Financial Services News

ORRSTOWN FINANCIAL SERVICES INC Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)


The following discussion and analysis is intended to assist readers in
understanding the consolidated financial condition and results of operations of
Orrstown and should be read in conjunction with the preceding unaudited
condensed consolidated financial statements and notes thereto included in this
Quarterly Report on Form 10-Q, as well as with the audited consolidated
financial statements and notes thereto for the year ended December 31, 2021,
included in our Annual Report on Form 10-K. Throughout this discussion, the
yield on earning assets is stated on a fully taxable-equivalent basis and
balances represent average daily balances unless otherwise stated. Certain prior
period amounts presented in this discussion and analysis have been reclassified
to conform to current period classifications.

Overview


The Company, headquartered in Shippensburg, Pennsylvania, is a one-bank holding
company that has elected status as a financial holding company. The consolidated
financial information presented herein reflects the Company and its wholly-owned
subsidiary, the Bank. At June 30, 2022, the Company had total assets of $2.8
billion, total liabilities of $2.6 billion and total shareholders' equity of
$237.5 million.

Cautionary Note About Forward-Looking Statements


Certain statements appearing herein, which are not historical in nature, are
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act, and are intended to be covered by the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
In addition, we may make other written and oral communications, from time to
time, that contain such statements. Such forward-looking statements reflect the
current views of the Company's management with respect to, among other things,
future events and the Company's financial performance. These statements are
often, but not always, made through the use of words or phrases such as "may,"
"will," "expect," "estimate," "anticipate" or similar terms, or the negative
variations of those words or other comparable words of a future or
forward-looking nature. Forward-looking statements are statements that include
projections, predictions, expectations, estimates or beliefs about events or
results or otherwise are not statements of historical facts, many of which, by
their nature, are inherently uncertain and beyond the Company's control, and
include, but are not limited to, statements related to new business development,
new loan opportunities, growth in the balance sheet and fee-based revenue lines
of business, merger and acquisition activity, reducing risk assets, and
mitigating losses in the future. Accordingly, the Company cautions you that any
such forward-looking statements are not guarantees of future performance and are
subject to risks, assumptions and uncertainties that are difficult to predict.
Although the Company believes that the expectations reflected in these
forward-looking statements are reasonable as of the date made, actual results
may prove to be materially different from the results expressed or implied by
the forward-looking statements and there can be no assurances that the Company
will achieve the desired level of new business development and new loans, growth
in the balance sheet and fee-based revenue lines of business, successful merger
and acquisition activity, continue to reduce risk assets or mitigate losses in
the future. In addition to risks and uncertainties related to the COVID-19
pandemic (including those related to variants) and resulting governmental and
societal responses, factors that could cause actual results to differ from those
expressed or implied by the forward-looking statements include, but are not
limited to, the following: ineffectiveness of the Company's strategic growth
plan due to changes in current or future market conditions; the effects of
competition and how it may impact our community banking model, including
industry consolidation and development of competing financial products and
services; the integration of the Company's strategic acquisitions; the inability
to fully achieve expected savings, efficiencies or synergies from mergers and
acquisitions, or taking longer than estimated for such savings, efficiencies and
synergies to be realized; changes in laws and regulations; interest rate
movements; changes in credit quality; inability to raise capital, if necessary,
under favorable conditions; volatility in the securities markets; the demand for
our products and services; deteriorating economic conditions; geopolitical
tensions; operational risks including, but not limited to, cybersecurity
incidents, fraud, natural disasters and future pandemics; expenses associated
with pending litigation and legal proceedings; the failure of the SBA to honor
its guarantee of loans issued under the SBA PPP; the timing of the repayment of
SBA PPP loans and the impact it has on fee recognition; our ability to convert
new relationships gained through the SBA PPP efforts to full banking
relationships; and other risks and uncertainties, including those detailed in
our Annual Report on Form 10-K for the year ended December 31, 2021, and our
Quarterly Reports on Form 10-Q under the sections titled "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in other filings made with the SEC. The statements are valid
only as of the date hereof and we disclaim any obligation to update this
information.

Economic Climate, Inflation and Interest Rates


Preliminary real GDP for the second quarter of 2022 reflected an annualized
decrease of 0.9%, which is a modest improvement from the 1.6% decline during the
first quarter of 2022. The annualized growth for the second quarter of 2021 was
6.7%. The decrease in the second quarter of 2022 continued to be caused by
decreases in private inventory investment, which

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includes retail trade on motor vehicles and general merchandise stores, and
government spending, partially offset by increases in personal consumption,
primarily within healthcare, travel, food services and accommodations. The
personal consumption expenditures ("PCE") price index increased to 7.1% in the
second quarter of 2022, compared to an increase of 7.0% in the first quarter of
2022. The national unemployment rate remained at 3.6% in June 2022 from March
2022, down from 6.0% in June 2021. Within the Company's geographic footprint,
the unemployment rate has decreased in Pennsylvania by 2.6% from 6.6% at May
2021 to 4.0% at May 2022, and decreased in Maryland by 2.3% from 6.0% at May
2021 to 3.7% in May 2022. These decreases in unemployment rates are consistent
to the counties in which the Company operates branches and other corporate
offices. There continued to be notable job gains in healthcare, leisure and
hospitality and professional and business services during the second quarter of
2022. Although there was strong economic recovery in 2021 from the pandemic, the
decrease in GDP during the first half of 2022 is indicative of inflation, supply
chain challenges, and labor shortages compared to levels pre-pandemic in
February 2020.

At June 30, 2022, the 10-year Treasury bond reached 2.98%, an increase of 0.64%
from 2.34% at March 31, 2022, as it continued to rise due to stock market
volatility and inflationary pressures. In March 2022, the Federal Reserve Open
Markets Committee ("FOMC") approved an increase to the Fed Funds rate of 25
basis points due to inflation, elevating geopolitical tensions and the state of
the labor market recovery. During the second quarter of 2022, the FOMC approved
additional increases to the Fed Funds rate of 50 basis points on May 5, 2022 and
75 basis points on June 16, 2022. On July 27, 2022, the FOMC further increased
the Fed Fund rate by another 75 basis points as the FRB continues to attempt to
combat the impact of inflation and evaluate the economic state based on
unemployment, a rising consumer price index and geopolitical tensions that could
cause supply chain disruptions.

The majority of the assets and liabilities of a financial institution are
monetary in nature and, therefore, differ greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventories. However, inflation does have an impact on the Company, particularly
with respect to the growth of total assets and noninterest expenses, which tend
to rise during periods of general inflation. Risks also exist due to supply and
demand imbalances, employment shortages, the interest rate environment, and
geopolitical tensions. It is reasonably foreseeable that estimates made in the
financial statements could be materially and adversely impacted in the near term
as a result of these conditions, including expected credit losses on loans and
the fair value of financial instruments that are carried at fair value.


Critical Accounting Estimates


The Company's accounting and reporting policies are in accordance with GAAP and
follow accounting and reporting guidelines prescribed by bank regulatory
authorities and general practices within the financial services industry in
which it operates. Our financial position and results of operations are affected
by management's application of accounting policies, including estimates, and
assumptions and judgments that affect the amounts reported in the consolidated
financial statements and accompanying notes. These estimates, assumptions, and
judgments are based on information available as of the balance sheet date and
through the date the financial statements are filed with the SEC. Different
assumptions in the application of these policies could result in material
changes in the consolidated financial position and/or consolidated results of
operations and related disclosures. The more critical accounting estimates
include accounting for credit losses and valuation methodologies. Accordingly,
these critical accounting estimates are discussed in detail in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in our
Annual Report on Form 10-K for the year ended December 31, 2021. Significant
accounting policies and any changes in accounting principles and effects of new
accounting pronouncements are discussed in Note 1, Summary of Significant
Accounting Policies, to the Consolidated Financial Statements under Part II,
Item 8, "Financial Statements and Supplementary Data," in our Annual Report on
Form 10-K for the year ended December 31, 2021. Additional disclosures regarding
the effects of new accounting pronouncements are included in this report in Note
1, Summary of Significant Accounting Policies, to the unaudited condensed
consolidated financial statements under Part I, Item 1, "Financial Information."


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RESULTS OF OPERATIONS

Three months ended June 30, 2022 compared with three months ended June 30, 2021

Summary


Net income totaled $8.9 million for the three months ended June 30, 2022
compared with net income of $8.8 million for the same period in 2021. Diluted
earnings per share for the three months ended June 30, 2022 totaled $0.83
compared to $0.79 for the three months ended June 30, 2021. Net interest income
positively influenced results of operations, and totaled $24.1 million for the
three months ended June 30, 2022 compared to $21.9 million for the three months
ended June 30, 2021. Noninterest income totaled approximately $7.2 million and
$6.7 million for the three months ended June 30, 2022 and 2021, respectively.
Noninterest expenses totaled $18.8 million for the three months ended June 30,
2022 compared to $17.0 million for the three months ended June 30, 2021.

The comparison of operating results for 2022 with 2021 reflects the impact of
the investment of cash in higher yielding commercial loans and investment
securities, rising interest rates and reductions in the cost of funds, partially
offset by increases in the provision for loan losses and salaries and employee
benefits expense.

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Net Interest Income


Net interest income increased by $2.2 million from $21.9 million to $24.1
million from the three months ended June 30, 2021 to the three months ended
June 30, 2022. Total interest expense decreased from $1.8 million for the three
months ended June 30, 2021 to $1.2 million for the three months ended June 30,
2022. Interest income on loans increased by $704 thousand, from $21.3 million to
$22.0 million, and interest income on investment securities increased by $836
thousand, from $2.3 million to $3.1 million, for the three months ended June 30,
2022 compared to the same period in the prior year.

The following table presents net interest income, net interest spread and net
interest margin for the three months ended June 30, 2022 and 2021 on a
taxable-equivalent basis:

                                                    Three Months Ended June 30, 2022                                    Three Months Ended June 30, 2021
                                                               Taxable-               Taxable-                                     Taxable-               Taxable-
                                          Average             Equivalent             Equivalent               Average             Equivalent             Equivalent
                                          Balance              Interest                 Rate                  Balance              Interest                 Rate
Assets
Federal funds sold & interest-bearing
bank balances                         $    131,449          $       235                     0.72  %       $    290,039          $        81                     0.11  %

Investment securities (1)                  523,940                3,388                     2.59               438,110                2,421                     2.22

Loans (1)(2)(3)                          2,008,283               22,090                     4.41             2,014,600               21,375                     4.26
Total interest-earning assets            2,663,672               25,713                     3.87             2,742,749               23,877                     3.49

Other assets                               192,561                                                             188,810

Total                                 $  2,856,233                                                        $  2,931,559
Liabilities and Shareholders' Equity
Interest-bearing demand deposits      $  1,420,051                  301                     0.09          $  1,394,384                  292                     0.08
Savings deposits                           236,916                   63                     0.11               200,439                   50                     0.10
Time deposits                              275,408                  337                     0.49               382,467                  739                     0.78
Total interest-bearing deposits          1,932,375                  701                     0.15             1,977,290                1,081             

0.22

Securities sold under agreements to
repurchase                                  24,045                    7                     0.11                22,417                    8             

0.14

FHLB advances and other borrowings           1,741                   21                     4.74                57,896                  164                     1.14
Subordinated notes                          31,985                  503                     6.29                31,924                  502                     6.29
Total interest-bearing liabilities       1,990,146                1,232                     0.25             2,089,527                1,755             

0.34

Noninterest-bearing demand deposits        572,171                                                             545,617
Other                                       47,190                                                              37,561
Total liabilities                        2,609,507                                                           2,672,705
Shareholders' equity                       246,726                                                             258,854
Total                                 $  2,856,233                                                        $  2,931,559
Taxable-equivalent net interest
income /net interest spread                                      24,481                     3.62  %                                  22,122                     3.15  %
Taxable-equivalent net interest
margin                                                                                      3.68  %                                                             3.24  %
Taxable-equivalent adjustment                                      (363)                                                               (221)
Net interest income                                         $    24,118                                                         $    21,901

NOTES TO ANALYSIS OF NET INTEREST INCOME:

                        Yields and interest income on tax-exempt assets 

have been computed on a taxable-equivalent

          (1)           basis assuming a 21% tax rate.
          (2)           Average balances include nonaccrual loans.
          (3)           Interest income on loans includes prepayment and 

late fees, where applicable.



Net interest income on a taxable-equivalent basis increased by $2.4 million to
$24.5 million for the three months ended June 30, 2022 from $22.1 million for
the three months ended June 30, 2021. The Company's net interest spread
increased by 47 basis points to 3.62% for the three months ended June 30, 2022
compared to 3.15% for the three months ended June 30, 2021.

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Taxable-equivalent net interest margin increased 44 basis points to 3.68% for
the three months ended June 30, 2022 from 3.24% for the three months ended
June 30, 2021. The taxable-equivalent yield on interest-earning assets increased
38 basis points from the three months ended June 30, 2021 to the three months
ended June 30, 2022 reflecting the deployment of cash into higher yielding
commercial loans and investment securities and home equity loans. The decrease
in the cost of interest-bearing liabilities from the three months ended June 30,
2021 to the three months ended June 30, 2022 also benefited the tax-equivalent
net interest margin, reflecting the decrease in time deposit balances and
repayment of overnight borrowings. Average loans remained approximately $2.0
billion, during both the three months ended June 30, 2022 and 2021, as the
commercial and home equity loan growth in three months ended June 30, 2022 was
partially offset by the impact of SBA PPP loan forgiveness. Average investment
securities increased by $85.8 million from $438.1 million for the three months
ended June 30, 2021 to $523.9 million for the same period in 2022 due to
investment purchases. Average interest-bearing liabilities declined by $99.4
million to $2.0 billion for the 2022 period from $2.1 billion for the 2021
period due primarily to decreased average balances in time deposits and
overnight borrowings.

The yield on loans increased by 15 basis points to 4.41% for the three months
ended June 30, 2022 compared to 4.26% for the three months ended June 30, 2021.
Taxable-equivalent interest income earned on loans increased by $715 thousand
year-over-year primarily due to an increase in the average balances of
commercial loans excluding SBA PPP loans, and the impact of the rising interest
rate environment. The increase in interest income on loans due to loan growth,
excluding SBA PPP loans, was partially offset by a decrease in interest income
from SBA PPP loans. This decrease in SBA PPP interest income is due to a lower
average balance of SBA PPP loans forgiven during the three months ended June 30,
2022 compared to the three months ended June 30, 2021.

SBA PPP loans, net of deferred fees and costs, averaged $72.5 million during the
three months ended June 30, 2022 compared to $471.2 million during the three
months ended June 30, 2021. This decrease was due to the forgiveness of SBA PPP
loans. The average balance of commercial loans, excluding SBA PPP loans,
increased by $400.9 million from $1.1 billion during the three months ended
June 30, 2021 to $1.5 billion during the three months ended June 30, 2022.
Average home equity loans increased by $17.4 million from $154.0 million for the
three months ended June 30, 2021 to $171.4 million for the three months ended
June 30, 2022. Average installment and other consumer loans decreased by $14.3
million from $41.3 million for the three months ended June 30, 2021 to $27.0
million for the three months ended June 30, 2022. Average residential mortgage
loans decreased by $11.6 million from $215.4 million during the three months
ended June 30, 2021 to $203.8 million during the three months ended June 30,
2022 due to lower housing inventory and runoff.

For the three months ended June 30, 2022, interest income on loans included $1.9
million of interest and net deferred fee income recognized associated with the
SBA PPP loans compared to $5.2 million of such interest and fee income for the
three months ended June 30, 2021. Prepayment fee income on commercial loans
increased by $266 thousand from $132 thousand for the three months ended
June 30, 2021 to $398 thousand for the same period in 2022. Accretion of
purchase accounting adjustments included in interest income was $429 thousand
and $508 thousand for the three months ended June 30, 2022 and 2021,
respectively. The three months ended June 30, 2022 and 2021 included $323
thousand and $349 thousand, respectively, of accelerated accretion related to
the payoff of acquired loans.

Interest income on investment securities on a tax-equivalent basis increased by
$967 thousand to $3.4 million for the three months ended June 30, 2022 from $2.4
million for the three months ended June 30, 2021, with the taxable equivalent
yield increasing from 2.22% for the three months ended June 30, 2021 to 2.59%
for the three months ended June 30, 2022. This 37 basis point increase reflected
the higher interest rate environment in 2022 and certain repositioning within
the portfolio under the Company's asset/liability management strategies.

Although the average balance of federal funds sold and interest-bearing bank
balances decreased by $158.6 million from $290.0 million for the three months
ended June 30, 2021 to $131.4 million for the same period in 2022 due primarily
to the deployment of cash into loans and investment securities, the related
interest income on a tax-equivalent basis increased by $154 thousand to $235
thousand for the three months ended June 30, 2022 from $81 thousand for the
three months ended June 30, 2021. This increase was caused by the increase in
the interest rate at the FRB as a result of multiple Fed Funds rate increases by
the FOMC during 2022.

Interest expense on deposits and borrowings decreased by $523 thousand
year-over-year, reflecting a decrease in the average balance of interest-bearing
deposits of $44.9 million due primarily to continued runoff of certificates of
deposit. The cost of interest-bearing liabilities declined by nine basis points
from 0.34% for the three months ended June 30, 2021 to 0.25% for the three
months ended June 30, 2022 due to the timing of deposit rate reductions in 2021
combined with the continued maturity of higher yielding certificates of deposits
and the repayment of overnight borrowings in the third quarter of 2021.



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Provision for Loan Losses


The Company recorded a provision for loan losses of $1.8 million for the three
months ended June 30, 2022 compared to $625 thousand for the same period in
2021. In calculating the provision for loan losses, both quantitative and
qualitative factors, including the Company's historical charge-off data and
economic and market conditions, were considered. For the three months ended
June 30, 2022 and 2021, the provision for loan losses was driven primarily by an
increase in commercial loans; however, the increase for the three months ended
June 30, 2021 was partially offset by the release of a portion of the Company's
COVID-19 related reserve of $790 thousand. Net charge-offs in the three months
ended June 30, 2022 totaled $4 thousand, compared to net charge-offs of $211
thousand in the comparable prior year period. Nonaccrual loans were 0.27% of
gross loans at June 30, 2022, compared with 0.51% of gross loans at June 30,
2021. Nonaccrual loans decreased by $4.5 million from June 30, 2021 to June 30,
2022 and classified loans decreased by $9.0 million from $28.7 million to $19.7
million from June 30, 2021 to June 30, 2022, respectively. The decrease in
non-accrual loans includes the payoff of one loan of $2.6 million, loans
returning to accrual status of $652 thousand, and charge-offs of $189 thousand,
with the remaining decrease due to paydowns. The decrease in classified loans
reflects upgrades to commercial loan ratings, including loans that were
previously downgraded due to the impact of the COVID-19 pandemic.

Additional information is included in the “Credit Risk Management” section
herein.

Noninterest Income


The following table compares noninterest income for the three months ended
June 30, 2022 and 2021:
                                           Three Months Ended June 30,               $ Change                 % Change
                                            2022                  2021               2022-2021               2022-2021

Service charges on deposit accounts $ 964 $ 698

       $        266                       38.1  %
Interchange income                             1,064               1,064                     -                          -  %
Other service charges and fees                   230                 182                    48                       26.4  %
Swap fee income                                  785                  15                   770                     5133.3  %
Trust and investment management
income                                         1,905               2,020                  (115)                      (5.7) %
Brokerage income                                 989                 910                    79                        8.7  %
Mortgage banking activities                      498               1,162                  (664)                     (57.1) %

Income from life insurance                       593                 564                    29                        5.1  %
Other income                                     169                  38                   131                      344.7  %

Investment securities (losses) gains              (3)                 11                   (14)                    (127.3) %
Total noninterest income              $        7,194          $    6,664          $        530                        8.0  %


The following factors contributed to the more significant changes in noninterest
income between the three months ended June 30, 2022 and 2021:


•Service charges on deposit accounts increased by $266 thousand due to higher
customer transaction activity as the economy continued to recover from the
COVID-19 pandemic and changes to the deposit fee structure that took effect in
April 2022.

•Swap fee income increased by $770 thousand due to increased client interest in
locking in interest rates on commercial loans in the rising interest rate
environment.


•Trust and investment management income decreased by $115 thousand due to the
negative impact of the stock and bond market conditions on clients' investment
portfolios.

•Mortgage banking income decreased by $664 thousand due to current market
conditions, including low housing inventory and a rising interest rate
environment, which caused declines in residential mortgage loan production, the
residential mortgage loan pipeline and secondary market sales during the second
quarter of 2022, compared to the same period in 2021. These changes resulted in
a decrease in the gains on sales of residential mortgage loans of $600 thousand
for the three months ended June 30, 2022 compared to the second quarter of 2021.
Mortgage loans sold totaled $22.6 million in the second quarter of 2022 compared
with $51.8 million in the second quarter of 2021.

•Other line items within noninterest income showed fluctuations between 2022 and
2021 attributable to normal business operations.

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Noninterest Expenses


The following table compares noninterest expenses for the three months ended
June 30, 2022 and 2021:
                                             Three Months Ended June 30,               $ Change                 % Change
                                              2022                  2021               2022-2021               2022-2021

Salaries and employee benefits $ 11,312 $ 10,212

        $      1,100                       10.8  %
Occupancy                                        1,132               1,098                    34                        3.1  %
Furniture and equipment                          1,291               1,302                   (11)                      (0.8) %
Data processing                                  1,165               1,032                   133                       12.9  %

Automated teller machine and
interchange fees                                   318                 319                    (1)                      (0.3) %
Advertising and bank promotions                    881                 274                   607                      221.5  %
FDIC insurance                                     190                 158                    32                       20.3  %

Professional services                              722                 579                   143                       24.7  %
Directors' compensation                            230                 235                    (5)                      (2.1) %

Taxes other than income                            108                 462                  (354)                     (76.6) %
Intangible asset amortization                      281                 324                   (43)                     (13.3) %

Other operating expenses                         1,164               1,038                   126                       12.1  %
Total noninterest expenses              $       18,794          $   17,033          $      1,761                       10.3  %

The following factors contributed to the more significant changes in noninterest
expenses between the three months ended June 30, 2022 and 2021:


•Salaries and employee benefits expense increased by $1.1 million due primarily
to increases in wages and additions to staff that filled vacancies and drive and
support a strong growth trajectory, which also resulted in an increase in
employee benefit costs.

•Data processing increased by $133 thousand due to an increase in core system
costs and investments in technology.


•Advertising and bank promotions increased by $607 thousand due to an increase
in contributions, which included $500 thousand in the Pennsylvania ("PA") EITC,
with the remaining increase primarily due to promotional expenses and bank
events.

•Professional services increased by $143 thousand due to an increase in
compliance and technology consulting services, partially offset by lower legal
expenses incurred in connection with the SEPTA litigation.


•Taxes other than income decreased by $354 thousand due to $450 thousand of
eligible tax credits associated with the contributions made to the PA EITC. This
decrease was partially offset by an increase in PA Bank Shares Tax expense as
the Bank's total equity balance grew from the prior period.

•Other operating expenses increased by $126 thousand. The reserve for unfunded
commitments was reduced by $434 thousand during the three months ended June 30,
2021 compared to no change in the reserve during the same period in 2022. This
increase was partially offset by a decrease in loan-related costs of $256
thousand and a decrease in expense of $77 thousand related to income from
derivative fair value adjustments compared to the same period in 2021.

•Other line items within noninterest expenses showed fluctuations between 2022
and 2021 attributable to normal business operations.

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Income Tax Expense


Income tax expense totaled $1.9 million, an effective tax rate of 17.4%, for the
three months ended June 30, 2022 compared with $2.1 million, an effective tax
rate of 19.5%, for the three months ended June 30, 2021. The Company's effective
tax rate is less than the 21% federal statutory rate, principally due to
tax-free income, which includes interest income on tax-free loans and investment
securities and income from life insurance policies, federal income tax credits,
and the impact of non-tax deductible expenses. The decrease in the effective tax
rate from the three months ended June 30, 2021 to the three months ended
June 30, 2022 was due primarily to an increase in projected income from tax-free
investment securities and loans for the 2022 fiscal year compared to the prior
year.

Six months ended June 30, 2022 compared with six months ended June 30, 2021

Summary


Net income totaled $17.2 million for the six months ended June 30, 2022 compared
with net income of $19.0 million for the same period in 2021. Diluted earnings
per share for the six months ended June 30, 2022 totaled $1.59, compared with
$1.71 for the six months ended June 30, 2021. Net interest income positively
influenced results of operations, and totaled $46.7 million for the six months
ended June 30, 2022, compared to $43.8 million for the six months ended June 30,
2021. Noninterest income totaled $14.7 million and $14.2 million for the six
months ended June 30, 2022 and 2021, respectively. Noninterest expenses totaled
$38.2 million for the six months ended June 30, 2022 compared to $34.8 million
for the six months ended June 30, 2021.

The comparison of operating results for 2022 with 2021 reflects increases in the
provision for loan losses and salaries and employee benefits expense, partially
offset by the increase in net interest income from the investment of cash into
higher yielding commercial loans and investment securities and reduction in the
cost of funds.

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Net Interest Income


Net interest income increased by $2.9 million from $43.8 million for the six
months ended June 30, 2021 to $46.7 million for the six months ended June 30,
2022. Total interest expense decreased from $3.8 million for the six months
ended June 30, 2021 to $2.4 million for the six months ended June 30, 2022.
Interest income on loans increased by $562 thousand, from $42.8 million to $43.4
million, and investment securities interest income increased by $777 thousand,
from $4.6 million to $5.4 million, compared to the same period in the prior
year. Interest expense on deposits decreased by $1.1 million, from $2.5 million
for the six months ended June 30, 2021 to $1.4 million for the six months ended
June 30, 2022.

The following table presents net interest income, net interest spread and net
interest margin for the six months ended June 30, 2022 and 2021 on a
taxable-equivalent basis:
                                                        Six Months Ended June 30, 2022                                           Six Months Ended June 30, 2021
                                                                    Taxable-               Taxable-                                          Taxable-               Taxable-
                                            Average                Equivalent             Equivalent                 Average                Equivalent             Equivalent
                                            Balance                 Interest                 Rate                    Balance                 Interest                 Rate
Assets
Federal funds sold & interest-bearing
bank balances                         $         165,430          $       336                     0.41  %       $         218,216          $       120                     0.11  %

Investment securities (1)                       498,210               
5,900                     2.37                    453,108                4,933                     2.20

Loans (1)(2)(3)                               1,991,636               43,519                     4.40                  2,023,858               42,949                     4.28
Total interest-earning assets                 2,655,276               49,755                     3.77                  2,695,182               48,002                     3.59

Other assets                                    188,454                                                                  185,791

Total                                 $       2,843,730                                                        $       2,880,973
Liabilities and Shareholders' Equity
Interest-bearing demand deposits      $       1,409,177                  557                     0.08          $       1,364,483                  728                     0.11
Savings deposits                                232,322                  120                     0.10                    192,039                   96                     0.10
Time deposits                                   286,949                  709                     0.50                    389,828                1,649                     0.85
Total interest-bearing deposits               1,928,448                1,386                     0.14                  1,946,350                2,473                     0.26
Securities sold under agreements to
repurchase                                       23,789                   14                     0.12                     21,937                   17                     0.16
FHLB Advances and other borrowings                1,795                   43                     4.74                     57,948                  335                     1.17
Subordinated notes                               31,977                1,006                     6.29                     31,916                1,004                     6.29
Total interest-bearing liabilities            1,986,009                2,448                     0.25                  2,058,151                3,829                     0.38
Noninterest-bearing demand deposits             556,243                                                                  531,313
Other                                            44,072                                                                   36,906
Total liabilities                             2,586,324                                                                2,626,370
Shareholders' equity                            257,406                                                                  254,603
Total                                 $       2,843,730                                                        $       2,880,973
Taxable-equivalent net interest
income /net interest spread                                           47,307                     3.52  %                                       44,173                     3.22  %
Taxable-equivalent net interest
margin                                                                                           3.59  %                                                                  3.31  %
Taxable-equivalent adjustment                                           (615)                                                                    (417)
Net interest income                                              $    46,692                                                              $    43,756

NOTES TO ANALYSIS OF NET INTEREST INCOME:

                        Yields and interest income on tax-exempt assets 

have been computed on a taxable-equivalent

          (1)           basis assuming a 21% tax rate.
          (2)           Average balances include nonaccrual loans.
          (3)           Interest income on loans includes prepayment and late fees, where applicable.



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Net interest income on a taxable-equivalent basis increased by $3.1 million to
$47.3 million for the six months ended June 30, 2022 from $44.2 million for the
six months ended June 30, 2021. The Company's net interest spread increased by
30 basis points to 3.52% for the six months ended June 30, 2022 compared to
3.22% for the six months ended June 30, 2021.

Taxable-equivalent net interest margin increased by 28 basis points to 3.59% for
the six months ended June 30, 2022 from 3.31% for the six months ended June 30,
2021. The taxable-equivalent yield on interest-earning assets increased by 18
basis points from the six months ended June 30, 2021 to the six months ended
June 30, 2022 reflecting the deployment of cash into higher yielding commercial
loans and investment securities. The decrease in the cost of interest-bearing
liabilities from the six months ended June 30, 2021 to the six months ended
June 30, 2022 also benefited the tax-equivalent net interest margin, which
reflected the decrease in time deposit balances and repayment of overnight
borrowings. Average loans remained approximately $2.0 billion, during both the
six months ended June 30, 2022 and 2021, as commercial and home equity loan
growth for the six months ended June 30, 2022 was offset primarily by the impact
of SBA PPP loan forgiveness. Average investment securities increased by $45.1
million from $453.1 million for the six months ended June 30, 2021 to $498.2
million for the same period in 2022 due to investment purchases. Average
interest-bearing liabilities declined $72.1 million to $2.0 billion for the 2022
period from $2.1 billion for the 2021 period due to decreased average balances
in time deposits and overnight borrowings.

The yield on loans increased by 12 basis points to 4.40% for the six months
ended June 30, 2022 compared to 4.28% for the six months ended June 30, 2021.
Taxable-equivalent interest income earned on loans increased by $570 thousand
year-over-year due to an increase in the average balance of commercial loans,
excluding SBA PPP loans, and from the impact of the rising interest rate
environment. The increase in interest income was partially offset by the
decrease in interest income from SBA PPP loans. This decrease is due to a lower
average balance of SBA PPP loans resulting from loans forgiven during the six
months ended June 30, 2022 compared to the six months ended June 30, 2021.

SBA PPP loans, net of deferred fees and costs, averaged $113.6 million during
the six months ended June 30, 2022 compared to $467.5 million during the six
months ended June 30, 2021. This decrease was due to the forgiveness of SBA PPP
loans. The average balance of commercial loans, excluding SBA PPP loans,
increased by $348.7 million from $1.1 billion in the six months ended June 30,
2021 to $1.5 billion during the six months ended June 30, 2022. Average home
equity loans increased by $12.9 million from $155.0 million for the six months
ended June 30, 2021 to $167.9 million for the six months ended June 30, 2022.
Average installment and other consumer loans decreased by $15.7 million from
$43.8 million for the six months ended June 30, 2021 to $28.1 million for the
six months ended June 30, 2022. Average residential mortgage loans decreased by
$24.1 million from $223.9 million during the six months ended June 30, 2021 to
$199.8 million during the six months ended June 30, 2022 due to lower housing
inventory and runoff.

For the six months ended June 30, 2022, interest income on loans includes $5.4
million of interest and net deferred fee income recognized associated with the
SBA PPP loans compared to $9.7 million of such interest and fee income for the
six months ended June 30, 2021. Accretion of purchase accounting adjustments
included in interest income was $810 thousand and $1.1 million for the six
months ended June 30, 2022 and 2021, respectively. The six months ended June 30,
2022 and 2021 included $583 thousand and $764 thousand, respectively, of
accelerated accretion related to the payoff of acquired loans.

Interest income on investment securities on a tax-equivalent basis increased by
$967 thousand to $5.9 million for the six months ended June 30, 2022 from $4.9
million for the six months ended June 30, 2021, with the taxable equivalent
yield increasing from 2.20% for the six months ended June 30, 2021 to 2.37% for
the six months ended June 30, 2022. The 17 basis point increase reflected the
higher interest rate environment in 2022 and certain repositioning within the
portfolio under the Company's asset/liability management strategies.

Although the average balance of federal funds sold and interest-bearing bank
balances decreased by $52.8 million from $218.2 million for the six months ended
June 30, 2021, to $165.4 million for the same period in 2022 due primarily to
the deployment of cash into loans and investment securities, the related
interest income on a tax-equivalent basis increased by $216 thousand to $336
thousand for the six months ended June 30, 2022, from $120 thousand for the six
months ended June 30, 2021. This increase was caused by the increase in the
interest rate at the FRB as a result of multiple Fed Funds rate increases by the
FOMC during 2022.

Interest expense on deposits and borrowings decreased by $1.4 million
year-over-year, reflecting a decrease in the average balance of interest-bearing
deposits of $17.9 million due primarily to continued runoff of certificates of
deposit. The cost of interest-bearing liabilities declined 13 basis points from
0.38% for the six months ended June 30, 2021 to 0.25% for the six months ended
June 30, 2022 due to the timing of deposit rate reductions in 2021 combined with
the continued maturity of higher yielding certificates of deposits and the
repayment and maturities of overnight borrowings in the third quarter of 2021.

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Provision for Loan Losses


The Company recorded a provision for loan losses of $2.1 million for the six
months ended June 30, 2022 compared to negative provision for loan losses of
$375 thousand for the same period in 2021. In calculating the provision for loan
losses, both quantitative and qualitative factors, including the Company's
historical charge-off data and economic and market conditions, were considered.
The provision for loan losses for the six months ended June 30, 2022 was driven
primarily by an increase in commercial loans, partially offset by the impact of
a reduction in qualitative factors to unwind a $726 thousand increase applied to
the commercial real estate loan portfolio in 2020 associated with the economic
impact of the COVID-19 pandemic. The negative provision for loan losses recorded
in the six months ended June 30, 2021 was due to the release of a portion of the
Company's remaining COVID-19 related reserve of $1.7 million. Net recoveries in
the six months ended June 30, 2022 totaled $24 thousand, compared to net
charge-offs of $395 thousand in the comparable prior year period. Nonaccrual
loans were 0.27% of gross loans at June 30, 2022, compared with 0.51% of gross
loans at June 30, 2021. Nonaccrual loans decreased by $4.5 million from June 30,
2021 to June 30, 2022 and classified loans decreased by $9.0 million to $19.7
million from June 30, 2021 to June 30, 2022. The decrease in non-accrual loans
includes the payoff of one loan of $2.6 million, loans returning to accrual
status of $652 thousand and charge-offs of $189 thousand, with the remaining
decrease due to paydowns. The decrease in classified loans reflects upgrades to
commercial loan ratings, including loans that were previously downgraded due to
the impact of the COVID-19 pandemic.

Additional information is included in the “Credit Risk Management” section
herein.

Noninterest Income


The following table compares noninterest income for the six months ended
June 30, 2022 and 2021:
                                           Six Months Ended June 30,                $ Change                 % Change
                                            2022                 2021               2022-2021               2022-2021

Service charges on deposit accounts $ 1,884 $ 1,435

      $        449                         31  %
Interchange income                            2,045               2,019                    26                          1  %
Other service charges and fees                  383                 330                    53                         16  %
Swap fee income                               1,738                  68                 1,670                      2,456  %
Trust and investment management
income                                        3,846               3,932                   (86)                        (2) %
Brokerage income                              1,917               1,721                   196                         11  %
Mortgage banking activities                   1,219               3,351                (2,132)                       (64) %

Income from life insurance                    1,159               1,121                    38                          3  %
Other income                                    626                  75                   551                        735  %

Investment securities (losses) gains           (149)                156                  (305)                      (196) %
Total noninterest income              $      14,668          $   14,208          $        460                          3  %

The following factors contributed to the more significant changes in noninterest
income between the six months ended June 30, 2022 and 2021:


•Service charges on deposit accounts increased by $449 thousand due to increased
customer transaction activity as the economy continued to recover from the
COVID-19 pandemic and changes to the deposit fee structure that took effect in
April 2022.

•Swap fee income increased by $1.7 million due to increased client interest in
locking in interest rates on commercial loans in the rising interest rate
environment.

•Brokerage income increased by $196 thousand year-over-year due to fluctuations
in market conditions and client investment trade volume.


•Mortgage banking income decreased by $2.1 million due to current market
conditions, including low housing inventory and a rising interest rate
environment, which caused declines in residential mortgage loan production, the
residential mortgage loan pipeline and secondary market sales during the first
half of 2022, compared to strong refinancing activity in the same period in
2021. These changes resulted in a decrease in the gain on sale of residential
mortgage loans of $1.4 million for the six months ended June 30, 2022 compared
to the first quarter of 2021. In addition, the Company recorded an MSR valuation
reserve reversal of $79 thousand in the six months ended June 30, 2022 compared
to an MSR valuation reserve reversal of $651 thousand in the six months ended
June 30, 2021, which was driven by significant market interest rate reductions
caused by the COVID-19 pandemic

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earlier in 2021. Mortgage loans sold totaled $54.5 million in the first half of
2022 compared with $109.9 million in the first half of 2021.

•Other income increased by $551 thousand due primarily to gains on the sales of
two SBA loans totaling $306 thousand.


•During the six months ended June 30, 2022, the Company recorded net investment
securities losses of $149 thousand due to a loss of $171 thousand on one
non-agency CMO security that was called by the issuer in the second quarter of
2022. The loss was partially offset by a gain of $22 thousand from the partial
sale of $3.1 million of one municipal security. During the six months ended
June 30, 2021, the Company sold 14 securities with a principal balance of $75.6
million for a gain of $128 thousand.

•Other line items within noninterest income showed fluctuations between 2022 and
2021 attributable to normal business operations.

Noninterest Expenses


The following table compares noninterest expenses for the six months ended
June 30, 2022 and 2021:
                                             Six Months Ended June 30,                $ Change                 % Change
                                              2022                 2021               2022-2021               2022-2021

Salaries and employee benefits $ 22,649 $ 20,409

       $      2,240                       11.0  %
Occupancy                                       2,420               2,338                    82                        3.5  %
Furniture and equipment                         2,570               2,580                   (10)                      (0.4) %
Data processing                                 2,218               2,051                   167                        8.1  %

Automated teller machine and
interchange fees                                  623                 568                    55                        9.7  %
Advertising and bank promotions                 1,236                 699                   537                       76.8  %
FDIC insurance                                    473                 352                   121                       34.4  %

Professional services                           1,530               1,300                   230                       17.7  %
Directors' compensation                           461                 469                    (8)                      (1.7) %

Taxes other than income                           672                 913                  (241)                     (26.4) %
Intangible asset amortization                     573                 658                   (85)                     (12.9) %

Other operating expenses                        2,733               2,479                   254                       10.2  %
Total noninterest expenses              $      38,158          $   34,816          $      3,342                        9.6  %

The following factors contributed to the more significant changes in noninterest
expenses between the six months ended June 30, 2022 and 2021:


•Salaries and employee benefits expense increased by $2.2 million due primarily
to increases in wages and additions to staff that filled vacancies and to drive
and support a strong growth trajectory, which also resulted in an increase in
employee benefit costs.

•Advertising and bank promotions increased by $537 thousand due primarily to an
increase in contributions of $500 thousand to the PA EITC, with the remaining
increase due to promotions expenses and bank events.

•FDIC insurance expense increased by $121 thousand due to an increase in the
assessment rate driven by commercial loan growth and a lower deduction in the
FDIC assessment rate calculation from SBA PPP loans due to forgiveness.

•Professional services increased by $230 thousand due to an increase in
compliance and technology consulting services, partially offset by lower legal
costs incurred in connection with the SEPTA litigation.


•Taxes other than income decreased by $241 thousand due to $450 thousand of
eligible tax credits associated with the contributions made to the PA EITC
during the six months ended June 30, 2022, partially offset by an increase
year-over year in the Pennsylvania Bank Shares Tax expense, as the Bank's total
equity balance grew.

•Other operating expenses increased by $254 thousand as the reserve for unfunded
commitments increased by $196 thousand during the six months ended June 30,
2022, compared to the same period in the prior year. In addition, employee
related costs, which includes travel, meals and seminars, increased by $177
thousand during the same comparative periods as employees have returned from the
work-from-home environment caused by the COVID-19 pandemic, and travel increased
as the economy and businesses recovered. These increases were partially offset
by an increase of $124 thousand in income from fair value adjustments to
derivatives between the six months ended June 30, 2022 and 2021.

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•Other line items within noninterest expenses showed fluctuations between 2022
and 2021 attributable to normal business operations.

Income Tax Expense


Income tax expense totaled $3.9 million, an effective tax rate of 18.4%, for the
six months ended June 30, 2022 compared with $4.5 million, an effective tax rate
of 19.3%, for the six months ended June 30, 2021. The Company's effective tax
rate is less than the 21% federal statutory rate, principally due to tax-free
income, which includes interest income on tax-free loans and investment
securities and income from life insurance policies, federal income tax credits,
and the impact of non-tax deductible expenses. The decrease in the effective tax
rate from the six months ended June 30, 2021 to the six months ended June 30,
2022 was primarily due to an increase in projected income from tax-free
investment securities and loans for the 2022 fiscal year compared to the prior
year.


FINANCIAL CONDITION

Management devotes substantial time to overseeing the investment of funds in
loans and investment securities and the formulation of policies directed toward
the profitability and management of the risks associated with these investments.

Investment Securities


The Company utilizes investment securities to manage interest rate risk, to
enhance income through interest and dividend income, provide liquidity and
provide collateral for certain deposits and borrowings. At June 30, 2022, AFS
securities totaled $512.7 million, an increase of $40.3 million, from $472.4
million at December 31, 2021. During the six months ended June 30, 2022, the
Company purchased $73.7 million of municipal securities, $41.2 million of agency
MBS and CMO, and $6.6 million of non-agency CMO, partially offset by the sale of
$3.1 million of a municipal security for a gain of $22 thousand. During the
first quarter of 2022, the Company recorded a loss of $171 thousand on one $14.7
million par value non-agency CMO, which was called by the issuer in the second
quarter of 2022. There was no OTTI recorded during the second quarter of 2022.
The balance of investment securities included net unrealized losses of $37.2
million at June 30, 2022 compared to net unrealized gains of $5.6 million at
December 31, 2021. This change was due to market interest rate increases.

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The following table summarizes the credit ratings and collateral associated with
the Company's investment portfolio, excluding equity securities, at June 30,
2022:

                                        Amortized Book
        Sector           Portfolio Mix      Value       Fair Value   Credit Enhancement      AAA         AA          A        BBB        NR          Collateral Type
Unsecured ABS                      1  % $     5,684    $    5,664                  32  %        -  %        -  %      -  %      -  %      100  % Unsecured Consumer Debt
Student Loan ABS                   2          7,717         7,558                  26           -           -         -         -         100    Seasoned Student Loans
Federal Family                                                                                                                                   Federal Family
Education Loan ABS                17         94,462        90,719                   7          86          14         -         -           -    Education Loan (1)
PACE Loan ABS                      1          3,153         3,025                   6         100           -         -         -           -    PACE Loans

Non-Agency RMBS                    3         17,520        16,221                  11          61           -         -         -          39    Reverse Mortgages (2)
Municipal - General
Obligation                        22        122,863       114,009                               5          90         5         -           -
Municipal - Revenue               24        132,281       119,518                               -          83        12         -           5
SBA ReRemic                        1          6,469         6,367                               -         100         -         -           -    SBA Guarantee (3)
                                                                                                                                                 Residential Mortgages
Agency MBS                        25        139,251       131,249                               -         100         -         -           -    (3)
U.S. Treasury
securities                         4         20,077        17,969                               -         100         -         -           -
Bank CDs                           -            249           249                               -           -         -         -         100    FDIC Insured CD
                                 100  % $   549,726    $  512,548                              18  %       73  %      4  %      -  %        5  %

(1) Minimum of 17% guaranteed by U.S. government
(2) Reverse mortgages fund over time, credit enhancement is estimated based on prior experience
(3) 77% guaranteed by U.S. government agencies

Note : Ratings in table are the lowest of the six rating agencies (Standard & Poor’s, Moody’s, Morningstar, DBRS, KBRA and Fitch). Standard & Poor’s rates U.S.
government obligations at AA+



Loan Portfolio

The Company offers a variety of products to meet the credit needs of its
borrowers, principally commercial real estate loans, commercial and industrial
loans, retail loans secured by residential properties, and to a lesser extent,
installment loans. No loans are extended to non-domestic borrowers or
governments.

The risks associated with lending activities differ among loan classes and are
subject to the impact of changes in interest rates, market conditions of
collateral securing the loans and general economic conditions. Any of these
factors may adversely impact a borrower's ability to repay loans, and also
impact the associated collateral. See Note 3, Loans and Allowance for Loan
Losses, to the unaudited condensed consolidated financial statements under Part
I, Item 1, "Financial Information," for a description of the Company's loan
classes and differing levels of associated credit risk.

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The following table presents the loan portfolio, excluding residential LHFS, by
segment and class at June 30, 2022 and December 31, 2021:

                                         June 30,        December 31,
                                           2022              2021
Commercial real estate:
Owner occupied                         $   287,825      $    238,668
Non-owner occupied                         559,309           551,783
Multi-family                               116,110            93,255
Non-owner occupied residential             109,141           106,112
Acquisition and development:
1-4 family residential construction         22,650            12,279
Commercial and land development            134,947            93,925
Commercial and industrial (1)              379,729           485,728
Municipal                                   12,957            14,989
Residential mortgage:
First lien                                 202,787           198,831
Home equity - term                           5,996             6,081
Home equity - lines of credit              171,269           160,705
Installment and other loans                 14,909            17,630
                                       $ 2,017,629      $  1,979,986

(1) This balance includes $30.2 million and $189.9 million of SBA PPP loans, net
of deferred fees and costs, at June 30, 2022 and December 31, 2021,
respectively.


Total loans increased by $37.6 million from December 31, 2021 to June 30, 2022.
This increase is due to growth in commercial loans, excluding SBA PPP loans, of
$185.6 million, home equity lines of credit of $10.6 million and first lien
residential mortgages of $4.0 million, partially offset by a decrease of $159.7
million in SBA PPP loans due to loan forgiveness during the six months ended
June 30, 2022. Overall loan growth, excluding SBA PPP loans, was 11.0% for the
six months ended June 30, 2022.

Asset Quality

Risk Elements


The Company's loan portfolio is subject to varying degrees of credit risk.
Credit risk is managed through the Company's underwriting standards, on-going
credit reviews, and monitoring of asset quality measures. Additionally, loan
portfolio diversification, which limits exposure to a single industry or
borrower, and collateral requirements also mitigate the Company's risk of credit
loss.

The loan portfolio consists principally of loans to borrowers in south central
Pennsylvania and the greater Baltimore, Maryland region. As the majority of
loans are concentrated in these geographic regions, a substantial portion of the
borrowers' ability to honor their obligations may be affected by the level of
economic activity in the market areas.

Nonperforming assets include nonaccrual loans and foreclosed real estate. In
addition, restructured loans still accruing and loans past due 90 days or more
and still accruing are also deemed to be risk assets. For all loan classes, the
accrual of interest income generally ceases when principal or interest is past
due 90 days or more and collateral is inadequate to cover principal and interest
or immediately if, in the opinion of management, full collection is unlikely.
Interest will continue to accrue on loans past due 90 days or more if the
collateral is adequate to cover principal and interest, and the loan is in the
process of collection. Interest accrued, but not collected, as of the date of
placement on nonaccrual status, is generally reversed and charged against
interest income, unless fully collateralized. Subsequent payments received are
either applied to the outstanding principal balance or recorded as interest
income, depending on management's assessment of the ultimate collectability of
principal. Loans are returned to accrual status, for all loan classes, when all
the principal and interest amounts contractually due are brought current, the
loans have performed in accordance with the contractual terms of the note for a
reasonable period of time, generally six months, and the ultimate collectability
of the total contractual principal and interest is reasonably assured. Past due
status is based on contract terms of the loan.

Loans, the terms of which are modified, are classified as TDRs if a concession
was granted for legal or economic reasons related to a borrower's financial
difficulties. Concessions granted under a TDR typically involve a temporary
deferral of scheduled loan payments, an extension of a loan's stated maturity
date, temporary reduction in interest rates, or below market

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rates. If a modification occurs while the loan is on accruing status, it will
continue to accrue interest under the modified terms. Nonaccrual TDRs are
restored to accrual status if scheduled principal and interest payments, under
the modified terms, are current for six months after modification, and the
borrower continues to demonstrate its ability to meet the modified terms. TDRs
are evaluated individually for impairment if they have been restructured during
the most recent calendar year, or if they are not performing according to their
modified terms.

The following table presents the Company's total nonperforming and other risk
assets, including the aggregate balances of nonaccrual loans, restructured loans
still accruing, loans past due 90 days or more, and OREO as of June 30, 2022 and
December 31, 2021. Loans 30-89 days past due and relevant asset quality ratios
as of June 30, 2022 and December 31, 2021 are also presented.
                                                                     June 30,          December 31,
                                                                       2022                2021
Nonaccrual loans                                                   $   5,387          $     6,449
OREO                                                                       -                    -
Total nonperforming assets                                             5,387                6,449
Restructured loans still accruing                                        568                  804
Loans past due 90 days or more and still accruing                        322                1,201

Total nonperforming and other risk assets (total risk assets) $ 6,277 $ 8,454
Loans 30-89 days past due and still accruing

                       $   2,925          $     5,925
Asset quality ratios:
Total nonperforming loans to total loans                                0.27  %              0.33  %
Total nonperforming assets to total assets                              0.19  %              0.23  %
Total nonperforming assets to total loans and OREO                      0.27  %              0.33  %
Total risk assets to total loans and OREO                               0.31  %              0.43  %
Total risk assets to total assets                                       0.22  %              0.30  %
ALL to total loans                                                      1.15  %              1.07  %
ALL to nonperforming loans                                            432.13  %            328.42  %

ALL to nonperforming loans and restructured loans still accruing 390.92 %

            292.02  %


Total nonperforming and other risk assets decreased by $2.2 million, or 26%,
from December 31, 2021 to June 30, 2022. Non-accrual loans decreased by $1.1
million from December 31, 2021 to June 30, 2022 due primarily to $596 thousand
of loans returning to accrual status and payment activity of $712 thousand,
partially offset by additions in loans classified as non-accrual loans of $267
thousand. Loans past due 90 days and still accruing decreased by $879 thousand
from December 31, 2021 to June 30, 2022 due to the collection on a loan
guaranteed by the SBA during the first quarter of 2022.

The following table presents detail of impaired loans at June 30, 2022 and
December 31, 2021:
                                                   June 30, 2022                                              December 31, 2021
                                                      Restructured                                                 Restructured
                                 Nonaccrual           Loans Still                             Nonaccrual           Loans Still
                                   Loans                Accruing             Total              Loans                Accruing             Total
Commercial real estate:
Owner occupied                 $     2,910          $           -          $ 2,910          $     3,763          $           -          $ 3,763

Non-owner occupied residential          98                      -               98                  122                      -              122

Commercial and industrial               62                      -               62                  250                      -              250
Residential mortgage:
First lien                           1,880                    568            2,448                1,831                    804            2,635
Home equity - term                       6                      -                6                    7                      -                7
Home equity - lines of credit          389                      -              389                  436                      -              436
Installment and other loans             42                      -               42                   40                      -               40
                               $     5,387          $         568          $ 5,955          $     6,449          $         804          $ 7,253


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The following table presents our exposure to relationships with an impaired
balance, which excludes accruing PCI loans, and the partial charge-offs taken to
date and specific reserves established on those relationships at June 30, 2022
and December 31, 2021. Of the relationships deemed to be impaired at June 30,
2022, one had a recorded balance in excess of $1.0 million, and 58
relationships, which represents 49% of total impaired loans, had recorded
balances of less than $250 thousand.
                                                                                                      Partial
                                                           # of                 Recorded            Charge-offs          Specific
                                                      Relationships            Investment             to Date            Reserves
June 30, 2022
Relationships greater than $1,000,000                         1             

$ 2,449 $ – $ –
Relationships greater than $500,000 but less than
$1,000,000

                                                    -                        -                     -                 -
Relationships greater than $250,000 but less than
$500,000                                                      2                      587                     -                 -
Relationships less than $250,000                             58                    2,919                   280                28
                                                             61             

$ 5,955 $ 280 $ 28
December 31, 2021
Relationships greater than $1,000,000

                         1             

$ 2,535 $ – $ –
Relationships greater than $500,000 but less than
$1,000,000

                                                    1                      602                    17                 -
Relationships greater than $250,000 but less than
$500,000                                                      2                      601                     -                 -
Relationships less than $250,000                             63                    3,515                   303                28
                                                             67              $     7,253          $        320          $     28



The Company takes partial charge-offs on collateral-dependent loans when
carrying value exceeds estimated fair value, as determined by the most recent
appraisal adjusted for current (within the quarter) conditions, less costs to
dispose. Impairment reserves remain in place if updated appraisals are pending,
and represent management's estimate of potential loss.

Internal loan reviews are completed annually on all commercial relationships
with a committed loan balance in excess of $1.0 million, which includes
confirmation of risk rating by an independent credit officer. In addition, all
commercial relationships greater than $500 thousand rated Substandard, Doubtful
or Loss are reviewed and corresponding risk ratings are reaffirmed by the Bank's
Problem Loan Committee, with subsequent reporting to the Management ERM
Committee.

In its individual loan impairment analysis, the Company determines the extent of
any full or partial charge-offs that may be required, or any reserves that may
be needed. The determination of the Company's charge-offs or impairment reserve
include an evaluation of the outstanding loan balance and the related collateral
securing the credit. Through a combination of collateral securing the loans and
partial charge-offs taken to date, the Company believes that it has adequately
provided for the potential losses that it may incur on these relationships at
June 30, 2022. However, over time, additional information may result in
increased reserve allocations or, alternatively, it may be deemed that the
reserve allocations exceed those that are needed.

Credit Risk Management

Allowance for Loan Losses


The Company maintains the ALL at a level deemed adequate by management for
probable incurred credit losses. The ALL is established and maintained through a
provision for loan losses, which is charged to earnings. On a quarterly basis,
management assesses the adequacy of the ALL using a defined methodology which
considers specific credit evaluation of impaired loans, historical loss
experience and qualitative factors. Management addresses the requirements for
loans individually identified as impaired, loans collectively evaluated for
impairment, and other bank regulatory guidance in its assessment.

The ALL is evaluated based on review of the collectability of loans in light of
historical experience; the nature and volume of the loan portfolio; adverse
situations that may affect a borrower's ability to repay; estimated value of any
underlying collateral; and prevailing economic conditions. This evaluation is
inherently subjective as it requires estimates that are susceptible to
significant revision as more information becomes available. A description of the
methodology for establishing the allowance and provision for loan losses and
related procedures in establishing the appropriate level of reserve is included
in Note 3, Loans and Allowance for Loan Losses, to the unaudited condensed
consolidated financial statements under Part I, Item 1, "Financial Information."

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The following table summarizes the Company’s internal risk ratings at June 30,
2022
and December 31, 2021:

                                                 Special           Non-Impaired           Impaired -
                               Pass              Mention           Substandard            Substandard           Doubtful          PCI Loans             Total
June 30, 2022
Commercial real estate:
Owner occupied            $   274,188          $  6,086          $       2,375          $      2,910          $       -          $   2,266          $   287,825
Non-owner occupied            547,382             9,221                  2,409                     -                  -                297              559,309
Multi-family                  107,779             8,082                    249                     -                  -                  -              116,110
Non-owner occupied
residential                   105,680             2,261                    503                    98                  -                599              109,141
Acquisition and
development:
1-4 family residential
construction                   22,650                 -                      -                     -                  -                  -               22,650
Commercial and land
development                   133,264             1,683                      -                     -                  -                  -              134,947
Commercial and industrial     365,407             5,877                  6,266                    62                  -              2,117              379,729
Municipal                      12,957                 -                      -                     -                  -                  -               12,957
Residential mortgage:
First lien                    195,674                 -                    221                 2,448                  -              4,444              202,787
Home equity - term              5,974                 -                      -                     6                  -                 16                5,996
Home equity - lines of
credit                        170,834                 -                     46                   389                  -                  -              171,269
Installment and other
loans                          14,861                 -                      -                    42                  -                  6               14,909
                          $ 1,956,650          $ 33,210          $      12,069          $      5,955          $       -          $   9,745          $ 2,017,629
December 31, 2021
Commercial real estate:
Owner occupied            $   219,250          $  7,239          $       6,087          $      3,763          $       -          $   2,329          $   238,668
Non-owner occupied            528,010            23,297                    166                     -                  -                310              551,783
Multi-family                   84,414             8,238                    603                     -                  -                  -               93,255
Non-owner occupied
residential                   102,588             1,065                  1,153                   122                  -              1,184              106,112
Acquisition and
development:
1-4 family residential
construction                   12,279                 -                      -                     -                  -                  -               12,279
Commercial and land
development                    92,049             1,385                    491                     -                  -                  -               93,925
Commercial and industrial     470,579             7,917                  4,720                   250                  -              2,262              485,728
Municipal                      14,989                 -                      -                     -                  -                  -               14,989
Residential mortgage:
First lien                    191,386                 -                    225                 2,635                  -              4,585              198,831
Home equity - term              6,058                 -                      -                     7                  -                 16                6,081
Home equity - lines of
credit                        160,203                20                     46                   436                  -                  -              160,705
Installment and other
loans                          17,584                 -                      -                    40                  -                  6               17,630
                          $ 1,899,389          $ 49,161          $      13,491          $      7,253          $       -          $  10,692          $ 1,979,986


Potential problem loans are defined as performing loans which have
characteristics that cause management concern over the ability of the borrower
to perform under present loan repayment terms and which may result in the
reporting of these loans as nonperforming loans in the future. Generally,
management feels that Substandard loans that are currently performing and not

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considered impaired result in some doubt as to the borrower’s ability to
continue to perform under the terms of the loan, and represent potential problem
loans. Non-impaired Substandard loans totaled $12.1 million at June 30, 2022.


Additionally, the Special Mention classification is intended to be a temporary
classification reflective of loans that have potential weaknesses that may, if
not monitored or corrected, weaken the asset or inadequately protect the
Company's position at some future date. Special Mention loans represent an
elevated risk, but their weakness does not yet justify a more severe, or
classified, rating. These loans require inquiry by lenders on the cause of the
potential weakness and, once analyzed, the loan classification may be downgraded
to Substandard or, alternatively, could be upgraded to Pass. Special Mention
loans decreased by $16.0 million from December 31, 2021 to June 30, 2022 due to
continued improvements in economic conditions resulting in upgrades to
commercial loans, including those that were previously downgraded due to the
impact of the COVID-19 pandemic.

The following table summarizes activity in the ALL for the three and six months
ended June 30, 2022 and 2021:

                                                                      Commercial                                                                         Consumer
                                                   Acquisition           Commercial
                             Commercial                and                  and                                                     Residential           Installment
                             Real Estate           Development           Industrial           Municipal            Total             Mortgage              and Other            Total            Unallocated            Total
Three Months Ended
June 30, 2022
Balance, beginning of
period                     $     11,546          $      2,321          $    

4,301 $ 29 $ 18,197 $ 2,873 $ 201 $ 3,074 $ 237 $ 21,508
Provision for loan losses

           748                   695                  184                  (3)            1,624                   127                    24              151                     -             1,775

Charge-offs                           -                     -                  (54)                  -               (54)                    -                    (5)              (5)                    -               (59)
Recoveries                            -                     8                   40                   -                48                     4                     3                7                     -                55

Balance, end of period $ 12,294 $ 3,024 $

  4,471          $       26          $ 19,815          $      3,004          $        223          $ 3,227          $        237          $ 23,279
June 30, 2021
Balance, beginning of
period                     $     10,671          $      1,046          $    

3,714 $ 38 $ 15,469 $ 3,058 $ 208 $ 3,266 $ 232 $ 18,967
Provision for loan losses

           806                   197                 (223)                 (9)              771                  (142)                   19             (123)                  (23)              625
Charge-offs                        (181)                    -                 (112)                  -              (293)                  (71)                   (9)             (80)                    -              (373)
Recoveries                           19                     -                  116                   -               135                    18                     9               27                     -               162

Balance, end of period $ 11,315 $ 1,243 $

  3,495          $       29          $ 16,082          $      2,863          $        227          $ 3,090          $        209          $ 19,381
Six Months Ended
June 30, 2022
Balance, beginning of
period                     $     12,037          $      2,062          $    

3,814 $ 30 $ 17,943 $ 2,785 $ 215 $ 3,000 $ 237 $ 21,180
Provision for loan losses

           225                   953                  684                  (4)            1,858                   199                    18              217                     -             2,075

Charge-offs                           -                     -                 (115)                  -              (115)                  (10)                  (18)             (28)                    -              (143)
Recoveries                           32                     9                   88                   -               129                    30                     8               38                     -               167

Balance, end of period $ 12,294 $ 3,024 $

  4,471          $       26          $ 19,815          $      3,004          $        223          $ 3,227          $        237          $ 23,279
June 30, 2021
Balance, beginning of
period                     $     11,151          $      1,114          $    

3,942 $ 40 $ 16,247 $ 3,362 $ 324 $ 3,686 $ 218 $ 20,151
Provision for loan losses

           312                   128                 (277)                (11)              152                  (431)                  (87)            (518)                   (9)             (375)
Charge-offs                        (181)                    -                 (566)                  -              (747)                  (92)                  (29)            (121)                    -              (868)
Recoveries                           33                     1                  396                   -               430                    24                    19               43                     -               473

Balance, end of period $ 11,315 $ 1,243 $

 3,495          $       29          $ 16,082          $      2,863          $        227          $ 3,090          $        209          $ 19,381



The ALL totaled $23.3 million at June 30, 2022, an increase of $2.1 million from
December 31, 2021, resulting from a provision for loan losses of $2.1 million,
which was inclusive of net recoveries of $24 thousand during the six months
ended June 30, 2022. At June 30, 2022, the ALL is higher as a percentage of the
total loan portfolio at 1.15% compared to 1.07% at June 30, 2021. The ALL
increased in the six months ended June 30, 2022 primarily as a result of
commercial loan growth; however, this was partially offset by the reduction in
qualitative factors to unwind an increase from 2020 applied to the commercial
real estate portfolio associated with the COVID-19 pandemic. Excluding SBA
loans, which are 100% guaranteed, the ALL to total loans remained at 1.2% at
both June 30, 2022 and December 31, 2021. Despite generally favorable historical
charge-off data, the impact of current economic conditions may result in the
need for additional provisions for loan losses in future quarters.

Classified loans totaled $19.7 million at June 30, 2022, or 1.0% of total loans
outstanding, reflecting a decrease from $23.1 million, or 1.2% of loans
outstanding, at December 31, 2021. The asset quality ratios previously noted are
indicative of

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the continued benefit the Company has received from favorable historical
charge-off statistics and generally stable economic and market conditions for
the last few years, even while the commercial loan portfolio has been growing.


The following table summarizes the ending loan balances individually or
collectively evaluated for impairment based on loan type, as well as the ALL
allocation for each, at June 30, 2022 and December 31, 2021, including PCI
loans:
                                                                    Commercial                                                                          Consumer
                                                Acquisition          Commercial
                           Commercial               and                  and                                                      Residential           Installment
                          Real Estate           Development          Industrial          Municipal             Total               Mortgage              and Other             Total             Unallocated             Total
June 30, 2022
Loans allocated by:
Individually evaluated
for impairment           $     3,008          $          -          $       62          $       -          $     3,070          $      2,843          $         42          $   2,885          $          -          $     5,955
Collectively evaluated
for impairment             1,069,377               157,597             379,667             12,957            1,619,598               377,209                14,867            392,076                     -            2,011,674

                         $ 1,072,385          $    157,597          $  379,729          $  12,957          $ 1,622,668          $    380,052          $     14,909          $ 394,961          $          -          $ 2,017,629
ALL allocated by:
Individually evaluated
for impairment           $         -          $          -          $        -          $       -          $         -          $         28          $          -          $      28          $          -          $        28
Collectively evaluated
for impairment                12,294                 3,024               4,471                 26               19,815                 2,976                   223              3,199                   237               23,251

                         $    12,294          $      3,024          $    4,471          $      26          $    19,815          $      3,004          $        223          $   3,227          $        237          $    23,279
December 31, 2021
Loans allocated by:
Individually evaluated
for impairment           $     3,885          $          -          $      250          $       -          $     4,135          $      3,078          $         40          $   3,118          $          -          $     7,253
Collectively evaluated
for impairment               985,933               106,204             485,478             14,989            1,592,604               362,539                17,590            380,129                     -            1,972,733
                         $   989,818          $    106,204          $  485,728          $  14,989          $ 1,596,739          $    365,617          $     17,630          $ 383,247          $          -          $ 1,979,986
ALL allocated by:
Individually evaluated
for impairment           $         -          $          -          $        -          $       -          $         -          $         28          $          -          $      28          $          -          $        28
Collectively evaluated
for impairment                12,037                 2,062               3,814                 30               17,943                 2,757                   215              2,972                   237               21,152
                         $    12,037          $      2,062          $    3,814          $      30          $    17,943          $      2,785          $        215          $   3,000          $        237          $    21,180


In addition to the specific reserve allocations on impaired loans noted
previously, eight loans, with aggregate outstanding principal balances of $387
thousand
, have had cumulative partial charge-offs to the ALL totaling $280
thousand
at June 30, 2022. As updated appraisals are received on
collateral-dependent loans, partial charge-offs are taken to the extent the
loans’ principal balance exceeds their fair value.


Management believes the allocation of the ALL among the various loan classes
adequately reflects the probable incurred credit losses in each portfolio and is
based on the methodology outlined in Note 3, Loans and Allowance for Loan
Losses, to the Consolidated Financial Statements under Part I, Item 1,
"Financial Information." Management re-evaluates and makes enhancements to its
reserve methodology to better reflect the risks inherent in the different
segments of the portfolio, particularly in light of increased charge-offs, with
noticeable differences between the different loan classes. Management believes
these enhancements to the ALL methodology improve the accuracy of quantifying
probable incurred credit losses inherent in the portfolio. Management charges
actual loan losses to the reserve and bases the provision for loan losses on its
overall analysis.

The unallocated portion of the ALL reflects estimated inherent losses within the
portfolio that have not been detected, as well as the risk of error in the
specific and general reserve allocation, other potential exposure in the loan
portfolio, variances in management's assessment of national and local economic
conditions and other factors management believes appropriate at the time. The
unallocated portion of the ALL was 1.0% and 1.1% of the ALL balance at June 30,
2022 and December 31, 2021, respectively. The Company monitors the unallocated
portion of the ALL and, by policy, has determined it should not exceed

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3% of the total reserve. Future negative provisions for loan losses may result
if the unallocated portion was to increase, and management determined the
reserves were not required for the anticipated risk in the portfolio.


Management believes the Company's ALL is adequate based on currently available
information. Future adjustments to the ALL and enhancements to the methodology
may be necessary due to changes in economic conditions, regulatory guidance, or
management's assumptions as to future delinquencies or loss rates.

Deposits

Deposits grew by $13.7 million, or 1%, remaining at approximately $2.5 billion
at both June 30, 2022 and December 31, 2021.


Noninterest-bearing deposits increased by $16.0 million, or 3%, to $569.2
million, from December 31, 2021 to June 30, 2022. Interest-bearing deposits
totaled $1.9 billion at June 30, 2022, an decrease of $2.3 million, or less than
1%, from the $1.9 billion balance at December 31, 2021, despite a decrease in
time deposits, due to maturities, of $36.0 million, or 12%.

Deposit growth in the first six months of 2022 was principally due to continued
high levels of excess liquidity in the system as well as seasonality from public
fund clients.

Shareholders’ Equity, Capital Adequacy and Regulatory Matters


Capital management in a regulated financial services industry must properly
balance return on equity to its shareholders while maintaining sufficient levels
of capital and related risk-based regulatory capital ratios to satisfy statutory
regulatory requirements. The Company's capital management strategies have been
developed to provide attractive rates of returns to its shareholders, while
maintaining a "well capitalized" position of regulatory strength.

Shareholders' equity totaled $237.5 million at June 30, 2022, a decrease of
$34.1 million, or 13%, from $271.7 million at December 31, 2021. The decrease
was primarily attributable to other comprehensive losses of $33.8 million due to
an increase in unrealized losses on AFS securities caused by a substantial
increase in market interest rates, as well as dividends paid of $4.2 million and
shared-based compensation costs of $13.3 million, partially offset by net income
of $17.2 million.

The Company routinely evaluates its capital levels in light of its risk profile
to assess its capital needs. The Company and the Bank are subject to various
regulatory capital requirements administered by federal and state banking
agencies. The consolidated asset limit on small bank holding companies is $3.0
billion and a company with assets under that limit is not subject to the FRB
consolidated capital rules, but may file reports that include capital amounts
and ratios. The Company has elected to file those reports.

At June 30, 2022 and December 31, 2021, the Bank was considered well capitalized
under applicable banking regulations. The decrease of 1.5% from 15.0% at
December 31, 2021 to 13.5% at June 30, 2022 was due primarily to an increase in
risk-weighted assets from the deployment of cash into commercial loans, a
decrease in capital from share repurchases and an increase in deferred tax
assets resulting from the increase in unrealized losses on AFS securities. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific guidelines that involve quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Prompt corrective action
provisions are not applicable to bank holding companies, including financial
holding companies.

Note 8, Shareholders' Equity and Regulatory Capital, to the Notes to Unaudited
Condensed Consolidated Financial Statements under Part I, Item 1, "Financial
Information," includes a table presenting capital amounts and ratios for the
Company and the Bank at June 30, 2022 and December 31, 2021.

In addition to the minimum capital ratio requirement and minimum capital ratio
to be well capitalized presented in the referenced table in Note 8, the Bank
must maintain a capital conservation buffer as more fully described in the
Company's Annual Report on Form 10-K for the year ended December 31, 2021, Item
1 - Business, under the topic Basel III Capital Rules. At June 30, 2022, the
Bank's capital conservation buffer, based on the most restrictive Total Capital
to risk weighted assets capital ratio, was 5.3%, which is greater than the 2.5%
requirement.


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Liquidity


The primary function of asset/liability management is to ensure adequate
liquidity and manage the Company's sensitivity to changing interest rates.
Liquidity management involves the ability to meet the cash flow requirements of
clients who may be either depositors wanting to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs. The Company's primary sources of funds consist of deposit inflows, loan
repayments, maturities and sales of investment securities, the sale of mortgage
loans and borrowings from the FHLB of Pittsburgh. While maturities and scheduled
amortization of loans and investment securities are predictable sources of
funds, deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions and competition. The Company's maximum
borrowing capacity from the FHLB is $933.1 million at June 30, 2022.

The Company regularly adjusts its investments in liquid assets based upon our
assessment of expected loan demand, expected deposit flows, yields available on
interest-earning deposits and investment securities and the objectives of our
asset/liability management policy. Unencumbered investment securities totaled
$170.7 million at June 30, 2022. At June 30, 2022, the Company had $26.6 million
of investment securities pledged at the FRB Discount Window, with no associated
borrowings outstanding.

Supplemental Reporting of Non-GAAP Measures


As a result of acquisitions, the Company had intangible assets consisting of
goodwill and core deposit and other intangible assets totaling $22.3 million and
$22.9 million at June 30, 2022 and December 31, 2021, respectively.

Management believes providing certain "non-GAAP" financial information will
assist investors in their understanding of the effect of acquisition activity on
reported results, particularly to overcome comparability issues related to the
influence of intangibles (principally goodwill) created in acquisitions.
Management also believes providing certain other "non-GAAP" financial
information will provide investors with clarity on its ALL to total loans
ratios. The Company believes that excluding SBA-guaranteed loans, due to their
credit enhancement, from loans held for investment is useful due to the size and
effect on the total and ratio.

Tangible book value per share and the ALL to non-SBA guarantee loans, as used by
the Company in this supplemental reporting presentation, are determined by
methods other than in accordance with GAAP. While we believe this information is
a useful supplement to GAAP-based measures presented in this Form 10-Q, readers
are cautioned that this non-GAAP disclosure has limitations as an analytical
tool, should not be viewed as a substitute for financial measures determined in
accordance with GAAP, and should not be considered in isolation or as a
substitute for analysis of our results and financial condition as reported under
GAAP, nor are such measures necessarily comparable to non-GAAP performance
measures that may be presented by other companies. This supplemental
presentation should not be construed as an inference that our future results
will be unaffected by similar adjustments to be determined in accordance with
GAAP. The decrease in tangible book value per share (non-GAAP) from December 31,
2021 to June 30, 2022 is primarily due to an increase in other comprehensive
losses, net of taxes, of $33.8 million due to higher unrealized losses on
available-for-sale securities and share repurchases.

The following table presents the computation of each non-GAAP based measure
shown together with its most directly comparable GAAP based measure.

                                                              June 30, 2022            December 31, 2021
Tangible Book Value per Common Share
Shareholders' equity                                        $       237,527          $          271,656
Less: Goodwill                                                       18,724                      18,724
Other intangible assets                                               3,610                       4,183
Related tax effect                                                     (758)                       (878)
Tangible common equity (non-GAAP)                           $       215,951          $          249,627

Common shares outstanding                                            10,676                      11,183

Book value per share (most directly comparable GAAP
based measure)

                                              $         22.25          $            24.29
Intangible assets per share                                            2.02                        1.97
Tangible book value per share (non-GAAP)                    $         20.23          $            22.32




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                                                          June 30, 2022           December 31, 2021
Allowance for Loan Losses to Non-SBA Guaranteed Loans:
Allowance for loan losses                               $        23,279          $          21,180
Gross loans                                             $     2,017,629          $       1,979,986
less: SBA guaranteed loans                                      (32,599)                  (195,585)
Non-SBA guaranteed loans                                $     1,985,030          $       1,784,401

Allowance for loan losses to non-SBA guaranteed loans               1.2  %                     1.2  %

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