FVCBANKCORP, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following presents management's discussion and analysis of our consolidated
financial condition at June 30, 2022 and December 31, 2021 and the results of
our operations for the three and six months ended June 30, 2022 and 2021. This
discussion should be read in conjunction with our unaudited consolidated
financial statements and the notes thereto appearing elsewhere in this report
and the audited consolidated financial statements and the notes to consolidated
financial statements included in our Annual Report on Form 10-K for the year
ended December 31, 2021. Results of operations for the three and six month
periods ended June 30, 2022 are not necessarily indicative of the results of
operations for the balance of 2022, or for any other period. In addition to
historical information, this discussion contains forward-looking statements that
involve risks, uncertainties and assumptions that could cause results to differ
materially from management's expectations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


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

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


•risks, uncertainties and other factors relating to the COVID-19 pandemic,
including the length of time that the pandemic continues; the imposition of any
restrictions on business operations and/or travel? the effect of the pandemic on
the general economy and on the businesses of our borrowers and their ability to
make payments on their obligations; the remedial actions and stimulus measures
adopted by federal, state and local governments; the inability of employees to
work due to illness, quarantine, or government mandates; and the effectiveness
and acceptance of vaccines against COVID-19 and its variants;

•general business and economic conditions, including higher inflation and its
impacts, nationally or in the markets that the Company serves could adversely
affect, among other things, real estate valuations, unemployment levels, the
ability of businesses to remain viable, and consumer and business confidence,
which could lead to decreases in demand for loans, deposits, and other financial
services that the Company provides and increases in loan delinquencies and
defaults;

•the risk of changes in interest rates on levels, composition and costs of
deposits, loan demand, and the values and liquidity of loan collateral,
securities, and interest sensitive assets and liabilities;

•changes in the Company’s liquidity requirements could be adversely affected by
changes in its assets and liabilities;

•changes in the assumptions underlying the establishment of reserves for
possible loan losses;


•changes in market conditions, specifically declines in the commercial and
residential real estate market, volatility and disruption of the capital and
credit markets, and soundness of other financial institutions we do business
with;

•risks inherent in making loans such as repayment risks and fluctuating
collateral values;


•the Company's investment securities portfolio is subject to credit risk, market
risk, and liquidity risk as well as changes in the estimates used to value the
securities in the portfolio;
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•declines in the Company's common stock price or the occurrence of what
management would deem to be a triggering event that could, under certain
circumstances, cause us to record a noncash impairment charge to earnings in
future periods;

•the strength of the United States economy in general and the strength of the
local economies in which we conduct operations;


•geopolitical conditions, including acts or threats of terrorism, or actions
taken by the United States or other governments in response to acts or threats
of terrorism and/or military conflicts, which could impact business and economic
conditions in the United States and abroad;

•the occurrence of significant natural disasters, including severe weather
conditions, floods, health related issues, and other catastrophic events;


•our management of risks inherent in our real estate loan portfolio, and the
risk of a prolonged downturn in the real estate market, which could impair the
value of our collateral and our ability to sell collateral upon any foreclosure;

•changes in consumer spending and savings habits;

•technological and social media changes;


•the effects of, and changes in, trade, monetary and fiscal policies and laws,
including interest rate policies of the Board of Governors of the Federal
Reserve System (the "Federal Reserve"), inflation, interest rate, market and
monetary fluctuations;

•changing bank regulatory conditions, policies or programs, whether arising as
new legislation or regulatory initiatives, that could lead to restrictions on
activities of banks generally, or our subsidiary bank in particular, more
restrictive regulatory capital requirements, increased costs, including deposit
insurance premiums, regulation or prohibition of certain income producing
activities or changes in the secondary market for loans and other products;

•the impact of changes in financial services policies, laws and regulations,
including laws, regulations and policies concerning taxes, banking, securities
and insurance, and the application thereof by regulatory bodies;

•the impact of changes in laws, regulations and policies affecting the real
estate industry;


•the effect of changes in accounting policies and practices, as may be adopted
from time to time by bank regulatory agencies, the U.S. Securities and Exchange
Commission, the Public Company Accounting Oversight Board, the Financial
Accounting Standards Board or other accounting standards setting bodies;

•the timely development of competitive new products and services and the
acceptance of these products and services by new and existing customers;

•the willingness of users to substitute competitors’ products and services for
our products and services;


•the effect of acquisitions we may make, including, without limitation, the
failure to achieve the expected revenue growth and/or expense savings from such
acquisitions;

•changes in the level of our nonperforming assets and charge-offs;

•our involvement, from time to time, in legal proceedings and examination and
remedial actions by regulators; and

•potential exposure to fraud, negligence, computer theft and cyber-crime.


The foregoing factors should not be considered exhaustive and should be read
together with other cautionary statements that are included in our Annual Report
on Form 10-K for the year ended December 31, 2021, including those discussed in
the section entitled "Risk Factors". If one or more of the factors affecting our
forward-looking information and statements proves incorrect, then our actual
results, performance or achievements could differ materially from those
expressed in, or implied by, forward-looking information and statements
contained in this Form 10-Q. Therefore, we caution you not to place undue
reliance on our forward-looking information and statements. We will not update
the forward-looking statements to reflect actual results or changes in the
factors affecting the forward-looking statements. New risks and uncertainties
may emerge from time to time, and it is not possible for us to predict their
occurrence or how they will affect us.

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Overview


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

On August 31, 2021, we announced that the Bank made an investment in Atlantic
Coast Mortgage, LLC ("ACM") for $20.4 million to obtain a 28.7% ownership
interest in ACM. The ownership interest is subject to an earnback option of up
to 3.7% over a three year period. In addition, the Bank provides a warehouse
lending facility to ACM, which includes a construction-to-permanent financing
line, and has developed portfolio mortgage products to diversify our held for
investment loan portfolio.

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

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

Critical Accounting Policies

General


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

The accounting policies we view as critical are those relating to judgments,
assumptions and estimates regarding the determination of the allowance for loan
losses and fair value measurements.

Allowance for Loan Losses


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

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national and local economic trends and conditions, concentrations of credit,
competition, and loan review results to support estimates.

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

Our peer group is defined by selecting commercial banking institutions of
similar size within Virginia, Maryland and the District of Columbia. This is
known as our custom peer group. The commercial banking institutions comprising
the custom peer group can change based on certain factors including but not
limited to the characteristics, size, and geographic footprint of the
institution. We have identified 22 banks for our custom peer group which are
within $1 billion to $3 billion in total assets, the majority of whom are
geographically concentrated in the Washington, D.C. metropolitan area in which
we operate, as this area has experienced more stable economic conditions than
many other areas of the country. These baseline peer group loss rates are then
adjusted based on an analysis of our loan portfolio characteristics, trends,
economic considerations and other conditions that should be considered in
assessing our credit risk. Our peer loss rates are updated on a quarterly basis.

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

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

Fair Value Measurements


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




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LIBOR and Other Benchmark Rates


We have certain loans, interest rate swap agreements, and investment securities
whose interest rate is indexed to London Interbank Offered Rate ("LIBOR"). In
2017, the Financial Conduct Authority (the authority that regulates the
calculation of LIBOR) announced its intention to stop compelling banks to submit
rates for the calculation of LIBOR after 2021. In December 2020, the
administrator of LIBOR announced its intention to (i) cease the publication of
the one-week and two-month U.S. dollar LIBOR after December 31, 2021, and (ii)
cease the publication of all other tenors of U.S. dollar LIBOR (one, three, six
and 12 month LIBOR) after June 30, 2023. In October 2021, the federal bank
regulatory agencies issued a Joint Statement on Managing the LIBOR Transition.
In that guidance, the agencies offered their regulatory expectations and
outlined potential supervisory and enforcement consequences for banks that fail
to adequately plan for and implement the transition away from LIBOR. The failure
to properly transition away from LIBOR may result in increased supervisory
scrutiny.

Central banks and regulators around the world have commissioned working groups
to find suitable replacements for Interbank Offered Rates ("IBOR") and other
benchmark rates and to implement financial benchmark reforms more generally.
These actions have resulted in uncertainty regarding the use of alternative
reference rates ("ARRs") and could cause disruptions in a variety of markets, as
well as adversely impact our business, operations and financial results.

  To facilitate an orderly transition from IBORs and other benchmark rates to
ARRs, we have established an enterprise-wide initiative led by senior
management. The objective of this initiative is to identify, assess and monitor
risks associated with the expected discontinuation or unavailability of
benchmarks, including LIBOR, achieve operational readiness and engage impacted
clients in connection with the transition to ARRs. To mitigate the risks
associated with the expected discontinuation of LIBOR, we have ceased
originating LIBOR-linked loans, implemented fallback language for LIBOR-linked
commercial loans, adhered to the International Swaps and Derivatives Association
2020 Fallbacks Protocol for interest rate swap agreements, and have updated our
systems to accommodate loans linked to the Secured Overnight Financing Rate
("SOFR"). In accordance with regulatory guidance, we ceased entering into new
LIBOR transactions at the end of 2021 and have selected SOFR as the rate that
best represents an alternative to LIBOR. Uncertainty as to the adoption, market
acceptance or availability of SOFR or other alternative reference rates may
adversely affect the value of LIBOR-based loans and securities in our portfolio
and may impact the availability and cost of hedging instruments and borrowings.

Results of Operations- Three and Six Months Ended June 30, 2022 and 2021

Overview


We recorded net income of $6.4 million, or $0.43 per diluted common share, for
the three months ended June 30, 2022, compared to net income of $5.2 million, or
$0.36 per diluted common share, for the three months ended June 30, 2021, an
increase of $1.3 million, or 24%. Net interest income increased $2.6 million, or
18%, to $16.8 million for the three months ended June 30, 2022, compared to
$14.2 million for the three months ended June 30, 2021. Provision for loan
losses of $1.2 million was recorded for the three months ended June 30, 2022,
compared to no provision being recorded for the same period of 2021. Noninterest
income was $645 thousand compared to $685 thousand for the three months ended
June 30, 2022 and 2021, respectively. Noninterest expense was $8.2 million for
each of the three month periods ended June 30, 2022 and 2021.

The annualized return on average assets for the three months ended June 30, 2022
and 2021 was 1.21% and 1.06%, respectively. The annualized return on average
equity for the three months ended June 30, 2022 and 2021 was 12.93% and 10.41%,
respectively.

For the six months ended June 30, 2022, we recorded net income of $13.0 million,
or $0.88 per diluted common share, compared to net income of $10.7 million, or
$0.74 per diluted common share, for the six months ended June 30, 2021. Net
interest income increased $3.6 million to $31.8 million for the six months ended
June 30, 2022, compared to $28.2 million for the six months ended June 30, 2021.
Provision for loan losses was $1.5 million for the six months ended June 30,
2022, compared to no provision for loan losses for the same period of 2021.
Noninterest income increased $793 thousand, or 54%, to $2.3 million for the six
months ended June 30, 2022 as compared to $1.5 million for 2021. Noninterest
expense was $16.7 million for the six months ended June 30, 2022, compared to
$16.1 million for the same six month period of 2021.

The annualized return on average assets for the six months ended June 30, 2022
and 2021 was 1.26% and 1.13%, respectively. The annualized return on average
equity for the six months ended June 30, 2022 and 2021 was 12.78% and 10.96%,
respectively.

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Net Interest Income/Margin

Net interest income is our primary source of revenue, representing the
difference between interest and fees earned on interest-earning assets and the
interest paid on deposits and other interest-bearing liabilities. The following
table presents average balance sheet information, interest income, interest
expense and the corresponding average yields earned and rates paid for the three
months ended June 30, 2022 and 2021.

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    Average Balance Sheets and Interest Rates on Interest-Earning Assets and
                          Interest-Bearing Liabilities
               For the Three Months Ended June 30, 2022 and 2021
                             (Dollars in thousands)

                                                                          2022                                                                      2021
                                                                         Interest              Average Yield/                                       Interest             Average Yield/
                                            Average Balance           Income/Expense                Rate               Average Balance           Income/Expense               Rate
Assets
Interest-earning assets:
Loans (1):
Commercial real estate                    $        940,338          $         10,215                  4.35  %        $        796,220          $          8,616                  4.33  %
Commercial and industrial                          203,985                     2,321                  4.55  %                 120,021                     1,421                  4.74  %
Paycheck protection program                          9,718                       169                  6.94  %                 138,550                     1,474                  4.26  %
Commercial construction                            174,896                     2,067                  4.73  %                 212,004                     2,382                  4.49  %
Consumer residential                               242,867                     2,295                  3.78  %                 164,938                     1,633                  3.96  %
Consumer nonresidential                              9,327                       176                  7.53  %                  12,810                       225                  7.04  %
Total loans (1)                                  1,581,131                    17,243                  4.36  %               1,444,543                    15,751                  4.36  %

Investment securities (2)                          351,525                     1,508                  1.72  %                 172,648                       875                  2.03  %
Restricted stock                                     6,015                        78                  5.23  %                   6,227                        81                  5.20  %
Deposits at other financial institutions
and federal funds sold                              99,650                       200                  0.81  %                 228,708                        71                  0.12  %

Total interest-earning assets and
interest income                                  2,038,321                    19,029                  3.73  %               1,852,126                    16,778                  3.62  %

Noninterest-earning assets:
Cash and due from banks                              4,716                                                                     15,954
Premises and equipment, net                          1,452                                                                      1,525
Accrued interest and other assets                   85,433                                                                     92,805
Allowance for loan losses                          (14,109)                                                                   (14,427)
Total assets                              $      2,115,813                                                           $      1,947,983

Liabilities and Stockholders' Equity
Interest - bearing liabilities:
Interest - bearing deposits:

Interest checking                         $        794,757          $          1,007                  0.51  %        $        565,074          $            742                  0.53  %
Savings and money markets                          329,831                       446                  0.54  %                 297,003                       351                  0.47  %
Time deposits                                      177,525                       446                  1.01  %                 238,113                       722                  1.22  %
Wholesale deposits                                  35,000                        (2)                (0.03  %)                 35,000                        39                  0.45  %
Total interest - bearing deposits                1,337,113                     1,897                  0.57  %               1,135,190                     1,854                  0.66  %

Other borrowed funds                                46,946                       342                  2.92  %                  69,127                       736                  4.27  %

Total interest-bearing liabilities and
interest expense                                 1,384,059                     2,239                  0.65  %               1,204,317                     2,590                  0.86  %

Noninterest-bearing liabilities:
Demand deposits                                    509,991                                                                    518,826
Other liabilities                                   22,998                                                                     26,374
Common stockholders' equity                        198,765                                                                    198,466
Total liabilities and stockholders'
equity                                    $      2,115,813                                                           $      1,947,983

Net interest income and net interest
margin                                                              $         16,790                  3.30  %                                  $         14,188                  3.07  %


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(1)Nonaccrual loans are included in average balances and do not have a material
effect on the average yield. Interest income on nonaccruing loans was not
material for the periods presented. Net loan fees and late charges included in
interest income on loans totaled $774 thousand and $1.7 million for the three
months ended June 30, 2022 and 2021, respectively.
(2)The average yields for investment securities are reported on a fully taxable
equivalent basis at a rate of 21% for both 2022 and 2021.

The level of net interest income is affected primarily by variations in the
volume and mix of these assets and liabilities, as well as changes in interest
rates. See "Item 3. Quantitative and Qualitative Disclosures About Market Risk"
below for further information.

The following table shows the effect that these factors had on the interest
earned from our interest-earning assets and interest incurred on our
interest-bearing liabilities for the three months ended June 30, 2022.

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                            Rate and Volume Analysis
               For the Three Months Ended June 30, 2022 and 2021
                             (Dollars in thousands)

                                                                     2022 Compared to 2021
                                                       Average              Average              Increase
                                                        Volume                Rate              (Decrease)
Interest income:

Loans (1):
Commercial real estate                              $     1,560          $        39          $     1,599
Commercial and industrial                                   994                  (94)                 900
Paycheck protection program                              (1,371)                  66               (1,305)
Commercial construction                                    (417)                 102                 (315)
Consumer residential                                        772                 (110)                 662
Consumer nonresidential                                     (61)                  12                  (49)
Total loans (1)                                           1,477                   15                1,492

Investment securities (2)                                   899                 (266)                 633
Restricted stock                                             (4)                   1                   (3)
Deposits at other financial institutions and
federal funds sold                                          (39)                 168                  129

Total interest income                                     2,333                  (82)               2,251

Interest expense:

Interest - bearing deposits:
Interest checking                                           301                  (36)                 265
Savings and money markets                                    40                   55                   95
Time deposits                                              (186)                 (90)                (276)
Wholesale deposits                                            -                  (41)                 (41)
Total interest - bearing deposits                           155                 (112)                  43

Other borrowed funds                                       (237)                (157)                (394)
Total interest expense                                      (82)                (269)                (351)

Net interest income                                 $     2,415          $       187          $     2,602





(1)Nonaccrual loans are included in average balances and do not have a material
effect on the average yield. Interest income on nonaccruing loans was not
material for the periods presented.
(2)The average yields for investment securities are reported on a fully taxable
equivalent basis at a rate of 21% for both 2022 and 2021.

Net interest income for the three months ended June 30, 2022 was $16.8 million,
compared to $14.2 million for the three months ended June 30, 2021, an increase
of $2.6 million, or 18.3%. The increase in net interest income was primarily a
result of our growth in average earning assets supplemented by continued
decreases in the average rates paid on interest-bearing deposits and other
borrowed funds during 2022 as compared to 2021. Average earning assets increased
$186.2 million to $2.04 billion during the second quarter of 2022 as compared to
$1.85 billion for the same period of 2021, primarily related to average growth
in our loan portfolio of $136.6 million ($265.4 million excluding PPP loans) for
the second quarter of 2022 as compared to the same period of 2021, contributing
$1.5 million of the increase in interest income for the second quarter of 2022.
The average balance of the investment securities portfolio increased $178.9
million to
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$351.5 million for the three months ended June 30, 2022 as compared $172.6
million for the same period of 2021, which contributed to an increase in
interest income of $898 thousand offset by a decrease in interest income of $266
thousand for the decrease in the average yield of the portfolio, for the three
months ended June 30, 2022 as compared to 2021. Average deposits at other
financial institutions and federal funds sold decreased $129.1 million to $99.7
million from $228.7 million for the same period of 2021 as we invested this
excess liquidity in our loan portfolio at higher interest rates.

Total average interest-bearing deposits increased $201.9 million to $1.34
billion for the three months ended June 30, 2022 compared to $1.14 billion for
the three months ended June 30, 2021. Average noninterest-bearing deposits
decreased $8.8 million to $510.0 million for the three months ended June 30,
2022 compared to $518.8 million for the same period in 2021. The largest
increase in average interest-bearing customer deposit balances was in our
interest checking, which increased $229.7 million compared to 2021. As customers
move balances to non-maturity deposit products, average balances for time
deposits decreased $60.6 million as compared to 2021. Average wholesale deposits
were $35.0 million for each of the second quarters of 2022 and 2021, as we have
been able to reduce our reliance on wholesale funding due to other core sources
of liquidity. The cost of other borrowed funds, which include federal funds
purchased, Federal Home Loan Bank of Atlanta ("FHLB") advances, and our
subordinated notes, decreased $22.2 million to $46.9 million compared to $69.1
million, a result of redeeming $25 million in subordinated debt during the third
quarter of 2021. As a result of this redemption, interest expense on other
borrowed funds decreased by $394 thousand, or 135 basis points, for the three
months ended June 30, 2022 as compared to 2021.

The yield on interest-earning assets increased 11 basis points to 3.73% for the
three months ended June 30, 2022, compared to 3.62% for the same period of 2021.
The average yield of the loan portfolio for each of the three month periods
ended June 30, 2022 and 2021 was 4.36%. Net deferred fees recorded from PPP loan
forgiveness increased the average yield of the loan portfolio by only 4 basis
points for the three months ended June 30, 2022, compared to 41 basis points for
the year ago quarter. The cost of interest-bearing deposits decreased 9 basis
points to 0.57% for the three months ended June 30, 2022, compared to 0.66% for
the same period of 2021, which was primarily attributed to the repricing of our
time deposits to lower interest rates. In addition, as a result of the fixed
rate interest rate swap we have on our wholesale deposits, which was entered
into two years ago during a lower rate environment, we recorded income of $2
thousand for the three months ended June 30, 2022 resulting in a negative 0.03%
cost as compared to $39 thousand in interest expense for the year ago quarter.

Our net interest margin, on a tax equivalent basis, for the three months ended
June 30, 2022 and 2021 was 3.30% and 3.07%, respectively. The increase in our
net interest margin was primarily a result of the increase in the yields earned
on our interest-earning assets during 2022 as compared to 2021, a result of the
current rising rate environment. Average balances of nonperforming loans, which
consist of nonaccrual loans, are included in the net interest margin calculation
and did not have a material impact on our net interest margin in 2022 and 2021.

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

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
















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   Supplemental Financial Data and Reconciliations to GAAP Financial Measures
           For the Three and Six Months Ended June 30, 2022 and 2021
                             (Dollars in thousands)

                                                Three Months Ended June 30,                 Six Months Ended June 30,
                                                 2022                  2021                  2022                 2021
GAAP Financial Measurements:
Interest income:
Loans                                      $       17,243          $   15,751          $      32,850          $   31,683
Deposits at other financial institutions
and federal funds sold                                200                  71                    245                 116
Investment securities available­for­sale            1,503                 872                  2,991               1,590
Investment securities held­to­maturity                  2                   1                      2                   2
Restricted stock                                       78                  81                    161                 163
Total interest income                              19,026              16,776                 36,249              33,554
Interest expense:
Interest­bearing deposits                           1,897               1,854                  3,727               3,855
Other borrowed funds                                  342                 736                    684               1,470
Total interest expense                              2,239               2,590                  4,411               5,325
Net interest income                        $       16,787          $   14,186          $      31,838          $   28,229
Non­GAAP Financial Measurements:
Add: Tax benefit on tax­exempt interest
income - securities                                     3                   2                      5                   8
Total tax benefit on tax-exempt interest
income                                     $            3          $        2          $           5          $        8

Tax equivalent net interest income $ 16,790 $ 14,188 $ 31,843 $ 28,237





The following table presents average balance sheet information, interest income,
interest expense and the corresponding average yield earned and rates paid for
the six months ended June 30, 2022 and 2021.
























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    Average Balance Sheets and Interest Rates on Interest-Earning Assets and
                          Interest-Bearing Liabilities
                For the Six Months Ended June 30, 2022 and 2021
                             (Dollars in thousands)

                                                                        2022                                                                      2021
                                                                        Interest             Average Yield/                                       Interest             Average Yield/
                                           Average Balance           Income/Expense               Rate               Average Balance           Income/Expense               Rate
Assets
Interest-earning assets:
Loans (1):
Commercial real estate                   $        927,294          $         19,643                  4.24  %       $        789,467          $         17,011                  4.31  %
Commercial and industrial                         190,011                     4,166                  4.38  %                115,715                     2,765                  4.78  %
Paycheck protection program                        14,543                       454                  6.24  %                150,243                     3,307                  4.40  %
Commercial construction                           177,627                     4,216                  4.75  %                216,395                     4,808                  4.44  %
Consumer residential                              209,224                     4,028                  3.85  %                165,074                     3,308                  4.01  %
Consumer nonresidential                             9,331                       343                  7.36  %                 13,500                       484                  7.16  %
Total loans (1)                                 1,528,030                    32,850                  4.30  %              1,450,394                    31,683                  4.37  %

Investment securities (2)                         351,423                     2,998                  1.77  %                147,755                     1,600                  2.17  %
Restricted stock                                    6,085                       161                  5.28  %                  6,314                       163                  5.16  %
Deposits at other financial institutions
and federal funds sold                            103,913                       245                  0.48  %                205,926                       116                  0.11  %

Total interest-earning assets and
interest income                                 1,989,451                    36,254                  3.64  %              1,810,389                    33,562                  3.71  %

Noninterest-earning assets:
Cash and due from banks                             7,753                                                                    15,652
Premises and equipment, net                         1,507                                                                     1,567
Accrued interest and other assets                  92,402                                                                    94,506
Allowance for loan losses                         (13,981)                                                                  (14,659)
Total assets                             $      2,077,132                                                          $      1,907,455

Liabilities and Stockholders' Equity
Interest - bearing liabilities:
Interest - bearing deposits:

Interest checking                        $        745,880          $          2,004                  0.54  %       $        544,507          $          1,459                  0.54  %
Savings and money markets                         322,802                       795                  0.50  %                287,939                       675                  0.47  %
Time deposits                                     181,045                       888                  0.99  %                242,277                     1,640                  1.36  %
Wholesale deposits                                 35,000                        40                  0.23  %                 40,359                        81                  0.41  %
Total interest - bearing deposits               1,284,727                     3,727                  0.59  %              1,115,082                     3,855                  0.70  %

Other borrowed funds                               45,737                       684                  3.02  %                 69,111                     1,470                  4.26  %

Total interest-bearing liabilities and
interest expense                                1,330,464                     4,411                  0.67  %              1,184,193                     5,325                  0.91  %

Noninterest-bearing liabilities:
Demand deposits                                   518,070                                                                   499,436
Other liabilities                                  24,540                                                                    27,991
Common stockholders' equity                       204,058                                                                   195,835
Total liabilities and stockholders'
equity                                   $      2,077,132                                                          $      1,907,455

Net interest income and net interest
margin                                                             $         31,843                  3.23  %                                 $         28,237                  3.15  %


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(1)Nonaccrual loans are included in average balances and do not have a material
effect on the average yield. Interest income on nonaccruing loans was not
material for the periods presented. Net loan fees and late charges included in
interest income on loans totaled $1.5 million and $3.4 million for the six
months ended June 30, 2022 and 2021, respectively.
(2)The average yields for investment securities are reported on a fully taxable
equivalent basis at a rate of 21% for both 2022 and 2021.


The following table shows the effect that these factors had on the interest
earned from our interest-earning assets and interest incurred on our
interest-bearing liabilities for the six months ended June 30, 2022.

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                            Rate and Volume Analysis
                For the Six Months Ended June 30, 2022 and 2021
                             (Dollars in thousands)

                                                                     2022 Compared to 2021
                                                       Average              Average              Increase
                                                        Volume                Rate              (Decrease)
Interest income:

Loans (1):
Commercial real estate                              $     2,970          $      (338)         $     2,632
Commercial and industrial                                 1,775                 (374)               1,401
Paycheck protection program                              (2,987)                 134               (2,853)
Commercial construction                                    (861)                 269                 (592)
Consumer residential                                        885                 (165)                 720
Consumer nonresidential                                    (150)                   9                 (141)
Total loans (1)                                           1,632                 (465)               1,167

Investment securities (2)                                 2,205                 (807)               1,398
Restricted stock                                             (6)                   4                   (2)
Deposits at other financial institutions and
federal funds sold                                          (54)                 183                  129

Total interest income                                     3,777               (1,085)               2,692

Interest expense:

Interest - bearing deposits:
Interest checking                                           540                    5                  545
Savings and money markets                                    66                   54                  120
Time deposits                                              (417)                (335)                (752)
Wholesale deposits                                           (9)                 (32)                 (41)
Total interest - bearing deposits                           180                 (308)                (128)

Other borrowed funds                                       (504)                (282)                (786)
Total interest expense                                     (324)                (590)                (914)

Net interest income                                 $     4,101          $      (495)         $     3,606






(1)Nonaccrual loans are included in average balances and do not have a material
effect on the average yield. Interest income on nonaccruing loans was not
material for the periods presented.
(2)The average yields for investment securities are reported on a fully taxable
equivalent basis at a rate of 21% for both 2022 and 2021.

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Net interest income for the six months ended June 30, 2022 was $31.8 million,
compared to $28.2 million for the six months ended June 30, 2021, an increase of
$3.6 million, or 12.8%. The increase in net interest income was primarily a
result of our growth in average earning assets supplemented by continued
decreases in the average rates paid on interest-bearing deposits and other
borrowed funds during 2022 as compared to 2021. Average earning assets increased
$179.1 million to $1.99 billion during the first six months of 2022 as compared
$1.81 billion for the same period of 2021, primarily related to average growth
in our loan portfolio of $77.6 million ($213.3 million excluding PPP loans) for
the six months ended June 30, 2022 as compared to the same period of 2021,
contributing $1.6 million of the increase in interest income for the first half
of 2022. The average balance of the investment securities portfolio increased
$203.7 million to $351.4 million for the six months ended June 30, 2022 as
compared $147.8 million for the same period of 2021, which contributed to an
increase in interest income of $2.2 million offset by a decrease in interest
income of $807 thousand for the decrease in the average yield of the portfolio,
for the six months ended June 30, 2022 as compared to 2021. Average deposits at
other financial institutions and federal funds sold decreased $102.0 million to
$103.9 million from $205.9 million for the same period of 2021 as we invested
this excess liquidity in our loan portfolio at higher interest rates.

Total average interest-bearing deposits increased $169.6 million to $1.28
billion for the six months ended June 30, 2022 compared to $1.12 billion for the
six months ended June 30, 2021. Average noninterest-bearing deposits increased
$18.6 million to $518.1 million for the six months ended June 30, 2022 compared
to $499.4 million for the same period in 2021. The largest increase in average
interest-bearing deposit balances was in our interest checking, which increased
$201.4 million to $745.9 million for the six months ended June 30, 2022 from
$544.5 million for the six months ended June 30, 2021. As customers move
balances to non-maturity deposit products, average balances for time deposits
decreased $61.2 million as compared to the six month average for 2021. The cost
of other borrowed funds, which include federal funds purchased, FHLB advances,
and our subordinated notes, decreased $23.4 million to $45.7 million compared to
$69.1 million, a result of redeeming $25 million in subordinated debt during the
third quarter of 2021. As a result of this redemption, interest expense on other
borrowed funds decreased by $786 thousand, or 124 basis points, for the six
months ended June 30, 2022 as compared to 2021.

The yield on interest-earning assets decreased 7 basis points to 3.64% for the
six months ended June 30, 2022, compared to 3.71% for the same period of 2021.
The average yield of the loan portfolio for the six months ended June 30, 2022
was 4.30% compared to 4.37% for the same period of 2021. Net deferred fees
recorded from PPP loan forgiveness increased the average yield of the loan
portfolio by only 6 basis points for the six months ended June 30, 2022,
compared to 46 basis points for the year ago quarter. The cost of
interest-bearing deposits decreased 11 basis points to 0.59% for the six months
ended June 30, 2022, compared to 0.70% for the same period of 2021, which was
primarily attributed to the repricing of our time deposits to lower interest
rates.

Our net interest margin, on a tax equivalent basis, for the six months ended
June 30, 2022 and 2021 was 3.23% and 3.15%, respectively. The increase in our
net interest margin was primarily a result of the increase in the yields earned
on our interest-earning assets during 2022 as compared to 2021, a result of the
current rising rate environment. Average balances of nonperforming loans, which
consist of nonaccrual loans, are included in the net interest margin calculation
and did not have a material impact on our net interest margin in 2022 and 2021.

Provision Expense and Allowance for Loan Losses


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

We recorded a provision for loan losses of $1.2 million for the three months
ended June 30, 2022 compared to no provision for loan losses being recorded for
the same period of 2021. For the six months ended June 30, 2022, we recorded a
provision for loan losses of $1.5 million compared to no provision for loan
losses being recorded for the same period of 2021. The increase in provision for
loan losses is primarily related to supporting the growth in the loan portfolio
for the quarter and year-to-date periods of June 30, 2022 compared to the same
periods of 2021. No provision for loan losses was recorded for the three and six
month periods of June 30, 2021 primarily as a result of improvement in credit
quality metrics of our loan portfolio and local economic conditions for those
time periods.

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We recorded net recoveries of $8 thousand during the second quarter of 2022, and
net charge-offs of $415 thousand for the year-to-date period of 2022. Specific
reserves decreased to $85 thousand for the three months ended June 30, 2022,
down from $138 thousand at March 31, 2022 and down from $186 thousand at
December 31, 2021.

See "Asset Quality" below for additional information on the credit quality of
the loan portfolio. The allowance for loan losses at June 30, 2022 was $15.0
million compared to $13.8 million at December 31, 2021. Our allowance for loan
loss ratio as a percent of total loans, net of deferred fees and costs and
excluding PPP loans, was 0.90% at June 30, 2022, compared to 0.94% at December
31, 2021.

Noninterest Income

The following table provides detail for non-interest income for the three and
six months ended June 30, 2022 and 2021.


                              Non-Interest Income
           For the Three and Six Months Ended June 30, 2022 and 2021
                             (Dollars in thousands)

                           For the Three Months Ended                                             For the Six Months Ended June
                                    June 30,                    Change from Prior Year                         30,                        Change from Prior Year
                              2022             2021           Amount             Percent              2022              2021            Amount             Percent
Service charges on deposit
accounts                   $    230          $ 247          $    (17)               (6.9) %       $     464          $   490          $    (26)               (5.3) %
Fees on loans                    43             27                16                59.3  %             127               47                80               170.2  %

BOLI income                     254            250                 4                 1.6  %             492              498                (6)               (1.2) %
Income from minority
membership interest               2              -                 2               100.0  %             914                -               914               100.0  %
Other fee income                116            161               (45)              (28.0) %             272              441              (169)              (38.3) %
Total non­interest income  $    645          $ 685          $    (40)      

(5.8) % $ 2,269 $ 1,476 $ 793

53.7 %



Noninterest income includes service charges on deposits and loans, loan swap fee
income, income from our membership interest in ACM, and income from our BOLI
policies, and continues to supplement our operating results. Noninterest income
for the three months ended June 30, 2022 and 2021 was $645 thousand and $685
thousand, respectively. Income from our investment in ACM was $2 thousand for
the three months ended June 30, 2022, a reflection of the current mortgage
environment. Fee income from fees on loans was $43 thousand for the quarter
ended June 30, 2022, compared to $27 thousand for the second quarter of 2021.
Service charges on deposits, and other fee income totaled $346 thousand for the
second quarter of 2022, a decrease of $62 thousand from the year ago quarter.
Income from BOLI increased $4 thousand to $254 thousand for the three months
ended June 30, 2022 from $250 thousand for the three months ended June 30, 2021,
as we purchased $15 million in BOLI during the second quarter of 2022.

Noninterest income for the six months ended June 30, 2022 and 2021 was $2.3
million and $1.5 million, respectively. The increase in noninterest income
during the first six months of 2022 is primarily attributable to the Bank's
income associated with its investment in ACM, recording $914 thousand during the
first six months of 2022. Fee income from fees on loans, service charges on
deposits, and other fee income was $863 thousand for the six months ended June
30, 2022, a decrease of $115 thousand, as compared to the same period of 2021.
Income from BOLI decreased to $492 thousand for the year-to-date period of 2022,
compared to $498 thousand for the same period of 2021.




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Noninterest Expense

The following table reflects the components of non-interest expense for the
three and six months ended June 30, 2022 and 2021.

                              Non-Interest Expense
           For The Three and Six Months Ended June 30, 2022 and 2021
                             (Dollars in thousands)

                                 For the Three Months Ended                                                 For the Six Months Ended June
                                          June 30,                       Change from Prior Year                          30,                         

Change from Prior Year

                                    2022              2021            Amount             Percent               2022               2021             Amount             Percent

Salaries and employee benefits $ 4,914 $ 4,458 $ 456

                 10.2  %       $    9,891          $  9,006          $    885                  9.8  %
Occupancy and equipment expense       812              820                (8)                (1.0) %            1,651             1,627                24                  1.5  %
Data processing and network
administration                        550              551                (1)                (0.2) %            1,092             1,114               (22)                (2.0) %
State franchise taxes                 509              487                22                  4.5  %            1,018               991                27                  2.7  %
Audit, legal and consulting
fees                                  288              503              (215)               (42.7) %              649               857              (208)               (24.3) %
Merger and acquisition expense          -                -                 -                    -  %              125                 -               125                100.0  %
Loan related expenses                 (59)             307              (366)              (119.2) %              (12)              413              (425)              (102.9) %
FDIC insurance                        180              220               (40)               (18.2) %              360               430               (70)               (16.3) %
Marketing, business development
and advertising                        89               56                33                 58.9  %              177               105                72                 68.6  %
Director fees                         155              153                 2                  1.3  %              335               291                44                 15.1  %
Postage, courier and telephone         40               49                (9)               (18.4) %               91                95                (4)                (4.2) %
Internet banking                      157              142                15                 10.6  %              301               275                26                  9.5  %
Dues, memberships &
publications                           48               39                 9                 23.1  %               96                80                16                 20.0  %
Bank insurance                        114               92                22                 23.9  %              223               193                30                 15.5  %
Printing and supplies                  53               31                22                 71.0  %               85                54                31                 57.4  %
Bank charges                           20               48               (28)               (58.3) %               48                80               (32)               (40.0) %
State assessments                      31               53               (22)               (41.5) %               62               106               (44)               (41.5) %
Core deposit intangible
amortization                          131               78                53                 67.9  %              201               158                43                 27.2  %

Other operating expenses              184              141                43                 30.5  %              264               235                29                 12.3  %
Total non­interest expense      $   8,216          $ 8,228          $    (12)                (0.1) %       $   16,657          $ 16,110          $    547                  3.4  %



Noninterest expense includes, among other things, salaries and benefits,
occupancy and equipment costs, professional fees, data processing, insurance and
miscellaneous expenses. Noninterest expense was $8.2 million for each of the
three month periods ended June 30, 2022 and 2021. Salaries and benefits expense
increased $456 thousand to $4.9 million for the three month periods ended June
30, 2022 compared to $4.5 million for the same period in 2021. This increase was
primarily related to business development staff expansion in addition to market
rate adjustments to employee compensation. Loan related legal expenses decreased
$366 thousand for the second quarter of 2022 when compared to the year ago
quarter, as we recovered legal expenses from past nonperforming loans. Audit,
legal and consulting fees decreased $215 thousand for the three months June 30,
2022 as compared to the same period of 2021, as the expenses recorded during
2021 were related to proposed merger due diligence.

For the six months ended June 30, 2022 and 2021, noninterest expense was $16.7
million and $16.1 million, respectively, an increase of $547 thousand. Salaries
and benefits expense increased $885 thousand to $9.9 million for the six months
ended June 30, 2022 compared to $9.0 million for the same period in 2021, which
was primarily related to the aforementioned additions to business development
staff and market rate adjustment to employee compensation during

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2022. Loan related legal expenses decreased $425 thousand for the second quarter
of 2022 when compared to the same period of 2021, as we recovered loan related
legal expenses from past nonperforming loans. Audit, legal and consulting fees
decreased $208 thousand for the six months June 30, 2022 as compared to the same
period of 2021, as the expenses recorded during 2021 were related to proposed
merger due diligence.

Income Taxes

We recorded a provision for income tax expense of $1.6 million for the three
months ended June 30, 2022, compared to $1.5 million for the three months ended
June 30, 2021. Our effective tax rate for the three months ended June 30, 2022
was 20.0%, compared to 22.3% for the same period of 2021. The effective tax
rates for the second quarter of 2022 and 2021 was less than our combined federal
and state statutory rate of 22.5% primarily because of discrete tax benefits
recorded as a result of exercises of nonqualified stock options during during
2022 and 2021.

For each of the six month periods ended June 30, 2022 and 2021, provision for
income tax expense was $2.9 million. Our effective tax rate for the six months
ended June 30, 2022 was 18.1%, compared to 21.0% for the same period of 2021.
The effective tax rates for the second quarter of 2022 and 2021 was less than
our combined federal and state statutory rate of 22.5% primarily because of
discrete tax benefits recorded as a result of exercises of nonqualified stock
options during during 2022 and 2021. In addition, during the first quarter of
2022, the Company recorded a favorable adjustment of $197 thousand to income tax
expense as merger-related expenses that were previously capitalized for tax
purposes are now deductible.


Discussion and Analysis of Financial Condition

Overview


At June 30, 2022, total assets were $2.31 billion, an increase of $103.0
million, or 4.7%, compared to $2.20 billion at December 31, 2021. Total loans
receivable, net of deferred fees and costs, was $1.66 billion at June 30, 2022,
an increase of $160.4 million, or 10.7%, compared to $1.50 billion at December
31, 2021. Total investment securities decreased $50.2 million, or 14.0%,
compared to $358.0 million at December 31, 2021, which is primarily related to
the decrease in the market value of the portfolio due to the current rising rate
environment. Total deposits increased $43.4 million, or 2.3%, compared to $1.88
billion at December 31, 2021. From time to time, we may utilize other borrowed
funds such as federal funds purchased and FHLB advances as an additional funding
source for the Bank. At June 30, 2022, we had federal funds purchased of $115.0
million and FHLB advances totaling $25.0 million, compared to $25.0 million in
FHLB advances at December 31, 2021. At each of June 30, 2022 and December 31,
2021, we had subordinated debt totaling $19.5 million.

Loans Receivable, Net


Total loans receivable, net of deferred fees and costs, were $1.66 billion at
June 30, 2022, compared to $1.50 billion at December 31, 2021. Loans receivable,
net of deferred fees, and excluding PPP loans, totaled $1.66 billion at June 30,
2022 and $1.48 billion at December 31, 2021, an increase of $182.1 million, or
12.3%. At June 30, 2022, loans outstanding under the warehouse lending facility
to ACM totaled $78.7 million, an increase of $6.7 million, or 9%, from $72.0
million at December 31, 2021.

PPP loans net of fees totaled $6.4 million at June 30, 2022, a decrease from
$28.1 million at December 31, 2021 and $101.9 million at June 30, 2021. Loans
forgiven during the first six months of 2022 totaled $21.7 million, or 77.1% of
PPP loans outstanding at December 31, 2021. Net deferred fees associated with
PPP loans totaled $163 thousand at June 30, 2022, and are being recognized in
interest income over the remaining lives of the PPP loans, or sooner upon PPP
loan forgiveness or repayment.

Commercial real estate loans totaled $984.4 million at June 30, 2022, compared
to $906.1 million at December 31, 2021, an increase of $78.2 million, or 8.6%.
Owner-occupied commercial real estate loans were $209.3 million at June 30, 2022
compared to $191.8 million at December 31, 2021. Nonowner-occupied commercial
real estate loans were $774.6 million at June 30, 2022 compared to $714.3
million at December 31, 2021. Construction loans totaled $162.2 million at June
30, 2022, a decrease of $25.4 million, or 13.5%, from $187.6 million at December
31, 2021, and comprised 9.7% of total loans receivable. Of the $162.2 million in
construction loans at June 30, 2022, $47.0 million are collateralized by land
and only $4.9 million are lot acquisition and development loans (which have a
higher degree of credit risk than the

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remaining portion of the construction portfolio). Our commercial real estate
portfolio, including construction loans, is diversified by asset type and
geographic concentration. We manage this portion of our portfolio in a
disciplined manner. We have comprehensive policies to monitor, measure, and
mitigate our loan concentrations within this portfolio segment, including
rigorous credit approval, monitoring and administrative practices.

The following table presents the composition of our loans receivable portfolio
at June 30, 2022 and at December 31, 2021.


                                Loans Receivable
                     At June 30, 2022 and December 31, 2021
                             (Dollars in thousands)

                                               June 30, 2022       December 31, 2021
Commercial real estate                        $      984,356      $            906,112
Commercial and industrial                            213,441                   174,051
Paycheck protection program                            6,606                    28,699
Commercial construction                              162,194                   187,615
Consumer real estate                                 289,789                   200,604
Consumer nonresidential                                9,932                  10,304

Gross loans                                        1,666,318               1,507,385

Less:
Allowance for loan losses                             14,957                  13,829
Unearned income and (unamortized premiums)             2,086                   3,536

Loans receivable, net                         $    1,649,275      $        1,490,020



Asset Quality

Nonperforming loans, defined as nonaccrual loans, loans past due 90 days or more
as to principal or interest and still accruing were $3.5 million at each of June
30, 2022 and December 31, 2021. Our ratio of nonperforming loans to total assets
was 0.15% at June 30, 2022 compared to 0.16% at December 31, 2021. We had one
loan classified as a TDR at June 30, 2022 and December 31, 2021, which totaled
$90 thousand and $92 thousand, respectively.

Nonperforming loans, which are primarily commercial real estate and commercial
and industrial loans, were $3.5 million at June 30, 2022. Loans that we have
classified as nonperforming are a result of customer specific deterioration,
mostly financial in nature, that are not a result of economic, industry, or
environmental causes that we might see as a pattern for possible future losses
within our loan portfolio. For each of our criticized assets, we conduct an
impairment analysis to determine the level of additional or specific reserves
required for any portion of the loan that may result in a loss. As a result of
the analysis completed, we had specific reserves totaling $85 thousand and $186
thousand at June 30, 2022 and December 31, 2021, respectively. Because these
loans are individually evaluated for impairment, nonperforming loans are
excluded from the general reserve allocation.

We categorize loans into risk categories based on relevant information about the
ability of borrowers to service their debt such as current financial
information, historical payment experience, collateral adequacy, credit
documentation, and current economic trends, among other factors. We analyze
loans individually by classifying the loans as to credit risk. This analysis
includes larger non-homogeneous loans such as commercial real estate and
commercial and industrial loans. This analysis is performed on an ongoing basis
as new information is obtained. At June 30, 2022, we had $4.8 million in loans
identified as special mention, an increase from $3.0 million from December 31,
2021. Special mention rated loans are loans that have a potential weakness that
deserves management's close attention; however, the borrower continues to pay in
accordance with their contract. The increase from December 31, 2021 was
primarily related to two loans being downgraded totaling $1.9 million. Loans
rated as special mention do not have a specific reserve and are considered
well-secured.

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At June 30, 2022, we had $16.1 million in loans identified as substandard, a
decrease of $2.9 million from December 31, 2021. Substandard rated loans are
loans that are inadequately protected by the current net worth and paying
capacity of the obligor or of the collateral pledged, if any. For each of these
substandard loans, a liquidation analysis is completed. At June 30, 2022,
specific reserves on originated and acquired loans totaling $85 thousand has
been allocated within the allowance for loan losses to supplement any shortfall
of collateral.

We recorded annualized net charge-offs to average loans receivable of 0.05% for
the six months ended June 30, 2022, compared to annualized net charge-offs to
average loans receivable of 0.08% for the six months ended June 30, 2021. The
following tables provide additional information on our asset quality for the
periods presented.

                              Nonperforming Assets
                     At June 30, 2022 and December 31, 2021
                             (Dollars in thousands)

                                                                 June 30, 2022         December 31, 2021
Nonperforming assets:
Nonaccrual loans                                                $      3,486          $          3,485
Loans contractually past­due 90 days or more and still accruing            -                        23

Total nonperforming loans (NPLs)                                $      3,486          $          3,508
Other real estate owned                                                    -                         -

Total nonperforming assets (NPAs)                               $      3,486          $          3,508
Performing troubled debt restructurings                         $         90          $             92

NPLs/Total Assets                                                       0.15  %                   0.16  %
NPAs/Total Assets                                                       0.15  %                   0.16  %
NPAs and Performing TDRs/Total Assets                                   0.16  %                   0.16  %
Allowance for loan losses/NPLs                                        429.06  %                 394.21  %



At June 30, 2022 and December 31, 2021, there were no performing loans
considered potential problem loans. Potential problem loans are defined as loans
that are not included in the 90 days or more past due, nonaccrual or
restructured categories, but for which known information about possible credit
problems causes management to be uncertain as to the ability of the borrowers to
comply with the present loan repayment terms which may in the future result in
disclosure in the past due, nonaccrual or restructured loan categories. We take
a conservative approach with respect to risk rating loans in our portfolio.
Based upon the status as a potential problem loan, these loans receive
heightened scrutiny and ongoing intensive risk management. Additionally, our
loan loss allowance methodology incorporates increased reserve factors for
certain loans that are adversely rated but not impaired as compared to the
general portfolio.

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

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

We had no OREO property at each of June 30, 2022 and December 31, 2021.


Unexpected changes in economic growth could adversely affect our loan portfolio,
including causing increases in delinquencies and default rates, which would
adversely impact our charge-offs and provision for loan losses. Deterioration in
real estate values, employment data and household incomes may also result in
higher credit losses for us. Also, in the ordinary course of business, we may be
subject to a concentration of credit risk to a particular industry,
counterparty, borrower or issuer. At June 30, 2022, our commercial real estate
portfolio (including construction lending) was 68.8% of our total loan
portfolio. A deterioration in the financial condition or prospects of a
particular industry or a failure or

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downgrade of, or default by, any particular entity or group of entities could
negatively impact our business, perhaps materially, and the systems by which we
set limits and monitor the level of our credit exposure to individual entities
and industries, may not function as we have anticipated.

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


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

                           Allowance for Loan Losses
           For the Three and Six Months Ended June 30, 2022 and 2021
                             (Dollars in thousands)

                                                                              For the Three Months Ended June 30,
                                                                  2022                                                   2021
                                                                         Percentage of net                                     Percentage of net
                                                                            charge-offs                                           charge-offs
                                                                          (annualized) to                                       (annualized) to
                                                                           average loans                                         average loans
                                             Net (charge-offs)         outstanding during the       Net (charge-offs)        outstanding during the
                                                 recoveries                     year                    recoveries                    year
Commercial real estate                      $               -                            -  %       $             -                            -  %
Commercial and industrial                                   -                            -  %                     -                            -  %
Consumer residential                                       (1)                           -  %                     1                            -  %
Consumer nonresidential                                     9                            -  %                   (63)                       (0.02) %
Total                                       $               8                            -  %       $           (62)                       (0.02) %
Average loans outstanding during the period $       1,581,131                                       $     1,444,543



                                                                               For the Six Months Ended June 30,
                                                                    2022                                                   2021
                                                                            Percentage of net                                   Percentage of net
                                                                               charge-offs                                         charge-offs
                                                                             (annualized) to                                     (annualized) to
                                                                              average loans                  Net                  average loans
                                               Net (charge-offs)          outstanding during the        (charge-offs)         outstanding during the
                                                  recoveries                       year                   recoveries                   year
Commercial real estate                      $                  -                            -  %       $        (427)                       (0.06) %
Commercial and industrial                                   (396)                       (0.05) %                (117)                       (0.01) %
Consumer residential                                          (1)                           -  %                   4                            -  %
Consumer nonresidential                                      (10)                           -  %                 (59)                       (0.01) %
Total                                       $               (407)                       (0.05) %       $        (599)                       (0.08) %
Average loans outstanding during the period $          1,528,030                                       $   1,450,394

                                                                                                                         June 30,
                                                                                                             2022                      2021
Allowance for loan losses to loans
receivable, net of fees                                                                                         0.90  %                      0.97  %
Allowance for loan losses to loans
receivable, net of fees, excluding PPP                                                                          0.90  %                      1.04  %




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                  Allocation of the Allowance for Loan Losses
                     At June 30, 2022 and December 31, 2021
                             (Dollars in thousands)

                                             June 30,                        December 31,
                                               2022                              2021
                                   Allocation       % of Total*       Allocation       % of Total*
Commercial real estate            $    10,067           59.07  %    $      8,995           60.11  %
Commercial and industrial               2,256           12.81  %           1,827           11.55  %
Paycheck protection program                 -            0.40  %               -            1.90  %
Commercial construction                 1,765            9.73  %           2,009           12.45  %
Consumer real estate                      728           17.39  %             781           13.31  %
Consumer nonresidential                   141            0.60  %             217            0.68  %

Total allowance for loan losses $ 14,957 100.00 % $ 13,829 100.00 %

*Percentage of loan type to the total loan portfolio.

Investment Securities


Our investment securities portfolio is used as a source of income and liquidity.
The investment portfolio consists of investment securities available-for-sale,
investment securities held-to-maturity and certificates of deposit. Investment
securities available-for-sale are those securities that we intend to hold for an
indefinite period of time, but not necessarily until maturity. These securities
are carried at fair value and may be sold as part of an asset/liability
strategy, liquidity management or regulatory capital management. Investment
securities held-to-maturity for each of June 30, 2022 and December 31, 2021
totaled $264 thousand, and are those securities that we have the intent and
ability to hold to maturity and are carried at amortized cost. The fair value of
our investment securities available-for-sale was $307.6 million at June 30,
2022, a decrease of $50.2 million, or 14.0%, from $357.8 million at December 31,
2021, primarily due to principal paydowns of $20.8 million and the decrease in
the market value of the portfolio of $35.3 million during 2022. The decrease in
market value is due to the bond market pricing at the time we purchased fixed
income mortgage-backed securities which occurred during the last half of 2021, a
historically low rate purchase period. These purchases were primarily funded
through our increase in deposits and PPP loan forgiveness to deploy excess
liquidity and optimize net interest margin.

As of June 30, 2022 and December 31, 2021, the majority of the investment
securities portfolio consisted of securities rated AAA by a leading rating
agency. Investment securities which carry a AAA rating are judged to be of the
best quality and carry the smallest degree of investment risk. All of our
mortgage-backed securities are guaranteed by either the Federal National
Mortgage Association, the Federal Home Loan Mortgage Corporation, or the
Government National Mortgage Association. Investment securities that were
pledged to secure public deposits totaled $99.8 million and $85.6 million at
June 30, 2022 and December 31, 2021, respectively.

We complete reviews for other-than-temporary impairment at least quarterly. At
June 30, 2022 and December 31, 2021, only investment grade securities were in an
unrealized loss position. Investment securities with unrealized losses are a
result of pricing changes due to recent rising rate conditions in the current
market environment and not as a result of permanent credit impairment.
Contractual cash flows for the agency mortgage-backed securities are guaranteed
and/or funded by the U.S. government. Municipal securities have third party
protective elements and there are no negative indications that the contractual
cash flows will not be received when due. We do not intend to sell nor do we
believe we will be required to sell any of our temporarily impaired securities
prior to the recovery of the amortized cost.

No other-than-temporary impairment has been recognized for the securities in our
investment portfolio as of June 30, 2022 and December 31, 2021.

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We hold restricted investments in equities of the Federal Reserve Bank of
Richmond ("FRB") and FHLB. At June 30, 2022, we owned $2.0 million in FHLB stock
and $4.4 million in FRB stock. At December 31, 2021, we owned $1.8 million in
FHLB stock and $4.4 million in FRB stock.

The following table presents the weighted average yields of our investment
portfolio for each of the maturity ranges at June 30, 2022 and December 31,
2021.

                     Investment Securities by Stated Yields
                     At June 30, 2022 and December 31, 2021
                             (Dollars in thousands)

                                                                                               At June 30, 2022
                                                                                                  Five to Ten
                                              Within One Year       One to Five Years                Years            Over Ten Years                  Total
                                                     Weighted                Weighted               Weighted                  Weighted               Weighted
                                                     Average                 Average                Average                   Average                Average
                                                      Yield                   Yield                  Yield                     Yield                  Yield

Held­to­maturity

Securities of state and local municipalities
tax exempt                                               -                           -                   2.32  %                      -                   2.32  %
Total held­to­maturity securities                        -                           -                   2.32  %                      -                   2.32  %
Available­for­sale
Securities of U.S. government and federal
agencies                                                 -                           -                   1.49  %                      -                   1.90  %
Securities of state and local municipalities             -                        2.25  %                   -  %                   2.92  %                2.44  %
Corporate bonds                                          -                        4.84  %                3.96  %                      -  %                4.06  %
Mortgaged­backed securities                              -                           -                   2.33  %                   1.56  %                1.60  %
Total available­for­sale securities                      -                        3.69  %                2.71  %                   1.56  %                1.75  %
Total investment securities                              -                        3.69  %                2.71  %                   1.56  %                1.75  %



                                                                                               At December 31, 2021
                                                                                                       Five to Ten
                                                 Within One Year         One to Five Years                Years            Over Ten Years                  Total
                                                          Weighted                Weighted               Weighted                  Weighted               Weighted
                                                          Average                 Average                Average                   Average                Average
                                                           Yield                   Yield                  Yield                     Yield                  Yield
Held­to­maturity
Securities of state and local municipalities
tax exempt                                                    -                           -                   2.32  %                      -                   2.32  %
Total held­to­maturity securities                             -                           -                   2.32  %                      -                   2.32  %
Available­for­sale
Securities of U.S. government and federal
agencies                                                      -                           -                   1.49  %                      -                   1.49  %
Securities of state and local municipalities                  -                        2.25  %                   -  %                   2.92  %                2.45  %
Corporate bonds                                               -                        3.98  %                4.15  %                      -                   4.12  %
Mortgaged­backed securities                                   -                           -                   2.21  %                   1.53  %                1.57  %
Total available­for­sale securities                           -                        3.27  %                2.51  %                   1.53  %                1.68  %
Total investment securities                                   -                        3.27  %                2.51  %                   1.53  %                1.68  %

Deposits and Other Borrowed Funds

The following table sets forth the average balances of deposits and the
percentage of each category to total average deposits for the six months ended
June 30, 2022 and 2021.










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                                                  Average Deposits Balance
                                      For the Six Months Ended June 30, 2022 and 2021
                                                   (Dollars in thousands)

                                                     June 30, 2022                                June 30, 2021
Noninterest bearing demand               $    518,070                  28.74  %       $    499,436                  30.85  %
Interest-bearing deposits
Interest checking                             745,880                  41.37  %            544,507                  33.64  %
Savings and money markets                     322,802                  17.91  %            287,939                  17.79  %
Certificates of deposits, $100,000 to
$249,999                                      137,327                   7.62  %            246,486                  15.23  %
Certificates of deposits, $250,000 or
more                                           43,718                   2.43  %                  -                      -  %
Other time deposits                            35,000                   1.94  %             40,359                   2.49  %
Total                                    $  1,802,797                 100.01  %       $  1,618,727                 100.00  %



Total deposits were $1.93 billion at June 30, 2022, an increase of $43.4
million
, or 2.3%, from $1.88 billion at December 31, 2021. Noninterest-bearing
deposits totaled $541.8 million at June 30, 2022, comprising 28.1% of total
deposits and decreased $39.5 million, or 6.8%, compared to December 31, 2021.


Wholesale deposits were $35.0 million at June 30, 2022 and December 31, 2021. In
addition, we are a member of the IntraFi Network ("IntraFi"), which gives us the
ability to offer Certificates of Deposit Account Registry Service ("CDARS") and
Insured Cash Sweep ("ICS") products to our customers who seek to maximize
Federal Deposit Insurance Corporation ("FDIC") insurance protection. When a
customer places a large deposit with us for IntraFi, funds are placed into
certificates of deposit or other deposit products with other banks in the CDARS
and ICS networks in increments of less than $250 thousand so that principal and
interest are eligible for FDIC insurance protection. These deposits are part of
our core deposit base. At June 30, 2022 and December 31, 2021, we had $141.4
million and $186.0 million, respectively, in either CDARS reciprocal or ICS
reciprocal products.

As of June 30, 2022, the estimated amount of total uninsured deposits were
$968.5 million. The estimate of uninsured deposits generally represents the
portion of deposit accounts that exceed the FDIC insurance limit of $250,000 and
is calculated based on the same methodologies and assumptions used for purposes
of the Bank's regulatory reporting requirements.

The following table reports maturities of the estimated amount of uninsured
certificates of deposit at June 30, 2022.

                 Certificates of Deposit Greater than $250,000
                                At June 30, 2022
                             (Dollars in thousands)

                                            June 30, 2022
Three months or less                       $       16,480
Over three months through six months               24,159
Over six months through twelve months              52,722
Over twelve months                                  5,273
                                           $       98,634



Other borrowed funds, which include federal funds purchased, FHLB advances, and
our subordinated notes, were $140.0 million at June 30, 2022 and December 31,
2021. Subordinated debt for each of June 30, 2022 and December 31, 2021 totaled
$19.5 million. At June 30, 2022, we had federal funds purchased of $115.0
million, compared to none at December 31, 2021. For each of June 30, 2022 and
December 31, 2021, FHLB advances totaled $25.0 million.

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Capital Resources

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

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

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

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

Shareholders' equity at June 30, 2022 was $197.6 million, a decrease of $12.2
million, compared to $209.8 million at December 31, 2021. The decrease in
shareholders' equity was primarily attributable to a decrease of $27.1 million
in other comprehensive income (loss), primarily related to the decrease in the
market value of our available-for-sale investment securities portfolio, offset
by net income recorded year-to-date 2022 totaling $13.0 million and common stock
issued as a result of option exercises totaling $1.5 million for the six months
ended June 30, 2022.

Total shareholders' equity to total assets for June 30, 2022 and December 31,
2021 was 8.57% and 9.52%, respectively. Tangible book value per share (a
non-GAAP financial measure which is defined in the table below) at June 30, 2022
and December 31, 2021 was $13.58 and $14.70, respectively. The Bank's CBLR at
June 30, 2022 and December 31, 2021 was 10.89% and 10.53%, respectively.
Accordingly, we were considered "well capitalized" for regulatory purposes at
June 30, 2022 and December 31, 2021.

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

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

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The following tables show the minimum capital requirements and our capital
position at June 30, 2022 and December 31, 2021 for the Bank.

                               Capital Components
                     At June 30, 2022 and December 31, 2021
                             (Dollars in thousands)

                                                                  For Capital
                                  Actual                       Adequacy Purposes
                           Amount         Ratio            Amount                   Ratio
At June 30, 2022
Leverage capital ratio   $ 228,640       10.89  %    $        189,963      >       9.000  %
At December 31, 2021
Leverage capital ratio   $ 214,442       10.55  %    $        172,732      >       8.500  %


                              Tangible Book Value
                     At June 30, 2022 and December 31, 2021
                 (Dollars in thousands, except per share data)

                                                 June 30, 2022       December 31, 2021
Total stockholders' equity                      $      197,599      $       

209,796

Less: goodwill and intangibles, net                     (7,914)                 (8,052)
Tangible Common Equity                          $      189,685      $          201,744

Book value per common share                     $        14.14      $            15.28
Less: intangible book value per common share             (0.56)             

(0.58)

Tangible book value per common share            $        13.58      $            14.70



Liquidity

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

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

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


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

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Our primary and secondary sources of liquidity remain strong. Liquid assets,
which include cash and due from banks, federal funds sold and investment
securities available for sale, totaled $515.5 million at June 30, 2022, or 22.4%
of total assets, a decrease from $598.7 million, or 27.2%, at December 31, 2021.
We held investments that are classified as held-to-maturity in the amount of
$264 thousand at June 30, 2022. To maintain ready access to the Bank's secured
lines of credit, the Bank has pledged a portion of its commercial real estate
and residential real estate loan portfolios to the FHLB and FRB. Additional
borrowing capacity at the FHLB at June 30, 2022 was approximately $383.5
million. Borrowing capacity with the FRB was approximately $86.7 million at June
30, 2022. These facilities are subject to the FHLB and the FRB approving
disbursement to us. We also have unsecured federal funds purchased lines of
$265.0 million available to us, of which $115.0 million were used at June 30,
2022. We anticipate maintaining liquidity at a level sufficient to protect
depositors, provide for reasonable growth and fully comply with all regulatory
requirements.

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

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


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

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

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

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

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

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


At June 30, 2022 and December 31, 2021, unused commitments to fund loans and
lines of credit totaled $250.9 million and $183.1 million, respectively.
Commercial and standby letters of credit totaled $10.8 million and $8.9 million
at June 30, 2022 and December 31, 2021, respectively.
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