~~0001090009 2022-01-01 2022-12-31~~

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended ~~June 30,~~ ~~2023~~March 31, 2024

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

For the Transition Period from to

Commission file number 000-27719

Southern First Bancshares, Inc.

(Exact name of registrant as specified in its charter)

South Carolina		58-2459561
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

6 Verdae Boulevard
Greenville, S.C.		29607
(Address of principal executive offices)		(Zip Code)

864-679-9000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address, and former fiscal year, if changed since last report)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	SFST	The Nasdaq Global Market

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

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

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

Large accelerated filer	¨☐	Accelerated filer	x☒
Non-accelerated filer	¨☐	Smaller Reporting Company	¨☐
		Emerging growth company	¨☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

~~8,076,438~~8,156,109 shares of common stock, par value $0.01 per share, were issued and outstanding as of ~~July 28, 2023.~~

April 30, 2024.

Table of Contents

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

~~June 30, 2023~~
March 31, 2024 Form 10-Q

INDEX

Table of Contents

PART I. CONSOLIDATED FINANCIAL INFORMATION

Item 1. CONSOLIDATED FINANCIAL STATEMENTS

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS




	June 30,			December 31,			March 31,			December 31,
(dollars in thousands, except share data)	2023			2022			2024			2023
	(Unaudited)			(Audited)			(Unaudited)			(Audited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	24,742			18,788		$	13,925			28,020
Federal funds sold		170,145			101,277			144,595			119,349
Interest-bearing deposits with banks		10,183			50,809			8,789			8,801
Total cash and cash equivalents		205,070			170,874			167,309			156,170
Investment securities:
Investment securities available for sale		91,548			93,347			125,996			134,702
Other investments		12,550			10,833			18,499			19,939
Total investment securities		104,098			104,180			144,495			154,641
Mortgage loans held for sale		15,781			3,917			11,842			7,194
Loans		3,537,616			3,273,363			3,643,766			3,602,627
Less allowance for credit losses		(41,105	)		(38,639	)		(40,441	)		(40,682	)
Loans, net		3,496,511			3,234,724			3,603,325			3,561,945
Bank owned life insurance		51,792			51,122			52,878			52,501
Property and equipment, net		96,964			99,183			93,007			94,301
Deferred income taxes, net		12,356			12,522			12,321			12,200
Other assets		19,535			15,459			20,527			16,837
Total assets	$	4,002,107			3,691,981		$	4,105,704			4,055,789
LIABILITIES
Deposits	$	3,433,018			3,133,864		$	3,460,681			3,379,564
FHLB advances and related debt		180,000			175,000			240,000			275,000
Subordinated debentures		36,268			36,214			36,349			36,322
Other liabilities		51,307			52,391			53,418			52,436
Total liabilities		3,700,593			3,397,469			3,790,448			3,743,322
SHAREHOLDERS’ EQUITY
Preferred stock, par value $.01 per share, 10,000,000 shares authorized		-			-			-			-
Common stock, par value $.01 per share, 10,000,000 shares authorized, 8,058,438 and 8,011,045 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		81			80
Common stock, par value $.01 per share, 10,000,000 shares authorized, 8,156,109 and 8,088,186 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively								82			81
Nonvested restricted stock		(4,051	)		(3,306	)		(5,257	)		(3,596	)
Additional paid-in capital		120,912			119,027			124,159			121,777
Accumulated other comprehensive loss		(12,710	)		(13,410	)		(11,797	)		(11,342	)
Retained earnings		197,282			192,121			208,069			205,547
Total shareholders’ equity		301,514			294,512			315,256			312,467
Total liabilities and shareholders’ equity	$	4,002,107			3,691,981		$	4,105,704			4,055,789

See notes to consolidated financial statements that are an integral part of these consolidated statements.

Table of Contents

SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

For the three months
ended March 31,
(dollars in thousands, except share data) 2024 2023
Interest income
Loans $ 45,605 36,748
Investment securities 1,478 613
Federal funds sold and interest-bearing deposits with banks 1,280 969
Total interest income 48,363 38,330
Interest expense
Deposits 26,932 17,179
Borrowings 2,786 727
Total interest expense 29,718 17,906
Net interest income 18,645 20,424
Provision for (reversal of) credit losses (175 ) 1,825
Net interest income after provision for (reversal of) credit losses 18,820 18,599
Noninterest income
Mortgage banking income 1,164 622
Service fees on deposit accounts 387 325
ATM and debit card income 544 555
Income from bank owned life insurance 377 332
Other income 192 210
Total noninterest income 2,664 2,044
Noninterest expenses
Compensation and benefits 10,857 10,356
Occupancy 2,557 2,457
Outside service and data processing costs 1,846 1,629
Insurance 955 689
Professional fees 618 660
Marketing 369 366
Other 898 947
Total noninterest expenses 18,100 17,104
Income before income tax expense 3,384 3,539
Income tax expense 862 836
Net income $ 2,522 2,703
Earnings per common share
Basic $ 0.31 0.34
Diluted 0.31 0.33
Weighted average common shares outstanding
Basic 8,110,249 8,025,876
Diluted 8,141,921 8,092,270

~~(Unaudited)~~

For the three months For the six months
ended June 30, ended June 30,
(dollars in thousands, except share data) 2023 2022 2023 2022
Interest income
Loans $ 41,089 26,610 77,837 50,541
Investment securities 706 448 1,318 922
Federal funds sold and interest-bearing deposits with banks 891 180 1,860 239
Total interest income 42,686 27,238 81,015 51,702
Interest expense
Deposits 21,937 1,844 39,115 2,752
Borrowings 1,924 510 2,651 902
Total interest expense 23,861 2,354 41,766 3,654
Net interest income 18,825 24,884 39,249 48,048
Provision for credit losses 910 1,775 2,735 2,880
Net interest income after provision for credit losses 17,915 23,109 36,514 45,168
Noninterest income
Mortgage banking income 1,337 1,184 1,959 2,678
Service fees on deposit accounts 331 327 656 631
ATM and debit card income 536 548 1,091 1,062
Income from bank owned life insurance 338 315 670 630
Loss on disposal of fixed assets - (394 ) - (394 )
Other income 194 285 404 587
Total noninterest income 2,736 2,265 4,780 5,194
Noninterest expenses
Compensation and benefits 10,287 9,915 20,643 19,371
Occupancy 2,518 2,219 4,975 3,997
Outside service and data processing costs 1,705 1,528 3,334 3,062
Insurance 897 367 1,586 628
Professional fees 751 693 1,410 1,292
Marketing 335 329 701 596
Other 900 737 1,848 1,528
Total noninterest expenses 17,393 15,788 34,497 30,474
Income before income tax expense 3,258 9,586 6,797 19,888
Income tax expense 800 2,346 1,636 4,678
Net income $ 2,458 7,240 5,161 15,210
Earnings per common share
Basic $ 0.31 0.91 0.64 1.91
Diluted 0.31 0.90 0.64 1.88
Weighted average common shares outstanding
Basic 8,051,131 7,957,631 8,038,642 7,944,814
Diluted 8,069,028 8,054,910 8,080,521 8,075,496
See notes to consolidated financial statements that are an integral part of these consolidated statements.
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SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)

For the three months
ended March 31,
(dollars in thousands) 2024 2023
Net income $ 2,522 2,703
Other comprehensive income (loss):
Unrealized gain (loss) on securities available for sale:
Unrealized holding gain (loss) arising during the period, pretax (578 ) 2,070
Tax benefit (expense) 123 (435 )
Other comprehensive income (loss) (455 ) 1,635
Comprehensive income $ 2,067 4,338
~~(Unaudited)~~

For the three months
ended June 30, For the six months
ended June 30,
(dollars in thousands) 2023 2022 2023 2022
Net income $ 2,458 7,240 5,161 15,210
Other comprehensive income (loss):
Unrealized gain (loss) on securities available for sale:
Unrealized holding gain (loss) arising during the period, pretax (1,183 ) (4,749 ) 888 (11,890 )
Tax benefit (expense) 248 997 (188 ) 2,497
Reclassification of realized gain (loss) - 3 - (12 )
Tax (expense) benefit - (1 ) - 2
Other comprehensive income (loss) (935 ) (3,750 ) 700 (9,403 )
Comprehensive income $ 1,523 3,490 5,861 5,807
See notes to consolidated financial statements that are an integral part of these consolidated statements.
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SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
~~(Unaudited)~~

For the three months ended June 30,
Common stock Preferred stock Nonvested
restricted Additional
paid-in Accumulated
other
comprehensive Retained
(dollars in thousands, except share data) Shares Amount Shares Amount stock capital income (loss) earnings Total
March 31, 2022 7,980,519 $ 80 - - $ (3,425 ) $ 117,286 $ (6,393 ) $ 170,976 $ 278,524
Net income Retained earnings - - - - - - - 7,240 7,240
Proceeds from exercise of stock options 3,625 - - - - 128 - - 128
Issuance of restricted stock 1,500 - - - (71 ) 71 - - -
Compensation expense related to restricted stock, net of tax - - - - 266 - - - 266
Compensation expense related to stock options, net of tax - - - - - 229 - - 229
Other comprehensive loss - - - - - - (3,750 ) - (3,750 )

June 30, 2022 7,985,644 $ 80 - $ - $ (3,230 ) $ 117,714 $ (10,143 ) $ 178,216 $ 282,637
March 31, 2023 8,047,975 $ 80 - $ - $ (4,462 ) $ 120,683 $ (11,775 ) $ 194,824 $ 299,350
Net income - - - - - - - 2,458 2,458
Proceeds from exercise of stock options 10,000 1 - - - 168 - - 169
Issuance of restricted stock, net of forfeitures 463 - - - 85 (85 ) - - -
Compensation expense related to restricted stock, net of tax - - - - 326 - - - 326
Compensation expense related to stock options, net of tax - - - - - 146 - - 146
Other comprehensive loss - - - - - - (935 ) - (935 )

June 30, 2023 8,058,438 $ 81 - $ - $ (4,051 ) $ 120,912 $ (12,710 ) $ 197,282 $ 301,514
For the six months ended June 30,
Common stock Preferred stock Nonvested
restricted Additional
paid-in Accumulated
other
comprehensive Retained
(dollars in thousands, except share data) Shares Amount Shares Amount stock capital income (loss) earnings Total
December 31, 2021 7,925,819 $ 79 - - $ (1,435 ) $ 114,226 $ (740 ) $ 165,771 $ 277,901
Net income Common stock - - - - - - - 15,210 15,210
Proceeds from exercise of stock options 21,750 1 - - - 706 - - 707
Issuance of restricted stock 38,075 - - - (2,305 ) 2,305 - - -
Adoption of ASU 2016-13 - - - - - - - (2,765 ) (2,765 )
Compensation expense related to restricted stock, net of tax - - - - 510 - - - 510
Compensation expense related to stock options, net of tax - - - - - 477 - - 477
Other comprehensive loss - - - - - - (9,403 ) - (9,403 )

June 30, 2022 Preferred stock 7,985,644 $ 80 - $ - $ (3,230 ) $ 117,714 $ (10,143 ) $ 178,216 $ 282,637
December 31, 2022 8,011,045 $ 80 - $ - $ (3,306 ) $ 119,027 $ (13,410 ) $ 192,121 $ 294,512
Net income - - - - - - - 5,161 5,161
Proceeds from exercise of stock options 11,000 1 - - - 184 - - 185
Issuance of restricted stock 36,393 - - - (1,436 ) 1,436 - - -
Compensation expense related to restricted stock, net of tax - - - - 691 - - - 691
Compensation expense related to stock options, net of tax - - - - - 265 - - 265
Other comprehensive income - - - - - - 700 - 700
Accumulated other comprehensive income (loss)Additional paid-in capital
June 30, 2023 8,058,438 $ 81 - $ - $ (4,051 ) $ 120,912 $ (12,710 ) $ 197,282 $ 301,514

For the three months ended March 31,
(dollars in thousands, Common stock Preferred stock Nonvested
restricted Additional
paid-in Accumulated
other
comprehensive Retained
except share data) Shares Amount Shares Amount stock capital income (loss) earnings Total
December 31, 2022 8,011,045 $ 80 - $ - $ (3,306 ) $ 119,027 $ (13,410 ) $ 192,121 $ 294,512
Net income - - - - - - - 2,703 2,703
Proceeds from exercise of stock options 1,000 - - - - 17 - - 17
Issuance of restricted stock Retained earnings 35,930 - - - (1,521 ) 1,521 - - -
Compensation expense related to restricted stock, net of tax - - - - 365 - - - 365
Compensation expense related to stock options, net of tax Common stock - - - - - 118 - - 118
Other comprehensive income - - - - - - 1,635 - 1,635
Additional paid-in capital
March 31, 2023 Preferred stock 8,047,975 $ 80 - $ - $ (4,462 ) $ 120,683 $ (11,775 ) $ 194,824 $ 299,350
December 31, 2023 8,088,186 $ 81 - $ - $ (3,596 ) $ 121,777 $ (11,342 ) $ 205,547 $ 312,467
Net income - - - - - - - 2,522 2,522
Proceeds from exercise of stock options 11,000 - - - - 167 - - 167
Issuance of restricted stock, net of forfeitures 56,923 1 - - (2,112 ) 2,111 - - -
Compensation expense related to restricted stock, net of tax - - - - 451 - - - 451
Compensation expense related to stock options, net of tax - - - - - 104 - - 104
Other comprehensive loss - - - - - - (455 ) - (455 )
Accumulated other comprehensive income (loss)
March 31, 2024 8,156,109 $ 82 - $ - $ (5,257 ) $ 124,159 $ (11,797 ) $ 208,069 $ 315,256
See notes to consolidated financial statements that are an integral part of these consolidated statements.
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SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

For the six months ended
June 30, For the three months ended
March 31,
(dollars in thousands) 2023 2022 2024 2023
Operating activities
Net income $ 5,161 15,210 $ 2,522 2,703
Adjustments to reconcile net income to cash provided by operating activities:
Provision for credit losses 2,735 2,880
Provision for (reversal of) credit losses (175 ) 1,825
Depreciation and other amortization 2,397 1,341 1,214 1,203
Accretion and amortization of securities discounts and premium, net 259 399 131 129
Loss on sale of fixed assets - 394
Gain on sale of securities - (12 )
Net change in operating leases 133 172 39 53
Compensation expense related to stock options and restricted stock grants 956 987 555 483
Gain on sale of loans held for sale (1,636 ) (1,446 ) (1,014 ) (530 )
Loans originated and held for sale (70,422 ) (145,513 ) (36,524 ) (17,892 )
Proceeds from sale of loans held for sale 60,194 142,185 32,890 15,360
Increase in cash surrender value of bank owned life insurance (670 ) (630 ) (377 ) (331 )
Decrease in deferred tax asset (21 ) (3,446 )
(Increase) decrease in other assets (4,076 ) 452
Increase in other assets (3,690 ) (508 )
Increase (decrease) in other liabilities (359 ) 1,400 1,505 (1,258 )
Net cash (used for) provided by operating activities (5,349 ) 14,373 (2,924 ) 1,237
Investing activities
Increase (decrease) in cash realized from:
Increase in loans, net (264,737 ) (355,594 ) (41,380 ) (144,641 )
Purchase of property and equipment (767 ) (8,989 ) (280 ) (180 )
Purchase of investment securities: -
Available for sale - (10,094 ) (5,191 ) -
Other investments (42,518 ) (11,078 ) (4,302 ) (18,264 )
Payments and maturities, calls and repayments of investment securities:
Available for sale 2,427 19,095 13,190 1,252
Other investments 40,801 10,034 5,742 19,000
Proceeds from sale of fixed assets - 95
Net cash used for investing activities (264,794 ) (356,531 ) (32,221 ) (142,833 )
Financing activities
Increase in cash realized from:
Increase in deposits, net 299,154 306,332 81,117 292,910
Increase in Federal Home Loan Bank advances and other borrowings, net 5,000 50,000
Decrease in Federal Home Loan Bank advances and other borrowings, net (35,000 ) (50,000 )
Proceeds from the exercise of stock options 185 707 167 17
Net cash provided by financing activities 304,339 357,039 46,284 242,927
Net increase in cash and cash equivalents 34,196 14,881 11,139 101,331
Cash and cash equivalents at beginning of the period 170,874 167,209 156,170 170,874
Cash and cash equivalents at end of the period $ 205,070 182,090 $ 167,309 272,205
Supplemental information Nonvested restricted stock
Supplemental information
Cash paid for
Interest $ 38,612 3,745 $ 27,617 16,801
Income taxes 541 5,950
Schedule of non-cash transactions
Unrealized gain (loss) on securities, net of income taxes 700 (9,393 ) (455 ) 1,635
See notes to consolidated financial statements that are an integral part of these consolidated statements.
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SOUTHERN FIRST BANCSHARES, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – Summary of Significant Accounting Policies
Nature of Business
Southern First Bancshares, Inc. (the “Company”) is a South Carolina corporation that owns all of the capital stock of Southern First Bank (the “Bank”) and all of the stock of Greenville First Statutory Trusts I and II (collectively, the “Trusts”). The Trusts are special purpose non-consolidated entities organized for the sole purpose of issuing trust preferred securities. The ~~Bank's~~Bank’s primary federal regulator is the Federal Deposit Insurance Corporation (the “FDIC”). The Bank is also regulated and examined by the South Carolina Board of Financial Institutions. The Bank is primarily engaged in the business of accepting demand deposits and savings deposits insured by the FDIC, and providing commercial, consumer and mortgage loans to the general public.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the ~~three and six-month~~three-month period ended ~~June 30, 2023~~March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2023.~~2024. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2022~~2023 as filed with the U.S. Securities and Exchange Commission (“SEC”) on ~~February 13, 2023.~~March 5, 2024. The consolidated financial statements include the accounts of the Company and the Bank. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, “Consolidation,” the financial statements related to the Trusts have not been consolidated.
Business Segments
The Company, through the Bank, provides a broad range of financial services to individuals and companies in South Carolina, North Carolina, and Georgia. These services include demand, time and savings ~~deposits;~~deposits, lending ~~services;~~services and ATM processing and mortgage banking services. While the Company’s management periodically reviews limited production information for these revenue streams, that information is not complete as it does not include a full allocation of revenue, costs and capital from key corporate functions. Management will continue to evaluate these lines of business for separate reporting as facts and circumstances change. Accordingly, the Company’s various banking operations are not considered by management to constitute more than one reportable operating segment.
Risk and Uncertainties
In the normal course of its business, the Company encounters two significant types of risks: economic and regulatory. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk to the degree that its interest-bearing liabilities mature or reprice at different speeds, or on different bases, than its interest-earning assets. Credit risk is the risk of default within the Company’s loan portfolio that results from borrowers’ inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of collateral underlying loans receivable and the valuation of real estate held by the Company. There were three significant bank failures in the first five months of 2023, primarily due to the failed banks’ lack of liquidity as depositors sought to withdraw their deposits. Due to rising interest rates, the failed banks were unable to sell investment securities held to meet liquidity needs without realizing substantial losses. As a result of the ~~March 2023~~recent bank ~~closures~~failures and in an effort to strengthen public confidence in the banking system and protect depositors, regulators ~~have~~ announced that any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law, which has and could continue to increase the cost of our FDIC insurance assessments. ~~Additionally, the Federal Reserve announced the creation of a new Bank Term Funding Program in an effort to minimize the need for banks to sell securities at a loss in times of stress.~~ The ~~future~~ultimate impact of these bank failures on the economy, financial institutions and their depositors, as well as any governmental regulatory responses or actions resulting from the same, isremains difficult to predict at this time.
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The Company is subject to the regulations of various governmental agencies. These regulations can and do change significantly from period to period. The Company also undergoes periodic examinations by the regulatory agencies, which may subject the Company to changes with respect to the valuation of assets, the amount of required credit loss allowance and operating restrictions resulting from the regulators’ judgments based on information available to them at the time of their examinations.
The Bank makes loans to individuals and businesses in the Upstate, Midlands, and Lowcountry regions of South Carolina as well as the Triangle, Triad and Charlotte regions of North Carolina and Atlanta, Georgia for various personal and commercial purposes. The Bank’s loan portfolio has a concentration of real estate loans. As of March 31, 2024 and 2023, real estate loans represented 84.3% and 84.8%, respectively, of total loans. However, borrowers’ ability to repay their loans is not dependent upon any specific economic sector.
As of March 31, 2024, the Company’s and the Bank’s capital ratios were in excess of all regulatory requirements. While management believes that we have sufficient capital to withstand an extended economic recession, our reported and regulatory capital ratios could be adversely impacted by future credit losses.
The Company maintains access to multiple sources of liquidity, including a $15.0 million holding company line of credit with another bank which could be used to support capital ratios at the subsidiary bank. As of March 31, 2024, the $15.0 million line was unused.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of income and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are
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particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, real estate acquired in the settlement of loans, fair value of financial instruments, and valuation of deferred tax assets.
Reclassifications
Certain amounts, previously reported, have been reclassified to state all periods on a comparable basis and had no effect on shareholders’ equity or net income.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date.
~~Adoption of New Accounting Standard~~
In January 2023, the Company adopted ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. In addition, for public business entities, the guidance requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20. The Company adopted the guidance using the modified retrospective method. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty. Instead, these modifications are included in their respective cohort and a historical loss rate is applied to the current loan balance to arrive at the quantitative baseline portion of the allowance. The difference between the allowance previously determined and the current allowance was not material to the Company’s financial statements.
In January 2023, the Company adopted ASU 2022-01, “Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method”, which intended to better align hedge accounting with an organization’s risk management strategies. The ASU became applicable to the Company in the second quarter of 2023 when we entered into a fair value hedge using the portfolio layer method.
Newly Issued, But Not Yet Effective Accounting Standards
In December 2022, the FASB issued amendments to defer the sunset date of the Reference Rate Reform Topic of the Accounting Standards Codification from December 31, 2022 to December 31, 2024, because the current relief in Reference Rate Reform Topic may not cover a period of time during which a significant number of modifications may take place. The amendments were effective upon issuance. The Company does not expect these amendments to have a material effect on its financial statements.
In December 2023, the FASB amended the Income Taxes topic in the Accounting Standards Codification to improve the transparency of income tax disclosures. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company does not expect these amendments to have a material effect on its financial statements.
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Table of Contents
NOTE 2 – Investment Securities
The amortized costs and fair value of investment securities are as follows:
Schedule of amortized costs and fair value of investment securities

June 30, 2023 March 31, 2024
Amortized Gross Unrealized Fair Amortized Gross Unrealized Fair
(dollars in thousands) Cost Gains Losses Value
(dollars in thousands) Corporate bonds [Member] Cost Gains Losses Value
Available for sale Asset-backed securities [Member]
Corporate bonds $ 2,140 - 253 1,887
US treasuries US treasuries [Member] 999 - 111 888
US government agencies US government agencies [Member] 20,183 - 1,986 18,197
State and political subdivisions State and political subdivisions [Member] 22,579 - 3,042 19,537
Asset-backed securities Mortgage-backed securities [Member] 34,247 33 76 34,204
Mortgage-backed securities 60,782 - 9,499 51,283
Total investment securities available for sale $ 140,930 33 14,967 125,996

December 31, 2023
Amortized Gross Unrealized Fair
Cost Gains Losses Value
Available for sale
Corporate bonds $ 2,160 - 286 1,874 $ 2,147 - 237 1,910
US treasuries US treasuries [Member] 999 - 124 875
US treasuries 9,495 1 102 9,394
US government agencies 13,009 - 2,199 10,810 20,594 - 1,938 18,656
State and political subdivisions 22,774 - 3,435 19,339 22,642 11 2,912 19,741
Asset-backed securities 5,697 - 129 5,568 33,450 2 216 33,236
Mortgage-backed securities 60,730 - 8,965 51,765
FHLMC FHLMC [Member] 23,628 - 3,730 19,898
FNMA FNMA [Member] 34,028 - 5,417 28,611
GNMA GNMA [Member] 5,341 - 768 4,573
Total mortgage-backed securities 62,997 - 9,915 53,082
Total investment securities available for sale $ 107,636 - 16,088 91,548 $ 149,058 14 14,370 134,702
December 31, 2022
Amortized Gross Unrealized Fair
Cost Gains Losses Value
Available for sale
Corporate bonds $ 2,172 - 289 1,883
US treasuries 999 - 128 871
US government agencies 13,007 - 2,390 10,617
State and political subdivisions 22,910 - 4,004 18,906
Asset-backed securities 6,435 - 206 6,229
Mortgage-backed securities
FHLMC 24,086 - 3,745 20,341
FNMA 35,141 - 5,520 29,621
GNMA 5,573 - 694 4,879
Total mortgage-backed securities 64,800 - 9,959 54,841
Total investment securities available for sale $ 110,323 - 16,976 93,347
Contractual maturities and yields on the Company’s investment securities at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 are shown in the following table. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
Schedule of maturities and yields on the company’s investment securities

March 31, 2024
Less than one year One to five years Five to ten years Over ten years Total
(dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Available for sale
Corporate bonds Corporate bonds [Member] $ - - $ - - $ 1,887 2.01 % $ - - $ 1,887 2.01 %
US treasuries - - 888 1.27 % - - - - 888 1.27 %
US government agencies US government agencies [Member] 980 0.45 % 2,380 1.00 % 14,837 4.38 % - - 18,197 3.72 %
State and political subdivisions State and political subdivisions [Member] - - 902 1.94 % 5,744 1.89 % 12,891 2.15 % 19,537 2.07 %
Asset-backed securities Asset-backed securities [Member] - - 211 6.21 % - - 33,993 6.61 % 34,204 6.61 %
Mortgage-backed securities Mortgage-backed securities [Member] - - 6,626 1.29 % 3,419 1.54 % 41,238 2.04 % 51,283 1.91 %
Total investment securities Total investment securities [Member] $ 980 0.45 % $ 11,007 1.37 % $ 25,887 3.28 % $ 88,122 3.82 % $ 125,996 3.47 %

December 31, 2023
Less than one year One to five years Five to ten years Over ten years Total
(dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Available for sale
Corporate bonds $ - - $ - - $ 1,910 2.01 % $ - - $ 1,910 2.01 %
US treasuries 8,497 5.42 % 897 1.27 % - - - - 9,394 5.02 %
US government agencies 970 0.45 % 2,385 1.00 % 15,301 4.41 % - - 18,656 3.77 %
State and political subdivisions - - 906 1.94 % 5,769 1.89 % 13,066 2.15 % 19,741 2.06 %
Asset-backed securities - - 296 (6.13 %) - - 32,940 6.63 % 33,236 6.57 %
Mortgage-backed securities - - 4,795 1.15 % 5,400 1.59 % 41,570 2.00 % 51,765 1.87 %
Total investment securities $ 9,467 4.91 % $ 9,279 0.98 % $ 28,380 3.20 % $ 87,576 3.76 % $ 134,702 3.55 %
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Schedule of maturities and yields on the Company’s investment securities

June 30, 2023
Less than one year One to five years Five to ten years Over ten years Total
(dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Available for sale
Corporate bonds Corporate bonds [Member] $ - - $ - - $ 1,874 2.00 % $ - - $ 1,874 2.00 %
US treasuries US treasuries [Member] - - 875 1.27 % - - - - 875 1.27 %
US government agencies US government agencies [Member] - - 3,253 0.85 % 7,557 1.55 % - - 10,810 1.34 %
State and political subdivisions State and political subdivisions [Member] - - 885 1.95 % 5,079 1.81 % 13,375 2.17 % 19,339 2.06 %
Asset-backed securities Asset-backed securities [Member] - - - - 392 5.74 % 5,176 6.23 % 5,568 6.20 %
Mortgage-backed securities Mortgage-backed securities [Member] - - 4,780 1.17 % 5,320 1.59 % 42,982 1.97 % 53,082 1.86 %
Total investment securities Total investment securities [Member] $ - - $ 9,793 1.14 % $ 20,222 1.75 % $ 61,533 2.37 % $ 91,548 2.10 %
December 31, 2022
Less than one year One to five years Five to ten years Over ten years Total
(dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
Available for sale
Corporate bonds Corporate bonds [Member] $ - - $ - - $ 1,883 2.00 % $ - - $ 1,883 2.00 %
US treasuries US treasuries [Member] - - - - 871 1.27 % - - 871 1.27 %
US government agencies US government agencies [Member] - - 3,223 0.85 % 7,394 1.55 % - - 10,617 1.34 %
State and political subdivisions State and political subdivisions [Member] - - 460 2.13 % 5,382 1.80 % 13,064 2.16 % 18,906 2.05 %
Asset-backed securities Asset-backed securities [Member] - - - - 554 4.77 % 5,675 5.14 % 6,229 5.10 %
Mortgage-backed securities Asset-backed securities [Member] - - 4,594 1.13 % 3,959 1.60 % 46,288 1.90 % 54,841 1.82 %
Total investment securities Total investment securities [Member] $ - - $ 8,277 1.08 % $ 20,043 1.75 % $ 65,027 2.24 % $ 93,347 2.03 %
The tables below summarize gross unrealized losses on investment securities and the fair market value of the related securities at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.
Schedule of gross unrealized losses on investment securities and fair market value of related securities

June 30, 2023
Less than 12 months 12 months or longer Total
(dollars in thousands) # Fair
value Unrealized
losses # Fair
value Unrealized
losses # Fair
value Unrealized
losses
Available for sale
Corporate bonds - $ - $ - 1 $ 1,874 $ 286 1 $ 1,874 $ 286
US treasuries - - - 1 875 124 1 875 124
US government agencies - - - 10 10,810 2,199 10 10,810 2,199
State and political subdivisions 3 1,216 24 29 18,123 3,411 32 19,339 3,435
Asset-backed 1 393 1 7 5,175 128 8 5,568 129
Mortgage-backed securities Mortgage-backed securities [Member]
FHLMC FHLMC [Member] 2 2,863 62 26 17,035 3,668 28 19,898 3,730
FNMA FNMA [Member] 1 5 1 29 28,606 5,416 30 28,611 5,417
GNMA GNMA [Member] - - - 7 4,573 768 7 4,573 768
Total investment securities 7 $ 4,477 $ 88 110 $ 87,071 $ 16,000 117 $ 91,548 $ 16,088

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Schedule of gross unrealized losses on investment securities and fair market value of related securities

March 31, 2024
Less than 12 months 12 months or longer Total
(dollars in thousands) # Fair
value Unrealized
losses # Fair
value Unrealized
losses # Fair
value Unrealized
losses
Available for sale
Corporate bonds - $ - $ - 1 $ 1,887 $ 253 1 $ 1,887 $ 253
US treasuries - - - 1 888 111 1 888 111
US government agencies 2 7,133 39 10 11,064 1,947 12 18,197 1,986
State and political subdivisions 2 759 4 30 18,778 3,038 32 19,537 3,042
Asset-backed 4 11,343 31 7 4,567 45 11 15,910 76
Mortgage-backed securities 1 1,387 8 64 49,896 9,491 65 51,283 9,499
Total investment securities 9 $ 20,622 $ 82 113 $ 87,080 $ 14,885 122 $ 107,702 $ 14,967

December 31, 2023
Less than 12 months 12 months or longer Total
(dollars in thousands) # Fair
value Unrealized
losses # Fair
value Unrealized
losses # Fair
value Unrealized
losses
Available for sale
Corporate bonds - $ - $ - 1 $ 1,910 $ 237 1 $ 1,910 $ 237
US treasuries - - - 1 897 102 1 897 102
US government agencies 2 7,533 50 10 11,123 1,888 12 18,656 1,938
State and political subdivisions - - - 30 18,964 2,912 30 18,964 2,912
Asset-backed 8 26,746 145 7 4,866 71 15 31,612 216
Mortgage-backed securities Mortgage-backed securities [Member] 2 2,869 36 62 48,896 8,929 64 51,765 8,965
Total investment securities 12 $ 37,148 $ 231 111 $ 86,656 $ 14,139 123 $ 123,804 $ 14,370

        December 31, 2022
Less than 12 months 12 months or longer Total
(dollars in thousands) # Fair
value Unrealized
losses # Fair
value Unrealized
losses # Fair
value Unrealized
losses
Available for sale
Corporate bonds - $ - $ - 1 $ 1,883 $ 289 1 $ 1,883 $ 289
US treasuries - - - 1 871 128 1 871 128
US government agencies - - - 10 10,617 2,390 10 10,617 2,390
State and political subdivisions 10 5,101 763 22 13,805 3,241 32 18,906 4,004
Asset-backed 5 4,291 135 3 1,938 71 8 6,229 206
Mortgage-backed securities
FHLMC 4 3,712 155 17 16,629 3,590 21 20,341 3,745
FNMA 9 2,208 201 28 27,413 5,319 37 29,621 5,520
GNMA 1 103 7 6 4,776 687 7 4,879 694
Total investment securities 29 $ 15,415 $ 1,261 88 $ 77,932 $ 15,715 117 $ 93,347 $ 16,976
At ~~June 30, 2023~~March 31, 2024, the Company had ~~117~~122 individual investments that were in an unrealized loss position. The unrealized losses were primarily attributable to changes in interest rates, rather than deterioration in credit quality. The individual securities are each investment grade securities. The Company considers factors such as the financial condition of the issuer including credit ratings and specific events affecting the operations of the issuer, volatility of the security, underlying assets that collateralize the debt security, and other industry and macroeconomic conditions. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities before recovery of the amortized cost. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. As such, there is no allowance for credit losses on available for sale securities recognized as of ~~June 30, 2023~~.March 31, 2024.
Other investments are comprised of the following and are recorded at cost which approximates fair value.
Schedule of other investments

(dollars in thousands) June 30, 2023 December 31, 2022 March 31, 2024 December 31, 2023
Federal Home Loan Bank stock $ 9,890 9,250 $ 14,633 16,063
Other nonmarketable investments 2,257 1,180 3,463 3,473
Investment in Trust Preferred subsidiaries 403 403 403 403
Total other investments $ 12,550 10,833 $ 18,499 19,939
The Company has evaluated other investments for impairment and determined that the other investments are not impaired as of ~~June 30, 2023~~March 31, 2024 and that ultimate recoverability of the par value of the investments is probable. All of the FHLB stock is used to collateralize advances with the FHLB.
At March 31, 2024, there were no securities pledges as collateral for repurchase agreements from brokers.
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NOTE 3 – Mortgage Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are reported as loans held for sale and carried at fair value under the fair value option with changes in fair value recognized in current period earnings. At the date of funding of the mortgage loan held for sale, the funded amount of the loan, the related derivative asset or liability of the associated interest rate lock commitment, less direct loan costs becomes the initial recorded investment in the loan held for sale. Such amount approximates the fair value of the loan. At ~~June 30 2023,~~March 31, 2024, mortgage loans held for sale totaled $~~15.8~~11.8 million compared to $~~3.9~~7.2 million at December 31, ~~2022.~~2023.
NOTE 4 – Loans and Allowance for Credit Losses
The following table summarizes the composition of our loan portfolio. Total gross loans are recorded net of deferred loan fees and costs, which totaled $~~7.4~~6.9 million as of ~~June 30, 2023~~March 31, 2024 and $~~7.3~~7.0 million as of December 31, ~~2022.~~2023.
Schedule of composition of our loan portfolio

March 31, 2024 December 31, 2023
(dollars in thousands)Commercial [Member] Amount %  of Total Amount %  of Total
Commercial
Owner occupied REOwner occupied RE [Member] $ 631,047 17.3 % $ 631,657 17.5 %
Non-owner occupied RENon-owner occupied RE [Member] 944,530 25.9 % 942,529 26.2 %
ConstructionConstruction [Member] 157,464 4.3 % 150,680 4.2 %
BusinessBusiness [Member] 520,073 14.3 % 500,161 13.9 %
Total commercial loansConsumer [Member] 2,253,114 61.8 % 2,225,027 61.8 %
Consumer
Real estateReal estate [Member] 1,101,573 30.2 % 1,082,429 30.0 %
Home equityHome equity [Member] 184,691 5.1 % 183,004 5.1 %
Construction 53,216 1.5 % 63,348 1.7 %
OtherOther [Member] 51,172 1.4 % 48,819 1.4 %
Total consumer loans 1,390,652 38.2 % 1,377,600 38.2 %
Total gross loans, net of deferred fees 3,643,766 100.0 % 3,602,627 100.0 %
Less—allowance for credit losses (40,441 ) (40,682 )
Total loans, net $ 3,603,325 $ 3,561,945
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~~Table of Contents~~
Schedule of composition of our loan portfolio

June 30, 2023 December 31, 2022
(dollars in thousands) Commercial [Member] Amount %  of Total Amount %  of Total
Commercial
Owner occupied RE Owner occupied RE [Member] $ 613,874 17.4 % $ 612,901 18.7 %
Non-owner occupied RE Non-owner occupied RE [Member] 951,536 26.9 % 862,579 26.3 %
Construction Construction [Member] 115,798 3.3 % 109,726 3.4 %
Business Business [Member] 511,719 14.5 % 468,112 14.3 %
Total commercial loans Consumer [Member] 2,192,927 62.1 % 2,053,318 62.7 %
Consumer
Real estate Real estate [Member] 1,047,904 29.6 % 931,278 28.4 %
Home equity Home equity [Member] 185,584 5.2 % 179,300 5.5 %
Construction Construction [Member] 61,044 1.7 % 80,415 2.5 %
Other Other [Member] 50,157 1.4 % 29,052 0.9 %
Total consumer loans 1,344,689 37.9 % 1,220,045 37.3 %
Total gross loans, net of deferred fees 3,537,616 100.0 % 3,273,363 100.0 %
Less—allowance for credit losses (41,105 ) (38,639 )
Total loans, net $ 3,496,511 $ 3,234,724
Maturities and Sensitivity of Loans to Changes in Interest Rates
The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.

Schedule of loan maturity distribution by type and related interest rate June 30, 2023
(dollars in thousands) One year
or less After one
but within
five years After five but
within fifteen
years After fifteen
years Total
Commercial
Owner occupied RE $ 9,511 155,585 406,974 41,804 613,874
Non-owner occupied RE 61,846 487,268 377,281 25,141 951,536
Construction 10,643 35,648 68,916 591 115,798
Business 103,829 211,107 192,332 4,451 511,719
Total commercial loans 185,829 889,608 1,045,503 71,987 2,192,927
Consumer
Real estate 7,672 48,115 299,705 692,412 1,047,904
Home equity 620 21,841 157,853 5,270 185,584
Construction 244 314 36,816 23,670 61,044
Other 9,347 21,779 18,266 765 50,157
Total consumer loans 17,883 92,049 512,640 722,117 1,344,689
Total gross loans, net of deferred fees $ 203,712 981,657 1,558,143 794,104 3,537,616
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Schedule of loan maturity distribution by type and related interest rate

March 31, 2024
(dollars in thousands) One year
or less After one
but within
five years After five but
within fifteen
years After
fifteen
years Total
Commercial
Owner occupied RE $ 15,855 185,107 388,424 41,661 631,047
Non-owner occupied RE 77,445 516,176 326,650 24,259 944,530
Construction 32,425 61,546 63,493 - 157,464
Business 117,557 218,031 180,132 4,353 520,073
Total commercial loans 243,282 980,860 958,699 70,273 2,253,114
Consumer
Real estate 10,230 52,771 310,383 728,189 1,101,573
Home equity 2,878 27,460 149,530 4,823 184,691
Construction 382 901 31,926 20,007 53,216
Other 12,564 34,683 3,103 822 51,172
Total consumer loans 26,054 115,815 494,942 753,841 1,390,652
Total gross loans, net of deferred fees $ 269,336 1,096,675 1,453,641 824,114 3,643,766

December 31, 2023
(dollars in thousands) One year
or less After one
but within
five years After five
but within
fifteen years After
fifteen
years Total
Commercial
Owner occupied RE $ 17,358 177,203 395,130 41,966 631,657
Non-owner occupied RE 68,601 517,622 331,727 24,579 942,529
Construction 26,762 64,432 59,486 - 150,680
Business 114,432 194,416 186,927 4,386 500,161
Total commercial loans 227,153 953,673 973,270 70,931 2,225,027
Consumer
Real estate 10,593 51,956 301,095 718,785 1,082,429
Home equity 2,716 27,578 147,855 4,855 183,004
Construction - 252 39,459 23,637 63,348
Other 11,157 33,592 3,265 805 48,819
Total consumer loans 24,466 113,378 491,674 748,082 1,377,600
Total gross loans, net of deferred fees $ 251,619 1,067,051 1,464,944 819,013 3,602,627

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Table of Contents

December 31, 2022
(dollars in thousands) One year
or less After one
but within
five years After five
but within
fifteen years After
fifteen
years Total
Commercial
Owner occupied RE $ 10,574 133,017 420,881 48,429 612,901
Non-owner occupied RE 44,570 419,976 371,208 26,825 862,579
Construction 5,509 36,537 61,009 6,671 109,726
Business 96,157 194,489 173,259 4,207 468,112
Total commercial loans 156,810 784,019 1,026,357 86,132 2,053,318
Consumer
Real estate 12,137 38,948 260,005 620,188 931,278
Home equity 1,336 20,933 151,696 5,335 179,300
Construction 665 182 23,788 55,780 80,415
Other 3,926 21,890 2,458 778 29,052
Total consumer loans 18,064 81,953 437,947 682,081 1,220,045
Total gross loans, net of deferred fees $ 174,874 865,972 1,464,304 768,213 3,273,363
The following table summarizes the loans due after one year by category.

Schedule of composition of gross loans by rate type June 30, 2023 December 31, 2022
Interest Rate Interest Rate
(dollars in thousands) Fixed Floating or
Adjustable Fixed Floating or
Adjustable
Commercial Commercial [Member]
Owner occupied RE Owner occupied RE [Member] $ 600,648 3,715 598,513 3,814
Non-owner occupied RE Non-owner occupied RE [Member] 792,099 97,591 742,763 75,246
Construction Construction [Member] 90,403 14,752 90,246 13,971
Business Business [Member] 313,001 94,889 298,866 73,089
Total commercial loans 1,796,151 210,947 1,730,388 166,120
Consumer Consumer [Member]
Real estate Real estate [Member] 1,040,232 - 919,130 11
Home equity Home equity [Member] 13,525 171,439 14,173 163,791
Construction Construction [Member] 60,800 - 79,750 -
Other Other [Member] 16,830 23,980 19,113 6,013
Total consumer loans 1,131,387 195,419 1,032,166 169,815
Total gross loans, net of deferred fees $ 2,927,538 406,366 2,762,554 335,935
Schedule of loans due after one year by category

March 31, 2024 December 31, 2023
Interest Rate Interest Rate
(dollars in thousands) Fixed Floating or
Adjustable Fixed Floating or
Adjustable
Commercial
Owner occupied RE $ 600,279 14,913 605,199 9,100
Non-owner occupied RE 746,525 120,560 768,048 105,880
Construction 96,176 28,863 81,326 42,592
Business 293,897 108,619 293,920 91,809
Total commercial loans 1,736,877 272,955 1,748,493 249,381
Consumer
Real estate 1,091,343 - 1,071,836 -
Home equity 11,485 170,328 11,441 168,847
Construction 52,834 - 63,348 -
Other 12,127 26,481 11,525 26,137
Total consumer loans 1,167,789 196,809 1,158,150 194,984
Total gross loans, net of deferred fees $ 2,904,666 469,764 2,906,643 444,365
Credit Quality Indicators
The Company tracks credit quality based on its internal risk ratings. Upon origination, a loan is assigned an initial risk grade, which is generally based on several factors such as the borrower’s credit score, the loan-to-value ratio, the debt-to-income ratio, etc. After loans are initially graded, they are monitored regularly for credit quality based on many factors, such as payment history, the borrower’s financial status, and changes in collateral value. Loans can be downgraded or upgraded depending on management’s evaluation of these factors. Internal risk-grading policies are consistent throughout each loan type.
A description of the general characteristics of the risk grades is as follows:
·● Pass—A pass loan ranges from minimal to average credit risk; however, still has acceptable credit risk.
·● Watch—A watch loan exhibits above average credit risk due to minor weaknesses and warrants closer scrutiny by management.
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·● Special mention—A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.
·● Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, which may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
·● Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.
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Table of Contents
The following table presents loan balances classified by credit quality indicators by year of origination as of ~~June 30, 2023.~~March 31, 2024.
Schedule of classified by credit quality indicators by year of origination

March 31, 2024
(dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Revolving
Converted
to Term Total
Commercial
Owner occupied RE
Pass $ 11,770 42,283 180,226 134,787 63,949 164,174 85 - 597,274
Watch - - 3,429 456 15,880 10,101 - - 29,866
Special Mention - - 177 - - 2,889 - - 3,066
Substandard - - - - - 841 - - 841
Total Owner occupied RE 11,770 42,283 183,832 135,243 79,829 178,005 85 - 631,047

Non-owner occupied RE
Pass 12,575 79,336 303,755 169,028 105,833 226,072 303 - 896,902
Watch - 1,002 2,596 448 527 15,911 - - 20,484
Special Mention - - 967 7,707 - 9,049 - - 17,723
Substandard - - - 305 - 9,116 - - 9,421
Total Non-owner occupied RE 12,575 80,338 307,318 177,488 106,360 260,148 303 - 944,530

Construction
Pass 3,563 28,027 86,648 26,741 11,087 - - - 156,066
Watch - - 1,398 - - - - - 1,398
Total Construction 3,563 28,027 88,046 26,741 11,087 - - - 157,464

Business
Pass 8,232 52,166 134,401 45,948 18,339 61,981 163,010 - 484,077
Watch - 120 17,160 1,814 980 4,600 6,942 5 31,621
Special Mention - 231 942 89 500 1,736 101 - 3,599
Substandard - - - 151 - 625 - - 776
Total Business 8,232 52,517 152,503 48,002 19,819 68,942 170,053 5 520,073
Current period gross write-offs - - - - (346 ) - - - (346 )
Total Commercial loans 36,140 203,165 731,699 387,474 217,095 507,095 170,441 5 2,253,114

Consumer
Real estate
Pass 18,718 146,761 281,881 276,118 171,468 168,438 - - 1,063,384
Watch - 488 5,615 7,360 3,883 5,876 - - 23,222
Special Mention - 142 2,487 1,905 1,282 5,253 - - 11,069
Substandard - 275 350 631 986 1,656 - - 3,898
Total Real estate 18,718 147,666 290,333 286,014 177,619 181,223 - - 1,101,573

Home equity
Pass - - - - - - 173,125 - 173,125
Watch - - - - - - 6,103 - 6,103
Special Mention - - - - - - 5,007 - 5,007
Substandard - - - - - - 456 - 456
Total Home equity - - - - - - 184,691 - 184,691

Construction
Pass 664 13,604 30,974 7,974 - - - - 53,216
Total Construction 664 13,604 30,974 7,974 - - - - 53,216

Other
Pass 1,979 1,171 2,411 2,174 1,387 3,253 37,657 - 50,032
Watch - 8 25 345 - 156 51 - 585
Special Mention - 32 330 71 - 73 36 - 542
Substandard - - - - - - 13 - 13
Total Other 1,979 1,211 2,766 2,590 1,387 3,482 37,757 - 51,172
Current period gross write-offs - - - - - (38 ) (40 ) - (78 )
Total Consumer loans 21,361 162,481 324,073 296,578 179,006 184,705 222,448 - 1,390,652
Total loans $ 57,501 365,646 1,055,772 684,052 396,101 691,800 392,889 5 3,643,766
Total Current period gross write-offs - - - - (346 ) (38 ) (40 ) - (424 )
15
Table of Contents
Schedule of breakdown of outstanding loans by risk category

June 30, 2023
(dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Revolving
Converted
to Term Total
Commercial
Owner occupied RE
Pass $ 32,634 157,619 139,472 68,570 62,877 118,738 - 168 580,078
Watch - 3,510 469 16,170 3,585 6,489 - - 30,223
Special Mention - 191 - - - 3,100 - - 3,291
Substandard - - - - - 282 - - 282
Total Owner occupied RE 32,634 161,320 139,941 84,740 66,462 128,609 - 168 613,874

Non-owner occupied RE
Pass 75,513 305,006 174,325 110,120 54,654 182,840 222 - 902,680
Watch 775 966 9,468 - 10,737 6,396 - - 28,342
Special Mention - - 200 - 9,028 965 - - 10,193
Substandard - - - - 7,974 2,347 - - 10,321
Total Non-owner occupied RE 76,288 305,972 183,993 110,120 82,393 192,548 222 - 951,536

Construction
Pass 9,046 71,909 24,939 8,397 242 - - - 114,533
Watch - 1,265 - - - - - - 1,265
Special Mention - - - - - - - - -
Substandard - - - - - - - - -
Total Construction 9,046 73,174 24,939 8,397 242 - - - 115,798

Business
Pass 34,799 142,869 52,202 20,565 19,229 55,100 151,640 1,162 477,566
Watch 139 14,342 1,998 1,511 987 4,178 5,751 - 28,906
Special Mention 102 1,232 226 459 245 416 - 98 2,778
Substandard - 492 - 27 174 1,314 462 - 2,469
Total Business 35,040 158,935 54,426 22,562 20,635 61,008 157,853 1,260 511,719
Total Commercial loans 153,008 699,401 403,299 225,819 169,732 382,165 158,075 1,428 2,192,927

Consumer
Real estate
Pass 103,913 263,435 282,239 181,201 68,138 110,151 - - 1,009,077
Watch 491 5,715 7,936 3,974 2,069 4,156 - - 24,341
Special Mention - 2,329 1,673 2,133 2,422 2,921 - - 11,478
Substandard - 187 640 - 327 1,854 - - 3,008
Total Real estate 104,404 271,666 292,488 187,308 72,956 119,082 - - 1,047,904

Home equity
Pass - - - - - - 172,802 - 172,802
Watch - - - - - - 7,052 - 7,052
Special Mention - - - - - - 3,967 - 3,967
Substandard - - - - - - 1,763 - 1,763
Total Home equity - - - - - - 185,584 - 185,584

Construction
Pass 6,231 40,707 14,106 - - - - - 61,044
Watch - - - - - - - - -
Special Mention - - - - - - - - -
Substandard - - - - - - - - -
Total Construction 6,231 40,707 14,106 - - - - - 61,044

Other
Pass 4,535 3,140 2,707 1,586 1,359 3,016 32,462 - 48,805
Watch 44 37 356 7 3 177 95 - 719
Special Mention - 336 - - 33 87 83 - 539
Substandard - - 84 - 2 - 8 - 94
Total Other 4,579 3,513 3,147 1,593 1,397 3,280 32,648 - 50,157

Total Consumer loans 115,214 315,886 309,741 188,901 74,353 122,362 218,232 - 1,344,689
Total loans $ 268,222 1,015,287 713,040 414,720 244,085 504,527 376,307 1,428 3,537,616
Current period gross write-offs (200 ) (1 ) (9 ) (391 ) (601 )
16
~~Table of Contents~~
The following table presents loan balances classified by credit quality indicators by year of origination as of December 31, ~~2022.~~2023.

December 31, 2022 December 31, 2023
(dollars in thousands) 2022 2021 2020 2019 2018 Prior Revolving Revolving
Converted
to Term Total 2023 2022 2021 2020 2019 Prior Revolving Revolving Converted to Term Total
Commercial
Owner occupied RE
Pass $ 169,083 122,654 85,867 66,299 36,718 93,915 - - 574,536 $ 42,846 180,654 138,549 64,818 59,880 110,502 85 166 597,500
Watch 14,648 479 9,339 3,658 - 6,792 - - 34,916 - 3,460 460 15,997 3,525 6,616 - - 30,058
Special Mention 200 - - - - 2,960 - - 3,160 - 181 - - - 3,057 - - 3,238
Substandard - - - - 289 - - - 289 - - - - - 861 - - 861
Total Owner occupied RE 183,931 123,133 95,206 69,957 37,007 103,667 - - 612,901 42,846 184,295 139,009 80,815 63,405 121,036 85 166 631,657

Non-owner occupied RE
Pass 281,890 169,599 113,264 59,550 79,722 106,967 604 137 811,733 84,617 298,063 162,697 107,364 59,260 163,990 9,249 - 885,240
Watch 1,061 9,491 - 10,683 1,408 11,660 - - 34,303 1,007 3,260 9,914 533 5,545 10,630 - - 30,889
Special Mention - 202 - 6,087 - 930 - - 7,219 - - 7,759 - 8,252 879 - - 16,890
Substandard - 134 - 7,992 327 871 - - 9,324 - - 313 - 8,088 1,109 - - 9,510
Total Non-owner occupied RE 282,951 179,426 113,264 84,312 81,457 120,428 604 137 862,579 85,624 301,323 180,683 107,897 81,145 176,608 9,249 - 942,529
Current period gross write-offs - (200 ) - - - (42 ) - - (242 )

Construction
Pass 48,420 55,129 4,811 247 - - - - 108,607 27,262 86,161 24,399 11,459 - - - - 149,281
Watch 1,119 - - - - - - - 1,119 - 1,399 - - - - - - 1,399
Special Mention - - - - - - - - -
Substandard - - - - - - - - -
Total Construction 49,539 55,129 4,811 247 - - - - 109,726 27,262 87,560 24,399 11,459 - - - - 150,680

Business
Pass 136,489 57,804 29,864 21,808 35,249 28,914 136,337 709 447,174 48,705 134,999 48,557 18,868 17,292 47,708 146,745 1,431 464,305
Watch 3,186 2,058 1,318 1,282 179 3,074 3,783 439 15,319 127 15,867 1,833 1,010 842 3,584 7,570 506 31,339
Special Mention 1,137 260 386 210 - 252 115 642 3,002 241 961 98 857 184 447 150 97 3,035
Substandard 498 - 188 233 315 911 472 - 2,617 - - 155 - 132 1,195 - - 1,482
Total Business 141,310 60,122 31,756 23,533 35,743 33,151 140,707 1,790 468,112 49,073 151,827 50,643 20,735 18,450 52,934 154,465 2,034 500,161
Current period gross write-offs - - - (28 ) - - (15 ) (22 ) (65 )
Total Commercial loans 657,731 417,810 245,037 178,049 154,207 257,246 141,311 1,927 2,053,318 204,805 725,005 394,734 220,906 163,000 350,578 163,799 2,200 2,225,027

Consumer
Real estate
Pass 243,589 269,565 189,075 72,499 39,042 76,172 - - 889,942 144,179 273,585 278,138 176,395 66,087 105,383 - - 1,043,767
Watch 6,196 8,256 3,847 2,278 494 3,671 - - 24,742 490 5,658 8,230 3,917 2,051 3,890 - - 24,236
Special Mention 3,114 1,938 2,644 2,258 955 2,639 - - 13,548 143 2,499 1,657 1,291 2,220 3,360 - - 11,170
Substandard - 648 227 341 408 1,422 - - 3,046 - - 635 817 318 1,486 - - 3,256
Total Real estate 252,899 280,407 195,793 77,376 40,899 83,904 - - 931,278 144,812 281,742 288,660 182,420 70,676 114,119 - - 1,082,429

Home equity
Pass - - - - - - 165,847 - 165,847 - - - - - - 171,003 - 171,003
Watch - - - - - - 7,226 - 7,226 - - - - - - 6,393 - 6,393
Special Mention - - - - - - 4,055 - 4,055 - - - - - - 4,283 - 4,283
Substandard - - - - - - 2,172 - 2,172 - - - - - - 1,325 - 1,325
Total Home equity - - - - - - 179,300 - 179,300 - - - - - - 183,004 - 183,004
Current period gross write-offs - - - - - - (438 ) - (438 )

Construction
Pass 41,138 34,039 4,923 - - - - - 80,100 14,339 39,893 9,116 - - - - - 63,348
Watch - - - - - - - - -
Special Mention - - - 315 - - - - 315
Substandard - - - - - - - - -
Total Construction 41,138 34,039 4,923 315 - - - - 80,415 14,339 39,893 9,116 - - - - - 63,348

Other
Pass 3,894 3,038 1,702 1,534 341 3,015 14,465 - 27,989 1,278 2,551 2,361 1,457 803 2,604 36,549 - 47,603
Watch 46 367 15 5 16 175 93 - 717 9 29 348 - 15 163 58 - 622
Special Mention 94 - - 44 75 23 97 - 332 33 333 - - 23 82 41 - 512
Substandard - - - 5 - - 9 - 14 - - 75 - - - 7 - 82
Total Other 4,034 3,405 1,717 1,588 432 3,213 14,663 - 29,052 1,320 2,913 2,784 1,457 841 2,849 36,655 - 48,819
Current period gross write-offs - - - - - - (16 ) - (16 )
Total Consumer loans 298,071 317,851 202,433 79,279 41,331 87,117 193,963 - 1,220,045 160,471 324,548 300,560 183,877 71,517 116,968 219,659 - 1,377,600
Total loans $ 955,802 735,661 447,470 257,328 195,538 344,363 335,274 1,927 3,273,363 $ 365,276 1,049,553 695,294 404,783 234,517 467,546 383,458 2,200 3,602,627
Total Current period gross write-offs - (200 ) - (28 ) - (42 ) (469 ) (22 ) (761 )
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The following tables present loan balances by age and payment status.

Schedule of loan balances by payment status June 30, 2023
(dollars in thousands) Accruing 30-
59 days past
due Accruing 60-89
days past due Accruing 90
days or more
past due Nonaccrual
loans Accruing
current Total
Commercial
Owner occupied RE $ 6 - - - 613,868 613,874
Non-owner occupied RE 83 104 - 754 950,595 951,536
Construction - - - - 115,798 115,798
Business 184 5 - 137 511,393 511,719
Consumer
Real estate 132 583 - 1,053 1,046,136 1,047,904
Home equity 29 - - 1,072 184,483 185,584
Construction - - - - 61,044 61,044
Other 6 - - - 50,151 50,157
Total loans $ 440 692 - 3,016 3,533,468 3,537,616
Total loans over 90 days past due - - - - - 1,072
Schedule of loan balances by payment status

December 31, 2022 March 31, 2024
(dollars in thousands) Accruing 30-
59 days past
due Accruing 60-89
days past due Accruing 90
days or more
past due Nonaccrual
loans Accruing
current Total Accruing 30-
59 days past
due Accruing 60-89
days past due Accruing 90
days or more
past due Nonaccrual
loans Accruing
current Total
Commercial
Owner occupied RE $ - - - - 612,901 612,901 $ - - - - 631,047 631,047
Non-owner occupied RE 119 757 - 247 861,456 862,579 8,031 27 - 1,410 935,062 944,530
Construction - - - - 109,726 109,726 - - - - 157,464 157,464
Business 24 1 - 182 467,905 468,112 428 18 - 488 519,139 520,073
Consumer
Real estate 330 - - 1,099 929,849 931,278 2,903 - - 1,380 1,097,290 1,101,573
Home equity 50 - - 1,099 178,151 179,300 231 127 - 367 183,966 184,691
Construction - - - - 80,415 80,415 - - - - 53,216 53,216
Other 88 - - - 28,964 29,052 - 7 - 1 51,164 51,172
Total loans $ 611 758 - 2,627 3,269,367 3,273,363 $ 11,593 179 - 3,646 3,628,348 3,643,766
Total loans over 90 days past due - - - - - 402 - - - - - 889

December 31, 2023
(dollars in thousands) Accruing 30-
59 days past
due Accruing 60-89
days past due Accruing 90
days or more
past due Nonaccrual
loans Accruing
current Total
Commercial
Owner occupied RE $ 74 - - - 631,583 631,657
Non-owner occupied RE 8,102 - - 1,423 933,004 942,529
Construction - - - - 150,680 150,680
Business 567 - - 319 499,275 500,161
Consumer
Real estate 1,750 - - 985 1,079,694 1,082,429
Home equity 601 30 - 1,236 181,137 183,004
Construction - - - - 63,348 63,348
Other 25 25 - - 48,769 48,819
Total loans $ 11,119 55 - 3,963 3,587,490 3,602,627
Total loans over 90 days past due - - - - - 1,300
As of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, loans 30 days or more past due represented ~~0.07%~~0.36% and ~~0.11%~~0.37% of the Company’s total loan portfolio, respectively. Commercial loans 30 days or more past due were ~~0.01%~~0.24% and ~~0.03%~~0.27% of the Company’s total loan portfolio as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. Consumer loans 30 days or more past due were ~~0.05%~~0.11% and ~~0.08%~~0.09% of total loans as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.
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Table of Contents
The table below summarizes nonaccrual loans by major categories for the periods presented.
Schedule nonaccrual loans by major categories

June 30, 2023 December 31, 2022 March 31, 2024 December 31, 2023
Nonaccrual Nonaccrual Nonaccrual Nonaccrual Nonaccrual Nonaccrual Nonaccrual Nonaccrual
loans loans Total loans loans Total loans loans Total loans loans Total
with no with an nonaccrual with no with an nonaccrual with no with an nonaccrual with no with an nonaccrual
(dollars in thousands) allowance allowance loans allowance allowance loans allowance allowance loans allowance allowance loans
Commercial
Owner occupied RE - - - - - - $ - - - $ - - -
Non-owner occupied RE - 754 754 114 133 247 646 764 1,410 653 770 1,423
Construction - - - - - - - - - - - -
Business - 137 137 - 182 182 - 488 488 164 155 319
Total commercial - 891 891 114 315 429 646 1,252 1,898 817 925 1,742
Consumer
Real estate - 1,053 1,053 - 1,099 1,099 625 755 1,380 - 985 985
Home equity 185 887 1,072 194 905 1,099 367 - 367 343 893 1,236
Construction - - - - - - - - - - - -
Other - - - - - - - 1 1 - - -
Total consumer 185 1,940 2,125 194 2,004 2,198 992 756 1,748 343 1,878 2,221
Total nonaccrual loans 185 2,831 3,016 308 2,319 2,627 $ 1,638 2,008 3,646 $ 1,160 2,803 3,963
WeThe Company did not recognize interest income on nonaccrual loans for the three months ended ~~June 30, 2023~~March 31, 2024 and ~~June 30, 2022.~~March 31, 2023. The accrued interest reversed during the three months ended ~~June 30,~~March 31, 2024 and March 31, 2023 ~~and June 30, 2022~~ was not material.
~~We did not recognize~~ Foregone interest income on the nonaccrual loans for the ~~six months~~three-month period ended ~~June 30,~~March 31, 2024 and March 31, 2023 ~~and June 30, 2022. Accrued interest of $23,000~~was ~~reversed during the six months ended June 30, 2023 and $~~not material.~~3,000~~0 ~~was reversed during the six months ended June 30, 2022.~~
The table below summarizes information regarding nonperforming assets.
Schedule of nonperforming assets, including nonaccruing TDRs
Schedule of nonperforming assets

(dollars in thousands) June 30, 2023 December 31, 2022 March 31, 2024 December 31, 2023
Nonaccrual loans $ 3,016 2,627 $ 3,646 3,963
Other real estate owned - - - -
Total nonperforming assets $ 3,016 2,627 $ 3,646 3,963
Nonperforming assets as a percentage of:
Total assets 0.08 % 0.07 % 0.09 % 0.10 %
Gross loans 0.09 % 0.08 % 0.10 % 0.11 %
Total loans over 90 days past due $ 1,072 402 $ 889 1,300
Loans over 90 days past due and still accruing - - - -
Accruing troubled debt restructurings - 4,503
Modifications to Borrowers Experiencing Financial Difficulty
The Company adopted Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measure of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty.
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification.
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Table of Contents
There were no ~~loan modifications~~loans modified to borrowers experiencing financial difficulty during the three months ~~and six~~ended March 31, 2024. The following table shows the amortized cost basis of the loans modified to borrowers experiencing financial difficulty during the twelve months ended ~~June 30,~~December 31, 2023, disaggregated by class of loans and type of concession granted and describes the financial effect of the modifications made to borrowers experiencing financial difficulty.
Schedule of amortized cost basis of loans
Term Extension
(dollars in thousands) Amortized Cost Basis % of Total Loan Type Financial Effect
Commercial Business $ 309 0.06 % Added a 1-year term to both of the loans modified. One loan was granted an extended amortization due to the inability to pay on a 3-year amortization. The other loan was given an interest only period due to the ability to pay only interest to get the loan renewed.
Neither of the two loans modified had a payment default during the period. The Company closely monitors the performance of the loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. Both loans are in current payment status since the loan modification occurred in the third quarter of 2023. There have been no commitments to lend additional funds to the borrowers experiencing financial difficulty as of March 31, 2024.
Allowance for Credit Losses
The Company maintains an allowance for credit losses to provide for expected credit losses. Losses are charged against the allowance when management believes that the principal is uncollectable. Subsequent recoveries, if any, are credited to the allowance. Allocations of the allowance are made for specific loans and for pools of similar types of loans, although the entire allowance is available for any loan that, in management’s judgment, should be charged against the allowance. A provision for credit losses is taken based on management’s ongoing evaluation of the appropriate allowance balance.
19
~~Table of Contents~~
A formal evaluation of the adequacy of the credit loss allowance is conducted quarterly. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The level of the allowance is based upon management's evaluation of historical default and loss experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the borrowers' ability to repay a loan, the estimated value of any underlying collateral, composition of the loan portfolio, industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. Management believes the level of the allowance for credit losses is adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date. The allowance is increased through provision for credit losses and decreased by charge-offs, net of recoveries of amounts previously charged-off.
The Company uses a lifetime probability of default and loss given default modeling approach to estimate the allowance for credit losses on loans. This method uses historical correlations between default experience and the age of loans to forecast defaults and losses, assuming that a loan in a pool shares similar risk characteristics such as loan product type, risk rating and loan age, and demonstrates similar default characteristics as other loans in that pool, as the loan progresses through its lifecycle. The Company calculates lifetime probability of default and loss given default rates based on historical loss experience, which is used to calculate expected losses based on the pool’s loss rate and the age of loans in the pool. Management believes that the Company’s historical loss experience provides the best basis for its assessment of expected credit losses to determine the allowance for credit losses. The Company uses its own internal data to measure historical credit loss experience within the pools with similar risk characteristics over an economic cycle. The probability of default and loss given default method also includes assumptions of observed migration over the lifetime of the underlying loan data. Loans that do not share risk characteristics are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation.
19
Table of Contents
Management also considers further adjustments to historical loss information for current conditions and reasonable and supportable forecasts that differ from the conditions that exist for the period over which historical information is evaluated as well as other changes in qualitative factors not inherently considered in the quantitative analyses. The Company generally utilizes a four-quarter forecast period in evaluating the appropriateness of the reasonable and supportable forecast scenarios which are incorporated through qualitative adjustments. There is immediate reversion to historical loss rates. The qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management but measured by objective measurements period over period. The data for each measurement may be obtained from internal or external sources. The current period measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative adjustments are applied to the relevant collectively evaluated loan pools. These adjustments are based upon quarterly trend assessments in certain economic factors such as labor, inflation, consumer sentiment and real disposable income, as well as associate retention and turnover, portfolio concentrations, and growth characteristics. The qualitative analysis increases or decreases the allowance allocation for each loan pool based on the assessment of factors described above.
The following tables summarize the activity related to the allowance for credit losses for the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and March 31, 2023 ~~and June 30, 2022~~ under the CECL methodology.
Schedule of activity related to the allowance for credit losses

Three months ended June 30, 2023 Three months ended March 31, 2024
Commercial Consumer Commercial Consumer
(dollars in thousands) Owner
occupied
RE Non-
owner
occupied
RE Construction Business Real
Estate Home
Equity Construction Other Total Owner
occupied
RE Non-
owner
occupied
RE Construction Business Real
Estate Home
Equity Construction Other Total
Balance, beginning of period $ 5,984 11,285 1,110 8,022 10,079 2,663 810 482 40,435 $ 6,118 11,167 1,594 7,385 10,647 2,600 677 494 40,682
Provision for credit losses (88 ) 347 221 118 316 245 (126 ) 62 1,095 - - - - - - - - -
Loan charge-offs - (48 ) - - - (389 ) - (2 ) (439 ) - - - (346 ) - - - (78 ) (424 )
Loan recoveries - - - 12 - 2 - - 14 - - - 15 - 119 - 49 183
Net loan recoveries (charge-offs) - (48 ) - 12 - (387 ) - (2 ) (425 ) - - - (331 ) - 119 - (29 ) (241 )
Balance, end of period $ 5,896 11,584 1,331 8,152 10,395 2,521 684 542 41,105 $ 6,118 11,167 1,594 7,054 10,647 2,719 677 465 40,441
Net charge-offs to average loans (annualized) Net charge-offs to average loans (annualized) 0.05 % 0.03 %
Allowance for credit losses to gross loans Allowance for credit losses to gross loans 1.16 % 1.11 %
Allowance for credit losses to nonperforming loans Allowance for credit losses to nonperforming loans 1,363.11 % 1,109.13 %

Three months ended March 31, 2023
Commercial Consumer
(dollars in thousands) Owner occupied RE Non-owner occupied RE Construction Business Real Estate
Home
Equity
Construction Other Total
Balance, beginning of period $ 5,867 10,376 1,292 7,861 9,487 2,551 893 312 38,639
Provision for credit losses 117 1,038 (182 ) 150 592 53 (83 ) 170 1,855
Loan charge-offs - (160 ) -  (1 ) - - - - (161 )
Loan recoveries - 31 - 12 - 59 - - 102
Net loan recoveries (charge-offs) - (129 ) - 11 - 59 - - (59 )
Balance, end of period $ 5,984 11,285 1,110 8,022 10,079 2,663 810 482 40,435
Net charge-offs to average loans (annualized) 0.01 %
Allowance for credit losses to gross loans 1.18 %
Allowance for credit losses to nonperforming loans 854.33 %

20
~~Table of Contents~~

Three months ended June 30, 2022
Commercial Consumer
(dollars in thousands) Owner
occupied RE Non-
owner
occupied
RE Construction Business Real
Estate Home
Equity Construction Other Total
Balance, beginning of period $ 4,898 9,973 929 6,217 7,602 2,197 844 284 32,944
Provision for credit losses (69 ) 37 131 524 390 407 7 98 1,525
Loan charge-offs - - - (55 ) - (170 ) - (91 ) (316 )
Loan recoveries - - - 31 - 8 - - 39
Net loan recoveries (charge-offs) - - - (24 ) - (162 ) - (91 ) (277 )
Balance, end of period $ 4,829 10,010 1,060 6,717 7,992 2,442 851 291 34,192
Net charge-offs to average loans (annualized) 0.04 %
Allowance for credit losses to gross loans 1.20 %
Allowance for credit losses to nonperforming loans 1,166.70 %

Six months ended June 30, 2023
Commercial Consumer
(dollars in thousands) Owner
occupied
RE Non-
owner
occupied
RE Construction Business Real
Estate Home
Equity Construction Other Total
Balance, beginning of period $ 5,867 10,376 1,292 7,861 9,487 2,551 893 312 38,639
Provision for credit losses 29 1,385 39 268 908 298 (209 ) 232 2,950
Loan charge-offs - (209 ) - (1 ) - (389 ) - (2 ) (601 )
Loan recoveries - 32 - 24 - 61 - - 117
Net loan recoveries (charge-offs) - (177 ) - 23 - (328 ) - (2 ) (484 )
Balance, end of period $ 5,896 11,584 1,331 8,152 10,395 2,521 684 542 41,105
Net charge-offs to average loans (annualized) 0.03 %
Allowance for credit losses to gross loans 1.16 %
Allowance for credit losses to nonperforming loans 1,363.11 %

Six months ended June 30, 2022
Commercial Consumer
(dollars in thousands) Owner
occupied
RE Non-
owner
occupied
RE Construction Business Real
Estate Home
Equity Construction Other Total
Balance, beginning of period $ 4,700 10,518 625 4,887 7,083 1,697 578 320 30,408
Adjustment for CECL (313 ) 333 154 1,057 (294 ) 438 130 (5 ) 1,500
Provision for credit losses 442 (841 ) 281 683 1,203 572 143 67 2,550
Loan charge-offs - - - (55 ) - (339 ) - (91 ) (485 )
Loan recoveries - - - 145 - 74 - - 219
Net loan recoveries (charge-offs) - - - 90 - (265 ) - (91 ) (266 )
Balance, end of period $ 4,829 10,010 1,060 6,717 7,992 2,442 851 291 34,192
Net charge-offs to average loans (annualized) 0.02 %
Allowance for credit losses to gross loans 1.20 %
Allowance for credit losses to nonperforming loans 1,166.70 %
~~The $~~There was ~~1.1~~no ~~million~~ provision for credit losses recorded during the first quarter of 2024, compared to a provision of $1.9 million for the ~~three months ended June 30, 2023~~first quarter of 2023. No provision was ~~driven by $119.7~~ ~~million in loan growth combined with net charge-offs~~recorded during the first quarter of $~~425,000~~ ~~for the quarter. The $~~3~~.0 million provision for credit losses for the six months ended June 30, 2023 was driven by $264.3~~ ~~million in loan growth for the period. In addition to loan growth, the provision for credit losses was impacted by slightly lower expected loss rates~~2024 due to continued low net charge-offs ~~during the first half of 2023, while minor adjustments to an internal qualitative factor increased the qualitative component~~and a continued decline of the expected loss rates in the allowance ~~and related provision expense.~~for credit losses.
Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other loans that management
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of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses.
~~The following tables present an analysis~~20
Table of ~~collateral-dependent loans of the Company.~~Contents

June 30, 2023
Schedule of analysis of collateral-dependent loans of the company Real Business
(dollars in thousands) estate assets Other Total
Commercial
Owner occupied RE $ - - - -
Non-owner occupied RE 31 - - 31
Construction - - - -
Business 42 - - 42
Total commercial 73 - - 73
Consumer
Real estate 195 - - 195
Home equity 185 - - 185
Construction - - - -
Other - - - -
Total consumer 380 - - 380
Total $ 453 - - 453

December 31, 2022
Real Business
(dollars in thousands) estate assets Other Total
Commercial
Owner occupied RE $ - - - -
Non-owner occupied RE 114 - - 114
Construction - - - -
Business 30 - - 30
Total commercial 144 - - 144
Consumer
Real estate 207 - - 207
Home equity 194 - - 194
Construction - - - -
Other - - - -
Total consumer 401 - - 401
Total $ 545 - - 545
Under CECL, for collateral dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is calculated on an individual loan basis based on the shortfall between the fair value of the loan's collateral, which is adjusted for liquidation costs/discounts, and amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required.
The following tables present an analysis of collateral-dependent loans of the Company as of March 31, 2024 and December 31, 2023.
Schedule of analysis of collateral-dependent loans

March 31, 2024
Real Business
(dollars in thousands) estate assets Other Total
Commercial
Owner occupied RE $ - - - -
Non-owner occupied RE 723 - - 723
Construction - - - -
Business - - - -
Total commercial 723 - - 723
Consumer
Real estate 789 - - 789
Home equity 367 - - 367
Construction - - - -
Other - - - -
Total consumer 1,156 - - 1,156
Total $ 1,879 - - 1,879

December 31, 2023
Real Business
(dollars in thousands) estate assets Other Total
Commercial
Owner occupied RE $ - - - -
Non-owner occupied RE 720 - - 720
Construction - - - -
Business 164 - - 164
Total commercial 884 - - 884
Consumer
Real estate 166 - - 166
Home equity 343 - - 343
Construction - - - -
Other - - - -
Total consumer 509 - - 509
Total $ 1,393 - - 1,393
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Table of Contents
Allowance for Credit Losses - Unfunded Loan Commitments
The allowance for credit losses for unfunded loan commitments was $~~2.6~~1.7 million and $1.8 million at ~~June 30,~~March 31, 2024 and December 31, 2023, respectively, and is separately classified on the balance sheet within other liabilities. The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 and ~~June 30, 2022.~~for the twelve months ended December 31, 2023.
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Schedule of allowance for credit losses for unfunded loan commitments

Three months ended Three months ended Three months ended Twelve months ended
(dollars in thousands) June 30, 2023 June 30, 2022 March 31, 2024 December 31, 2023
Balance, beginning of period $ 2,750 2,080 $ 1,831 2,780
Adjustment for adoption of CECL - -
Provision for (reversal of) credit losses (185 ) 250 (175 ) (949 )
Balance, end of period $ 2,565 2,330 $ 1,656 1,831
Unfunded Loan Commitments $ 849,977 738,791 $ 710,669 724,606
Reserve for Unfunded Commitments to Unfunded Loan Commitments 0.30 % 0.32 % 0.23 % 0.25 %

Six months ended Six months ended
(dollars in thousands) June 30, 2023 June 30, 2022
Balance, beginning of period $ 2,780 -
Adjustment for adoption of CECL - 2,000
Provision for (reversal of) credit losses (215 ) 330
Balance, end of period $ 2,565 2,330
Unfunded Loan Commitments $ 849,977 738,791
Reserve for Unfunded Commitments to Unfunded Loan Commitments 0.30 % 0.32 %
NOTE 5 – Derivative Financial Instruments
The Company utilizes derivative financial instruments primarily to manage its exposure to changes in interest rates. All derivative financial instruments are recognized as either assets or liabilities and measured at fair value.
The Company enters into commitments to originate residential mortgage loans held for sale, at specified interest rates and within a specified period of time, with clients who have applied for a loan and meet certain credit and underwriting criteria (interest rate lock commitments). These interest rate lock commitments (“IRLCs”) meet the definition of a derivative financial instrument and are reflected in the balance sheet at fair value with changes in fair value recognized in current period earnings. Unrealized gains and losses on the IRLCs are recorded as derivative assets and derivative liabilities, respectively, and are measured based on the value of the underlying mortgage loan, quoted mortgage-backed securities (“MBS”) prices and an estimate of the probability that the mortgage loan will fund within the terms of the interest rate lock commitment, net of estimated commission expenses.
The Company manages the interest rate and price risk associated with its outstanding IRLCs and mortgage loans held for sale by entering into derivative instruments such as forward sales of MBS. These derivatives are free- standing derivatives and are not designated as instruments for hedge accounting. Management expects these derivatives will experience changes in fair value opposite to changes in fair value of the IRLCs and mortgage loans held for sale, thereby reducing earnings volatility. The Company takes into account various factors and strategies in determining the portion of the mortgage pipeline (IRLCs and mortgage loans held for sale) it wants to economically hedge. The gain or loss resulting from the change in the fair value of the derivative is recognized in the Company’s statement of income during the period of change.
The Company entered into a pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total notional amount of $~~200.0~~200.0 million in the second quarter of 2023. The hedging instrument matures on May 25, 2028. The Company is designating the fair value swap under the portfolio layer method (“PLM”). Under this method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain outstanding for the designated hedged period. Adjustments ~~will be~~are made to record the swap at fair value on the consolidated balance sheets, with changes in fair value recognized in interest income. The carrying value of the fair value swap on the consolidated balance sheets will also be adjusted through interest income, based on changes in fair value attributable to changes in the hedged risk.
The following table represents the carrying value of the portfolio layer method hedged asset and liability and the cumulative fair value hedging adjustment included in the carrying value of the hedged asset as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.
Schedule of carrying value of hedged asset and liability and cumulative fair value hedging adjustment
March 31, 2024 December 31, 2023
(dollars in thousands) Carrying
Amount Hedged Asset Carrying
Amount Hedged Liability
Fixed Rate Asset/Liability¹ $ 203,206 $ 3,206 $ 199,518 $ 482
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Schedule of carrying value of hedged asset and cumulative fair value hedging adjustment
June 30, 2023 December 31, 2022
(dollars in thousands) Carrying
Amount Hedged Asset Carrying
Amount Hedged Asset
Fixed Rate Asset¹ 202,750 2,750 - -
¹ These amounts included the amortized cost basis of closed portfolios of fixed rate loans used to designate hedging relationships in which the hedged item is the stated amount of the assets in the closed portfolio anticipated to be outstanding for the designated hedged period. As of ~~June 30, 2023,~~March 31, 2024, the amortized cost basis of the closed portfolio used in this hedging relationship was $~~741.4~~706.9 million, the cumulative basis adjustment associated with this hedging relationship was $~~2.8~~3.2 million, and the amount of the designated hedged item was $~~200.0~~200.0 million.
The following table summarizes the Company’s outstanding financial derivative instruments at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.
Schedule of outstanding financial derivative instruments
June 30, 2023 March 31, 2024
Fair Value Fair Value
(dollars in thousands) Notional Balance Sheet
Location Asset/(Liability) Notional Balance Sheet
Location Asset/(Liability)
Derivatives designated as hedging instruments:
Fair value swap Fair value swap [Member] $ 200,000 Other assets $ 2,750 $ 200,000 Other assets $ 3,206

Derivatives not designated as hedging instruments:
Mortgage loan interest rate lock commitments 24,630 Other assets 177
MBS forward sales commitments 17,500 Other assets 59
Total derivative financial instruments $ 242,130 $ 2,986
Total derivative financial instruments [Member]
Mortgage loan interest rate lock commitments [Member] December 31, 2022
MBS forward sales commitments [Member] Fair Value
Mortgage loan interest rate lock commitments Mortgage loan interest rate lock commitments [Member] 28,986 Other assets 316
MBS forward sales commitments MBS forward sales commitments [Member] 19,500 Other liabilities (59 )
Total derivative financial instruments Total derivative financial instruments [Member] $ 248,486 $ 3,463

December 31, 2023
Fair Value
(dollars in thousands) Notional Balance Sheet
Location Asset/(Liability) Notional Balance Sheet
Location Asset/(Liability)
Derivatives designated as hedging instruments:
Fair value swap $ 200,000 Other liabilities $ (482 )

Derivatives not designated as hedging instruments:
Mortgage loan interest rate lock commitments $ 6,793 Other assets 49 12,973 Other assets 159
MBS forward sales commitments 5,750 Other assets 27 10,000 Other liabilities (68 )
Total derivative financial instruments $ 12,543 $ 76 $ 222,973 $ (391 )
Accrued interest receivable related to the interest rate swap as of ~~June 30, 2023~~March 31, 2024 totaled $~~248~~291,000~~,000~~ and is excluded from the fair value presented in the table above.
The Company assesses the effectiveness of the fair value swap hedge with a regression analysis that compares the changes in forward curves to determine the value. The effective portion of changes in fair value of derivatives designated as fair value hedges is recorded through interest income. The Company does not offset derivative assets and derivative liabilities for financial statement presentation purposes.
The following table summarizes the effect of the fair value hedging relationship recognized in the consolidated statements of income for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 and ~~June 30, 2022.~~March 31, 2023.

Schedule of summarize the effect of fair value hedging relationship recognized in consolidated statement of income Three months ended
June 30, Six months ended
June 30,
(dollars in thousands) 2023 2022 2023 2022
Gain (loss) on fair value hedging relationship:
Hedged asset $ 2,750 - 2,750 -
Fair value derivative designated as hedging instrument (2,784 ) - (2,784 ) -
Total gain (loss) recognized in interest income on loans $ (34 ) - (34 ) -
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Schedule of summarize the effect of fair value hedging relationship recognized in consolidated statement of income
Three months ended
March 31,
(dollars in thousands) 2024 2023
Gain (loss) on fair value hedging relationship:
Hedged asset $ 3,688 -
Fair value derivative designated as hedging instrument (3,738 ) -
Total gain (loss) recognized in interest income on loans $ (50 ) -
NOTE 6 – Fair Value Accounting
FASB ASC 820, “Fair Value Measurement and Disclosures,” defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and
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minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted market price in active markets

Quoted prices in active markets for identical assets or liabilities. Level 1 assets and liabilities include certain debt and equity securities that are traded in an active exchange market.

Level 2 – Significant other observable inputs

Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 2 assets and liabilities include fixed income securities and mortgage-backed securities that are held in the Company’s available-for-sale portfolio and valued by a third-party pricing service, as well as certain ~~impaired~~individually evaluated loans.

Level 3 – Significant unobservable inputs
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.  These methodologies may result in a significant portion of the fair value being derived from unobservable data.
The methods of determining the fair value of assets and liabilities presented in this note are consistent with our methodologies disclosed in Note 1412 of the Company’s ~~2022~~2023 Annual Report on Form 10-K. See Note 5 for how the derivative asset fair value is determined. The Company’s loan portfolio is initially fair valued using a segmented approach, using the eight categories of loans as disclosed in Note 4 – Loans and Allowance for Credit Losses. Loans are considered a Level 3 classification.
Assets and Liabilities Recorded at Fair Value on a Recurring Basis
The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.
Schedule of assets and liabilities measured at fair value on a recurring basis

June 30, 2023
(dollars in thousands) Level 1 Level 2 Level 3 Total
Assets
Securities available for sale Level 1 [Member]
Corporate bonds Level 2 [Member] $ - 1,874 - 1,874
US treasuries Level 3 [Member] - 875 - 875
US government agencies - 10,810 - 10,810
State and political subdivisions - 19,339 - 19,339
Asset-backed securities - 5,568 - 5,568
Mortgage-backed securities - 53,082 - 53,082
Mortgage loans held for sale - 15,781 - 15,781
Mortgage loan interest rate lock commitments - 177 - 177
MBS forward sales commitments - 59 - 59
Derivative asset - 2,750 - 2,750
Total assets measured at fair value on a recurring basis $ - 110,315 - 110,315
Schedule of assets and liabilities measured at fair value on a recurring basis

March 31, 2024
(dollars in thousands) Level 1 Level 2 Level 3 Total
Assets
Securities available for sale
Corporate bonds Level 1 [Member] $ - 1,887 - 1,887
US treasuries Level 2 [Member] - 888 - 888
US government agencies Level 3 [Member] - 18,197 - 18,197
State and political subdivisions - 19,537 - 19,537
Asset-backed securities - 34,204 - 34,204
Mortgage-backed securities - 51,283 - 51,283
Mortgage loans held for sale - 11,842 - 11,842
Mortgage loan interest rate lock commitments - 316 - 316
Derivative asset - 3,206 - 3,206
Total assets measured at fair value on a recurring basis $ - 141,360 - 141,360
Liabilities
MBS forward sales commitments $ - 59 - 59
Total liabilities measured at fair value on a recurring basis $ - 59 - 59
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December 31, 2022
(dollars in thousands) Level 1 Level 2 Level 3 Total
Assets
Securities available for sale:
Corporate bonds $ - 1,883 - 1,883
US treasuries - 871 - 871
US government agencies - 10,617 - 10,617
State and political subdivisions - 18,906 - 18,906
Asset-backed securities - 6,229 - 6,229
Mortgage-backed securities - 54,841 - 54,841
Mortgage loans held for sale - 3,917 - 3,917
Mortgage loan interest rate lock commitments - 49 - 49
MBS forward sales commitments - 27 - 27
Total assets measured at fair value on a recurring basis $ - 97,340 - 97,340

December 31, 2023
(dollars in thousands) Level 1 Level 2 Level 3 Total
Assets
Securities available for sale:
Corporate bonds $ - 1,910 - 1,910
US treasuries - 9,394 - 9,394
US government agencies - 18,656 - 18,656
State and political subdivisions - 19,741 - 19,741
Asset-backed securities - 33,236 - 33,236
Mortgage-backed securities - 51,765 - 51,765
Mortgage loans held for sale - 7,194 - 7,194
Mortgage loan interest rate lock commitments - 159 - 159
Total assets measured at fair value on a recurring basis $ - 142,055 - 142,055
Liabilities
Derivative liability $ - 482 - 482
MBS forward sales commitments - 68 - 68
Total liabilities measured at fair value on a recurring basis $ - 550 - 550
~~The Company had no liabilities recorded at fair value on a recurring basis as of June 30, 2023 and December 31, 2022.~~
Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis
The tables below present the recorded amount of assets and liabilities measured at fair value on a nonrecurring basis as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023.
Schedule of assets and liabilities measured at fair value on a nonrecurring basis

As of June 30, 2023
(dollars in thousands) Level 1 Level 2 Level 3 Total
Assets
Individually evaluated $ - 306 3,636 3,942
Total assets measured at fair value on a nonrecurring basis $ - 306 3,636 3,942

As of December 31, 2022
(dollars in thousands) Level 1 Level 2 Level 3 Total
Assets
Individually evaluated $ - 429 4,071 4,500
Total assets measured at fair value on a nonrecurring basis $ - 429 4,071 4,500
Schedule of assets and liabilities measured at fair value on a nonrecurring basis
As of March 31, 2024
(dollars in thousands) Level 1 Level 2 Level 3 Total
Assets
Individually evaluated loans $ - 1,638 2,153 3,791
Total assets measured at fair value on a nonrecurring basis $ - 1,638 2,153 3,791

As of December 31, 2023
(dollars in thousands) Level 1 Level 2 Level 3 Total
Assets
Individually evaluated loans $ - 1,160 2,976 4,136
Total assets measured at fair value on a nonrecurring basis $ - 1,160 2,976 4,136
The Company had no liabilities carried at fair value or measured at fair value on a nonrecurring basis.
For Level 3 assets and liabilities measured at fair value on a recurring or nonrecurring basis as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the significant unobservable inputs used in the fair value measurements were as follows:
Schedule of unobservable inputs used in the fair value measurements
Valuation Technique Significant Unobservable Inputs Range of Inputs
Individually evaluated loans Appraised Value/ Discounted Cash Flows Discounts to appraisals or cash flows for estimated holding and/or selling costs or age of appraisal 0-25%
Fair Value of Financial Instruments
Financial instruments require disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the exchange of cash. Certain items are specifically excluded from the disclosure requirements, including the Company’s common stock, premises and equipment and other assets and liabilities.
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The estimated fair values of the Company’s financial instruments at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 are as follows:
Schedule of estimated fair values of the company's financial instruments

June 30, 2023 March 31, 2024
(dollars in thousands) Carrying
Amount Fair
Value Level 1 Level 2 Level 3 Carrying
Amount Fair
Value Level 1 Level 2 Level 3
Financial Assets:
Other investments, at cost $ 12,550 12,550 - - 12,550 $ 18,499 18,499 - - 18,499
Loans¹ 3,491,664 3,231,892 - - 3,231,892 3,598,837 3,269,154 - - 3,269,154
Financial Liabilities:
Deposits 3,433,018 3,013,696 - 3,013,696 - 3,460,681 2,954,382 - 2,954,382 -
Subordinated debentures 36,268 40,767 - 40,767 - 36,349 40,617 - 40,617 -

December 31, 2022
(dollars in thousands) Carrying
Amount Fair
Value Level 1 Level 2 Level 3
Financial Assets:
Other investments, at cost $ 10,833 10,833 - - 10,833
Loans¹ 3,227,455 3,057,891 - - 3,057,891
Financial Liabilities:
Deposits 3,133,864 2,717,900 - 2,717,900 -
Subordinated debentures 36,214 39,885 - 39,885 -
December 31, 2023
(dollars in thousands) Carrying
Amount Fair
Value Level 1 Level 2 Level 3
Financial Assets:
Other investments, at cost $ 19,939 19,939 - - 19,939
Loans¹ 3,557,120 3,337,768 - - 3,337,768
Financial Liabilities:
Deposits 3,379,564 2,961,182 - 2,961,182 -
Subordinated debentures 36,322 40,712 - 40,712 -
¹ Carrying amount is net of the allowance for credit losses and individually evaluated loans.
NOTE 7 – Leases
The Company had operating right-of-use (“ROU”) assets, included in property and equipment, of $~~22.9~~21.8 million and $~~23.6~~22.2 million as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. The Company had lease liabilities, included in other liabilities, of $~~25.3~~24.3 million and $~~25.8~~24.6 million as of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. We maintain operating leases on land and buildings for various office spaces. The lease agreements have maturity dates ranging from April 2025 to February 2032, some of which include options for multiple five-year extensions. The weighted average remaining life of the lease term for these leases was ~~6.40~~5.67 years as of ~~June 30, 2023.~~March 31, 2024. The ROU asset and lease liability are recognized at lease commencement by calculating the present value of lease payments over the lease term. The ROU assets also include any initial direct costs incurred and lease payments made at or before commencement date and are reduced by any lease incentives.
The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded with the remaining lease term at implementation of the accounting standard and as of the lease commencement date for leases subsequently entered into. The weighted average discount rate for leases was ~~2.29%~~2.29% as of ~~June 30, 2023.~~March 31, 2024.
The total operating lease costs were $~~604,000~~593,000 and $~~768,000~~595,000 for the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022, respectively, and $1.2~~ ~~million and $1.5~~ ~~million for the six months ended June 30, 2023 and 2022,~~ respectively.
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Operating lease payments due as of ~~June 30, 2023~~March 31, 2024 were as follows:
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~~Table of Contents~~
Schedule of maturities of lease liabilities
Operating
(dollars in thousands) Leases
Operating
Leases

2023 $ 1,027
2024 2,099 $ 1,578
2025 2,157 2,157
2026 2,210 2,210
2027 2,268 2,267
2028 2,015
Thereafter 22,202 20,187
Total undiscounted lease payments 31,963 30,414
Discount effect of cash flows 6,646 6,117
Total lease liability $ 25,317 $ 24,297
NOTE 8 – Earnings Per Common Share
The following schedule reconciles the numerators and denominators of the basic and diluted earnings per share computations for the three-month periods ended ~~June 30, 2023~~March 31, 2024 and ~~2022.~~2023. Dilutive common shares arise from the potentially dilutive effect of the Company’s stock options that were outstanding at ~~June 30, 2023.~~March 31, 2024. The assumed conversion of stock options can create a difference between basic and dilutive net income per common share. At ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ there were ~~386,003~~212,863 and ~~162,366~~205,689 options, respectively, that were not considered in computing diluted earnings per common share because they were anti-dilutive.
Schedule of earnings per share computations

Schedule of earnings per share calculation
Three months ended
June 30, Six months ended
June 30, Three months ended
March 31,
(dollars in thousands, except share data) 2023 2022 2023 2022 2024 2023
Numerator:
Net income available to common shareholders $ 2,458 7,240 5,161 15,210 $ 2,522 2,703
Denominator:
Weighted-average common shares outstanding – basic 8,051,131 7,957,631 8,038,642 7,944,814 8,110,249 8,025,876
Common stock equivalents 17,897 97,279 41,879 130,682 31,672 66,394
Weighted-average common shares outstanding – diluted 8,069,028 8,054,910 8,080,521 8,075,496 8,141,921 8,092,270
Earnings per common share:
Basic $ 0.31 0.91 0.64 1.91 $ 0.31 0.34
Diluted $ 0.31 0.90 0.64 1.88 0.31 0.33
Item 2. MANAGEMENT’S DISCUSSION AND ~~ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~Analysis of Financial Condition and Results of Operations.
The following discussion reviews our results of operations for the three ~~and six~~ month ~~periods~~period ended ~~June 30, 2023~~March 31, 2024 as compared to the three ~~and six~~ month ~~periods~~period ended ~~June 30, 2022~~March 31, 2023 and assesses our financial condition as of ~~June 30, 2023~~March 31, 2024 as compared to December 31, ~~2022.~~2023. You should read the following discussion and analysis in conjunction with the accompanying consolidated financial statements and the related notes and the consolidated financial statements and the related notes for the year ended December 31, ~~2022~~2023 included in our Annual Report on Form 10-K for that period. Results for the three ~~and six~~ month ~~periods~~period ended ~~June 30, 2023~~March 31, 2024 are not necessarily indicative of the results for the year ending December 31, ~~2023~~2024 or any future period.
Unless the context requires otherwise, references to the “Company,” “we,” “us,” “our,” or similar references mean Southern First Bancshares, Inc. and its consolidated subsidiary. References to the “Bank” refer to Southern First Bank.
Cautionary ~~warning regarding~~Warning Regarding forward-looking statements
This report contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). ~~Forward-looking~~Forward-
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looking statements may relate to our financial condition, results of operations, plans, objectives, or future
28
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performance. These statements are based on many assumptions and estimates and are not guarantees of future performance. Our actual results may differ materially from those anticipated in any forward-looking statements, as they will depend on many factors about which we are unsure, including many factors which are beyond our control. The words “may,” “would,” “could,” “should,” “will,” “seek to,” “strive,” “focus,” “expect,” “anticipate,” “predict,” “project,” “potential,” “believe,” “continue,” “assume,” “intend,” “plan,” and “estimate,” as well as similar expressions, are meant to identify such forward-looking statements. Potential risks and uncertainties that could cause our actual results to differ from those anticipated in any forward-looking statements include, but are not limited to:
● Restrictions or conditions imposed by our regulators on our operations;
● Increases in competitive pressure in the banking and financial services industries;
● Changes in access to funding or increased regulatory requirements with regard to funding, which could impair our liquidity;
● Changes in deposit flows, which may be negatively affected by a number of factors, including rates paid by competitors, general interest rate levels, regulatory capital requirements, returns available to clients on alternative investments and general economic or industry conditions;
● Credit losses as a result of declining real estate values, increasing interest rates, increasing unemployment, changes in payment behavior or other factors;
● Credit losses due to loan concentration;
● Changes in the amount of our loan portfolio collateralized by real estate and weaknesses in the real estate market;
● Our ability to successfully execute our business strategy;
● Our ability to attract and retain key personnel;
● The success and costs of our expansion into the Charlotte, North Carolina, Greensboro, North Carolina and Atlanta, Georgia markets and into potential new markets;
● Risks with respect to future mergers or acquisitions, including our ability to successfully expand and integrate the businesses and operations that we acquire and realize the anticipated benefits of the mergers or acquisitions;
● Changes in the interest rate environment which could reduce anticipated or actual margins;
● Changes in political conditions or the legislative or regulatory environment, including new governmental initiatives affecting the financial services industry;
● Changes in economic conditions resulting in, among other things, a deterioration in credit quality;
● Changes occurring in business conditions and inflation;
● Increased cybersecurity risk, including potential business disruptions or financial losses;
● Changes in technology;
● The adequacy of the level of our allowance for credit losses and the amount of loan loss provisions required in future periods;
● Examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for credit losses or write-down assets;
● Changes in U.S. monetary policy, the level and volatility of interest rates, the capital markets and other market conditions that may affect, among other things, our liquidity and the value of our assets and liabilities;
● Any increase in FDIC assessments which will increase our cost of doing business;
● Risks associated with complex and changing regulatory environments, including, among others, with respect to data privacy, artificial intelligence, information security, climate change or other environmental, social and governance matters, and labor matters, relating to our operations;
● The rate of delinquencies and amounts of loans charged-off;
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● The rate of loan growth in recent years and the lack of seasoning of a portion of our loan portfolio;
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● Our ability to maintain appropriate levels of capital and to comply with our capital ratio requirements;
● Adverse changes in asset quality and resulting credit risk-related losses and expenses;
● Changes in accounting standards, rules and interpretations and the related impact on our financial statements;
● Risks associated with actual or potential litigation or investigations by customers, regulatory agencies or others;
● Adverse effects of failures by our vendors to provide agreed upon services in the manner and at the cost agreed;
● The potential effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics, ~~(including COVID-19),~~ war or terrorist activities, such as the war in Ukraine, the Middle East conflict, and the conflict between China and Taiwan, disruptions in our customers’ supply chains, disruptions in transportation, essential utility outages or trade disputes and related tariffs; and
● Other risks and uncertainties detailed in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2022,~~2023, in Part II, Item 1A, “Risk Factors” of our Quarterly Reports on Form 10-Q, and in our other filings with the SEC.
If any of these risks or uncertainties materialize, or if any of the assumptions underlying such forward-looking statements proves to be incorrect, our results could differ materially from those expressed in, implied or projected by, such forward-looking statements. We urge investors to consider all of these factors carefully in evaluating the forward-looking statements contained in this Quarterly Report on Form 10-Q. We make these forward-looking statements as of the date of this document and we do not intend, and assume no obligation, to update the forward-looking statements or to update the reasons why actual results could differ from those expressed in, or implied or projected by, the forward-looking statements, except as required by law.
OVERVIEW
Our business model continues to be client-focused, utilizing relationship teams to provide our clients with a specific banker contact and support team responsible for all of their banking needs. The purpose of this structure is to provide a consistent and superior level of professional service, and we believe it provides us with a distinct competitive advantage. We consider exceptional client service to be a critical part of our culture, which we refer to as ~~"ClientFIRST."~~“ClientFIRST.”
At ~~June 30, 2023,~~March 31, 2024, we had total assets of ~~$4.00~~$4.11 billion, ~~an 8.4%~~a 1.2% increase from total assets of ~~$3.69~~$4.06 billion at December 31, ~~2022.~~2023. The largest component of our total assets is loans which were ~~$3.54~~$3.64 billion and ~~$3.27~~$3.60 billion at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively. Our liabilities and shareholders’ equity at ~~June 30, 2023~~March 31, 2024 totaled ~~$3.70~~$3.79 billion and ~~$301.5~~$315.3 million, respectively, compared to liabilities of ~~$3.40~~$3.74 billion and shareholders’ equity of ~~$294.5~~$312.5 million at December 31, ~~2022.~~2023. The principal component of our liabilities is deposits which were ~~$3.43~~$3.46 billion and ~~$3.13~~$3.38 billion at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, respectively.
Like most community banks, we derive the majority of our income from interest received on our loans and investments. Our primary source of funds for making these loans and investments is our deposits, on which we pay interest. Consequently, one of the key measures of our success is our amount of net interest income, or the difference between the income on our interest-earning assets, such as loans and investments, and the expense on our interest-bearing liabilities, such as deposits and borrowings. Another key measure is the spread between the yield we earn on these interest-earning assets and the rate we pay on our interest-bearing liabilities, which is called our net interest spread. In addition to earning interest on our loans and investments, we earn income through fees and other charges to our clients.
Our net income to common shareholders was $2.5 million and ~~$7.2~~$2.7 million for the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively. Diluted earnings per share (“EPS”) was $0.31 for the ~~second~~first quarter of ~~2023~~2024 as compared to ~~$0.90~~$0.33 for the same period in ~~2022.~~2023. The decrease in net income was primarily driven by a decrease in net interest income resulting from ~~higher costs on our deposit accounts related to the Federal Reserve’s cumulative 500 basis point interest rate increase during the past 16 months, combined with~~ an increase in ~~non-interest expenses.~~deposit and funding costs.
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Our net income to common shareholders was $5.2 million and $15.2 million for the six months ended June 30, 2023 and 2022, respectively. Diluted EPS was $0.64 for the six months ended June 30, 2023 as compared to $1.88 for the same period in 2022. The decrease in net income was primarily driven by the increase in interest expense on our deposit accounts.
~~RESULTS OF OPERATIONS~~results of operations
Net Interest Income and Margin
Our level of net interest income is determined by the level of earning assets and the management of our net interest margin. Our net interest income was ~~$18.8~~$18.6 million for the ~~second~~first quarter of ~~2023, a 24.3%~~2024, an 8.7% decrease over net interest income of ~~$24.9~~$20.4 million for the ~~second~~first quarter of ~~2022,~~2023, driven primarily by ~~the~~an $11.8 million increase in interest expense on our deposit ~~accounts.~~accounts, partially offset by a $10.0 million increase in interest income. In addition, our net interest margin, on a tax-equivalent basis (TE), was ~~2.05%~~1.94% for the ~~second~~first quarter of ~~2023~~2024 compared to ~~3.35%~~2.36% for the same period in ~~2022.~~2023.
We have included a number of tables to assist in our description of various measures of our financial performance. For example, the “Average Balances, Income and Expenses, Yields and Rates” table reflects the average balance of each category of our assets and liabilities as well as the yield we earned or the rate we paid with respect to each category during the three ~~and six~~ month periods ended ~~June 30, 2023~~March 31, 2024 and ~~2022.~~2023. A review of this table shows that our loans typically provide higher interest yields than do other types of interest-earning assets, which is why we direct a substantial percentage of our earning assets into our loan portfolio. Similarly, the “Rate/Volume Analysis” tables demonstrate the effect of changing interest rates and changing volume of assets and liabilities on our financial condition during the periods shown. We also track the sensitivity of our various categories of assets and liabilities to changes in interest rates, and we have included tables to illustrate our interest rate sensitivity with respect to interest-earning accounts and interest-bearing accounts.
The following tables entitled “Average Balances, Income and Expenses, Yield and Rates” set forth information related to our average balance sheets, average yields on assets, and average costs of liabilities. We derived these yields by dividing income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated. During the same periods, we had no securities purchased with agreements to resell. All investments owned have an original maturity of over one year. Nonaccrual loans are included in the following tables. Loan yields have been reduced to reflect the negative impact on our earnings of loans on nonaccrual status. The net of capitalized loan costs and fees are amortized into interest income on loans.
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Average Balances, Income and Expenses, Yields and Rates

For the Three Months Ended June 30,
2023 2022
(dollars in thousands) Average
Balance Income/
Expense Yield/
Rate⁽¹⁾ Average
Balance Income/
Expense Yield/
Rate⁽¹⁾
Interest-earning assets
Federal funds sold and interest-bearing deposits with banks $ 71,004 $ 891 5.03 % $ 80,909 $ 180 0.89 %
Investment securities, taxable 93,922 623 2.66 % 98,527 404 1.64 %
Investment securities, nontaxable⁽²⁾ 10,200 108 4.24 % 10,382 56 2.16 %
Loans⁽³⁾ 3,511,225 41,089 4.69 % 2,795,274 26,610 3.82 %
Total interest-earning assets 3,686,351 42,711 4.65 % 2,985,092 27,250 3.66 %
Noninterest-earning assets 155,847 154,659
Total assets $ 3,842,198 $ 3,139,751
Interest-bearing liabilities
NOW accounts $ 297,234 537 0.72 % $ 389,563 144 0.15 %
Savings & money market 1,727,009 15,298 3.55 % 1,267,174 1,200 0.38 %
Time deposits 573,095 6,102 4.27 % 278,101 500 0.72 %
Total interest-bearing deposits 2,597,338 21,937 3.39 % 1,934,838 1,844 0.38 %
FHLB advances and other borrowings 135,922 1,382 4.08 % 53,179 105 0.79 %
Subordinated debentures 36,251 542 6.00 % 36,143 405 4.49 %
Total interest-bearing liabilities 2,769,511 23,861 3.46 % 2,024,160 2,354 0.47 %
Noninterest-bearing liabilities 771,388 833,943
Shareholders’ equity 301,299 281,648
Total liabilities and shareholders’ equity $ 3,842,198 $ 3,139,751
Net interest spread 1.19 % 3.19 %
Net interest income (tax equivalent) / margin $ 18,850 2.05 % $ 24,896 3.35 %
Less:  tax-equivalent adjustment⁽²⁾ (25 ) (12 )
Net interest income $ 18,825 $ 24,884
For the Three Months Ended March 31,
2024 2023
(dollars in thousands) Average
Balance Income/
Expense Yield/
Rate⁽¹⁾ Average
Balance Income/
Expense Yield/
Rate⁽¹⁾
Interest-earning assets
Federal funds sold and interest-bearing deposits with banks $ 94,420 $ 1,280 5.44 % $ 85,966 $ 969 4.57 %
Investment securities, taxable 137,271 1,436 4.20 % 87,521 530 2.46 %
Investment securities, nontaxable⁽²⁾ 8,097 55 2.70 % 10,266 106 4.21 %
Loans⁽³⁾ 3,622,972 45,605 5.05 % 3,334,530 36,748 4.47 %
Total interest-earning assets 3,862,760 48,376 5.02 % 3,518,283 38,353 4.42 %
Noninterest-earning assets 155,362 161,310
Total assets $ 4,018,122 $ 3,679,593
Interest-bearing liabilities
NOW accounts $ 295,774 660 0.90 % $ 303,176 440 0.59 %
Savings & money market 1,620,521 16,299 4.03 % 1,661,878 11,992 2.93 %
Time deposits 801,734 9,973 4.99 % 543,425 4,747 3.54 %
Total interest-bearing deposits 2,718,029 26,932 3.97 % 2,508,479 17,179 2.78 %
FHLB advances and other borrowings 241,319 2,229 3.71 % 18,243 200 4.45 %
Subordinated debentures 36,333 557 6.15 % 36,224 527 5.90 %
Total interest-bearing liabilities 2,995,681 29,718 3.98 % 2,562,946 17,906 2.83 %
Noninterest-bearing liabilities 707,890 818,123
Shareholders’ equity 314,551 298,524
Total liabilities and shareholders’ equity $ 4,018,122 $ 3,679,593
Net interest spread 1.04 % 1.59 %
Net interest income (tax equivalent) / margin $ 18,658 1.94 % $ 20,447 2.36 %
Less: tax-equivalent adjustment⁽²⁾ 13 23
Net interest income $ 18,645 $ 20,424
(1) Annualized for the three month period.
(2) The tax-equivalent adjustment to net interest income adjusts the yield for assets earning tax-exempt income to a comparable yield on a taxable basis.
(3) Includes mortgage loans held for sale.
Our net interest margin (TE) decreased ~~130~~42 basis points to ~~2.05%~~1.94% during the ~~second~~first quarter of 2024, compared to the first quarter of 2023, ~~compared to the second quarter of 2022,~~ primarily due to ~~higher~~our deposit and borrowing costs onincreasing faster than our loan yield as our interest-bearing ~~liabilities.~~liabilities have been more sensitive to changes in the federal funds rate over the past two years. Our average interest-bearing liabilities grew by ~~$745.4~~$432.7 million during the ~~second~~first quarter of ~~2023,~~2024 from the prior year, while the rate on these liabilities increased ~~299~~115 basis points to ~~3.46%~~3.98%. In contrast, our average interest-earning assets grew by ~~$701.3~~$344.5 million during the ~~second~~first quarter of ~~2023~~2024 from the prior year, while the average yield on these assets increased by 99only 60 basis points to ~~4.65%~~5.02% during the same period.
The increase in our average interest-bearing liabilities during the ~~second~~first quarter of ~~2023~~2024 resulted primarily from a ~~$662.5~~$209.6 million increase in our interest-bearing deposits from the prior year, while the ~~299-basis~~115 basis point increase in rate on our interest-bearing liabilities was driven by a ~~301~~119 basis point increase in deposit rates.
The increase in average interest-earning assets for the ~~second~~first quarter of ~~2023~~2024 related primarily to an increase of ~~$716.0~~$288.4 million in our average loan ~~balances.~~balances from the prior year. The 9960 basis point increase in yield on our interest-earning assets was driven by ~~an 87~~a 58 basis point increase in loan yield as our loan portfolio has repriced at rates higher than historical rates for the majority of the past 12 months.
Our net interest spread was ~~1.19%~~1.04% for the ~~second~~first quarter of ~~2023~~2024 compared to ~~3.19%~~1.59% for the same period in ~~2022.~~2023. The net interest spread is the difference between the yield we earn on our interest-earning assets and the rate we pay on our interest-bearing liabilities. The ~~299~~115 basis point increase in the rate on our interest-bearing liabilities was partially offset by a 9960 basis point increase in yield on our ~~interest-bearing~~interest-earning assets, resulting in a ~~200~~55 basis point decrease in our net interest spread for the ~~2023~~2024 period. We anticipate continued pressure on our net interest spread
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and net interest margin in future periods as a significant portion of our loan portfolio is at fixed rates which do not move with the Federal Reserve’s interest rate increases, while our deposit accounts reprice much more quickly. To
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partially address this continued pressure, we entered into a pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total notional amount of $200.0 million in the second quarter of 2023. The financial implication of this swap is described in further detail in “NOTE 5 – Derivative Financial Instruments” above.
~~Average Balances, Income and Expenses, Yields and Rates~~

For the Six Months Ended June 30,
2023 2022
(dollars in thousands) Average
Balance Income/
Expense Yield/
Rate⁽¹⁾ Average
Balance Income/
Expense Yield/
Rate⁽¹⁾
Interest-earning assets
Federal funds sold and interest-bearing deposits with banks $ 78,445 $ 1,860 4.78 % $ 84,980 $ 239 0.57 %
Investment securities, taxable 90,739 1,152 2.56 % 105,771 829 1.58 %
Investment securities, nontaxable⁽²⁾ 10,233 216 4.25 % 11,139 121 2.19 %
Loans⁽³⁾ 3,423,365 77,837 4.59 % 2,685,237 50,541 3.80 %
Total interest-earning assets 3,602,782 81,065 4.54 % 2,887,127 51,730 3.61 %
Noninterest-earning assets 158,563 153,618
Total assets $ 3,761,345 $ 3,040,745
Interest-bearing liabilities
NOW accounts $ 300,189 977 0.66 % $ 397,763 259 0.13 %
Savings & money market 1,694,624 27,290 3.25 % 1,254,768 1,818 0.29 %
Time deposits 558,341 10,848 3.92 % 218,741 675 0.62 %
Total interest-bearing deposits 2,553,154 39,115 3.09 % 1,871,272 2,752 0.30 %
FHLB advances and other borrowings 77,408 1,582 4.12 % 35,004 118 0.68 %
Subordinated debentures 36,237 1,069 5.95 % 36,130 784 4.38 %
Total interest-bearing liabilities 2,666,799 41,766 3.16 % 1,942,406 3,654 0.38 %
Noninterest-bearing liabilities 794,627 818,207
Shareholders’ equity 299,919 280,132
Total liabilities and shareholders’ equity $ 3,761,345 $ 3,040,745
Net interest spread 1.38 % 3.23 %
Net interest income (tax equivalent) / margin $ 39,298 2.20 % $ 48,076 3.36 %
Less:  tax-equivalent adjustment⁽²⁾ (49 ) (28 )
Net interest income $ 39,249 $ 48,048
~~(1)~~ ~~Annualized for the six month period.~~
~~(2)~~ ~~The tax-equivalent adjustment to net interest income adjusts the yield for assets earning tax-exempt income to a comparable yield on a taxable basis.~~
~~(3)~~ ~~Includes mortgage loans held for sale.~~
During the first six months of 2023, our net interest margin (TE) decreased by 116 basis points to 2.20%, compared to 3.36% for the first six months of 2022, driven by the increase in yield on our interest-bearing liabilities. Our average interest-bearing liabilities grew by $724.4 million from the prior year, with the average yield increasing by 278 basis points to 3.16%. In contrast, our average interest-earning assets grew by $715.7 million, while the rate on these assets increased 93 basis points to 4.54%.
The increase in average interest-bearing liabilities for the first half of 2023 was driven by an increase in interest-bearing deposits of $681.9 million and a $42.4 million increase in FHLB advances and other borrowings, while the increase in cost was driven by a 279 basis point increase on our interest-bearing deposits.
The increase in average interest-earning assets for the first half of 2023 related primarily to a $738.1 million increase in our average loan balances. The increase in yield on our interest-earning assets was driven by a 79 basis point increase in our loan yield.
Our net interest spread was 1.38% for the first half of 2023 compared to 3.23% for the same period in 2022. The 185 basis point decrease in our net interest spread was driven by the 278 basis point increase in yield on our interest-bearing liabilities.
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Rate/Volume Analysis
Net interest income can be analyzed in terms of the impact of changing interest rates and changing volume. The following tables set forth the effect which the varying levels of interest-earning assets and interest-bearing liabilities and the applicable rates have had on changes in net interest income for the periods presented.

Three Months Ended Three Months Ended
June 30, 2023 vs. 2022 June 30, 2022 vs. 2021 March 31, 2024 vs. 2023 March 31, 2023 vs. 2022
Increase (Decrease) Due to Increase (Decrease) Due to Increase (Decrease) Due to Increase (Decrease) Due to
(dollars in thousands) Volume Rate Rate/
Volume Total Volume Rate Rate/
Volume Total Volume Rate Rate/
Volume Total Volume Rate Rate/
Volume Total
Interest income
Loans $ 6,888 6,030 1,561 14,479 $ 5,417 (979 ) (237 ) 4,201 $ 3,234 5,168 455 8,857 $ 7,189 4,328 1,300 12,817
Investment securities (20 ) 291 (13 ) 258 33 130 16 179 297 382 186 865 (103 ) 309 (67 ) 139
Federal funds sold and interest-bearing deposits with banks (22 ) 835 (102 ) 711 (17 ) 212 (68 ) 127 45 254 12 311 (2 ) 945 (33 ) 910
Total interest income 6,846 7,156 1,446 15,448 5,433 (637 ) (289 ) 4,507 3,576 5,804 653 10,033 7,084 5,582 1,200 13,866
Interest expense
Deposits 403 16,159 3,531 20,093 195 602 127 924 503 8,987 263 9,753 253 12,521 3,497 16,271
FHLB advances and other borrowings 165 435 676 1,276 2,415 (2 ) (2,309 ) 104 2,444 (31 ) (384 ) 2,029 1 170 17 188
Subordinated debentures 4 133 1 138 1 24 - 25 2 28 - 30 1 146 - 147
Total interest expense 572 16,727 4,208 21,507 2,611 624 (2,182 ) 1,053 2,949 8,984 (121 ) 11,812 255 12,837 3,514 16,606
Net interest income $ 6,274 (9,571 ) (2,762 ) (6,059 ) $ 2,822 (1,261 ) 1,893 3,454 $ 627 (3,180 ) 774 (1,779 ) $ 6,829 (7,255 ) (2,314 ) (2,740 )
Net interest income, the largest component of our income, was ~~$18.8~~$18.6 million for the ~~second~~first quarter of 2024 and $20.4 million for the first quarter of 2023, ~~and $24.9 million for the second quarter of 2022,~~ a ~~$6.1~~$1.8 million, or ~~24.3%~~8.7%, decrease year over year. The decrease during ~~2023~~2024 was driven by ~~a $21.5~~an $11.8 million increase in interest expense primarily due to higher rates on our interest-bearing ~~deposits.~~deposits, combined with an increase in average FHLB advances and other borrowings. Partially offsetting the increase in interest expense was a ~~$15.4~~$10.0 million increase in interest income which was primarily ~~due to~~driven by an increase in ~~volume of loans and the rates~~yield on ~~loans.~~

Six Months Ended
June 30, 2023 vs. 2022 June 30, 2022 vs. 2021
Increase (Decrease) Due to Increase (Decrease) Due to
(dollars in thousands) Volume Rate Rate/
Volume Total Volume Rate Rate/
Volume Total
Interest income
Loans $ 14,084 10,333 2,879 27,296 $ 9,012 (2,786 ) (560 ) 5,666
Investment securities (126 ) 604 (82 ) 396 120 191 41 352
Federal funds sold and interest-bearing deposits with banks (18 ) 1,776 (137 ) 1,621 (18 ) 195 (37 ) 140
Total interest income 13,940 12,713 2,660 29,313 9,114 (2,400 ) (556 ) 6,158
Interest expense
Deposits 682 28,597 7,084 36,363 400 232 45 677
FHLB advances and other borrowings 143 597 725 1,465 70 2 40 112
Subordinated debentures 2 281 1 284 2 22 - 24
Total interest expense 827 29,475 7,810 38,112 472 256 85 813
Net interest income $ 13,113 (16,762 ) (5,150 ) (8,799 ) $ 8,642 (2,656 ) (641 ) 5,345

~~Net interest income~~our loan portfolio, combined with a $288.4 million increase in average loan balances for the first ~~half~~quarter of 2023 was $39.2 million compared to $48.0 million for 2022, a $8.8 million, or 18.3%, decrease. The decrease in net interest income during 2023 was driven by a $38.1 million increase in interest expense, related primarily to higher rates on our interest-bearing deposits.2024.
Provision for Credit Losses
The provision for credit losses, which includes a provision for losses on unfunded commitments, is a charge to earnings to maintain the allowance for credit losses and reserve for unfunded commitments at levels consistent with management’s assessment of expected losses in the loan portfolio at the balance sheet date. We review the adequacy of the allowance for credit losses on a quarterly basis. Please see the discussion included in Note 4 – Loans and Allowance for Credit Losses for a description of the factors we consider in determining the amount of the provision we expense each period to maintain this allowance.
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We recorded a ~~$910,000~~$175,000 reversal of the provision for credit losses induring the ~~second~~first quarter of ~~2023,~~2024, compared to a $1.8 million provision for credit losses in the ~~second~~first quarter of 2022. We recorded a provision expense of $2.7 million and $2.9 million for the six months ended June 30, 2023 and June 30, 2022, respectively. The $910,000 provision in 2023, which included a $1.1 million2023. No provision for credit losses was recorded during the first quarter of 2024 as we continue to experience low net charge-offs, and ~~a $185,000 reversal~~the expected loss rates in our allowance for credit losses continue to decline. During the first quarter of 2024, we reversed $175,000 of the reserve for unfunded commitments ~~was driven by $119.7 million~~due to a decrease in ~~loan growth during~~ the ~~second quarter. The $2.7 million provision expense for the first half~~balance of ~~2023 included a $3.0 million provision for credit losses and a $215,000 reversal for~~ unfunded ~~commitments.~~commitments at March 31, 2024, compared to December 31, 2023.
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Noninterest Income
The following table sets forth information related to our noninterest income.

Three months ended
June 30, Six months ended
June 30, Three months ended
March 31,
(dollars in thousands) 2023 2022 2023 2022 2024 2023
Mortgage banking income $ 1,337 1,184 1,959 2,678 $ 1,164 622
Service fees on deposit accounts 331 327 656 631 387 325
ATM and debit card income 536 548 1,091 1,062 544 555
Income from bank owned life insurance 338 315 670 630 377 332
Loss on disposal of fixed assets - (394 ) - (394 )
Other income 194 285 404 587 192 210
Total noninterest income $ 2,736 2,265 4,780 5,194 $ 2,664 2,044
Noninterest income ~~increased $471,000, or 20.8%,~~was $2.7 million for the ~~second~~first quarter of ~~2023 as compared~~2024, a $620,000, or 30.3%, increase from noninterest income of $2.0 million for the first quarter of 2023. Mortgage banking income continues to be the ~~same period in 2022.~~largest component of our noninterest income at $1.2 million for the first quarter of 2024. The increase in ~~total~~ noninterest income resulted primarily from a $542,000, or 87.1%, increase in mortgage banking income over the ~~following:~~
● Mortgage banking income increased by $153,000, or 12.9%, from the second quarter of 2022 driven by an increase in gain on sale of loans and an increase in the unrealized gain from the related derivative.
● ~~The second quarter of 2022 included a loss on disposal of fixed assets from our prior headquarters building.~~
~~Noninterest income decreased $414,000, or 8.0%,~~prior year which was driven by higher mortgage volume during the first ~~half~~quarter of ~~2023 as compared to 2022. The decrease in total noninterest income resulted primarily from the following:~~2024.
● ~~Mortgage banking income decreased by $719,000, or 26.8%, from the first half of 2022 driven by lower mortgage volume and less income recorded on the related derivative.~~
● ~~Other income decreased $183,000, or 31.2%, primarily due to a decrease in various loan and appraisal fees reported as income.~~
Noninterest expenses
The following table sets forth information related to our noninterest expenses.

Three months ended
June 30, Six months ended
June 30,
(dollars in thousands) 2023 2022 2023 2022
Compensation and benefits $ 10,287 9,915 20,643 19,371
Occupancy 2,518 2,219 4,975 3,997
Outside service and data processing costs 1,705 1,528 3,334 3,062
Insurance 897 367 1,586 628
Professional fees 751 693 1,410 1,292
Marketing 335 329 701 596
Other 900 737 1,848 1,528
Total noninterest expense $ 17,393 15,788 34,497 30,474
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Three months ended
March 31,
(dollars in thousands) 2024 2023
Compensation and benefits $ 10,857 10,356
Occupancy 2,557 2,457
Outside service and data processing costs 1,846 1,629
Insurance 955 689
Professional fees 618 660
Marketing 369 366
Other 898 947
Total noninterest expense $ 18,100 17,104
Noninterest expense was ~~$17.4~~$18.1 million for the ~~second~~first quarter of ~~2023,~~2024, a ~~$1.6 million,~~$996,000, or ~~10.2%~~5.8%, increase from noninterest expense of ~~$15.8~~$17.1 million for the ~~second~~first quarter of ~~2022.~~2023. The increase in noninterest expense was driven primarily by the following:
● Compensation and benefits expense increased ~~$372,000,~~$501,000, or ~~3.8%~~4.8%, relating primarily to annual salary increases and ~~hiring of new team members as well as~~ higher benefit related expenses.
● ~~Occupancy~~Outside service and data processing costs increased ~~$299,000,~~$217,000, or ~~13.5%~~13.3%, ~~driven by increased depreciation,~~relating primarily to increases in item processing, electronic banking and software licensing and maintenance ~~and property tax expenses on our new headquarters building.~~costs.
● Insurance costs increased ~~$530,000,~~$266,000, or ~~144.4%~~38.6%, as a result of higher FDIC insurance premiums.
Noninterest expense was $34.5 million for the first half of 2023, a $4.0 million, or 13.2%, increase from noninterest expense of $30.5 million for the first half of 2022. The increase in noninterest expense was driven primarily by increases in compensation and benefits, occupancy, and insurance expense as discussed above.
Our efficiency ratio was ~~80.7%~~84.9% for the ~~second~~first quarter of ~~2023,~~2024, compared to ~~58.2%~~76.1% for the ~~second~~first quarter of ~~2022.~~2023. The efficiency ratio represents the percentage of one dollar of expense required to be incurred to earn a full dollar of revenue and is computed by dividing noninterest expense by the sum of net interest income and noninterest income. The higher ratio during the ~~second~~first quarter of ~~2023,~~2024, compared to the ~~second~~first quarter of ~~2022,~~2023, relates primarily to the decrease in net interest ~~income and noninterest~~ income combined with higher noninterest expenses.
We incurred income tax expense of ~~$800,000~~$862,000 and ~~$2.3 million~~$836,000 for the three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022, respectively, and $1.6 million and $4.7 million for the six months ended June 30, 2023 and 2022,~~ respectively. Our effective tax rate was ~~24.1%~~25.5% and ~~23.5%~~23.6% for the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023, ~~and 2022,~~ respectively. The higher tax rate during the first ~~six months~~quarter of ~~2023 relates to~~2024 was driven by the ~~lesser impact~~effect of equity compensation transactions during the ~~period.~~quarter.
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Balance Sheet Review
Investment Securities
At ~~June 30, 2023,~~March 31, 2024, the ~~$104.1~~$144.5 million in our investment securities portfolio represented approximately ~~2.6%~~3.5% of our total assets. Our available for sale investment portfolio included corporate bonds, US treasuries, US government agency securities, state and political subdivisions, asset-backed securities and mortgage-backed securities with a fair value of ~~$91.5~~$126.0 million and an amortized cost of ~~$107.6~~$140.9 million, resulting in an unrealized loss of ~~$16.1~~$14.9 million. At December 31, ~~2022,~~2023, the ~~$104.2~~$154.6 million in our investment securities portfolio represented approximately ~~2.8%~~3.8% of our total assets, including investment securities with a fair value of ~~$93.3~~$134.7 million and an amortized cost of ~~$110.3~~$149.1 million for an unrealized loss of ~~$17.0~~$14.4 million. In addition, other investments, which include FHLB Stock and other nonmarketable investments, decreased $1.4 million from December 31, 2023 to $18.5 million at March 31, 2024.
Loans
Since loans typically provide higher interest yields than other types of interest earning assets, a substantial percentage of our earning assets are invested in our loan portfolio. Average loans, excluding mortgage loans held for sale, for the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023 ~~and 2022~~ were ~~$3.42~~$3.62 billion and ~~$2.67~~$3.33 billion, respectively. Before the allowance for credit losses, total loans outstanding at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 were ~~$3.54~~$3.64 billion and ~~$3.27~~$3.60 billion, respectively.
The principal component of our loan portfolio is loans secured by real estate mortgages. As of ~~June 30, 2023,~~March 31, 2024, our loan portfolio included ~~$3.0~~$3.07 billion, or ~~84.1%~~84.3%, of real estate loans, compared to ~~$2.78~~$3.05 billion, or 84.8%, at December 31, ~~2022.~~2023. Most of our real estate loans are secured by residential or commercial property. We obtain a security interest in real estate, in addition to any other available collateral, in order to increase the likelihood of the ultimate repayment of the loan. Generally, we limit the loan-to-value ratio on loans to coincide with the appropriate regulatory guidelines. We attempt to maintain a relatively diversified loan portfolio to help reduce the risk inherent in concentration in certain types of collateral and business types. Home equity lines of credit totaled ~~$185.6~~$184.7 million as of ~~June 30, 2023,~~March 31, 2024, of which approximately ~~47%~~48% were in a first lien position, while the remaining balance was second liens. At December 31, ~~2022,~~2023, our home equity lines of credit totaled ~~$179.3~~$183.0 million, of which approximately ~~48%~~46% were in first lien positions, while the remaining balance was in second liens. The average home equity loan
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had a balance of approximately ~~$85,000~~$86,000 and a loan to value of ~~75%~~70% as of ~~June 30, 2023,~~March 31, 2024, compared to an average loan balance of ~~$84,000~~$85,000 and a loan to value of approximately 73% as of December 31, ~~2022.~~2023. Further, ~~0.6%~~0.3% and 0.8% of our total home equity lines of credit were over 30 days past due as of ~~both June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023, respectively.
Following is a summary of our loan composition at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022.~~2023. During the first ~~six~~three months of ~~2023,~~2024, our loan portfolio increased by ~~$264.2~~$41.1 million, or ~~8.1%~~1.14%, with a ~~7.0%~~$28.1 million increase in commercial loans while consumer loans increased by ~~10.2%~~$13.0 million during the period. The majority of the increase was in loans secured by real estate. Our level of non-owner occupied commercial real estate and multi-family loans represents ~~273.2%~~271.4% of the Bank’s total risk-based capital at ~~June 30, 2023.~~March 31, 2024. Our consumer real estate portfolio grew by ~~$116.6~~$19.1 million and includes high quality 1-4 family consumer real estate loans. Our average consumer real estate loan currently has a principal balance of ~~$470,000,~~$468,000, a term of 2523 years, and an average rate of ~~3.98%~~4.18% as of ~~June 30, 2023,~~March 31, 2024, compared to a principal balance of ~~$468,000,~~$469,000, a term of 2223 years, and an average rate of ~~3.71%~~4.10% as of December 31, ~~2022.~~2023.

June 30, 2023 December 31, 2022
(dollars in thousands) Amount % of Total Amount % of Total
Commercial
Owner occupied RE $ 613,874 17.4 % $ 612,901 18.7 %
Non-owner occupied RE 951,536 26.9 % 862,579 26.3 %
Construction 115,798 3.3 % 109,726 3.4 %
Business 511,719 14.5 % 468,112 14.3 %
Total commercial loans 2,192,927 62.1 % 2,053,318 62.7 %
Consumer
Real estate 1,047,904 29.6 % 931,278 28.4 %
Home equity 185,584 5.2 % 179,300 5.5 %
Construction 61,044 1.7 % 80,415 2.5 %
Other 50,157 1.4 % 29,052 0.9 %
Total consumer loans 1,344,689 37.9 % 1,220,045 37.3 %
Total gross loans, net of deferred fees 3,537,616 100.0 % 3,273,363 100.0 %
Less—allowance for credit losses (41,105 ) (38,639 )
Total loans, net $ 3,496,511 $ 3,234,724
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March 31, 2024 December 31, 2023
(dollars in thousands) Amount %  of Total Amount %  of Total
Commercial
Owner occupied RE $ 631,047 17.3 % $ 631,657 17.5 %
Non-owner occupied RE 944,530 25.9 % 942,529 26.2 %
Construction 157,464 4.3 % 150,680 4.2 %
Business 520,073 14.3 % 500,161 13.9 %
Total commercial loans 2,253,114 61.8 % 2,225,027 61.8 %
Consumer
Real estate 1,101,573 30.2 % 1,082,429 30.0 %
Home equity 184,691 5.1 % 183,004 5.1 %
Construction 53,216 1.5 % 63,348 1.7 %
Other 51,172 1.4 % 48,819 1.4 %
Total consumer loans 1,390,652 38.2 % 1,377,600 38.2 %
Total gross loans, net of deferred fees 3,643,766 100.0 % 3,602,627 100.0 %
Less—allowance for credit losses (40,441 ) (40,682 )
Total loans, net $ 3,603,325 $ 3,561,945
Nonperforming assets
Nonperforming assets include real estate acquired through foreclosure or deed taken in lieu of foreclosure and loans on nonaccrual status. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when we believe, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received. Our policy with respect to nonperforming loans requires the borrower to make a minimum of six consecutive payments in accordance with the loan terms and to show capacity to continue performing into the future before that loan can be placed back on accrual status. As of ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, we had no loans 90 days past due and still accruing.
Following is a summary of our nonperforming assets.

(dollars in thousands) June 30, 2023 December 31, 2022 March 31, 2024 December 31, 2023
Commercial $ 891 429 $ 1,898 1,742
Consumer 2,125 2,198 1,748 2,221
Total nonaccrual loans 3,016 2,627 3,646 3,963
Other real estate owned - - - -
Total nonperforming assets $ 3,016 2,627 $ 3,646 3,963
At ~~June 30, 2023,~~March 31, 2024, nonperforming assets were ~~$3.0~~$3.6 million, or ~~0.08%~~0.09% of total assets and ~~0.09%~~0.10% of gross loans. Comparatively, nonperforming assets were ~~$2.6~~$4.0 million, or ~~0.07%~~0.10% of total assets and ~~0.08%~~0.11% of gross loans at
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December 31, ~~2022.~~2023. Nonaccrual loans ~~increased $389,000~~decreased $317,000 during the first ~~six~~three months of ~~2023~~2024 due primarily to two relationships that returned to accrual status and one ~~commercial~~ relationship ~~totaling $733,000, which is secured by real estate,~~ that ~~was added to nonaccrual status offset by $360,000 of paydowns on~~paid off during the ~~nonaccrual loans.~~quarter.
The amount of foregone interest income on nonaccrual loans in the first ~~six~~three months of ~~2023~~2024 and ~~2022~~2023 was not material. At ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, the allowance for credit losses represented ~~1,363.11%~~1,109.13% and ~~1,1470.70%~~1,026.55% of the total amount of nonperforming loans, respectively. A significant portion of the nonperforming loans at ~~June 30, 2023~~March 31, 2024 were secured by real estate. We have evaluated the underlying collateral on these loans and believe that the collateral on these loans is sufficient to minimize future losses.
As a general practice, most of our commercial loans and a portion of our consumer loans are originated with relatively short maturities of less than ten years. As a result, when a loan reaches its maturity we frequently renew
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the loan and thus extend its maturity using similar credit standards as those used when the loan was first originated. Due to these loan practices, we may, at times, renew loans which are classified as nonaccrual after evaluating the loan’s collateral value and financial strength of its guarantors. Nonaccrual loans are renewed at terms generally consistent with the ultimate source of repayment and rarely at reduced rates. In these cases, we will generally seek additional credit enhancements, such as additional collateral or additional guarantees to further protect the loan. When a loan is no longer performing in accordance with its stated terms, we will typically seek performance under the guarantee.
In addition, at ~~June 30, 2023, 84.1%~~March 31, 2024, 84.3% of our loans were collateralized by real estate and ~~78.6%~~89.1% of our individually evaluated loans were secured by real estate. Included in our real estate portfolio at March 31, 2024 was $222.1 million of loans, or 6.1% of our total loan portfolio, collateralized by office properties, $172.6 million of loans, or 4.7%, collateralized by retail properties, $147.4 million of loans, or 4.0%, collateralized by hotels, and $112.6 million of loans, or 3.1%, collateralized by multifamily properties. We utilize third party appraisers to determine the fair value of collateral dependent loans. Our current loan and appraisal policies require us to obtain updated appraisals on an annual basis, either through a new external appraisal or an appraisal evaluation. Individually evaluated loans are reviewed on a quarterly basis to determine the level of impairment. As of ~~June 30, 2023,~~March 31, 2024, we did not have any individually evaluated real estate loans carried at a value in excess of the appraised value. We typically charge-off a portion or create a specific reserve for ~~impaired~~individually evaluated loans when we do not expect repayment to occur as agreed upon under the original terms of the loan agreement.
At ~~June 30, 2023,~~March 31, 2024, individually evaluated loans totaled ~~$4.8~~$4.5 million with a reserve of approximately ~~$905,000~~$697,000 allocated in the allowance for credit losses. ~~During the first six months of 2023, the average recorded investment in individually evaluated loans was approximately $6.0 million.~~ Comparatively, individually evaluated loans totaled ~~$7.1~~$4.8 million at December 31, ~~2022~~2023 for which ~~$6.8~~$3.7 million of these loans had a reserve of approximately ~~$1.3 million~~$688,000 allocated in the allowance for credit losses. ~~During 2022, the average recorded investment in individually evaluated loans was approximately $7.6 million.~~
Allowance for Credit Losses
The allowance for credit losses was ~~$41.1~~$40.4 million, representing ~~1.16%~~1.11% of outstanding loans and providing coverage of ~~1,363.11%,~~1,109.13% of nonperforming loans at ~~June 30, 2023~~March 31, 2024 compared to ~~$38.6~~$40.7 million, or 1.13% of outstanding loans and 1,026.58% of nonperforming loans at December 31, 2023. At March 31, 2023, the allowance for credit losses was $40.4 million, or 1.18% of outstanding loans and ~~1470.84%~~854.33% of nonperforming ~~loans at December 31, 2022. At June 30, 2022, the allowance for credit losses was $34.2 million, or 1.20% of outstanding loans and 1,166.70% of nonperforming~~ loans.
Deposits and Other Interest-Bearing Liabilities
Our primary source of funds for loans and investments is our deposits and advances from the FHLB. In the past, we have chosen to obtain a portion of our certificates of deposits from areas outside of our market in order to obtain longer term deposits than are readily available in our local market. Our internal guidelines regarding the use of brokered CDs limit our brokered CDs to ~~20%~~30% of total deposits, which allows us to take advantage of the attractive terms that wholesale funding can offer while mitigating the related inherent risk.
Our retail deposits represented ~~$3.01~~$3.00 billion, or ~~87.7%~~86.7% of total deposits, while our wholesale deposits represented ~~$421.6~~$459.8 million, or ~~12.3%~~13.3%, of total deposits at ~~June 30, 2023.~~March 31, 2024. At December 31, ~~2022,~~2023, retail deposits represented ~~$2.90~~$3.00 billion, or ~~92.5%~~88.8%, of our total ~~deposits. Wholesale~~deposits and wholesale deposits were ~~$236.2~~$379.4 million, representing ~~7.5%~~11.2% of our total ~~deposits, at December 31, 2022.~~deposits. Our loan-to-deposit ratio was ~~103%~~105% at ~~June 30, 2023~~March 31, 2024 and ~~104%~~107% at December 31, ~~2022.~~2023.
The following is a detail of our deposit accounts:

March 31, December 31,
(dollars in thousands) 2024 2023
Non-interest bearing $ 671,708 674,167
Interest bearing:
NOW accounts 293,064 310,218
Money market accounts 1,603,796 1,605,278
Savings 32,248 31,669
Time, less than $250,000 206,657 190,167
Time and out-of-market deposits, $250,000 and over 653,208 568,065
Total deposits $ 3,460,681 3,379,564
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June 30, December 31,
(dollars in thousands) 2023 2022
Non-interest bearing $ 698,084 804,115
Interest bearing:
NOW accounts 308,762 318,030
Money market accounts 1,692,900 1,506,418
Savings 36,243 40,673
Time, less than $250,000 114,691 89,876
Time and out-of-market deposits, $250,000 and over 582,338 374,752
Total deposits $ 3,433,018 3,133,864
~~During the past 12 months, we continued our~~Our primary focus is on increasing core deposits, which exclude out-of-market deposits and time deposits of $250,000 or more, in order to provide a relatively stable funding source for our loan portfolio and other earning assets. Our core deposits were ~~$2.88 billion and $2.76~~stable at $2.81 billion at ~~June 30, 2023,~~March 31, 2024 and December 31, ~~2022, respectively.~~2023. In addition, at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, we estimate that we have approximately ~~$968.1 million and $1.1~~$1.3 billion, or ~~28.2%~~37.8% and ~~36.6%~~38.7% of total deposits, respectively, in uninsured ~~and uncollateralized~~ deposits, including related interest accrued and unpaid. ~~Uninsured deposits alone represented $1.4 billion and $1.5 billion at June 30, 2023 and December 31, 2022, respectively.~~ Since it is not reasonably practicable to provide a precise measure of uninsured deposits, the amounts above are estimates and are based on the same methodologies and assumptions used by the FDIC for the Bank’s regulatory reporting requirements.
The following table shows the average balance amounts and the average rates paid on deposits.

Six months ended
June 30, Three months ended
March 31,
2023 2022 2024 2023
(dollars in thousands) Amount Rate Amount Rate Amount Rate Amount Rate
Noninterest-bearing demand deposits $ 742,274 0.00 % $ 769,844 0.00 % $ 653,223 0.00 % $ 766,916 0.00 %
Interest-bearing demand deposits 300,189 0.66 % 397,763 0.13 % 295,774 0.90 % 303,176 0.59 %
Money market accounts 1,655,878 3.32 % 1,214,062 0.30 % 1,588,788 4.11 % 1,621,885 3.01 %
Savings accounts 38,746 0.08 % 40,707 0.05 % 31,734 0.17 % 39,993 0.06 %
Time deposits less than $250,000 85,325 3.75 % 23,406 0.30 % 146,477 4.41 % 59,469 4.57 %
Time deposits greater than $250,000 473,017 1.12 % 195,334 0.66 % 655,256 5.12 % 483,956 3.43 %
Total deposits $ 3,295,429 1.99 % $ 2,641,116 0.21 % $ 3,371,252 3.20 % $ 3,275,395 2.13 %
During the first ~~six~~three months of ~~2023,~~2024, our average transaction account balances ~~increased~~decreased by ~~$314.7~~$162.5 million, or ~~13.0%~~6.0%, from the prior year, while our average time deposit balances increased by ~~$340,000,~~$258.3 million, or ~~155.3%~~47.5%. ~~We have experienced record growth in new account openings throughout our footprint during the first half of 2023. In addition, we have added $234.1 million in wholesale time deposits.~~
All of our time deposits are certificates of deposits. The maturity distribution of our time deposits $250,000 or more at ~~June 30, 2023~~March 31, 2024 was as follows:

(dollars in thousands) June 30, 2023 March 31, 2024
Three months or less $ 154,755 $ 84,482
Over three through six months 145,315 65,646
Over six through twelve months 194,951 144,396
Over twelve months 87,317 358,684
Total $ 582,338 $ 653,208
Time deposits that meet or exceed the FDIC insurance limit of $250,000 at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 were ~~$582.3~~$653.2 million and ~~$374.8~~$568.1 million, respectively. We have a relationship with IntraFi Promontory Network, allowing us to provide deposit customers with access to aggregate FDIC insurance in amounts exceeding $250,000. This gives us the ability, as and when needed, to attract and retain large deposits from insurance conscious
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customers. With IntraFi, we have the option to keep deposits on balance sheet or sell them to other members of the network.
At March 31, 2024, the Company had $240.0 million of convertible fixed rate FHLB advances with a weighted average rate of 3.65%, while at December 31, 2023, the Company had $275.0 million in FHLB Advances. Of the $275.0 million outstanding at December 31, 2023, $35.0 million was at a variable rate and $240.0 million was at fixed rates. The $240.0 million was secured with approximately $1.30 billion of mortgage loans and $14.6 million of stock in the FHLB at March 31, 2024. The $275.0 million was secured with approximately $1.25 billion of mortgage loans and $16.1 million of stock in the FHLB at December 31, 2023.
Listed below is a summary of the terms and maturities of the advances outstanding at March 31, 2024 and December 31, 2023.
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March 31, December 31,
(dollars in thousands) 2024 2023
Maturity Amount Rate Amount Rate
February 29, 2024 $ - - $ 35,000 5.57 %
April 28, 2028 40,000 3.51 % 40,000 3.51 %
May 15, 2028 35,000 3.13 % 35,000 3.13 %
June 28, 2028 40,000 3.54 % 40,000 3.54 %
July 10, 2028 45,000 3.78 % 45,000 3.78 %
July 10, 2028 40,000 3.87 % 40,000 3.87 %
July 10, 2028 40,000 3.96 % 40,000 3.96 %
$ 240,000 3.65 % $ 275,000 3.89 %
Liquidity and Capital Resources
Liquidity is our ability to fund operations, to meet depositor withdrawals, to provide for customers’ credit needs, and to meet maturing obligations and existing commitments. Our liquidity principally depends on our cash flows from operating activities, investment in and maturity of assets, changes in balances of deposits and borrowings, and our ability to borrow funds. The bank failures in the first five months of 2023 exemplify the potential serious results of the unexpected inability of insured depository institutions to obtain needed liquidity to satisfy deposit withdrawal requests, including how quickly such requests can accelerate once uninsured depositors lose confidence in an ~~institutions~~institution’s ability to satisfy its obligations to depositors. We seek to ensure our funding needs are met by maintaining a level of liquidity through asset and liability management. Liquidity management involves monitoring our sources and uses of funds in order to meet our day-to-day cash flow requirements while maximizing profits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control at the time investment decisions are made. However, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control.
At ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023, our cash and cash equivalents totaled ~~$205.1~~$167.3 million and ~~$170.9~~$156.2 million, respectively, or ~~5.1%~~4.1% and ~~4.6%~~3.9% of total assets, respectively. Our investment securities at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 amounted to ~~$104.1~~$144.5 million and ~~$104.2~~$154.6 million, respectively, or ~~2.6%~~3.5% and ~~2.8%~~3.8% of total assets, respectively. Investment securities traditionally provide a secondary source of liquidity since they can be converted into cash in a timely manner.
Our ability to maintain and expand our deposit base and borrowing capabilities serves as our primary source of liquidity. We plan to meet our future cash needs through the liquidation of temporary investments, the generation of deposits, loan payoffs, and from additional borrowings. In addition, we will receive cash upon the maturity and sale of loans and the maturity of investment securities. We maintain five federal funds purchased lines of credit with correspondent banks totaling ~~$118.5~~$108.5 million for which there were no borrowings against the lines of credit at ~~June 30, 2023.~~March 31, 2024. We also had $236.1 million pledged and available with the Federal Reserve Discount Window at March 31, 2024. Comparatively, at December 31, 2023, we had $227.1 million pledged and available with the Federal Reserve Discount Window. At December 31, 2023, we had $13.0 million of marketable investment securities pledged in the Federal Reserve’s Bank Term Funding Program which closed on March 11, 2024.
We are also a member of the FHLB, from which applications for borrowings can be made. The FHLB requires that securities, qualifying mortgage loans, and stock of the FHLB owned by the Bank be pledged to secure any advances from the FHLB. The unused borrowing capacity currently available from the FHLB at ~~June 30, 2023~~March 31, 2024 was ~~$609.0~~$590.0 million, based primarily on the Bank’s qualifying mortgages available to secure any future borrowings. However, we are able to pledge additional securities to the FHLB in order to increase our available borrowing capacity. In addition, at ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022~~2023 we had ~~$392.9~~$386.8 million and ~~$341.5~~$388.3 million, respectively, of letters of credit outstanding with the FHLB to secure client deposits. Further, in July 2023, we enrolled in the Federal Reserve’s Bank Term Funding Program which offer loans of up to one year in length if we pledge collateral eligible for purchase by the Federal Reserve Banks in open market operations, such as U.S. Treasuries, U.S. agency securities, and U.S. agency mortgage-backed securities.
We have a relationship with IntraFi Promontory Network, allowing us to provide deposit customers with access to aggregate FDIC insurance in amounts exceeding $250,000. This gives us the ability, as and when needed, to attract and retain large deposits from insurance conscious customers. With IntraFi, we have the option to keep deposits on balance sheet or sell them to other members of the network. Additionally, subject to certain limits, the Bank can
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use IntraFi to purchase cost-effective funding without collateralization and in lieu of generating funds through traditional brokered CDs or the FHLB. In this manner, IntraFi can provide us with another funding option. Thus, it serves as a deposit-gathering tool and an additional liquidity management tool. Under the Economic Growth, Regulatory Relief, and Consumer Protection Act, a well capitalized bank with a CAMELS rating of 1 or 2 may hold reciprocal deposits up to the lesser of 20% of its total liabilities or $5 billion without those deposits being treated as brokered deposits.
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We also have a line of credit with another financial institution for $15.0 million, which was unused at ~~June 30, 2023.~~March 31, 2024. The line of credit was ~~renewed~~issued on December ~~21, 2021~~28, 2023 at an interest rate of ~~One Month CME Term SOFR~~the U.S. Prime Rate plus ~~3.5%~~0.25% and a maturity date of ~~December 20, 2023. As of June 30, 2023, we were in violation of one particular loan covenant and have subsequently received a waiver from the lender regarding this violation.~~February 28, 2025.
We believe that our existing stable base of core deposits, federal funds purchased lines of credit with correspondent banks, availability with the Federal Reserve Discount Window, and borrowings from the FHLB will enable us to successfully meet our long-term liquidity needs. However, as short-term liquidity needs arise, we have the ability to sell a portion of our investment securities portfolio to meet those needs.
Total shareholders’ equity was ~~$301.5~~$315.3 million at ~~June 30, 2023~~March 31, 2024 and ~~$294.5~~$312.5 million at December 31, ~~2022.~~2023. The ~~$7.0~~$2.8 million increase from December 31, ~~2022~~2023 is primarily related to net income of ~~$5.2~~$2.5 million during the first ~~six~~three months of ~~2023,~~2024 and stock option exercises and equity compensation expenses of ~~$956,000, and~~$722,000, partially offset by a ~~decrease~~$455,000 loss in ~~the unrealized loss on securities~~other comprehensive income related to our available for sale ~~of $700,000.~~securities.
The following table shows the return on average assets (net income divided by average total assets), return on average equity (net income divided by average equity), equity to assets ratio (average equity divided by average assets), and tangible common equity ratio (total equity less preferred stock divided by total assets) annualized for the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 and the year ended December 31, ~~2022.~~2023. Since our inception, we have not paid cash dividends.

June 30, 2023 December 31, 2022 March 31, 2024 December 31, 2023
Return on average assets 0.26 % 0.90 % 0.25 % 0.34 %
Return on average equity 3.27 % 10.20 % 3.22 % 4.44 %
Return on average common equity 3.27 % 10.20 % 3.22 % 4.44 %
Average equity to average assets ratio 7.97 % 8.85 % 7.83 % 7.71 %
Tangible common equity to assets ratio 7.53 % 7.98 % 7.68 % 7.70 %
Under the capital adequacy guidelines, regulatory capital is classified into two tiers. These guidelines require an institution to maintain a certain level of Tier 1 and Tier 2 capital to risk-weighted assets. Tier 1 capital consists of common shareholders’ equity, excluding the unrealized gain or loss on securities available for sale, minus certain intangible assets. In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor of 0% to 100% based on the risks believed to be inherent in the type of asset. Tier 2 capital consists of Tier 1 capital plus the general reserve for credit losses, subject to certain limitations. We are also required to maintain capital at a minimum level based on total average assets, which is known as the Tier 1 leverage ratio.
Regulatory capital rules, which we refer to as Basel III, impose minimum capital requirements for bank holding companies and banks. The Basel III rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan holding companies other than “small bank holding companies,” generally holding companies with consolidated assets of less than $3 billion. In order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking organization must maintain a “capital conservation buffer” on top of our minimum risk-based capital requirements. This buffer must consist solely of common equity Tier 1, but the buffer applies to all three measurements (common equity Tier 1, Tier 1 capital and total capital). The capital conservation buffer consists of an additional amount of CET1 equal to 2.5% of risk-weighted assets.
39
Table of Contents
To be considered ~~“well-capitalized”~~“well capitalized” for purposes of certain rules and prompt corrective action requirements, the Bank must maintain a minimum total risked-based capital ratio of at least 10%, a total Tier 1 capital ratio of at least 8%, a common equity Tier 1 capital ratio of at least 6.5%, and a leverage ratio of at least 5%. As of ~~June 30, 2023,~~March 31, 2024 our capital ratios exceed these ratios and we remain “well capitalized.”
The following table summarizes the capital amounts and ratios of the Bank and the regulatory minimum requirements.

March 31, 2024
Actual For capital
adequacy purposes
minimum plus the
capital conservation
buffer To be well capitalized
under prompt
corrective
action provisions
minimum
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk weighted assets) $ 393,470 12.29 % $ 256,023 8.00 % $ 320,029 10.00 %
Tier 1 Capital (to risk weighted assets) 353,461 11.04 % 192,017 6.00 % 256,023 8.00 %
Common Equity Tier 1 Capital (to risk weighted assets) 353,461 11.04 % 144,013 4.50 % 208,019 6.50 %
Tier 1 Capital (to average assets) 353,461 8.77 % 161,255 4.00 % 201,569 5.00 %
41
December 31, 2023
Actual For capital
adequacy purposes
minimum plus the
capital conservation
buffer To be well capitalized
under prompt
corrective
action provisions
minimum
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk weighted assets) $ 390,197 12.28 % $ 254,278 8.00 % $ 317,847 10.00 %
Tier 1 Capital (to risk weighted assets) 350,455 11.03 % 190,708 6.00 % 254,278 8.00 %
Common Equity Tier 1 Capital (to risk weighted assets) 350,455 11.03 % 143,031 4.50 % 206,601 6.50 %
Tier 1 Capital (to average assets) 350,455 8.47 % 165,414 4.00 % 206,767 5.00 %
~~Table of Contents~~

June 30, 2023
Actual For capital
adequacy purposes
minimum plus the
capital conservation
buffer To be well capitalized
under prompt
corrective
action provisions
minimum
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk weighted assets) $ 380,560 12.10 % $ 251,669 8.00 % $ 314,586 10.00 %
Tier 1 Capital (to risk weighted assets) 341,215 10.85 % 188,751 6.00 % 251,669 8.00 %
Common Equity Tier 1 Capital (to risk weighted assets) 341,215 10.85 % 141,564 4.50 % 204,481 6.50 %
Tier 1 Capital (to average assets) 341,215 8.85 % 154,264 4.00 % 192,830 5.00 %

December 31, 2022

Actual For capital
adequacy purposes
minimum plus the
capital conservation
buffer To be well capitalized
under prompt
corrective
action provisions
minimum
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk weighted assets) $ 366,988 12.45 % $ 235,892 8.00 % $ 294,865 10.00 %
Tier 1 Capital (to risk weighted assets) 330,108 11.20 % 176,919 6.00 % 235,892 8.00 %
Common Equity Tier 1 Capital (to risk weighted assets) 330,108 11.20 % 132,689 4.50 % 191,662 6.50 %
Tier 1 Capital (to average assets) 330,108 9.43 % 140,040 4.00 % 175,050 5.00 %
The following table summarizes the capital amounts and ratios of the Company and the minimum regulatory requirements.

June 30, 2023 March 31, 2024
Actual For capital
adequacy purposes
minimum plus the
capital conservation
buffer ⁽¹⁾ To be well capitalized
under prompt
corrective
action provisions
minimum Actual For capital
adequacy purposes
minimum plus the
capital conservation
buffer ⁽¹⁾ To be well capitalized
under prompt
corrective
action provisions
minimum
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk weighted assets) $ 389,514 12.40 % $ 251,322 8.00 % N/A N/A $ 403,062 12.59 % $ 256,023 8.00 % N/A N/A
Tier 1 Capital (to risk weighted assets) 327,224 10.42 % 188,491 6.00 % N/A N/A 340,053 10.63 % 192,017 6.00 % N/A N/A
Common Equity Tier 1 Capital (to risk weighted assets) 314,224 10.00 % 141,369 4.50 % N/A N/A 327,053 10.22 % 144,013 4.50 % N/A N/A
Tier 1 Capital (to average assets) 327,224 8.48 % 154,286 4.00 % N/A N/A 340,053 8.44 % 161,255 4.00 % N/A N/A

December 31, 2022
Actual For capital
adequacy purposes
minimum plus the
capital conservation
buffer ⁽¹⁾ To be well capitalized
under prompt
corrective
action provisions
minimum
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk weighted assets) $ 380,802 12.91 % $ 235,892 8.00 % N/A N/A
Tier 1 Capital (to risk weighted assets) 320,922 10.88 % 176,919 6.00 % N/A N/A
Common Equity Tier 1 Capital (to risk weighted assets) 307,922 10.44 % 132,689 4.50 % N/A N/A
Tier 1 Capital (to average assets) 320,922 9.17 % 140,057 4.00 % N/A N/A
December 31, 2023
Actual For capital
adequacy purposes
minimum plus the
capital conservation
buffer ⁽¹⁾ To be well capitalized
under prompt
corrective
action provisions
minimum
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
Total Capital (to risk weighted assets) $ 399,551 12.57 % $ 254,278 8.00 % N/A N/A
Tier 1 Capital (to risk weighted assets) 336,809 10.60 % 190,708 6.00 % N/A N/A
Common Equity Tier 1 Capital (to risk weighted assets) 323,809 10.19 % 143,031 4.50 % N/A N/A
Tier 1 Capital (to average assets) 336,809 8.14 % 165,436 4.00 % N/A N/A
40
Table of Contents
(1) The prompt corrective action provisions are only applicable at the Bank level. The Bank exceeded the general minimum regulatory requirements to be considered “well capitalized.”
The ability of the Company to pay cash dividends to shareholders is dependent upon receiving cash in the form of dividends from the Bank. The dividends that may be paid by the Bank to the Company are subject to legal limitations and regulatory capital requirements. Since our inception, we have not paid cash dividends to shareholders.
42
~~Table of Contents~~
Effect of Inflation and Changing Prices
The effect of relative purchasing power over time due to inflation has not been taken into account in our consolidated financial statements. Rather, our financial statements have been prepared on an historical cost basis in accordance with generally accepted accounting principles.
Unlike most industrial companies, our assets and liabilities are primarily monetary in nature. Therefore, the effect of changes in interest rates will have a more significant impact on our performance than will the effect of changing prices and inflation in general. In addition, interest rates may generally increase as the rate of inflation increases, although not necessarily in the same magnitude. As discussed previously, we seek to manage the relationships between interest sensitive assets and liabilities in order to protect against wide rate fluctuations, including those resulting from inflation.
Off-Balance Sheet Risk
Commitments to extend credit are agreements to lend money to a client as long as the client has not violated any material condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. At ~~June 30, 2023~~March 31, 2024 unfunded commitments to extend credit were ~~$850.0~~$710.7 million, of which ~~$238.5~~$116.0 million were at fixed rates and ~~$611.5~~$595.0 million were at variable rates. At December 31, ~~2022,~~2023, unfunded commitments to extend credit were ~~$878.3~~$724.6 million, of which approximately ~~$318.9~~$145.6 million were at fixed rates and ~~$559.4~~$579.0 million were at variable rates. A significant portion of the unfunded commitments related to commercial business loans and consumer home equity lines of credit. We evaluate each client’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by us upon extension of credit, is based on our credit evaluation of the borrower. The type of collateral varies but may include accounts receivable, inventory, property, plant and equipment, and commercial and residential real estate. As of ~~June 30, 2023,~~March 31, 2024, the reserve for unfunded commitments was ~~$2.6~~$1.7 million or ~~0.30%~~0.23% of total unfunded commitments. As of December 31, ~~2022,~~2023, the reserve for unfunded commitments was ~~$2.8~~$1.8 million or ~~0.32%~~0.25% of total unfunded commitments.
At ~~June 30, 2023~~March 31, 2024 and December 31, ~~2022,~~2023, there were commitments under letters of credit for ~~$14.8~~$12.0 million and ~~$14.3~~$16.1 million, respectively. The credit risk and collateral involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Since most of the letters of credit are expected to expire without being drawn upon, they do not necessarily represent future cash requirements.
Except as disclosed in this report, we are not involved in off-balance sheet contractual relationships, unconsolidated related entities that have off-balance sheet arrangements or transactions that could result in liquidity needs or other commitments that significantly impact earnings.
Critical Accounting Estimates
We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States and with general practices within the banking industry in the preparation of our financial statements.
Certain accounting policies inherently involve a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported, which could have a material impact on the carrying values of our assets and liabilities and our results of operations. Of the significant accounting policies used in the preparation of our consolidated financial statements, we have identified certain items as critical accounting policies based on the associated estimates, assumptions, judgments and complexity. See “Management’s Discussion and Analysis of Financial Condition and
41
Table of Contents
Results of Operations—Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, ~~2022,~~2023, for a description our significant accounting policies that use critical accounting estimates.
43
~~Table of Contents~~
Accounting, Reporting, and Regulatory Matters
See Note 1 – Summary of Significant Accounting Policies in the accompanying notes to consolidated financial statements included elsewhere in this report for details of recently issued accounting pronouncements and their expected impact on our consolidated financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk is the risk of loss from adverse changes in market prices and rates, which principally arises from interest rate risk inherent in our lending, investing, deposit gathering, and borrowing activities. Other types of market risks, such as foreign currency exchange rate risk and commodity price risk, do not generally arise in the normal course of our business.
We actively monitor and manage our interest rate risk exposure in order to control the mix and maturities of our assets and liabilities utilizing a process we call asset/liability management. The essential purposes of asset/liability management are to seek to ensure adequate liquidity and to maintain an appropriate balance between interest sensitive assets and liabilities in order to minimize potentially adverse impacts on earnings from changes in market interest rates. Our asset/liability management committee (“ALCO”) monitors and considers methods of managing exposure to interest rate risk. We have both an internal ALCO consisting of senior management that meets ~~at various times during each month~~no less than quarterly and a board ~~ALCO~~risk committee that meets ~~monthly. The ALCOs~~quarterly. These committees are responsible for maintaining the level of interest rate sensitivity of our interest sensitive assets and liabilities within board-approved limits.
As of ~~June 30, 2023,~~March 31, 2024, the following table summarizes the forecasted impact on net interest income using a base case scenario given upward and downward movements in interest rates of 100, 200, and 300 basis points based on forecasted assumptions of prepayment speeds, nominal interest rates and loan and deposit repricing rates. Estimates are based on current economic conditions, historical interest rate cycles and other factors deemed to be relevant. However, underlying assumptions may be impacted in future periods which were not known to management at the time of the issuance of the Consolidated Financial Statements. Therefore, management’s assumptions may or may not prove valid. No assurance can be given that changing economic conditions and other relevant factors impacting our net interest income will not cause actual occurrences to differ from underlying assumptions. In addition, this analysis does not consider any strategic changes to our balance sheet which management may consider as a result of changes in market conditions.
Interest rate scenario Change in net interest
income from base
Up 300 basis points (~~17.55~~7.17 )%
Up 200 basis points (~~11.67~~4.75 )%
Up 100 basis points (~~5.86~~2.36 )%
Base -
Down 100 basis points ~~7.60~~3.99 %
Down 200 basis points ~~14.60~~6.87 %
Down 300 basis points ~~21.12~~9.51 %
Item 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial
42
Table of Contents
Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and
44
~~Table of Contents~~
reported as and when required and (ii) accumulated and communicated to our management, including our Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
We are a party to claims and lawsuits arising in the course of normal business activities. Management is not aware of any material pending legal proceedings against the Company which, if determined adversely, would have a material adverse impact on the company’s financial position, results of operations or cash flows.
Item 1A. RISK FACTORS.
Investing in shares of our common stock involves certain risks, including those identified and described in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2022,~~2023, as well as cautionary statements contained in this Quarterly Report on Form 10-Q, including those under the caption “Cautionary Warning Regarding Forward-Looking Statements” set forth in Part I, Item 2 of this Form 10-Q, risks and matters described elsewhere in this Form 10-Q, and in our other filings with the SEC.
~~We are providing these additional risk factors~~There have been no material changes to ~~supplement~~ the risk factors ~~contained~~previously disclosed in ~~Item 1A. of our~~the Company’s (i) Annual Report on Form 10-K for ~~the~~fiscal year ended December 31, ~~2022 and (ii) Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,~~ 2023.
~~Our enterprise risk management framework may not be effective in mitigating risk and reducing the potential for losses.~~
Our enterprise risk management framework seeks to mitigate risk and loss to us. We have established comprehensive policies and procedures and an internal control framework designed to provide a sound operational environment for the types of risk to which we are subject, including credit risk, market risk (interest rate and price risks), liquidity risk, operational risk, compliance risk, legal risk, strategic risk, and reputational risk. However, as with any risk management framework, there are inherent limitations to our current and future risk management strategies, including risks that we have not appropriately anticipated or identified. In addition, our businesses and the markets in which we operate are continuously evolving. We may fail to adequately or timely enhance our enterprise risk framework to address those changes. If our enterprise risk framework is ineffective, either because it fails to keep pace with changes in the financial markets, regulatory requirements, our businesses, our counterparties, clients or service providers or for other reasons, we could incur losses, suffer reputational damage or find ourselves out of compliance with applicable regulatory or contractual mandates. In addition to our executive committee, the Risk Committee of the Board, the Audit Committee of the Board, as well as the Company’s Chief Risk Officer are all responsible for the “risk management framework” of the Company. These committees each meet regularly, with the authority to convene additional meetings, as circumstances require.
Our interest rate risk is overseen by the Risk Committee which monitors our compliance with regulatory guidance in the formulation and implementation of our interest rate risk program. The Risk Committee reviews the results of our interest rate risk modeling quarterly to assess whether we have appropriately measured our interest rate risk, mitigated our exposures appropriately and any residual risk is acceptable. In addition to our annual review of this policy, our Board of Directors reviews the interest rate risk policy limits at least annually.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES, ~~AND~~ USE OF ~~PROCEEDS.~~PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) ~~(a)~~ ~~Not applicable.~~
~~(b)~~ ~~Not applicable.~~Sales of Unregistered Securities - None
(b) Use of Proceeds – Not applicable
(c) ~~Not applicable.~~Issuer Purchases of Securities
45
~~Table~~As of ~~Contents~~March 31, 2024, the Company does not have an authorized share repurchase program.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
~~None.~~
Item 4. MINE SAFETY DISCLOSURES.
Not applicable.
Item 5. OTHER INFORMATION.
Trading Plans
During the three months ended March 31, 2024, no director or “officer” of the Company ~~None.~~adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K of the Securities Act of 1933.
Item 6. EXHIBITS.
The exhibits required to be filed as part of this Quarterly Report on Form 10-Q are listed in the Index to Exhibits attached hereto and are incorporated herein by reference.
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Table of Contents
INDEX TO EXHIBITS
Exhibit
Number ~~Description~~
~~3.1~~ ~~Amended and Restated Articles, as amended, of Southern First Bancshares, Inc. (effective May 19, 2023)~~

~~3.1.1~~Exhibit
Number ~~Amended and Restated Articles, as amended, of Southern First Bancshares, Inc. (effective May 19, 2023) (redline version of amended sections)~~Description
~~10.1~~ Employment Agreement by and between Southern First Bank and Calvin C. Hurst, dated March 21, 2019.*

31.1 Rule 13a-14(a) Certification of the Principal Executive Officer.

31.2 Rule 13a-14(a) Certification of the Principal Financial Officer.

32 Section 1350 Certifications.

101 The following materials from the Quarterly Report on Form 10-Q of Southern First Bancshares, Inc. for the quarter ended ~~June 30, 2023,~~March 31, 2024, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statement of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to Unaudited Consolidated Financial Statements.

104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
* ~~Management contract or compensatory plan or arrangement.~~
4744
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SOUTHERN FIRST BANCSHARES, INC.
Registrant
Date: ~~August 1, 2023~~April 30, 2024 /s/R. Arthur Seaver, Jr.
R. Arthur Seaver, Jr.
Chief Executive Officer (Principal Executive Officer)
Date: ~~August 1, 2023~~April 30, 2024 /s/~~D. Andrew Borrmann~~R. Arthur Seaver, Jr.
~~D. Andrew Borrmann~~
~~Chief Financial Officer (Principal~~(Principal Financial and Accounting Officer)
4845

		Page
PART I – CONSOLIDATED FINANCIAL INFORMATION

Item 1.	Consolidated Financial Statements

	Consolidated Balance Sheets	3

	Consolidated Statements of Income	4

	Consolidated Statements of Comprehensive Income	5

	Consolidated Statements of Shareholders’ Equity	6

	Consolidated Statements of Cash Flows	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2827

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4442

Item 4.	Controls and Procedures	4442

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	4543

Item 1A.	Risk Factors	4543

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4543

Item 3.	Defaults upon Senior Securities	4643

Item 4.	Mine Safety Disclosures	4643

Item 5.	Other Information	4643

Item 6.	Exhibits	4643



	For the three months
	ended March 31,
(dollars in thousands, except share data)	2024			2023
Interest income
Loans	$	45,605			36,748
Investment securities		1,478			613
Federal funds sold and interest-bearing deposits with banks		1,280			969
Total interest income		48,363			38,330
Interest expense
Deposits		26,932			17,179
Borrowings		2,786			727
Total interest expense		29,718			17,906
Net interest income		18,645			20,424
Provision for (reversal of) credit losses		(175	)		1,825
Net interest income after provision for (reversal of) credit losses		18,820			18,599
Noninterest income
Mortgage banking income		1,164			622
Service fees on deposit accounts		387			325
ATM and debit card income		544			555
Income from bank owned life insurance		377			332
Other income		192			210
Total noninterest income		2,664			2,044
Noninterest expenses
Compensation and benefits		10,857			10,356
Occupancy		2,557			2,457
Outside service and data processing costs		1,846			1,629
Insurance		955			689
Professional fees		618			660
Marketing		369			366
Other		898			947
Total noninterest expenses		18,100			17,104
Income before income tax expense		3,384			3,539
Income tax expense		862			836
Net income	$	2,522			2,703
Earnings per common share
Basic	$	0.31			0.34
Diluted		0.31			0.33
Weighted average common shares outstanding
Basic		8,110,249			8,025,876
Diluted		8,141,921			8,092,270



	For the three months					For the six months
	ended June 30,					ended June 30,
(dollars in thousands, except share data)	2023		2022			2023		2022
Interest income
Loans	$	41,089		26,610			77,837		50,541
Investment securities		706		448			1,318		922
Federal funds sold and interest-bearing deposits with banks		891		180			1,860		239
Total interest income		42,686		27,238			81,015		51,702
Interest expense
Deposits		21,937		1,844			39,115		2,752
Borrowings		1,924		510			2,651		902
Total interest expense		23,861		2,354			41,766		3,654
Net interest income		18,825		24,884			39,249		48,048
Provision for credit losses		910		1,775			2,735		2,880
Net interest income after provision for credit losses		17,915		23,109			36,514		45,168
Noninterest income
Mortgage banking income		1,337		1,184			1,959		2,678
Service fees on deposit accounts		331		327			656		631
ATM and debit card income		536		548			1,091		1,062
Income from bank owned life insurance		338		315			670		630
Loss on disposal of fixed assets		-		(394	)		-		(394	)
Other income		194		285			404		587
Total noninterest income		2,736		2,265			4,780		5,194
Noninterest expenses
Compensation and benefits		10,287		9,915			20,643		19,371
Occupancy		2,518		2,219			4,975		3,997
Outside service and data processing costs		1,705		1,528			3,334		3,062
Insurance		897		367			1,586		628
Professional fees		751		693			1,410		1,292
Marketing		335		329			701		596
Other		900		737			1,848		1,528
Total noninterest expenses		17,393		15,788			34,497		30,474
Income before income tax expense		3,258		9,586			6,797		19,888
Income tax expense		800		2,346			1,636		4,678
Net income	$	2,458		7,240			5,161		15,210
Earnings per common share
Basic	$	0.31		0.91			0.64		1.91
Diluted		0.31		0.90			0.64		1.88
Weighted average common shares outstanding
Basic		8,051,131		7,957,631			8,038,642		7,944,814
Diluted		8,069,028		8,054,910			8,080,521		8,075,496



	For the three months ended March 31,
(dollars in thousands)	2024			2023
Net income	$	2,522			2,703
Other comprehensive income (loss):
Unrealized gain (loss) on securities available for sale:
Unrealized holding gain (loss) arising during the period, pretax		(578	)		2,070
Tax benefit (expense)		123			(435	)
Other comprehensive income (loss)		(455	)		1,635
Comprehensive income	$	2,067			4,338



	For the three months ended June 30,						For the six months ended June 30,
(dollars in thousands)	2023			2022			2023			2022
Net income	$	2,458			7,240			5,161			15,210
Other comprehensive income (loss):
Unrealized gain (loss) on securities available for sale:
Unrealized holding gain (loss) arising during the period, pretax		(1,183	)		(4,749	)		888			(11,890	)
Tax benefit (expense)		248			997			(188	)		2,497
Reclassification of realized gain (loss)		-			3			-			(12	)
Tax (expense) benefit		-			(1	)		-			2
Other comprehensive income (loss)		(935	)		(3,750	)		700			(9,403	)
Comprehensive income	$	1,523			3,490			5,861			5,807



	For the three months ended June 30,
	Common stock				Preferred stock				Nonvested restricted			Additional paid-in			Accumulated other comprehensive			Retained
(dollars in thousands, except share data)	Shares		Amount		Shares		Amount		stock			capital			income (loss)			earnings		Total
March 31, 2022		7,980,519	$	80		-		-	$	(3,425	)	$	117,286		$	(6,393	)	$	170,976	$	278,524
Net income Retained earnings		-		-		-		-		-			-			-			7,240		7,240
Proceeds from exercise of stock options		3,625		-		-		-		-			128			-			-		128
Issuance of restricted stock		1,500		-		-		-		(71	)		71			-			-		-
Compensation expense related to restricted stock, net of tax		-		-		-		-		266			-			-			-		266
Compensation expense related to stock options, net of tax		-		-		-		-		-			229			-			-		229
Other comprehensive loss		-		-		-		-		-			-			(3,750	)		-		(3,750	)

June 30, 2022		7,985,644	$	80		-	$	-	$	(3,230	)	$	117,714		$	(10,143	)	$	178,216	$	282,637
March 31, 2023		8,047,975	$	80		-	$	-	$	(4,462	)	$	120,683		$	(11,775	)	$	194,824	$	299,350
Net income		-		-		-		-		-			-			-			2,458		2,458
Proceeds from exercise of stock options		10,000		1		-		-		-			168			-			-		169
Issuance of restricted stock, net of forfeitures		463		-		-		-		85			(85	)		-			-		-
Compensation expense related to restricted stock, net of tax		-		-		-		-		326			-			-			-		326
Compensation expense related to stock options, net of tax		-		-		-		-		-			146			-			-		146
Other comprehensive loss		-		-		-		-		-			-			(935	)		-		(935	)

June 30, 2023		8,058,438	$	81		-	$	-	$	(4,051	)	$	120,912		$	(12,710	)	$	197,282	$	301,514

	For the six months ended June 30,
	Common stock				Preferred stock				Nonvested restricted			Additional paid-in		Accumulated other comprehensive			Retained
(dollars in thousands, except share data)	Shares		Amount		Shares		Amount		stock			capital		income (loss)			earnings			Total
December 31, 2021		7,925,819	$	79		-		-	$	(1,435	)	$	114,226	$	(740	)	$	165,771		$	277,901
Net income Common stock		-		-		-		-		-			-		-			15,210			15,210
Proceeds from exercise of stock options		21,750		1		-		-		-			706		-			-			707
Issuance of restricted stock		38,075		-		-		-		(2,305	)		2,305		-			-			-
Adoption of ASU 2016-13		-		-		-		-		-			-		-			(2,765	)		(2,765	)
Compensation expense related to restricted stock, net of tax		-		-		-		-		510			-		-			-			510
Compensation expense related to stock options, net of tax		-		-		-		-		-			477		-			-			477
Other comprehensive loss		-		-		-		-		-			-		(9,403	)		-			(9,403	)

June 30, 2022 Preferred stock		7,985,644	$	80		-	$	-	$	(3,230	)	$	117,714	$	(10,143	)	$	178,216		$	282,637
December 31, 2022		8,011,045	$	80		-	$	-	$	(3,306	)	$	119,027	$	(13,410	)	$	192,121		$	294,512
Net income		-		-		-		-		-			-		-			5,161			5,161
Proceeds from exercise of stock options		11,000		1		-		-		-			184		-			-			185
Issuance of restricted stock		36,393		-		-		-		(1,436	)		1,436		-			-			-
Compensation expense related to restricted stock, net of tax		-		-		-		-		691			-		-			-			691
Compensation expense related to stock options, net of tax		-		-		-		-		-			265		-			-			265
Other comprehensive income		-		-		-		-		-			-		700			-			700
Accumulated other comprehensive income (loss)Additional paid-in capital
June 30, 2023		8,058,438	$	81		-	$	-	$	(4,051	)	$	120,912	$	(12,710	)	$	197,282		$	301,514



	For the three months ended March 31,
(dollars in thousands,	Common stock				Preferred stock				Nonvested restricted			Additional paid-in		Accumulated other comprehensive			Retained
except share data)	Shares		Amount		Shares		Amount		stock			capital		income (loss)			earnings		Total
December 31, 2022		8,011,045	$	80		-	$	-	$	(3,306	)	$	119,027	$	(13,410	)	$	192,121	$	294,512
Net income		-		-		-		-		-			-		-			2,703		2,703
Proceeds from exercise of stock options		1,000		-		-		-		-			17		-			-		17
Issuance of restricted stock Retained earnings		35,930		-		-		-		(1,521	)		1,521		-			-		-
Compensation expense related to restricted stock, net of tax		-		-		-		-		365			-		-			-		365
Compensation expense related to stock options, net of tax Common stock		-		-		-		-		-			118		-			-		118
Other comprehensive income		-		-		-		-		-			-		1,635			-		1,635
Additional paid-in capital
March 31, 2023 Preferred stock		8,047,975	$	80		-	$	-	$	(4,462	)	$	120,683	$	(11,775	)	$	194,824	$	299,350
December 31, 2023		8,088,186	$	81		-	$	-	$	(3,596	)	$	121,777	$	(11,342	)	$	205,547	$	312,467
Net income		-		-		-		-		-			-		-			2,522		2,522
Proceeds from exercise of stock options		11,000		-		-		-		-			167		-			-		167
Issuance of restricted stock, net of forfeitures		56,923		1		-		-		(2,112	)		2,111		-			-		-
Compensation expense related to restricted stock, net of tax		-		-		-		-		451			-		-			-		451
Compensation expense related to stock options, net of tax		-		-		-		-		-			104		-			-		104
Other comprehensive loss		-		-		-		-		-			-		(455	)		-		(455	)
Accumulated other comprehensive income (loss)
March 31, 2024		8,156,109	$	82		-	$	-	$	(5,257	)	$	124,159	$	(11,797	)	$	208,069	$	315,256



	For the six months ended June 30,						For the three months ended March 31,
(dollars in thousands)	2023			2022			2024			2023
Operating activities
Net income	$	5,161			15,210		$	2,522			2,703
Adjustments to reconcile net income to cash provided by operating activities:
Provision for credit losses		2,735			2,880
Provision for (reversal of) credit losses								(175	)		1,825
Depreciation and other amortization		2,397			1,341			1,214			1,203
Accretion and amortization of securities discounts and premium, net		259			399			131			129
Loss on sale of fixed assets		-			394
Gain on sale of securities		-			(12	)
Net change in operating leases		133			172			39			53
Compensation expense related to stock options and restricted stock grants		956			987			555			483
Gain on sale of loans held for sale		(1,636	)		(1,446	)		(1,014	)		(530	)
Loans originated and held for sale		(70,422	)		(145,513	)		(36,524	)		(17,892	)
Proceeds from sale of loans held for sale		60,194			142,185			32,890			15,360
Increase in cash surrender value of bank owned life insurance		(670	)		(630	)		(377	)		(331	)
Decrease in deferred tax asset		(21	)		(3,446	)
(Increase) decrease in other assets		(4,076	)		452
Increase in other assets								(3,690	)		(508	)
Increase (decrease) in other liabilities		(359	)		1,400			1,505			(1,258	)
Net cash (used for) provided by operating activities		(5,349	)		14,373			(2,924	)		1,237
Investing activities
Increase (decrease) in cash realized from:
Increase in loans, net		(264,737	)		(355,594	)		(41,380	)		(144,641	)
Purchase of property and equipment		(767	)		(8,989	)		(280	)		(180	)
Purchase of investment securities:		-
Available for sale		-			(10,094	)		(5,191	)		-
Other investments		(42,518	)		(11,078	)		(4,302	)		(18,264	)
Payments and maturities, calls and repayments of investment securities:
Available for sale		2,427			19,095			13,190			1,252
Other investments		40,801			10,034			5,742			19,000
Proceeds from sale of fixed assets		-			95
Net cash used for investing activities		(264,794	)		(356,531	)		(32,221	)		(142,833	)
Financing activities
Increase in cash realized from:
Increase in deposits, net		299,154			306,332			81,117			292,910
Increase in Federal Home Loan Bank advances and other borrowings, net		5,000			50,000
Decrease in Federal Home Loan Bank advances and other borrowings, net								(35,000	)		(50,000	)
Proceeds from the exercise of stock options		185			707			167			17
Net cash provided by financing activities		304,339			357,039			46,284			242,927
Net increase in cash and cash equivalents		34,196			14,881			11,139			101,331
Cash and cash equivalents at beginning of the period		170,874			167,209			156,170			170,874
Cash and cash equivalents at end of the period	$	205,070			182,090		$	167,309			272,205
Supplemental information Nonvested restricted stock
Supplemental information
Cash paid for
Interest	$	38,612			3,745		$	27,617			16,801
Income taxes		541			5,950
Schedule of non-cash transactions
Unrealized gain (loss) on securities, net of income taxes		700			(9,393	)		(455	)		1,635

Schedule of amortized costs and fair value of investment securities

	June 30, 2023								March 31, 2024
	Amortized		Gross Unrealized				Fair		Amortized		Gross Unrealized				Fair
(dollars in thousands)	Cost		Gains		Losses		Value
(dollars in thousands) Corporate bonds [Member]									Cost		Gains		Losses		Value
Available for sale Asset-backed securities [Member]
Corporate bonds									$	2,140		-		253		1,887
US treasuries US treasuries [Member]										999		-		111		888
US government agencies US government agencies [Member]										20,183		-		1,986		18,197
State and political subdivisions State and political subdivisions [Member]										22,579		-		3,042		19,537
Asset-backed securities Mortgage-backed securities [Member]										34,247		33		76		34,204
Mortgage-backed securities										60,782		-		9,499		51,283
Total investment securities available for sale									$	140,930		33		14,967		125,996

										December 31, 2023
										Amortized		Gross Unrealized				Fair
										Cost		Gains		Losses		Value
Available for sale
Corporate bonds	$	2,160		-		286		1,874	$	2,147		-		237		1,910
US treasuries US treasuries [Member]		999		-		124		875
US treasuries										9,495		1		102		9,394
US government agencies		13,009		-		2,199		10,810		20,594		-		1,938		18,656
State and political subdivisions		22,774		-		3,435		19,339		22,642		11		2,912		19,741
Asset-backed securities		5,697		-		129		5,568		33,450		2		216		33,236
Mortgage-backed securities										60,730		-		8,965		51,765
FHLMC FHLMC [Member]		23,628		-		3,730		19,898
FNMA FNMA [Member]		34,028		-		5,417		28,611
GNMA GNMA [Member]		5,341		-		768		4,573
Total mortgage-backed securities		62,997		-		9,915		53,082
Total investment securities available for sale	$	107,636		-		16,088		91,548	$	149,058		14		14,370		134,702

Schedule of maturities and yields on the company’s investment securities

	March 31, 2024
		Less than one year				One to five years				Five to ten years				Over ten years				Total
(dollars in thousands)			Amount	Yield			Amount	Yield			Amount	Yield			Amount	Yield			Amount	Yield
Available for sale
Corporate bonds Corporate bonds [Member]		$	-	-		$	-	-		$	1,887	2.01	%	$	-	-		$	1,887	2.01	%
US treasuries			-	-			888	1.27	%		-	-			-	-			888	1.27	%
US government agencies US government agencies [Member]			980	0.45	%		2,380	1.00	%		14,837	4.38	%		-	-			18,197	3.72	%
State and political subdivisions State and political subdivisions [Member]			-	-			902	1.94	%		5,744	1.89	%		12,891	2.15	%		19,537	2.07	%
Asset-backed securities Asset-backed securities [Member]			-	-			211	6.21	%		-	-			33,993	6.61	%		34,204	6.61	%
Mortgage-backed securities Mortgage-backed securities [Member]			-	-			6,626	1.29	%		3,419	1.54	%		41,238	2.04	%		51,283	1.91	%
Total investment securities Total investment securities [Member]		$	980	0.45	%	$	11,007	1.37	%	$	25,887	3.28	%	$	88,122	3.82	%	$	125,996	3.47	%

			December 31, 2023
			Less than one year				One to five years				Five to ten years				Over ten years				Total
(dollars in thousands)			Amount	Yield			Amount	Yield			Amount	Yield			Amount	Yield			Amount	Yield
Available for sale
Corporate bonds		$	-	-		$	-	-		$	1,910	2.01	%	$	-	-		$	1,910	2.01	%
US treasuries			8,497	5.42	%		897	1.27	%		-	-			-	-			9,394	5.02	%
US government agencies			970	0.45	%		2,385	1.00	%		15,301	4.41	%		-	-			18,656	3.77	%
State and political subdivisions			-	-			906	1.94	%		5,769	1.89	%		13,066	2.15	%		19,741	2.06	%
Asset-backed securities			-	-			296	(6.13	%)		-	-			32,940	6.63	%		33,236	6.57	%
Mortgage-backed securities			-	-			4,795	1.15	%		5,400	1.59	%		41,570	2.00	%		51,765	1.87	%
Total investment securities		$	9,467	4.91	%	$	9,279	0.98	%	$	28,380	3.20	%	$	87,576	3.76	%	$	134,702	3.55	%

Schedule of gross unrealized losses on investment securities and fair market value of related securities

													June 30, 2023
	Less than 12 months						12 months or longer						Total
(dollars in thousands)	#		Fair value		Unrealized losses		#		Fair value		Unrealized losses		#		Fair value		Unrealized losses
Available for sale
Corporate bonds		-	$	-	$	-		1	$	1,874	$	286		1	$	1,874	$	286
US treasuries		-		-		-		1		875		124		1		875		124
US government agencies		-		-		-		10		10,810		2,199		10		10,810		2,199
State and political subdivisions		3		1,216		24		29		18,123		3,411		32		19,339		3,435
Asset-backed		1		393		1		7		5,175		128		8		5,568		129
Mortgage-backed securities Mortgage-backed securities [Member]
FHLMC FHLMC [Member]		2		2,863		62		26		17,035		3,668		28		19,898		3,730
FNMA FNMA [Member]		1		5		1		29		28,606		5,416		30		28,611		5,417
GNMA GNMA [Member]		-		-		-		7		4,573		768		7		4,573		768
Total investment securities		7	$	4,477	$	88		110	$	87,071	$	16,000		117	$	91,548	$	16,088

Schedule of other investments

(dollars in thousands)	June 30, 2023		December 31, 2022		March 31, 2024		December 31, 2023
Federal Home Loan Bank stock	$	9,890		9,250	$	14,633		16,063
Other nonmarketable investments		2,257		1,180		3,463		3,473
Investment in Trust Preferred subsidiaries		403		403		403		403
Total other investments	$	12,550		10,833	$	18,499		19,939

Schedule of composition of our loan portfolio

	March 31, 2024						December 31, 2023
(dollars in thousands)Commercial [Member]	Amount			% of Total			Amount			% of Total
Commercial
Owner occupied REOwner occupied RE [Member]	$	631,047			17.3	%	$	631,657			17.5	%
Non-owner occupied RENon-owner occupied RE [Member]		944,530			25.9	%		942,529			26.2	%
ConstructionConstruction [Member]		157,464			4.3	%		150,680			4.2	%
BusinessBusiness [Member]		520,073			14.3	%		500,161			13.9	%
Total commercial loansConsumer [Member]		2,253,114			61.8	%		2,225,027			61.8	%
Consumer
Real estateReal estate [Member]		1,101,573			30.2	%		1,082,429			30.0	%
Home equityHome equity [Member]		184,691			5.1	%		183,004			5.1	%
Construction		53,216			1.5	%		63,348			1.7	%
OtherOther [Member]		51,172			1.4	%		48,819			1.4	%
Total consumer loans		1,390,652			38.2	%		1,377,600			38.2	%
Total gross loans, net of deferred fees		3,643,766			100.0	%		3,602,627			100.0	%
Less—allowance for credit losses		(40,441	)					(40,682	)
Total loans, net	$	3,603,325					$	3,561,945


Schedule of loan maturity distribution by type and related interest rate	June 30, 2023
(dollars in thousands)	One year or less		After one but within five years		After five but within fifteen years		After fifteen years		Total
Commercial
Owner occupied RE	$	9,511		155,585		406,974		41,804		613,874
Non-owner occupied RE		61,846		487,268		377,281		25,141		951,536
Construction		10,643		35,648		68,916		591		115,798
Business		103,829		211,107		192,332		4,451		511,719
Total commercial loans		185,829		889,608		1,045,503		71,987		2,192,927
Consumer
Real estate		7,672		48,115		299,705		692,412		1,047,904
Home equity		620		21,841		157,853		5,270		185,584
Construction		244		314		36,816		23,670		61,044
Other		9,347		21,779		18,266		765		50,157
Total consumer loans		17,883		92,049		512,640		722,117		1,344,689
Total gross loans, net of deferred fees	$	203,712		981,657		1,558,143		794,104		3,537,616


Schedule of composition of gross loans by rate type	June 30, 2023				December 31, 2022
	Interest Rate						Interest Rate
(dollars in thousands)	Fixed		Floating or Adjustable		Fixed		Floating or Adjustable
Commercial Commercial [Member]
Owner occupied RE Owner occupied RE [Member]	$	600,648		3,715		598,513		3,814
Non-owner occupied RE Non-owner occupied RE [Member]		792,099		97,591		742,763		75,246
Construction Construction [Member]		90,403		14,752		90,246		13,971
Business Business [Member]		313,001		94,889		298,866		73,089
Total commercial loans		1,796,151		210,947		1,730,388		166,120
Consumer Consumer [Member]
Real estate Real estate [Member]		1,040,232		-		919,130		11
Home equity Home equity [Member]		13,525		171,439		14,173		163,791
Construction Construction [Member]		60,800		-		79,750		-
Other Other [Member]		16,830		23,980		19,113		6,013
Total consumer loans		1,131,387		195,419		1,032,166		169,815
Total gross loans, net of deferred fees	$	2,927,538		406,366		2,762,554		335,935

Schedule of loans due after one year by category

	March 31, 2024			December 31, 2023
	Interest Rate			Interest Rate
(dollars in thousands)		Fixed	Floating or Adjustable		Fixed	Floating or Adjustable
Commercial
Owner occupied RE	$	600,279	14,913		605,199	9,100
Non-owner occupied RE		746,525	120,560		768,048	105,880
Construction		96,176	28,863		81,326	42,592
Business		293,897	108,619		293,920	91,809
Total commercial loans		1,736,877	272,955		1,748,493	249,381
Consumer
Real estate		1,091,343	-		1,071,836	-
Home equity		11,485	170,328		11,441	168,847
Construction		52,834	-		63,348	-
Other		12,127	26,481		11,525	26,137
Total consumer loans		1,167,789	196,809		1,158,150	194,984
Total gross loans, net of deferred fees	$	2,904,666	469,764		2,906,643	444,365


	·●	Watch—A watch loan exhibits above average credit risk due to minor weaknesses and warrants closer scrutiny by management.


	·●	Special mention—A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.


	·●	Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, which may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.


	·●	Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.

Schedule of classified by credit quality indicators by year of origination

										March 31, 2024
(dollars in thousands)		2024	2023	2022	2021	2020		Prior			Revolving		Revolving Converted to Term	Total
Commercial
Owner occupied RE
Pass	$	11,770	42,283	180,226	134,787	63,949		164,174			85		-	597,274
Watch		-	-	3,429	456	15,880		10,101			-		-	29,866
Special Mention		-	-	177	-	-		2,889			-		-	3,066
Substandard		-	-	-	-	-		841			-		-	841
Total Owner occupied RE		11,770	42,283	183,832	135,243	79,829		178,005			85		-	631,047

Non-owner occupied RE
Pass		12,575	79,336	303,755	169,028	105,833		226,072			303		-	896,902
Watch		-	1,002	2,596	448	527		15,911			-		-	20,484
Special Mention		-	-	967	7,707	-		9,049			-		-	17,723
Substandard		-	-	-	305	-		9,116			-		-	9,421
Total Non-owner occupied RE		12,575	80,338	307,318	177,488	106,360		260,148			303		-	944,530

Construction
Pass		3,563	28,027	86,648	26,741	11,087		-			-		-	156,066
Watch		-	-	1,398	-	-		-			-		-	1,398
Total Construction		3,563	28,027	88,046	26,741	11,087		-			-		-	157,464

Business
Pass		8,232	52,166	134,401	45,948	18,339		61,981			163,010		-	484,077
Watch		-	120	17,160	1,814	980		4,600			6,942		5	31,621
Special Mention		-	231	942	89	500		1,736			101		-	3,599
Substandard		-	-	-	151	-		625			-		-	776
Total Business		8,232	52,517	152,503	48,002	19,819		68,942			170,053		5	520,073
Current period gross write-offs		-	-	-	-	(346	)	-			-		-	(346	)
Total Commercial loans		36,140	203,165	731,699	387,474	217,095		507,095			170,441		5	2,253,114

Consumer
Real estate
Pass		18,718	146,761	281,881	276,118	171,468		168,438			-		-	1,063,384
Watch		-	488	5,615	7,360	3,883		5,876			-		-	23,222
Special Mention		-	142	2,487	1,905	1,282		5,253			-		-	11,069
Substandard		-	275	350	631	986		1,656			-		-	3,898
Total Real estate		18,718	147,666	290,333	286,014	177,619		181,223			-		-	1,101,573

Home equity
Pass		-	-	-	-	-		-			173,125		-	173,125
Watch		-	-	-	-	-		-			6,103		-	6,103
Special Mention		-	-	-	-	-		-			5,007		-	5,007
Substandard		-	-	-	-	-		-			456		-	456
Total Home equity		-	-	-	-	-		-			184,691		-	184,691

Construction
Pass		664	13,604	30,974	7,974	-		-			-		-	53,216
Total Construction		664	13,604	30,974	7,974	-		-			-		-	53,216

Other
Pass		1,979	1,171	2,411	2,174	1,387		3,253			37,657		-	50,032
Watch		-	8	25	345	-		156			51		-	585
Special Mention		-	32	330	71	-		73			36		-	542
Substandard		-	-	-	-	-		-			13		-	13
Total Other		1,979	1,211	2,766	2,590	1,387		3,482			37,757		-	51,172
Current period gross write-offs		-	-	-	-	-		(38	)		(40	)	-	(78	)
Total Consumer loans		21,361	162,481	324,073	296,578	179,006		184,705			222,448		-	1,390,652
Total loans	$	57,501	365,646	1,055,772	684,052	396,101		691,800			392,889		5	3,643,766
Total Current period gross write-offs		-	-	-	-	(346	)	(38	)		(40	)	-	(424	)

Schedule of breakdown of outstanding loans by risk category

																June 30, 2023
(dollars in thousands)	2023		2022			2021		2020			2019		Prior			Revolving			Revolving Converted to Term		Total
Commercial
Owner occupied RE
Pass	$	32,634		157,619			139,472		68,570			62,877		118,738			-			168		580,078
Watch		-		3,510			469		16,170			3,585		6,489			-			-		30,223
Special Mention		-		191			-		-			-		3,100			-			-		3,291
Substandard		-		-			-		-			-		282			-			-		282
Total Owner occupied RE		32,634		161,320			139,941		84,740			66,462		128,609			-			168		613,874

Non-owner occupied RE
Pass		75,513		305,006			174,325		110,120			54,654		182,840			222			-		902,680
Watch		775		966			9,468		-			10,737		6,396			-			-		28,342
Special Mention		-		-			200		-			9,028		965			-			-		10,193
Substandard		-		-			-		-			7,974		2,347			-			-		10,321
Total Non-owner occupied RE		76,288		305,972			183,993		110,120			82,393		192,548			222			-		951,536

Construction
Pass		9,046		71,909			24,939		8,397			242		-			-			-		114,533
Watch		-		1,265			-		-			-		-			-			-		1,265
Special Mention		-		-			-		-			-		-			-			-		-
Substandard		-		-			-		-			-		-			-			-		-
Total Construction		9,046		73,174			24,939		8,397			242		-			-			-		115,798

Business
Pass		34,799		142,869			52,202		20,565			19,229		55,100			151,640			1,162		477,566
Watch		139		14,342			1,998		1,511			987		4,178			5,751			-		28,906
Special Mention		102		1,232			226		459			245		416			-			98		2,778
Substandard		-		492			-		27			174		1,314			462			-		2,469
Total Business		35,040		158,935			54,426		22,562			20,635		61,008			157,853			1,260		511,719
Total Commercial loans		153,008		699,401			403,299		225,819			169,732		382,165			158,075			1,428		2,192,927

Consumer
Real estate
Pass		103,913		263,435			282,239		181,201			68,138		110,151			-			-		1,009,077
Watch		491		5,715			7,936		3,974			2,069		4,156			-			-		24,341
Special Mention		-		2,329			1,673		2,133			2,422		2,921			-			-		11,478
Substandard		-		187			640		-			327		1,854			-			-		3,008
Total Real estate		104,404		271,666			292,488		187,308			72,956		119,082			-			-		1,047,904

Home equity
Pass		-		-			-		-			-		-			172,802			-		172,802
Watch		-		-			-		-			-		-			7,052			-		7,052
Special Mention		-		-			-		-			-		-			3,967			-		3,967
Substandard		-		-			-		-			-		-			1,763			-		1,763
Total Home equity		-		-			-		-			-		-			185,584			-		185,584

Construction
Pass		6,231		40,707			14,106		-			-		-			-			-		61,044
Watch		-		-			-		-			-		-			-			-		-
Special Mention		-		-			-		-			-		-			-			-		-
Substandard		-		-			-		-			-		-			-			-		-
Total Construction		6,231		40,707			14,106		-			-		-			-			-		61,044

Other
Pass		4,535		3,140			2,707		1,586			1,359		3,016			32,462			-		48,805
Watch		44		37			356		7			3		177			95			-		719
Special Mention		-		336			-		-			33		87			83			-		539
Substandard		-		-			84		-			2		-			8			-		94
Total Other		4,579		3,513			3,147		1,593			1,397		3,280			32,648			-		50,157

Total Consumer loans		115,214		315,886			309,741		188,901			74,353		122,362			218,232			-		1,344,689
Total loans	$	268,222		1,015,287			713,040		414,720			244,085		504,527			376,307			1,428		3,537,616
Current period gross write-offs				(200	)				(1	)				(9	)		(391	)				(601	)


Schedule of loan balances by payment status	June 30, 2023
(dollars in thousands)	Accruing 30- 59 days past due		Accruing 60-89 days past due		Accruing 90 days or more past due		Nonaccrual loans		Accruing current		Total
Commercial
Owner occupied RE	$	6		-		-		-		613,868		613,874
Non-owner occupied RE		83		104		-		754		950,595		951,536
Construction		-		-		-		-		115,798		115,798
Business		184		5		-		137		511,393		511,719
Consumer
Real estate		132		583		-		1,053		1,046,136		1,047,904
Home equity		29		-		-		1,072		184,483		185,584
Construction		-		-		-		-		61,044		61,044
Other		6		-		-		-		50,151		50,157
Total loans	$	440		692		-		3,016		3,533,468		3,537,616
Total loans over 90 days past due		-		-		-		-		-		1,072

Schedule nonaccrual loans by major categories

	June 30, 2023								December 31, 2022				March 31, 2024								December 31, 2023
	Nonaccrual		Nonaccrual				Nonaccrual		Nonaccrual				Nonaccrual		Nonaccrual				Nonaccrual		Nonaccrual
	loans		loans		Total		loans		loans		Total		loans		loans		Total		loans		loans		Total
	with no		with an		nonaccrual		with no		with an		nonaccrual		with no		with an		nonaccrual		with no		with an		nonaccrual
(dollars in thousands)	allowance		allowance		loans		allowance		allowance		loans			allowance		allowance		loans		allowance		allowance		loans
Commercial
Owner occupied RE		-		-		-		-		-		-	$	-		-		-	$	-		-		-
Non-owner occupied RE		-		754		754		114		133		247		646		764		1,410		653		770		1,423
Construction		-		-		-		-		-		-		-		-		-		-		-		-
Business		-		137		137		-		182		182		-		488		488		164		155		319
Total commercial		-		891		891		114		315		429		646		1,252		1,898		817		925		1,742
Consumer
Real estate		-		1,053		1,053		-		1,099		1,099		625		755		1,380		-		985		985
Home equity		185		887		1,072		194		905		1,099		367		-		367		343		893		1,236
Construction		-		-		-		-		-		-		-		-		-		-		-		-
Other		-		-		-		-		-		-		-		1		1		-		-		-
Total consumer		185		1,940		2,125		194		2,004		2,198		992		756		1,748		343		1,878		2,221
Total nonaccrual loans		185		2,831		3,016		308		2,319		2,627	$	1,638		2,008		3,646	$	1,160		2,803		3,963

Schedule of nonperforming assets, including nonaccruing TDRs
Schedule of nonperforming assets

(dollars in thousands)	June 30, 2023			December 31, 2022			March 31, 2024			December 31, 2023
Nonaccrual loans	$	3,016			2,627		$	3,646			3,963
Other real estate owned		-			-			-			-
Total nonperforming assets	$	3,016			2,627		$	3,646			3,963
Nonperforming assets as a percentage of:
Total assets		0.08	%		0.07	%		0.09	%		0.10	%
Gross loans		0.09	%		0.08	%		0.10	%		0.11	%
Total loans over 90 days past due	$	1,072			402		$	889			1,300
Loans over 90 days past due and still accruing		-			-			-			-
Accruing troubled debt restructurings		-			4,503

Schedule of amortized cost basis of loans
						Term Extension
(dollars in thousands)	Amortized Cost Basis		% of Total Loan Type			Financial Effect
Commercial Business	$	309		0.06	%	Added a 1-year term to both of the loans modified. One loan was granted an extended amortization due to the inability to pay on a 3-year amortization. The other loan was given an interest only period due to the ability to pay only interest to get the loan renewed.

Schedule of activity related to the allowance for credit losses

										Three months ended June 30, 2023																								Three months ended March 31, 2024
		Commercial										Consumer														Commercial											Consumer
(dollars in thousands)		Owner occupied RE			Non- owner occupied RE			Construction		Business		Real Estate		Home Equity			Construction			Other			Total			Owner occupied RE		Non- owner occupied RE			Construction			Business			Real Estate		Home Equity		Construction			Other			Total
Balance, beginning of period		$	5,984			11,285			1,110		8,022		10,079		2,663			810			482			40,435		$	6,118		11,167			1,594			7,385			10,647		2,600		677			494		40,682
Provision for credit losses			(88	)		347			221		118		316		245			(126	)		62			1,095			-		-			-			-			-		-		-			-		-
Loan charge-offs			-			(48	)		-		-		-		(389	)		-			(2	)		(439	)		-		-			-			(346	)		-		-		-			(78	)	(424	)
Loan recoveries			-			-			-		12		-		2			-			-			14			-		-			-			15			-		119		-			49		183
Net loan recoveries (charge-offs)			-			(48	)		-		12		-		(387	)		-			(2	)		(425	)		-		-			-			(331	)		-		119		-			(29	)	(241	)
Balance, end of period		$	5,896			11,584			1,331		8,152		10,395		2,521			684			542			41,105		$	6,118		11,167			1,594			7,054			10,647		2,719		677			465		40,441
Net charge-offs to average loans (annualized)	Net charge-offs to average loans (annualized)																							0.05	%																						0.03	%
Allowance for credit losses to gross loans	Allowance for credit losses to gross loans																							1.16	%																						1.11	%
Allowance for credit losses to nonperforming loans	Allowance for credit losses to nonperforming loans																							1,363.11	%																						1,109.13	%

																																			Three months ended March 31, 2023
																											Commercial														Consumer
(dollars in thousands)																											Owner occupied RE		Non-owner occupied RE			Construction			Business			Real Estate		Home Equity		Construction			Other		Total
Balance, beginning of period																										$	5,867		10,376			1,292			7,861			9,487		2,551		893			312		38,639
Provision for credit losses																											117		1,038			(182	)		150			592		53		(83	)		170		1,855
Loan charge-offs																											-		(160	)		-			(1	)		-		-		-			-		(161	)
Loan recoveries																											-		31			-			12			-		59		-			-		102
Net loan recoveries (charge-offs)																											-		(129	)		-			11			-		59		-			-		(59	)
Balance, end of period																										$	5,984		11,285			1,110			8,022			10,079		2,663		810			482		40,435
Net charge-offs to average loans (annualized)																																															0.01	%
Allowance for credit losses to gross loans																																															1.18	%
Allowance for credit losses to nonperforming loans																																															854.33	%



									Three months ended June 30, 2022
	Commercial											Consumer
(dollars in thousands)	Owner occupied RE			Non- owner occupied RE			Construction		Business			Real Estate			Home Equity			Construction			Other			Total
Balance, beginning of period	$	4,898			9,973			929		6,217			7,602			2,197			844			284			32,944
Provision for credit losses		(69	)		37			131		524			390			407			7			98			1,525
Loan charge-offs		-			-			-		(55	)		-			(170	)		-			(91	)		(316	)
Loan recoveries		-			-			-		31			-			8			-			-			39
Net loan recoveries (charge-offs)		-			-			-		(24	)		-			(162	)		-			(91	)		(277	)
Balance, end of period	$	4,829			10,010			1,060		6,717			7,992			2,442			851			291			34,192
Net charge-offs to average loans (annualized)																									0.04	%
Allowance for credit losses to gross loans																									1.20	%
Allowance for credit losses to nonperforming loans																									1,166.70	%


									Six months ended June 30, 2023
	Commercial											Consumer
(dollars in thousands)	Owner occupied RE			Non- owner occupied RE			Construction		Business			Real Estate			Home Equity			Construction			Other			Total
Balance, beginning of period	$	5,867			10,376			1,292		7,861			9,487			2,551			893			312			38,639
Provision for credit losses		29			1,385			39		268			908			298			(209	)		232			2,950
Loan charge-offs		-			(209	)		-		(1	)		-			(389	)		-			(2	)		(601	)
Loan recoveries		-			32			-		24			-			61			-			-			117
Net loan recoveries (charge-offs)		-			(177	)		-		23			-			(328	)		-			(2	)		(484	)
Balance, end of period	$	5,896			11,584			1,331		8,152			10,395			2,521			684			542			41,105
Net charge-offs to average loans (annualized)																									0.03	%
Allowance for credit losses to gross loans																									1.16	%
Allowance for credit losses to nonperforming loans																									1,363.11	%

												Six months ended June 30, 2022
	Commercial											Consumer
(dollars in thousands)	Owner occupied RE			Non- owner occupied RE			Construction		Business			Real Estate			Home Equity			Construction			Other			Total
Balance, beginning of period	$	4,700			10,518			625		4,887			7,083			1,697			578			320			30,408
Adjustment for CECL		(313	)		333			154		1,057			(294	)		438			130			(5	)		1,500
Provision for credit losses		442			(841	)		281		683			1,203			572			143			67			2,550
Loan charge-offs		-			-			-		(55	)		-			(339	)		-			(91	)		(485	)
Loan recoveries		-			-			-		145			-			74			-			-			219
Net loan recoveries (charge-offs)		-			-			-		90			-			(265	)		-			(91	)		(266	)
Balance, end of period	$	4,829			10,010			1,060		6,717			7,992			2,442			851			291			34,192
Net charge-offs to average loans (annualized)																									0.02	%
Allowance for credit losses to gross loans																									1.20	%
Allowance for credit losses to nonperforming loans																									1,166.70	%


					June 30, 2023
Schedule of analysis of collateral-dependent loans of the company	Real		Business
(dollars in thousands)	estate		assets		Other		Total
Commercial
Owner occupied RE	$	-		-		-		-
Non-owner occupied RE		31		-		-		31
Construction		-		-		-		-
Business		42		-		-		42
Total commercial		73		-		-		73
Consumer
Real estate		195		-		-		195
Home equity		185		-		-		185
Construction		-		-		-		-
Other		-		-		-		-
Total consumer		380		-		-		380
Total	$	453		-		-		453

						December 31, 2022
		Real		Business
(dollars in thousands)		estate		assets		Other		Total
Commercial
Owner occupied RE	$	-		-		-		-
Non-owner occupied RE		114		-		-		114
Construction		-		-		-		-
Business		30		-		-		30
Total commercial		144		-		-		144
Consumer
Real estate		207		-		-		207
Home equity		194		-		-		194
Construction		-		-		-		-
Other		-		-		-		-
Total consumer		401		-		-		401
Total	$	545		-		-		545