# FVCBankcorp, Inc.: Form 10-Q for the period ended Mar 31, 2021

- Company: [FVCBankcorp, Inc.](/companies/fvcb.md) (CIK 1675644)
- Form: 10-Q
- Filed: 2021-05-13
- Accepted by EDGAR: May 13, 2021, 10:20 ET
- Period: 2021-03-31
- Accession: 0001104659-21-065634
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1675644/000110465921065634/fvcb-20210331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1675644/000110465921065634/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2021-01-01 to 2021-03-31 | $2.7m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-01-01 to 2021-03-31 | $1.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-01-01 to 2021-03-31 | $5.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-01-01 to 2021-03-31 | $0.38 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-01-01 to 2021-03-31 | $0.41 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-01-01 to 2021-03-31 | 14,536 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2021-01-01 to 2021-03-31 | $9.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2021-01-01 to 2021-03-31 | $19.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Total assets | at 2021-03-31 | $1.88bn | us-gaap:Assets |
| Total liabilities | at 2021-03-31 | $1.69bn | us-gaap:Liabilities |
| Shareholders' equity | at 2021-03-31 | $194.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 106,003 characters.

The following presents management’s discussion and analysis of our consolidated financial condition at March 31, 2021 and December 31, 2020 and the results of our operations for the three months ended March 31, 2021 and 2020. This discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto appearing elsewhere in this report and the audited consolidated financial statements and the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020. Results of operations for the three month period ended March 31, 2021 are not necessarily indicative of the results of operations for the balance of 2021, or for any other period. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations.

### CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q, as well as other periodic reports filed with the U.S. Securities and Exchange Commission, and written or oral communications made from time to time by or on behalf of FVCBankcorp, Inc. and our subsidiary (the “Company”), may contain statements relating to future events or future results of the Company that are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “intend,” “plan,” or words or phases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements.

The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward-looking statements:

- risks, uncertainties and other factors relating to the COVID-19 pandemic, including the length of time that the pandemic continues; the imposition of any restrictions on business operations and/or travel; the effect of the pandemic on the general economy and on the businesses of our borrowers and their ability to make payments on their obligations; the remedial actions and stimulus measures adopted by federal, state and local governments, and the inability of employees to work due to illness, quarantine, or government mandates; and the timing of distribution, effectiveness, and acceptance of vaccines against COVID-19;
- general business and economic conditions nationally or in the markets that we serve could adversely affect, among other things, real estate valuations, unemployment levels, the ability of businesses to remain viable, and consumer and business confidence, which could lead to decreases in demand for loans, deposits, and other financial services that we provide and increases in loan delinquencies and defaults;
- the risk of changes in interest rates on levels, composition and costs of deposits, loan demand, and the values and liquidity of loan collateral, securities, and interest sensitive assets and liabilities;
- changes in the assumptions underlying the establishment of reserves for possible loan losses;
- changes in market conditions, specifically declines in the commercial and residential real estate market, volatility and disruption of the capital and credit markets, and soundness of other financial institutions we do business with;
- risks inherent in making loans such as repayment risks and fluctuating collateral values;
- declines in our common stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to record a noncash impairment charge to earnings in future periods;
- the strength of the United States economy in general and the strength of the local economies in which we conduct operations;
- geopolitical conditions, including acts or threats of terrorism, or actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad;
- the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events;
- our management of risks inherent in our real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of our collateral and our ability to sell collateral upon any foreclosure;
- changes in consumer spending and savings habits;
- technological and social media changes;
- the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”), inflation, interest rate, market and monetary fluctuations;
- changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or our subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products;
- the impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies;
- the impact of changes in laws, regulations and policies affecting the real estate industry;
- the effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory agencies, the U.S. Securities and Exchange Commission, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setting bodies;
- the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;
- the willingness of users to substitute competitors’ products and services for our products and services;
- the effect of acquisitions we may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions;
- changes in the level of our nonperforming assets and charge-offs;
- our involvement, from time to time, in legal proceedings and examination and remedial actions by regulators; and
- potential exposure to fraud, negligence, computer theft and cyber-crime.

The foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in our Annual Report on Form 10-K for the year ended December 31, 2020, including those discussed in the section entitled “Risk Factors”. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Form 10-Q. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect us.

### Overview

We are a bank holding company headquartered in Fairfax County, Virginia. Our sole subsidiary, FVCbank, was formed in November 2007 as a community-oriented, locally-owned and managed commercial bank under the laws of the Commonwealth of Virginia. The Bank offers a wide range of traditional bank loan and deposit products and services to both our commercial and retail customers. Our commercial relationship officers focus on attracting small and medium sized businesses, commercial real estate developers and builders, including government contractors, non-profit organizations, and professionals. Our approach to our market features competitive customized financial services offered to customers and prospects in a personal relationship context by seasoned professionals.

On October 12, 2018, we completed our acquisition of Colombo Bank (“Colombo”), which was headquartered in Rockville, Maryland, and added five banking locations in Washington, D.C., and Montgomery County and the City of Baltimore in Maryland.

Net interest income is our primary source of revenue. We define revenue as net interest income plus noninterest income. As discussed further in “Quantitative and Qualitative Disclosures About Market Risk” below, we manage our balance sheet and interest rate risk exposure to maximize, and concurrently stabilize, net interest income. We do this by monitoring our liquidity position and the spread between the interest rates earned on interest-earning assets and the interest rates paid on interest-bearing liabilities. We attempt to minimize our exposure to interest rate risk, but are unable to eliminate it entirely. In addition to managing interest rate risk, we also analyze our loan portfolio for exposure to credit risk. Loan defaults and foreclosures are inherent risks in the banking industry, and we attempt to limit our exposure to these risks by carefully underwriting and then monitoring our extensions of credit. In addition to net interest income, noninterest income is a complementary source of revenue for us and includes, among other things, service charges on deposits and loans, merchant services fee income, loan swap fees, insurance commission income, income from bank owned life insurance (“BOLI”), and gains and losses on sales of investment securities available-for-sale.

### Critical Accounting Policies

#### General

The accounting principles we apply under U.S. generally accepted accounting principles (“GAAP”) are complex and require management to apply significant judgment to various accounting, reporting and disclosure matters. Management must use assumptions, judgments and estimates when applying these principles where precise measurements are not possible or practical. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such judgments, assumptions and estimates may have a significant impact on the consolidated financial statements. Actual results, in fact, could differ from initial estimates.

The accounting policies we view as critical are those relating to judgments, assumptions and estimates regarding the determination of the allowance for loan losses, accounting for purchase credit-impaired loans, fair value measurements, and the valuation of other real estate owned.

#### Allowance for Loan Losses

We maintain the allowance for loan losses at a level that represents management’s best estimate of known and inherent losses in our loan portfolio. We are not required to implement the provisions of the current expected credit losses accounting standard (“CECL”) until January 1, 2023, and are continuing to account for the allowance for loan losses under the incurred loss model. Both the amount of the provision expense and the level of the allowance for loan losses are impacted by many factors, including general and industry-specific economic conditions, actual and expected credit losses, historical trends and specific conditions of individual borrowers. Unusual and infrequently occurring events, such as weather-related disasters and health related events, such as the COVID-19 pandemic and associated efforts to restrict the spread of the disease, may impact our assessment of possible credit losses. As a part of our analysis, we use comparative peer group data and qualitative factors such as levels of and trends in delinquencies, nonaccrual loans, charged-off loans, changes in volume and terms of loans, effects of changes in lending policy, experience, ability and depth of management, national and local economic trends and conditions, concentrations of credit, competition, and loan review results to support estimates.

The allowance for loan losses is based first on a segmentation of the loan portfolio by general loan type, or portfolio segments. For originated loans, certain portfolio segments are further disaggregated and evaluated collectively for impairment based on loan segments, which are largely based on the type of collateral underlying each loan. For purposes of this analysis, we categorize loans into one of five categories: commercial and industrial, commercial real estate, commercial construction, consumer residential, and consumer nonresidential loans. Typically, financial institutions use their historical loss experience and trends in losses for each loan category which are then adjusted for portfolio trends and economic and environmental factors in determining the allowance for loan losses. Since the Bank’s inception in 2007, we have experienced minimal loss history within our loan portfolio. Because of this, our allowance model uses the average loss rates of similar institutions (our custom peer group) as a baseline which is then adjusted based on our particular qualitative loan portfolio characteristics and environmental factors. The indicated loss factors resulting from this analysis are applied for each of the five categories of loans.

Our peer group is defined by selecting commercial banking institutions of similar size within Virginia, Maryland and the District of Columbia. This is known as our custom peer group. The commercial banking institutions comprising the custom peer group can change based on certain factors including but not limited to the characteristics, size, and geographic footprint of the institution. We have identified 21 banks for our custom peer group which are within $1 billion to $3 billion in total assets, the majority of whom are geographically concentrated in the Washington, D.C. metropolitan area in which we operate, as this area has experienced more stable economic conditions than many other areas of the country. These baseline peer group loss rates are then adjusted based on an analysis of our loan portfolio characteristics, trends, economic considerations and other conditions that should be considered in assessing our credit risk. Our peer loss rates are updated on a quarterly basis.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are determined to be impaired and, therefore, individually evaluated for impairment. We individually assign loss factors to all loans that have been identified as having loss attributes, as indicated by deterioration in the financial condition of the borrower or a decline in underlying collateral value if the loan is collateral dependent. We evaluate the impairment of certain loans on a loan by loan basis for those loans that are adversely risk rated. Measurement of impairment is based on the expected future cash flows of an impaired loan, which are discounted at the loan’s effective interest rate, or measured on an observable market value, if one exists, or the fair value of the collateral underlying the loan, discounted to consider estimated costs to sell the collateral for collateral-dependent loans. If the net collateral value is less than the loan balance (including accrued interest and any unamortized premium or discount associated with the loan) we recognize an impairment and establish a specific reserve for the impaired loan.

Credit losses are an inherent part of our business and, although we believe the methodologies for determining the allowance for loan losses and the current level of the allowance are appropriate, it is possible that there may be unidentified losses in the portfolio at any particular time that may become evident at a future date pursuant to additional internal analysis or regulatory comment. Additional provisions for such losses, if necessary, would be recorded, and would negatively impact earnings.

#### Allowance for Loan Losses - Acquired Loans

#### Acquired loans accounted for under Accounting Standards Codification (“ASC”) 310-30

For our acquired loans, to the extent that we experience a deterioration in borrower credit quality resulting in a decrease in our expected cash flows subsequent to the acquisition of the loans, an allowance for loan losses would be established based on our estimate of future credit losses over the remaining life of the loans.

#### Acquired loans accounted for under ASC 310-20

Subsequent to the acquisition date, we establish an allowance for loan losses through a provision for loan losses based upon an evaluation process that is similar to our evaluation process used for originated loans. This evaluation, which includes a review of loans on which full collectability may not be reasonably assured, considers, among other factors, the estimated fair value of the underlying collateral, economic conditions, historical net loan loss experience, carrying value of the loans, which includes the remaining net purchase discount or premium, and other factors that may warrant recognition in determining our allowance for loan losses.

#### Purchased Credit-Impaired Loans

Purchased credit-impaired (“PCI”) loans, which are the loans acquired in our acquisition of Colombo, are loans acquired at a discount (that is due, in part, to credit quality). These loans are initially recorded at fair value (as determined by the present value of expected future cash flows) with no allowance for loan losses. We account for interest income on all loans acquired at a discount (that is due, in part, to credit quality) based on the acquired loans’ expected cash flows. The acquired loans may be aggregated and accounted for as a pool of loans if the loans being aggregated have common risk characteristics. A pool is accounted for as a single asset with a single composite interest rate and an aggregate expectation of cash flow. The difference between the cash flows expected at acquisition and the investment in the loans, or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of each pool. Increases in expected cash flows subsequent to the acquisition are recognized prospectively through adjustment of the yield on the pool over its remaining life, while decreases in expected cash flows are recognized as impairment through a loss provision and an increase in the allowance for loan losses. Therefore, the allowance for loan losses on these impaired pools reflect only losses incurred after the acquisition (representing the present value of all cash flows that were expected at acquisition but currently are not expected to be received). At March 31, 2021, we had specific reserves for impairment of two acquired loans within our allowance for loan losses totaling $85 thousand that had further deteriorated post acquisition.

We periodically evaluate the remaining contractual required payments due and estimates of cash flows expected to be collected. These evaluations, performed quarterly, require the continued use of key assumptions and estimates, similar to the initial estimate of fair value. Changes in the contractual required payments due and estimated cash flows expected to be collected may result in changes in the accretable yield and non-accretable difference or reclassifications between accretable yield and the non-accretable difference. On an aggregate basis, if the acquired pools of PCI loans perform better than originally expected, we would expect to receive more future cash flows than originally modeled at the acquisition date. For the pools with better than expected cash flows, the forecasted increase would be recorded as an additional accretable yield that is recognized as a prospective increase to our interest income on loans.

#### Fair Value Measurements

We determine the fair values of financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. Our investment securities available-for-sale are recorded at fair value using reliable and unbiased evaluations by an industry-wide valuation service. This service uses evaluated pricing models that vary based on asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable.

#### Other Real Estate Owned (“OREO”)

Real estate acquired through, or in lieu of, foreclosure is held for sale and is stated at fair value of the property, less estimated disposal costs, if any. Any excess of cost over the fair value less costs to sell at the time of acquisition is charged to the allowance for loan losses. The fair value is reviewed periodically by management and any writedowns are charged against current earnings. Accounting policy and treatment is consistent with accounting for impaired loans described above.

### LIBOR and Other Benchmark Rates

In 2017, the Financial Conduct Authority (the authority that regulates London Interbank Offered Rate (“LIBOR”)) announced its intention to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In December 2020, the administrator of LIBOR announced its intention to (i) cease the publication of the one-week and two-month U.S. dollar LIBOR after December 31, 2021, and (ii) cease the publication of all other tenors of U.S. dollar LIBOR (one, three, six and 12 month LIBOR) after June 30, 2023. Central banks and regulators around the world have commissioned working groups to find suitable replacements for Interbank Offered Rates (“IBOR”) and other benchmark rates and to implement financial benchmark reforms more generally. These actions have resulted in uncertainty regarding the use of alternative reference rates (“ARRs”) and could cause disruptions in a variety of markets, as well as adversely impact our business, operations and financial results.

To facilitate an orderly transition from IBORs and other benchmark rates to ARRs, we have established an enterprise-wide initiative led by senior management. The objective of this initiative is to identify, assess and monitor risks associated with the expected discontinuation or unavailability of benchmarks, including LIBOR, achieve operational readiness and engage impacted clients in connection with the transition to ARRs.

### COVID-19 Pandemic Discussion Matters

#### Employee Matters

As a result of the COVID-19 pandemic, a portion of our workforce continues to work remotely as we continue to service the needs of our clients in a customer secure environment. More than half of our employees have returned to our offices, under social distancing guidelines requiring employees to maintain safe distances and with more frequent cleaning of our facilities and other practices encouraging a safe work environment. Management remains connected to employees through monthly company-wide conference calls and regular notifications and updates through both email and the Company’s intranet as warranted.

#### Branch Hours

Branch hours and availability, which were modified early on during the onset of the pandemic in consideration of the safety of our employees and clients, were reinstated during the second quarter of 2020. All of our locations are open with advanced safety measures and are available during our normal business hours.

*Coronavirus Aid, Relief, and Economic Security Act and Consolidated Appropriations Act, 2021.*

In response to the COVID-19 pandemic, the Coronovirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law on March 27, 2020 and the Consolidated Appropriations Act, 2021 (“Appropriations Act”) was signed into law on December 27, 2020. Among other things, the CARES Act and Appropriations Act include the following provisions impacting financial institutions:

- Community Bank Leverage Ratio. The CARES Act directed federal banking agencies to adopt interim final rules to lower the threshold under the Community Bank Leverage Ratio (“CBLR”) from 9% to 8% and to provide a reasonable grace period for a community bank that falls below the threshold to regain compliance, in each case until the earlier of the termination date of the national emergency or December 31, 2020. In April 2020, the federal bank regulatory agencies issued two interim final rules implementing this directive. One interim final rule provides that, as of the second quarter 2020, banking organizations with leverage ratios of 8% or greater (and that meet the other existing qualifying criteria) may elect to use the CBLR framework. It also establishes a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall below the 8% CBLR requirement, so long as the banking organization maintains a leverage ratio of 7% or greater. The second interim final rule provides a transition from the temporary 8% CBLR requirement to a 9% CBLR requirement. It establishes a minimum CBLR of 8% for the second through fourth quarters of 2020, 8.5% for 2021, and 9% thereafter, and maintains a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement.
- Temporary Troubled Debt Restructurings Relief. The CARES Act allowed banks to elect to suspend requirements under GAAP for loan modifications related to the COVID-19 pandemic (for loans that were not more than 30 days past due as of December 31, 2019) that would otherwise be categorized as a troubled debt restructuring (“TDR”), including impairment for accounting purposes, until the earlier of 60 days after the termination date of the national emergency or December 31, 2020. Federal banking agencies are required to defer to the determination of the banks making such suspension. The Appropriations Act extended this temporary relief until the earlier of 60 days after the termination date of the national emergency or January 1, 2022.
- Small Business Administration Paycheck Protection Program. The CARES Act created the U.S. Small Business Administrtation’s (“SBA”) Paycheck Protection Program (“PPP”) and it was extended by the Appropriations Act. Under the PPP, money was authorized for small business loans to pay payroll and group health costs, salaries and commissions, mortgage and rent payments, utilities, and interest on other debt. The loans are provided through participating financial institutions, such as the Bank, that process loan applications and service the loans.

Loans made under the PPP are fully guaranteed as to principal and interest by the SBA, whose guarantee is backed by the full faith and credit of the U.S. government. PPP loans afford borrowers forgiveness up to the principal amount of the PPP covered loan if the proceeds are used to retain workers and maintain payroll or make mortgage interest, lease and utility payments. The SBA will reimburse banks that participate in this program for any amount of a PPP covered loan that is forgiven. Because of the SBA guarantee, we are currently not reserving an allowance for loan losses for these loans.

We actively participated in originating PPP loans, and began processing applications at the inception of the program and through the program’s initial expiration. As of December 31, 2020, we had originated 755 applications for approximately $170.3 million, net of deferred fees and costs. We continue to originate PPP loans as part of the 2021 program for first and second draw loans, and as of March 31, 2021, we had originated an additional 393 applications for approximately $62.5 million.

#### Loan Portfolio Exposures

As a result of the COVID-19 pandemic, we implemented loan payment deferral programs to allow customers who were required to close or reduce business operations to defer loan principal and interest payments primarily for 90 days. During the first and second quarters of 2020, we modified 277 loans for a total outstanding principal balance of $360.2 million, or 24.4% of the total loan portfolio. On March 31, 2021, remaining payment deferred loans totaled $10.0 million, or 0.69% of the total loan portfolio, comprising three loans. One loan is a hotel participation loan totaling $9.7 million, one loan is SBA guaranteed totaling $330 thousand and the remaining loan totaling $61 thousand is a consumer unsecured loan.

We are closely and proactively monitoring the effects of the pandemic on our loan and deposit customers and are focused on assessing risks within the loan portfolio and working with customers to minimize losses. We consider pandemic impacted loans to include commercial real estate loans made to hotels, churches, and certain retail and special purpose asset classes. During our assessment of the allowance for loan losses, we addressed the credit risks associated with these pandemic impacted segments and those loans that have requested payment deferrals. The following table shows the number of loans and outstanding loan balances by pandemic-impacted asset class as of March 31, 2021.

### COVID Impacted Loans By Asset Class

At March 31, 2021

(Dollars in thousands)

| ​ Asset Class | ​ | ​ Number of Loans | ​ | ​ ​ Amount |
| --- | --- | ---: | --- | ---: |
| Commercial real estate - retail |  | 104 | ​ | $190,308 |
| Commercial real estate - mixed use |  | 50 | ​ | 81,890 |
| Specialty use-hotel/lodging/motel |  | 11 | ​ | 60,972 |
| Commercial real estate - office |  | 109 | ​ | 106,957 |
| Multi-family first lien |  | 86 | ​ | 117,867 |
| Commercial real estate - industrial |  | 67 | ​ | 100,301 |
| Commercial real estate - special use/church |  | 21 | ​ | 41,535 |
| Special purpose |  | 22 | ​ | 29,559 |
| **Total loan categories COVID impacted** |  | **470** | **​** | **$729,389** |
| ​ | ​ | ​ | ​ | ​ ​ |
| Other loan categories not impacted by COVID |  | 2,807 | ​ | 723,013 |
| **Total loans** |  | **3,277** | **​** | **$1,452,402** |

We believe that as a result of our conservative underwriting discipline at loan origination coupled with the active dialogue we have had with our borrowers, we have the ability and necessary flexibility to assist our customers through this pandemic.

#### Liquidity and Backup Sources

Our primary and secondary sources of liquidity remain strong. Liquid assets, which include cash and due from banks, federal funds sold and investment securities available for sale, totaled $355.0 million at March 31, 2021, or 18.9% of total assets, an increase from $267.2 million, or 14.7%, at December 31, 2020. To maintain ready access to the Bank’s secured lines of credit, the Bank has pledged a portion of its commercial real estate and residential real estate loan portfolios to the Federal Home Loan Bank of Atlanta (“FHLB”) and Federal Reserve Bank of Richmond (“FRB”). Additional borrowing capacity at the FHLB at March 31, 2021 was approximately $170.4 million. Borrowing capacity with the FRB was approximately $127.0 million at March 31, 2021. We also have unsecured federal funds purchased lines of $269.0 million available to us. We anticipate maintaining liquidity at a level sufficient to protect depositors as we endure through this pandemic.

In addition to the funding sources noted above, the Federal Reserve has established a PPP Liquidity Facility (“PPPLF”), authorized under Section 13(3) of the Federal Reserve Act, that can be used to pledge PPP loans we originate as collateral under the CARES Act. Under Section 1102 of the CARES Act, a PPP loan is assigned a zero risk weighting under the risk based capital rules of the federal banking agencies. In addition, an interim rule issued on April 9, 2020 from the federal banking agencies will allow banks to neutralize the effect of PPP loans financed under the PPPLF on leverage capital ratios. We do not anticipate using this facility to provide us with additional liquidity. The interest rate on this facility is fixed at 0.35% for the term of the facility and access to the facility will end June 30, 2021.

#### Share Repurchases

While our capital position remains well above the levels to be considered well capitalized for regulatory purposes, due to the heightened volatility of the stock market and uncertainty regarding the impact of COVID-19, we temporarily suspended stock repurchases on March 20, 2020. On January 21, 2021, we approved a new share repurchase program pursuant to which we may repurchase up to 1,080,860 shares of our common stock, or approximately 8% of our outstanding shares of common stock at December 31, 2020. The repurchase program will expire on December 31, 2021, subject to earlier termination of the program by the Board of Directors.

### Risks and Uncertainties

The COVID-19 pandemic has adversely impacted a broad range of industries in which our customers operate and could impair their ability to fulfill their financial obligations to us. The pandemic has caused significant disruptions to the U.S. economy and has disrupted banking and other financial activity in the areas we operate. While there has been no material impact to our employees to date, COVID-19 could also potentially create widespread business continuity issues for us.

The U.S. government and its agencies have taken several actions designed to cushion the economic fallout. Most notably, the CARES Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and providers. In addition to the general impact of COVID-19; certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts are expected to have a material impact on our operations.

Our business is dependent upon the willingness and ability of our employees and customers to conduct banking and other financial transactions. While it is not possible to know the full universe or extent that the impact of COVID-19 and resulting measures to curtail its spread will have on our business, we are aware of the following items that are potentially material to us and our operations.

#### Financial Condition and Results of Operations

Our interest income could be reduced due to COVID-19. In keeping with guidance from regulators, we are actively working with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact may affect our borrowers’ ability to repay in future periods.

Our fee income could be reduced due to COVID-19. In keeping with guidance from regulators, we are actively working with COVID-19 affected customers to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis. At this time, we are unable to project the materiality of such an impact, but recognize the breadth of the economic impact is likely to impact our fee income in future periods.

#### Capital and Liquidity

While we believe that we have sufficient capital to withstand an extended economic recession brought about by COVID-19, our regulatory capital ratios could be adversely impacted by future credit losses. We rely on cash on hand as well as dividends from our subsidiary bank to service our debt when necessary. If our capital deteriorates such that our subsidiary bank is unable to pay dividends to us for an extended period of time, we may not be able to service our debt.

We maintain access to multiple sources of liquidity. Wholesale funding markets have remained open to us, and rates for short term funding have recently been quite low. If funding costs become elevated for an extended period of time, it could have an adverse effect on our net interest margin. If an extended recession caused large numbers of our deposit customers to withdraw their funds, we might become more reliant on volatile or more expensive sources of funding.

#### Asset Valuation

Currently, we do not expect COVID-19 to affect our ability to account timely for the valuation of assets on our balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, we do not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.

COVID-19 could cause a decline in our stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform a goodwill impairment test and result in an impairment charge being recorded for that period. In the event that we conclude that all or a portion of our goodwill is impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

It is possible that the lingering effects of COVID-19 could cause the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform an intangible asset impairment test and result in an impairment charge being recorded for that period. In the event that we conclude that all or a portion of our intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

#### Processes, Controls and Business Continuity Plan

We have invoked our Board approved Pandemic Preparedness Plan that includes a remote working strategy. We do not anticipate incurring additional material cost related to our continued deployment of the remote working strategy. No material operational or internal control challenges or risks have been identified to date. We do not anticipate significant challenges to our ability to maintain our systems and controls in light of the measures we have taken to prevent the spread of COVID-19. We do not currently face any material resource constraint through the implementation of our business continuity plans.

#### Lending Operations and Accommodations to Borrowers

In keeping with regulatory guidance to work with borrowers during this unprecedented situation and as outlined in the CARES Act, we executed a payment deferral program for our commercial lending clients that are adversely affected by the pandemic. Depending on the demonstrated need of the client, we are deferring either the full loan payment or the principal component of the loan payment generally for 90 days. During the first and second quarters of 2020, we modified 277 loans for a total outstanding principal balance of $360.2 million, or 24.4% of the total loan portfolio. As of March 31, 2021, remaining payment deferred loans totaled $10.0 million, or 0.69% of the total loan portfolio, comprising three loans. In accordance with interagency guidance and the CARES Act issued in March 2020, these short term deferrals are not considered TDRs.

With the passage of the PPP, administered by the SBA, we actively participated in assisting our customers with applications for resources through the program. The majority of the PPP loans we originated have a two-year term and earn interest at 1%. We believe that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. At March 31, 2021, PPP loans totaled $166.6 million. We continue to originate PPP loans as part of the 2021 program for first and second draw loans. It is our understanding that loans funded through PPP are fully guaranteed by the U.S. government. Should those circumstances change, we could be required to establish additional allowance for loan losses through a charge to earnings.

#### Credit

We are working with customers directly affected by COVID-19. We are prepared to offer short-term assistance in accordance with regulatory guidelines. As a result of the current economic environment caused by the COVID-19 virus, we are engaging in more frequent communications with borrowers to better understand their situation and the challenges faced, allowing us to respond proactively as needs and issues arise. Should economic conditions worsen, we could experience further increases in our required allowance for loan losses and record additional provision for loan loss expense. It is possible that our asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

### Results of Operations—Three Months Ended March 31, 2020 and 2019

#### Overview

We recorded net income of $5.6 million, or $0.38 per diluted common share, for the three months ended March 31, 2021, compared to net income of $3.7 million, or $0.26 per diluted common share for the three months ended March 31, 2020. Net interest income increased $1.8 million to $14.0 million for the three months ended March 31, 2021, compared to $12.2 million for the three months ended March 31, 2020, primarily as a result of a decrease in interest-bearing deposit expense of $2.2 million. No provision for loan losses was recorded for the three months ended March 31, 2021, compared to $1.1 million for the same period of 2020. Noninterest income increased $98 thousand to $791 thousand for the three months ended March 31, 2021 as compared to $693 thousand for 2020. Noninterest expense was $7.9 million for the three months ended March 31, 2021 compared to $7.2 million for the same three month period of 2020.

The annualized return on average assets for the three months ended March 31, 2021 and 2020 was 1.19% and 0.94%, respectively. The annualized return on average equity for the three months ended March 31, 2021 and 2020 was 11.53% and 8.29%, respectively.

#### Net Interest Income/Margin

Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The following table presents average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the three months ended March 31, 2021 and 2020.

### Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities

(Dollars in thousands)

| ​ ​ ​ ​ ​ Assets Interest-earning assets: Loans (1): | ​ ​ ​ ​ ​ | ​ ​ 2021 ​ ​ Average Balance ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Interest Income/ Expense ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ Average ​ Yield/ ​ Rate ​ ​ | ​ ​ 2020 ​ ​ Average Balance ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Interest Income/ Expense ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Average Yield/ Rate ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | --- | ---: | --- | ---: | --- | --- |
| Commercial real estate | ​ | $782,639 | ​ | $8,396 |  | 4.29% | $756,989 | ​ | $9,026 |  | 4.77% |
| Commercial and industrial | ​ | 273,426 | ​ | 3,176 |  | 4.65% | 110,186 | ​ | 1,570 |  | 5.70% |
| Commercial construction | ​ | 220,835 | ​ | 2,427 |  | 4.40% | 220,104 | ​ | 2,802 |  | 5.09% |
| Consumer residential | ​ | 165,211 | ​ | 1,676 |  | 4.06% | 184,010 | ​ | 2,122 |  | 4.61% |
| Consumer nonresidential | ​ | 14,199 | ​ | 258 |  | 7.27% | 10,680 | ​ | 129 |  | 4.81% |
| Total loans (1) | ​ | 1,456,310 | ​ | 15,933 |  | 4.38% | 1,281,969 | ​ | 15,649 |  | 4.88% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Investment securities (2) | ​ | 122,585 | ​ | 724 |  | 2.36% | 137,640 | ​ | 882 |  | 2.56% |
| Restricted stock | ​ | 6,403 | ​ | 82 |  | 5.12% | 5,994 | ​ | 89 |  | 5.94% |
| Loans held for sale, at fair value | ​ | — | ​ | — |  | 0.00% | 10,492 | ​ | 236 |  | 8.99% |
| Deposits at other financial institutions and federal funds sold | ​ | 182,891 | ​ | 45 |  | 0.10% | 22,213 | ​ | 81 |  | 1.48% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Total interest-earning assets and interest income | ​ | 1,768,189 | ​ | 16,784 |  | 3.80% | 1,458,308 | ​ | 16,937 |  | 4.65% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Noninterest-earning assets: | ​ |  | ​ |  |  | ​ |  | ​ |  |  | ​ |
| Cash and due from banks | ​ | 15,346 | ​ | ​ ​ |  | ​ | 13,431 | ​ |  |  | ​ |
| Premises and equipment, net | ​ | 1,610 | ​ | ​ ​ |  | ​ | 1,941 | ​ |  |  | ​ |
| Accrued interest and other assets | ​ | 96,226 | ​ | ​ ​ |  | ​ | 87,560 | ​ |  |  | ​ |
| Allowance for loan losses | ​ | (14,894) | ​ | ​ ​ |  | ​ | (10,282) | ​ |  |  | ​ |
| Total assets | ​ | $1,866,477 | ​ | ​ ​ |  | ​ | $1,550,958 | ​ |  |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Liabilities and Stockholders’ Equity** | ​ |  | ​ |  |  | ​ |  | ​ |  |  | ​ |
| Interest - bearing liabilities: | ​ |  | ​ |  |  | ​ |  | ​ |  |  | ​ |
| Interest - bearing deposits: | ​ |  | ​ |  |  | ​ |  | ​ |  |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Interest checking | ​ | $523,712 | ​ | $717 |  | 0.55% | $273,976 | ​ | $881 |  | 1.29% |
| Savings and money markets | ​ | 278,774 | ​ | 324 |  | 0.47% | 227,497 | ​ | 635 |  | 1.12% |
| Time deposits | ​ | 246,486 | ​ | 917 |  | 1.51% | 353,809 | ​ | 2,080 |  | 2.35% |
| Wholesale deposits | ​ | 45,778 | ​ | 43 |  | 0.38% | 121,047 | ​ | 580 |  | 1.92% |
| Total interest - bearing deposits | ​ | 1,094,750 | ​ | 2,001 |  | 0.74% | 976,329 | ​ | 4,176 |  | 1.72% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Other borrowed funds | ​ | 69,096 | ​ | 734 |  | 4.31% | 63,635 | ​ | 544 |  | 3.44% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Total interest-bearing liabilities and interest expense | ​ | 1,163,846 | ​ | 2,735 |  | 0.95% | 1,039,964 | ​ | 4,720 |  | 1.83% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Noninterest-bearing liabilities: | ​ |  | ​ |  |  | ​ |  | ​ |  |  | ​ |
| Demand deposits | ​ | 479,831 | ​ | ​ ​ |  | ​ | 304,364 | ​ |  |  | ​ |
| Other liabilities | ​ | 29,625 | ​ | ​ ​ |  | ​ | 26,476 | ​ |  |  | ​ |
| Common stockholders’ equity | ​ | 193,175 | ​ | ​ ​ |  | ​ | 180,154 | ​ |  |  | ​ |
| Total liabilities and stockholders’ equity | ​ | $1,866,477 | ​ | ​ ​ |  | ​ | $1,550,958 | ​ |  |  | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Net interest income and net interest margin | ​ | ​ ​ | ​ | $14,049 |  | 3.22% | ​ ​ | ​ | $12,217 |  | 3.37% |

(1) Nonaccrual loans are included in average balances and do not have a material effect on the average yield. Interest income on nonaccruing loans was not material for the periods presented. Net loan fees and late charges included in interest income on loans totaled $1.9 million and $465 thousand for the three months ended March 31, 2021 and 2020, respectively.

(2) The average yields for investment securities are reported on a fully taxable equivalent basis at a rate of 21% for 2021 and 21% for 2020.

The level of net interest income is affected primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates. See “Quantitative and Qualitative Disclosures About Market Risk” below for further information.

The following table shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities for the three months ended March 31, 2021.

### Rate and Volume Analysis

(Dollars in thousands)

| ​ ​ ​ ​ Interest income: ​ Loans (1): | ​ ​ ​ ​ | ​ ​ 2021 Compared to 2020 Average Volume ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Average Rate ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Increase (Decrease) ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Commercial real estate | ​ | $306 | ​ | $(936) | ​ | $(630) |
| Commercial and industrial | ​ | 2,326 | ​ | (720) | ​ | 1,606 |
| Commercial construction | ​ | 9 | ​ | (384) | ​ | (375) |
| Consumer residential | ​ | (217) | ​ | (229) | ​ | (446) |
| Consumer nonresidential | ​ | 42 | ​ | 87 | ​ | 129 |
| Total loans (1) | ​ | 2,466 | ​ | (2,182) | ​ | 284 |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Investment securities (2) | ​ | (96) | ​ | (62) | ​ | (158) |
| Restricted stock | ​ | 6 | ​ | (13) | ​ | (7) |
| Loans held for sale, at fair value | ​ | (236) | ​ | — | ​ | (236) |
| Deposits at other financial institutions and federal funds sold | ​ | 586 | ​ | (622) | ​ | (36) |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Total interest income | ​ | 2,726 | ​ | (2,879) | ​ | (153) |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| **Interest expense:** | ​ |  | ​ |  | ​ |  |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Interest - bearing deposits: | ​ |  | ​ |  | ​ |  |
| Interest checking | ​ | 782 | ​ | (946) | ​ | (164) |
| Savings and money markets | ​ | 133 | ​ | (444) | ​ | (311) |
| Time deposits | ​ | (649) | ​ | (514) | ​ | (1,163) |
| Wholesale deposits | ​ | (363) | ​ | (174) | ​ | (537) |
| Total interest - bearing deposits | ​ | (97) | ​ | (2,078) | ​ | (2,175) |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Other borrowed funds | ​ | 42 | ​ | 148 | ​ | 190 |
| Total interest expense | ​ | (55) | ​ | (1,930) | ​ | (1,985) |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Net interest income | ​ | $2,781 | ​ | $(949) | ​ | $1,832 |

(1) Nonaccrual loans are included in average balances and do not have a material effect on the average yield. Interest income on nonaccruing loans was not material for the periods presented.

(2) The average yields for investment securities are reported on a fully taxable equivalent basis at a rate of 21% for 2021 and 21% for 2020.

Net interest income for the three months ended March 31, 2021 was $14.0 million, compared to $12.2 million for the three months ended March 31, 2020, an increase of $1.8 million, or 15.0%. The increase in net interest income was primarily a result of an increase in the volume of interest-earning assets related to organic growth of commercial and industrial loans (PPP loans are recorded within this loan type) during 2021 compared to 2020. The yield on interest-earning assets decreased 85 basis points to 3.80% for the three months ended March 31, 2021, compared to 4.65% for the same period of 2020. In addition, the cost of interest-bearing liabilities decreased 88 basis points to 0.95% for the three months ended March 31, 2021, compared to 1.83% for the same period of 2020, reflecting our efforts to decrease deposit rates to offset the repricing of our variable rate loan portfolio.

Our net interest margin, on a tax equivalent basis, for the three months ended March 31, 2021 and 2020 was 3.22% and 3.37%, respectively. The decrease in our net interest margin was primarily a result of a decrease in the yields earned on our interest-earning assets during 2021 as compared to 2020, a result of the decreased rate environment.

Net interest income, on a tax equivalent basis, is a non-GAAP financial measure that we believe provides a more accurate picture of the interest margin for comparative purposes. To derive our net interest margin on a tax equivalent basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before tax basis with a corresponding increase in income tax expense. For purposes of this calculation, we use our statutory tax rates for the periods presented. This measure ensures comparability of net interest income arising from taxable and tax-exempt sources.

The following table provides a reconciliation of our GAAP net interest income to our tax equivalent net interest income.

### Supplemental Financial Data and Reconciliations to GAAP Financial Measures

For the Three Months Ended March 31, 2021 and 2020

(Dollars in thousands)

| ​ ​ GAAP Financial Measurements: Interest income: | ​ ​ ​ | ​ ​ 2021 ​ ​ ​ ​ | ​ ​ ​ | ​ ​ 2020 ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: |
| Loans | ​ | $15,933 | ​ | $15,885 |
| Deposits at other financial institutions and federal funds sold | ​ | 45 | ​ | 81 |
| Investment securities available‑for‑sale | ​ | 717 | ​ | 874 |
| Investment securities held‑to‑maturity | ​ | 1 | ​ | 2 |
| Restricted stock | ​ | 82 | ​ | 89 |
| Total interest income | ​ | 16,778 | ​ | 16,931 |
| Interest expense: | ​ | ​ | ​ | ​ |
| Interest‑bearing deposits | ​ | 2,001 | ​ | 4,176 |
| Other borrowed funds | **​** | 734 | ​ | 544 |
| Total interest expense | ​ | 2,735 | ​ | 4,720 |
| **Net interest income** | ​ | **$14,043** | **​** | **$12,211** |
| **Non‑GAAP Financial Measurements:** | ​ | ​ | ​ | ​ |
| Add: Tax benefit on tax‑exempt interest income - securities | **​** | 6 | ​ | 6 |
| **Total tax benefit on tax-exempt interest income** | ​ | $6 | ​ | $6 |
| **Tax equivalent net interest income** | ​ | **$14,049** | **​** | **$12,217** |

Average interest-earning assets increased $309.9 million, or 21.3% to $1.77 billion for the three months ended March 31, 2021 compared to $1.46 billion for the three months ended March 31, 2020. However, because of the current low interest rate environment, total interest income on a tax equivalent basis decreased $153 thousand to $16.8 million for the three months ended March 31, 2021, compared to $16.9 million for the three months ended March 31, 2020. The increase in our earning assets was primarily driven by an increase in the average volume of loans receivable of $174.3 million, which contributed to an additional $2.5 million in interest income. This increase in interest income was reduced by a decrease in yields earned on the loan portfolio, decreasing interest income $2.2 million. Average balances of nonperforming loans, which consist of nonaccrual loans, are included in the net interest margin calculation and did not have a material impact on our net interest margin in 2021 and 2020.

Total average interest-bearing deposits increased $118.4 million to $1.09 billion for the three months ended March 31, 2021 compared to $976.3 million for the three months ended March 31, 2020. Average noninterest-bearing deposits increased $175.5 million to $479.8 million for the three months ended March 31, 2021 compared to $304.4 million for the same period in 2020. The largest increase in average interest-bearing customer deposit balances was in our interest checking, which increased $249.7 million compared to 2020. Average wholesale deposits decreased $75.3 million to $45.8 million for the first quarter of 2021 compared to $121.0 million for the first quarter of 2020. The cost of other borrowed funds, which include federal funds purchased, FHLB advances, and our subordinated notes, increased 77 basis points to 4.21% for the three months ended March 31, 2021, a result of the subordinated debt we issued during the fourth quarter of 2020 at 4.88%.

#### Provision Expense and Allowance for Loan Losses

Our policy is to maintain the allowance for loan losses at a level that represents our best estimate of inherent losses in the loan portfolio. Both the amount of the provision and the level of the allowance for loan losses are impacted by many factors, including general and industry-specific economic conditions, actual and expected credit losses, historical trends and specific conditions of individual borrowers. We are not required to implement the provisions of CECL until January 1, 2023, and as such we are continuing to account for the allowance for loan losses under the incurred loss model.

We recorded no provision for loan losses for the three months ended March 31, 2021 compared to a provision for loan losses of $1.1 million for the same period of 2020, which primarily reflects changes in certain qualitative factors as a result of the local economic conditions and the slight decrease in loan origination volume during the first quarter of 2021, excluding PPP loans. In addition, as previously mentioned, we evaluated our exposure to certain credit risks within industry segments in our loan portfolio that are most impacted by the pandemic. Industry subgroups such as retail, hotels, churches and other commercial real estate loans were isolated within our allowance model, in addition to those loans deferring payments, and qualitative factors were adjusted to increase the reserves for these loans as a result of their risk profiles. Specific reserves decreased $729 thousand for the three months ended March 31, 2021, a result of several watchlist credits either being paid off or sold during the first quarter of 2021. See “Asset Quality” below for additional information on the credit quality of the loan portfolio. The allowance for loan losses at March 31, 2021 was $14.4 million compared to $15.0 million at December 31, 2020. Our allowance for loan loss ratio as a percent of total loans, net of deferred fees and costs, for March 31, 2021 was 1.00% compared to 1.02% at December 31, 2020.

#### Noninterest Income

Noninterest income includes service charges on deposits and loans, loan swap fee income, and income from our BOLI policies, and continues to supplement our operating results. Noninterest income for the three months ended March 31, 2021 and 2020 was $791 thousand and $693 thousand, respectively. Fee income from fees on loans, service charges on deposits, and other fee income was $543 thousand for the three months ended March 31, 2021, a decrease of $221 thousand as compared to the same quarter of 2020, primarily as a result of loan swap fee income of $374 thousand recorded during the first quarter of 2020. Offsetting the decrease in loan swap fees is a one-time commission bonus earned on our minority insurance investment of $155 thousand during the first quarter of 2021.

Income from BOLI was $248 thousand and $283 thousand for the three months ended March 31, 2021 and 2020, respectively. For the three months ended March 31, 2021, we recorded no gains or losses on the sales of assets. For the three months ended March 31, 2020, we recorded gains totaling $97 thousand on the sales of $10.2 million in investment securities available-for-sale. These securities were sold as they had larger premiums susceptible to prepayment risk, decreasing future interest income. Noninterest income for the quarter ended March 31, 2020 was also impacted by losses on loans held for sale totaling $451 thousand.

#### Noninterest Expense

Noninterest expense includes, among other things, salaries and benefits, occupancy and equipment costs, professional fees, data processing, insurance and miscellaneous expenses. Noninterest expense was $7.9 million and $7.2 million for the three months ended March 31, 2021 and 2020, respectively.

Salaries and benefits expense increased $520 thousand to $4.5 million for the three months ended March 31, 2021 compared to $4.0 million for the same period in 2020, which was primarily related to incentive compensation during the first quarter of 2021. Data processing and network administration expense increased $129 thousand for the three months ended March 31, 2021 as compared to the same period of 2020, as planned 2020 network infrastructure upgrades were implemented during the second quarter of 2020. All other increases in noninterest expense for the quarter ended March 31, 2021 as compared to the same period of 2020 are primarily related to supporting the larger organization as a result of continued organic growth.

#### Income Taxes

We recorded a provision for income tax expense of $1.4 million for the three months ended March 31, 2021, compared to $896 thousand for the three months ended March 31, 2020. Our effective tax rate for the three months ended March 31, 2021 was 19.9%, compared to 19.4% for the same period of 2020. Our effective tax rates for the three months ended March 31, 2021 and 2020 were less than the statutory rate because of discrete tax benefits recorded as a result of exercises of nonqualified stock options during both 2021 and 2020.

### Discussion and Analysis of Financial Condition

#### Overview

At March 31, 2021, total assets were $1.88 billion, an increase of 3.5%, or $63.0 million, from $1.82 billion at December 31, 2020. Total loans receivable, net of deferred fees and costs, decreased 1.3%, or $19.2 million, to $1.45 billion at March 31, 2021, from $1.47 billion at December 31, 2020. Total investment securities increased $9.0 million, or 7.1%, to $135.4 million at March 31, 2021, from $126.4 million at December 31, 2020. Total deposits increased 4.1%, or $62.1 million, to $1.59 billion at March 31, 2021, from $1.53 billion at December 31, 2020. From time to time, we may utilize other borrowed funds such as federal funds purchased and FHLB advances as an additional funding source for the Bank. At March 31, 2021 and at December 31, 2020, we had FHLB advances totaling $25.0 million.

#### Loans Receivable, Net

Total loans receivable, net of deferred fees and costs, were $1.45 billion at March 31, 2021, a decrease of $19.2 million, or 1.3%, compared to $1.47 billion at December 31, 2020. Loans receivable, net of deferred fees, excluding PPP loans, decreased $29.7 million during the three months ended March 31, 2021. During the first quarter of 2021, loans that paid off prior to maturity totaled $44.5 million, of which, $9.5 million were watch list credits that either paid off or were sold at a discount during the quarter, $13.5 million were related to borrowers selling the underlying collateral, and the remaining loans paid off were primarily a result of refinancing and general business activity. In addition, seasonal commercial line activity decreased $7.2 million during the first quarter of 2021. Offsetting these decreases were loan originations totaling $31.2 million (excluding PPP), of which $24.7 million funded during the quarter.

Commercial real estate loans totaled $783.8 million at March 31, 2021, compared to $790.0 million at December 31, 2020, a decrease of $6.2 million, or 0.8%. Owner-occupied commercial real estate loans were $174.5 million at March 31, 2021 compared to $182.9 million at December 31, 2020. Nonowner-occupied commercial real estate loans were $608.4 million at March 31, 2021 compared to $607.5 million at December 31, 2020. Construction loans totaled $219.2 million at March 31, 2021, or 14.2% of total loans receivable. Of the $219.2 million in construction loans, $38.2 million are collateralized by land and only $811 thousand are lot acquisition and development loans (which have a higher degree of credit risk than the remaining portion of the construction portfolio). Our commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We plan to manage this portion of our portfolio in a disciplined manner. We have comprehensive policies to monitor, measure, and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring and administrative practices.

The following table presents the composition of our loans receivable portfolio at March 31, 2021 and at December 31, 2020.

### Loans Receivable

At March 31, 2021 and December 31, 2020

(Dollars in thousands)

| ​ ​ ​ | ​ ​ | ​ ​ March 31, 2021 | ​ ​ | ​ ​ December 31, 2020 |
| --- | --- | ---: | --- | ---: |
| Commercial real estate | **​** | $783,783 | ​ | $790,025 |
| Commercial and industrial | ​ | 110,034 | ​ | 119,529 |
| Paycheck protection program | ​ | ​ 166,587 | ​ | ​ 155,805 |
| Commercial construction | **​** | ​ 219,187 | ​ | ​ 222,319 |
| Consumer real estate | ​ | 159,217 | ​ | 167,872 |
| Consumer nonresidential | ​ | 13,594 | ​ | 15,835 |
| Gross loans | ​ | 1,452,402 | ​ | 1,471,385 |
| Less: | ​ |  | ​ |  |
| Allowance for loan losses | ​ | 14,421 | ​ | 14,958 |
| Unearned income and (unamortized premiums) | ​ | 5,490 | ​ | 5,302 |
| Loans receivable, net | ​ | $1,432,491 | ​ | $1,451,125 |

#### Asset Quality

Nonperforming assets, defined as nonaccrual loans, loans past due 90 days or more as to principal or interest and still accruing, and OREO at March 31, 2021 were $8.9 million compared to $9.5 million at December 31, 2020. Our ratio of nonperforming assets to total assets was 0.47% at March 31, 2021 compared to 0.52% at December 31, 2020. TDRs as of March 31, 2021 and December 31, 2020 totaled $96 thousand and $97 thousand, respectively, and is made up of one loan.

Nonperforming loans, which are primarily commercial real estate and commercial and industrial loans, decreased $598 thousand during the quarter ended March 31, 2021, as several loans either paid off or were sold during the quarter. Loans that we have classified as nonperforming are a result of customer specific deterioration mostly financial in nature that are not a result of economic, industry, or environmental causes that we might see as a pattern for possible future losses within our loan portfolio. For each of our criticized assets, we conduct an impairment analysis to determine the level of additional or specific reserves required for any portion of the loan that may result in a loss. As a result of the analysis completed, we have specific reserves totaling $1.4 million and $2.1 million at March 31, 2021 and December 31, 2020, respectively. Because these loans are individually evaluated for impairment, nonperforming loans are excluded from the general reserve allocation.

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis includes, larger non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. At March 31, 2021, we had $4.0 million in loans identified as special mention, a decrease from $12.1 million from December 31, 2020. Special mention rated loans are loans that have a potential weakness that deserves management’s close attention; however, the borrower continues to pay in accordance with their contract. The decrease from December 31, 2020 was primarily related to two loans being paid off totaling $7.6 million and two loans being upgraded during the quarter. The remaining loans rated as special mention do not have a specific reserve and are considered well-secured.

At March 31, 2021, we had $18.8 million in loans identified as substandard, a decrease of $1.8 million from December 31, 2020. The decrease in substandard loans was primarily related to two loans totaling $1.3 million which were sold at a discount, and three loans being been paid off in full during the first quarter of 2021. Substandard rated loans are loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, a liquidation analysis is completed. At March 31, 2021, specific reserves on originated and acquired loans totaling $1.4 million has been allocated within the allowance for loan losses to supplement any shortfall of collateral.

We recorded annualized net charge-offs to average loans receivable of 0.15% for the three months ended March 31, 2021, compared to annualized net charge-offs to average loans receivable of 0.02% for the three months ended March 31, 2020. The increase in net charge-offs during the first quarter of 2021 were primarily related to substandard loans we sold at a discount, which was estimated and included in our specific reserves as of December 31, 2020. The following tables provide additional information on our asset quality for the periods presented.

### Nonperforming Assets

At March 31, 2021 and December 31, 2020

(Dollars in thousands)

| ​ ​ ​ Nonperforming assets: | ​ ​ ​ | ​ ​ ​ March 31, ​ 2021 ​ ​ ​ | ​ ​ ​ December 31, ​ 2020 ​ ​ ​ |
| --- | --- | ---: | ---: |
| Nonaccrual loans | ​ | $4,949 ​ | $5,349 ​ |
| Loans contractually past‑due 90 days or more and still accruing | ​ | 74 ​ | 272 ​ |
| Total nonperforming loans (NPLs) | ​ | $5,023 ​ | $5,621 ​ |
| Other real estate owned | ​ | 3,866 ​ | 3,866 ​ |
| Total nonperforming assets (NPAs) | ​ | $8,889 ​ | $9,487 ​ |
| Performing troubled debt restructurings | ​ | $96 ​ | $97 ​ |
| NPLs/Total Assets | ​ | 0.27% | 0.31% |
| NPAs/Total Assets | ​ | 0.47% | 0.52% |
| NPAs and TDRs/Total Assets | ​ | 0.48% | 0.53% |
| Allowance for loan losses/NPLs | ​ | 287.10% | 266.11% |

### Nonperforming Loans by Type

At March 31, 2021 and December 31, 2020

(Dollars in thousands)

| ​ ​ ​ | ​ ​ | ​ ​ March 31, 2021 | ​ ​ | ​ ​ December 31, 2020 |
| --- | --- | ---: | --- | ---: |
| Commercial real estate | ​ | $2,052 | ​ | $2,309 |
| Commercial and industrial | ​ | 2,525 | ​ | 2,883 |
| Commercial construction | ​ | — | ​ | — |
| Consumer real estate | ​ | 324 | ​ | 385 |
| Consumer nonresidential | ​ | 122 | ​ | 44 |
| ​ | ​ | $5,023 | ​ | $5,621 |

At March 31, 2021 and December 31, 2020, there were no performing loans considered potential problem loans. Potential problem loans are defined as loans that are not included in the 90 days or more past due, nonaccrual or restructured categories, but for which known information about possible credit problems causes management to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms which may in the future result in disclosure in the past due, nonaccrual or restructured loan categories. We take a conservative approach with respect to risk rating loans in our portfolio. Based upon the status as a potential problem loan, these loans receive heightened scrutiny and ongoing intensive risk management. Additionally, our loan loss allowance methodology incorporates increased reserve factors for certain loans that are adversely rated but not impaired as compared to the general portfolio.

As previously mentioned, we have evaluated our exposure to credit risks directly related to the COVID-19 pandemic and have identified subgroups of industry segments most impacted by the pandemic. As a result of the COVID-19 pandemic, we implemented loan payment deferral programs to allow customers who were required to close or reduce business operations to defer loan principal and interest payments primarily for 90 days. As of March 31, 2021, remaining payment deferred loans totaled $10.0 million, or 0.69% of the total loan portfolio, comprising three loans. One loan is a hotel participation loan totaling $9.7 million, one loan is SBA guaranteed totaling $330 thousand and the remaining loan totaling $61 thousand is a consumer unsecured loan.

We are closely and proactively monitoring the effects of the pandemic on our loan and deposit customers and are focused on assessing risks within the loan portfolio and working with customers to minimize losses. We consider pandemic impacted loans to include commercial real estate loans made to hotels, churches, and certain retail and special purpose asset classes. During our assessment of the allowance for loan losses, we addressed the credit risks associated with these pandemic impacted segments and those loans that have requested payment deferrals. The following table shows the number of loans and outstanding loan balances by pandemic-impacted asset class as of March 31, 2021.

### COVID Impacted Loans By Asset Class

At March 31, 2021

(Dollars in thousands)

| ​ Asset Class | ​ | ​ Number of Loans | ​ | ​ ​ Amount |
| --- | --- | ---: | --- | ---: |
| Commercial real estate - retail |  | 104 | ​ | $190,308 |
| Commercial real estate - mixed use |  | 50 | ​ | 81,890 |
| Specialty use-hotel/lodging/motel |  | 11 | ​ | 60,972 |
| Commercial real estate - office |  | 109 | ​ | 106,957 |
| Multi-family first lien |  | 86 | ​ | 117,867 |
| Commercial real estate - industrial |  | 67 | ​ | 100,301 |
| Commercial real estate - special use/church |  | 21 | ​ | 41,535 |
| Special purpose |  | 22 | ​ | 29,559 |
| **Total loan categories COVID impacted** |  | **470** | **​** | **$729,389** |
| ​ | ​ | ​ | ​ | ​ ​ |
| Other loan categories not impacted by COVID |  | 2,807 | ​ | 723,013 |
| **Total loans** |  | **3,277** | **​** | **$1,452,402** |

We believe that as a result of our conservative underwriting discipline at loan origination coupled with active dialogue we have with our borrowers, we have the ability and necessary flexibility to assist our customers through this pandemic.

At March 31, 2021, we had one OREO property with a fair value of $3.9 million. We are in the process of selling this property and do not expect a material gain or loss from the current fair value of the property as we recorded a $1.1 million gain on the foreclosure of the property during the year ended December 31, 2017.

Unexpected changes in economic growth could adversely affect our loan portfolio, including causing increases in delinquencies and default rates, which would adversely impact our charge-offs and provision for loan losses. Deterioration in real estate values, employment data and household incomes may also result in higher credit losses for us. Also, in the ordinary course of business, we may also be subject to a concentration of credit risk to a particular industry, counterparty, borrower or issuer. At March 31, 2021, our commercial real estate portfolio (including construction lending) was 69.1% of our total loan portfolio. A deterioration in the financial condition or prospects of a particular industry or a failure or downgrade of, or default by, any particular entity or group of entities could negatively impact our business, perhaps materially, and the systems by which we set limits and monitor the level of our credit exposure to individual entities and industries, may not function as we have anticipated.

See “Critical Accounting Policies” above for more information on our allowance for loan losses methodology.

The following tables present additional information pertaining to the activity in and allocation of the allowance for loan losses by loan type and the percentage of the loan type to the total loan portfolio. The allocation of the allowance for loan losses to a category of loans is not necessarily indicative of future losses or charge-offs, and does not restrict the use of the allowance to any specific category of loans.

### Allowance for Loan Losses

(Dollars in thousands)

| ​ ​ ​ | ​ ​ | ​ ​ Three Months Ended March 31, 2021 | ​ | ​ ​ 2020 |
| --- | --- | ---: | --- | ---: |
| Beginning balance | ​ | $14,958 | ​ | $10,231 |
| Provision for loan losses | ​ | — | ​ | 1,066 |
| Loans charged off: | ​ | ​ | ​ | ​ |
| Commercial real estate | ​ | (451) | ​ | — |
| Commercial and industrial | ​ | (117) | ​ | — |
| Commercial construction | ​ | — | ​ | — |
| Consumer real estate | ​ | — | ​ | (3) |
| Consumer nonresidential | ​ | (63) | ​ | (90) |
| Total loans charged off | ​ | (631) | ​ | (93) |
| Recoveries: | ​ | ​ ​ | ​ | ​ ​ |
| Commercial real estate | ​ | 24 | ​ | — |
| Commercial and industrial | ​ | — | ​ | 19 |
| Commercial construction | ​ | — | ​ | — |
| Consumer real estate | ​ | 3 | ​ | 1 |
| Consumer nonresidential | ​ | 67 | ​ | 2 |
| Total recoveries | ​ | 94 | ​ | 22 |
| Net charge offs | ​ | (537) | ​ | (71) |
| Ending balance | ​ | $14,421 | ​ | $11,226 |

| ​ ​ Loans, net of deferred fees: | ​ ​ | ​ ​ ​ Three Months Ended March 31, 2021 | ​ ​ ​ 2020 |
| --- | --- | ---: | ---: |
| Balance at period end | ​ | $1,446,912 ​ | $1,282,142 ​ |
| Allowance for loan losses to loans receivable, net of fees | ​ | 1.00% | 0.88% |
| Net charge-offs to average loans receivable, annualized | ​ | 0.15% | 0.02% |

### Allocation of the Allowance for Loan Losses

At March 31, 2021 and December 31, 2020

(Dollars in thousands)

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ March 31, 2021 Allocation | ​ | ​ ​ ​ % of Total\* | ​ ​ December 31, 2020 Allocation | ​ | ​ ​ % of Total\* |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: |
| Commercial real estate | ​ | $9,078 |  | 53.96% | $9,291 |  | 53.69% |
| Commercial and industrial | ​ | 2,313 |  | 7.58% | 2,546 |  | 8.12% |
| Paycheck protection program | ​ | ​ — | ​ | 11.47% | ​ — | ​ | 10.59% |
| Commercial construction | ​ | 1,983 |  | 15.09% | 1,960 |  | 15.11% |
| Consumer real estate | ​ | 652 |  | 10.96% | 690 |  | 11.41% |
| Consumer nonresidential | ​ | 395 |  | 0.94% | 471 |  | 1.08% |
| ​ | ​ | ​ ​ |  | ​ ​ | ​ |  | ​ ​ |
| Total allowance for loan losses | ​ | $14,421 |  | 100.00% | $14,958 |  | 100.00% |

\* Percentage of loan type to the total loan portfolio.

#### Investment Securities

Our investment securities portfolio is used as a source of income and liquidity. The investment portfolio consists of investment securities available-for-sale, investment securities held-to-maturity and certificates of deposit. Investment securities available-for-sale are those securities that we intend to hold for an indefinite period of time, but not necessarily until maturity. These securities are carried at fair value and may be sold as part of an asset/liability strategy, liquidity management or regulatory capital management. Investment securities held-to-maturity for each of March 31, 2021 and December 31, 2020 totaled $264 thousand, and are those securities that we have the intent and ability to hold to maturity and are carried at amortized cost. The fair value of our investment securities available-for-sale was $135.1 million at March 31, 2021, an increase of $9.0 million or 7.1%, from $126.2 million at December 31, 2020. During the first quarter of 2021, we purchased $21.1 million in available-for-sale investment securities to invest excess liquidity and reinvest cashflows received from the investment portfolio.

As of March 31, 2021 and December 31, 2020, the majority of the investment securities portfolio consisted of securities rated AAA by a leading rating agency. Investment securities which carry a AAA rating are judged to be of the best quality and carry the smallest degree of investment risk. All of our mortgage-backed securities are guaranteed by either the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association. Investment securities that were pledged to secure public deposits totaled $8.2 million and $9.2 million at March 31, 2021 and December 31, 2020, respectively.

We complete reviews for other-than-temporary impairment at least quarterly. At March 31, 2021 and December 31, 2020, only investment grade securities were in an unrealized loss position. Investment securities with unrealized losses are a result of pricing changes due to recent and negative conditions in the current market environment and not as a result of permanent credit impairment. Contractual cash flows for the agency mortgage-backed securities are guaranteed and/or funded by the U.S. government. Municipal securities have third party protective elements and there are no negative indications that the contractual cash flows will not be received when due. We do not intend to sell nor do we believe we will be required to sell any of our temporarily impaired securities prior to the recovery of the amortized cost.

No other-than-temporary impairment has been recognized for the securities in our investment portfolio as of March 31, 2021 and December 31, 2020.

We hold restricted investments in equities of the FRB, and FHLB. At March 31, 2021, we owned $1.8 million in FHLB stock and $4.4 million in FRB stock. At December 31, 2020, we owned $2.4 million in FHLB stock and $4.0 million in FRB stock.

The following table reflects the composition of our investment portfolio, at amortized cost, at March 31, 2021 and December 31, 2020.

### Investment Securities

At March 31, 2021 and December 31, 2020

(Dollars in thousands)

| ​ ​ ​ ​ ​ Held‑to‑maturity | ​ ​ ​ ​ | ​ ​ March 31, 2021 ​ ​ Balance ​ | ​ ​ ​ ​ ​ Percent of ​ Total ​ | ​ ​ December 31, 2020 ​ ​ Balance ​ | ​ ​ ​ ​ Percent of ​ Total ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| Securities of state and local municipalities tax exempt | ​ | $264 | 0.21% | $264 | 0.21% |
| Total held‑to‑maturity securities | ​ | $264 | 0.21% | $264 | 0.21% |
| **Available‑for‑sale** | ​ |  | ​ |  | ​ |
| Securities of state and local municipalities | ​ | $3,143 | 2.35% | $4,202 | 3.41% |
| Corporate bonds and securities | ​ | 13,972 | 10.44% | 12,974 | 10.52% |
| Mortgage‑backed securities | ​ | 116,501 | 87.02% | 105,910 | 85.86% |
| Total available‑for‑sale securities | ​ | $133,616 | 99.79% | $123,086 | 99.79% |
| Total investment securities | ​ | $133,880 | 100.00% | $123,350 | 100.00% |

The following table presents the amortized cost of our investment portfolio by their stated maturities, as well as the weighted average yields for each of the maturity ranges at March 31, 2021.

### Investment Securities by Stated Maturity

At March 31, 2021

(Dollars in thousands)

| ​ ​ ​ ​ ​ ​ Held‑to‑maturity | ​ ​ ​ ​ ​ | ​ ​ At March 31, 2021 Within One Year ​ ​ Amortized Cost ​ | ​ ​ Weighted ​ Average ​ Yield | ​ ​ ​ ​ | ​ ​ One to Five Years ​ ​ Amortized Cost ​ | ​ ​ ​ ​ Weighted ​ Average ​ ​ Yield ​ | ​ ​ Five to Ten Years ​ ​ Amortized Cost ​ | ​ ​ ​ ​ Weighted ​ Average ​ ​ Yield ​ | ​ ​ Over Ten Years ​ ​ Amortized Cost ​ | ​ ​ ​ ​ Weighted ​ Average ​ ​ Yield ​ | ​ ​ Total ​ ​ Amortized Cost ​ | ​ ​ ​ Weighted ​ Average ​ Yield ​ |
| --- | --- | ---: | ---: | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Securities of state and local municipalities tax exempt | ​ | $— | — | ​ | $— | — ​ | $264 | 2.32% | $— | — ​ | $264 | 2.32% |
| Total held‑to‑maturity securities | ​ | $— | — | ​ | $— | — ​ | $264 | 2.32% | $— | — ​ | $264 | 2.32% |
| **Available‑for‑sale** | ​ |  |  | ​ |  | ​ |  | ​ |  | ​ |  | ​ |
| Securities of state and local municipalities | ​ | $— | — | ​ | ​ 2,019 | 2.30% | $379 | 2.25% | 745 | 2.92% | $3,143 | 2.44% |
| Corporate bonds | ​ | — | — | ​ | 2,000 | 2.91% | 11,972 | 5.26% | — | — ​ | 13,972 | 4.90% |
| Mortgage‑backed securities | ​ | — | — | ​ | — | — ​ | 15,643 | 2.17% | 100,858 | 1.93% | 116,501 | 1.96% |
| Total available‑for‑sale securities | ​ | $— | — | ​ | $4,019 | 2.60% | $27,994 | 3.43% | $101,603 | 1.93% | $133,616 | 2.26% |
| Total investment securities | ​ | $— | — | ​ | $4,019 | 2.60% | $28,258 | 3.42% | $101,603 | 1.93% | $133,880 | 2.26% |

#### Deposits and Other Borrowed Funds

Total deposits were $1.59 billion at March 31, 2021, an increase of $62.1 million, or 4.1%, from $1.53 billion at December 31, 2020. Noninterest-bearing deposits totaled $501.8 million at March 31, 2021, comprising 31.5% of total deposits and increased $102.8 million, or 25.8%, compared to December 31, 2020. At March 31, 2021, deposits from municipalities which are secured by a letter of credit issued by the FHLB, represented 3.8% of our total deposits. Deposits of any individual municipality are generally limited to 5% of total assets and in the aggregate, municipalities are limited to 18% of total assets. Some of these customers utilize our treasury management services, and all maintain deposits of varying types and maturities. As such, we believe that these customers are unlikely to abruptly terminate their relationship with us. However, in the event that we were to lose all or a significant portion of the deposits of one or more of these customers, we believe that we have adequate alternative sources of liquidity to enable us to replace these funds, although the cost of such replacement sources of liquidity could be higher.

The following table provides information on our deposit composition at March 31, 2021 and December 31, 2020.

### Deposit Composition

At March 31, 2021 and December 31, 2020

(Dollars in thousands)

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ March 31, 2021 ​ ​ Balance | ​ ​ | ​ ​ ​ ​ Average ​ Rate | ​ ​ December 31, 2020 ​ ​ Balance | ​ ​ | ​ ​ ​ Average Rate |
| --- | --- | ---: | --- | ---: | ---: | --- | ---: |
| Noninterest bearing demand | **​** | $501,812 |  | — ​ | $399,062 |  | — ​ |
| Interest bearing - checking, savings and money market | ​ | 822,888 |  | 0.31% | 820,378 |  | 0.32% |
| Time deposits $100,000 or more | ​ | 171,384 |  | 1.44% | 194,190 |  | 1.54% |
| Other time deposits | ​ | 98,555 |  | 0.86% | 118,863 |  | 0.88% |
| ​ | ​ | $1,594,639 | ​ | ​ ​ | $1,532,493 | ​ | ​ ​ |

The remaining maturity of time deposits at March 31, 2021 and December 31, 2020 are as follows:

| ​ ​ ​ | ​ ​ | ​ ​ March 31, 2021 | ​ ​ | ​ ​ December 31, 2020 |
| --- | --- | ---: | --- | ---: |
| Three months or less | ​ | $98,253 | ​ | $115,707 |
| Over three months through six months | ​ | 44,688 | ​ | 60,490 |
| Over six months through twelve months | ​ | 54,085 | ​ | 53,053 |
| Over twelve months | ​ | 72,913 | ​ | 83,803 |
| ​ | ​ | $269,939 | ​ | $313,053 |

Wholesale deposits decreased to $35.0 million at March 31, 2021 from $50.0 million at December 31, 2020. In addition, we are a member of the IntraFi Network (“IntraFi”), which gives us the ability to offer Certificates of Deposit Account Registry Service (“CDARS”), and Insured Cash Sweep (“ICS”), products to our customers who seek to maximize Federal Deposit Insurance Corporation (“FDIC”) insurance protection. When a customer places a large deposit with us for IntraFi, funds are placed into certificates of deposit or other deposit products with other banks in the CDARS and ICS networks in increments of less than $250 thousand so that principal and interest are eligible for FDIC insurance protection. These deposits are part of our core deposit base. At March 31, 2021 and December 31, 2020, we had $137.5 million and $138.9 million, respectively, in either CDARS reciprocal or ICS reciprocal products.

The following table reports those certificates of deposit that exceed $100,000 by maturity as of March 31, 2021 and December 31, 2020.

### Certificates of Deposit Over $100,000

At March 31, 2021 and December 31, 2020

(Dollars in thousands)

| ​ ​ ​ | ​ ​ | ​ ​ March 31, 2021 | ​ ​ | ​ ​ December 31, 2020 |
| --- | --- | ---: | --- | ---: |
| Three months or less | ​ | $48,562 | ​ | $48,388 |
| Over three months through six months | ​ | 30,546 | ​ | 46,739 |
| Over six months through twelve months | ​ | 36,941 | ​ | 36,327 |
| Over twelve months | ​ | 55,335 | ​ | 62,736 |
| ​ | ​ | $171,384 | ​ | $194,190 |

Other borrowed funds, which include federal funds purchased, FHLB advances, and our subordinated notes, were $69.1 million at each of March 31, 2021 and December 31, 2020. For both March 31, 2021 and December 31, 2020, other borrowed funds consisted of $25.0 million in FHLB advances and $44.1 million of subordinated notes.

The following table reflects the short-term borrowings and other borrowed funds outstanding at March 31, 2021 and December 31, 2020.

### Other Borrowed Funds

At March 31, 2021 and December 31, 2020

(Dollars in thousands)

| ​ ​ ​ ​ ​ ​ Other short‑term borrowed funds: | ​ ​ ​ ​ ​ ​ | ​ ​ March 31, 2021 ​ ​ Amount Outstanding ​ ​ | ​ ​ ​ ​ ​ Weighted ​ Average ​ ​ Rate ​ ​ ​ ​ | ​ ​ December 31, 2020 ​ ​ Amount Outstanding ​ ​ | ​ ​ ​ ​ Weighted ​ Average ​ ​ Rate ​ ​ ​ ​ |
| --- | --- | ---: | ---: | ---: | ---: |
| Federal funds purchased | ​ | $— | 0.00% | $— | 0.00% |
| FHLB advances - short term | ​ | 25,000 | 1.35% | 25,000 | 1.15% |
| **Total borrowed funds and weighted average rate** | **​** | **$25,000** | **1.35%** | **$25,000** | **1.15%** |
| **Other borrowed funds:** | ​ |  | ​ |  | ​ |
| Subordinated Debt | ​ | $44,116 | 5.99% | $44,085 | 6.26% |
| **Total other borrowed funds and weighted average rate** | **​** | **$44,116** | **5.99%** | **$44,085** | **6.26%** |
| **Total borrowed funds and weighted average rate** | **​** | **$69,116** | **4.31%** | **$69,085** | **4.41%** |

### Capital Resources

Capital adequacy is an important measure of financial stability and performance. Our objectives are to maintain a level of capitalization that is sufficient to sustain asset growth and promote depositor and investor confidence.

Regulatory agencies measure capital adequacy utilizing a formula that takes into account the individual risk profile of the financial institution. The minimum capital requirements for the Bank are: (i) a common equity Tier 1, or CET1, capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total risk based capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. Additionally, a capital conservation buffer requirement of 2.5% of risk-weighted assets is designed to absorb losses during periods of economic stress and is applicable to the Bank’s CET1 capital, Tier 1 capital and total capital ratios. Including the conservation buffer, we currently consider the Bank’s minimum capital ratios to be as follows: 7.00% for CET1; 8.50% for Tier 1 capital; and 10.50% for Total capital. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation.

On January 1, 2020, the federal banking agencies adopted a “Community Bank Leverage Ratio” (“CBLR”), which is calculated by dividing tangible equity capital by average consolidated total assets. If a “qualified community bank,” generally a depository institution or depository institution holding company with consolidated assets of less than $10 billion, opts into the CBLR framework and has a leverage ratio that exceeds the CBLR threshold, which was initially set at 9%, then such bank will be considered to have met all generally applicable leverage and risk based capital requirements under Basel III, the capital ratio requirements for “well capitalized” status under Section 38 of the Federal Deposit Insurance Act, and any other leverage or capital requirements to which it is subject. A bank or holding company may be excluded from qualifying community bank status based on its risk profile, including consideration of its off-balance sheet exposures; trading assets and liabilities; total notional derivatives exposures and such other facts as the appropriate federal banking agencies determine to be appropriate.

In April 2020, as required by the CARES Act, the federal banking agencies issued two interim final rules related to the CBLR framework. One interim final rule provides that, as of the second quarter of 2020, banking organizations with leverage ratios of 8% or greater (and that meet the other existing qualifying criteria) may elect to use the CBLR framework. It also establishes a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall below the 8% CBLR requirement, so long as the banking organization maintains a leverage ratio of 7% or greater. The second interim final rule provides a transition from the temporary 8% CBLR requirement to a 9% CBLR requirement. It establishes a minimum CBLR of 8% for the second through fourth quarters of 2020, 8.5% for 2021, and 9% thereafter, and maintains a two-quarter grace period for qualifying community banking organizations whose leverage ratios fall no more than 100 basis points below the applicable CBLR requirement.

At January 1, 2020, we qualified and adopted this simplified capital structure, however, there can be no assurance that satisfaction of the CBLR will provide adequate capital for our operations and growth, or an adequate cushion against increased levels of nonperforming assets or weakened economic conditions.

Shareholders’ equity at March 31, 2021 was $194.9 million, an increase of $5.4 million, compared to $189.5 million at December 31, 2020. The increase in shareholders’ equity was primarily attributable to the net income recorded for the quarter totaling $5.6 million. Common stock issued as a result of option exercises increased shareholders’ equity by $819 thousand for the three months ended March 31, 2021. Accumulated other comprehensive income decreased $1.1 million during 2021, primarily as a result of a decrease in the market value of our available-for-sale investment securities portfolio.

Total shareholders’ equity to total assets for March 31, 2021 and December 31, 2020 was 10.3% and 10.4%, respectively. Tangible book value per share (a non-GAAP financial measure which is defined in the table below) at March 31, 2021 and December 31, 2020 was $13.69 and $13.41, respectively. The Bank’s CBLR at each of March 31, 2021 and December 31, 2020 was 11.65%. Accordingly, we were considered “well capitalized” for regulatory purposes at March 31, 2021 and December 31, 2020.

As noted above, regulatory capital levels for the Bank meet those established for “well capitalized” institutions. While we are currently considered “well capitalized,” we may from time to time find it necessary to access the capital markets to meet our growth objectives or capitalize on specific business opportunities.

As the Company is a bank holding company with less than $3 billion in assets, and which does not (i) conduct significant off balance sheet activities, (ii) engage in significant non-banking activities, and (iii) have a material amount of securities registered under the Securities Exchange Act of 1934 (the Exchange Act), it is not currently subject to risk-based capital requirements adopted by the Federal Reserve, pursuant to the small bank holding company policy statement. The Federal Reserve has not historically deemed a bank holding company ineligible for application of the small bank holding company policy statement solely because its common stock is registered under the Exchange Act. There can be no assurance that the Federal Reserve will continue this practice.

The following tables shows the minimum capital requirement and our capital position at March 31, 2021 and December 31, 2020 for the Bank.

### Capital Components

At March 31, 2021 and December 31, 2020

(Dollars in thousands)

| ​ ​ ​ ​ At March 31, 2021 | ​ ​ ​ | ​ ​ ​ ​ Actual Amount ​ | ​ ​ | ​ ​ ​ ​ ​ Ratio | ​ For Capital Adequacy Purposes Amount ​ | ​ | ​ ​ | ​ ​ ​ | ​ | ​ ​ Ratio ​ |
| --- | --- | --- | --- | ---: | --- | ---: | --- | --- | --- | --- |
| Leverage capital ratio |  | $215,757 |  | 11.65% | ​ | 158,316 |  | \> |  | 8.500% |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ | ​ | ​ | ​ | ​ ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ | ​ | ​ | ​ | ​ ​ |
| **At December 31, 2020** |  | ​ |  |  | ​ |  | ​ | ​ |  | ​ |
| Leverage capital ratio | ​ | $209,359 |  | 11.65% |  | 143,823 |  | \> |  | 8.000% |

### Tangible Book Value

At March 31, 2021 and December 31, 2020

Dollars in thousands, except per share data

| ​ ​ ​ | ​ ​ ​ | ​ ​ March 31, 2021 | ​ ​ ​ | ​ ​ December 31, 2020 |
| --- | --- | ---: | --- | ---: |
| Total stockholders’ equity | ​ | $194,929 | ​ | $189,500 |
| Less: goodwill and intangibles, net | ​ | (8,277) | ​ | (8,357) |
| **Tangible Common Equity** | **​** | **$186,652** | **​** | **$181,143** |
| ​ | ​ | ​ ​ | ​ | ​ ​ |
| Book value per common share | ​ | $14.29 | ​ | $14.03 |
| Less: intangible book value per common share | ​ | (0.60) | ​ | (0.62) |
| **Tangible book value per common share** | **​** | **$13.69** | **​** | **$13.41** |

### Liquidity

Liquidity in the banking industry is defined as the ability to meet the demand for funds of both depositors and borrowers. We must be able to meet these needs by obtaining funding from depositors or other lenders or by converting non-cash items into cash. The objective of our liquidity management program is to ensure that we always have sufficient resources to meet the demands of our depositors and borrowers. Stable core deposits and a strong capital position provide the base for our liquidity position. We believe we have demonstrated our ability to attract deposits because of our convenient branch locations, personal service, technology and pricing.

In addition to deposits, we have access to the different wholesale funding markets. These markets include the brokered certificate of deposit market and the federal funds market. We are a member of the IntraFi Network, which allows banking customers to access FDIC insurance protection on deposits through our Bank which exceed FDIC insurance limits. We also have one-way authority with IntraFi for both their CDARs and ICS products which provides the Bank the ability to access additional wholesale funding as needed. We also maintain secured lines of credit with the FRB and the FHLB for which we can borrow up to the allowable amount for the collateral pledged. Having diverse funding alternatives reduces our reliance on any one source for funding.

Cash flow from amortizing assets or maturing assets also provides funding to meet the needs of depositors and borrowers.

We have established a formal liquidity contingency plan which establishes a liquidity management team and provides guidelines for liquidity management. For our liquidity management program, we first determine our current liquidity position and then forecast liquidity based on anticipated changes in the balance sheet. In this forecast, we expect to maintain a liquidity cushion. We also stress test our liquidity position under several different stress scenarios, from moderate to severe. Guidelines for the forecasted liquidity cushion and for liquidity cushions for each stress scenario have been established. We believe that we have sufficient resources to meet our liquidity needs.

Our primary and secondary sources of liquidity remain strong. Liquid assets, which include cash and due from banks, federal funds sold and investment securities available for sale, totaled $355.0 million at March 31, 2021, or 18.9% of total assets, an increase from $267.2 million, or 14.7%, at December 31, 2020. We held investments that are classified as held-to-maturity in the amount of $264 thousand at March 31, 2021. To maintain ready access to the Bank’s secured lines of credit, the Bank has pledged a portion of its commercial real estate and residential real estate loan portfolios to the FHLB and FRB. Additional borrowing capacity at the FHLB at March 31, 2021 was approximately $170.4 million. Borrowing capacity with the FRB was approximately $127.0 million at March 31, 2021. These facilities are subject to the FHLB and the FRB approving disbursement to us. We also have unsecured federal funds purchased lines of $269.0 million available to us. We anticipate maintaining liquidity at a level sufficient to protect depositors, provide for reasonable growth and fully comply with all regulatory requirements.

In addition to the funding facilities noted above, the Federal Reserve has established the PPPLF, authorized under Section 13(3) of the Federal Reserve Act, that can be used to pledge PPP loans we originate as collateral during the second quarter of 2020 under the CARES Act. Under Section 1102 of the CARES Act, a PPP loan is assigned a zero risk weighting under the risk based capital rules of the federal banking agencies. In addition, an interim rule issued on April 9, 2020 from the federal banking agencies will allow banks to neutralize the effect of PPP loans financed under the PPPLF on leverage capital ratios. We do not anticipate using this facility to provide us with additional liquidity. The interest rate on this facility is fixed at 0.35% for the term of the facility and access to the facility will end June 30, 2021.

Liquidity is essential to our business. Our liquidity could be impaired by an inability to access the capital markets or by unforeseen outflows of cash, including deposits. This situation may arise due to circumstances that we may be unable to control, such as general market disruption, negative views about the financial services industry generally, or an operational problem that affects a third party or us. Our ability to borrow from other financial institutions on favorable terms or at all could be adversely affected by disruptions in the capital markets or other events. As discussed under the caption “Deposits and Other Borrowed Funds” above, we have a deposit concentration related to municipalities at March 31, 2021. While we believe we have a healthy liquidity position and do not anticipate the loss of deposits of any of the significant deposit customers, any of the factors discussed above could materially impact our liquidity position in the future.

### Financial Instruments with Off-Balance-Sheet Risk and Credit Risk

We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet.

The Bank’s maximum exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. We evaluate each customer’s credit worthiness on a case-by-case basis and require collateral to support financial instruments when deemed necessary. The amount of collateral obtained upon extension of credit is based on management’s evaluation of the counterparty. Collateral held varies but may include deposits held by us, marketable securities, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates up to one year or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. These instruments represent obligations to extend credit or guarantee borrowings and are not recorded on the consolidated statements of financial condition. The rates and terms of these instruments are competitive with others in the market in which we do business.

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. Those lines of credit may not be drawn upon to the total extent to which we have committed.

Standby letters of credit are conditional commitments we issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. We hold certificates of deposit, deposit accounts, and real estate as collateral supporting those commitments for which collateral is deemed necessary.

With the exception of these off-balance sheet arrangements, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, changes in financial condition, revenue, expenses, capital expenditures, or capital resources, that is material to the business of the Company.

At March 31, 2021 and December 31, 2020, unused commitments to fund loans and lines of credit totaled $151.1 million and $166.3 million, respectively. Commercial and standby letters of credit totaled $9.5 million and $5.5 million at March 31, 2021 and December 31, 2020, respectively.

## Market risk

As filed, 6,008 characters.

As a financial institution, we are exposed to various business risks, including interest rate risk. Interest rate risk is the risk to earnings and value arising from volatility in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities, changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay loans and depositors’ ability to redeem certificates of deposit before maturity, changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion, and changes in spread relationships between different yield curves, such as U.S. Treasuries and LIBOR. Our goal is to maximize net interest income without incurring excessive interest rate risk. Management of net interest income and interest rate risk must be consistent with the level of capital and liquidity that we maintain. We manage interest rate risk through an asset and liability committee (“ALCO”). ALCO is responsible for managing our interest rate risk in conjunction with liquidity and capital management.

We employ an independent consulting firm to model our interest rate sensitivity. We use a net interest income simulation model as our primary tool to measure interest rate sensitivity. Many assumptions are developed based on expected activity in the balance sheet. For maturing assets, assumptions are created for the redeployment of these assets. For maturing liabilities, assumptions are developed for the replacement of these funding sources. Assumptions are also developed for assets and liabilities that could reprice during the modeled time period. These assumptions also cover how we expect rates to change on non-maturity deposits such as interest checking, money market checking, savings accounts as well as certificates of deposit. Based on inputs that include the current balance sheet, the current level of interest rates and the developed assumptions, the model then produces an expected level of net interest income assuming that market rates remain unchanged. This is considered the base case. Next, the model determines what net interest income would be based on specific changes in interest rates. The rate simulations are performed for a two year period and include ramped rate changes of down 100 basis points to 400 basis points and up 100 basis points to 400 basis points. In both the up and down scenarios, the model assumes a parallel shift in the yield curve. The results of these simulations are then compared to the base case.

Stress testing the balance sheet and net interest income using instantaneous parallel shock movements in the yield curve of 100 to 400 basis points is a regulatory and banking industry practice. However, these stress tests may not represent a realistic forecast of future interest rate movements in the yield curve. In addition, instantaneous parallel interest rate shock modeling is not a predictor of actual future performance of earnings. It is a financial metric used to manage interest rate risk and track the movement of the Bank’s interest rate risk position over a historical time frame for comparison purposes.

At March 31, 2021, our asset/liability position was asset sensitive based on our interest rate sensitivity model in the one-year time frame and asset sensitive in the the two-year time frame. Our net interest income would increase by 2.3% in an up 100 basis point scenario and would increase by 10.7% in an up 400 basis point scenario over a one-year time frame. In the two-year time horizon, our net interest income would increase by 7.7% in an up 100 basis point scenario and would increase by 29.4% in an up 400 basis point scenario. At March 31, 2021 and December 31, 2020, all interest rate risk stress tests measures were within our board policy established limits in each of the increased rate scenarios.

Additional information on our interest rate sensitivity for a static balance sheet over a one-year time horizon as of March 31, 2021 and December 31, 2020 can be found below.

*Interest Rate Risk to Earnings (Net Interest Income)*

| ​ ​ March 31, 2021 Change in interest ​ rates (basis points) | ​ ​ ​ Percentage change in ​ net interest income | ​ ​ December 31, 2020 Change in interest ​ rates (basis points) | ​ ​ Percentage change in net interest income |
| --- | ---: | --- | --- |
| +400 | 10.68% | +400 | −0.62% |
| +300 | 7.94% | +300 | −0.55% |
| +200 | 5.06% | +200 | 0.63% |
| +100 | 2.32% | +100 | 0.54% |
| 0 | — | 0 | — ​ |
| −100 | −2.01% | −100 | −0.07% |
| −200 | −4.71% | −200 | −1.58% |

Economic value of equity (“EVE”) measures the period end market value of assets less the market value of liabilities and the change in this value as rates change. It models simultaneous parallel shifts in market interest rates, implied by the forward yield curve. The EVE model calculates the market value of capital by taking the present value of all asset cash flows less the present value of all liability cash flows.

The interest rate risk to capital at March 31, 2021 and December 31, 2020 is shown below and reflects that our market value of capital is in a liability position in which an increase in short-term interest rates is expected to generate lower market values of capital. At March 31, 2021 and December 31, 2020, all EVE stress tests measures were within our board policy established limits.

*Interest Rate Risk to Capital*

| ​ ​ March 31, 2021 Change in interest rates (basis points) ​ | ​ ​ ​ Percentage change in economic value of equity ​ | ​ ​ December 31, 2020 Change in interest rates (basis points) ​ | ​ ​ Percentage change in economic value of equity |
| --- | ---: | --- | ---: |
| +400 | 8.36% | +400 | 6.64% |
| +300 | 7.15% | +300 | 6.14% |
| +200 | 5.37% | +200 | 4.84% |
| +100 | 2.84% | +100 | 2.68% |
| 0 | — | 0 | — ​ |
| −100 | -7.08% | −100 | -4.15% |
| −200 | -12.40% | −200 | -3.41% |

## Controls and procedures

As filed, 1,259 characters.

The Company maintains disclosure controls and procedures (as defined in Rule 13a - 15(e) under the Exchange Act). As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was carried out under the supervision and with the participation of the Company’s management, including its chief executive officer and chief financial officer. Based on and as of the date of such evaluation, these officers concluded that the Company’s disclosure controls and procedures were effective.

The Company also maintains a system of internal accounting controls that is designed to provide assurance that assets are safeguarded and that transactions are executed in accordance with management’s authorization and are properly recorded. This system is continually reviewed and is augmented by written policies and procedures, the careful selection and training of qualified personnel and an internal audit program to monitor its effectiveness. There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that materially affected, or are likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 169 characters.

There have been no material changes as of March 31, 2021 in the risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

Filed May 13, 2021.
Source: SEC EDGAR, the filing index for accession 0001104659-21-065634. Last ingested by Listed: Nov 5, 2026, 13:22 ET. No prices; not investment advice.