United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For quarterly period ended ~~June 30, 2021~~March 31, 2022

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to ______

Commission file number 001-35021

EVANS BANCORP, INC.

(Exact name of registrant as specified in its charter)

New York 16-1332767

(State or other jurisdiction of (I.R.S. Employer

incorporation or organization) Identification No.)

6460 Main St. Williamsville, NY 14221

(Address of principal executive offices) (Zip Code)

(716) 926-2000

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed

since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.50 par value	EVBN	NYSE American

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer x		Smaller reporting company x
Emerging growth company ¨

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $.50 par value, ~~5,456,508~~5,523,536 shares as of ~~July 30, 2021.~~April 27, 2022.

‎

Table of Contents

INDEX

EVANS BANCORP, INC. AND SUBSIDIARIES



PART 1. FINANCIAL INFORMATION		PAGE

Item 1.	Financial Statements

	Unaudited Consolidated Balance Sheets – ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021	1

	Unaudited Consolidated Statements of Income – Three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~	2

	Unaudited Consolidated Statements of ~~Income – Six months ended June 30, 2021 and 2020~~	3

	~~Unaudited Consolidated Statements of~~ Comprehensive (Loss) Income – Three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~	4

	~~Unaudited Consolidated Statements of Comprehensive Income – Six months ended June 30, 2021 and 2020~~	43

	Unaudited Consolidated Statements of Changes in Stockholders’ Equity – Three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~	5

	~~Unaudited Consolidated Statements of Changes in Stockholders’ Equity – Six months ended June 30, 2021 and 2020~~	64

	Unaudited Consolidated Statements of Cash Flows – ~~Six~~Three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~	75

	Notes to Unaudited Consolidated Financial Statements	97

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4129

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5135

Item 4.	Controls and Procedures	5236

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	5337

Item 1A.	Risk Factors	5337

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5337

Item 3.	Defaults Upon Senior Securities	5337

Item 4.	Mine Safety Disclosure	5337

Item 5.	Other Information	5337

Item 6.	Exhibits	5438

	Signatures	5539

Table of Contents


PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2021 AND DECEMBER 31, 2020
MARCH 31, 2022 AND DECEMBER 31, 2021
(in thousands, except share and per share amounts)
	June 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
ASSETS
Cash and due from banks	$	14,872	$	13,702	$	11,398	$	9,856
Interest-bearing deposits at banks		126,810		83,902		147,277		234,929
Securities:
Available for sale, at fair value (amortized cost: $230,668 at June 30, 2021;		230,978		162,396
$159,157 at December 31, 2020)
Held to maturity, at amortized cost (fair value: $3,400 at June 30, 2021;		3,372		4,204
$4,271 at December 31, 2020)
Available for sale, at fair value (amortized cost: $412,742 at March 31, 2022;						385,936		305,959
$310,228 at December 31, 2021)
Held to maturity, at amortized cost (fair value: $2,976 at March 31, 2022;						3,017		3,165
$3,179 at December 31, 2021)
Federal Home Loan Bank common stock, at cost		3,519		3,470		2,734		3,045
Federal Reserve Bank common stock, at cost		2,782		2,323		3,051		3,039
Loans, net of allowance for loan losses of $19,942 at June 30, 2021
and $20,415 at December 31, 2020		1,677,379		1,673,379
Properties and equipment, net of accumulated depreciation of $20,891 at June 30, 2021
and $19,963 at December 31, 2020		18,911		19,305
Loans, net of allowance for loan losses of $18,618 at March 31, 2022
and $18,438 at December 31, 2021						1,585,461		1,553,467
Properties and equipment, net of accumulated depreciation of $10,727 at March 31, 2022
and $10,283 at December 31, 2021						17,571		17,789
Goodwill		12,713		12,713		12,702		12,702
Intangible assets		1,969		2,238		1,527		1,627
Bank-owned life insurance		34,324		33,989		34,449		34,295
Operating lease right-of-use asset		5,285		5,282		4,594		4,826
Other assets		27,289		27,212		31,017		25,941

TOTAL ASSETS	$	2,160,203	$	2,044,115	$	2,240,734	$	2,210,640

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand	$	486,737	$	436,157	$	528,962	$	492,864
NOW		261,173		230,751		257,475		259,908
Savings		940,352		825,947		1,051,136		1,019,925
Time		195,533		278,554		149,243		164,340
Total deposits		1,883,795		1,771,409		1,986,816		1,937,037

Securities sold under agreement to repurchase		5,080		4,093		6,476		4,112
Other borrowings		40,892		44,698		26,847		32,879
Operating lease liability		5,684		5,694		4,965		5,210
Other liabilities		18,140		18,444		15,428		16,536
Subordinated debt		30,923		30,872		30,999		30,974
Total liabilities		1,984,514		1,875,210		2,071,531		2,026,748

STOCKHOLDERS' EQUITY:
Common stock, $0.50 par value, 10,000,000 shares authorized; 5,443,800
and 5,411,384 shares issued at June 30, 2021 and December 31, 2020,
respectively, and 5,443,491 and 5,411,384 outstanding at June 30, 2021
and December 31, 2020, respectively		2,724		2,708
Common stock, $0.50 par value, 10,000,000 shares authorized; at
March 31, 2022 and December 31, 2021 shares issued and outstanding were
5,519,831 and 5,482,756, respectively						2,762		2,744
Capital surplus		77,270		76,394		79,396		78,795
Treasury stock, at cost, 309 and 0 shares at June 30, 2021 and
December 31, 2020, respectively		-		-
Retained earnings		98,430		90,522		109,366		108,024
Accumulated other comprehensive income (loss), net of tax		(2,735)		(719)		(22,321)		(5,671)
Total stockholders' equity		175,689		168,905		169,203		183,892

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	2,160,203	$	2,044,115	$	2,240,734	$	2,210,640

See Notes to Unaudited Consolidated Financial Statements

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Table of Contents


EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 2021 AND 2020
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(in thousands, except share and per share amounts)
	Three Months Ended June 30,				Three Months Ended March 31,
	2021		2020		2022		2021
INTEREST INCOME
Loans	$	18,513	$	16,104	$	15,724	$	17,066
Interest-bearing deposits at banks		19		16		70		16
Securities:
Taxable		988		884		1,677		832
Non-taxable		56		65		46		56
Total interest income		19,576		17,069		17,517		17,970
INTEREST EXPENSE
Deposits		736		1,954		568		886
Other borrowings		86		77		47		88
Subordinated debt		404		105		401		399
Total interest expense		1,226		2,136		1,016		1,373
NET INTEREST INCOME		18,350		14,933		16,501		16,597
PROVISION (CREDIT) FOR LOAN LOSSES		(760)		597
PROVISION FOR LOAN LOSSES						221		313
NET INTEREST INCOME AFTER
PROVISION (CREDIT) FOR LOAN LOSSES		19,110		14,336
PROVISION FOR LOAN LOSSES						16,280		16,284
NON-INTEREST INCOME
Deposit service charges		607		397		692		572
Insurance service and fees		2,657		2,667		2,299		2,502
Gain on loans sold		-		139
Bank-owned life insurance		172		178		154		163
Interchange fee income		547		407		492		490
Other		435		451		794		839
Total non-interest income		4,418		4,239		4,431		4,566
NON-INTEREST EXPENSE
Salaries and employee benefits		9,365		8,005		9,470		9,044
Occupancy		1,177		1,062		1,180		1,187
Advertising and public relations		405		123		179		263
Professional services		989		872		872		959
Technology and communications		1,432		1,467		1,174		1,264
Amortization of intangibles		135		134		100		135
FDIC insurance		279		282		270		300
Merger-related		-		4,974
Other		1,394		1,093		1,215		1,213
Total non-interest expense		15,176		18,012		14,460		14,365
INCOME BEFORE INCOME TAXES		8,352		563		6,251		6,485
INCOME TAX PROVISION		2,039		94		1,503		1,633
NET INCOME	$	6,313	$	469	$	4,748	$	4,852
Net income per common share-basic	$	1.16	$	0.09	$	0.86	$	0.89
Net income per common share-diluted	$	1.15	$	0.09	$	0.86	$	0.89
Weighted average number of common shares outstanding		5,434,803		5,222,189		5,494,782		5,421,837
Weighted average number of diluted shares outstanding		5,489,420		5,243,581		5,547,548		5,463,674

See Notes to Unaudited Consolidated Financial Statements

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Table of Contents

EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(in thousands, except share and per share amounts)
Six Months Ended June 30,
2021
2020
INTEREST INCOME
Loans
$
35,579
$
30,650
Interest-bearing deposits at banks
35
197
Securities:
Taxable
1,820
1,933
Non-taxable
112
112
Total interest income
37,546
32,892
INTEREST EXPENSE
Deposits
1,622
4,830
Other borrowings
174
124
Subordinated debt
803
229
Total interest expense
2,599
5,183
NET INTEREST INCOME
34,947
27,709
PROVISION (CREDIT) FOR LOAN LOSSES
(447)
3,596
NET INTEREST INCOME AFTER
PROVISION (CREDIT) FOR LOAN LOSSES
35,394
24,113
NON-INTEREST INCOME
Deposit service charges
1,179
1,025
Insurance service and fees
5,159
5,092
Gain on loans sold
-
190
Bank-owned life insurance
335
338
Loss on tax credit investment
-
(2,475)
Refundable state historic tax credit
-
1,857
Interchange fee income
1,037
789
Other
1,274
761
Total non-interest income
8,984
7,577
NON-INTEREST EXPENSE
Salaries and employee benefits
18,409
15,802
Occupancy
2,364
1,923
Advertising and public relations
668
392
Professional services
1,948
1,786
Technology and communications
2,696
2,563
Amortization of intangibles
270
264
FDIC insurance
579
461
Merger-related
-
5,434
Other
2,607
2,257
Total non-interest expense
29,541
30,882
INCOME BEFORE INCOME TAXES
14,837
808
INCOME TAX PROVISION
3,672
135
NET INCOME
$
11,165
$
673
Net income per common share-basic
$
2.06
$
0.13
Net income per common share-diluted
$
2.04
$
0.13
Weighted average number of common shares outstanding
5,428,356
5,079,568
Weighted average number of diluted shares outstanding
5,477,567
5,121,001
See Notes to Unaudited Consolidated Financial Statements

‎

~~Table of Contents~~

EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
THREE MONTHS ENDED JUNE 30, 2021 AND 2020
(in thousands)
Three Months Ended June 30,
2021
2020
NET INCOME
$
6,313
$
469
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:
Unrealized gain on available-for-sale securities
1,722
1,188
Defined benefit pension plans:
Amortization of prior service cost
5
6
Amortization of actuarial loss
70
84
Total
75
90
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX
1,797
1,278
COMPREHENSIVE INCOME
$
8,110
$
1,747
See Notes to Unaudited Consolidated Financial Statements



EVANS BANCORP, INC. AND SUBSIDIARIES	EVANS BANCORP, INC. AND SUBSIDIARIES					EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 2021 AND 2020
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME						UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
THREE MONTHS ENDED MARCH 31, 2022 AND 2021						THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(in thousands)
		Six Month Ended June 30,					Three Months Ended March 31,
		2021		2020				2022		2021

NET INCOME		$	11,165	$	673			$	4,748	$	4,852

OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:
Unrealized (loss) gain on available-for-sale securities			(2,167)		3,023
OTHER COMPREHENSIVE LOSS, NET OF TAX:						OTHER COMPREHENSIVE LOSS, NET OF TAX:
Unrealized gain (loss) on available-for-sale securities:
Unrealized loss on available-for-sale securities									(16,705)		(3,889)
Defined benefit pension plans:
Amortization of prior service cost			11		11				5		6
Amortization of actuarial loss			140		166				50		70
Total			151		177				55		76
OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX			(2,016)		3,200
COMPREHENSIVE INCOME		$	9,149	$	3,873
OTHER COMPREHENSIVE LOSS, NET OF TAX						OTHER COMPREHENSIVE LOSS, NET OF TAX			(16,650)		(3,813)
COMPREHENSIVE (LOSS) INCOME								$	(11,902)	$	1,039

See Notes to Unaudited Consolidated Financial Statements

‎

Table of Contents

EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED JUNE 30, 2021 AND 2020
(in thousands, except share and per share amounts)
Accumulated
Other
Common
Capital
Retained
Comprehensive
Stock
Surplus
Earnings
Loss
Total
Balance, March 31, 2020
$
2,474
$
63,679
$
82,604
$
(661)
$
148,096
Net Income
469
469
Other comprehensive income
1,278
1,278
Stock compensation expense
204
204
Issued 188 restricted shares, net of forfeitures
-
Issued 10,669 shares in Employee Stock Purchase Plan
5
206
211
Issued 738 shares in stock option exercises
7
7
Issued 422,475 shares in stock consideration
212
11,521
11,733
Balance, June 30, 2020
$
2,691
$
75,617
$
83,073
$
617
$
161,998
Balance, March 31, 2021
$
2,716
$
76,673
$
92,117
$
(4,532)
$
166,974
Net Income
6,313
6,313
Other comprehensive income
1,797
1,797
Stock compensation expense
201
201
Forfeitures 309 shares of restricted stock
-
Issued 4,611 shares under Dividend Reinvestment Plan
3
152
155
Issued 6,443 shares in Employee Stock Purchase Plan
3
200
203
Issued 3,753 shares in stock option exercises
2
44
46
Balance, June 30, 2021
$
2,724
$
77,270
$
98,430
$
(2,735)
$
175,689
See Notes to Unaudited Consolidated Financial Statements




EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(in thousands, except share and per share amounts)
							Accumulated
							Other
	Common		Capital		Retained		Comprehensive
	Stock		Surplus		Earnings		Loss		Total
Balance, December 31, 2020	$	2,708	$	76,394	$	90,522	$	(719)	$	168,905
Net Income						4,852				4,852
Other comprehensive income								(3,813)		(3,813)
Cash dividends ($0.60 per common share)						(3,257)				(3,257)
Stock compensation expense				233						233
Issued 8,280 restricted shares, net of forfeitures		4		(4)						-
Issued 9,329 shares in stock option exercises		4		50						54
Balance, March 31, 2021	$	2,716	$	76,673	$	92,117	$	(4,532)	$	166,974

Balance, December 31, 2021	$	2,744	$	78,795	$	108,024	$	(5,671)	$	183,892
Net Income						4,748				4,748
Other comprehensive loss								(16,650)		(16,650)
Cash dividends ($0.62 per common share)						(3,406)				(3,406)
Stock compensation expense				333						333
Issued 18,244 restricted shares, net of forfeitures		9		(9)						-
Issued 18,831 shares in stock option exercises		9		277						286
Balance, March 31, 2022	$	2,762	$	79,396	$	109,366	$	(22,321)	$	169,203

See Notes to Unaudited Consolidated Financial Statements

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Table of Contents



EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(in thousands)
	Three Months Ended March 31,
		2022		2021
OPERATING ACTIVITIES:
Interest received	$	17,088	$	17,080
Fees received		5,142		5,183
Interest paid		(1,094)		(1,790)
Cash paid to employees and vendors		(18,781)		(15,000)
Income taxes paid		(1,200)		(187)
Proceeds from sale of loans held for sale		2,957		-
Originations of loans held for sale		(2,815)		-

Net cash provided by operating activities		1,297		5,286

INVESTING ACTIVITIES:
Available for sales securities:
Purchases		(109,990)		(40,301)
Proceeds from sales, maturities, calls, and payments		7,726		6,421
Held to maturity securities:
Purchases		(412)		(515)
Proceeds from maturities, calls, and payments		560		45
Additions to properties and equipment		(226)		(233)
Sale of other real estate		-		129
Net increase in loans		(31,622)		(51,764)

Net cash used in investing activities		(133,964)		(86,218)

FINANCING ACTIVITIES:
(Repayments) proceeds from long-term borrowings, net		(5,888)		897
Proceeds (repayments) from short-term borrowings, net		2,364		(2,131)
Net increase in deposits		49,795		100,728
Issuance of common stock		286		54

Net cash provided by financing activities		46,557		99,548

Net (decrease) increase in cash and cash equivalents		(86,110)		18,616

CASH AND CASH EQUIVALENTS:
Beginning of period		244,785		97,604
End of period	$	158,675	$	116,220

See Notes to Unaudited Consolidated Financial Statements

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Table of Contents

EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(in thousands, except share and per share amounts)
Accumulated
Other
Common
Capital
Retained
Comprehensive
Stock
Surplus
Earnings
Loss
Total
Balance, December 31, 2019
$
2,467
$
63,302
$
85,267
$
(2,583)
$
148,453
Net Income
673
673
Other comprehensive income
3,200
3,200
Cash dividends ($0.58 per common share)
(2,867)
(2,867)
Stock compensation expense
461
461
Reissued 310 restricted shares
-
Issued 6,118 restricted shares, net of forfeitures
3
(3)
-
Issued 10,669 shares in Employee Stock Purchase Plan
5
206
211
Issued 8,017 shares in stock option exercises
4
130
134
Issued 422,475 shares in stock consideration
212
11,521
11,733
Balance, June 30, 2020
$
2,691
$
75,617
$
83,073
$
617
$
161,998
Balance, December 31, 2020
$
2,708
$
76,394
$
90,522
$
(719)
$
168,905
Net Income
11,165
11,165
Other comprehensive income
(2,016)
(2,016)
Cash dividends ($0.60 per common share)
(3,257)
(3,257)
Stock compensation expense
434
434
Issued 7,971 restricted shares, net of forfeitures
4
(4)
-
Issued 4,611 shares under Dividend Reinvestment Plan
3
152
155
Issued 6,443 shares in Employee Stock Purchase Plan
3
200
203
Issued 13,082 shares in stock option exercises
6
94
100
Balance, June 30, 2021
$
2,724
$
77,270
$
98,430
$
(2,735)
$
175,689
See Notes to Unaudited Consolidated Financial Statements



EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(in thousands)
	Three Months Ended March 31,
		2022		2021

RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:

Net income	$	4,748	$	4,852

Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		497		440
Deferred tax expense (benefit)		262		(1,971)
Provision for loan losses		221		313
Loss on sales of assets		-		22
Gain on loans sold		(43)		-
Stock compensation expense		333		233
Proceeds from sale of loans held for sale		2,957		-
Originations of loans held for sale		(2,815)		-
Changes in assets and liabilities affecting cash flow:
Other assets		303		(1,553)
Other liabilities		(5,166)		2,950

NET CASH PROVIDED BY OPERATING ACTIVITIES	$	1,297	$	5,286

See Notes to Unaudited Consolidated Financial Statements

‎

~~Table of Contents~~

EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(in thousands)
Six Months Ended June 30,
2021
2020
OPERATING ACTIVITIES:
Interest received
$
34,739
$
29,316
Fees received
9,511
7,563
Interest paid
(3,381)
(5,341)
Cash paid to employees and vendors
(29,182)
(28,619)
Income taxes paid
(3,884)
(107)
Proceeds from sale of loans held for sale
-
7,681
Originations of loans held for sale
(134)
(10,037)
Net cash provided by operating activities
7,669
456
INVESTING ACTIVITIES:
Available for sales securities:
Purchases
(88,822)
(46,322)
Proceeds from sales, maturities, calls, and payments
16,532
36,379
Held to maturity securities:
Purchases
(1,250)
(4,204)
Proceeds from maturities, calls, and payments
2,082
122
Additions to properties and equipment
(535)
(1,480)
Purchase of tax credit investment
-
(3,116)
Net cash used in acquisitions
-
(6,490)
Sale of other real estate
129
718
Net increase in loans
829
(185,185)
Net cash used in investing activities
(71,035)
(209,578)
FINANCING ACTIVITIES:
Repayments from long-term borrowings, net
(2,766)
(8,564)
Proceeds from short-term borrowings, net
295
-
Net increase in deposits
112,714
302,490
Dividends paid
(3,257)
(2,867)
Issuance of common stock
458
345
Net cash provided by financing activities
107,444
291,404
Net increase in cash and cash equivalents
44,078
82,282
CASH AND CASH EQUIVALENTS:
Beginning of period
97,604
38,857
End of period
$
141,682
$
121,139
See Notes to Unaudited Consolidated Financial Statements

‎

~~Table of Contents~~

EVANS BANCORP, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2021 AND 2020
(in thousands)
Six Months Ended June 30,
2021
2020
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income
$
11,165
$
673
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
927
1,289
Deferred tax benefit
(155)
(2,386)
Provision for loan losses
(447)
3,596
Loss on tax credit investment
-
2,475
Changes in refundable state historic tax credit
-
(1,857)
Loss (Gain) on sales of assets
22
(90)
Gain on loans sold
-
(190)
Stock compensation expense
434
461
Proceeds from sale of loans held for sale
-
7,681
Originations of loans held for sale
(134)
(10,037)
Changes in assets and liabilities affecting cash flow:
Other assets
(4,340)
(4,701)
Other liabilities
197
3,542
NET CASH PROVIDED BY OPERATING ACTIVITIES
$
7,669
$
456
See Notes to Unaudited Consolidated Financial Statements

‎

Table of Contents

EVANS BANCORP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTH PERIOD ENDED MARCH 31, 2022 AND ~~SIX MONTH PERIODS ENDED JUNE 30,~~ 2021 ~~AND 2020~~

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies followed by Evans Bancorp, Inc. (the “Company”), a financial holding company, and its 2 direct, wholly-owned subsidiaries: (i) Evans Bank, National Association (the “Bank”), and the Bank’s subsidiaries, Evans National Leasing, Inc. (“ENL”), and Evans National Holding Corp. (“ENHC”); and (ii) Evans National Financial Services, LLC (“ENFS”), and ENFS’s subsidiary, The Evans Agency, LLC (“TEA”), and TEA’s subsidiaries, Frontier Claims Services, Inc. (“FCS”) and ENB Associates Inc. (“ENBA”), in the preparation of the accompanying interim unaudited consolidated financial statements conform with U.S. generally accepted accounting principles (“GAAP”) and with general practice within the industries in which it operates. Except as the context otherwise requires, the Company and its direct and indirect subsidiaries are collectively referred to in this report as the “Company.”

The Financial Accounting Standards Board (“FASB”) establishes changes to GAAP in the form of accounting standards updates (“ASUs”) to the FASB Accounting Standards Codification. The Company considers the applicability and impact of all ASUs when they are issued by FASB. ASUs adopted by the Company during the current fiscal year are not expected to have a material impact on the Company’s consolidated financial position, results of operations, cash flows or disclosures.

The results of operations for the ~~six~~three month period ended ~~June 30, 2021~~March 31, 2022 are not necessarily indicative of the results to be expected for the full year.

The accompanying unaudited consolidated financial statements should be read in conjunction with the Audited Consolidated Financial Statements and the Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (the “10-K”). There have been no significant changes to the Company’s significant accounting policies as disclosed in Note 1 to the 10-K.

‎

~~COVID-19 – Risks & Uncertainties~~

The Company’s operations and financial results have been significantly impacted by the COVID-19 pandemic. The spread of COVID-19 has caused significant economic disruption throughout the United States as state and local governments issued stay at home orders and temporarily closed non-essential businesses. The full financial impact from the pandemic is unknown at this time, however prolonged disruption may adversely impact several industries within the Company's geographic footprint and impair the ability of the Company’s customers to fulfill their contractual obligations to the Company. This could cause the Company to experience a material adverse effect on business operations, asset valuations, financial condition and results of operations. Material adverse impacts may include all or a combination of valuation impairments on the Company’s intangible assets, investments, loans and mortgage servicing rights.

‎

Table of Contents

2.~~ACQUISITIONS~~

On May 1, 2020, the Company completed the acquisition of FSB Bancorp, Inc., a Maryland corporation and the parent holding company of Fairport Savings Bank (“FSB”). On that date, FSB was merged into Evans Bank, a wholly owned banking subsidiary of the Company. At the time of closing, FSB had $321.7 million in total assets, including $272.1 million in net loans receivable and $21.4 million in securities, and $293.1 million in total liabilities, including $237.7 million in deposits and $50.6 million in borrowings. FSB operated 5 banking offices in New York at the date of acquisition. After application of the election, allocation and proration procedures contained in the merger agreement, the Company paid $17.1 million in cash and issued 422,475 shares of Evans Bancorp, Inc. common stock in exchange for all of the shares of common stock of FSB Bancorp, Inc. outstanding at the time of the acquisition. The $11.7 million fair value of the shares issued as part of the consideration paid for FSB was determined on the basis of the closing market price of the Company’s shares on April 30, 2020.

The assets acquired and liabilities assumed have been accounted for under the acquisition method of accounting. Management engaged a third-party specialist to develop the fair value estimate of certain FSB’s assets and liabilities as of the acquisition date. The assets and liabilities, both tangible and intangible were recorded at their fair values as of May 1, 2020. The application of the acquisition method of accounting resulted in the recognition of goodwill of $1.8 million and a core deposit intangible of $0.2 million. Goodwill arising from the acquisition consisted largely of synergies and the cost savings resulting from the combining of the operations of the companies and is not tax deductible.
‎

~~Table of Contents~~

~~The Company recorded the assets acquired and liabilities assumed through the merger at fair value as summarized in the following table:~~

As Recorded
Fair Value
As Recorded
by FSB
Adjustments
at Acquisition
(in thousands)
Cash and due from banks
$
1,978
$
-
$
1,978
Interest-bearing deposit at banks
9,339
-
9,339
Securities
21,371
106
(a)
21,477
FHLB Stock
2,614
-
2,614
Loans receivable
273,869
(2,484)
(b)
271,385
Allowance for loan losses
(1,706)
1,706
(c)
-
Premises and equipment
2,303
(56)
(d)
2,247
Intangible assets
-
166
(e)
166
Bank owned life insurance
3,891
-
3,891
Operating lease right-of-use asset
2,020
374
(f)
2,394
Other assets
6,033
1,640
(g)
7,673
Total assets acquired
$
321,712
$
1,452
$
323,164
Deposits
237,688
1,485
(h)
239,173
Other borrowed funds
50,597
1,929
(i)
52,526
Operating lease liability
2,217
176
(j)
2,393
Other liabilities
2,557
(573)
(k)
1,984
Total liabilities assumed
$
293,059
$
3,017
$
296,076
Net assets acquired
27,088
Purchase price
28,856
Goodwill recorded in merger
$
1,768

~~Explanation of certain fair value related adjustments:~~

~~(a)Represents the fair value adjustments on investment securities.~~

~~(b)Represents the fair value adjustments on the net book value of loans, which includes an interest rate mark and credit mark adjustment and the write-off of deferred fees/costs and premiums.~~

~~(c)Represents the elimination of FSB’s allowance for loan losses.~~

~~(d)~~Represents the fair value adjustments to reflect the fair value of land and buildings and premises and equipment, which will be amortized on a straight-line basis over the estimated useful lives of the individual assets.

~~(e)~~Represents the intangible assets recorded to reflect the fair value of core deposits. The core deposit asset was recorded as an identifiable intangible asset and will be amortized on an accelerated basis over the estimated average life of the deposit base.

~~(f)Represents the fair value adjustments on operating lease right of use assets.~~

~~(g)~~Represents an adjustment to other assets acquired. The largest adjustment was to net deferred tax assets resulting from the fair value adjustments related to the acquired assets, liabilities assumed and identifiable intangible assets recorded.

~~(h)Represents fair value adjustments on time deposits, which will be treated as a reduction of interest expense over the remaining term of the time deposits.~~

~~(i)Represents the fair value adjustments on FHLB borrowings, which will be treated as a decrease to interest expense over the life of the borrowings.~~

~~(j)Represents the fair value adjustments on operating lease liabilities.~~

~~(k)Represents an adjustment to other liabilities assumed.~~

~~Table of Contents~~

The fair value of loans acquired from FSB were estimated using cash flow projections based on the remaining maturity and repricing terms. Cash flows were adjusted by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value using a risk-adjusted market rate for similar loans. There was no carryover of FSB’s allowance for loan losses associated with the loans that were acquired, as the loans were initially recorded at fair value on the date of the FSB merger.

The core deposit intangible asset recognized is being amortized over its estimated useful life of approximately 10 years and the amortization is based on dollar weighted deposit runoff on an annualized basis.

~~Goodwill is not amortized for book purposes; however, it is reviewed at least annually for impairment and is not deductible for tax purposes.~~

The fair value of land and buildings was estimated using appraisals. Acquired equipment was not material. Buildings are amortized over their estimated useful lives of approximately 39 years. Improvements and equipment are amortized or depreciated over their estimated useful lives ranging up to 10 years.

The fair value of retail demand and interest bearing deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. The fair value of time deposits was estimated by discounting the contractual future cash flows using market rates offered for time deposits of similar remaining maturities.

Other borrowed funds include borrowings from the Federal Home Loan Bank (“FHLB”). The fair value of these borrowings was estimated by discounting the contractual future cash flows using FHLB rates offered of similar maturities.

Direct acquisition and other charges incurred in connection with the FSB merger were expensed as incurred and totaled $5.4 million for the six months ended June 30, 2020. These expenses were recorded in merger-related expense on the consolidated statements of income. There were 0 merger-related expenses during the six months ended June 30, 2021.

The following table presents selected unaudited pro forma financial information reflecting the FSB merger assuming it was completed as of January 1, 2020. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the financial results of the combined companies had the FSB merger actually been completed at the beginning of the periods presented, nor does it indicate future results for any other interim or full year period. The unaudited pro forma information is based on the actual financial statements of the Company for the periods presented, and on the actual financial statements of FSB for the three and six months ended June 30, 2020.

Three months ended
Six months ended
June 30, 2020
June 30, 2020
(in thousands)
Net interest income after provision
$
14,570
$
26,764
Non-interest income
4,415
8,166
Non-interest expense
14,017
28,961
Net income
3,729
4,492

The unaudited supplemental pro forma information for the three and six months ended June 30, 2020 set forth above reflects adjustments related to (a) purchase accounting fair value adjustments; (b) amortization of core deposit; and (c) adjustments to interest income and expense due to amortization of premiums and accretion of discounts. Direct merger-related expenses incurred in the three and six months ended June 30, 2020 are assumed to have occurred prior to January 1, 2020. Furthermore, the unaudited supplemental pro forma information does not reflect management’s estimate of any revenue enhancement opportunities or anticipated potential cost savings.

‎

~~Table of Contents~~

3. SECURITIES

The amortized cost of securities and their approximate fair value at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were as follows:



	June 30, 2021								March 31, 2022
	(in thousands)								(in thousands)

	Amortized		Unrealized				Fair		Amortized		Unrealized				Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value

Available for Sale:
Debt securities:
U.S. treasuries and government agencies	$	82,813	$	578	$	(1,437)	$	81,954	$	154,343	$	6	$	(11,045)	$	143,304
States and political subdivisions		6,452		125		(4)		6,573		24,850		17		(657)		24,210
Total debt securities		89,265		703		(1,441)		88,527		179,193		23		(11,702)		167,514

Mortgage-backed securities:
FNMA		44,688		496		(300)		44,884		81,656		18		(5,599)		76,075
FHLMC		24,193		127		(139)		24,181		41,094		6		(3,022)		38,078
GNMA		17,451		30		(126)		17,355		35,450		4		(2,458)		32,996
SBA		19,670		796		(32)		20,434		24,710		1		(632)		24,079
CMO		35,401		538		(342)		35,597		50,639		7		(3,452)		47,194
Total mortgage-backed securities		141,403		1,987		(939)		142,451		233,549		36		(15,163)		218,422

Total securities designated as available for sale	$	230,668	$	2,690	$	(2,380)	$	230,978	$	412,742	$	59	$	(26,865)	$	385,936

Held to Maturity:
Debt securities
States and political subdivisions	$	3,372	$	28	$	-	$	3,400	$	3,017	$	4	$	(45)	$	2,976

Total securities designated as held to maturity	$	3,372	$	28	$	-	$	3,400	$	3,017	$	4	$	(45)	$	2,976



	December 31, 2020								December 31, 2021
	(in thousands)								(in thousands)

	Amortized		Unrealized				Fair		Amortized		Unrealized				Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value

Available for Sale:
Debt securities:
U.S. treasuries and government agencies	$	67,619	$	731	$	(252)	$	68,098	$	99,005	$	199	$	(2,386)	$	96,818
States and political subdivisions		7,362		169		(7)		7,524		6,150		96		-		6,246
Total debt securities		74,981		900		(259)		75,622		105,155		295		(2,386)		103,064

Mortgage-backed securities:
FNMA		24,265		654		(50)		24,869		64,056		222		(1,068)		63,210
FHLMC		3,739		111		(1)		3,849		38,796		62		(424)		38,434
GNMA		2,006		58		(1)		2,063		31,814		15		(615)		31,214
SBA		20,949		914		(33)		21,830		17,919		343		(54)		18,208
CMO		33,217		946		-		34,163		52,488		175		(834)		51,829
Total mortgage-backed securities		84,176		2,683		(85)		86,774		205,073		817		(2,995)		202,895

Total securities designated as available for sale	$	159,157	$	3,583	$	(344)	$	162,396	$	310,228	$	1,112	$	(5,381)	$	305,959

Held to Maturity:
Debt securities
States and political subdivisions	$	4,204	$	67	$	-	$	4,271	$	3,165	$	17	$	(3)	$	3,179

Total securities designated as held to maturity	$	4,204	$	67	$	-	$	4,271	$	3,165	$	17	$	(3)	$	3,179

~~Table of Contents~~

Available for sale securities with a total fair value of ~~$173~~$320 million and ~~$135~~$207 million ~~at June 30, 2021 and December 31, 2020, respectively,~~ were pledged as collateral to secure public deposits and for other purposes required or permitted by ~~law.~~law at March 31, 2022 and December 31, 2021, respectively.

The scheduled maturities of debt and mortgage-backed securities at ~~June 30, 2021~~March 31, 2022 are summarized below. All maturity amounts are contractual maturities. Actual maturities may differ from contractual maturities because certain issuers have the right to call or prepay obligations with or without call premiums.

June 30, 2021
Amortized
Estimated
cost
fair value
(in thousands)
Debt securities available for sale:
Due in one year or less
$
973
$
980
Due after one year through five years
11,844
12,220
Due after five years through ten years
34,858
34,981
Due after ten years
41,590
40,346
89,265
88,527
Mortgage-backed securities
available for sale
141,403
141,403
142,451
Total
$
230,668
$
230,978
Debt securities held to maturity:
Due in one year or less
$
2,400
$
2,402
Due after one year through five years
513
530
Due after five years through ten years
384
387
Due after ten years
75
81
Total
$
3,372
$
3,400

Table of Contents

	March 31, 2022
	Amortized		Estimated
	cost		fair value
	(in thousands)

Debt securities available for sale:

Due in one year or less	$	2,033	$	2,035
Due after one year through five years		70,017		67,757
Due after five years through ten years		69,044		64,900
Due after ten years		38,099		32,822
		179,193		167,514

Mortgage-backed securities
available for sale		233,549		218,422
Total	$	412,742	$	385,936

Debt securities held to maturity:

Due in one year or less	$	2,093	$	2,092
Due after one year through five years		471		458
Due after five years through ten years		384		358
Due after ten years		69		68
Total	$	3,017	$	2,976

Contractual maturities of the Company’s mortgage-backed securities generally exceed ten years; however, the effective lives may be significantly shorter due to prepayments of the underlying loans and due to the nature of these securities.

There were 0 gross realized gains or losses from sales of investment securities for the three ~~and six~~ month periods ended ~~June 30, 2021~~March 31, 2022 and 2020. Information regarding unrealized losses within the Company’s available for sale securities at June 30, 2021 and December 31, 2020 is summarized below. The securities are primarily U.S. government-guaranteed agency securities or municipal securities.

‎

~~Table of Contents~~

June 30, 2021
Less than 12 months
12 months or longer
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Value
Losses
Value
Losses
Value
Losses
(in thousands)
Available for Sale:
Debt securities:
U.S. treasuries and government agencies
$
36,552
$
(1,437)
$
-
$
-
$
36,552
$
(1,437)
States and political subdivisions
203
(4)
-
-
203
(4)
Total debt securities
36,755
(1,441)
-
-
36,755
(1,441)
Mortgage-backed securities:
FNMA
22,689
(299)
173
(1)
22,862
(300)
FHLMC
18,012
(139)
85
-
18,097
(139)
GNMA
15,804
(125)
148
(1)
15,952
(126)
SBA
-
-
1,362
(32)
1,362
(32)
CMO
13,589
(342)
-
-
13,589
(342)
Total mortgage-backed securities
70,094
(905)
1,768
(34)
71,862
(939)
Held to Maturity:
Debt securities:
States and political subdivisions
225
-
-
-
225
-
Total temporarily impaired
securities
$
107,074
$
(2,346)
$
1,768
$
(34)
$
108,842
$
(2,380)
December 31, 2020
Less than 12 months
12 months or longer
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Value
Losses
Value
Losses
Value
Losses
(in thousands)
Available for Sale:
Debt securities:
U.S. treasuries and government agencies
$
33,801
$
(252)
$
-
$
-
$
33,801
$
(252)
States and political subdivisions
207
(1)
180
(6)
387
(7)
Total debt securities
34,008
(253)
180
(6)
34,188
(259)
Mortgage-backed securities:
FNMA
3,354
(39)
1,391
(11)
4,745
(50)
FHLMC
182
(1)
-
-
182
(1)
GNMA
154
(1)
-
-
154
(1)
SBA
-
-
1,392
(33)
1,392
(33)
CMO
121
-
-
-
121
-
Total mortgage-backed securities
3,811
(41)
2,783
(44)
6,594
(85)
Held to Maturity:
Debt securities:
States and political subdivisions
-
-
-
-
-
-
Total temporarily impaired
securities
$
37,819
$
(294)
$
2,963
$
(50)
$
40,782
$
(344)

‎

~~Table of Contents~~

2021.

Management has assessed the securities available for sale in an unrealized loss position at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 and determined the decline in fair value below amortized cost to be temporary. In making this determination, management considered the period of time the securities were in a loss position, the percentage decline in comparison to the securities’ amortized cost, and the financial condition of the issuer (primarily government or government-sponsored enterprises). In addition, management does not intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized cost. Management believes the decline in fair value is primarily related to market interest rate fluctuations and not to the credit deterioration of the individual issuers.

The Company has 0t recorded any other-than-temporary impairment (“OTTI”) charges during the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 and did 0t record any OTTI charges during ~~2020.~~2021. The credit worthiness of the Company’s securities portfolio is largely reliant on the ability of U.S. government sponsored agencies such as Federal Home Loan Bank (“FHLB”), Federal National Mortgage Association (“FNMA”), Government National Mortgage Association (“GNMA”), and Federal Home Loan Mortgage Corporation (“FHLMC”), and municipalities throughout New York State to meet their obligations. In addition, dysfunctional markets could materially alter the liquidity, interest rate, and pricing risk of the portfolio. The stable past performance is not a guarantee for similar performance of the Company’s securities portfolio in future periods.

4.
‎

Table of Contents

Information regarding unrealized losses within the Company’s available for sale securities at March 31, 2022 and December 31, 2021 is summarized below.



	March 31, 2022

		Less than 12 months				12 months or longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
		(in thousands)
Available for Sale:
Debt securities:
U.S. treasuries and government agencies	$	108,767	$	(5,589)	$	32,533	$	(5,456)	$	141,300	$	(11,045)
States and political subdivisions		20,776		(657)		-		-		20,776		(657)
Total debt securities		129,543		(6,246)		32,533		(5,456)		162,076		(11,702)

Mortgage-backed securities:
FNMA		65,825		(4,779)		7,879		(820)		73,704		(5,599)
FHLMC		34,183		(2,610)		3,320		(412)		37,503		(3,022)
GNMA		29,039		(2,139)		3,709		(319)		32,748		(2,458)
SBA		21,909		(605)		1,164		(27)		23,073		(632)
CMO		40,758		(2,658)		6,122		(794)		46,880		(3,452)
Total mortgage-backed securities		191,714		(12,791)		22,194		(2,372)		213,908		(15,163)
Held to Maturity:
Debt securities:
States and political subdivisions		1,912		(22)		316		(23)		2,228		(45)
Total temporarily impaired
securities	$	323,169	$	(19,059)	$	55,043	$	(7,851)	$	378,212	$	(26,910)


	December 31, 2021

		Less than 12 months				12 months or longer				Total
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		Value		Losses		Value		Losses		Value		Losses
		(in thousands)
Available for Sale:
Debt securities:
U.S. treasuries and government agencies	$	50,381	$	(884)	$	27,488	$	(1,502)	$	77,869	$	(2,386)
States and political subdivisions		-		-		-		-		-		-
Total debt securities		50,381		(884)		27,488		(1,502)		77,869		(2,386)

Mortgage-backed securities:
FNMA		48,008		(903)		2,941		(165)		50,949		(1,068)
FHLMC		35,851		(423)		76		(1)		35,927		(424)
GNMA		30,252		(615)		143		-		30,395		(615)
SBA		2,824		(25)		1,218		(29)		4,042		(54)
CMO		38,313		(833)		25		(1)		38,338		(834)
Total mortgage-backed securities		155,248		(2,799)		4,403		(196)		159,651		(2,995)
Held to Maturity:
Debt securities:
States and political subdivisions		1,782		(3)		-		-		1,782		(3)
Total temporarily impaired
securities	$	207,411	$	(3,686)	$	31,891	$	(1,698)	$	239,302	$	(5,384)

‎

Table of Contents

3. LOANS AND THE ALLOWANCE FOR LOAN LOSSES

Loan Portfolio Composition

The following table presents selected information on the composition of the Company’s loan portfolio as of the dates indicated:


	June 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Mortgage loans on real estate:	(in thousands)				(in thousands)
Residential mortgages	$	390,743	$	365,351	$	419,053	$	411,060
Commercial and multi-family		739,475		706,276		764,369		739,761
Construction-Residential		4,854		7,509		3,839		5,109
Construction-Commercial		120,478		106,559		94,155		98,012
Home equities		81,737		82,602		80,579		81,238
Total real estate loans		1,337,287		1,268,297		1,361,995		1,335,180

Commercial and industrial loans		365,186		430,350		242,271		237,077
Consumer and other loans		998		151		662		719
Unaccreted yield adjustments*		(6,150)		(5,004)		(849)		(1,071)
Total gross loans		1,697,321		1,693,794		1,604,079		1,571,905

Allowance for loan losses		(19,942)		(20,415)		(18,618)		(18,438)
Loans, net	$	1,677,379	$	1,673,379	$	1,585,461	$	1,553,467

* Includes net premiums and discounts on acquired loans and net deferred fees and costs on loans ~~originated, including $5.3 million and $4.6 million of PPP fees at June 30, 2021 and December 31, 2020, respectively.~~originated.

On March 27, ~~2020~~2021 the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) established a loan program administered through the U.S. Small Business Administration (“SBA”), referred to as the Paycheck Protection Program (“PPP”). PPP loans are 100% guaranteed by the SBA and are forgivable, in whole or in part, if the proceeds are used for payroll and other permitted purposes in accordance with the requirements of the PPP. ~~These loans carry a fixed rate~~The outstanding balance of 1.00% and a term of two years (loans made before June 5, 2020) or five years (loans made on or after June 5, 2020), if not forgiven, in whole or in part. Payments are deferred until either the date on which the SBA remits the amount of forgiveness proceeds to the lender or the date that is 10 months after the last day of the covered period if the borrower does not apply for forgiveness within that 10 month period. At June 30, 2021, the Company had originated PPP loans ~~totaling $298~~of $10 million and $25 million as of March 31, 2022 and December 31, 2021, respectively, are included in commercial and industrial loans. ~~As of June 30, 2021, $152 million in PPP loans had received SBA forgiveness.~~ PPP loans did not impact the Company’s allowance for loan ~~loss~~losses as a result of the SBA guarantees. Fees collected from the SBA for these loans ~~totaled $12.4 million as of June 30, 2021, including $0.9 million, and $5.0 million collected in the three and six month periods ended June 30, 2021, respectively. These fees~~ are deferred and amortized into interest income over the contractual period of the loan. Upon SBA forgiveness or sale of a PPP loan, unamortized fees are then recognized into interest income. ~~In the three and six month periods ended June 30, 2021 the total amount of~~ PPP fees recognized into interest income ~~was $2.5~~were $0.5 million and ~~$4.2~~$1.7 million ~~respectively. PPP fees recognized into interest income during~~in the three ~~and six~~ month periods ended ~~June 30, 2020~~March 31, 2022 and 2021, respectively. Unamortized PPP fees were ~~$0.6 million.~~$0.3 million and $0.8 million at March 31, 2022 and December 31, 2021, respectively.

At ~~June 30, 2021,~~March 31, 2022, the outstanding principal balance and the carrying amount of acquired credit-impaired loans totaled $0.8 million and $0.7 million, respectively. At December 31, 2021, the outstanding principal balance and carrying amount of acquired credit-impaired loans totaled $0.8 million. There were 0 valuation allowances for specifically identified impairment attributable to acquired credit-impaired loans at March 31, 2022 or December 31, 2021. The Company is not recording interest on the acquired credit-impaired loans due to the uncertainty of the cash flows relating to such loans.

~~Table of Contents~~

There ~~was less than $0.1~~were $585 million and $619 million in residential and commercial mortgage loans pledged to FHLBNY to serve as collateral for potential borrowings as of ~~valuation allowances for specifically identified impairment attributable to acquired credit-impaired loans at June 30, 2021. At~~March 31, 2022 and December 31, ~~2020, the outstanding principal balance and carrying amount of acquired credit-impaired loans totaled $0.9 million and $0.8 million,~~2021, respectively.

At ~~June 30, 2021,~~March 31, 2022, the Company’s FHLMC loan serving portfolio ~~was $81~~had $67 million in principal balances ~~in which~~of residential real estate loans that were sold to FHLMC and the servicing rights are retained by the Company. NaN loans were sold to FHLMC by the Company during the three ~~and six~~ month periods ending ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.

The Company may also sell certain fixed rate residential mortgages to FNMA while maintaining the servicing rights for those mortgages. At ~~June 30, 2021,~~March 31, 2022, the Company’s FNMA loan servicing portfolio was ~~$67~~$61 million in principal balances. In the three ~~and six~~ month ~~periods~~period ended ~~June 30, 2021,~~March 31, 2022, the Company sold $2.9 million residential mortgages to FNMA. The Company did 0t sell ~~mortgages to FNMA. In the three and six month periods ended June 30, 2020, the Company sold~~any mortgages to FNMA ~~totaling $3.8 million and $7.5 million, respectively.~~in the three month period ended March 31, 2021.

At ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the Company had loan servicing portfolio principal balances of ~~$148~~$128 million and ~~$171~~$131 million, respectively, upon which it earned servicing fees. The fair value of the mortgage servicing rights for that portfolio was ~~$1.0~~$1.1 million and $0.9 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively.

At ~~June 30, 2021 there were $0.1 million of~~March 31, 2022 0 residential mortgages were held for sale. At December 31, ~~2020~~2021 there were $~~0.8~~$0.2 million inof residential mortgages held for sale.

~~There were $655 million and $630 million in residential and commercial mortgage loans pledged to FHLBNY to serve as collateral for potential borrowings as~~

Table of ~~June 30, 2021 and December 31, 2020, respectively.~~Contents

Disclosures related to the basis for accounting for loans, the method for recognizing interest income on loans, the policy for placing loans on nonaccrual status and the subsequent recording of payments and resuming accrual of interest, the policy for determining past due status, a description of the Company’s accounting policies and methodology used to estimate the allowance for loan losses, the policy for charging-off loans, the accounting policies for impaired loans, the accounting policy for loans acquired in a business combination, and more descriptive information on the Company’s credit risk ratings are all contained in the Notes to the Audited Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Credit Quality Indicators

The Company monitors the credit risk in its loan portfolio by reviewing certain credit quality indicators (“CQI”). The primary CQI for the commercial mortgage and commercial and industrial portfolios is the individual loan’s credit risk rating. The following list provides a description of the credit risk ratings that are used internally by the Bank when assessing the adequacy of its allowance for loan losses:

Acceptable or better

Watch

Special Mention

Substandard

Doubtful

Loss

“Special mention” and “substandard” loans are weaker credits with a higher risk of loss and are categorized as “criticized” assets.

The Company’s consumer loans, including residential mortgages and home equities, are not individually risk rated or reviewed in the Company’s loan review process. Unlike commercial customers, consumer loan customers are not required to provide the Company with updated financial information. Consumer loans also carry smaller balances. Given the lack of updated information after the initial underwriting of the loan and small size of individual loans, the Company uses delinquency status as the primary credit quality indicator for consumer loans. However, once a consumer loan is identified as impaired, it is individually evaluated for impairment.

The following tables provide data, at the class level, of credit quality indicators of certain loans for the dates specified:



	March 31, 2022
	(in thousands)
Corporate Credit Exposure – By Credit Rating	Commercial Real Estate Construction		Commercial and Multi-Family Mortgages		Total Commercial Real Estate		Commercial and Industrial
Acceptable or better	$	63,829	$	510,297	$	574,126	$	158,131
Watch		9,704		185,092		194,796		63,790
Special Mention		14,544		32,393		46,937		11,698
Substandard		6,078		36,587		42,665		8,652
Doubtful/Loss		-		-		-		-
Total	$	94,155	$	764,369	$	858,524	$	242,271


	December 31, 2021
	(in thousands)
Corporate Credit Exposure – By Credit Rating	Commercial Real Estate Construction		Commercial and Multi-Family Mortgages		Total Commercial Real Estate		Commercial and Industrial
Acceptable or better	$	65,211	$	480,159	$	545,370	$	152,675
Watch		19,108		182,502		201,610		64,406
Special Mention		7,045		33,219		40,264		10,200
Substandard		6,648		43,881		50,529		9,796
Doubtful/Loss		-		-		-		-
Total	$	98,012	$	739,761	$	837,773	$	237,077

The Company continues to evaluate its loan portfolio in response to the economic impact of the COVID-19 pandemic on its clients. During 2020 the Company reclassified all commercial loans that received a deferral into the watch or criticized categories. As the loans continue to pay as contracted the Company will reassess the watch classification. During the third quarter of 2020,2021, the Company identified a well-defined weakness in the hotel industry and classified the loans to clients within that industry as substandard. As of ~~June 30, 2021,~~March 31, 2022, the Company’s hotel loan portfolio ~~was $79~~totaled approximately $75 million, of which $55 million or ~~approximately 6.5%~~5% of total commercial ~~loans.~~loans was classified as criticized. Total criticized assets were ~~$146~~$110 million at ~~June 30, 2021~~March 31, 2022 and ~~$140~~$111 million at the end of the ~~2020.~~

~~Table of Contents~~

~~The following tables provide data, at the class level, of credit quality indicators of certain loans for the dates specified:~~

June 30, 2021
(in thousands)
Corporate Credit Exposure – By Credit Rating
Commercial Real Estate Construction
Commercial and Multi-Family Mortgages
Total Commercial Real Estate
Commercial and Industrial
Acceptable or better
$
82,235
$
441,133
$
523,368
$
277,217
Watch
11,831
201,689
213,520
64,967
Special Mention
7,418
22,324
29,742
9,831
Substandard
18,994
74,329
93,323
13,171
Doubtful/Loss
-
-
-
-
Total
$
120,478
$
739,475
$
859,953
$
365,186
December 31, 2020
(in thousands)
Corporate Credit Exposure – By Credit Rating
Commercial Real Estate Construction
Commercial and Multi-Family Mortgages
Total Commercial Real Estate
Commercial and Industrial
Acceptable or better
$
59,020
$
317,854
$
376,874
$
314,322
Watch
17,218
300,061
317,279
95,117
Special Mention
2,041
17,656
19,697
6,555
Substandard
28,280
70,705
98,985
14,356
Doubtful/Loss
-
-
-
-
Total
$
106,559
$
706,276
$
812,835
$
430,350

2021.

‎

1812

Table of Contents

Past Due Loans

The following tables provide an analysis of the age of the recorded investment in loans that are past due as of the dates indicated:



	June 30, 2021
	(in thousands)
														March 31, 2022
		Current								Non-accruing		Total		(in thousands)
		Balance	30-59 days		60-89 days		90+ days			Loans		Balance			Current							Non-accruing		Total
															Balance	30-59 days		60-89 days		90+ days		Loans		Balance
Commercial and industrial	$	355,912	$	3,100	$	-	$	94	4	$	6,080	$	365,186	$	230,668	$	6,909	$	-	$	-	$	4,694	$	242,271
Residential real estate:
Residential		385,293		-		1,724		82			3,644		390,743		410,466		4,668		481		-		3,438		419,053
Construction		4,854		-		-		-			-		4,854		3,839		-		-		-		-		3,839
Commercial real estate:
Commercial		727,207		-		2,399		-			9,869		739,475		739,677		15,071		96		3,354		6,171		764,369
Construction		109,161		-		7,911		-			3,406		120,478		88,906		2,112		774		-		2,363		94,155
Home equities		80,385		156		54		-			1,142		81,737		79,577		254		109		-		639		80,579
Consumer and other		995		-		3		-			-		998		658		3		1		-		-		662
Total Loans	$	1,663,807	$	3,256	$	12,091	$	176		$	24,141	$	1,703,471	$	1,553,791	$	29,017	$	1,461	$	3,354	$	17,305	$	1,604,928

Note: Loan balances do not include ~~$(6.2)~~$(0.8) million of unaccreted yield adjustments as of ~~June30, 2021.~~March 31, 2022.



	December 31, 2020
	(in thousands)
													December 31, 2021
		Current							Non-accruing		Total		(in thousands)
		Balance	30-59 days		60-89 days		90+ days		Loans		Balance			Current							Non-accruing		Total
														Balance	30-59 days		60-89 days		90+ days		Loans		Balance
Commercial and industrial	$	419,409	$	4,240	$	122	$	94	$	6,485	$	430,350	$	229,724	$	1,336	$	568	$	548	$	4,901	$	237,077
Residential real estate:
Residential		357,135		4,156		1,262		109		2,689		365,351		402,992		3,466		1,563		-		3,039		411,060
Construction		7,509		-		-		-		-		7,509		5,109		-		-		-		-		5,109
Commercial real estate:
Commercial		667,426		20,024		4,166		-		14,660		706,276		711,481		16,451		6,073		-		5,756		739,761
Construction		94,030		5,616		4,062		-		2,851		106,559		93,842		757		-		480		2,933		98,012
Home equities		80,044		744		604		14		1,196		82,602		79,644		627		209		-		758		81,238
Consumer and other		111		6		14		17		3		151		706		9		4		-		-		719
Total Loans	$	1,625,664	$	34,786	$	10,230	$	234	$	27,884	$	1,698,798	$	1,523,498	$	22,646	$	8,417	$	1,028	$	17,387	$	1,572,976

Note: Loan balances do not include ~~$(5.0)~~$(1.1) million of unaccreted yield adjustments as of December 31, ~~2020.~~2021.

‎

1913

Table of Contents

Allowance for loan losses

The following tables present the activity in the allowance for loan losses according to portfolio segment for the three month periods ended ~~June 30, 2021~~March 31, 2022 and ~~2020.~~2021.



	Three months ended June 30, 2021
	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total		March 31, 2022
													Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for loan	(in thousands)												(in thousands)
losses:
Beginning balance	$	4,390	$	14,068	$	57	$	1,709		477	$	20,701	$	3,309	$	12,367	$	54	$	2,127		581	$	18,438
Charge-offs		-		-		(31)		-		-		(31)		(24)		-		(40)		-		-		(64)
Recoveries		22		-		10		-		-		32		17		-		6		-		-		23
Provision (Credit)		(622)		(143)		22		(15)		(2)		(760)		386		(88)		24		(10)		(91)		221
Ending balance	$	3,790	$	13,925	$	58	$	1,694	$	475	$	19,942	$	3,688	$	12,279	$	44	$	2,117	$	490	$	18,618

*Includes construction loans



	'Three months ended June 30, 2020
	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total		March 31, 2021
													Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for loan	(in thousands)												(in thousands)
losses:
Beginning balance	$	5,575	$	10,588	$	91	$	1,418	$	485	$	18,157	$	4,882	$	13,249	$	45	$	1,658	$	581	$	20,415
Charge-offs		(2)		-		(15)		-		-		(17)		-		-		(60)		-		-		(60)
Recoveries		4		11		2		-		-		17		21		-		12		-		-		33
Provision (Credit)		(317)		1,026		155		(271)		4		597		(513)		819		60		51		(104)		313
Ending balance	$	5,260	$	11,625	$	233	$	1,147	$	489	$	18,754	$	4,390	$	14,068	$	57	$	1,709	$	477	$	20,701

* Includes construction loans

‎

2014

Table of Contents

~~The following tables present the activity in the allowance for loan losses according to portfolio segment for the six month periods ended June 30, 2021 and 2020.~~

Six months ended June 30, 2021
(in thousands)
Commercial and Industrial
Commercial Real Estate Mortgages*
Consumer and Other
Residential Mortgages*
Home Equities
Total
Allowance for loan
losses:
Beginning balance
$
4,882
$
13,249
$
45
$
1,658
$
581
$
20,415
Charge-offs
-
-
(91)
-
-
(91)
Recoveries
43
-
22
-
-
65
Provision (Credit)
(1,135)
676
82
36
(106)
(447)
Ending balance
$
3,790
$
13,925
$
58
$
1,694
$
475
$
19,942

* Includes construction loans

Six months ended June 30, 2020
(in thousands)
Commercial and Industrial
Commercial Real Estate Mortgages*
Consumer and Other
Residential Mortgages*
Home Equities
Total
Allowance for loan
losses:
Beginning balance
$
4,547
$
9,005
$
155
$
1,071
$
397
$
15,175
Charge-offs
(19)
-
(30)
(29)
(4)
(82)
Recoveries
36
11
18
-
-
65
Provision (Credit)
696
2,609
90
105
96
3,596
Ending balance
$
5,260
$
11,625
$
233
$
1,147
$
489
$
18,754

* Includes construction loans

‎

~~Table of Contents~~

The following table presents the allocation of the allowance for loan losses according to portfolio segment summarized on the basis of the Company’s impairment methodology as of ~~June 30, 2021~~March 31, 2022 and ~~2020:~~December 31, 2021:



	June 30, 2021												March 31, 2022
	(in thousands)												(in thousands)
	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total		Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for loan
losses:
Ending balance:
Loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	16	$	-	$	16	$	-	$	-	$	-	$	-	$	-	$	-

Individually evaluated for impairment		718		964		-		9		11		1,702		91		24		-		74		42		231

Collectively evaluated for impairment		3,072		12,961		58		1,669		464		18,224		3,597		12,255		44		2,043		448		18,387
Total	$	3,790	$	13,925	$	58	$	1,694	$	475	$	19,942	$	3,688	$	12,279	$	44	$	2,117	$	490	$	18,618

Loans:
Ending balance:
Loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	825	$	-	$	825	$	-	$	-	$	-	$	786	$	-	$	786

Individually evaluated for impairment		6,080		16,500		-		3,624		1,536		27,740		4,803		11,776		-		3,005		1,068		20,652

Collectively evaluated for impairment		359,106		843,453		998		391,148		80,201		1,674,906		237,468		846,748		662		419,101		79,511		1,583,490
Total	$	365,186	$	859,953	$	998	$	395,597	$	81,737	$	1,703,471	$	242,271	$	858,524	$	662	$	422,892	$	80,579	$	1,604,928

Note: Loan balances do not include ~~$(6.2)~~$(0.8) million of unaccreted yield adjustments as of ~~June 30, 2021.~~March 31, 2022.

* Includes construction loans

‎

2215

Table of Contents



	June 30, 2020												December 31, 2021
	(in thousands)												(in thousands)
	Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total		Commercial and Industrial		Commercial Real Estate Mortgages*		Consumer and Other		Residential Mortgages*		Home Equities		Total
Allowance for loan
losses:
Ending balance:
Loans acquired with deteriorated credit quality	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

Individually evaluated for impairment		925		5		-		-		-		930		100		345		-		9		41		495

Collectively evaluated for impairment		4,335		11,620		233		1,147		489		17,824		3,209		12,022		54		2,118		540		17,943
Total	$	5,260	$	11,625	$	233	$	1,147	$	489	$	18,754	$	3,309	$	12,367	$	54	$	2,127	$	581	$	18,438

Loans:
Ending balance:
Loans acquired with deteriorated credit quality	$	77	$	-	$	-	$	876	$	-	$	953	$	-	$	-	$	-	$	803	$	-	$	803

Individually evaluated for impairment		6,210		10,675		-		2,853		1,280		21,018		5,028		11,925		-		2,598		1,236		20,787

Collectively evaluated for impairment		433,402		788,912		3,612		361,135		83,477		1,670,538		232,049		825,848		719		412,768		80,002		1,551,386
Total	$	439,689	$	799,587	$	3,612	$	364,864	$	84,757	$	1,692,509	$	237,077	$	837,773	$	719	$	416,169	$	81,238	$	1,572,976

Note: Loan balances do not include ~~$(6.7)~~$(1.1) million of unaccreted yield adjustments as of ~~June 30, 2020.~~December 31, 2021.

* Includes construction loans

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Table of Contents

Impaired Loans

The following tables provide data, at the class level, for impaired loans as of the dates indicated:


												At March 31, 2022						At December 31, 2021
			At June 30, 2021
			Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
(in thousands)													Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:	With no related allowance recorded:		(in thousands)
Commercial and industrial		$	1,049	$	1,169	$	-	$	1,123	$	3	$	4,709	$	5,530	$	-	$	4,874	$	5,712	$	-
Residential real estate:
Residential			3,563		3,931		-		4,508		26		3,443		3,826		-		3,297		3,654		-
Construction			-		-		-		-		-		-		-		-		-		-		-
Commercial real estate:
Commercial			13,094		14,765		-		13,238		63		9,241		9,704		-		8,821		9,338		-
Construction			1,272		1,352		-		1,076		-		2,218		2,414		-		1,395		1,499		-
Home equities			1,427		1,662		-		1,657		4		959		1,156		-		1,127		1,324		-
Consumer and other			-		-		-		-		-		-		-		-		-		-		-
Total impaired loans		$	20,405	$	22,879	$	-	$	21,602	$	96	$	20,570	$	22,630	$	-	$	19,514	$	21,527	$	-


	At March 31, 2022							At December 31, 2021
(in thousands)		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With a related allowance recorded:
Commercial and industrial	$	94	$	97	$	91	$	154	$	158	$	100
Residential real estate:
Residential		304		304		74		60		60		9
Construction		-		-		-		-		-		-
Commercial real estate:
Commercial		172		197		11		171		717		16
Construction		145		150		13		1,538		1,555		329
Home equities		109		109		42		109		109		41
Consumer and other		-		-		-		-		-		-
Total impaired loans	$	824	$	857	$	231	$	2,032	$	2,599	$	495


		At March 31, 2022					At December 31, 2021
(in thousands)		Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
Total:
Commercial and industrial	$	4,803	$	5,627	$	91	$	5,028	$	5,870	$	100
Residential real estate:
Residential		3,747		4,130		74		3,357		3,714		9
Construction		-		-		-		-		-		-
Commercial real estate:
Commercial		9,413		9,901		11		8,992		10,055		16
Construction		2,363		2,564		13		2,933		3,054		329
Home equities		1,068		1,265		42		1,236		1,433		41
Consumer and other		-		-		-		-		-		-
Total impaired loans	$	21,394	$	23,487	$	231	$	21,546	$	24,126	$	495

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		At June 30, 2021											Three months ended March 31, 2022				Three months ended March 31, 2021
		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized	(in thousands)		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
With a related allowance recorded:		(in thousands)
With no related allowance recorded:
Commercial and industrial	$	5,031	$	5,232	$	718	$	4,830	$	26		$	5,118	$	2	$	1,344	$	3
Residential real estate:
Residential		842		909		25		710		1			3,512		4		4,542		17
Construction		-		-		-		-		-			-		-		-		-
Commercial real estate:
Commercial		-		-		-		-		-			9,298		70		11,929		12
Construction		2,134		2,143		964		2,372		2			2,634		-		1,085		-
Home equities		109		109		11		109		-			1,000		5		1,719		2
Consumer and other		-		-		-		-		-			-		-		-		-
Total impaired loans	$	8,116	$	8,393	$	1,718	$	8,021	$	29		$	21,562	$	81	$	20,619	$	34


		At June 30, 2021											Three months ended March 31, 2022				Three months ended March 31, 2021
		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized	(in thousands)		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:		(in thousands)
With a related allowance recorded:											With a related allowance recorded:
Commercial and industrial	$	6,080	$	6,401	$	718	$	5,953	$	29		$	98	$	-	$	4,139	$	-
Residential real estate:
Residential		4,405		4,840		25		5,218		27			304		-		627		-
Construction		-		-		-		-		-			-		-		-		-
Commercial real estate:
Commercial		13,094		14,765		-		13,238		63			178		-		2,943		-
Construction		3,406		3,495		964		3,448		2			146		-		2,528		2
Home equities		1,536		1,771		11		1,766		4			109		-		109		-
Consumer and other		-		-		-		-		-			-		-		-		-
Total impaired loans	$	28,521	$	31,272	$	1,718	$	29,623	$	125		$	835	$	-	$	10,346	$	2


			Three months ended March 31, 2022				Three months ended March 31, 2021
	(in thousands)		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial		$	5,216	$	2	$	5,483	$	3
Residential real estate:
Residential			3,816		4		5,169		17
Construction			-		-		-		-
Commercial real estate:
Commercial			9,476		70		14,872		12
Construction			2,780		-		3,613		2
Home equities			1,109		5		1,828		2
Consumer and other			-		-		-		-
Total impaired loans		$	22,397	$	81	$	30,965	$	36

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At December 31, 2020
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
With no related allowance recorded:
(in thousands)
Commercial and industrial
$
1,706
$
1,947
$
-
$
1,952
$
8
Residential real estate:
Residential
3,703
4,069
-
3,754
60
Construction
-
-
-
-
-
Commercial real estate:
Commercial
12,210
12,840
-
12,397
209
Construction
1,295
1,352
-
1,315
-
Home equities
1,515
1,741
-
1,565
23
Consumer and other
-
-
-
-
-
Total impaired loans
$
20,429
$
21,949
$
-
$
20,983
$
300

At December 31, 2020
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
With a related allowance recorded:
(in thousands)
Commercial and industrial
$
4,779
$
4,993
$
994
$
4,938
$
25
Residential real estate:
Residential
-
-
-
-
-
Construction
-
-
-
-
-
Commercial real estate:
Commercial
2,943
2,953
153
2,943
10
Construction
1,556
1,556
386
1,556
53
Home equities
109
109
11
109
1
Consumer and other
3
3
3
3
-
Total impaired loans
$
9,390
$
9,614
$
1,547
$
9,549
$
89

~~Table of Contents~~

At December 31, 2020
Recorded Investment
Unpaid Principal Balance
Related Allowance
Average Recorded Investment
Interest Income Recognized
Total:
(in thousands)
Commercial and industrial
$
6,485
$
6,940
$
994
$
6,890
$
33
Residential real estate:
Residential
3,703
4,069
-
3,754
60
Construction
-
-
-
-
-
Commercial real estate:
Commercial
15,153
15,793
153
15,340
219
Construction
2,851
2,908
386
2,871
53
Home equities
1,624
1,850
11
1,674
24
Consumer and other
3
3
3
3
-
Total impaired loans
$
29,819
$
31,563
$
1,547
$
30,532
$
389

Troubled debt restructurings

The following tables summarize the loans that were classified as troubled debt restructurings (“TDRs”) as of the dates indicated:



		June 30, 2021								March 31, 2022
		(in thousands)								(in thousands)
		Total		Nonaccruing		Accruing		Related Allowance		Total		Nonaccruing		Accruing		Related Allowance
Commercial and industrial	$	1,363	$	1,363	$	-	$	243	$	931	$	822	$	109	$	-
Residential real estate:
Residential		1,438		633		805		-		975		622		353		-
Construction		-		-		-		-		-		-		-		-
Commercial real estate:
Commercial and multi-family		3,340		115		3,225		-		3,242		-		3,242		-
Construction		-		-		-		-		-		-		-		-
Home equities		509		115		394		-		442		13		429		-
Consumer and other		-		-		-		-		-		-		-		-
Total TDR loans	$	6,650	$	2,226	$	4,424	$	243	$	5,590	$	1,457	$	4,133	$	-

~~Table of Contents~~



		December 31, 2020								December 31, 2021
		(in thousands)								(in thousands)
		Total		Nonaccruing		Accruing		Related Allowance		Total		Nonaccruing		Accruing		Related Allowance
Commercial and industrial	$	1,722	$	1,722	$	-	$	370	$	1,003	$	876	$	127	$	-
Residential real estate:
Residential		1,632		587		1,045		-		989		627		362		-
Construction		-		-		-		-		-		-		-		-
Commercial real estate:
Commercial and multi-family		3,408		2,915		493		-		3,236		-		3,236		-
Construction		-		-		-		-		-		-		-		-
Home equities		552		124		428		-		490		12		478		-
Consumer and other		-		-		-		-		-		-		-		-
Total TDR loans	$	7,314	$	5,348	$	1,966	$	370	$	5,718	$	1,515	$	4,203	$	-

Any TDR that is placed on non-accrual status is not reverted back to accruing status until the borrower makes timely payments as contracted for at least six months and future collection under the revised terms is probable. All of the Company’s restructurings were allowed in an effort to maximize its ability to collect on loans where borrowers were experiencing financial difficulty.

The reserve for a TDR is based upon the present value of the future expected cash flows discounted at the loan’s original effective interest rate or upon the fair value of the collateral less costs to sell, if the loan is deemed collateral dependent. This reserve methodology is used because all TDR loans are considered impaired.

The Company’s TDRs have various agreements that involve deferral of principal payments, or interest-only payments, for a period (usually 12 months or less) to allow the borrower time to improve cash flow or sell the property. Other common concessions leading to the designation of a TDR are lines of credit that are termed-out and/or extensions of maturities at rates that are less than the prevailing market rates given the risk profile of the borrower.

In late March ~~2020,~~2021, federal banking regulators issued guidance that modifications made to a borrower affected by the COVID-19 pandemic and governmental shutdown orders do not need to be identified as a TDR if the loan was current at the time a modification plan was implemented. The CARES Act also addressed COVID-19 related modifications and specified that such modifications made on loans that were current as of December 31, 2019 are not TDRs. The Company had applied this guidance and during 2020 had made 381 modifications of commercial loans with principal balances totaling $368 million, and approximately 298 modifications of consumer loans with principal balances totaling $37 million. COVID-19 related modifications made during the six months ended June 30, 2021 were not material.

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~~During the three month periods ended June 30, 2021 and 2020 no new loans were classified as TDR.~~ The following ~~table presents~~tables present TDR activity by the type of concession granted to the borrower for the ~~six~~three month ~~periods~~period ended ~~June~~ 30~~, 2021~~March 31, 2022 and ~~2020.~~

2021.



	Six months ended June 30, 2021					Six months ended June 30, 2020						Three months ended March 31, 2022					Three months ended March 31, 2021
	(Recorded Investment in thousands)					(Recorded Investment in thousands)						(Recorded Investment in thousands)					(Recorded Investment in thousands)
Troubled Debt Restructurings by Type of Concession	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment	Number of Contracts			Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment

Commercial and Industrial	-	$	-	$	-	-	$	-	$	-	-		$	-	$	-	-	$	-	$	-
Residential Real Estate & Construction:
Combination of concessions	-		-		-	1		56		56
Residential Real Estate & Construction
Commercial Real Estate & Construction	-		-		-	-		-		-	-			-		-	-		-		-
Home Equities
Home Equities:														-		-	-		-		-
Extension of maturity and
interest rate reduction											1			38		38	-		-		-
Consumer and other loans	-		-		-	-		-		-	-			-		-	-		-		-
Other											-			-		-	-		-		-

The general practice of the Bank is to work with borrowers so that they are able to repay their loan in full. If a borrower continues to be delinquent or cannot meet the terms of a TDR and the loan is determined to be uncollectible, the loan will be charged-off to its collateral value. A loan is considered in default when the loan is 90 days past due. Loans which were classified as TDRs during the previous 12 months which defaulted during the three month period ended March 31, 2022 and ~~six month periods ended June 30,~~ 2021 ~~and 2020~~ were not material.

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4. COMMON EQUITY AND EARNINGS PER SHARE DATA

The common stock per share information is based upon the weighted average number of shares outstanding during each period. For the three ~~and six~~ month ~~periods~~period ended ~~June~~ 30,March 31, 2022 and 2021, the Company had an average of ~~54,617~~52,766 and ~~49,211~~41,837 dilutive shares outstanding, respectively. ~~The Company had an average of 21,392 and 41,433 dilutive shares outstanding for the three and six month periods ended June 30, 2020.~~

Potential common shares that would have the effect of increasing diluted earnings per share are considered to be anti-dilutive and not included in calculating diluted earnings per share. For the three ~~and six~~ month ~~periods~~period ended ~~June~~ 30,March 31, 2022 and 2021 there was an average of ~~41,047~~21,560 and ~~81,426~~81,770 potentially anti-dilutive shares outstanding, respectively, that were not included in calculating diluted earnings per share because their effect was anti-dilutive. ~~For the three and six month periods ended June 30, 2020, there was an average of 136,783 and 81,770 potentially anti-dilutive shares outstanding.~~

‎

~~Table of Contents~~

6.5. OTHER COMPREHENSIVE INCOME

The following tables summarize the changes in the components of accumulated other comprehensive income during the three ~~and six~~ month ~~periods~~period ended ~~June 30~~March 31, 2022~~, 2021~~ and ~~2020:~~

2021:

Balance at March 31, 2021
Net Change
Balance at June 30, 2021
(in thousands)
Net unrealized (loss) gain on investment securities
$
(1,492)
$
1,722
$
230
Net defined benefit pension plan adjustments
(3,040)
75
(2,965)
Total
$
(4,532)
$
1,797
$
(2,735)

Balance at March 31, 2020
Net Change
Balance at June 30, 2020
(in thousands)
Net unrealized gain on investment securities
$
2,357
$
1,188
$
3,545
Net defined benefit pension plan adjustments
(3,018)
90
(2,928)
Total
$
(661)
$
1,278
$
617


	Balance at December 31, 2020		Net Change		Balance at June 30, 2021		Balance at December 30, 2021		Net Change		Balance at March 31, 2022
	(in thousands)						(in thousands)
Net unrealized gain (loss) on investment securities	$	2,397	$	(2,167)	$	230
Net unrealized loss on investment securities							$	(3,160)	$	(16,705)	$	(19,865)
Net defined benefit pension plan adjustments		(3,116)		151		(2,965)		(2,511)		55		(2,456)
Total	$	(719)	$	(2,016)	$	(2,735)	$	(5,671)	$	(16,650)	$	(22,321)


	Balance at December 31, 2019		Net Change		Balance at June 30, 2020		Balance at December 31, 2020		Net Change		Balance at March 31, 2021
	(in thousands)						(in thousands)
Net unrealized gain on investment securities	$	522	$	3,023	$	3,545
Net unrealized gain (loss) on investment securities							$	2,397	$	(3,889)	$	(1,492)
Net defined benefit pension plan adjustments		(3,105)		177		(2,928)		(3,116)		76		(3,040)
Total	$	(2,583)	$	3,200	$	617	$	(719)	$	(3,813)	$	(4,532)

‎

~~Table of Contents~~

Three months ended June 30, 2021
Three months ended June 31, 2020
(in thousands)
(in thousands)
Before-Tax Amount
Income Tax (Provision) Benefit
Net-of-Tax Amount
Before-Tax Amount
Income Tax (Provision) Benefit
Net-of-Tax Amount
Unrealized (loss) gain on investment
securities:
Unrealized (loss) gain on investment
securities
$
2,324
$
(602)
$
1,722
$
1,603
$
(415)
$
1,188
Defined benefit pension plan
adjustments:
Amortization of prior service cost
8
(3)
5
8
(2)
6
Amortization of actuarial loss
95
(25)
70
113
(29)
84
Net change
103
(28)
75
121
(31)
90
Other comprehensive (loss) income
$
2,427
$
(630)
$
1,797
$
1,724
$
(446)
$
1,278



	Six months ended June 30, 2021						Six months ended June 30, 2020						Three months ended March 31, 2022						Three months ended March 31, 2021
	(in thousands)						(in thousands)						(in thousands)						(in thousands)
	Before-Tax Amount		Income Tax (Provision) Benefit		Net-of-Tax Amount		Before-Tax Amount		Income Tax (Provision) Benefit		Net-of-Tax Amount		Before-Tax Amount		Income Tax (Provision) Benefit		Net-of-Tax Amount		Before-Tax Amount		Income Tax (Provision) Benefit		Net-of-Tax Amount
Unrealized gain (loss) on investment
Unrealized loss on investment
securities:
Unrealized gain (loss) on investment
Unrealized loss on investment
securities	$	(2,929)	$	762	$	(2,167)	$	4,078	$	(1,055)	$	3,023	$	(22,537)	$	5,832	$	(16,705)	$	(5,253)	$	1,364	$	(3,889)

Defined benefit pension plan
adjustments:
Amortization of prior service cost		16		(5)		11		16		(5)		11		8		(3)		5		8		(2)		6
Amortization of actuarial loss		190		(50)		140		226		(60)		166		68		(18)		50		95		(25)		70
Net change		206		(55)		151		242		(65)		177		76		(21)		55		103		(27)		76
Other comprehensive income	$	(2,723)	$	707	$	(2,016)	$	4,320	$	(1,120)	$	3,200

Other comprehensive loss													$	(22,461)	$	5,811	$	(16,650)	$	(5,150)	$	1,337	$	(3,813)

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7.6. NET PERIODIC BENEFIT COSTS

On January 31, 2008, the Bank froze its defined benefit pension plan. The plan covered substantially all Bank employees. The plan provides benefits that are based on the employees’ compensation and years of service. Under the freeze, eligible employees will receive, at retirement, the benefits already earned through January 31, 2008, but have not accrued any additional benefits since then. As a result, service cost is no longer incurred.

The Bank uses an actuarial method of amortizing prior service cost and unrecognized net gains or losses which result from actual expense and assumptions being different than those that are projected. The amortization method the Bank used recognized the prior service cost and net gains or losses over the average remaining service period of active employees.

The Bank also maintains a nonqualified supplemental executive retirement plan covering certain members of the Company’s senior management. The Bank uses an actuarial method of amortizing unrecognized net gains or losses which result from actual expense and assumptions being different than those that are projected. The amortization method the Bank uses recognizes the net gains or losses over the average remaining service period of active employees.

The following table presents the net periodic cost for the Bank’s defined benefit pension plan and supplemental executive retirement plan for the three month period ended March 31, 2022 and ~~six month periods ended June 30, 2021 and 2020:~~2021:

Three months ended June 30,
(in thousands)
Supplemental Executive
Pension Benefits
Retirement Plan
2021
2020
2021
2020
Service cost
$
-
$
-
$
38
$
39
Interest cost
40
51
25
38
Expected return on plan assets
(88)
(82)
-
-
Amortization of prior service cost
-
-
8
8
Amortization of the net loss
24
26
71
87
Net periodic (benefit) cost
$
(24)
$
(5)
$
142
$
172




		Six months ended June 30,								Three months ended March 31,

		(in thousands)								(in thousands)
					Supplemental Executive								Supplemental Executive
	Pension Benefits				Retirement Plan				Pension Benefits				Retirement Plan

	2021		2020		2021		2020		2022		2021		2022		2021

Service cost	$	-	$	-	$	75	$	78	$	-	$	-	$	33	$	37
Interest cost		81		101		50		76		44		41		31		25
Expected return on plan assets		(177)		(163)		-		-		(88)		(89)		-		-
Amortization of prior service cost		-		-		16		16		-		-		8		8
Amortization of the net loss		48		51		142		175		24		24		44		71
Net periodic (benefit) cost	$	(48)	$	(11)	$	283	$	345	$	(20)	$	(24)	$	116	$	141

The components of net periodic benefit cost other than the service cost component are included in the line item “other expense” in the income statement.

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8.7. REVENUE RECOGNITION OF NON-INTEREST INCOME

A description of the Company’s material revenue streams in non-interest income accounted for under ASC 606 follows:

Insurance Service and Fees: Insurance services revenue relates to various revenue streams from services provided by TEA and the Bank:

TEA earns commission revenue from selling commercial and personal property and casualty (“P&C”) insurance as well as employee benefits solutions to commercial customers.

TEA has agreements with various insurance companies to sell policies to customers on behalf of the carriers. The performance obligation for TEA is to sell annual P&C policies to commercial customers and consumers. This performance obligation is met when a new policy is sold or when an existing policy renews. The policies are generally one year terms. In the agreements with the respective insurance companies, a commission rate is agreed upon. The commission is recognized at the time of the sale of the policy or when a policy renews.

TEA has signed contracts with insurance carriers that enable TEA to sell benefit plans to commercial customers on behalf of the insurance carriers. The performance obligation for TEA is to sell the plans to commercial customers. After the initial sale when the customer signs an agreement to purchase the offered benefit plan, the performance obligation is met each month when a customer continues utilizing benefit plans from the carrier. The customer does not commit to a specific length of time with the carrier. In the agreements with the respective insurance companies, a commission rate is agreed upon. Revenue is recognized each month when the customer continues with the benefit plan sold by TEA.

TEA also earns contingent profit sharing revenue. The insurance companies measure the loss ratio for TEA’s customers and pay TEA according to how profitable TEA customers are.

TEA has signed written agreements with insurance carriers that document payouts to TEA based on the loss ratios of its customers. The performance obligation for TEA is to maintain a customer base with loss ratios below the agreed upon thresholds. In the contracts with the insurance companies, payout rates based on loss ratios are documented. The consideration is variable as loss ratios vary based on customer experience. TEA’s performance obligation is over the course of the year as its customers’ performance with insurance carriers is measured throughout the year as losses occur. Due to the variable nature of contingent profit sharing revenue, TEA will accrue contingent profit sharing revenue throughout the year based on recent historical results. As loss events occur and overall performance becomes known to TEA, accrual adjustments will be made until the cash is ultimately received.

Financial services commission revenue from the Bank related to wealth management such as life insurance, annuities, and mutual funds sales is also included in the “insurance service and fees” line of the income statement.

The Company earns wealth management fees from its contracts with customers for certain financial services. Fees that are transaction-based are recognized at the point in time that the transaction is executed. Other related services provided include financial planning services and the fees the Bank earns are recognized when the services are rendered.

Insurance claims services revenue is recorded at FCS.

FCS has signed agreements with insurance companies to perform claims services including investigative and adjustment services related to residential and commercial lines. The performance obligation is for FCS to investigate the insurance claims and inspecting the damage to determine the extent of the insurance company’s liability. FCS is paid based on time and materials expended to investigate the claim. The rates paid are determined in the agreement between FCS and the respective insurance companies. Upon completion of its claims inspection work, FCS bills the insurance company for services rendered and recognizes the revenue earned. FCS discontinued operations on December 31, 2021.

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A disaggregation of the total insurance service and other fees for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ is provided in the tables below:

Three months ended June 30,
2021
2020
(in thousands)
Commercial property and casualty insurance commissions
$
1,025
$
955
Personal property and casualty insurance commissions
921
967
Employee benefits sales commissions
217
369
Profit sharing and contingent revenue
217
152
Wealth management and other financial services
167
122
Insurance claims services revenue
78
62
Other insurance-related revenue
32
40
Total insurance service and other fees
$
2,657
$
2,667



		Six months ended June 30,				Three months ended March 31,
		2021		2020		2022		2021
	(in thousands)					(in thousands)
Commercial property and casualty insurance commissions	$	1,822	$	1,822	$	788	$	797
Personal property and casualty insurance commissions		1,661		1,721		723		740
Employee benefits sales commissions		461		748		234		244
Profit sharing and contingent revenue		619		358		370		402
Wealth management and other financial services		347		243		141		180
Insurance claims services revenue		159		117		-		81
Other insurance-related revenue		90		83		43		58
Total insurance service and other fees	$	5,159	$	5,092	$	2,299	$	2,502

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9.8. FAIR VALUE MEASUREMENT

Fair value is defined in ASC Topic 820 “Fair Value Measurement” as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

There are three levels of inputs to fair value measurement:


				Level 1 inputs are quoted prices for identical instruments in active markets;
				Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and
				Level 3 inputs are unobservable inputs.

Observable market data should be used when available.

FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE ON A RECURRING BASIS

The following table presents, for each of the fair-value hierarchy levels as defined in this footnote, those financial instruments which are measured at fair value on a recurring basis as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively:


(in thousands)		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value

June 30, 2021
March 31, 2022
Securities available-for-sale:
US treasuries and government agencies	$	-	$	81,954	$	-	$	81,954	$	-	$	143,304	$	-	$	143,304
States and political subdivisions		-		6,573		-		6,573		-		24,210		-		24,210
Mortgage-backed securities		-		142,451		-		142,451		-		218,422		-		218,422
Mortgage servicing rights		-		-		993		993

December 31, 2020
December 31, 2021
Securities available-for-sale:
US treasuries and government agencies	$	-	$	68,098	$	-	$	68,098	$	-	$	96,818	$	-	$	96,818
States and political subdivisions		-		7,524		-		7,524		-		6,246		-		6,246
Mortgage-backed securities		-		86,774		-		86,774		-		202,895		-		202,895
Mortgage servicing rights		-		-		917		917

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Securities available for sale

Fair values for available for sale securities are determined using independent pricing services and market-participating brokers. The ~~Company’s independent~~Company utilizes a third-party for these pricing ~~service~~services. The third-party utilizes evaluated pricing models that vary by asset class and incorporate available trade, bid and other market information for structured securities, cash flow and, when available, loan performance data. Because many fixed income securities do not trade on a daily basis, the third-party service provider’s evaluated pricing applications apply information as applicable through processes, such as benchmarking of like securities, sector groupings, and matrix pricing, to prepare evaluations. In addition, our third-party pricing service provider uses model processes, such as the Option Adjusted Spread model, ~~are used~~ to assess interest rate impact and develop prepayment scenarios. The models and the process take into account market convention. For each asset class, a team of evaluators gathers information from market sources and integrates relevant credit information, perceived market movements and sector news into the evaluated pricing applications and models. The ~~Company’s service provider~~third-party, at times, may ~~occasionally~~ determine that it

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does not have sufficient verifiable information to value a particular security. In these cases the Company will utilize valuations from another pricing service.

On a quarterly basis the Company reviews changes, as submitted by our third-party pricing service provider, in the market value of its ~~security~~securities portfolio. Individual changes in valuations are reviewed for consistency with general interest rate movements and any known credit concerns for specific securities. Additionally, on a quarterly basis the Company has its entire ~~security~~securities portfolio priced by a second pricing service to determine consistency with another market evaluator. If, ~~during~~on the Company’s review or ~~when~~in comparing with another servicer, a material difference between pricing evaluations were to exist, the Company ~~would~~may submit an inquiry to ~~the~~our third-party pricing service provider regarding the data used to value a particular security. If the Company determines it has market information that would support a different valuation than ~~the initial~~our third-party service provider’s evaluation it can submit a challenge for a change to that security’s valuation.

Securities available for sale are classified as Level 2 in the fair value hierarchy as the valuation provided by the third-party provider uses observable market data.

~~Mortgage servicing rights~~

Mortgage servicing rights (“MSRs”) do not trade in an active, open market with readily observable prices. Accordingly, the Company obtains the fair value of the MSRs using a third-party pricing provider. The provider determines the fair value by discounting projected net servicing cash flows of the remaining servicing portfolio. The valuation model used by the provider considers market loan prepayment predictions and other economic factors which management considers to be significant unobservable inputs. The fair value of MSRs is mostly affected by changes in mortgage interest rates since rate changes cause the loan prepayment acceleration factors to increase or decrease. MSRs are classified within Level 3 of the fair value hierarchy as the valuation is model driven and primarily based on unobservable inputs.

~~The following table summarizes the changes in fair value for MSRs:~~

Three months ended June 31,
(in thousands)
2021
2020
Mortgage servicing rights - April 1
$
1,113
$
485
Losses included in earnings
(120)
(97)
Additions from business combinations
-
639
Additions from loan sales
-
4
Mortgage servicing rights - June 30
$
993
$
1,031

Six months ended June 30,
(in thousands)
2021
2020
Mortgage servicing rights - January 1
$
917
$
555
Gains/(Losses) included in earnings
76
(200)
Additions from business combinations
-
639
Additions from loan sales & acquisition
-
37
Mortgage servicing rights - June 30
$
993
$
1,031

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~~Quantitative information about the significant unobservable inputs used in the fair value measurement of MSRs at the respective dates is as follows:~~

June 30, 2021
December 31, 2020
Servicing fees
0.25
%
0.25
%
Discount rate
9.02
%
9.04
%
Prepayment rate (CPR)
8.38
%
9.73
%

~~FINANCIAL INSTRUMENTS~~ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A NONRECURRING BASIS

The Company is required, on a nonrecurring basis, to adjust the carrying value of certain assets or provide valuation allowances related to certain assets using fair value measurements. The following table presents for each of the fair-value hierarchy levels as defined in this footnote, those financial instruments which are measured at fair value on a nonrecurring basis ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020:~~2021:



(in thousands)		Level 1		Level 2		Level 3		Fair Value		Level 1		Level 2		Level 3		Fair Value

June 30, 2021
March 31, 2022
Collateral dependent impaired loans	$	-	$	-	$	7,193	$	7,193	$	-	$	-	$	3,569	$	3,569

December 31, 2020
December 31, 2021
Collateral dependent impaired loans	$	-	$	-	$	7,496	$	7,496	$	-	$	-	$	4,608	$	4,608

Impaired loans

Collateral dependent ~~impaired~~ loans

carried at fair value have been partially charged-off or receive specific allocations of the allowance for credit losses. The Company evaluates and values collateral dependent impaired loans at the time the loan is identified as impaired, and the fair values of such loans are estimated using Level 3 inputs in the fair value hierarchy. Each loan’s collateral value has a unique appraisal and management’s discount of the value is based on factors unique to each impaired loan. The significant unobservable input in determining the fair value is management’s subjective discount on appraisals of the collateral securing the ~~loan.~~loan, which ranges from 10%-50%. Fair value is estimated based on the value of the collateral securing these loans. Collateral may consist of real estate and/or business assets including equipment, inventory and/or accounts receivable and the value of these assets is determined based on appraisals by qualified licensed appraisers hired by the Company. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, estimated costs to sell, and/or management’s expertise and knowledge of the client and the client’s business.

The Company has an appraisal policy in which appraisals are obtained upon a commercial loan being downgraded on the Company’s internal loan rating scale to a special mention or a substandard depending on the amount of the loan, the type of loan and the type of collateral. All impaired commercial loans are graded substandard or worse on the internal loan rating scale. For consumer loans, the Company obtains appraisals when a loan becomes 90 days past due or is determined to be impaired, whichever occurs first. Subsequent to the downgrade or reaching 90 days past due, if the loan remains outstanding and impaired for at least one year more, management may require another follow-up appraisal. Between receipts of updated appraisals, if necessary, management may perform an internal valuation based on any known changing conditions in the marketplace such as sales of similar properties, a change in the condition of the collateral, or feedback from local appraisers. Collateral dependent impaired loans had a ~~recorded investment~~gross value of ~~$8.6~~$3.7 million, with an allowance for loan loss of ~~$1.4~~$0.1 million, at ~~June 30, 2021~~March 31, 2022 compared with ~~$8.8~~$5.0 million and ~~$1.3~~$0.4 million, respectively, at December 31, ~~2020.~~

2021.

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~~FAIR VALUE OF FINANCIAL INSTRUMENTS~~

The table below depicts the estimated fair values of the Company’s financial instruments, including those that are not measured and reported at fair value on a recurring basis or nonrecurring basis.


	June 30, 2021				December 31, 2020				March 31, 2022				December 31, 2021
	Carrying		Fair		Carrying		Fair		Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value		Amount		Value		Amount		Value
		(in thousands)				(in thousands)				(in thousands)				(in thousands)
Financial assets:
Level 1:
Cash and cash equivalents	$	141,682	$	141,682	$	97,604	$	97,604	$	158,675	$	158,675	$	244,785	$	244,785
Level 2:
Available for sale securities		230,978		230,978		162,396		162,396		385,936		385,936		305,959		305,959
FHLB and FRB stock		6,301		N/A		5,793		N/A		5,785		N/A		6,084		N/A
Level 3:
Held to maturity securities		3,372		3,400		4,204		4,271		3,017		2,976		3,165		3,179
Loans, net		1,677,379		1,735,538		1,673,379		1,720,878		1,585,461		1,543,612		1,553,467		1,573,420
Mortgage servicing rights		993		993		917		917

Financial liabilities:
Level 1:
Demand deposits	$	486,737	$	486,737	$	436,157	$	436,157	$	528,962	$	528,962	$	492,864	$	492,864
NOW deposits		261,173		261,173		230,751		230,751		257,475		257,475		259,908		259,908
Savings deposits		940,352		940,352		825,947		825,947		1,051,136		1,051,136		1,019,925		1,019,925
Level 2:
Securities sold under agreement to
repurchase		5,080		5,080		4,093		4,093		6,476		6,476		4,112		4,112
Other borrowed funds		40,892		41,223		44,698		45,547		26,847		26,398		32,879		32,990
Subordinated debt		30,923		32,129		30,872		31,394		30,999		31,107		30,974		32,111
Level 3:
Time deposits		195,533		196,165		278,554		280,059		149,243		149,386		164,340		164,574

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~~10.~~9. SEGMENT INFORMATION

The Company comprises 2 primary business segments, banking and insurance agency activities. The following tables set forth information regarding these segments for the three ~~and six~~ month ~~periods~~period ended ~~June 30~~March 31, 2022~~, 2021~~ and ~~2020.~~2021.




	Three months ended June 30, 2021						Three months ended March 31, 2022
		Banking		Insurance Agency				Banking		Insurance Agency
		Activities		Activities		Total		Activities		Activities		Total
		(in thousands)						(in thousands)

Net interest income (expense)	$	18,353	$	(3)	$	18,350
Net interest income							$	16,501	$	-	$	16,501
Provision for loan losses		(760)		-		(760)		221		-		221
Net interest income (expense) after
Net interest income after
provision for loan losses		19,113		(3)		19,110		16,280		-		16,280
Insurance service and fees		151		2,506		2,657		139		2,160		2,299
Other non-interest income		1,757		4		1,761		2,132		-		2,132
Amortization expense		5		130		135		5		95		100
Other non-interest expense		13,008		2,033		15,041		12,502		1,858		14,360
Income before income taxes		8,008		344		8,352		6,044		207		6,251
Income tax provision		1,950		89		2,039		1,449		54		1,503
Net income	$	6,058	$	255	$	6,313	$	4,595	$	153	$	4,748




	Three months ended June 30, 2020						Three months ended March 31, 2021
		Banking		Insurance Agency				Banking		Insurance Agency
		Activities		Activities		Total		Activities		Activities		Total
		(in thousands)						(in thousands)

Net interest income (expense)	$	14,936	$	(3)	$	14,933	$	16,600	$	(3)	$	16,597
Provision for loan losses		597		-		597		313		-		313
Net interest income (expense) after
provision for loan losses		14,339		(3)		14,336		16,287		(3)		16,284
Insurance service and fees		120		2,547		2,667		164		2,338		2,502
Other non-interest income		1,572		-		1,572		2,064		-		2,064
Amortization expense		5		129		134		5		130		135
Other non-interest expense		15,825		2,053		17,878		12,213		2,017		14,230
Income before income taxes		201		362		563		6,297		188		6,485
Income tax provision		-		94		94		1,584		49		1,633
Net income	$	201	$	268	$	469	$	4,713	$	139	$	4,852

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Six months ended June 30, 2021
Banking
Insurance Agency
Activities
Activities
Total
(in thousands)
Net interest income (expense)
$
34,953
$
(6)
$
34,947
Provision for loan losses
(447)
-
(447)
Net interest income (expense) after
provision for loan losses
35,400
(6)
35,394
Insurance service and fees
315
4,844
5,159
Other non-interest income
3,821
4
3,825
Amortization expense
10
260
270
Other non-interest expense
25,221
4,050
29,271
Income before income taxes
14,305
532
14,837
Income tax provision
3,534
138
3,672
Net income
$
10,771
$
394
$
11,165

Six months ended June 30, 2020
Banking
Insurance Agency
Activities
Activities
Total
(in thousands)
Net interest income (expense)
$
27,715
$
(6)
$
27,709
Provision for loan losses
3,596
-
3,596
Net interest income (expense) after
provision for loan losses
24,119
(6)
24,113
Insurance service and fees
233
4,859
5,092
Other non-interest income
2,485
-
2,485
Amortization expense
5
259
264
Other non-interest expense
26,545
4,073
30,618
Income before income taxes
287
521
808
Income tax provision
-
135
135
Net income
$
287
$
386
$
673

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~~11.~~10. CONTINGENT LIABILITIES AND COMMITMENTS

The unaudited consolidated financial statements do not reflect various commitments and contingent liabilities, which arise in the normal course of business, and which involve elements of credit risk, interest rate risk and liquidity risk. These commitments and contingent liabilities consist of commitments to extend credit and standby letters of credit. A summary of the Bank’s commitments and contingent liabilities is as follows:



	June 30,		December 31,		March 31,		December 31,
	2021		2020		2022		2021
	(in thousands)				(in thousands)

Commitments to extend credit	$	356,300	$	359,152	$	372,964	$	394,953
Standby letters of credit		4,097		3,803		4,353		4,636
Total	$	360,397	$	362,955	$	377,317	$	399,589

Commitments to extend credit and standby letters of credit include some exposure to credit loss in the event of nonperformance by the customer. The Bank’s credit policies and procedures for credit commitments and financial guarantees are the same as those for extensions of credit that are recorded on the Company’s unaudited consolidated balance sheets. Because these instruments have fixed maturity dates, and because they may expire without being drawn upon, they do not necessarily represent cash requirements of the Bank. The Bank did 0t incur any losses on its commitments and did 0t record a reserve for its commitments during the first ~~six~~three months of ~~2021~~2022 or during ~~2020.~~2021.

Certain lending commitments for construction residential mortgage loans are considered derivative instruments under the guidelines of GAAP. The changes in the fair value of these commitments, due to interest rate risk, are not recorded on the consolidated balance sheets as the fair value of these derivatives is not considered to be material.

~~12.~~11. RECENT ACCOUNTING PRONOUNCEMENTS

ASUs adopted by the Company during the current fiscal year are not expected to have a material impact on the Company’s consolidated financial position, results of operations, cash flows or disclosures. The following standard will be adopted in a future period. ASUs not listed below are not expected to have a material impact on the Company’s consolidated financial position, results of operations, cash flows or disclosures.

ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments – Current GAAP requires an “incurred loss” methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. Both financial institutions and users of their financial statements expressed concern that current GAAP restricts the ability to record credit losses that are expected, but do not yet meet the “probable” threshold. The main objective of this ASU (commonly known as the Current Expected Credit Loss Impairment Model, or CECL, in the industry) is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in CECL replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company is developing its approach for determining expected credit losses under the new guidance, including the licensing of new software and the development of processes to track loan performance. The total impact of CECL to the Company’s financial statements is unknown but may be material. On October 16, 2019, the FASB affirmed its decision to amend the effective date for the amendments in CECL for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is allowed for fiscal years beginning after December 15, 2018. The Company intends to adopt CECL effective January 1, 2023.

ASU 2022-02, Financial Instruments – Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures – This ASU eliminates the accounting guidance for troubled debt restructurings ("TDRs") in ASC 310-40, "Receivables - Troubled Debt Restructurings by Creditors" for entities that have adopted the CECL model introduced by ASU 2016-13. ASU 2022-02 also requires that public business entities disclose current-period gross charge-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, "Financial Instruments—Credit Losses—Measured at Amortized Cost". The Company intends to adopt ASU 2022-02 effective January 1, 2023.

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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. When used in this report, or in the documents incorporated by reference herein, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “seek,” and similar expressions identify such forward-looking statements. These forward-looking statements include statements regarding the Company’s business plans, prospects, growth and operating strategies, statements regarding the asset quality of the Company’s loan and investment portfolios, and estimates of the Company’s risks and future costs and benefits.

These forward-looking statements are based largely on the expectations of the Company’s management and are subject to a number of risks and uncertainties, including but not limited to: adverse changes in general economic conditions, either nationally or in the Company’s market ~~areas, that are worse than expected;~~areas; increased competition among depository or other financial institutions; inflation and changes in the interest rate environment that reduce the Company’s margins or reduce the fair value of financial instruments; changes in laws or government regulations affecting financial institutions, including changes in regulatory fees, monetary policy, and capital requirements; the Company’s ability to enter new markets successfully and capitalize on growth opportunities; the Company’s ability to successfully integrate acquired entities; loan losses in excess of the Company’s allowance for loan losses; changes in accounting pronouncements and practices, as adopted by financial institution regulatory agencies, the Financial Accounting Standards Board and the Public Company Accounting Oversight Board; the impact of such changes in accounting pronouncements and practices being greater than anticipated; the ability to realize the benefit of deferred tax assets; changes in tax policies, rates and regulations of federal, state and local tax authorities; changes in consumer spending, borrowing and saving habits; changes in the Company’s organization, compensation and benefit plans; and other factors discussed elsewhere in this Quarterly Report on Form 10-Q, as well as in the Company’s periodic reports filed with the SEC, in particular the “Risk Factors” discussed in Item 1A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021. Many of these factors are beyond the Company’s control and are difficult to predict.

Because of these and other uncertainties, the Company’s actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein. Forward-looking statements speak only as of the date they are made. The Company undertakes no obligation to publicly update or revise forward-looking information, whether as a result of new, updated information, future events or otherwise, except to the extent required by law.

The Discussion and Analysis of Financial Condition and Results of Operations that follows includes comparisons to the quarter ended ~~June 30, 2020~~March 31, 2021 as well as the trailing quarter ended ~~March 31, 2021 and balances as of~~ December 31, ~~2020.~~2021. Information with respect to the trailing quarter ended ~~March~~December 31, 2021 is included in the Company’s ~~Quarterly~~Annual Report on Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~March~~December 31, 2021, as filed with the SEC.

~~Impact of COVID-19~~PANDEMIC UPDATE

The ~~Company's operations and financial results have been substantially influenced by the~~ COVID-19 pandemic since the United States issued a state of emergency on March 13, 2020. The most notable financial impact to our results of operations was a higher provision for loan losses during 2020, primarily reflecting the substantial increase in economic uncertainty and the resultant potential for increased credit losses in future periods as a consequence of the COVID-19 pandemic.

The CARES Act established the PPP loan program which is administered through the SBA. PPP loans are 100% guaranteed by the SBA and are forgivable, in whole or in part, if the proceeds are used in accordance with the requirements of the PPP. These loans carry a fixed rate of 1.00% and a term of two years (loans made before June 5, 2020) or five years (loans made on or after June 5, 2020), if not forgiven in whole. Payments are deferred until either the date on which the SBA remits the amount of forgiveness proceeds to the lender or the date that is 10 months after the last day of the covered period if the borrower does not apply for forgiveness within that 10 month period. The Company originated PPP loans totaling $203 million during 2020 and $95 million during the first six months of 2021, included in commercial and industrial loans.

Fees collected from the SBA for the PPP loans totaled $12.4 million. These fees are deferred and amortized into interest income over the contractual period of the loan. Upon SBA forgiveness or sale of a PPP loan, unamortized fees are then recognized into interest income. As of June 30, 2021, PPP loans had received SBA forgiveness that totaled $152 million. In the three and six month periods ended June 30, 2021 the total amount of PPP fees recognized into interest income was $2.5 million and $4.2 million, respectively. PPP fees recognized into interest income during the three and six month periods ended June 30, 2020 were $0.6 million. PPP loans did not impact the Company’s allowance for loan loss as a result of the SBA guarantees.

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During 2020, federal banking regulators issued guidance providing that qualifying modifications made to a borrower affected by the COVID-19 pandemic and governmental shutdown orders do no need to be identified as a TDR. During 2020, the Company had applied this guidance and had modified approximately 381 commercial loans with principal balances totaling $368 million, and approximately 298 consumer loans with principal balances totaling $37 million. Modifications included payment deferrals (including maturity extensions), fee waivers and covenant waivers. Loans in COVID-19 modification related deferral periods at June 30, 2021 were not material.

The Company expects that the COVID-19 pandemic could continue to have a significant impact on our business. In particular, it is anticipated that a significant portion of the Company’s borrowers in the hotel industry will continue to endurehas caused significant economic ~~distress, which~~dislocation that has ~~caused,~~affected, and may continue to ~~cause, them to draw on their existing lines~~affect, the business, financial condition, and results of ~~credit and adversely affect their ability to repay existing indebtedness, and may adversely impact the value~~operations of ~~collateral. During 2020,~~ the Company ~~identified a well-defined weakness~~and its clients. The pandemic caused changes in the ~~hotel industry as a result~~behavior of clients, businesses, and their employees, including illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in commercial activity and financial transactions, supply chain interruptions, increased unemployment, and overall economic and financial market instability. Given the ongoing and dynamic nature of the pandemic, it is difficult to predict the full impact of the pandemic on the Company’s business. The extent of such impact will depend on future developments, which are highly uncertain, including the extent to which the outbreak can be controlled and ~~classified~~abated and when and how the ~~loans~~economy may be fully reopened. The pandemic may adversely impact several industries within our geographic footprint and impair the ability of the Company’s clients to ~~clients within that industry as substandard. While~~fulfill their contractual obligations to the Company. This could cause the Company ~~has noted some improvement during the six months ended June 30, 2021, the classification~~to experience a material adverse effect on our business operations, asset valuations, financial condition, and results of ~~the hotel industry loan portfolio has not changed. As of June 30, 2021, the Company’s hotel loan portfolio was $79 million, or approximately 6.5% of total commercial loans.~~

operations.

APPLICATION OF CRITICAL ACCOUNTING ESTIMATES

The Company’s Unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q are prepared in accordance with U.S. GAAP and follow general practices within the industries in which it operates. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the Company’s Unaudited Consolidated Financial Statements and Notes. These estimates, assumptions, and judgments are based on information available as of the date of the Unaudited Consolidated Financial Statements. Accordingly, as this information changes, the Unaudited Consolidated Financial Statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments, and as such, have a greater possibility of producing results that could be materially different than originally reported.

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Significant accounting policies followed by the Company are presented in Note 1 – “Organization and Summary of Significant Accounting Policies” to the Audited Consolidated Financial Statements included in Item 8 in its Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021. These policies, along with the disclosures presented in the other Notes to the Company's Audited Consolidated Financial Statements contained in its Annual Report on Form 10-K and in this financial review, provide information on how significant assets and liabilities are presented in the Company’s Unaudited Consolidated Financial Statements and how those values are determined.

~~Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline~~The more significant areas in which management of the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The fair values and the information used to record valuation adjustments for certain assets and liabilities are based either on quoted market prices or are provided by other third-party sources, when available. When third-party information is not available, valuation adjustments are estimated in good faith by management primarily through the use of internal cash flow modeling techniques.

~~Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods,~~Company applies critical assumptions and estimates ~~underlying those amounts, management has identified the determination of~~includes the allowance for loan losses, business combinations and valuation of goodwill to be the accounting areas that require the most subjective or complex judgments, and, as such, could be most subject to revision as new information becomes available.losses.

Allowance for Loan Losses

The allowance for loan losses (“ALLL”) represents management’s estimate of probable incurred losses in the Bank’s loan portfolio. Determining the amount of the allowance for loan losses ~~is considered a critical accounting estimate because it~~ requires significant judgment on the part of management and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, ~~and~~ consideration of current economic trends and conditions, and other qualitative and quantitative factors, all of which may be susceptible to significant change. ~~The~~Qualitative loss factors are applied to each portfolio segment with the amounts determined by historical loan ~~portfolio also represents~~charge-offs of a peer group of similar-sized regional banks. It is difficult to estimate how potential changes in any one economic factor or input might affect the ~~largest asset type on the Company’s Unaudited Consolidated Balance Sheets. Note 1 to the Audited Consolidated Financial Statements included~~overall allowance because a wide variety of factors and inputs are considered in ~~Item 8 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 describes the methodology used to determine~~estimating the allowance ~~for loan losses.~~

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and changes in those factors and inputs considered may not occur at the same rate and may not be consistent across all product types. Additionally, changes in factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others.

~~Business Combinations~~In estimating the ALLL on loans, management considers the sensitivity of the model and significant judgments and assumptions that could result in an amount that is materially different from management’s estimate. Given the concentration of ALLL allocation to the total commercial portfolio and the significant judgments made by management in deriving the qualitative loss factors, management analyzed the impact that changes in judgments could have. The range of impact on the ALLL allocated to the total commercial loan portfolio was between a reduction of $11.7 million and an increase of $9.9 million at March 31, 2022. The sensitivity and related range of impact is a hypothetical analysis and is not intended to represent management’s judgments or assumptions of qualitative loss factors that were utilized at March 31, 2022 in estimation of the ALLL on loans recognized on the Consolidated Balance Sheet.

~~Mergers and acquisitions are accounted for in accordance with ASC 805 “Business Combinations” using~~If the acquisition method of accounting. Assets and liabilities acquired and assumed are generally recorded at their fair values as of the date of the transaction. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill.

Determining the fair value of assets and liabilities acquired often involves estimates based on internal estimate or third-party valuations using a discounted cash flow analysis or other valuation technique that may include the use of estimates. In addition,assumptions underlying the determination of the ~~useful lives over which intangible assets will~~ALLL prove to be ~~amortized is subjective in nature.~~

~~Changes~~incorrect, the ALLL may not be sufficient to ~~estimates~~cover actual loan losses and ~~judgments used in business combinations~~an increase to the ALLL may be necessary to allow for different assumptions or adverse developments. In addition, a problem with one or more loans could ~~result in~~require a significant difference in the fair value of assets and liabilities acquired which would impact total goodwill recorded. A change in the useful life of intangible assets could impact amortization amounts which could have an impact on our earnings.

~~Goodwill~~

~~The amount of goodwill reflected in the Company’s Unaudited Consolidated Financial Statements is required to be tested by management for impairment on at least an annual basis~~ ~~or whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying value~~. The annual goodwill impairment testing is performed as of December 31. The test for impairment of goodwill on the identified reporting unit is considered a critical accounting estimate because it requires judgment on the part of management and the use of estimates relatedincrease to the ~~growth assumptions and market multiples used in the valuation model.~~

At June 30, 2021, the Company had $12.7 million in goodwill that was recorded in connection with the acquisition of various insurance agencies and the most recent acquisition of FSB. The Company recognized $1.8 million in goodwill in its banking reporting unit related to the FSB acquisition. The remaining $10.9 million of goodwill is recorded in the Company’s insurance agency reporting unit.~~There have been no purchases of diverse companies in which goodwill was subjectively allocated to different reporting units.~~

The valuation methodology used for the goodwill in the banking reporting unit is a five year discounted cash flow analysis. The Company used two valuation methodologies to calculate the fair value of the insurance agency reporting unit. The first methodology is a five year discounted cash flow analysis. The second was to measure fair value using an EBITDA (“Earnings Before Interest, Taxes, Depreciation, Amortization) multiple. These valuation methodologies utilize key assumptions that include forecasts of revenues and expenses derived from Company projections for a period of five years, changes in working capital estimates, company specific discount rate derived from a rate build up approach, externally sourced bank peer group market multiples and externally sourced bank peer group change in control premium, all of which are highly subjective and require significant management judgment. Changes in these key assumptions could materially affect our estimate of the reporting unit fair value and could affect our conclusion regarding the existence of potential impairment.

~~No impairment to the Company’s goodwill was recorded in 2020 or in the first six months of 2021.~~ALLL.

ANALYSIS OF FINANCIAL CONDITION

Loan Activity

Total gross loans were $1.6 billion at March 31, 2022 and December 31, 2021 compared with $1.7 billion at ~~June 30, 2021,~~ March 31, 2021. The year-over-year decrease is primarily due to a decrease in PPP loan balances. PPP loan balances, included in commercial and industrial loans, decreased $227 million since March 31, 2021. PPP loans totaled $10 million at March 31, 2022, compared with $25 million at December 31, 2021 and ~~December~~$237 million at March 31, ~~2020. Since~~2021. Excluding the ~~end~~decrease of ~~last year,~~PPP loans, commercial and industrial loans increased $19 million year-over-year. Residential mortgages and commercial real estate loans ~~have~~ increased ~~$47~~year-over-year by $42 million and ~~residential mortgages have increased $23 million. Commercial and Industrial loans have decreased $65~~$19 million, since December 31, 2020 of which $41 million is a result of the change in PPP loan balances. As of June 30, 2021, total PPP loans originated was $298 million of which $152 million had received SBA forgiveness.respectively.

Loans secured by real estate were $1.4 billion at March 31, 2022, compared with $1.3 billion at ~~June 30, 2021, March~~December 31, 2021 and ~~December~~March 31, ~~2020.~~2021. Residential real estate loans were ~~$396~~$423 million at ~~June 30, 2021, $15~~March 31, 2022, $7 million or 4%2% higher than at December 31, 2021, and $42 million or 11% higher than at March 31, ~~2021, and $23 million or 6% higher than at December 31, 2020.~~2021. The increase in residential real estate loans reflects management’s decision to retain the majority of residential mortgages within our loan portfolio. Commercial real estate loans, including construction loans, were ~~$860~~$859 million at ~~June 30,~~March 31, 2022, $21 million or 2% higher than the balance at December 31, 2021, ~~$20~~and $19 million or 2% higher than the balance at March 31, ~~2021 and $47 million or 6% higher than the balance at December 31, 2020.~~2021. Commercial real estate is the largest part of the Company’s loan portfolio and has historically been the highest growth segment of the portfolio.

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In the ~~second~~first quarter of ~~2021,~~2022, residential mortgage originations were ~~$33~~$22 million compared with the previous quarter’s originations of ~~$32~~$25 million and ~~$25 million in the second quarter of 2020. The Company originated $65 million in residential mortgages in the first six months of 2021, compared with $30~~$32 million in the first ~~six months~~quarter of ~~2020.~~2021. The ~~year-to-date increase~~decrease in residential mortgage originations as compared to the prior year is primarily due to ~~the acquired FSB mortgage real estate division~~customers refinancing at lower interest rates during the ~~second~~first quarter of ~~2020.~~2021. The Company sold $3 million of residential mortgages during the first three months of 2022 compared with $1 million during the fourth quarter of 2021. The Company did not sell any residential mortgages during the first ~~six~~three months of ~~2021, compared with $7.5 million during the first six months of 2020.~~2021. Management decides to keep or sell residential mortgage loans at the time of origination based on interest rate risk management and the risk-adjusted return of alternative investment sources such as mortgage-backed securities.

The Company has also focused on growth opportunities in commercial and industrial (“C&I”) lending as a way to diversify its overall loan portfolio. The C&I portfolio was ~~$365~~$242 million at ~~June 30, 2021,~~March 31, 2022, representing a ~~$86~~$5 million or ~~19%~~2% increase from December 31, 2021, but a $209 million or 46% decrease from March 31, ~~2021, and a $65 million or 15% decrease from December 31, 2020.~~2021. The decrease from prior ~~periods~~year period is primarily the result of ~~the~~ SBA forgiveness of PPP loans ~~and~~as the ~~paydowns of commercial lines of credit. At June 30, 2021 a~~program approaches it conclusion. A total of $298 million of PPP loans were originated during the program, of which $95 million were originated during ~~the first six months~~2021. As of ~~2021. At June 30, 2021,~~March 31, 2022, a total of ~~$152~~$288 million of the PPP loans have been forgiven by the SBA, including ~~$136~~$15 million that was forgiven during the first ~~six~~three months of ~~2021.~~2022. C&I lending is a critical component of the Company’s strategy as C&I relationships can often include core deposits.

Credit Quality of Loan Portfolio

Non-performing loans, defined as accruing loans greater than 90 days past due and nonaccrual loans, totaled ~~$24~~$21 million, or ~~1.43%~~1.29% of total loans outstanding at ~~June 30,~~March 31, 2022, compared with $18 million, or 1.17% of total loans outstanding, as of December 31, 2021 ~~compared with~~and $29 million, or 1.66% of total loans outstanding, as of March 31, ~~2021 and $28 million, or 1.66% of total loans outstanding, as of December 31, 2020.~~2021. The decrease in non-performing loans from the first quarter of 2021 ~~reflected a $2.8 million~~was primarily due to three separate commercial real estate ~~loan~~loans totaling $8 million that ~~was moved back to accruing status~~were paid off during ~~the second quarter and a $2.1 million payoff of a commercial loan within the hotel industry.~~2021.

Commercial credits graded as “special mention” and “substandard,” or the criticized loan portfolio, were ~~$146~~$110 million at ~~June 30,~~March 31, 2022, a $1 million decrease from $111 million at December 31, 2021, and a $8$44 million decrease from $154 million at March 31, ~~2021, but a $6 million increase from $140 million at December 31, 2020.~~2021. The Company continues to classify loans to clients within the hotel industry as criticized given their level of seasonality and ongoing challenges during the COVID-19 pandemic. As of ~~June 30, 2021,~~March 31, 2022, the Company’s hotel loan portfolio was ~~$79~~$75 million, or approximately ~~6.5%,~~7% of total commercial ~~loans.~~loans, of which $55 million of these loans are classified as criticized. The Company continues to monitor each client in that industry including on-going conversations with the borrowers. The level of criticized loans can fluctuate as new information is constantly received on the Company’s borrowers and their financial circumstances change over time. Internal risk ratings are the credit quality indicators used by the Company’s management to determine the appropriate allowance for loan losses for commercial credits. “Special mention” and “substandard” loans are weaker credits with a higher risk of loss and are categorized as “criticized” credits rather than “pass” or “watch” credits.

The Company maintains an allowance for loan losses that in management’s judgment appropriately reflects losses inherent in the loan portfolio. Loans acquired in a business combination are recorded at fair value with no carry-over of an acquired entity’s previously established allowance for credit losses. The allowance for loan losses totaled ~~$19.9~~$18.6 million or 1.16% of total loans outstanding at March 31, 2022, compared with $18.4 million or 1.17% of total loans outstanding ~~at June 30,~~as of December 31, 2021 ~~compared with~~and $20.7 million or 1.18% of total loans outstanding ~~as of~~at March 31, ~~2021 and $20.4 million or 1.21% of total loans outstanding at December 31, 2020.~~2021. The Company recorded a ~~$0.8~~$0.2 million ~~release of allowance~~provision for loan losses in the ~~second~~first quarter of 2022, compared with $0.4 million the fourth quarter of 2021, ~~compared with~~and $0.3 million during in the first quarter of 2021. First quarter of 2022 provision for loan losses ~~during the first quarter of 2021, and $0.6 million in the second quarter of 2020. The second quarter of 2021 release of allowance for~~reflects loan losses reflects a decrease of $0.7 million in specific reserves associated with a single commercial customer relationship, improvement of non-performing assets and continued positive macroeconomic trends,growth, partially offset by ~~loan growth during the quarter.~~a reduction in specific reserves.

Investing Activities

Total investment securities were ~~$234~~$389 million at ~~June 30,~~March 31, 2022, compared with $309 million at December 31, 2021 ~~compared with~~and $195 million at March 31, ~~2021 and $167 million at December 31, 2020.~~2021. The increases reflect the use of excess cash balances. Interest-bearing deposits at other banks, which consist of overnight funds kept at correspondent banks and the Federal Reserve, were ~~$127~~$147 million at ~~June 30,~~March 31, 2022 compared to $235 million at December 31, 2021, ~~compared to~~and $106 million at March 31, ~~2021, and $84 million at December 31, 2020.~~2021. The primary objectives of the Company’s investment portfolio are to provide liquidity, provide collateral to secure municipal deposits, and maximize income while preserving safety of principal. Average investment securities and interest-bearing cash were 1526% of average interest-earning assets in the ~~second~~first quarter of 2022, compared with 25% in the fourth quarter of 2021 ~~compared with~~and 13% in the first quarter of ~~2021 and fourth quarter of 2020.~~2021.

The Company’s highest concentration in its securities portfolio was in available for sale U.S. government sponsored mortgage-backed securities which comprised ~~61%~~56%, ~~57%~~66% and ~~52%~~57% of total investment securities at ~~June 30,~~March 31, 2022, December 31, 2021 and March 31, 2021, ~~and December 31, 2020,~~ respectively. ~~The concentration in tax-advantaged~~Tax-advantaged debt securities issued by state and political subdivisions was 4%2%, 6%3% and 7%6% of the total securities portfolio at ~~June 30,~~March 31, 2022, December 31, 2021, and March 31, 2021, ~~and December 31, 2020,~~ respectively. The concentration in U.S. government-sponsored agency bonds was ~~35%~~37% of the total securities portfolio as of ~~June 30, 2021~~March 31, 2022 compared with ~~37%~~31% of the total securities portfolio at ~~March~~December 31, 2021 and ~~41%~~37% at March 31, 2021.

The total net unrealized loss position of the available-for-sale investment portfolio was $26.8 million at March 31, 2022, compared with a net unrealized gain position of $4.3 million at December 31, ~~2020.~~

‎2021 and $2.0 million at March 31, 2021. The securities in an unrealized

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~~The total net unrealized gain position of the available-for-sale investment portfolio was $0.3 million at June 30, 2021, compared with a net unrealized~~ loss ~~position of $2.0 million at March 31, 2021 and net unrealized gain position of $3.2 million at December 31, 2020. The securities in an unrealized gain~~ position at the end of the ~~second~~first quarter of ~~2021~~2022 generally reflect ~~a decrease~~an increase in market interest rates. Management believes that the credit quality of the securities portfolio as a whole is strong.

The Company monitors extension and prepayment risk in the securities portfolio to limit potential exposures. The Company has no direct exposure to subprime mortgages, nor does the Company hold private mortgage-backed securities, credit default swaps, or FNMA or FHLMC preferred stock investments in its investment portfolio.

Funding Activities

Total deposits at ~~June 30, 2021~~March 31, 2022 were ~~$1.9~~$2.0 billion, a ~~$12~~$50 million or 1%3% increase from December 31, 2021, and a $115 million or 6% increase from March 31, 2021 ~~and a $112 million or 6% increase from December 31, 2020~~. The increase from ~~December~~March 31, ~~2020,~~2021 largely reflects an increase in commercial deposits related to the second round of PPP loans and an increase in consumer deposits from government stimulus payments and lower consumer spending. Specifically, the increase from prior year ~~end~~ reflects increases in commercial savings of $54 million or 28%, total demand deposits of ~~$51~~$43 million or ~~12%~~9%, municipal savings deposits of ~~$46~~$41 million or ~~28%~~20%, consumer savings deposits of ~~$42~~$31 million or 9%6%, and total NOW deposits of ~~$30~~$19 million or ~~13%, and commercial savings deposits of $26 million or 15%~~8%. These increases were offset by a decrease in time deposits of ~~$83~~$73 million or ~~30%~~33%. Average demand deposits were ~~$494~~$512 million in the ~~second~~first quarter of 2022, a 1% decrease from $515 million in the fourth quarter of 2021, but a 6%10% increase from $465 million in the first quarter of ~~2021, and a 23% increase from $400 million in the second quarter of 2020.~~2021.

The Company had ~~$41~~$27 million in other borrowings at ~~June 30, 2021,~~March 31, 2022, compared with ~~$42~~$33 million at December 31, 2021 and ~~$45~~$42 million at March 31, ~~2021 and December 31, 2020, respectively.~~2021. This represents long-term advances from the Federal Home Loan Bank of New York (“FHLBNY”) that were acquired in the FSB acquisition. The Company’s use of its overnight line of credit with FHLBNY varies depending on its ability to fund investment and loan growth with deposits along with the line usage’s impact on interest rate risk. There were no overnight borrowings at ~~June 30, 2021.~~March 31, 2022.

On July 9, 2020, the Company entered into Subordinated Note Purchase Agreements with certain qualified institutional buyers and institutional accredited investors pursuant to which the Company issued and sold $20.0 million in aggregate principal amount of its 6.00% Fixed-to-Floating Rate Subordinated Notes due 2030 (the “Notes”). Subsequently, $15 million of the proceeds from the sale of the Notes were moved to the Company’s Evans Bank N.A. subsidiary as Tier 1 capital.

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ANALYSIS OF RESULTS OF OPERATIONS

Average Balance Sheet

The following tables present the significant categories of the assets and liabilities of the Company, interest income and interest expense, and the corresponding yields earned and rates paid for the periods indicated. The assets and liabilities are presented as daily averages. The average loan balances include both performing and non-performing loans. Interest income on loans does not include interest on loans for which the Bank has ceased to accrue interest. Investments are included at book value. Yields are presented on a non-tax-equivalent basis.




		Three months ended June 30, 2021						Three months ended June 30, 2020							Three months ended March 31, 2022						Three months ended March 31, 2021
		Average		Interest				Average		Interest					Average		Interest				Average		Interest
		Outstanding		Earned/		Yield/		Outstanding		Earned/		Yield/			Outstanding		Earned/		Yield/		Outstanding		Earned/		Yield/
		Balance		Paid		Rate		Balance		Paid		Rate			Balance		Paid		Rate		Balance		Paid		Rate
		(dollars in thousands)						(dollars in thousands)							(dollars in thousands)						(dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net(1)		$	1,718,507	$	18,513	4.32	%	$	1,535,206	$	16,104	4.22	%		$	1,566,716	$	15,724	4.07	%	$	1,706,325	$	17,066	4.06	%
Taxable securities			205,798		988	1.93	%		168,333		884	2.11	%			347,123		1,677	1.96	%		168,699		832	2.00	%
Tax-exempt securities			10,336		56	2.17	%		11,344		65	2.30	%			10,807		46	1.73	%		11,774		56	1.93	%
Interest bearing deposits at banks			97,168		19	0.08	%		73,973		16	0.09	%			178,729		70	0.16	%		76,651		16	0.08	%

Total interest-earning assets			2,031,809	$	19,576	3.86	%		1,788,856	$	17,069	3.84	%			2,103,375	$	17,517	3.38	%		1,963,449	$	17,970	3.71	%

Non interest-earning assets:

Cash and due from banks			20,017						14,661							13,302						17,338
Premises and equipment, net			19,012						15,869							17,698						19,210
Other assets			80,363						77,208							79,316						78,652

Total Assets		$	2,151,201					$	1,896,594						$	2,213,691					$	2,078,649

LIABILITIES & STOCKHOLDERS' EQUITY	LIABILITIES & STOCKHOLDERS' EQUITY													LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW		$	246,565	$	70	0.11	%	$	203,458	$	123	0.24	%		$	252,965	$	56	0.09	%	$	230,627	$	76	0.13	%
Savings			928,375		391	0.17	%		721,578		659	0.37	%			1,024,447		344	0.14	%		866,991		421	0.20	%
Time deposits			210,287		275	0.52	%		337,187		1,172	1.40	%			156,534		168	0.44	%		246,120		389	0.64	%
Other borrowed funds			41,291		84	0.82	%		36,067		75	0.84	%			29,280		45	0.62	%		42,767		86	0.82	%
Subordinated debt			30,908		404	5.24	%		11,330		105	3.73	%			30,984		401	5.25	%		30,883		399	5.24	%
Securities sold U/A to repurchase			4,851		2	0.17	%		4,096		2	0.20	%			4,890		2	0.17	%		4,634		2	0.18	%

Total interest-bearing liabilities			1,462,277	$	1,226	0.34	%		1,313,716	$	2,136	0.65	%			1,499,100	$	1,016	0.27	%		1,422,022	$	1,373	0.39	%

Noninterest-bearing liabilities:
Demand deposits			493,734						399,807							512,118						464,579
Other			23,682						25,540							20,897						23,031
Total liabilities		$	1,979,693					$	1,739,063						$	2,032,115					$	1,909,632

Stockholders' equity			171,508						157,531							181,576						169,017

Total Liabilities and Equity		$	2,151,201					$	1,896,594						$	2,213,691					$	2,078,649

Net interest income				$	18,350					$	14,933						$	16,501					$	16,597

Net interest margin						3.62	%					3.36	%						3.18	%					3.43	%

Interest rate spread						3.52	%					3.19	%						3.11	%					3.32	%

(1) Included in interest earned on loans were PPP loan fees of $0.5 million and $1.7 million for the three months ended March 31, 2022 and 2021, respectively. Other loan fees included in interest earned were not material during the three months ended March 31, 2022 and 2021.
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Six months ended June 30, 2021
Six months ended June 30, 2020
Average
Interest
Average
Interest
Outstanding
Earned/
Yield/
Outstanding
Earned/
Yield/
Balance
Paid
Rate
Balance
Paid
Rate
(dollars in thousands)
(dollars in thousands)
ASSETS
Interest-earning assets:
Loans, net
$
1,712,450
$
35,579
4.19
%
$
1,377,218
$
30,650
4.46
%
Taxable securities
187,351
1,820
1.96
%
149,149
1,933
2.60
%
Tax-exempt securities
11,051
112
2.04
%
8,704
112
2.58
%
Interest bearing deposits at banks
86,967
35
0.08
%
65,646
197
0.60
%
Total interest-earning assets
1,997,819
$
37,546
3.79
%
1,600,717
$
32,892
4.12
%
Non interest-earning assets:
Cash and due from banks
18,684
14,543
Premises and equipment, net
19,110
14,838
Other assets
79,512
69,390
Total Assets
$
2,115,125
$
1,699,488
LIABILITIES & STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW
$
238,640
$
147
0.12
%
$
174,011
$
305
0.35
%
Regular savings
897,853
812
0.18
%
663,340
1,975
0.60
%
Time deposits
228,105
663
0.59
%
305,882
2,550
1.67
%
Other borrowed funds
42,025
168
0.81
%
23,033
121
1.05
%
Subordinated debt
30,896
803
5.24
%
11,330
229
4.05
%
Securities sold U/A to repurchase
4,743
6
0.26
%
3,737
3
0.16
%
Total interest-bearing liabilities
1,442,262
$
2,599
0.36
%
1,181,333
$
5,183
0.88
%
Noninterest-bearing liabilities:
Demand deposits
479,237
340,716
Other
23,357
23,833
Total liabilities
$
1,944,856
$
1,545,882
Stockholders' equity
170,269
153,606
Total Liabilities and Equity
$
2,115,125
$
1,699,488
Net interest income
$
34,947
$
27,709
Net interest margin
3.53
%
3.47
%
Interest rate spread
3.43
%
3.24
%

Net Income

Net income was ~~$6.3~~$4.7 million, or ~~$1.15~~$0.86 per diluted share, in the ~~second~~first quarter of 2022, compared with $5.9 million, or $1.06 per diluted share, in the fourth quarter of 2021 ~~compared with~~and $4.9 million, or $0.89 per diluted share, in last year’s first quarter. The change from prior quarter was largely due to lower net interest income impacted by reduced PPP fees earned during the first quarter of 2022. In addition, fourth quarter of 2021 ~~and $0.5 million, or $0.09 per diluted share, in last year’s second quarter. The increase from the prior-year period~~ included higher ~~net~~ interest income recognized on non-accrual loan payoffs and higher amortization of $3.4 million reflecting higher interest-earning assets and fees earned in connection with PPP, along with a $1.4 million decrease in provision for loan loss reflecting improved economic trends and conditions related to the Coronavirus pandemic (“COVID-19”). Also incurred in the prior-year period was $2.8 million of higher non-interest expenses, largely related to the FSB merger. The change in net income from the sequential quarter reflected $1.8 million increase in net interest income primarily from fees earned in connection with PPP loans and commercial prepayment fees recognized during the quarter. In addition, provision for loan loss decreased $1.1 million from the first quarter of 2021.fair value marks on acquired loans.

Return on average equity was ~~14.72%~~10.46% for the ~~second~~first quarter of 2022, compared with 12.98% in the fourth quarter of 2021 ~~compared with~~and 11.48% in the first quarter of ~~2021 and 1.19% in the second quarter of 2020.~~

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2021.

Other Results of Operations – Quarterly Comparison

Net interest income ~~increased $1.8~~decreased $3.2 million, or ~~11%~~16%, from the sequential ~~first~~fourth quarter, ~~and $3.4 million or 23% from~~but was relatively flat when compared with prior-year ~~second~~first quarter. The ~~change over both periods~~decrease reflected ~~an increase~~lower PPP fees of $1.9 million, amortization of fair value marks on acquired loans of $0.8 million, and interest recognized on the payoff of non-accrual loans of $0.7 million in the fourth quarter. The decrease in PPP fees ~~earned~~reflects the deceleration in ~~connection with PPP and commercial prepayments. The increase from~~ the ~~prior-year period also reflected higher interest-earning assets. As PPP loans are forgiven,~~rate of loan forgiveness as the ~~Company is accelerating the recognition of the fees that were being amortized over the original life of the loan.~~program approaches its conclusion. PPP fees recognized in interest income were ~~$2.5~~$0.5 million in the ~~second~~first quarter of 2022, $2.4 million in the fourth quarter of 2021 and $1.7 million in the first quarter of ~~2021 and $0.6 million in~~2021. Interest expense remained relatively flat from the ~~second~~prior quarter ~~of 2020.~~as the Company continued to effectively manage rates on deposits.

~~Second~~First quarter net interest margin of ~~3.62% increased 19~~3.18% decreased 56 basis points from the fourth quarter of 2021 and 25 basis points from the first quarter of 2021, reflecting the accelerated PPP fee amortization and commercial prepayment income. Net interest margin increased 26 basis points from the second quarter of 2020 due to higher interest-earning assets, PPP fee amortization, commercial prepayment income and reduced interest expense as the Company continued to align rates on deposits.2021. The yield on loans ~~increased 26~~decreased 79 basis points ~~when~~compared with the fourth quarter of 2021 but remained relatively flat compared with the first quarter of ~~2021 and increased 10 basis points when compared with the second quarter of 2020.~~2021. The cost of interest-bearing liabilities decreased to ~~0.34%~~0.27% compared with 0.28% in the fourth quarter of 2021 and 0.39% in the first quarter of ~~2021 and 0.65% in the second quarter of 2020.~~2021.

The ~~$0.8~~$0.2 million ~~release of allowance~~provision for loan losses ~~during~~in the ~~second~~current quarter of 2021 reflects a decrease of $0.7 million in specific reserves associated with a single commercial customer relationship, improvement of non-performing assets and continued positive macroeconomic trends,was due to loan growth, partially offset by ~~loan growth during the quarter. Provision for loan losses was $0.3 million~~a reduction in ~~the first quarter of 2021, compared with $0.6 million in the second quarter of 2020.~~specific reserves.

Non-interest income was $4.4 million in the ~~second~~first quarter of ~~2021,~~2022, compared with ~~$4.6~~$4.7 million in the ~~first~~fourth quarter of 2021 and ~~$4.2~~$4.6 million in the prior year ~~second~~first quarter. The decrease from the sequential ~~first~~fourth quarter ~~was largely~~is due to ~~changes~~a $0.3 million benefit recognized during the fourth quarter of 2021 relating to the reversal of an earnout in connection with a small 2020 insurance agency acquisition. In addition, the ~~fair value~~Company recognized a $0.2 million gain on a bank-owned life insurance claim during the fourth quarter of ~~mortgage servicing rights partially offset by an increase in~~2021. Offsetting these decreases was $0.2 million of insurance service and fee revenue reflecting higher profit-sharing revenue. The ~~increase in non-interest income compared with~~decrease from prior year ~~period is~~first quarter was due to the ~~temporary suspension~~discontinued operations of ~~certain fees during the second quarter of 2020 to assist customers affected by COVID-19.~~our insurance claims services business and decreased profit-sharing revenue.

Non-interest expenses of ~~$15.2~~$14.5 million in the ~~second~~first quarter of ~~2021 increased $0.8~~2022 decreased $1.8 million or 6%11% when compared with the ~~first~~fourth quarter of 2021 ~~but decreased $2.8 million or 16%~~and were relatively flat from last year’s ~~second~~first quarter. The primary ~~component~~components of the ~~increase~~decrease from the sequential ~~first~~fourth quarter ~~was an increase~~were a decrease of ~~$0.3~~$0.8 million or 4%8% in salaries and employee ~~benefits. This~~benefits and a $0.7 million or 37% decrease in other expenses. Fourth quarter of 2021 salaries and employee benefits expense included a $0.7 million increase ~~is largely due to annual merit increases and the capitalization of salary cost related to the origination of PPP loans. The year-over-year change included $5.0 million~~ in ~~merger-related~~incentive expense. Included in other expenses during the ~~second~~fourth quarter of ~~2020, partially offset by higher salary~~2021 were $0.4 million in philanthropic contributions, $0.1 million loss on disposal of assets and ~~benefit costs reflecting higher incentive accruals, the addition~~$0.1 million of ~~personnel related to the FSB acquisition and strategic hires to support and the capitalization of salary cost related to PPP in the prior year’s quarter.~~

~~Technology and communications increased $0.2 million from~~impairment charges. There were no comparable expenses during the first quarter of 2021 but remained relatively flat when compared to the second quarter of 2020. The increase in the sequential first quarter is due to higher software costs, volume related ATM card fees and online banking activity.2022.

The Company’s GAAP efficiency ratio, or noninterest expenses divided by the sum of net interest income and noninterest income, was ~~66.7%~~69.1% in the ~~second~~first quarter of 2022, 66.8% in the fourth quarter of 2021, and 67.9% in the first quarter of ~~2021, and 93.9% in the second quarter of 2020.~~2021. The Company’s non-GAAP efficiency ratio, excluding amortization expense, gains and losses from investment securities, and merger-related expenses, was ~~66.1%~~68.6% compared with ~~67.2%~~66.2% in the ~~first~~fourth quarter of 2021 and ~~67.3%~~67.2% in last year’s ~~second~~first quarter.

Income tax expense was ~~$2.0~~$1.5 million, orfor an effective tax rate of ~~24.4%~~24.0%, ~~for the second quarter of 2021 compared with 25.2%~~ in the first quarter of 2022 compared with 23.4% in the fourth quarter of 2021 and ~~16.7%~~25.2% in last year’s ~~second~~first quarter. ~~Excluding the impact of a 2020 historic tax credit transaction, the effective tax rate was 25.9% in the second quarter of 2020.~~

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~~Other Results of Operations – Year-to-Date Comparison~~

Net interest income was $34.9 million for the first six months of 2021, a $7.2 million or 26% increase from the first six months of 2020. The increase in net interest income is attributable to a $397 million or 25% increase in average interest-earning assets. The increase in average interest-earning assets reflects average loan growth of $335 million or 24% to $1.7 billion during the first half of 2021 compared to the first half of 2020. The Company acquired approximately $271 million in total loans from FSB, largely consisting of residential real estate, during the second quarter of 2020. In addition, PPP loans averaged $213 million during the first six months of 2021 compared with $72 million during the first six months of 2020. At June 30, 2021 total PPP loans that have not yet received SBA forgiveness was $146 million. Fees totaling $5.0 million were collected from the SBA for these loans in the six months ended June 30, 2021, compared with $7.0 million during the six months ended June 30, 2020. These fees are deferred and amortized into interest income over the contractual period of the loan. Upon SBA forgiveness, unamortized fees are then recognized into interest income. The Company recognized $4.2 million of amortized PPP loan fees in interest income during the six months ended June 30, 2021, compared with $0.6 million during the prior year period.

The Company’s net interest margin of 3.53% in the first six months of 2021 was 6 basis points higher than the margin in the first six months of 2020. The yield on average interest-earning assets decreased 33 basis points from 4.12% to 3.79%. Average loan yields decreased 27 basis points from 4.46% to 4.19%, reflecting the Federal Reserve’s decrease of fed funds rate. The cost of interest-bearing liabilities was 0.36% in the first six months of 2021, 52 basis points lower than during the first six months of 2020. The rate paid on average time deposits decreased from 1.67% in the first half of 2020 to 0.59% during the first six months of 2021.

The Company recorded $0.4 million release of allowance for loan losses in the six month period ended June 30, 2021, compared with $3.6 million provision for loan loss in the six-month period ended June 30, 2020. The decrease in provision for loan losses during the first six months of 2021 compared with the prior year period reflects improved credit quality within the loan portfolio and continued positive macroeconomic trends. While the full impact of COVID-19 on future financial results is uncertain, the Company continues to monitor the potential impact on the ability of some clients to meet their borrowing obligations. The provision for loan losses during the first six months of 2020 reflected additional reserves in response to economic trends and conditions as the uncertainty of the COVID-19 pandemic continued.

Non-interest income for the first six months of 2021 increased $1.4 million from the prior year period to $9.0 million. The first six months of 2020 included a $0.6 million net reduction of non-interest income related to an investment in an historic rehabilitation tax credit. There were no significant historic rehabilitation tax credits during the first six months of 2021. Changes in the fair value of mortgage servicing rights increased non-interest income by $0.3 million in first six months of 2021 as compared to the first six months of 2020. Deposit service charges revenue and interchange fees each increased $0.2 million during the first six months of 2021 compared with the first six months of 2020. Insurance service and fees revenue, the largest component of non-interest income, remained relatively consistent at $5.2 million during the first six months of 2021, compared with $5.1 million during the first six months of 2020.

Total non-interest expense decreased to $29.5 million in the first six months of 2021, 4% lower than the six-month period ended June 30, 2020. The decrease was mostly attributable to $5.4 million in merger-related expenses during the first six months of 2020 in connection with the FSB acquisition including system contract termination and deconversion charges. Offsetting the decrease were higher salaries and employee benefits costs, occupancy expenses, advertising costs and other non-interest expenses. Salaries and employee benefits costs were $18.4 million for the first six months of 2021, a $2.6 million or 16% increase from $15.8 million in the prior year period. The year-over-year increase in salary and benefits expense reflects higher incentive accruals, the addition of personnel related to the FSB acquisition and annual merit increases during 2021. Occupancy expenses increased $0.4 million reflecting the expansion of our footprint resulting from the FSB acquisition. Advertising costs increased $0.3 million during the first six months of 2021 when compared to the prior year period as the Company focuses on promotional opportunities within the WNY and Rochester market area. Professional services costs increased $0.2 million during the first six months of 2021 compared to the first six months of 2020. Other non-interest expenses, including professional services costs, technology and communications expenses, loan fees, and charitable contributions, increased a combined $0.8 million compared to prior year period.

The Company’s GAAP efficiency ratio, or noninterest expenses divided by the sum of net interest income and noninterest income, was 67.2% in the first six months of 2021, compared with 87.5% during the prior-year period. The Company’s non-GAAP efficiency ratio, excluding amortization expense, gains and losses from investment securities, merger-related expenses and the impact of historic tax credit transactions, was 66.6% in the first six months of 2021, compared with 70.1% during the prior-year period.

The Company recorded income tax expense of $3.7 million for the six-month period ended June 30, 2021, compared with $0.1 million in the first six months of 2020. The effective tax rate for the first six months of 2021 was 24.8%, compared with 16.7% in the comparable 2020 period. Excluding the impact of the 2020 historic tax credit transaction, the effective tax rate was 25.7% for the first six months of 2020. There were no historic tax credit transactions during the first six months of 2021.

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CAPITAL

The Company consistently maintains regulatory capital ratios significantly above the federal “well capitalized” standard, including a Tier 1 leverage ratio of ~~8.23%~~8.57% at ~~June 30,~~March 31, 2022 and December 31, 2021, compared with 8.19% at March 31, ~~2021 and 8.21% at December 31, 2020.~~2021. Book value per share was ~~$32.28~~$30.65 at ~~June 30,~~March 31, 2022, compared with $33.54 at December 31, 2021 ~~compared with~~and $30.76 at March 31, ~~2021 and $31.21 at December 31, 2020.~~2021.

On February ~~25, 2021,~~15, 2022, the Company declared a ~~semi-annual~~ cash dividend of ~~$0.60~~$0.62 per common share, ~~on the Company’s outstanding common stock. The dividend~~which was paid on April ~~6, 2021 to shareholders of record as of March 16, 2021.~~5, 2022. The semi-annual dividend represented a $0.02, or 3% increase from the previous semi-annual dividend paid in October ~~2020.~~2021.

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The Company has also issued subordinated capital notes and junior subordinated debentures associated with trust preferred securities to provide liquidity and enhance regulatory capital ratios. The Company had $11.3 million of junior subordinated debentures associated with trust preferred securities outstanding at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 which are considered Tier 1 capital and are includable in total regulatory capital. On July 9, 2020, the Company executed a private offering of $20 million of its 6.00% Fixed-to-Floating Rate Subordinated Notes due 2030. During 2020, $15 million of the proceeds from the sale of the Notes were moved to the Company’s Evans Bank, N.A. subsidiary as Tier 1 capital.

While we are currently classified as well capitalized, an extended economic recession brought about by COVID-19 could adversely impact our reported and regulatory capital ratios by credit losses. The Company relies on cash on hand as well as dividends from its subsidiary bank to service its debt. If the Company’s subsidiary bank’s capital deteriorates such that it is unable to pay dividends to the Company for an extended period of time, the Company may not be able to service its debt that was issued.

LIQUIDITY

The Bank utilizes cash flows from the investment portfolio and federal funds sold balances to manage the liquidity requirements related to loan demand and deposit fluctuations. The Bank also has many borrowing options. The Company uses the FHLBNY as its primary source of overnight funds and has long-term advance with FHLBNY. The Company’s use of its overnight line of credit with FHLBNY varies depending on its ability to fund investment and loan growth with core deposits along with the line usage’s impact on interest rate risk. The Company’s funding strategy has resulted in significant deposit growth, resulting in less usage of the FHLBNY overnight line of credit. The Company has pledged sufficient collateral in the form of residential and commercial real estate loans at FHLBNY that meets FHLB collateral requirements. As a member of the FHLB, the Bank is able to borrow funds at competitive rates. As of ~~June 30, 2021,~~March 31, 2022, advances of up to ~~$494~~$406 million could be drawn on the FHLB via an Overnight Line of Credit Agreement between the Bank and the FHLB. As of ~~June 30, 2021,~~March 31, 2022, the Bank also had the ability to purchase up to $18 million in federal funds from its correspondent banks. By placing sufficient collateral in safekeeping at the Federal Reserve Bank, the Bank could borrow at the discount window. The Bank’s liquidity needs also can be met by more aggressively pursuing time deposits, or accessing the brokered time deposit market, including the Certificate of Deposit Account Registry Service (“CDARS”) network.

Cash flows from the Bank’s investment portfolio are laddered, so that securities mature at regular intervals, to provide funds from principal and interest payments at various times as liquidity needs may arise. Contractual maturities are also laddered, with consideration as to the volatility of market prices. At ~~June 30, 2021,~~March 31, 2022, approximately 1% of the Bank’s securities had contractual maturity dates of one year or less and approximately 7%19% had maturity dates of five years or less. Additionally, mortgage-backed securities, which comprise ~~61%~~56% of the investment portfolio at ~~June 30, 2021,~~March 31, 2022, provide consistent cash flows for the Bank.

The Company’s primary source of liquidity is dividends from the Bank. Additionally, the Company has access to capital markets as a funding source.

Management, on an ongoing basis, closely monitors the Company’s liquidity position for compliance with internal policies and believes that available sources of liquidity are adequate to meet funding needs in the normal course of business. As part of that monitoring process, management calculates the 90-day liquidity each month by analyzing the cash needs of the Bank. Included in the calculation are liquid assets and potential liabilities. Management stresses the potential liabilities calculation to ensure a strong liquidity position. Included in the calculation are assumptions of some significant deposit run-off as well as funds needed for loan closings and investment purchases. In the Company’s internal stress test at ~~June 30, 2021,~~March 31, 2022, the Company had net short-term liquidity of ~~$525~~$665 million as compared with ~~$410~~$724 million at December 31, ~~2020.~~2021. Available assets of ~~$364~~$538 million, divided by public and purchased funds of ~~$406~~$422 million, resulted in a long-term liquidity ratio of ~~90%~~127% at ~~June 30, 2021,~~March 31, 2022, compared with ~~70%~~153% at December 31, ~~2020.~~2021.

Management does not anticipate engaging in any activities, either currently or in the long term, for which adequate funding would not be available and which would therefore result in significant pressure on liquidity.

The Company believes that the Bank maintains a sufficient level of U.S. government and government agency securities and New York State municipal bonds that can be pledged as collateral for municipal deposits.

~~Table of Contents~~

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Additional information responsive to this Item is contained in the Liquidity section of Management’s Discussion and Analysis of Financial Condition and Results of Operations, which information is incorporated herein by reference.

Market risk is the risk of loss from adverse changes in market prices and/or interest rates of the Bank’s financial instruments. The primary market risk that the Company is exposed to is interest rate risk. The core banking activities of lending and deposit-taking expose the Bank to interest rate risk, which occurs when assets and liabilities reprice at different times and by different amounts as interest rates change. As a result, net interest income earned by the Bank is subject to the effects of changing interest rates. The Bank measures

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interest rate risk by calculating the variability of net interest income in future periods under various interest rate scenarios using projected balances for interest-earning assets and interest-bearing liabilities. Management’s philosophy toward interest rate risk management is to limit the variability of net interest income to changes in net interest rates. The balances of financial instruments used in the projections are based on expected growth from forecasted business opportunities, anticipated prepayments of loans, and expected maturities of investment securities, loans, and deposits. Management supplements the modeling technique described above with analysis of market values of the Bank’s financial instruments and changes to such market values given changes in the interest rates.

The Bank’s Asset-Liability Committee, which includes members of senior management, monitors the Bank’s interest rate sensitivity with the aid of a model that considers the impact of ongoing lending and deposit taking activities, as well as interrelationships in the magnitude and timing of the repricing of financial instruments, including the effect of changing interest rates on expected prepayments and maturities. When deemed prudent, management has taken actions, and intends to do so in the future, to mitigate exposure to interest rate risk through the use of on- or off-balance sheet financial instruments. Possible actions include, but are not limited to, changing the pricing of loan and deposit products, and modifying the composition of interest-earning assets and interest-bearing liabilities, and reliance on other financial instruments used for interest rate risk management purposes.

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~~Table of Contents~~

The following table demonstrates the possible impact of changes in interest rates on the Bank’s net interest income over a 12-month period of time:

SENSITIVITY OF NET INTEREST INCOME TO CHANGES IN INTEREST RATES



	Calculated increase (decrease)				Calculated increase (decrease)
	in projected annual net interest income				in projected annual net interest income
	(in thousands)				(in thousands)

		June 30, 2021		December 31, 2020		March 31, 2022		December 31, 2021
Changes in interest rates

+200 basis points	$	1,053	$	(681)	$	(318)	$	1,375
+100 basis points		3,336		2,717		2,824		3,569

-100 basis points		(1,730)		(1,169)		(1,620)		(2,183)
-200 basis points		NM		NM		NM		NM

Many assumptions were utilized by management to calculate the impact that changes in interest rates may have on the Bank’s net interest income. The more significant assumptions related to the rate of prepayments of mortgage-related assets, loan and deposit volumes and pricing, and deposit maturities. The Bank assumed immediate changes in rates including 200 basis point rate changes. In the 200 basis point rate reduction scenario, the applicable rate changes may be limited to lesser amounts such that interest rates are not less than zero. The assumptions in the Company’s projections are inherently uncertain and, as a result, the Bank cannot precisely predict the impact of changes in interest rates on net interest income. Actual results may differ significantly due to the timing, magnitude, and frequency of interest rate changes in market conditions and interest rate differentials (spreads) between maturity/repricing categories, as well as any actions such as those previously described, which management may take to counter such changes. In light of the uncertainties and assumptions associated with the process, the amounts presented in the table and changes in such amounts are not considered significant to the Bank’s projected net interest income.

ITEM 4 - CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~June 30, 2021~~March 31, 2022 (the end of the period covered by this Report). Based on that evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures ~~was~~were effective as of ~~June 30, 2021.~~March 31, 2022.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During 2021, the Company undertook efforts to remediate the material weakness with respect to its internal controls over deposit data within the deposit accounting system as previously disclosed on our Annual Report on Form 10-K for the year ended December 31, 2020.

To remediate the material weakness and strengthen our internal controls management designed and implemented review controls over the accuracy of deposit data entry for new deposit account information, file maintenance and master-file changes. Core system generated reports and other core system tools are now utilized in a review controls of deposit data entry to ensure completeness of the transactions subject to the aforementioned controls.

As of June 30, 2021, our testing of both the design and operating effectiveness of these controls was completed, and we have concluded that the material weaknesses existing at December 31, 2020 has been remediated.

~~Except as noted above, no~~No changes in the Company’s internal control over financial reporting were identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the fiscal quarter ended ~~June 30, 2021~~March 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

The nature of the Company’s business generates a certain amount of litigation involving matters arising in the ordinary course of business.

In the opinion of management, there are no proceedings pending to which the Company is a party or to which its property is subject, which, if determined adversely, would have a material effect on the Company’s results of operations or financial condition.

ITEM 1A – RISK FACTORS

There have been no material changes to the risk factors previously disclosed in Item 1A. Part I of the Company’s Annual Report on Form 10- K for the fiscal year ended December 31, ~~2020.~~2021.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

Period
Total Number of Shares Purchased ₍₁₎
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares that may yet be Purchased Under the Plans or Programs ₍₂₎
April 2021:
April 1, 2021 - April 30, 2021
-
$
-
-
300,000
May 2021:
May 1, 2021 - May 31, 2021
-
$
-
-
300,000
June 2021:
June 1, 2021 - June 30, 2021
1,137
$
38.55
-
300,000
Total:
1,137
$
38.55
-
300,000



Period	Total Number of Shares Purchased ₍₁₎		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that may yet be Purchased Under the Plans or Programs ₍₂₎
January 2022:
January 1, 2022 - January 31, 2022		-	$	-	-	300,000
February 2022:
February 1, 2022 - February 28, 2022		-	$	-	-	300,000
March 2022:
March 1, 2022 - March 31, 2022		3,099	$	38.95	-	300,000
Total:		3,099	$	38.95	-	300,000

(1)The total shares purchased in the period consist of shares constructively tendered to the Company by attestation in satisfaction of the exercise price due upon exercise of options issued pursuant to the Company’s 2019 Long-Term Incentive Plan. The “average price paid per share” reported in the table above, with respect to such shares, reflects the fair market value of the Company’s common stock on the exercise date, which was the closing sales price of the Company’s common stock as reported on the NYSE American on that date.

(2)On February 25, 2021, the Board of Directors authorized the Company to repurchase up to 300,000 shares of the Company’s common stock (the “2021 Repurchase Program”). The 2021 Repurchase program does not expire and may be suspended or discontinued by the Board of Directors at any time. The maximum number of shares that may be purchased under the 2021 Repurchase Program as of ~~June 30, 2021~~March 31, 2022 was 300,000.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

(Not Applicable.)

ITEM 4 – MINE SAFETY DISCLOSURE

(Not Applicable.)

ITEM 5 – OTHER INFORMATION

(Not Applicable.)

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ITEM 6 – EXHIBITS

The following exhibits are filed as a part of this report:


		EXHIBIT INDEX

Exhibit No.		Name

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer pursuant to 18 USC Section 1350 Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer pursuant to 18 USC Section 1350 Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from Evans Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2021,~~March 31, 2022, formatted in XBRL (eXtensible Business Reporting Language): (i) Unaudited Consolidated Balance Sheets – ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020;~~2021; (ii) Unaudited Consolidated Statements of Income – Three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020;~~2021; (iii) ~~Unaudited Consolidated Statements of Income – Six months ended June 30, 2021 and 2020; (iv)~~ Unaudited Statements of Consolidated Comprehensive Income – Three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020; (v) Unaudited Statements of Consolidated Comprehensive Income – Six months ended June 30, 2021 and 2020; (vi)~~2021; (iv) Unaudited Consolidated Statements of Stockholders' Equity – Three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020; (vii) Unaudited Consolidated Statements of Stockholders' Equity – Six months ended June 30, 2021 and 2020; (viii)~~2021; (v) Unaudited Consolidated Statements of Cash Flows – ~~Six~~Three months ended ~~June 30, 2021~~March 31, 2022 and ~~2020;~~2021; and ~~(ix)~~(vi) Notes to Unaudited Consolidated Financial Statements.

104		The cover page from the Evans Bancorp, Inc’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30, 2021,~~March 31, 2022, formatted in Inline XBRL.

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5438

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Evans Bancorp, Inc.

DATE

~~August 2, 2021~~April 29, 2022

/s/ David J. Nasca

David J. Nasca

President and CEO

(Principal Executive Officer)

DATE

~~August 2, 2021~~April 29, 2022

/s/ John B. Connerton

John B. Connerton

Treasurer

(Principal Financial Officer and Principal Accounting Officer)

5539


		As Recorded		Fair Value			As Recorded
		by FSB		Adjustments			at Acquisition
				(in thousands)
Cash and due from banks	$	1,978	$	-		$	1,978
Interest-bearing deposit at banks		9,339		-			9,339
Securities		21,371		106	(a)		21,477
FHLB Stock		2,614		-			2,614
Loans receivable		273,869		(2,484)	(b)		271,385
Allowance for loan losses		(1,706)		1,706	(c)		-
Premises and equipment		2,303		(56)	(d)		2,247
Intangible assets		-		166	(e)		166
Bank owned life insurance		3,891		-			3,891
Operating lease right-of-use asset		2,020		374	(f)		2,394
Other assets		6,033		1,640	(g)		7,673
Total assets acquired	$	321,712	$	1,452		$	323,164

Deposits		237,688		1,485	(h)		239,173
Other borrowed funds		50,597		1,929	(i)		52,526
Operating lease liability		2,217		176	(j)		2,393
Other liabilities		2,557		(573)	(k)		1,984
Total liabilities assumed	$	293,059	$	3,017		$	296,076

Net assets acquired							27,088
Purchase price							28,856
Goodwill recorded in merger						$	1,768


	Three months ended			Six months ended
	June 30, 2020			June 30, 2020
	(in thousands)
Net interest income after provision	$	14,570	$	26,764
Non-interest income		4,415		8,166
Non-interest expense		14,017		28,961
Net income		3,729		4,492



		At December 31, 2020
		Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:		(in thousands)
Commercial and industrial	$	1,706	$	1,947	$	-	$	1,952	$	8
Residential real estate:
Residential		3,703		4,069		-		3,754		60
Construction		-		-		-		-		-
Commercial real estate:
Commercial		12,210		12,840		-		12,397		209
Construction		1,295		1,352		-		1,315		-
Home equities		1,515		1,741		-		1,565		23
Consumer and other		-		-		-		-		-
Total impaired loans	$	20,429	$	21,949	$	-	$	20,983	$	300


	Balance at March 31, 2020		Net Change		Balance at June 30, 2020
	(in thousands)
Net unrealized gain on investment securities	$	2,357	$	1,188	$	3,545
Net defined benefit pension plan adjustments		(3,018)		90		(2,928)
Total	$	(661)	$	1,278	$	617



	Three months ended June 30, 2021						Three months ended June 31, 2020
	(in thousands)						(in thousands)
	Before-Tax Amount		Income Tax (Provision) Benefit		Net-of-Tax Amount		Before-Tax Amount		Income Tax (Provision) Benefit		Net-of-Tax Amount
Unrealized (loss) gain on investment
securities:
Unrealized (loss) gain on investment
securities	$	2,324	$	(602)	$	1,722	$	1,603	$	(415)	$	1,188

Defined benefit pension plan
adjustments:
Amortization of prior service cost		8		(3)		5		8		(2)		6
Amortization of actuarial loss		95		(25)		70		113		(29)		84
Net change		103		(28)		75		121		(31)		90
Other comprehensive (loss) income	$	2,427	$	(630)	$	1,797	$	1,724	$	(446)	$	1,278


	Three months ended June 31,
(in thousands)	2021		2020
Mortgage servicing rights - April 1	$	1,113	$	485
Losses included in earnings		(120)		(97)
Additions from business combinations		-		639
Additions from loan sales		-		4
Mortgage servicing rights - June 30	$	993	$	1,031


	June 30, 2021		December 31, 2020
Servicing fees	0.25	%	0.25	%
Discount rate	9.02	%	9.04	%
Prepayment rate (CPR)	8.38	%	9.73	%

~~SUPPLEMENTAL DISCLOSURE OF NON-CASH~~

~~INVESTMENTS AND FINANCIAL ACTIVITIES:~~

~~Fair value of assets acquired in acquisition (non-cash)~~

~~311,847~~

~~Fair value of liabilities assumed in acquisition~~

~~296,076~~