2020 Annual Report

Results of Operations Net Income

2020 Compared to 2019

Net income was $27.2 million for the year ended December 31, 2020, a 13.4% decrease compared to net income of $31.4 million for the year ended December 31, 2019. Net income per diluted common share for the year ended December 31, 2020 was $0.93, a 10.9% decrease, compared to $1.05 per diluted common share for the year ended December 31, 2019. Net income for the year ended December 31, 2020 was significantly impacted by increased provisions for loan losses, primarily attributable to economic uncertainties and evolving risks driven by the impacts of the COVID-19 pandemic, and non-recurring charges of $7.0 million related to prepayment fees associated with the early retirement of $94.0 million of FHLB term advances which had a weighted average rate of 2.83%. ROA was 1.04% and 1.49% for the years ended December 31, 2020 and 2019, respectively. ROE was 10.51% and 13.50% for the years ended December 31, 2020 and 2019, respectively.

2019 Compared to 2018

Net income was $31.4 million for the year ended December 31, 2019, a 16.7% increase over net income of $26.9 million for the year ended December 31, 2018. Net income per diluted common share for the year ended December 31, 2019 was $1.05, a 14.5% increase, compared to $0.91 per diluted common share for the year ended December 31, 2018. ROA was 1.49% and 1.51% for the years ended December 31, 2019 and 2018, respectively. ROE was 13.50% and 13.87% for the years ended December 31, 2019 and 2018, respectively.

Net Interest Income

The Company’s primary source of revenue is net interest income, which is impacted by the level of interest earning assets and related funding sources, as well as changes in the level of interest rates. The difference between the average yield on earning assets and the average rate paid for interest bearing liabilities is the net interest spread. Noninterest bearing sources of funds, such as demand deposits and shareholders’ equity, also support earning assets. The impact of the noninterest bearing sources of funds is captured in the net interest margin, which is calculated as net interest income divided by average earning assets. Both the net interest margin and net interest spread are presented on a tax-equivalent basis, which means that tax-free interest income has been adjusted to pretax-equivalent income, assuming a 21% federal tax rate. Management’s ability to respond to changes in interest rates by using effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the momentum of the Company’s primary source of earnings. In response to the COVID-19 pandemic, the Federal Open Market Committee decreased the targeted federal funds rate by a total of 150 basis points in March 2020, reaching a current range of 0.00 - 0.25%. This decrease may impact the comparability of net interest income between 2019 and 2020.

Average Balances and Yields

The following table presents, for the years ended December 31, 2020, 2019 and 2018, the average balances of each principal category of assets, liabilities and shareholders’ equity, and an analysis of net interest income. The average balances are principally daily averages and, for loans, include both performing and nonperforming balances. Interest

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