2020 Annual Report

The following table presents the major components of noninterest income 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,

Year Ended December 31,

Increase/

Increase/

(dollars in thousands)

2020 2019 (Decrease) 2019 2018 (Decrease)

Noninterest Income: Customer Service Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 826 $ 760 $ 66 $ 760 $ 745 $ 15 Net Gain (Loss) on Sales of Securities . . . . . . . . . . . . . . 1,503 516 987 516 (125) 641 Net Gain (Loss) on Sales of Foreclosed Assets . . . . . . . — 69 (69) 69 (225) 294 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,503 1,184 319 1,184 1,296 (112) Debit Card Interchange Fees . . . . . . . . . . . . . . . . . . . . . . 428 418 10 418 391 27 Swap Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 907 255 652 255 — 255 Other Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 672 624 48 624 461 163 Totals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,839 $ 3,826 $ 2,013 $ 3,826 $ 2,543 $ 1,283

Noninterest Expense 2020 Compared to 2019

Noninterest expense totaled $45.4 million for the year ended December 31, 2020, a $8.5 million, or 22.9% increase from $36.9 million for the year ended December 31, 2019. The increase was primarily driven by a $3.5 million increase in salaries and employee benefits as the result of merit increases and increased staff to meet the needs of the Company’s growth, and a $7.0 million non-recurring prepayment fee associated with the extinguishment of $94.0 million of FHLB term advances. The increases were partially offset by a decrease of $2.5 million in amortization of tax credit investments and a decrease of $719,000 in marketing and advertising expenses. Full-time equivalent employees increased from 160 as of December 31, 2019, to 183 as of December 31, 2020. Despite the uncertainty surrounding the COVID-19 pandemic, the Company continues to attract strategic hires in lending, deposit gathering, technology and risk management roles. Efficiency Ratio. The efficiency ratio, a non-GAAP financial measure, reports total noninterest expense, less amortization of intangible assets, as a percentage of net interest income plus total noninterest income less gains (losses) on sales of securities. Management believes this non-GAAP financial measure provides a meaningful comparison of operational performance and facilitates investors’ assessments of business performance and trends in comparison to peers in the banking industry. The Company’s efficiency ratio, and its comparability to some peers, is negatively impacted by the amortization of tax credit investments, as well as other non-routine items, within noninterest expense. The efficiency ratio was 49.0% for the year ended December 31, 2020, compared to 47.4% for the year ended December 31, 2019. The amortization of tax credit investments elevated the level of operating expenses in both years, and while the recognition of the tax credits increases operating expenses, and concurrently the efficiency ratio, it directly reduces income tax expense and the effective tax rate. The adjusted efficiency ratio, a non-GAAP financial measure, which excludes the impact of certain non-routine income and expenses from noninterest expense, decreased to 40.5% for the year ended December 31, 2020, compared to 43.3% for the year ended December 31, 2019. The efficiencies of the Company's "branch-light" model have been evident throughout the COVID-19 pandemic, and going forward, have positioned the Company well to continue making investments in technology as the industry adapts to evolving client behavior.

2019 Compared to 2018

Noninterest expense totaled $36.9 million for the year ended December 31, 2019, a $5.4 million, or 17.0% increase from $31.6 million for the year ended December 31, 2018. The increase was primarily driven by a $3.5 million

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