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WESTERN NEW ENGLAND BANCORP, INC.

(WNEB)
  Report
Delayed Nasdaq  -  04:00 2022-10-03 pm EDT
8.470 USD   +4.18%
09/15Western New England Bancorp, Inc. : Other Events (form 8-K)
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08/09WESTERN NEW ENGLAND BANCORP, INC. : Ex-dividend day for
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08/05Western New England Bancorp, Inc. : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)
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WESTERN NEW ENGLAND BANCORP, INC. : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-Q)

08/05/2022 | 04:36pm EDT

Overview.

We strive to remain a leader in meeting the financial service needs of our local
community, and to provide quality service to the individuals and businesses in
the market areas that we have served since 1853. Historically, we have been a
community-oriented provider of traditional banking products and services to
business organizations and individuals, including products such as residential
and commercial loans, consumer loans and a variety of deposit products. We meet
the needs of our local community through a community-based and service-oriented
approach to banking.



We have adopted a growth-oriented strategy that has focused on increasing
commercial lending. Our strategy also calls for increasing deposit relationships
and broadening our product lines and services. We believe that this business
strategy is best for our long-term success and viability, and complements our
existing commitment to high-quality customer service.



In connection with our overall growth strategy, we seek to:

? Grow the Company's commercial loan portfolio and related commercial deposits by

targeting businesses in our primary market area of Hampden County and Hampshire

County in western Massachusetts and Hartford and Tolland Counties in northern

Connecticut to increase the net interest margin and loan income;

? Supplement the commercial portfolio by growing the residential real estate

portfolio to diversify the loan portfolio and deepen customer relationships;

? Focus on expanding our retail banking deposit franchise and increase the number

of households served within our designated market area;

? Invest in people, systems and technology to grow revenue, improve efficiency

and enhance the overall customer experience;

? Grow revenues, increase tangible book value per share, continue to pay

competitive dividends to shareholders and utilize the Company's stock

repurchase plan to leverage our capital and enhance franchise value; and

? Consider growth through acquisitions. We may pursue expansion opportunities in

existing or adjacent strategic locations with companies that add complementary

products to our existing business and at terms that add value to our existing

   shareholders.



You should read the following financial results for the three and six months ended June 30, 2022 in the context of this strategy.

? Net income was $5.5 million, or $0.25 per diluted share, for the three months

ended June 30, 2022, compared to $5.7 million, or $0.24 per diluted share, for

the same period in 2021. For the six months ended June 30, 2022, net income was

$10.9 million, or $0.49 per diluted share, as compared to net income of $11.4

million, or $0.47 per diluted share, for the same period in 2021.

? The provision for loan losses was $300,000 for the three months ended June 30,

2022, compared to a credit of $1.2 million for the same period in 2021. The

provision for loan losses was a credit of $125,000 for the six months ended

June 30, 2022, compared to a credit of $1.1 million for the same period in

2021. During the three and six months ended June 30, 2021, the Company reduced

its qualitative factors related to the impact of the COVID-19 pandemic and

other economic trends used in the Company's allowance.

? Net interest income increased $1.6 million, or 8.9%, to $19.4 million, for the

three months ended June 30, 2022, from $17.8 million for the three months ended

June 30, 2021. The net interest margin was 3.24% for the three months ended

June 30, 2022, compared to 3.06% for the three months ended June 30, 2021. The

net interest margin, on a tax-equivalent basis, was 3.26% for the three months

ended June 30, 2022, compared to 3.08% for the three months ended June 30,

2021. During the six months ended June 30, 2022, net interest income increased

$2.3 million, or 6.3%, to $38.1 million, compared to $35.8 million for the six

months ended June 30, 2021. The net interest margin for the six months ended

June 30, 2022 was 3.21%, compared to 3.15% during the six months ended June 30,

2021. The net interest margin, on a tax-equivalent basis, was 3.23% for the six

months ended June 30, 2022, compared to 3.17% for the six months ended June 30,

   2021.




                                       31




CRITICAL ACCOUNTING POLICIES.

Our consolidated financial statements are prepared in accordance with U.S. GAAP
and practices within the banking industry. Application of these principles
requires management to make estimates, assumptions, and judgments that affect
the amounts reported in the financial statements and accompanying notes. These
estimates, assumptions, and judgments are based on information available as of
the date of the financial statements; accordingly, as this information changes,
the financial statements could reflect different estimates, assumptions, and
judgments. Actual results could differ from those estimates.



Critical accounting estimates are necessary in the application of certain
accounting policies and procedures, and are particularly susceptible to
significant change. Critical accounting policies are defined as those that are
reflective of significant judgments and uncertainties, and could potentially
result in materially different results under different assumptions and
conditions. There have been no material changes to our critical accounting
policies during the six months ended June 30, 2022. For additional information
on our critical accounting policies, please refer to the information contained
in Note 1 of the accompanying unaudited consolidated financial statements and
Note 1 of the consolidated financial statements included in our 2021 Annual
Report.



RECENT DEVELOPMENTS: CORONAVIRUS PANDEMIC RESPONSE AND ACTIONS.




The Company continues to monitor COVID-19's impact on its business and
customers, however, the extent to which COVID-19 will continue to impact its
results and operations will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, including the scope, severity
and duration of the pandemic, the actions taken to contain the pandemic or
mitigate its impact, and the direct and indirect economic effects of the
pandemic and containment measures.



Our business is dependent upon the willingness and ability of our employees and
customers to conduct banking and other financial transactions. The COVID-19
global public health crisis and the resulting "stay-at-home" orders resulted in
widespread volatility, severe disruptions in the U.S. economy at large, and for
small businesses in particular, deterioration in household, business, economic
and market conditions.



Paycheck Protection Program.



As a Preferred Lender with the Small Business Administration ("SBA"), the
Company was in a position to react quickly to the PPP component of the March 27,
2020 $2.2 trillion fiscal stimulus bill known as the Coronavirus Aid, Relief and
Economic Security Act (the "CARES Act") launched by the U.S. Department of the
Treasury and the SBA. An eligible business was able to apply for a PPP loan up
to the lesser of: (1) 2.5 times its average monthly "payroll costs," or (2)
$10.0 million. PPP loans have: (a) an interest rate of 1.0%, (b) a two-year loan
term to maturity, subsequently extended to a five-year loan term maturity for
loans granted on or after June 5, 2020 and (c) principal and interest payments
deferred from six months to ten months from the date of disbursement. The SBA
will guarantee 100% of the PPP loans made to eligible borrowers. The entire
principal amount of the borrower's PPP loan, including any accrued interest, is
eligible to be reduced by the loan forgiveness amount under the PPP so long as
employee and compensation levels of the business are maintained and 60% of the
loan proceeds are used for payroll expenses, with the remaining 40% of the loan
proceeds used for other qualifying expenses. As of June 30, 2022, the Company
received funding approval from the SBA for 2,146 applications totaling $302.2
million. As of June 30, 2022, the Company processed 2,128 PPP loan forgiveness
applications totaling $299.6 million. Total PPP loans decreased $22.7 million,
or 89.6%, from $25.3 million at December 31, 2021 to $2.6 million at June 30,
2022.



                                       32





During the three months ended June 30, 2022, the Company recognized $129,000 in
PPP loan origination fee income and PPP interest income ("PPP income"), compared
to $1.6 million during the three months ended June 30, 2021. As of June 30,
2022, the Company had $133,000 in remaining deferred PPP loan processing fees.



The table below breaks out the PPP income recognized for the periods indicated:



                                                                 For the Three Months Ended

                                                                                                September
                               June 30, 2022       March 31, 2022       December 31, 2021        30, 2021        June 30, 2021
                                                                      ($ in thousands)
PPP origination fee income    $           122     $            526     $   
           868     $      1,556     $         1,240
PPP interest income                         7                   36                     105              201                 387
Total PPP Income              $           129     $            562     $               973     $      1,757     $         1,627



Loan Modifications/Troubled Debt Restructurings.




The banking regulatory agencies, through an Interagency Statement dated April 7,
2020, have encouraged financial institutions to work "prudently" with borrowers
who request loan modifications or deferrals as a result of the economic impacts
of COVID-19. Pursuant to Section 4013 of the CARES Act, loans less than 30 days
past due as of December 31, 2019 will be considered current for COVID-19
modifications. Financial institutions can then suspend the requirements under
U.S. GAAP for loan modifications related to COVID-19 that would otherwise be
categorized as a TDR, and suspend any determination of a loan modified as a
result of COVID-19 as being a TDR, including the requirement to determine
impairment for accounting under U.S. GAAP. The Company has adopted this policy
election to address COVID-19 loan modification requests that have been received
from the earlier of either January 1, 2022 or the 60th day after the end of
the
COVID-19 national emergency.



The Company implemented a modification deferral program under the CARES Act,
which allowed residential, commercial and consumer borrowers who were adversely
affected by the COVID-19 pandemic, to defer loan payments for a set period of
time. As of June 30, 2022, the Company had one remaining commercial real estate
loan, with an outstanding principal balance of $9.0 million, and one residential
loan with an outstanding principal balance of $123,000, under CARES Act
modification. The commercial real estate borrower was granted a principal
deferral, while the residential borrower was granted full payment deferral under
the Company's modification deferral program.



Allowance for Loan Losses.



In determining the allowance for loan losses, the Company considers quantitative
loss factors and a number of qualitative factors, such as underwriting policies,
current economic conditions, delinquency statistics, the adequacy of the
underlying collateral and the financial strength of the borrower. The ongoing
COVID-19 pandemic could cause us to experience higher credit losses in our
lending portfolio, reduce demand for our products and services and other
negative impacts on our financial position, results of operations and prospects.
As of June 30, 2022, the Company's delinquency and nonperforming assets have not
been materially impacted by the COVID-19 pandemic, and therefore, have not
resulted in material credit losses within the lending portfolio.



The Company is continuing to monitor COVID-19's impact on its business and its
customers, however, the extent to which COVID-19 will further impact its results
and operations will depend on future developments, which are highly uncertain
and cannot be predicted with confidence, including the scope, severity and
duration of the pandemic, the actions taken to contain the pandemic or mitigate
its impact and the direct and indirect economic effects of the pandemic and
containment measures.



                                       33




COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2022 AND DECEMBER 31, 2021




At June 30, 2022, total assets were $2.6 billion, an increase of $38.9 million,
or 1.5%, from December 31, 2021. During the six months ended June 30, 2022, cash
and cash equivalents decreased $55.9 million, or 54.1%, to $47.5 million,
investment securities decreased $22.3 million, or 5.2%, to $406.2 million and
total loans increased $111.0 million, or 6.0%, to $2.0 billion.



At June 30, 2022, the Company's available-for-sale securities portfolio
decreased $33.4 million, or 17.2%, from $194.4 million at December 31, 2021 to
$160.9 million at June 30, 2022. The held-to-maturity securities portfolio,
recorded at amortized cost, increased $11.5 million, or 5.2%, from $222.3
million at December 31, 2021 to $233.8 million at June 30, 2022. The marketable
equity securities portfolio decreased $443,000, or 3.7%, from $11.9 million at
December 31, 2021 to $11.5 million at June 30, 2022. The primary objective of
the investment portfolio is to provide liquidity and maximize income while
preserving the safety of principal.



At June 30, 2022, total loans were $2.0 billion, an increase of $111.0 million,
or 6.0%, from December 31, 2021. Excluding PPP loans, total loans increased
$133.7 million, or 7.3%, driven by an increase in commercial real estate loans
of $94.9 million, or 9.7%, partially offset by a decrease in total commercial
and industrial loans of $8.8 million, or 3.9%. Excluding a decrease in PPP loans
of $22.7 million, or 89.6%, from December 31, 2021, commercial and industrial
loans increased $13.9 million, or 6.9%, at June 30, 2022. Residential real
estate loans, which include home equity loans, increased $24.2 million, or 3.7%.
In accordance with the Company's asset/liability management strategy, at June
30, 2022, the Company serviced $82.5 million in loans sold to the secondary
market, compared to $88.2 million at December 31, 2021. Servicing rights will
continue to be retained on all loans written and sold to the secondary market.
All loans where the payments are 90 days or more in arrears as of the closing
date of each month are placed on nonaccrual status. If all nonaccrual loans had
been performing in accordance with their terms, we would have earned additional
interest income of $102,000 and $153,000 for the six months ended June 30,
2022
and 2021, respectively.



Management continues to remain attentive to any signs of deterioration in
borrowers' financial conditions and is proactive in taking the appropriate steps
to mitigate risk. At June 30, 2022, nonperforming loans totaled $4.1 million, or
0.21% of total loans, compared to $5.0 million, or 0.27% of total loans, at
December 31, 2021. At June 30, 2022, there were no loans 90 or more days past
due and still accruing interest. Nonperforming assets to total assets was 0.16%
at June 30, 2022, compared to 0.20% at December 31, 2021. The allowance for loan
losses as a percentage of total loans was 0.99% at June 30, 2022, compared to
1.06% at December 31, 2021. At June 30, 2022, the allowance for loan losses as a
percentage of nonperforming loans was 476.5%, compared to 398.6%, at December
31, 2021



At June 30, 2022, total deposits were $2.3 billion, an increase of $45.1
million, or 2.0%, from December 31, 2021, primarily due to an increase in core
deposits of $96.7 million, or 5.2%. Core deposits, which the Company defines as
all deposits except time deposits, increased from $1.9 billion, or 82.2% of
total deposits, at December 31, 2021, to $2.0 billion, or 84.8% of total
deposits, at June 30, 2022. Non-interest-bearing deposits increased $6.3
million, or 1.0%, to $647.6 million, interest-bearing checking accounts
increased $8.3 million, or 5.7%, to $154.0 million, savings accounts increased
$9.1 million, or 4.2%, to $226.7 million, and money market accounts increased
$72.9 million, or 8.6%, to $923.2 million. Time deposits decreased $51.6
million, or 12.8%, from $402.0 million at December 31, 2021 to $350.4 million at
June 30, 2022. The Company did not have any brokered deposits at June 30, 2022
or December 31, 2021.



At June 30, 2022, total borrowings increased $3.5 million, or 15.7%, from $22.3
million at December 31, 2021, to $25.8 million. Other borrowings increased $3.5
million, or 129.6%, to $6.2 million and subordinated debt outstanding totaled
$19.7 million at June 30, 2022 and $19.6 million at December 31, 2021.



At June 30, 2022, shareholders' equity was $215.3 million, or 8.4% of total
assets, compared to $223.7 million, or 8.8% of total assets, at December 31,
2021. The decrease in shareholders' equity reflects $3.7 million for the
repurchase of the Company's common stock, the payment of regular cash dividends
of $2.7 million and an increase in accumulated other comprehensive loss of $14.4
million, partially offset by net income of $10.9 million. Total shares
outstanding as of June 30, 2022 were 22,465,991.



The Company's book value per share was $9.58 at June 30, 2022 compared to $9.87
at December 31, 2021, while tangible book value per share, a non-GAAP financial
measure, decreased $0.29, or 3.1%, from $9.21 at December 31, 2021 to $8.92 at
June 30, 2022. During the six months ended June 30, 2022, the change in AOCI
reduced the tangible book value per share by $0.64 as of June 30, 2022,
primarily due to the impact of higher interest rates on the fair value of
available-for-sale securities.  Tangible book value is a non-GAAP measure. See
"Explanation of Use of Non-GAAP Financial Measurements" for the related tangible
book value calculation and a reconciliation of GAAP to non-GAAP financial
measures.



                                       34





The Company's regulatory capital ratios remain in compliance with regulatory
"well capitalized" requirements and internal target minimal levels. At June 30,
2022, the Company's Tier 1 leverage, common equity tier 1 capital, and total
risk-based capital ratios were 8.9%, 11.7%, and 13.7%, respectively, and the
Bank's Tier 1 leverage, common equity tier 1 capital, and total risk-based
capital ratios were 9.1%, 12.0%, and 13.0%, respectively, compared with
regulatory "well capitalized" minimums of 5.00%, 6.5%, and 10.00%, respectively.



On April 27, 2021, the Board of Directors authorized a stock repurchase plan
(the "2021 Plan") under which the Company is authorized to repurchase up to 2.4
million shares of common stock, or 10% of its outstanding common stock. During
the three months ended June 30, 2022, the Company repurchased 293,173 shares of
common stock under the 2021 Plan. During the six months ended June 30, 2022, the
Company repurchased 405,847 shares of common stock under the 2021 Plan. At June
30, 2022, there were 271,472 shares of common stock available for repurchase
under the 2021 Plan. On July 26, 2022, the Board of Directors authorized a stock
repurchase plan (the "2022 Plan"), pursuant to which the Company may repurchase
up to 1.1 million shares of common stock, or approximately 5.0%, of the
Company's outstanding shares of common stock, upon the completion of the 2021
Plan.


The shares repurchased under the 2021 and 2022 Plans will be purchased from time
to time at prevailing market prices, through open market or privately negotiated
transactions, or otherwise, depending upon market conditions. There is no
guarantee as to the exact number, or value, of shares that will be repurchased
by the Company, and the Company may discontinue repurchases at any time that
management determines additional repurchases are not warranted. The timing and
amount of additional share repurchases under the 2021 Plan will depend on a
number of factors, including the Company's stock price performance, ongoing
capital planning considerations, general market conditions, and applicable
legal
requirements.



Although the Company has historically paid quarterly dividends on its common
stock and currently intends to continue to pay such dividends, the Company's
ability to pay such dividends depends on a number of factors, including
restrictions under federal laws and regulations on the Company's ability to pay
dividends, and as a result, there can be no assurance that dividends will
continue to be paid in the future.



COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021



General.



The Company reported net income of $5.5 million, or $0.25 per diluted share, for
the three months ended June 30, 2022, compared to net income of $5.7 million, or
$0.24 per diluted share, for the three months ended June 30, 2021. Return on
average assets and return on average equity was 0.87% and 10.22%, respectively,
for the three months ended June 30, 2022, as compared to 0.92% and 10.16%,
respectively, for the three months ended June 30, 2021.



Net Interest and Dividend Income.




The following tables set forth the information relating to our average balance
and net interest income for the three months ended June 30, 2022 and 2021, and
reflect the average yield on interest-earning assets and average cost of
interest-bearing liabilities for the periods indicated. Yields and costs are
derived by dividing interest income by the average balance of interest-earning
assets and interest expense by the average balance of interest-bearing
liabilities for the periods shown. The interest rate spread is the difference
between the total average yield on interest-earning assets and the cost of
interest-bearing liabilities. Net interest margin represents tax-equivalent net
interest and dividend income as a percentage of average interest-earning assets.
Average balances are derived from actual daily balances over the periods
indicated. Interest income includes fees earned when the real estate loans are
prepaid or refinanced. For analytical purposes, the interest earned on
tax-exempt assets is adjusted to a tax-equivalent basis to recognize the income
tax savings which facilitates comparison between taxable and tax-exempt assets.



                                       35



                                                             Three Months Ended June 30,
                                             2022                                                  2021
                         Average                         Average Yield/        Average                         Average Yield/
                         Balance        Interest(8)          Cost(9)           Balance        Interest(8)          Cost(9)
                                                               (Dollars in thousands)
ASSETS:
Interest-earning
assets
Loans(1)(2)            $ 1,949,464     $      18,624                3.83 %   $ 1,911,323     $      18,425                3.87 %
Securities(2)              414,226             2,068                2.00         293,991             1,278                1.74
Other investments -
at cost                      9,892                30                1.22          10,114                28                1.11
Short-term
investments(3)              24,944                48                0.77         114,883                26                0.09
Total
interest-earning
assets                   2,398,526            20,770                3.47       2,330,311            19,757                3.40

Total

non-interest-earning

assets                     153,939                                               147,545
Total assets           $ 2,552,465                                           $ 2,477,856

LIABILITIES AND
EQUITY:
Interest-bearing
liabilities
Interest-bearing
checking accounts      $   137,984     $         105                0.31 %   $   100,455     $          92                0.37 %
Savings accounts           224,487                48                0.09         206,302                47                0.09
Money market
accounts                   910,801               549                0.24         766,378               650                0.34
Time deposit
accounts                   365,383               288                0.32         487,712               677                0.56
Total
interest-bearing
deposits                 1,638,655               990                0.24       1,560,847             1,466                0.38
Short-term
borrowings and
long-term debt              25,829               264                4.10          54,459               382                2.81
Interest-bearing
liabilities              1,664,484             1,254                0.30       1,615,306             1,848                0.46
Non-interest-bearing
deposits                   635,678                                               603,270
Other
non-interest-bearing
liabilities                 35,076                                                36,043
Total
non-interest-bearing
liabilities                670,754                                               639,313

Total liabilities        2,335,238                                             2,254,619
Total equity               217,227                                               223,237
Total liabilities
and equity             $ 2,552,465                                           $ 2,477,856
Less: Tax-equivalent
adjustment(2)                                   (124 )                                                (105 )
Net interest and
dividend income                        $      19,392                                         $      17,804
Net interest rate
spread(4)                                                           3.15 %                                                2.92 %
Net interest rate
spread, on a tax
equivalent basis(5)                                                 3.17 %                                                2.94 %
Net interest
margin(6)                                                           3.24 %                                                3.06 %
Net interest margin,
on a tax equivalent
basis(7)                                                            3.26 %                                                3.08 %
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities                                                       144.10 %                                              144.26 %





(1) Loans, including nonaccrual loans, are net of deferred loan origination costs

and unadvanced funds.

(2) Loan and securities income are presented on a tax-equivalent basis using a

     tax rate of 21%. The tax-equivalent adjustment is deducted from
     tax-equivalent net interest and dividend income to agree to the amount
     reported on the consolidated statements of net income.

(3) Short-term investments include federal funds sold.

(4) Net interest rate spread represents the difference between the weighted

     average yield on interest-earning assets and the weighted average cost of
     interest-bearing liabilities.

(5) Net interest rate spread, on a tax-equivalent basis, represents the

     difference between the tax-equivalent weighted average yield on
     interest-earning assets and the tax-equivalent weighted average cost of
     interest-bearing liabilities.

(6) Net interest margin represents net interest and dividend income as a

percentage of average interest-earning assets.

(7) Net interest margin, on a tax-equivalent basis, represents tax-equivalent net

interest and dividend income as a percentage of average interest-earning

assets.

(8) Acquired loans, time deposits and borrowings are recorded at fair value at

the time of acquisition. The fair value marks on the loans, time deposits and

borrowings acquired accrete and amortize into net interest income over time.

For the three months ended June 30, 2022 and June 30, 2021, the loan

accretion income and interest expense reduction on time deposits and

borrowings increased (decreased) net interest income $64,000, and $(33,000),

respectively. Excluding these items, net interest margin, on a tax-equivalent

basis, for the three months ended June 30, 2022 and June 30, 2021 was 3.25%,

and 3.09%, respectively.


 (9) Annualized.




                                       36



Rate/Volume Analysis.


The following table shows how changes in interest rates and changes in the
volume of interest-earning assets and interest-bearing liabilities have affected
our interest and dividend income and interest expense during the periods
indicated. Information is provided in each category with respect to: (1)
interest income changes attributable to changes in volume (changes in volume
multiplied by prior rate); (2) interest income changes attributable to changes
in rate (changes in rate multiplied by prior volume); and (3) the net change.



The changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due
to
rate.



                                                  Three Months Ended June

30, 2022 compared to Three Months

                                                                            Ended
                                                                        June 30, 2021
                                                       Increase (Decrease) Due to
                                                     Volume                  Rate                   Net
                                                                        (In thousands)
Interest-earning assets
Loans (1)                                         $        369         $           (170 )       $        199
Securities (1)                                             523                      267                  790
Other investments - at cost                                 (1 )                      3                    2
Short-term investments                                     (20 )                     42                   22
 Total interest-earning assets                             871                      142                1,013

Interest-bearing liabilities
Interest-bearing checking accounts                          34             
        (21 )                 13
Savings accounts                                             4                       (3 )                  1
Money market accounts                                      122                     (223 )               (101 )
Time deposit accounts                                     (170 )                   (219 )               (389 )
Short-term borrowing and long-time debt                   (201 )                     83                 (118 )
 Total interest-bearing liabilities                       (211 )                   (383 )               (594 )

Change in net interest and dividend income (1) $ 1,082 $

        525         $      1,607





(1) Securities, loan income and change in net interest and dividend income are

     presented on a tax-equivalent basis using a tax rate of 21%. The
     tax-equivalent adjustment is deducted from tax-equivalent net interest
     income.



Net interest income increased $1.6 million, or 8.9%, to $19.4 million, for the
three months ended June 30, 2022, from $17.8 million for the three months ended
June 30, 2021. The increase was due to an increase in interest and dividend
income of $994,000, or 5.1%, and a decrease in interest expense of $594,000, or
32.2%. Interest expense on deposits decreased $476,000, or 32.5%, and interest
expense on borrowings decreased $118,000, or 30.9%. For the three months ended
June 30, 2022, net interest income included $129,000 in PPP income, compared to
$1.6 million for the three months ended June 30, 2021. Excluding PPP income, net
interest income increased $3.1 million, or 19.1%, primarily due to an increase
in interest and dividend income of $2.5 million, or 13.8%.



The net interest margin was 3.24% for the three months ended June 30, 2022,
compared to 3.06% for the three months ended June 30, 2021. The net interest
margin, on a tax-equivalent basis, was 3.26% for the three months ended June 30,
2022, compared to 3.08% for the three months ended June 30, 2021. The increase
in the net interest margin was due to an increase in average loans outstanding
of $38.1 million, or 2.0%, from the three months ended June 30, 2021, compared
to the three months ended June 30, 2022.



The average yield on interest-earning assets increased seven basis points from
3.40% for the three months ended June 30, 2021 to 3.47% for the three months
ended June 30, 2022. During the three months ended June 30, 2022, the average
cost of funds, including non-interest-bearing demand accounts and borrowings,
decreased 11 basis points, from 0.33% for the three months ended June 30, 2021
to 0.22% for the three months ended June 30, 2022. The average cost of core
deposits, which include non-interest-bearing demand accounts, decreased four
basis points, from 0.19% for the three months ended June 30, 2021 to 0.15% for
the three months ended June 30, 2022. The average cost of time deposits
decreased 24 basis points from 0.56% for the three months ended June 30, 2021 to
0.32% for the three months ended June 30, 2022. The average cost of borrowings
increased 129 basis points during the same period due to the full quarter impact
of the $20.0 million in subordinated debt issued on April 19, 2021. For the
three months ended June 30, 2022, average demand deposits, an interest-free
source of funds, increased $32.4 million, or 5.4%, to $635.7 million, or 28.0%
of total average deposits, from $603.3 million, or 27.9% of total average
deposits for the three months ended June 30, 2021.



                                       37





During the three months ended June 30, 2022, average interest-earning assets
increased $68.2 million, or 2.9%, to $2.4 billion compared to the three months
ended June 30, 2021, primarily due to an increase in average securities of
$120.0 million, or 39.5%, and an increase in average loans of $38.1 million, or
2.0%, partially offset by a decrease in short-term investments of $89.9 million,
or 78.3%. Excluding average PPP loans, average interest-earning assets increased
$220.7 million, or 10.2%, and average loans increased $190.7 million, or 10.9%,
from the three months ended June 30, 2021 to the three months ended June 30,
2022.


Provision for Loan Losses.




The provision for loan losses is reviewed by management based upon our
evaluation of then-existing economic and business conditions affecting our key
lending areas and other conditions, such as new loan products, credit quality
trends (including trends in nonperforming loans expected to result from existing
conditions), collateral values, loan volumes and concentrations, specific
industry conditions within portfolio segments that existed as of the balance
sheet date and the impact that such conditions were believed to have had on the
collectability of the loan portfolio.



The amount of the provision for loan losses during the three months ended June
30, 2022 was based on the changes that occurred in the loan portfolio during
that same period. The Company recorded a provision for loan losses of $300,000
for three months ended June 30, 2022, compared to a credit for loan losses of
$1.2 million for the three months ended June 30, 2021. The increase in the
provision for loan losses was due to strong organic loan growth during the
second quarter of 2022. The Company recorded net charge-offs of $48,000 for the
three months ended June 30, 2022, as compared to net charge-offs of $157,000 for
the three months ended June 30, 2021. Management continues to assess the
exposure of the Company's loan portfolio to the COVID-19 pandemic related
factors, economic trends and their potential effect on asset quality.



Although we believe that we have established and maintained the allowance for
loan losses at adequate levels, future adjustments may be necessary if economic,
real estate and other conditions differ substantially from the current operating
environment. If the COVID-19 pandemic has an adverse effect on the ability of
our borrowers to satisfy their obligations to us, the demand for our loans or
our other products and services, other aspects of our business operations, or on
financial markets, real estate markets, or economic growth, this could,
depending on the extent of the loan defaults, materially and adversely affect
our liquidity and financial condition and our results of operations could be
materially and adversely affected.



Non-interest Income.



Non-interest income increased $332,000, or 13.8%, to $2.7 million for the three
months ended June 30, 2022, from $2.4 million for the three months ended June
30, 2021. During the three months ended June 30, 2022, service charges and fees
on deposits increased $271,000, or 13.1%, primarily due to the $177,000, or
19.1%, increase in ATM and debit card interchange income from increased
card-based transaction usage across our checking account base. Other income from
loan-level swap fees on commercial loans increased $21,000 from the three months
ended June 30, 2021 to the three months ended June 30, 2022. Income from
bank-owned life insurance decreased $42,000, or 8.4%, from the three months
ended June 30, 2021 to the three months ended June 30, 2022. During the three
months ended June 30, 2021, mortgage banking income from the sale of fixed rate
residential real estate loans totaled $242,000. The Company did not sell any
loans to the secondary market during the three months ended June 30, 2022. The
Company reported a gain of $141,000 on non-marketable equity investments and
reported an unrealized loss on marketable equity securities of $225,000, during
the three months ended June 30, 2022, compared to unrealized gains on marketable
equity securities of $6,000 during the three months ended June 30, 2021. The
Company also reported realized losses on the sale of securities of $12,000
during the three months ended June 30, 2021. Gains and losses from the
investment portfolio vary from quarter to quarter based on market conditions, as
well as the related yield curve and valuation changes.



                                       38




During the three months ended June 30, 2021, the Company recognized a loss on
interest rate swap termination of $402,000 representing the unamortized portion
of a $3.4 million loss associated with the previous termination of a $32.5
million interest rate swap on March 16, 2016. The unamortized portion of the
loss was previously reported in accumulated other comprehensive income and
amortized through interest expense, however, as the previously hedged item was
discontinued, the Company accelerated the remaining unamortized loss.



Non-interest Expense.



For the three months ended June 30, 2022, non-interest expense increased
$759,000, or 5.6%, to $14.4 million from $13.7 million, for the three months
ended June 30, 2021. The increase in non-interest expense was partially due to
an increase in salaries and benefits of $263,000, or 3.3%, due to normal annual
salary increases. Other non-interest expense increased $260,000, or 12.2%,
professional fees increased $130,000, or 22.1%, occupancy expense increased
$78,000, or 7.1%, advertising expense increased $65,000, or 18.7%, furniture and
equipment expense increased $26,000, or 5.1%, and FDIC insurance expense
increased $9,000, or 4.0%. During the same period, data processing expense
decreased $27,000, or 3.6%. During the three months ended June 30, 2021, the
Company prepaid $32.5 million of FHLB borrowings resulting in a loss of $45,000.
For the three months ended June 30, 2022, the adjusted efficiency ratio, a
non-GAAP financial measure, was 65.0%, compared to 66.1% for the three months
ended June 30, 2021. The adjusted efficiency ratio is a non-GAAP measure. See
"Explanation of Use of Non-GAAP Financial Measurements" for the related
efficiency ratio calculation and a reconciliation of GAAP to non-GAAP financial
measures.



Income Taxes.



Income tax expense for the three months ended June 30, 2022 was $1.9 million,
representing an effective tax rate of 25.2%, compared to $2.1 million,
representing an effective tax rate of 27.0%, for three months ended June 30,
2021.


COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND JUNE 30, 2021




General.



For the six months ended June 30, 2022, the Company reported net income of $10.9
million, or $0.49 per diluted share, compared to $11.4 million, or $0.47 per
diluted share, for the six months ended June 30, 2021. Return on average assets
and return on average equity were 0.86% and 9.93% for the six months ended June
30, 2022, respectively, compared to 0.95% and 10.25% for the six months ended
June 30, 2021, respectively.


Net Interest and Dividend Income.




The following tables set forth the information relating to our average balance
and net interest income for the six months ended June 30, 2022 and 2021, and
reflect the average yield on interest-earning assets and average cost of
interest-bearing liabilities for the periods indicated. Yields and costs are
derived by dividing interest income by the average balance of interest-earning
assets and interest expense by the average balance of interest-bearing
liabilities for the periods shown. The interest rate spread is the difference
between the total average yield on interest-earning assets and the cost of
interest-bearing liabilities. Net interest margin represents tax-equivalent net
interest and dividend income as a percentage of average interest-earning assets.
Average balances are derived from actual daily balances over the periods
indicated. Interest income includes fees earned when the real estate loans are
prepaid or refinanced. For analytical purposes, the interest earned on
tax-exempt assets is adjusted to a tax-equivalent basis to recognize the income
tax savings which facilitates comparison between taxable and tax-exempt assets.



                                       39



                                                              Six Months Ended June 30,
                                             2022                                                  2021
                         Average                         Average Yield/        Average                         Average Yield/
                         Balance        Interest(8)          Cost(9)           Balance        Interest(8)          Cost(9)
                                                               (Dollars in thousands)
ASSETS:
Interest-earning
assets
Loans(1)(2)            $ 1,922,318     $      36,691                3.85 %   $ 1,917,366     $      37,648                3.96 %
Securities(2)              418,806             4,018                1.94         260,845             2,131                1.65
Other investments -
at cost                     10,241                55                1.08           9,889                63                1.28
Short-term
investments(3)              40,899                69                0.34         104,999                50                0.10
Total
interest-earning
assets                   2,392,264            40,833                3.44       2,293,099            39,892                3.51

Total

non-interest-earning

assets                     148,815                                               146,709
Total assets           $ 2,541,079                                           $ 2,439,808

LIABILITIES AND
EQUITY:
Interest-bearing
liabilities
Interest-bearing
checking accounts      $   135,104               200                0.30     $    95,507               198                0.42
Savings accounts           221,484                83                0.08         196,812                83                0.09
Money market
accounts                   894,687             1,070                0.24         721,270             1,303                0.36
Time deposit
accounts                   377,158               629                0.34         527,188             1,616                0.62
Total
interest-bearing
deposits                 1,628,433             1,982                0.25       1,540,777             3,200                0.42
Short-term
borrowings and
long-term debt              24,164               517                4.31          53,569               655                2.47
Interest-bearing
liabilities              1,652,597             2,499                0.30       1,594,346             3,855                0.49
Non-interest-bearing
deposits                   634,387                                               582,541
Other
non-interest-bearing
liabilities                 33,721                                                37,829
Total
non-interest-bearing
liabilities                668,108                                               620,370

Total liabilities        2,320,705                                             2,214,716
Total equity               220,374                                               225,092
Total liabilities
and equity             $ 2,541,079                                           $ 2,439,808
Less: Tax-equivalent
adjustment(2)                                   (244 )                                                (207 )
Net interest and
dividend income                        $      38,090                                         $      35,830
Net interest rate
spread(4)                                                           3.12 %                                                3.00 %
Net interest rate
spread, on a tax
equivalent basis(5)                                                 3.14 %                                                3.02 %
Net interest
margin(6)                                                           3.21 %                                                3.15 %
Net interest margin,
on a tax equivalent
basis(7)                                                            3.23 %                                                3.17 %
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities                                                       144.76 %                                              143.83 %





(1) Loans, including nonaccrual loans, are net of deferred loan origination costs

and unadvanced funds.

(2) Loan and securities income are presented on a tax-equivalent basis using a

     tax rate of 21%. The tax-equivalent adjustment is deducted from
     tax-equivalent net interest and dividend income to agree to the amount
     reported on the consolidated statements of net income.

(3) Short-term investments include federal funds sold.

(4) Net interest rate spread represents the difference between the weighted

     average yield on interest-earning assets and the weighted average cost of
     interest-bearing liabilities.

(5) Net interest rate spread, on a tax-equivalent basis, represents the

     difference between the tax-equivalent weighted average yield on
     interest-earning assets and the tax-equivalent weighted average cost of
     interest-bearing liabilities.

(6) Net interest margin represents net interest and dividend income as a

percentage of average interest-earning assets.

(7) Net interest margin, on a tax-equivalent basis, represents tax-equivalent net

interest and dividend income as a percentage of average interest-earning

assets.

(8) Acquired loans, time deposits and borrowings are recorded at fair value at

the time of acquisition. The fair value marks on the loans, time deposits and

borrowings acquired accrete and amortize into net interest income over time.

For the six months ended June 30, 2022 and June 30, 2021, the loan accretion

income and interest expense reduction on time deposits and borrowings

increased (decreased) net interest income $103,000 and $(78,000),

respectively. Excluding these items, net interest margin, on a tax-equivalent

     basis, for the six months ended June 30, 2022 and June 30, 2021 was 3.22% and
     3.18%, respectively.


 (9) Annualized.




                                       40





Rate/Volume Analysis.


The following table shows how changes in interest rates and changes in the
volume of interest-earning assets and interest-bearing liabilities have affected
our interest and dividend income and interest expense during the periods
indicated. Information is provided in each category with respect to: (1)
interest income changes attributable to changes in volume (changes in volume
multiplied by prior rate); (2) interest income changes attributable to changes
in rate (changes in rate multiplied by prior volume); and (3) the net change.



The changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due
to
rate.



                                                     Six Months Ended June 30, 2022 compared to
                                                           Six Months Ended June 30, 2021
                                                  Increase (Decrease) Due to
                                                  Volume               Rate                 Net
                                                                   (In thousands)
Interest-earning assets
Loans (1)                                      $         97       $       (1,055 )     $         (958 )
Securities (1)                                        1,290                  598                1,888
Other investments - at cost                               2                  (10 )                 (8 )
Short-term investments                                  (31 )                 50                   19
Total interest-earning assets                         1,358                 (417 )                941

Interest-bearing liabilities
Interest-bearing checking accounts                       82                
 (80 )                  2
Savings accounts                                         10                  (10 )                  -
Money market accounts                                   313                 (546 )               (233 )
Time deposit accounts                                  (460 )               (527 )               (987 )
Short-term borrowing and long-term debt                (360 )                222                 (138 )
Total interest-bearing liabilities                     (415 )               (941 )             (1,356 )

Change in net interest and dividend income $ 1,773 $

 524       $        2,297





(1) Securities, loan income and change in net interest and dividend income are

     presented on a tax-equivalent basis using a tax rate of 21%. The
     tax-equivalent adjustment is deducted from tax-equivalent net interest
     income.




During the six months ended June 30, 2022, net interest income increased $2.3
million, or 6.3%, to $38.1 million, compared to $35.8 million for the six months
ended June 30, 2021. The increase in net interest income was due to a decrease
in interest expense of $1.4 million, or 35.2%, and an increase in interest and
dividend income of $904,000, or 2.3%. The decrease in interest expense was due
to a decrease in interest expense on deposits of $1.2 million, or 38.1%, and a
decrease of $138,000, or 21.1%, in interest expense on borrowings. For the six
months ended June 30, 2022, interest and dividend income included $691,000 in
PPP income, compared to $4.0 million during the six months ended June 30, 2021.
Excluding PPP income, net interest income increased $5.6 million, or 17.6%,
for
the same period.



The net interest margin for the six months ended June 30, 2022 was 3.21%,
compared to 3.15% during the six months ended June 30, 2021. The net interest
margin, on a tax-equivalent basis, was 3.23% for the six months ended June 30,
2022, compared to 3.17% for the six months ended June 30, 2021. Excluding the
PPP income, the net interest margin increased from 3.01% for the six months
ended June 30, 2021 to 3.16% for the six months ended June 30, 2022.



The average yield on interest-earning assets decreased seven basis points from
3.51% for the six months ended June 30, 2021 to 3.44% for the six months ended
June 30, 2022. During the six months ended June 30, 2022, the average cost of
funds, including non-interest-bearing demand accounts and borrowings, decreased
14 basis points from 0.36% for the six months ended June 30, 2021 to 0.22% for
the six months ended June 30, 2022. For the six months ended June 30, 2022, the
average cost of core deposits, including non-interest-bearing demand deposits,
decreased six basis points from 0.20% for the six months ended June 30, 2021 to
0.14% for the six months ended June 30, 2022. The average cost of time deposits
decreased 28 basis points from 0.62% for the six months ended June 30, 2021 to
0.34% during the same period in 2022. The average cost of borrowings, which
include FHLB advances and subordinated debt, increased 184 basis points from
2.47% for the six months ended June 30, 2021 to 4.31% for the six months ended
June 30, 2022. For the six months ended June 30, 2022, average demand deposits,
an interest-free source of funds, increased $51.8 million, or 8.9%, from $582.5
million, or 27.4% of total average deposits, for the six months ended June 30,
2021, to $634.4 million, or 28.0% of total average deposits.



                                       41




During the six months ended June 30, 2022, average interest-earning assets
increased $99.2 million, or 4.3%, to $2.4 billion. The increase in average
interest-earning assets was due to an increase in average loans of $5.0 million,
or 0.3%, as well as an increase in average securities of $158.3 million, or
58.5%. Both were partially offset by a decrease of $64.1 million, or 61.1%, in
short-term investments. Excluding average PPP loans, average interest-earning
assets increased $251.2 million, or 11.8%, and average loans increased $157.0
million, or 8.9%.



Provision for Loan Losses.



For the six months ended June 30, 2022, the credit for loan losses decreased
$1.0 million, or 88.9%, from $1.1 million for the six months ended June 30, 2021
to $125,000 for the six months ended June 30, 2022. During the six months ended
June 30, 2021, the Company adjusted its qualitative factors related to the
impact of the COVID-19 pandemic and other economic trends used in the Company's
allowance calculation, which resulted in a credit for loan losses of $1.1
million. The Company recorded net charge-offs of $102,000 for the six months
ended June 30, 2022, as compared to net charge-offs of $162,000 for the six
months ended June 30, 2021.



Although we believe that we have established and maintained the allowance for
loan losses at adequate levels, future adjustments may be necessary if economic,
real estate and other conditions differ substantially from the current operating
environment. If the COVID-19 pandemic has an adverse effect on the ability of
our borrowers to satisfy their obligations to us, the demand for our loans or
our other products and services, other aspects of our business operations, or on
financial markets, real estate markets, or economic growth, this could,
depending on the extent of the loan defaults, materially and adversely affect
our liquidity and financial condition and our results of operations could be
materially and adversely affected.



Non-interest Income.



For the six months ended June 30, 2022, non-interest income was $5.1 million,
compared to $5.4 million for the six months ended June 30, 2021. During the same
period, service charges and fees increased $562,000, or 14.2%. Other income from
loan-level swap fees on commercial loans decreased $37,000, or 63.8%, and income
from bank-owned life insurance decreased $35,000, or 3.7%. Mortgage banking
income was $469,000 for the six months ended June 30, 2021 due to the sale of
fixed rate residential real estate loans to the secondary market. The Company
sold $17.6 million of low coupon residential real estate loans to the secondary
market during the six months ended June 30, 2021, compared to $277,000 during
the six months ended June 30, 2022.



During the six months ended June 30, 2022, the Company reported unrealized
losses on marketable equity securities of $501,000, compared to unrealized
losses of $83,000 during the six months ended June 30, 2021. During the six
months ended June 30, 2022, the Company also reported realized losses on the
sale of securities of $4,000, compared to realized losses of $74,000 on the sale
of securities during the six months ended June 30, 2021. The Company reported a
gain of $141,000 on non-marketable equity investments during the six months
ended June 30, 2022, compared to $546,000 during the six months ended June 30,
2021. Gains and losses from the investment portfolio vary from quarter to
quarter based on market conditions, as well as the related yield curve and
valuation changes.



During the six months ended June 30, 2021, the Company recognized a loss on
interest rate swap termination of $402,000 representing the unamortized portion
of a $3.4 million loss associated with the previous termination of a $32.5
million interest rate swap on March 16, 2016. The unamortized portion of the
loss was previously reported in accumulated other comprehensive income and
amortized through interest expense, however, as the previously hedged item was
discontinued, the Company accelerated the remaining unamortized loss.



                                       42





Non-interest Expense.


For the six months ended June 30, 2022, non-interest expense increased $1.9
million, or 7.0%, to $28.9 million, compared to $27.0 million for the six months
ended June 30, 2021. The increase in non-interest expense was primarily due to
an increase in salaries and employee benefits of $739,000, or 4.7%, due to
normal annual salary increases as well as higher compensation incentive costs to
support overall franchise growth. The increase in salary related expenses was
also partially due to a decrease of $279,000 in deferred direct origination
costs associated with Round 3 of PPP loans. The origination costs were recorded
against salary expense during the six months ended June 30, 2021.



Other non-interest expense increased $702,000, or 17.5%, professional fees
increased $163,000, or 14.4%, occupancy expense increased $152,000, or 6.4%,
advertising expense increased $126,000, or 18.4%, furniture and equipment
expense increased $79,000, or 7.9%, data processing expenses decreased $25,000,
or 1.7%, and FDIC insurance expense decreased $3,000, or 0.6%. During the six
months ended June 30, 2021, the Company prepaid $32.5 million of FHLB borrowings
resulting in a loss of $45,000. For the six months ended June 30, 2022, the
adjusted efficiency ratio, a non-GAAP financial measure, was 66.4%, compared to
65.3% for the six months ended June 30, 2021. The adjusted efficiency ratio is a
non-GAAP measure. See "Explanation of Use of Non-GAAP Financial Measurements"
for the related efficiency ratio calculation and a reconciliation of GAAP to
non-GAAP financial measures.



Income Taxes.


Income tax expense for the six months ended June 30, 2022 was $3.6 million, representing an effective tax rate of 24.7%, compared to $3.9 million, representing an effective tax rate of 25.5%, for six months ended June 30, 2021.

Explanation of Use of Non-GAAP Financial Measurements.




We believe that it is common practice in the banking industry to present
interest income and related yield information on tax-exempt loans and securities
on a tax-equivalent basis, as well as presenting tangible book value per share
and adjusted efficiency ratio, and that such information is useful to investors
because it facilitates comparisons among financial institutions. However, the
adjustment of interest income and yields on tax-exempt loans and securities to a
tax-equivalent amount, as well as the presentation of tangible book value per
share and adjusted efficiency ratio, may be considered to include financial
information that is not in compliance with GAAP. A reconciliation from GAAP
to
non-GAAP is provided below.



                                           Three Months Ended                       Six Months Ended
                                    June 30, 2022       June 30, 2021       June 30, 2022       June 30, 2021
                                                                 (In thousands)

Loans (no tax adjustment) $ 18,500 $ 18,321 $ 36,447 $ 37,441 Tax-equivalent adjustment (1)

                  124                 104                 244                 207

Loans (tax-equivalent basis) $ 18,624 $ 18,425 $ 36,691 $ 37,648

Securities (no tax adjustment) $ 2,068 $ 1,277 $ 4,018 $ 2,131 Tax-equivalent adjustment (1)

                    -                   1                   -                   -
Securities (tax-equivalent
basis)                             $         2,068     $         1,278     $         4,018     $         2,131

Net interest income (no tax
adjustment)                        $        19,392     $        17,804     $        38,090     $        35,830
Tax-equivalent adjustment (1)                  124                 105     
           244                 207
Net interest income
(tax-equivalent basis)             $        19,516     $        17,909     $        38,334     $        36,037




                                       43




                                           Three Months Ended                       Six Months Ended
                                    June 30, 2022       June 30, 2021       June 30, 2022       June 30, 2021
                                                                 (In thousands)

Loans (no tax adjustment)                     3.81 %              3.84 %              3.82 %              3.94 %
Loans (tax-equivalent basis)                  3.83 %              3.87 %              3.85 %              3.96 %
Securities (no tax adjustment)                2.00 %              1.74 %   
          1.94 %              1.65 %
Securities (tax-equivalent
basis)                                        2.00 %              1.74 %              1.94 %              1.65 %

Interest rate spread (no tax
adjustment)                                   3.15 %              2.92 %              3.12 %              3.00 %
Net interest margin (no tax
adjustment)                                   3.24 %              3.06 %              3.21 %              3.15 %
Net interest margin
(tax-equivalent)                              3.26 %              3.08 %              3.23 %              3.17 %


Net interest income (no tax
adjustment)                        $        19,392     $        17,804     $        38,090     $        35,830
Less:
Purchase accounting adjustments                 64                 (33 )               103                 (78 )
Prepayment penalties and fees                   26                 117                  48                 152
PPP fee income                                 129               1,627                 691               4,038
Adjusted net interest income
(non-GAAP)                         $        19,173     $        16,093    

$ 37,248 $ 31,718

Average interest-earning assets    $     2,398,526     $     2,330,311     $     2,392,264     $     2,293,099
Average interest-earnings asset,
excluding average PPP loans        $     2,395,463     $     2,174,716     $     2,383,226     $     2,132,050

Adjusted net interest margin,
excluding purchase accounting
adjustments, PPP fee income,
prepayment penalties and average
PPP loans (non-GAAP)                          3.21 %              2.97 %              3.16 %              2.99 %

Book Value per Share (GAAP)        $          9.58     $          9.29     $          9.58     $          9.29
Non-GAAP adjustments:
Goodwill                                     (0.55 )             (0.52 )             (0.55 )             (0.52 )

Core deposit intangible                      (0.11 )             (0.11 )             (0.11 )             (0.11 )
Tangible Book Value per Share
(non-GAAP)                         $          8.92     $          8.66     $          8.92     $          8.66

Income Before Income Taxes
(GAAP)                             $         7,400     $         7,739    

$ 14,415 $ 15,367


Provision (credit) for loan
losses                                         300              (1,200 )              (125 )            (1,125 )
Income Before Taxes and
Provision (non-GAAP)               $         7,700     $         6,539     $        14,290     $        14,242

Non-interest Expense (GAAP)        $        14,433     $        13,674     $        28,889     $        27,001
Non-GAAP adjustments:
Loss on prepayment of borrowings                 -                 (45 )                 -                 (45 )
Non-interest Expense for
Efficiency Ratio (non-GAAP)        $        14,433     $        13,629     $        28,889     $        26,956




                                       44




                                           Three Months Ended                       Six Months Ended
                                    June 30, 2022       June 30, 2021       June 30, 2022       June 30, 2021
                                                                 (In thousands)

Net Interest Income (GAAP)         $        19,392     $        17,804     $        38,090     $        35,830

Non-interest Income (GAAP)         $         2,741     $         2,409     $         5,089     $         5,413
Non-GAAP adjustments:
Loss on securities, net                          -                  12                   4                  74
Unrealized loss (gain) on
marketable equity securities                   225                  (6 )               501                  83
Loss on interest rate swap
termination                                      -                 402                   -                 402
Gain on non-marketable equity
investments                                   (141 )                 -                (141 )              (546 )
Non-interest Income for Adjusted
Efficiency Ratio
(non-GAAP)                         $         2,825     $         2,817     $         5,453     $         5,426
Total Revenue for Adjusted
Efficiency Ratio (non-GAAP)        $        22,217     $        20,621     $        43,543     $        41,256

Efficiency Ratio (GAAP)                      65.21 %             67.65 %             66.91 %             65.47 %

Adjusted Efficiency Ratio
(Non-interest Expense
(GAAP)/Total Revenue for
Adjusted Efficiency Ratio
(non-GAAP))                                  64.96 %             66.09 %             66.35 %             65.34 %



(1) The tax equivalent adjustment is based upon a 21% tax rate.

Liquidity and Capital Resources.

The term "liquidity" refers to our ability to generate adequate amounts of cash
to fund loan originations, loan purchases, deposit withdrawals and operating
expenses. Our primary sources of liquidity are deposits, scheduled amortization
and prepayments of loan principal and mortgage-backed securities, maturities and
calls of investment securities and funds provided by our operations. We also can
borrow funds from the FHLB based on eligible collateral of loans and securities.
Our material cash commitments include funding loan originations, fulfilling
contractual obligations with third-party service providers, maintaining
operating leases for certain of our Bank properties and satisfying repayment of
our long-term debt obligations.



Primary Sources of Liquidity




At June 30, 2022 and December 31, 2021, outstanding borrowings from the FHLB
were $1.4 million and $2.7 million, respectively. At June 30, 2022, we had
$473.2 million in available borrowing capacity with the FHLB. We have the
ability to increase our borrowing capacity with the FHLB by pledging investment
securities or additional loans.



In addition, we have available lines of credit of $15.0 million and $50.0
million with other correspondent banks. Interest rates on these lines are
determined and reset on a daily basis by each respective bank. At June 30, 2022
and December 31, 2021, we did not have an outstanding balance under either of
these lines of credit. In addition, we may enter into reverse repurchase
agreements with approved broker-dealers. Reverse repurchase agreements are
agreements that allow us to borrow money using our securities as collateral.



We also have outstanding at any time, a significant number of commitments to
extend credit and provide financial guarantees to third parties. These
arrangements are subject to strict credit control assessments. Guarantees
specify limits to our obligations. Because many commitments and almost all
guarantees expire without being funded in whole or in part, the contract amounts
are not estimates of future cash flows. We are also obligated under agreements
with the FHLB to repay borrowed funds and are obligated under leases for certain
of our branches and equipment.



Maturing investment securities are a relatively predictable source of funds.
However, deposit flows, calls of securities and prepayments of loans and
mortgage-backed securities are strongly influenced by interest rates, general
and local economic conditions and competition in the marketplace. These factors
reduce the predictability of the timing of these sources of funds.



                                       45





The Company's primary activities are the origination of commercial real estate
loans, commercial and industrial loans and residential real estate loans, as
well as and the purchase of mortgage-backed and other investment securities.
During the six months ended June 30, 2022 and 2021, we originated $207.2 million
and $236.5 million in loans, respectively. We purchased securities totaling
$24.8 million for the six months ended June 30, 2022 and $174.0 million for the
six months ended June 30, 2021. At June 30, 2022, the Company had approximately
$179.2 million in loan commitments and letters of credit to borrowers and
approximately $323.3 million in available home equity and other unadvanced
lines
of credit.


Deposit in flows and out flows are affected by the level of interest rates, the
products and interest rates offered by competitors and by other factors. At June
30, 2022, time deposit accounts scheduled to mature within one year totaled
$296.0 million. Based on the Company's deposit retention experience and current
pricing strategy, we anticipate that a significant portion of these time
deposits will remain on deposit. We monitor our liquidity position frequently
and anticipate that it will have sufficient funds to meet our current funding
commitments for the next 12 months and beyond.



Material Cash Commitments



The Company entered into a long-term contractual obligation with a vendor for
use of its core provider and ancillary services beginning in 2016. Total
remaining contractual obligations outstanding with this vendor as of June 30,
2022 were estimated to be $12.0 million, with $4.5 million expected to be paid
within one year and the remaining $7.5 million to be paid within the next five
years. Further, the Company has operating leases for certain of its banking
offices and ATMs. Our leases have remaining lease terms of less than one year to
seventeen years, some of which include options to extend the leases for
additional five-year terms up to fifteen years. Lease liabilities totaled $9.7
million as of June 30, 2022. Principal payments expected to be made on our lease
liabilities during the twelve months ended June 30, 2023 are $1.3 million. The
remaining lease liability payments totaled $8.4 million and are expected to
be
made after June 30, 2023.


In addition, the Company completed an offering of $20 million in aggregate
principal amount of its Notes to certain qualified institutional buyers in a
private placement transaction on April 20, 2021. For more information on the
Notes, refer to the information contained in Note 9 "Subordinated Debt" of the
unaudited consolidated financial statements included above.



We do not anticipate any material capital expenditures during the rest of 2022,
except in pursuance of the Company's strategic initiatives. The Company does not
have any balloon or other payments due on any long-term obligations or any
off-balance sheet items other than the commitments and unused lines of credit
noted above.



At June 30, 2022, we exceeded each of the applicable regulatory capital
requirements. As of June 30, 2022, the most recent notification from the Office
of Comptroller of the Currency categorized the Bank as "well-capitalized" under
the regulatory framework for prompt corrective action. To be categorized as
"well-capitalized," the Bank must maintain minimum total risk-based, Tier 1
risk-based, Common Equity Tier 1 risk-based, and Tier 1 leverage ratios as set
forth in the following table. There are no conditions or events since that
notification that management believes would change our category.



                                       46




                                                            Minimum For Capital Adequacy
                                      Actual                          Purpose                   Minimum To Be Well Capitalized
                               Amount        Ratio         Amount                Ratio            Amount             Ratio
                                                                   (Dollars in thousands)
June 30, 2022
Total Capital (to Risk
Weighted Assets):
Consolidated                  $ 267,084        13.69 %   $   156,026                   8.00 %          N/A                 N/A
Bank                            252,707        12.98         155,750                   8.00     $  194,687               10.00 %
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated                    227,871        11.68         117,019                   6.00            N/A                 N/A
Bank                            233,147        11.98         116,812                   6.00        155,750                8.00
Common Equity Tier 1
Capital (to Risk Weighted
Assets)
Consolidated                    227,871        11.68          87,764                   4.50            N/A                 N/A
Bank                            233,147        11.98          87,609                   4.50        126,547                6.50
Tier 1 Leverage Ratio (to
Adjusted Average Assets):
Consolidated                    227,871         8.91         102,350                   4.00            N/A                 N/A
Bank                            233,147         9.13         102,182                   4.00        127,728                5.00
December 31, 2021
Total Capital (to Risk
Weighted Assets):
Consolidated                  $ 261,093        14.27 %   $   146,347                   8.00 %          N/A                 N/A
Bank                            243,788        13.35         146,135                   8.00     $  182,669               10.00
Tier 1 Capital (to Risk
Weighted Assets):
Consolidated                    221,673        12.12         109,761                   6.00            N/A                 N/A
Bank                            224,001        12.26         109,601                   6.00        146,135                8.00
Common Equity Tier 1
Capital (to Risk Weighted
Assets):
Consolidated                    221,673        12.12          82,320                   4.50            N/A                 N/A
Bank                            224,001        12.26          82,201                   4.50        118,735                6.50
Tier 1 Leverage Ratio (to
Adjusted Average Assets):
Consolidated                    221,673         8.75         101,320                   4.00            N/A                 N/A
Bank                            224,001         8.86         101,101                   4.00        126,377                5.00



We also have outstanding, at any time, a significant number of commitments to
extend credit and provide financial guarantees to third parties. These
arrangements are subject to strict credit control assessments. Guarantees
specify limits to our obligations. Because many commitments and almost all
guarantees expire without being funded in whole or in part, the contract amounts
are not estimates of future cash flows.



OFF-BALANCE SHEET ARRANGEMENTS.




The Company does not have any off-balance sheet arrangements, other than noted
above under Material Cash Commitments, that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to investors.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2022 78,8 M - -
Net income 2022 23,0 M - -
Net Debt 2022 - - -
P/E ratio 2022 8,09x
Yield 2022 2,83%
Capitalization 189 M 189 M -
Capi. / Sales 2022 2,40x
Capi. / Sales 2023 2,24x
Nbr of Employees 327
Free-Float 88,1%
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Average target price 10,63 $
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Managers and Directors
James C. Hagan President
Guida R. Sajdak Chief Financial Officer & Executive Vice President
Lisa G. McMahon Chairman
Darlene M. Libiszewski Chief Information Officer & Senior Vice President
Nadia Baral Vice President & Compliance Director