 30, 2021 and December 31, 2020, respectively.

The Bank also had the ability to borrow up to $110.5 million for the purchase of overnight federal funds from five correspondent financial institutions as of September 30, 2021.

The liquidity ratio for the Bank, which is defined as net cash, interest-bearing deposits, federal funds sold and certain investment securities, as a percentage of net deposits and short-term liabilities was 42.42% at September 30, 2021 and 28.12% at December 31, 2020.

The minimum required liquidity ratio as defined in the Bank’s Asset/Liability and Interest Rate Risk Management Policy was 10% at September 30, 2021 and December 31, 2020.

Contractual Obligations and Off-Balance Sheet Arrangements.

The Company’s contractual obligations and other commitments as of June 30, 2021 and December 31, 2020 are summarized in the table below.

The Company’s contractual obligations and other commitments as of September 30, 2021 and December 31, 2020 are summarized in the table below.

The Company’s contractual obligations include junior subordinated debentures, as well as certain payments under current lease agreements.

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(Dollars in thousands)

September 30,

Contractual Cash Obligations

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Standby letters of credit and financial guarantees written

SBIC investments

Income tax credits

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Capital Resources.

Shareholders’ equity was $145.4 million, or 9.09% of total assets, at June 30, 2021, compared to $139.9 million, or 9.88% of total assets, at December 31, 2020.

Annualized return on average equity for the six months ended June 30, 2021 was 12.36%, compared to 7.30% for the six months ended June 30, 2020.

Total cash dividends paid on common stock were $1.9 million and $2.6 million for the six months ended June 30, 2021 and 2020, respectively.

Shareholders’ equity was $143.5 million, or 8.88% of total assets, at September 30, 2021, compared to $139.9 million, or 9.88% of total assets, at December 31, 2020.

Annualized return on average equity for the nine months ended September 30, 2021 was 9.30%, compared to 12.81% for the nine months ended September 30, 2020.

Total cash dividends paid on common stock were $2.8 million and $3.5 million for the nine months ended September 30, 2021 and 2020, respectively.

The Board of Directors, at its discretion, can issue shares of preferred stock up to a maximum of 5,000,000 shares.

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The stock repurchase program may be suspended at any time or from time-to-time without prior notice.

The Company has not repurchased any shares of its common stock under this stock repurchase program as of June 30, 2021.

The Company has repurchased approximately $3.6 million, or 127,597 shares of its common stock, under this stock repurchase program as of September 30, 2021.

In 2013, the FRB approved its final rule on the Basel III capital standards, which implement changes to the regulatory capital framework for banking organizations.

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Tier 1 capital is generally defined as shareholders’ equity and trust preferred securities less all intangible assets and goodwill.

Tier 1 capital includes $15.0 million in trust preferred securities at June 30, 2021 and December 31, 2020.

The Company’s Tier 1 capital ratio was 15.63% and 15.07% at June 30, 2021 and December 31, 2020, respectively.

Tier 1 capital includes $15.0 million in trust preferred securities at September 30, 2021 and December 31, 2020.

The Company’s Tier 1 capital ratio was 15.30% and 15.07% at September 30, 2021 and December 31, 2020, respectively.

Total risk-based capital is defined as Tier 1 capital plus supplementary capital.

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Total risk-based capital ratio is therefore defined as the ratio of total capital (Tier 1 capital and Tier 2 capital) to risk-weighted assets.

The Company’s total risk-based capital ratio was 16.56% and 16.07% at June 30, 2021 and December 31, 2020, respectively.

The Company’s total risk-based capital ratio was 16.19% and 16.07% at September 30, 2021 and December 31, 2020, respectively.

The Company’s common equity Tier 1 capital consists of common stock and retained earnings.

The Company’s common equity Tier 1 capital ratio was 14.13% and 13.56% at June 30, 2021 and December 31, 2020, respectively.

The Company’s common equity Tier 1 capital ratio was 13.82% and 13.56% at September 30, 2021 and December 31, 2020, respectively.

Financial institutions are also required to maintain a leverage ratio of Tier 1 capital to total average assets of 4.0% or greater.

The Company’s Tier 1 leverage capital ratio was 10.01% and 10.24% at June 30, 2021 and December 31, 2020, respectively.

The Bank’s Tier 1 risk-based capital ratio was 15.24% and 14.85% at June 30, 2021 and December 31, 2020, respectively.

The total risk-based capital ratio for the Bank was 16.17% and 15.85% at June 30, 2021 and December 31, 2020, respectively.

The Bank’s common equity Tier 1 capital ratio was 15.24% and 14.85% at June 30, 2021 and December 31, 2020, respectively.

The Bank’s Tier 1 leverage capital ratio was 9.72% and 10.04% at June 30, 2021 and December 31, 2020, respectively.

The Company’s Tier 1 leverage capital ratio was 9.61% and 10.24% at September 30, 2021 and December 31, 2020, respectively.

The Bank’s Tier 1 risk-based capital ratio was 15.03% and 14.85% at September 30, 2021 and December 31, 2020, respectively.

The total risk-based capital ratio for the Bank was 15.92% and 15.85% at September 30, 2021 and December 31, 2020, respectively.

The Bank’s common equity Tier 1 capital ratio was 15.03% and 14.85% at September 30, 2021 and December 31, 2020, respectively.

The Bank’s Tier 1 leverage capital ratio was 9.39% and 10.04% at September 30, 2021 and December 31, 2020, respectively.

A bank is considered to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a common equity Tier 1 capital ratio of 6.5% or greater and a leverage ratio of 5.0% or greater.

Based upon these guidelines, the Bank was considered to be “well capitalized” at June 30, 2021.

Based upon these guidelines, the Bank was considered to be “well capitalized” at September 30, 2021.

Quantitative and Qualitative Disclosures About Market Risk

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis