The Community Financial Corporation Reports Record EPS of $1.21 and ROAA of 1.19% for the Second Quarter 2022

WALDORF, Md., July 25, 2022 (GLOBE NEWSWIRE) -- The Community Financial Corporation (NASDAQ:TCFC) (the "Company"), the holding company for Community Bank of the Chesapeake (the "Bank"), today reported record net income for the three months ended June 30, 2022 of $6.8 million, or $1.21 per diluted common share. This compares to net income of $6.3 million, or $1.10 per diluted common share for the first quarter of 2022, and net income of $6.4 million or $1.10 per diluted common share for the quarter ended June 30, 2021. The Company reported record net income for the six months ended June 30, 2022 of $13.1 million or diluted earnings per share of $2.31 compared to net income for the comparable 2021 period of $12.7 million or diluted earnings per share of $2.17.

Second Quarter 2022 Highlights

• Record Net Income: Net income totaled $6.8 million for the quarter ended June 30, 2022, or $1.21 per diluted common share compared to net income of $6.4 million or $1.10 per diluted common share for the quarter ended June 30, 2021 and $6.3 million or $1.10 per diluted common share for the quarter ended March 31, 2022.
• Consistent Profitability: Return on average assets ("ROAA"), return on average common equity ("ROACE") and return on average tangible common equity ("ROATCE") were 1.19%, 14.39% and 15.50% for the three months ended June 30, 2022 compared to 1.22%, 12.62% and 13.62% for the three months ended June 30, 2021. ROAA, ROACE and ROATCE were 1.08%, 12.30% and 13.22% for the three months ended March 31, 2022.
• Expanding Net Interest Margin: Net interest margin increased to 3.25% for the three months ended June 30, 2022 from 3.12% for the first quarter of 2022. Loan and overall interest-earning asset yields increased 14 and 20 basis points to 4.13% and 3.48% in the second quarter of 2022 from 3.99% and 3.28% in the three months ended March 31, 2022. The Company's cost of funds increased six basis points for the comparable three month period from 0.17% to 0.23%.
• Positioned for Rising Rates:
  • Increasing Loan Yields: End of period contractual rates increased by 20 basis points to 4.05% at June 30, 2022 compared to March 31, 2022. The loan portfolio is positioned for rising rates with $481.5 million or 29% of net portfolio loans scheduled to reprice monthly or in the next three months and an additional $53.1 million or 3% repricing in the following nine months. The Bank's effective duration on the loan portfolio was 2.1 years at June 30, 2022.
  • Improved Deposit Franchise: Focused efforts have increased non-interest-bearing accounts to 30.5% of deposits at June 30, 2022 from 22.2% of deposits at June 30, 2021.
• Market Share Gains Delivered Loan Growth: Total portfolio loans increased to $1,652.5 million, an increase of $22.9 million or 5.6% annualized, compared to the prior quarter, and $73.6 million or 9.3% annualized, from December 31, 2021, as the Company continued to gain market share in Virginia. The loan pipeline at June 30, 2022 was $166.0 million, which is expected to provide solid loan growth in the third quarter.
• Improving Asset Quality: Non-accrual loans, OREO and TDRs were $6.7 million or 0.29% of total assets at June 30, 2022 compared to $7.9 million or 0.34% of total assets at March 31, 2022, and $15.8 million or 0.72% at June 30, 2021.
• Proactive Compensation Adjustments to Attract and Retain Employees: In May of 2022, management approved a 4% base compensation increase for non-executive employees to attract and retain employees. The Bank also increased its minimum starting wage from $17.00 per hour to $20.00 per hour. Management expects total noninterest expenses of $9.6 million to $9.7 million for the third quarter of 2022.
• Continued Virginia Expansion: The Bank opened its second Virginia branch in May 2022 in Fredericksburg. Additionally, with our Virginia lending team managing approximately 50% of the Bank's loans, the Bank intends to open a loan production office in Charlottesville in the fourth quarter of 2022 to support our existing efforts there.

Management Commentary

"I'm very proud of what we've accomplished and the bank we've built over the past eight years since I was named as CEO," stated William J. Pasenelli, Chief Executive Officer. "We have built on our position as the leading community bank in Southern Maryland to profitably grow assets, improve our deposit franchise and expand into Virginia. Our success reflects our unwavering commitment to serve the financial needs of the communities in which we live and work. I am confident that Community Bank of the Chesapeake's best days are ahead."

"Net interest income increased $1.1 million to $17.6 million during the second quarter as loan growth combined with increasing yields and stable funding costs. Net interest margin for the period increased 13 basis points and should see further improvement as a large percentage of our loans should reprice upwards over the next few months," stated James M. Burke, President. "We remain focused on delivering results to our communities, customers, employees and shareholders. Our asset sensitivity, low-cost deposit franchise, solid loan growth and continued cost discipline should position the Company to improve our profitability in the second half of the year."

"Also during the second quarter, we supported our most important asset – our employees – as we approved a 4% increase to base compensation and increased our minimum hourly wage to $20.00. We have a great team and our increased performance over the last several years is due to their execution of our strategic plan. It is critically important to continue to attract and retain the best and brightest employees, and these compensation actions recognized the impact inflation is having on their daily lives," continued Burke. "Our employees are exceptionally efficient with the support of innovative technology, and we are optimistic that our commitment to them will continue to drive increasing profitability."

Results of Operations

		(UNAUDITED)
		Three Months Ended June 30,
(dollars in thousands)			2022			2021		$ Change				% Change
Interest and dividend income		$	18,774		$	17,444		$	1,330			7.6	%
Interest expense			1,206			1,009			197			19.5	%
Net interest income			17,568			16,435			1,133			6.9	%
Provision for credit losses			425			291			134			46.0	%
Provision for unfunded commitments			26			—			26			0.0	%
Noninterest income			1,424			1,856			(432	)		(23.3	)%
Noninterest expense			9,338			9,378			(40	)		(0.4	)%
Income before income taxes			9,203			8,622			607			7.0	%
Income tax expense			2,369			2,190			179			8.2	%
Net income		$	6,834		$	6,432		$	428			6.7	%

		(UNAUDITED)
		Six Months Ended June 30,
(dollars in thousands)			2022				2021		$ Change				% Change
Interest and dividend income		$	36,110			$	35,122		$	988			2.8	%
Interest expense			2,073				2,178			(105	)		(4.8	)%
Net interest income			34,037				32,944			1,093			3.3	%
Provision for credit losses			875				586			289			49.3	%
Recovery for unfunded commitments			(5	)			—			(5	)		—	%
Noninterest income			2,875				4,216			(1,341	)		(31.8	)%
Noninterest expense			18,418				19,526			(1,108	)		(5.7	)%
Income before income taxes			17,624				17,048			571			3.3	%
Income tax expense			4,502				4,317			185			4.3	%
Net income		$	13,122			$	12,731		$	386			3.0	%

Net Interest Income

Net interest income for the comparable quarters increased primarily from growth in investments and increases in interest-earning asset yields partially offset by increased interest expense from higher funding volume. Net interest margin of 3.25% for the three months ended June 30, 2022 decreased 12 basis points from 3.37% for the three months ended June 30, 2021 and increased 13 basis points from 3.12% for the three months ended March 31, 2022. Net interest margin expanded during the second quarter of 2022, primarily due to average yields on loans and investments increasing to 4.13% and 1.52% for the three months ended June 30, 2022 from 3.99% and 1.33% for the three months ended March 31, 2022. Interest income from the Company's participation in the U.S. SBA PPP program was $0.3 million and $1.3 million for the three months ended June 30, 2022 and June 30, 2021, respectively and $0.5 million for the three months ended March 31, 2022.

Net interest income increased for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 due primarily to growth in investments partially offset by decreased interest expense from lower long-term funding volume. Loan interest income decreased $0.5 million to $32.4 million for the six months ended June 30, 2022 from $32.9 million for the three months ended June 30, 2021. Excluding U.S. SBA PPP loan interest income for the same comparable periods increased $1.8 million to $31.6 million from $29.8 million. Net interest margin of 3.19% for the six months ended June 30, 2022 was 24 basis points lower than the 3.43% for the six months ended June 30, 2021. U.S. SBA PPP loan interest positively impacted margins by five basis points for the six months ended June 30, 2022 and 13 basis points for the six months ended June 30, 2021.

The Company's cost of funds was 0.23% during the second quarter of 2022 compared to 0.17% for the prior quarter and increased from 0.21% for the three months ended June 30, 2021. The Bank's interest rate asset sensitivity improved as average non-interest bearing deposit accounts increased to 31.8% of total average deposits for the second quarter of 2022 compared to 22.1% for the comparable period in 2021 and 29.6% for the previous quarter. Management is optimistic that improvements in the Bank's funding composition will benefit margins and profitability in an increasing interest-rate environment. The Company's cost of funds was 0.20% during the first six months of 2022 compared to 0.23% for the six months ended June 30, 2021.

Noninterest Income

The $0.4 million decrease in noninterest income in the current quarter was principally due to no interest rate protection referral fee income compared to $0.6 million for the three months ended June 30, 2021. In addition, changes in interest rates resulted in $0.2 million of unrealized losses on securities invested in a Community Reinvestment Act mutual fund which contributed to the overall decrease. These reductions in noninterest income for the comparable quarters were partially offset by increases in service charges of $0.2 million due to increased interchange fees and gains of $0.2 million from the sale of two impaired loans. Noninterest income as a percentage of average assets was 0.25% and 0.35%, respectively, for the three months ended June 30, 2022 and 2021.

The $1.3 million decrease in noninterest income for the six months ended June 30, 2022 compared to the same period in the prior year was principally due to reductions in interest rate protection referral fee income of $0.7 million, $0.6 million in gains on the sale of investment securities sold in the first six months of 2021 and $0.3 million in unrealized losses on securities invested in a Community Reinvestment Act mutual fund in the first six months of 2022 due to changes in interest rates. These reductions for the comparable periods were partially offset by $0.4 million related to the sale of impaired loans. In the first quarter of 2021, the Bank sold non-accrual and classified commercial real estate and residential mortgage loans and recognized a loss on the sale of $0.2 million and in the second quarter of 2022, impaired loan sales resulted in a gain of $0.2 million. Noninterest income as a percentage of assets was 0.25% and 0.40%, respectively, for the six months ended June 30, 2022 and 2021.

Noninterest Expense

Noninterest expense of $9.3 million for the three months ended June 30, 2022 decreased $40,000 or 0.4% compared to the three months ended June 30, 2021. The flat overall expense run rate for the comparable periods were primarily due to decreases of $0.3 million in compensation and benefits and $0.5 million in OREO expenses, partially offset by increases of $0.1 million in occupancy expenses and $0.2 million in professional fees as well as a fraud recovery of $0.2 million in the second quarter of 2021.

Noninterest expense of $18.4 million decreased $1.1 million or 5.7% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease in noninterest expense for the comparable periods was primarily due to decreases in fraud losses of $1.0 million and $0.7 million in OREO expenses. If the allocation of deferred costs for U.S. SBA PPP loans originated were included in noninterest expense for the six months ended June 30, 2021, compensation and benefits and the overall variance in expenses would increase by $0.3 million. These decreases to noninterest expense were partially offset by increases in professional fees of $0.3 million and $0.1 million in occupancy expense. Noninterest expense in the first six months of 2021 included a $1.3 million initial expense and subsequent recovery of $0.2 million related to an isolated wire transfer fraud incident. Our investigation determined that no information systems of the Bank were compromised, and no employee fraud was involved. OREO expenses have moderated as the Bank has been successful at disposing foreclosed assets over the last two years, which have been reduced from $1.5 million at June 30, 2021 to no OREO assets at June 30, 2022. Excluding the impact of the $1.1 million isolated fraud losses and the $0.3 million in U.S. SBA PPP deferred costs, the Company's noninterest expense was $18.7 million for the six months ended June 30, 2021.

Lower than anticipated health care costs and a lower average full-time equivalent headcount contributed to a lower expense run rate in the first six months of 2022. In addition, compensation and benefits expense has benefited from the Company's increased use of technology. In the second quarter, the Bank increased base compensation by 4% and its minimum starting wage to $20.00 per hour for non-executive employees to address local wage pressures caused by inflation and to attract and retain our employees. Management's projected quarterly expense run rate for the third quarter of 2022 is estimated between $9.6 million and $9.7 million and includes consideration of the base compensation increases and an average FTE count of 195-197 employees.

The Company's efficiency ratio was 49.17% and 49.90% for the three and six months ended June 30, 2022 compared to 51.27% and 52.55% for the three and six months ended June 30, 2021. The Company's net operating expense ratio was 1.38% and 1.35% for the three and six months ended June 30, 2022 compared to 1.42% and 1.46% for the three and six months ended June 30, 2021. The efficiency and net operating expense ratios have improved (decreased) as the Company has been able to improve asset quality and generate more operating revenues while controlling expense growth.

Income Tax Expense

The effective tax rate for the three months ended June 30, 2022 was 25.74% compared to an effective tax rate of 25.40% for the three months ended June 30, 2021. The effective tax rate for the six months ended June 30, 2022 was 25.54% compared to an effective tax rate of 25.32% for the six months ended June 30, 2021.

Balance Sheet

Assets

Total assets decreased $3.8 million, or 0.2%, to $2.32 billion at June 30, 2022 compared to total assets of $2.33 billion at December 31, 2021. Cash decreased a net of $51.5 million and was used to fund net loan growth of $49.3 million. In addition, deferred tax assets increased $11.2 million to $20.2 million primarily due to the adoption of the current expected credit losses ("CECL") accounting standard on January 1, 2022 and increases in unrealized losses of the Bank's AFS investment portfolio related to changes in interest rates.

During the second quarter of 2022, total net loans, which include portfolio loans and U.S. SBA PPP loans, increased 3.1% annualized or $12.6 million from $1,623.4 million at March 31, 2022 to $1,636.1 million at June 30, 2022. Net portfolio loans increased 5.7% annualized or $22.9 million from $1,608.2 million at March 31, 2022 to $1,631.1 million at June 30, 2022. Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio. The Company's loan pipeline was $166.0 million at June 30, 2022.

Non-owner occupied commercial real estate as a percentage of risk-based capital at June 30, 2022 and December 31, 2021 were $893.9 million or 351% and $813.0 million or 331%, respectively. Construction loans as a percentage of risk-based capital at June 30, 2022 and December 31, 2021 were $133.1 million or 52% and $140.4 million or 57%, respectively.

Funding

Total deposits increased $29.2 million or 1.4% (2.8% annualized) at June 30, 2022 compared to December 31, 2021. The increase included a $42.3 million increase to transaction deposits offset by a $13.1 million decrease to time deposits. During the first six months of 2022, non-interest-bearing demand deposits increased $189.9 million to $635.6 million at June 30, 2022, representing 30.5% of deposits, compared to 21.7% of deposits at December 31, 2021. The Company's business development efforts continue to focus on increasing non-interest bearing and lower cost transaction accounts.

Stockholders' Equity and Regulatory Capital

During the six months ended June 30, 2022, total stockholders' equity decreased $23.3 million. Equity increased due to net income of $13.1 million and net stock related activities in connection with stock-based compensation and ESOP activity of $0.5 million. The decrease in equity was primarily due to an increase of $29.9 million in accumulated other comprehensive loss ("AOCL") in the Bank's AFS securities portfolio due to changes in market interest rates. In addition, equity decreased for common dividends paid of $1.9 million, stock repurchases of $3.0 million and $2.0 million for the adoption of the CECL accounting standard on January 1, 2022.

The Company's common equity to assets ratio decreased to 7.96% at June 30, 2022 from 8.94% at December 31, 2021. The Company's ratio of tangible common equity ("TCE") to tangible assets decreased to 7.49% at June 30, 2022 from 8.48% at December 31, 2021 (see Non-GAAP reconciliation schedules) due primarily to increases in AOCL. Regulatory capital was not impacted by the increase in AOCL and Tier 1 capital to average asset ratios at the Bank and the Company remained strong at 10.12% and 9.42% at June 30, 2022 compared to 9.95% and 9.23% at December 31, 2021.

On December 9, 2021, the Company announced its Board of Directors approved the resumption of repurchases allowed under the stock repurchase plan originally adopted in October 2020 (the "2020 Repurchase Plan"). The Company was permitted to repurchase up to the 99,450 shares remaining under the 2020 Repurchase Plan using up to $4.0 million in the aggregate and up to $1.5 million in the aggregate on a quarterly basis. During the second quarter of 2022, the Company repurchased 38,017 shares at an average price of $39.43 per share. At June 30, 2022 the Company had $0.6 million remaining under the $4.0 million authorization and 13,647 shares available to be repurchased under the 2020 Repurchase Plan.

Asset Quality

Allowance for credit losses ("ACL") and provision for credit losses ("PCL"); Allowance for Loan Losses ("ALLL") and provision for loan losses ("PLL")¹; Classified and Non-Performing Assets

On January 1, 2022, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology for determining our ACL with an expected loss methodology that is referred to as the CECL. The measurement of expected credit losses under the CECL methodology applies to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. In addition, ASU 2016-13 made changes to the accounting for available-for-sale ("AFS") debt securities. Credit- related impairments on AFS debt securities are now recognized as an allowance for credit loss rather than a write-down of the securities' amortized cost basis when management does not intend to sell or believes that it is not likely that they will be required to sell the securities prior to recovery of the securities amortized cost basis. We adopted ASU 2016-13 using the modified retrospective method. Results for reporting periods beginning after January 1, 2022 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. At adoption, the Company did not hold Held to Maturity ("HTM") investment debt securities.

The impact at adoption was an increase to the ACL of $2.5 million, the recording of a reserve for unfunded commitments of $0.2 million and a decrease in retained earnings of $2.0 million.

ACL balances increased to 1.30% of portfolio loans at June 30, 2022 compared to an ALLL of 1.17% of portfolio loans at December 31, 2021. At and for the three months ended June 30, 2022, the Company's ACL increased $3.0 million or 16.2% to $21.4 million at June 30, 2022 from $18.4 million at December 31, 2021. The Company recorded a $0.4 million and $0.9 million PCL for the three and six months ended June 30, 2022 compared to a $0.3 million and $0.6 million PLL for the three and six months ended June 30, 2021. There were $0.4 million in net charge-offs during the six months ended June 30, 2022 compared to $1.5 million in net charge-offs for the six months ended June 30, 2021.

Management believes that the allowance is adequate at June 30, 2022.

Classified assets increased $0.9 million from $5.2 million at December 31, 2021 to $6.1 million at June 30, 2022. Management considers classified assets to be an important measure of asset quality. The Company's risk rating process for classified loans is an important factor in the Company's ACL qualitative framework. Management remains committed to expeditiously resolving non-performing or substandard credits that are not likely to become performing or passing credits in a reasonable timeframe.

During 2021, classified assets decreased $17.1 million. Asset quality improved with the resolution of $16.9 million in non-accrual and impaired loans through loan sales and negotiated payoffs, as well as the resolution of $3.1 million in OREO. The Company's sale of impaired loans decreased the specific reserve, improved asset quality, and improved several ALLL qualitative factors.

The ratio of non-accrual loans and OREO to total portfolio loans and OREO decreased 10 basis points from 0.48% at December 31, 2021 to 0.38% at June 30, 2022. The ratio of non-accrual loans, OREO and TDRs to total assets decreased six basis points from 0.35% at December 31, 2021 to 0.29% at June 30, 2022. 

Non-accrual loans decreased $1.4 million from $7.6 million at December 31, 2021 to $6.2 million at June 30, 2022. There were no OREO balances at June 30, 2022 and December 31, 2021.

About The Community Financial Corporation - Headquartered in Waldorf, MD, The Community Financial Corporation is the bank holding company for Community Bank of the Chesapeake, a full-service commercial bank with assets of approximately $2.3 billion. Through its branch offices and commercial lending centers, Community Bank of the Chesapeake offers a broad range of financial products and services to individuals and businesses. The Company's branches are located at its main office in Waldorf, Maryland, and branch offices in Bryans Road, Dunkirk, Leonardtown, La Plata, Charlotte Hall, Prince Frederick, Lusby and California, Maryland; and Fredericksburg - Downtown and Fredericksburg - Harrison Crossing, Virginia. More information about Community Bank of the Chesapeake can be found at www.cbtc.com.

Use of non-GAAP Financial Measures - Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. The Company's management uses these non-GAAP financial measures, and believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

Forward-looking Statements - This news release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements can generally be identified by the fact that they do not relate strictly to historical or current facts. They often include words like "believe," "expect," "anticipate," "estimate", "assume" and "intend" or future or conditional verbs such as "will," "would," "should," "could" or "may." Statements in this release that are not strictly historical are forward-looking and are based upon current expectations that may differ materially from actual results. These forward-looking statements include, without limitation: (i) those relating to the Company's and the Bank's future growth and management's outlook or expectations for revenue, assets, asset quality, profitability, business prospects, net interest margin, non-interest revenue, allowance for loan losses, the level of credit losses from lending, liquidity levels, capital levels, or other future financial or business performance strategies or expectations; (ii) any statements of the plans and objectives of management for future operations products or services, including the expected benefits from, and/or the execution of integration plans relating to any acquisition we have undertaken or that we undertake in the future; (iii) plans and cost savings regarding branch closings or consolidation; (iv) projections related to certain financial metrics; (v) expected benefits of programs we introduce, including residential mortgage programs and retail and commercial credit card programs; and (vi) any statement of expectation or belief, and any assumptions underlying the foregoing. These forward-looking statements express management's current expectations or forecasts of future events, results and conditions, and by their nature are subject to and involve risks and uncertainties that could cause actual results to differ materially from those anticipated by the statements made herein. Factors that might cause actual results to differ materially from those made in such statements include, but are not limited to: (i) risks, uncertainties and other factors relating to the COVID-19 pandemic (including the length of time that the pandemic continues; the ability of states and local governments to successfully implement the lifting of restrictions on movement and the potential imposition of further restrictions on movement and travel in the future, 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); (ii) the impacts related to or resulting from Russia's military action in Ukraine, including the broader impacts to financial markets and the global macroeconomic and geopolitical environments; (iii) assumptions that interest-earning assets will reprice faster than interest-bearing liabilities and the Bank's ability to maintain its current favorable funding mix; (iv) the synergies and other expected financial benefits from any acquisition that we have undertaken or may undertake in the future may or may not be realized within the expected time frames; (v) changes in the Company's or the Bank's strategy, costs or difficulties related to integration matters might be greater than expected; (vi) availability of and costs associated with obtaining adequate and timely sources of liquidity; (vii) the ability to maintain credit quality; (viii) general economic trends and conditions, including inflation and its impacts; (ix) changes in interest rates; (x) loss of deposits and loan demand to other financial institutions; (xi) substantial changes in financial markets; (xii) changes in real estate value and the real estate market; (xiii) regulatory changes; (xiv) the impact of government shutdowns or sequestration; (xv) the possibility of unforeseen events affecting the industry generally; (xvi) the uncertainties associated with newly developed or acquired operations; (xvii) the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future; (xiii) market disruptions and other effects of terrorist activities; and (xix) the matters described in "Item 1A Risk Factors" in the Company's Annual Report on Form 10-K for the Year Ended December 31, 2021, and in its other Reports filed with the Securities and Exchange Commission (the "SEC"). The Company's forward-looking statements may also be subject to other risks and uncertainties, including those that it may discuss elsewhere in this news release or in its filings with the SEC, accessible on the SEC's Web site at www.sec.gov. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required under the rules and regulations of the SEC.

Data is unaudited as of June 30, 2022. This selected information should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

CONTACTS:

William J. Pasenelli, Chief Executive Officer

Todd L. Capitani, Chief Financial Officer

888.745.2265

SUPPLEMENTAL QUARTERLY FINANCIAL DATA

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

		Three Months Ended
(dollars in thousands)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Interest and Dividend Income
Loans, including fees		$	16,772			$	15,610			$	16,222			$	16,342			$	16,320
Interest and dividends on securities			1,924				1,666				1,531				1,296				1,101
Interest on deposits with banks			78				60				25				21				23
Total Interest and Dividend Income			18,774				17,336				17,778				17,659				17,444
Interest Expense
Deposits			819				513				565				594				640
Short-term borrowings			16				—				—				—				—
Long-term debt			371				354				332				456				369
Total Interest Expense			1,206				867				897				1,050				1,009
Net Interest Income ("NII")			17,568				16,469				16,881				16,609				16,435
Provision for credit losses			425				450				—				—				291
Provision (recovery) for unfunded commitments			26				(31	)			—				—				—
NII After Provision For Credit Losses			17,117				16,050				16,881				16,609				16,144
Noninterest Income
Loan appraisal, credit, and misc. charges			44				176				257				29				44
Gain on sale of assets			—				—				—				—				68
Unrealized (losses) gain on equity securities			(155	)			(222	)			(45	)			(22	)			13
Loss on premises and equipment held for sale			—				—				(5	)			(20	)			—
Income from bank owned life insurance			217				214				219				220				218
Service charges			1,108				926				1,235				987				892
Referral fee income			—				361				574				176				621
Net gains (losses) on sale of loans originated for sale			1				(4	)			55				30				—
Gains on sale of loans			209				—				—				—				—
Total Noninterest Income			1,424				1,451				2,290				1,400				1,856
Noninterest Expense
Compensation and benefits			5,051				5,055				5,265				5,650				5,332
OREO valuation allowance and expenses			—				6				767				20				488
Sub Total			5,051				5,061				6,032				5,670				5,820
Operating Expenses
Occupancy expense			820				732				656				731				688
Advertising			159				64				128				145				148
Data processing expense			1,008				1,007				1,006				840				990
Professional fees			845				731				937				676				604
Depreciation of premises and equipment			150				149				139				137				135
FDIC Insurance			177				179				90				120				140
Core deposit intangible amortization			102				109				115				121				126
Fraud losses (recovery)			30				40				16				133				(217	)
Other expenses			996				1,008				1,060				874				944
Total Operating Expenses			4,287				4,019				4,147				3,777				3,558
Total Noninterest Expense			9,338				9,080				10,179				9,447				9,378
Income before income taxes			9,203				8,421				8,992				8,562				8,622
Income tax expense			2,369				2,133				2,241				2,158				2,190
Net Income		$	6,834			$	6,288			$	6,751			$	6,404			$	6,432

SUPPLEMENTAL QUARTERLY FINANCIAL DATA - Continued

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(dollars in thousands, except per share amounts)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Assets
Cash and due from banks		$	16,164			$	80,702			$	108,990			$	112,314			$	40,881
Federal funds sold			37,320				—				—				—				79,404
Interest-bearing deposits with banks			34,659				32,460				30,664				34,929				18,626
Securities available for sale ("AFS"), at fair value			485,456				507,527				497,839				456,664				347,678
Equity securities carried at fair value through income			4,423				4,562				4,772				4,805				4,814
Non-marketable equity securities held in other financial institutions			207				207				207				207				207
Federal Home Loan Bank ("FHLB") stock - at cost			1,234				1,685				1,472				1,472				2,036
Loans held for sale			—				373				—				—				—
Net U.S. Small Business Administration ("SBA") Paycheck Protection ("PPP") Loans			5,022				15,279				26,398				54,807				86,482
Portfolio Loans Receivable net of allowance for credit losses of $21,404, $21,382, $18,417, $18,579, and $18,516			1,631,055				1,608,156				1,560,393				1,514,837				1,515,893
Net Loans			1,636,077				1,623,435				1,586,791				1,569,644				1,602,375
Goodwill			10,835				10,835				10,835				10,835				10,835
Premises and equipment, net			21,802				21,304				21,427				21,795				21,630
Other real estate owned ("OREO")			—				—				—				1,536				1,536
Accrued interest receivable			6,099				5,389				5,588				6,045				6,590
Investment in bank owned life insurance			39,363				39,145				38,932				38,713				38,493
Core deposit intangible			821				924				1,032				1,147				1,267
Net deferred tax assets			20,223				15,523				9,033				8,790				8,139
Right of use assets - operating leases			6,123				6,033				6,124				6,215				6,305
Other assets			2,708				1,819				3,600				3,581				4,243
Total Assets		$	2,323,514			$	2,351,923			$	2,327,306			$	2,278,692			$	2,195,059
Liabilities and Stockholders' Equity
Liabilities
Deposits
Non-interest-bearing deposits		$	635,649			$	644,385			$	445,778			$	432,606			$	423,165
Interest-bearing deposits			1,449,727				1,450,698				1,610,386				1,572,001				1,484,973
Total deposits			2,085,376				2,095,083				2,056,164				2,004,607				1,908,138
Long-term debt			—				12,213				12,231				12,249				27,267
Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPs")			12,000				12,000				12,000				12,000				12,000
Subordinated notes - 4.75%			19,538				19,524				19,510				19,496				19,482
Lease liabilities - operating leases			6,372				6,266				6,343				6,418				6,512
Accrued expenses and other liabilities			15,357				13,697				12,925				19,794				17,698
Total Liabilities			2,138,643				2,158,783				2,119,173				2,074,564				1,991,097
Stockholders' Equity
Common stock			56				57				57				57				58
Additional paid in capital			97,455				97,189				96,896				96,649				96,411
Retained earnings			119,523				115,179				113,448				107,890				104,889
Accumulated other comprehensive (loss) income			(31,847	)			(18,969	)			(1,952	)			(9	)			3,063
Unearned ESOP shares			(316	)			(316	)			(316	)			(459	)			(459	)
Total Stockholders' Equity			184,871				193,140				208,133				204,128				203,962
Total Liabilities and Stockholders' Equity		$	2,323,514			$	2,351,923			$	2,327,306			$	2,278,692			$	2,195,059
Common shares issued and outstanding			5,649,729				5,686,799				5,718,528				5,724,011				5,786,928

SUPPLEMENTAL QUARTERLY FINANCIAL DATA - Continued

SELECTED FINANCIAL INFORMATION AND RATIOS (UNAUDITED)

		Three Months Ended
(dollars in thousands, except per share amounts)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
KEY OPERATING RATIOS
Return on average assets ("ROAA")			1.19	%			1.08	%			1.18	%			1.17	%			1.22	%
Pre-tax Pre-Provision ROAA**			1.68				1.53				1.57				1.57				1.68
Return on average common equity ("ROACE")			14.39				12.30				13.00				12.45				12.62
Pre-tax Pre-Provision ROACE**			20.33				17.35				17.31				16.65				17.49
Return on Average Tangible Common Equity ("ROATCE")**			15.50				13.22				13.97				13.41				13.62
Average total equity to average total assets			8.28				8.79				9.06				9.40				9.63
Interest rate spread			3.14				3.05				3.17				3.22				3.30
Net interest margin			3.25				3.12				3.22				3.28				3.37
Cost of funds			0.23				0.17				0.17				0.21				0.21
Cost of deposits			0.16				0.10				0.11				0.12				0.14
Cost of debt			3.81				3.24				3.04				3.19				2.51
Efficiency ratio			49.17				50.67				53.10				52.46				51.27
Non-interest income to average assets			0.25				0.25				0.40				0.26				0.35
Non-interest expense to average assets			1.63				1.56				1.78				1.73				1.77
Net operating expense to average assets			1.38				1.31				1.38				1.47				1.42
Average interest-earning assets to average interest-bearing liabilities			150.34				141.56				129.68				132.54				131.36
Net charge-offs (recoveries) to average portfolio loans			0.10				0.00				0.04				(0.02	)			0.01
COMMON SHARE DATA
Basic net income per common share		$	1.21			$	1.11			$	1.18			$	1.12			$	1.10
Diluted net income per common share			1.21				1.10				1.18				1.12				1.10
Cash dividends paid per common share			0.175				0.175				0.150				0.15				0.15
Basic - weighted average common shares outstanding			5,647,821				5,688,221				5,711,746				5,709,814				5,845,009
Diluted - weighted average common shares outstanding			5,657,733				5,699,038				5,723,011				5,720,001				5,856,954
ASSET QUALITY
Total assets		$	2,323,514			$	2,351,923			$	2,327,306			$	2,278,692			$	2,195,059
Total portfolio loans (1)			1,652,459				1,629,538				1,578,810				1,533,416				1,534,409
Classified assets			6,062				4,745				5,211				6,663				14,918
Allowance for credit losses			21,404				21,382				18,417				18,579				18,516
Past due loans - 31 to 89 days			900				386				568				189				101
Past due loans >=90 days			147				1,233				961				1,400				5,836
Total past due loans (2) (3)			1,047				1,619				1,529				1,589				5,937
Non-accrual loans (4)			6,235				7,465				7,631				5,160				13,802
Accruing troubled debt restructures ("TDRs")			439				442				447				455				503
Other real estate owned ("OREO")			—				—				—				1,536				1,536
Non-accrual loans, OREO and TDRs		$	6,674			$	7,907			$	8,078			$	7,151			$	15,841

** Non-GAAP financial measure. See reconciliation of GAAP and NON-GAAP measures.

____________________________________

(1) Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio. Asset quality ratios for loans exclude U.S. SBA PPP loans. December 31, 2021, September 30, 2021 and June 30, 2021 reported balance are shown net of deferred costs and fees to conform with the current period's presentation.

(2) Delinquency excludes Purchase Credit Impaired ("PCI") loans for December 31, 2021, September 30, 2021 and June 30, 2021.

(3) There were no COVID-19 deferred loans in process as of July 25, 2022 that were reported as delinquent as of June 30, 2022.

(4) Non-accrual loans include all loans that are 90 days or more delinquent and loans that are non-accrual due to the operating results or cash flows of a customer. Non-accrual loans can include loans that are current with all loan payments. At June 30, 2022 and December 31, 2021, the Company had current non-accrual loans of $6.1 million and $6.7 million, respectively.

SUPPLEMENTAL QUARTERLY FINANCIAL DATA - Continued

SELECTED FINANCIAL INFORMATION AND RATIOS (UNAUDITED)

		Three Months Ended
(dollars in thousands, except per share amounts)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
ASSET QUALITY RATIOS (1)
Classified assets to total assets			0.26	%			0.20	%			0.22	%			0.29	%			0.68	%
Classified assets to risk-based capital			2.35				1.87				2.10				2.75				6.24
Allowance for credit losses to total portfolio loans			1.30				1.31				1.17				1.21				1.21
Allowance for credit losses to non-accrual loans			343.29				286.43				241.34				360.06				134.15
Past due loans - 31 to 89 days to total portfolio loans			0.05				0.02				0.04				0.01				0.01
Past due loans >=90 days to total portfolio loans			0.01				0.08				0.06				0.09				0.38
Total past due (delinquency) to total portfolio loans			0.06				0.10				0.10				0.10				0.39
Non-accrual loans to total portfolio loans			0.38				0.46				0.48				0.34				0.90
Non-accrual loans and TDRs to total portfolio loans			0.40				0.49				0.51				0.37				0.93
Non-accrual loans and OREO to total portfolio assets			0.27				0.32				0.33				0.29				0.70
Non-accrual loans and OREO to total portfolio loans and OREO			0.38				0.46				0.48				0.44				1.00
Non-accrual loans, OREO and TDRs to total assets			0.29				0.34				0.35				0.31				0.72
COMMON SHARE DATA
Book value per common share		$	32.72			$	33.96			$	36.40			$	35.66			$	35.25
Tangible book value per common share**			30.66				31.90				34.32				33.57				33.15
Common shares outstanding at end of period			5,649,729				5,686,799				5,718,528				5,724,011				5,786,928
OTHER DATA
Full-time equivalent employees			190				191				186				196				189
Branches			12				11				11				11				11
Loan Production Offices			4				4				4				4				4
CAPITAL RATIOS
Tier 1 capital to average assets			9.42	%			9.17	%			9.23	%			9.41	%			9.57	%
Tier 1 common capital to risk-weighted assets			11.66				11.58				11.92				11.89				11.56
Tier 1 capital to risk-weighted assets			12.34				12.28				12.64				12.64				12.30
Total risk-based capital to risk-weighted assets			14.68				14.65				14.92				14.99				14.62
Common equity to assets			7.96				8.21				8.94				8.96				9.29
Tangible common equity to tangible assets **			7.49				7.75				8.48				8.48				8.79

** Non-GAAP financial measure. See reconciliation of GAAP and NON-GAAP measures.

____________________________________

(1) Asset quality ratios are calculated using total portfolio loans. Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio.

  

SUPPLEMENTAL YEAR TO DATE FINANCIAL DATA

CONSOLIDATED INCOME STATEMENT (UNAUDITED)

		Six Months Ended June 30,
(dollars in thousands)			2022				2021
Interest and Dividend Income
Loans, including fees		$	32,382			$	32,912
Interest and dividends on securities			3,590				2,165
Interest on deposits with banks			138				45
Total Interest and Dividend Income			36,110				35,122
Interest Expense
Deposits			1,332				1,442
Short-term borrowings			16				—
Long-term debt			725				736
Total Interest Expense			2,073				2,178
Net Interest Income ("NII")			34,037				32,944
Provision for credit losses			875				586
Recovery for unfunded commitments			(5	)			—
NII After Provision for Credit Losses			33,167				32,358
Noninterest Income
Loan appraisal, credit, and misc. charges			220				242
Gain on sale of assets			—				68
Net gains on sale of investment securities			—				586
Unrealized losses on equity securities			(377	)			(72	)
Income from bank owned life insurance			431				432
Service charges			2,034				2,079
Referral fee income			361				1,072
Net losses on sale of loans originated for sale			(3	)			—
Gains (losses) on sale of loans			209				(191	)
Total Noninterest Income			2,875				4,216
Noninterest Expense
Compensation and benefits			10,106				10,120
OREO valuation allowance and expenses			6				669
Sub-total			10,112				10,789
Operating Expense
Occupancy expense			1,552				1,449
Advertising			223				227
Data processing expense			2,015				1,926
Professional fees			1,576				1,244
Depreciation of premises and equipment			299				282
FDIC Insurance			356				392
Core deposit intangible amortization			211				259
Fraud losses			70				1,112
Other expenses			2,004				1,846
Total Operating Expense			8,306				8,737
Total Noninterest Expense			18,418				19,526
Income before income taxes			17,624				17,048
Income tax expense			4,502				4,317
Net Income		$	13,122			$	12,731

SUPPLEMENTAL YEAR TO DATE FINANCIAL DATA (UNAUDITED)

		Six Months Ended June 30,
			2022				2021
KEY OPERATING RATIOS
Return on average assets ("ROAA")			1.14	%			1.22	%
Pre-tax Pre-Provision ROAA**			1.60				1.68
Return on average common equity ("ROACE")			13.31				12.57
Pre-tax Pre-Provision ROACE**			18.76				17.41
Return on Average Tangible Common Equity ("ROATCE")			14.32				13.59
Average total equity to average total assets			8.54				9.67
Interest rate spread			3.10				3.36
Net interest margin			3.19				3.43
Cost of funds			0.20				0.23
Cost of deposits			0.13				0.16
Cost of debt			3.51				2.50
Efficiency ratio			49.90				52.55
Non-interest income to average assets			0.25				0.40
Non-interest expense to average assets			1.59				1.87
Net operating expense to average assets			1.35				1.46
Average interest-earning assets to average interest-bearing liabilities			145.89				130.12
Net charge-offs to average portfolio loans			0.05				0.20
COMMON SHARE DATA
Basic net income per common share		$	2.32			$	2.17
Diluted net income per common share			2.31				2.17
Cash dividends paid per common share			0.35				0.28
Weighted average common shares outstanding:
Basic			5,667,909				5,866,510
Diluted			5,678,165				5,877,698

____________________________________

** Non-GAAP financial measure. See reconciliation of GAAP and NON-GAAP measures.

RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)

Reconciliation of U.S. GAAP total assets, common equity, common equity to assets and book value to Non-GAAP tangible assets, tangible common equity, tangible common equity to tangible assets and tangible book value.

This press release, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with generally accepted accounting principles, or GAAP. This financial information includes certain performance measures, which exclude intangible assets. These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company.

(dollars in thousands, except per share amounts)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Total assets		$	2,323,514			$	2,351,923			$	2,327,306			$	2,278,692			$	2,195,059
Less: intangible assets
Goodwill			10,835				10,835				10,835				10,835				10,835
Core deposit intangible			821				924				1,032				1,147				1,267
Total intangible assets			11,656				11,759				11,867				11,982				12,102
Tangible assets		$	2,311,858			$	2,340,164			$	2,315,439			$	2,266,710			$	2,182,957
Total common equity		$	184,871			$	193,140			$	208,133			$	204,128			$	203,962
Less: intangible assets			11,656				11,759				11,867				11,982				12,102
Tangible common equity		$	173,215			$	181,381			$	196,266			$	192,146			$	191,860
Common shares outstanding at end of period			5,649,729				5,686,799				5,718,528				5,724,011				5,786,928
Common equity to assets			7.96	%			8.21	%			8.94	%			8.96	%			9.29	%
Tangible common equity to tangible assets			7.49	%			7.75	%			8.48	%			8.48	%			8.79	%
Common book value per share		$	32.72			$	33.96			$	36.40			$	35.66			$	35.25
Tangible common book value per share		$	30.66			$	31.90			$	34.32			$	33.57			$	33.15

RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)

Pre-Tax Pre-Provision ("PTPP") Income, PTPP Return on Average Assets ("ROAA"), PTPP Return on Average Common Equity ("ROACE"), and Return on Average Tangible Common Equity ("ROATCE")

Management believes that PTPP income, which reflects the Company's profitability before income taxes and provisions for credit losses, allows investors to better assess the Company's operating income and expenses in relation to the Company's core operating revenue by removing the volatility that is associated with credit provisions and different state income tax rates for comparable institutions. ROATCE is computed by dividing net earnings applicable to common shareholders by average tangible common shareholders' equity. Management believes that ROATCE is meaningful because it measures the performance of a business consistently, whether acquired or internally developed. ROATCE is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. Management also believes that during a crisis such as the COVID-19 pandemic, this information is useful as the impact of the pandemic on the provisions for credit losses of various institutions will likely vary based on the geography of the communities served by a particular institution.

		Three Months Ended																				Six Months Ended
(dollars in thousands)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021				June 30, 2022				June 30, 2021
Net income (as reported)		$	6,834			$	6,288			$	6,751			$	6,404			$	6,432			$	13,122			$	12,731
Provision for credit losses			425				450				—				—				291				875				586
Provision (recovery) for unfunded commitments			26				(31	)			—				—				—				(5	)			—
Income tax expenses			2,369				2,133				2,241				2,158				2,190				4,502				4,317
Non-GAAP PTPP income		$	9,654			$	8,840			$	8,992			$	8,562			$	8,913			$	18,494			$	17,634
ROAA			1.19	%			1.08	%			1.18	%			1.17	%			1.22	%			1.14	%			1.22	%
Pre-tax Pre-Provision ROAA			1.68	%			1.52	%			1.57	%			1.57	%			1.68	%			1.60	%			1.68	%
ROACE			14.39	%			12.30	%			13.00	%			12.45	%			12.62	%			13.31	%			12.57	%
Pre-tax Pre-Provision ROACE			20.33	%			17.29	%			17.31	%			16.65	%			17.49	%			18.75	%			17.41	%
Average assets		$	2,293,536			$	2,325,992			$	2,293,264			$	2,187,989			$	2,116,939			$	2,309,602			$	2,093,886
Average equity		$	189,992			$	204,554			$	207,745			$	205,723			$	203,893			$	197,233			$	202,516

		Three Months Ended
(dollars in thousands)		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Net income (as reported)		$	6,834			$	6,288			$	6,751			$	6,404			$	6,432
Core deposit intangible amortization (net of tax)			76				81				86				91				94
Net earnings applicable to common shareholders		$	6,910			$	6,369			$	6,837			$	6,495			$	6,526
ROATCE			15.50	%			13.22	%			13.97	%			13.41	%			13.62	%
Average tangible common equity		$	178,269			$	192,725			$	195,803			$	193,662			$	191,708

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME (UNAUDITED)

		For the Three Months Ended June 30,																				For the Three Months Ended
			2022										2021									June 30, 2022										March 31, 2022
(dollars in thousands)		Average Balance				Interest			Average Yield/Cost			Average Balance				Interest			Average Yield/Cost			Average Balance				Interest			Average Yield/Cost			Average Balance				Interest			Average Yield/Cost
Assets
Interest-earning assets:
Commercial real estate		$	1,181,885			$	11,842		4.01	%		$	1,089,781			$	10,953		4.02	%		$	1,181,885			$	11,842		4.01	%		$	1,112,108			$	10,737		3.86	%
Residential first mortgages			85,030				730		3.43	%			109,296				838		3.07	%			85,030				730		3.43	%			86,805				713		3.29	%
Residential rentals			194,972				1,999		4.10	%			139,080				1,410		4.06	%			194,972				1,999		4.10	%			197,312				1,831		3.71	%
Construction and land development			30,302				361		4.77	%			38,315				425		4.44	%			30,302				361		4.77	%			33,669				407		4.84	%
Home equity and second mortgages			26,101				274		4.20	%			29,061				251		3.45	%			26,101				274		4.20	%			25,946				245		3.78	%
Commercial loans			42,744				517		4.84	%			43,100				516		4.79	%			42,744				517		4.84	%			46,668				550		4.71	%
Commercial equipment loans			68,349				699		4.09	%			61,017				592		3.88	%			68,349				699		4.09	%			61,715				642		4.16	%
U.S. SBA PPP loans			11,847				315		10.64	%			104,426				1,318		5.05	%			11,847				315		10.64	%			20,444				452		8.84	%
Consumer loans			4,040				35		3.47	%			1,425				17		4.77	%			4,040				35		3.47	%			3,213				33		4.11	%
Allowance for credit losses			(21,375	)			—		0.00	%			(18,265	)			—		0.00	%			(21,375	)			—		0.00	%			(21,043	)			—		0.00	%
Loan portfolio (1)		$	1,623,895			$	16,772		4.13	%		$	1,597,236			$	16,320		4.09	%		$	1,623,895			$	16,772		4.13	%		$	1,566,837			$	15,610		3.99	%
Taxable investment securities			484,079				1,808		1.49	%			276,019				1,020		1.48	%			484,079				1,808		1.49	%			484,157				1,572		1.30	%
Nontaxable investment securities			21,304				117		2.20	%			15,559				81		2.08	%			21,304				117		2.20	%			17,513				94		2.15	%
Interest-bearing deposits in other banks			23,958				63		1.05	%			28,844				13		0.18	%			23,958				63		1.05	%			42,608				60		0.56	%
Federal funds sold			6,178				14		0.91	%			34,778				10		0.12	%			6,178				14		0.91	%			—				—		0.00	%
Total Interest-Earning Assets			2,159,414				18,774		3.48	%			1,952,436				17,444		3.57	%			2,159,414				18,774		3.48	%			2,111,115				17,336		3.28	%
Cash and cash equivalents			28,645										65,897										28,645										116,560
Goodwill			10,835										10,835										10,835										10,835
Core deposit intangible			888										1,350										888										994
Other assets			93,754										86,421										93,754										86,488
Total Assets		$	2,293,536									$	2,116,939									$	2,293,536									$	2,325,992
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits		$	650,249			$	—		0.00	%		$	406,166			$	—		0.00	%		$	650,249			$	—		0.00	%		$	609,945			$	—		0.00	%
Interest-bearing deposits
Savings			120,645				15		0.05	%			105,814				13		0.05	%			120,645				15		0.05	%			121,236				15		0.05	%
Demand deposits			571,475				431		0.30	%			622,544				86		0.06	%			571,475				431		0.30	%			625,241				103		0.07	%
Money market deposits			385,594				103		0.11	%			354,657				99		0.11	%			385,594				103		0.11	%									0.11	%
Certificates of deposit			317,930				270		0.34	%			344,533				442		0.51	%			317,930				270		0.34	%			322,346				295		0.37	%
Total interest-bearing deposits			1,395,644				819		0.23	%			1,427,548				640		0.18	%			1,395,644				819		0.23	%			1,447,604				513		0.14	%
Total Deposits			2,045,893				819		0.16	%			1,833,714				640		0.14	%			2,045,893				819		0.16	%			2,057,549				513		0.10	%
Long-term debt			3,350				22		2.63	%			27,273				43		0.63	%			3,350				22		2.63	%			12,219				25		0.82	%
Short-term debt			5,791				16		1.11	%			—				—		0.00	%			5,791				16		1.11	%			—				—		0.00	%
Subordinated Notes			19,529				252		5.16	%			19,473				251		5.16	%			19,529				252		5.16	%			19,515				251		5.14	%
Guaranteed preferred beneficial interest in junior subordinated debentures			12,000				97		3.23	%			12,000				75		2.50	%			12,000				97		3.23	%			12,000				78		2.60	%
Total Debt			40,670				387		3.81	%			58,746				369		2.51	%			40,670				387		3.81	%			43,734				354		3.24	%
Interest-Bearing Liabilities			1,436,314				1,206		0.34	%			1,486,294				1,009		0.27	%			1,436,314				1,206		0.34	%			1,491,338				867		0.23	%
Total Funds			2,086,563				1,206		0.23	%			1,892,460				1,009		0.21	%			2,086,563				1,206		0.23	%			2,101,283				867		0.17	%
Other liabilities			16,981										20,586										16,981										20,155
Stockholders' equity			189,992										203,893										189,992										204,554
Total Liabilities and Stockholders' Equity		$	2,293,536									$	2,116,939									$	2,293,536									$	2,325,992
Net interest income						$	17,568									$	16,435									$	17,568									$	16,469
Interest rate spread									3.14	%									3.30	%									3.14	%									3.05	%
Net yield on interest-earning assets									3.25	%									3.37	%									3.25	%									3.12	%
Average interest-earning assets to average interest-bearing liabilities									150.34	%									131.36	%									150.34	%									141.56	%
Average loans to average deposits									79.37	%									87.10	%									79.37	%									76.15	%
Average transaction deposits to total average deposits **									84.46	%									81.21	%									84.46	%									84.33	%
Cost of funds									0.23	%									0.21	%									0.23	%									0.17	%
Cost of deposits									0.16	%									0.14	%									0.16	%									0.10	%
Cost of debt									3.81	%									2.51	%									3.81	%									3.24	%

(1) Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. There were $43,000, $56,000 and $50,000 of accretion interest for the three months ended June 30, 2022 and 2021, and March 31, 2022, respectively.

____________________________________

** Transaction deposits exclude time deposits.

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME (UNAUDITED)

		For the Six Months Ended June 30,
			2022										2021
(dollars in thousands)		Average Balance				Interest			Average Yield/Cost			Average Balance				Interest			Average Yield/Cost
Assets
Interest-earning assets:
Commercial real estate		$	1,147,188			$	22,579		3.94	%		$	1,074,874			$	21,648		4.03	%
Residential first mortgages			85,912				1,442		3.36				117,097				1,752		2.99
Residential rentals			196,136				3,830		3.91				139,150				2,855		4.10
Construction and land development			31,977				768		4.80				37,209				828		4.45
Home equity and second mortgages			26,024				519		3.99				29,166				499		3.42
Commercial loans			44,696				1,068		4.78				43,915				1,067		4.86
Commercial equipment loans			65,050				1,341		4.12				60,782				1,111		3.66
U.S. SBA PPP loans			16,122				767		9.51				110,183				3,120		5.66
Consumer loans			3,629				68		3.75				1,373				32		4.66
Allowance for credit losses			(21,210	)			—		—				(18,936	)			—		—
Loan portfolio (1)		$	1,595,524			$	32,382		4.06			$	1,594,813			$	32,912		4.13
Taxable investment securities			484,118				3,379		1.40				253,043				1,970		1.56
Nontaxable investment securities			19,419				211		2.17				18,185				195		2.14
Interest-bearing deposits in other banks			33,231				124		0.75				26,964				28		0.21
Federal funds sold			3,106				14		0.90				26,794				17		0.13
Total Interest-Earning Assets			2,135,398				36,110		3.38				1,919,799				35,122		3.66
Cash and cash equivalents			72,359										74,237
Goodwill			10,835										10,835
Core deposit intangible			941										1,415
Other assets			90,069										87,600
Total Assets		$	2,309,602									$	2,093,886
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits			630,137				—		—	%			393,682				—		—	%
Interest-bearing liabilities:
Savings			120,939				30		0.05				103,809			$	26		0.05
Demand deposits			598,210				535		0.18				612,745				183		0.06
Money market deposits			382,206				203		0.11				352,201				197		0.11
Certificates of deposit			320,126				564		0.35				347,930				1,036		0.60
Total Interest-bearing deposits			1,421,481				1,332		0.19				1,416,685				1,442		0.20
Total Deposits			2,051,618				1,332		0.13				1,810,367				1,442		0.16
Long-term debt			7,760				47		1.21				27,282				83		0.61
Short-term borrowings			2,912				16		1.10				—				—		—
Subordinated Notes			19,522				503		5.15				19,482				503		5.16
Guaranteed preferred beneficial interest in junior subordinated debentures			12,000				175		2.92				12,000				150		2.50
Total Debt			42,194				741		3.51				58,764				736		2.50
Total Interest-Bearing Liabilities			1,463,675				2,073		0.28				1,475,449				2,178		0.30
Total funds			2,093,812				2,073		0.20	%			1,869,131				2,178		0.23	%
Other liabilities			18,557										22,239
Stockholders' equity			197,233										202,516
Total Liabilities and Stockholders' Equity		$	2,309,602									$	2,093,886
Net interest income						$	34,037									$	32,944
Interest rate spread									3.10	%									3.36	%
Net yield on interest-earning assets									3.19	%									3.43	%
Average interest-earning assets to average interest-bearing liabilities									145.89	%									130.12	%
Average loans to average deposits									77.77	%									88.09	%
Average transaction deposits to total average deposits **									84.40	%									80.78	%
Cost of funds									0.20	%									0.23	%
Cost of deposits									0.13	%									0.16	%
Cost of debt									3.51	%									2.50	%

(1) Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. There were $93,000 and $123,000 of accretion interest during the six months ended June 30, 2022 and 2021, respectively.

____________________________________

** Transaction deposits exclude time deposits.

SUMMARY OF LOAN PORTFOLIO (UNAUDITED)

(dollars in thousands)

Portfolio loans, net of deferred costs and fees, are summarized by type as follows:

		As of **
BY LOAN TYPE		June 30, 2022				%			March 31, 2022				%			December 31, 2021				%			September 30, 2021				%			June 30, 2021				%
Portfolio Loans:
Commercial real estate		$	1,178,758			71.33	%		$	1,177,761			72.28	%		$	1,113,793			70.54	%		$	1,087,102			70.89	%		$	1,110,011			72.34	%
Residential first mortgages			84,782			5.13				86,416			5.30				92,710			5.87				98,590			6.43				107,435			7.00
Residential rentals			210,116			12.72				191,065			11.73				194,911			12.35				172,073			11.22				142,252			9.27
Construction and land development			31,068			1.88				30,649			1.88				35,502			2.25				37,070			2.42				36,839			2.40
Home equity and second mortgages			25,200			1.53				26,445			1.62				25,661			1.63				26,542			1.73				28,751			1.87
Commercial loans			43,472			2.63				48,948			3.00				50,512			3.20				48,287			3.15				47,530			3.10
Consumer loans			4,511			0.27				3,592			0.22				3,015			0.19				2,183			0.14				1,459			0.10
Commercial equipment			74,552			4.51				64,662			3.97				62,706			3.97				61,569			4.02				60,132			3.92
Total portfolio loans			1,652,459			100.00	%			1,629,538			100.00	%			1,578,810			100.00	%			1,533,416			100.00	%			1,534,409			100.00	%
Less: Allowance for Credit Losses			(21,404	)		(1.30	)			(21,382	)		(1.31	)			(18,417	)		(1.17	)			(18,579	)		(1.21	)			(18,516	)		(1.21	)
Total net portfolio loans			1,631,055							1,608,156							1,560,393							1,514,837							1,515,893
U.S. SBA PPP loans			5,022							15,279							26,398							54,807							86,482
Total net loans		$	1,636,077						$	1,623,435						$	1,586,791						$	1,569,644						$	1,602,375

____________________________________

** December 31, 2021, September 30, 2021, and June 30, 2021 reported balance are shown net of deferred costs and fees to conform with the current period's presentation.

END OF PERIOD CONTRACTUAL RATES (UNAUDITED)

The following table is based on end of period ("EOP") contractual interest rates and does not include the amortization of deferred costs and fees or assumptions regarding non-accrual interest: 

		June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021
(dollars in thousands)		EOP Contractual Interest rate			EOP Contractual Interest rate			EOP Contractual Interest rate			EOP Contractual Interest rate			EOP Contractual Interest rate
Commercial real estate		4.00	%		3.79	%		3.79	%		3.91	%		3.96	%
Residential first mortgages		3.83	%		3.80	%		3.80	%		3.84	%		3.87	%
Residential rentals		4.03	%		3.78	%		3.81	%		3.97	%		4.11	%
Construction and land development		4.57	%		4.36	%		4.38	%		4.32	%		4.31	%
Home equity and second mortgages		4.19	%		3.50	%		3.51	%		3.51	%		3.50	%
Commercial loans		4.79	%		4.47	%		4.48	%		4.48	%		4.44	%
Consumer loans		5.13	%		4.33	%		4.37	%		5.26	%		5.65	%
Commercial equipment		4.30	%		4.29	%		4.32	%		4.39	%		4.42	%
U.S. SBA PPP loans		1.00	%		1.00	%		1.00	%		1.00	%		1.00	%
Total Loans		4.04	%		3.81	%		3.80	%		3.85	%		3.84	%
Yields without U.S. SBA PPP Loans		4.05	%		3.85	%		3.84	%		3.95	%		4.00	%

ALLOWANCE FOR CREDIT LOSSES AND ALLOWANCE FOR LOAN LOSSES (UNAUDITED)

(dollars in thousands)		For the Three Months Ended**
		June 30, 2022				March 31, 2022				December 31, 2021				September 30, 2021				June 30, 2021
Beginning of period		$	21,382			$	18,417			$	18,579			$	18,516			$	18,256
Impact of ASC 326 Adoption			—				2,496				—				—				—
Charge-offs			(446	)			—				(181	)			(491	)			(61	)
Recoveries			43				19				19				554				30
Net charge-offs			(403	)			19				(162	)			63				(31	)
Provision for credit losses			425				450				—				—				291
End of period		$	21,404			$	21,382			$	18,417			$	18,579			$	18,516
Net charge-offs to average portfolio loans (annualized)2			(0.10	)%			—	%			(0.04	)%			0.02	%			(0.01	)%
Breakdown of general and specific allowance as a percentage of total portfolio loans2
General allowance		$	21,108			$	21,087			$	18,151			$	18,256			$	17,738
Specific allowance			296				295				266				323				778
		$	21,404			$	21,382			$	18,417			$	18,579			$	18,516
General allowance			1.28	%			1.29	%			1.15	%			1.19	%			1.15	%
Specific allowance			0.02	%			0.02	%			0.02	%			0.02	%			0.05	%
Allowance to total portfolio loans			1.30	%			1.31	%			1.17	%			1.21	%			1.20	%
Allowance to non-acquired loans		n/a(1)				n/a(1)					1.20	%			1.25	%			1.25	%
Allowance + Non-PCI FV Mark		n/a(1)				n/a(1)				$	18,815			$	19,070			$	19,090
Allowance + Non-PCI FV Mark to total portfolio loans		n/a(1)				n/a(1)					1.19	%			1.24	%			1.24	%

____________________________________

** The Company implemented the CECL accounting standard effective January 1, 2022. The Company used an incurred loss methodology for quarters displayed before March 31, 2022.

(1) Allowance to non-acquired loans and Non-PCI FV Mark are no longer relevant as all the ACL considers all loan portfolios.

(2) Allowance to non-acquired loans is no longer relevant as the ACL considers all portfolio loans.   

CLASSIFIED AND SPECIAL MENTION ASSETS³ (UNAUDITED)

The following is a breakdown of the Company's classified and special mention assets at June 30, 2022, March 31, 2022 and December 31, 2021, 2020, 2019, and 2018, respectively: 

		As of
(dollars in thousands)		6/30/2022				3/31/2022				12/31/2021				12/31/2020				12/31/2019				12/31/2018
Classified loans
Substandard		$	6,062			$	4,745			$	5,211			$	19,249			$	26,863			$	32,226
Doubtful			—				—				—				—				—				—
Total classified loans			6,062				4,745				5,211				19,249				26,863				32,226
Special mention loans			160				—				—				7,672				—				—
Total classified and special mention loans		$	6,222			$	4,745			$	5,211			$	26,921			$	26,863			$	32,226
Classified loans		$	6,062			$	4,745			$	5,211			$	19,249			$	26,863			$	32,226
Classified securities			—				—				—				—				—				482
Other real estate owned			—				—				—				3,109				7,773				8,111
Total classified assets		$	6,062			$	4,745			$	5,211			$	22,358			$	34,636			$	40,819
Total classified assets as a percentage of total assets			0.26	%			0.20	%			0.22	%			1.10	%			1.93	%			2.42	%
Total classified assets as a percentage of Risk Based Capital			2.35	%			1.87	%			2.10	%			9.61	%			16.21	%			21.54	%

SUMMARY OF DEPOSITS (UNAUDITED)

		June 30, 2022						March 31, 2022						December 31, 2021						September 30, 2021						June 30, 2021
(dollars in thousands)		Balance			%			Balance			%			Balance			%			Balance			%			Balance			%
Noninterest-bearing demand		$	635,649		30.48	%		$	644,385		30.75	%		$	445,778		21.68	%		$	432,606		21.58	%		$	423,165		22.18	%
Interest-bearing:
Demand deposits			635,344		30.47	%			618,869		29.54	%			790,481		38.45	%			764,482		38.14	%			685,023		35.90	%
Money market deposits			380,712		18.26	%			387,700		18.51	%			372,717		18.13	%			355,582		17.74	%			351,262		18.41	%
Savings			119,363		5.72	%			124,038		5.92	%			119,767		5.82	%			112,282		5.60	%			107,288		5.62	%
Certificates of deposit			314,308		15.07	%			320,091		15.28	%			327,421		15.92	%			339,655		16.94	%			341,400		17.89	%
Total interest-bearing			1,449,727		69.52	%			1,450,698		69.25	%			1,610,386		78.32	%			1,572,001		78.42	%			1,484,973		77.82	%
Total Deposits		$	2,085,376		100.00	%		$	2,095,083		100.00	%		$	2,056,164		100.00	%		$	2,004,607		100.00	%		$	1,908,138		100.00	%
Transaction accounts		$	1,771,068		84.93	%		$	1,774,992		84.72	%		$	1,728,743		84.08	%		$	1,664,952		83.06	%		$	1,566,738		82.11	%

<sup>_______________________________________

1</sup> The Company implemented the CECL accounting standard effective January 1, 2022. The Company used an incurred loss methodology for all periods compared before March 31, 2022.

² Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio

³ Classified loans are not net of deferred costs and fees before the quarter ended March 31, 2022.