2020 Annual Report

(1) Interest income and average rates for investments and loans are presented on a tax-equivalent basis, assuming a federal income tax rate of 21%. (2) Average loan balances include nonaccrual loans. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs. (3) Net interest margin includes the tax equivalent adjustment and represents the annualized results of: (i) the difference between interest income on interest earning assets and the interest expense on interest bearing liabilities, divided by (ii) average interest earning assets for the period.

Interest Rates and Operating Interest Differential

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest earning assets and interest bearing liabilities, as well as changes in average interest rates. The following table presents the effect that these factors had on the interest earned on interest earning assets and the interest incurred on interest bearing liabilities. The effect of changes in volume is determined by multiplying the change in volume by the previous period’s average rate. Similarly, the effect of rate changes is calculated by multiplying the change in average rate by the previous period’s volume. The changes not attributable specifically to either volume or rate have been allocated to the changes due to volume. The following table presents the changes in the volume and rate of interest bearing assets and liabilities for the year ended December 31, 2020, compared to the year ended December 31, 2019, and for the year ended December 31, 2019, compared to the year ended December 31, 2018.

Year Ended December 31, 2020

Year Ended December 31, 2019

Compared with

Compared with

Year Ended December 31, 2019

Year Ended December 31, 2018

Change Due To:

Interest

Change Due To:

Interest

(dollars in thousands)

Volume

Rate Variance Volume

Rate Variance

Interest Earning Assets: Cash Investments . . . . . . . . . . . . . . . . . . . . . . . . . . $

72 $ (657) $ (585) $ 255 $ 250 $ 505

Investment Securities: Taxable Investment Securities . . . . . . . . . . . . . . . . 2,065 (707) 1,358

455 1,021 1,476

Tax Exempt Investment Securities . . . . . . . . . . . . (583)

63 (520) (645)

142 (503)

Total Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,482 (644) Loans: Paycheck Protection Program Loans. . . . . . . . . . . 4,143 — Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,293 (5,676) 6,617 15,425 1,394 16,819 Total Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,436 (5,676) 10,760 15,425 1,394 16,819 Federal Home Loan Bank Stock . . . . . . . . . . . . . . 47 (1) 46 63 86 149 Total Interest Earning Assets. . . . . . . . . . . . . . . . $ 18,037 $ (6,978) $ 11,059 $ 15,553 $ 2,893 $ 18,446 Interest Bearing Liabilities: Interest Bearing Transaction Deposits. . . . . . . . . . $ 395 $ (403) $ (8) $ 165 $ 834 $ 999 Savings and Money Market Deposits . . . . . . . . . . 780 (3,186) (2,406) 807 2,259 3,066 Time Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 523 (1,096) (573) 938 1,710 2,648 Brokered Deposits . . . . . . . . . . . . . . . . . . . . . . . . . 1,261 (2,457) (1,196) 615 697 1,312 Total Interest Bearing Deposits . . . . . . . . . . . . . . 2,959 (7,142) (4,183) 2,525 5,500 8,025 Federal Funds Purchased . . . . . . . . . . . . . . . . . . . . (3) (72) (75) (478) 27 (451) Notes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (73) 11 (62) (75) (18) (93) FHLB Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . 332 (349) (17) 1,069 620 1,689 Subordinated Debentures . . . . . . . . . . . . . . . . . . . . 1,603 (50) 1,553 7 (19) (12) Total Interest Bearing Liabilities. . . . . . . . . . . . . 4,818 (7,602) (2,784) 3,048 6,110 9,158 Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,219 $ 624 $ 13,843 $ 12,505 $ (3,217) $ 9,288 838 (190) 1,163 973 — 4,143 — —

Interest Income, Interest Expense, and Net Interest Margin 2020 Compared to 2019

Net interest income was $88.0 million for the year ended December 31, 2020, an increase of $13.8 million, or 18.7%, compared to $74.1 million for the year ended December 31, 2019. The increase in net interest income was

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