What changed in this filing

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Item 1. Financial Statements

2024-05-08 compared with 2023-11-07 · 319 added, 597 removed, 692 unchanged (57% of the section changed)

4 unchanged sentences

Consolidated Balance Sheets

September 30,

(Dollars in thousands, except share data)

4 unchanged sentences

Securities available-for-sale

Loans held for sale

Allowance for credit losses

15 unchanged sentences

Less treasury stock, at cost -

at September 30, 2023

at March 31, 2024

and December 31, 2023, respectively

6 unchanged sentences

Consolidated Statements of Earnings

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands, except share and per share data)

13 unchanged sentences

Bank-owned life insurance

Securities gains, net

Total noninterest income

15 unchanged sentences

Consolidated Statements of Comprehensive Income

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

Other comprehensive loss, net of tax:

Unrealized net loss on securities

Reclassification adjustment for net gain on securities

recognized in net earnings

Other comprehensive loss

Comprehensive loss

Other comprehensive (loss) income, net of tax:

Unrealized net holding (loss) gain on securities net of

tax benefit of $

and tax expense of $

, respectively

Other comprehensive (loss) income

Comprehensive (loss) income

See accompanying notes to consolidated financial statements

5 unchanged sentences

(Dollars in thousands, except share data)

(loss) income

Quarter ended September 30, 2023

Balance, June 30, 2023

Other comprehensive loss

Cash dividends paid ($

Stock repurchases

Sale of treasury stock

Balance, September 30, 2023

Quarter ended September 30, 2022

Balance, June 30, 2022

Other comprehensive loss

Cash dividends paid ($

Stock repurchases

Sale of treasury stock

Balance, September 30, 2022

Nine months ended September 30, 2023

Quarter ended March 31, 2024

Balance, December 31, 2023

2 unchanged sentences

Cash dividends paid ($

Stock repurchases

Sale of treasury stock

Balance, September 30, 2023

Nine months ended September 30, 2022

Balance, March 31, 2024

Quarter ended March 31, 2023

Balance, December 31, 2022

Other comprehensive loss

Cumulative effect of change in accounting

Other comprehensive income

Cash dividends paid ($

1 unchanged sentence

Sale of treasury stock

Balance, September 30, 2022

Balance, March 31, 2023

See accompanying notes to consolidated financial statements

3 unchanged sentences

Consolidated Statements of Cash Flows

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

5 unchanged sentences

Premium amortization and discount accretion, net

Net gain on securities available-for-sale

Net gain on sale of loans held for sale

Net gain on other real estate owned

Loans originated for sale

2 unchanged sentences

Income recognized from death benefit on bank-owned life insurance

Net decrease (increase) in other assets

Net increase in accrued expenses and other liabilities

Net (increase) decrease in other assets

Net increase (decrease) in accrued expenses and other liabilities

Net cash provided by operating activities

1 unchanged sentence

Proceeds from prepayments and maturities of securities available-for-sale

Purchase of securities available-for-sale

Increase in loans, net

1 unchanged sentence

Proceeds from bank-owned life insurance death benefit

Proceeds from surrender of bank-owned life insurance

Increase in FHLB stock

Proceeds from sale of other real estate owned

Net cash used in investing activities

Decrease in FHLB stock

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Net (decrease) increase in noninterest-bearing deposits

Net decrease in noninterest-bearing deposits

Net increase (decrease) in interest-bearing deposits

Net decrease in federal funds purchased and securities sold

Net increase (decrease) in federal funds purchased and securities sold

under agreements to repurchase

12 unchanged sentences

Notes to Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Auburn National Bancorporation, Inc.

37 unchanged sentences

Material estimates that are particularly susceptible to significant change in the near term

include the determination of allowance for credit losses on investment securities

and loans, fair value of financial

include the determination of allowance for credit losses on loans and investment

securities, fair value of financial

instruments, and the valuation of deferred tax assets and other real estate owned (“OREO”).

Revenue Recognition

On January 1, 2018, the Company implemented Accounting Standards Update

or “updates”) 2014-09,

from Contracts with Customers

, codified at

Accounting Standards Codification

The Company adopted ASC

606 using the modified retrospective transition method.

The majority of the Company’s revenue stream

is generated from

interest income on loans and securities which are outside the scope of ASC 606.

The Company’s sources of income that

21 unchanged sentences

the purchaser with financing, the analysis

is based on various other factors,

including the credit quality of the purchaser,

is based on various other factors, including the credit quality of the purchaser,

the structure of the loan, and any

3 unchanged sentences

the date of this filing that have occurred

subsequent to September 30, 2023.

subsequent to March 31, 2024.

The Company does not believe there were any material subsequent events during

2 unchanged sentences

included in this report.

Correction of Error

The disclosure of loans by vintage in Note 5 – Loans and Allowance for Credit

Losses in the Company’s Annual Report on

Form 10-K for year ended December 31, 2023 contained incorrect information as it pertains

to loans originated by vintage

and revolving loans.

All current period gross charge-off data, total loans by segment and total loans by credit

indicator were correctly reported.

The loans originated by vintage and revolving loans as of December 31, 2023

corrected in the comparative presentation in Note 5 – Loans and Allowance for Credit Losses

in the Notes herein.

Reclassifications

1 unchanged sentence

-period presentation.

reclassifications had no material effect on the Company’s

reclassifications had no effect on the Company’s

previously reported net earnings or total stockholders’ equity.

Accounting Standards Adopted in 2024

On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit

Losses (Topic 326):

of Credit Losses on Financial Instruments (ASC 326).

This standard replaced

the incurred loss methodology with an

expected loss methodology that is referred to as the current expected credit loss (“CECL”)

CECL requires

estimate of credit losses for the remaining estimated life of the financial asset using

historical experience, current

conditions, and reasonable and supportable forecasts and generally applies to

financial assets measured at amortized cost,

including loan receivables and held-to-maturity debt securities, and some off

-balance sheet credit exposures such as

unfunded commitments to extend credit.

Financial assets measured at amortized

cost will be presented at the net amount

expected to be collected by using an allowance for credit losses.

In addition, CECL made changes to the accounting for available for sale debt

One such change is to require

credit losses to be presented as an allowance rather than as a write-down on available for sale debt

securities if management

does not intend to sell and does not believe that it is more likely than not, they will be required

The Company adopted ASC 326 and all related subsequent amendments thereto

effective January 1, 2023 using the

modified retrospective approach for all financial assets measured at amortized

cost and off-balance sheet credit exposures.

The transition adjustment upon the adoption of CECL on January 1, 2023 included

an increase in the allowance for credit

losses on loans of $

million, which is presented as a reduction to net loans outstanding, and an increase in the allowance

for credit losses on unfunded loan commitments of $

million, which is recorded within other liabilities.

recorded a net decrease to retained earnings of $

million as of January 1, 2023 for the cumulative effect of adopting

CECL, which reflects the transition adjustments noted above, net of the applicable deferred

tax assets recorded.

reporting periods beginning after January 1, 2023 are presented under CECL while prior

period amounts continue to be

reported in accordance with previously applicable accounting standards.

The Company adopted ASC 326 using the prospective transition approach for debt

securities for which other-than-

temporary impairment had been recognized prior to January 1, 2023.

As of December 31, 2022, the Company did not have

any other-than-temporarily impaired investment securities.

upon adoption of ASC 326, the Company determined

that an allowance for credit losses on available for sale securities was not deemed

The Company elected not to measure an allowance for credit losses for accrued interest receivable

and instead elected to

reverse interest income on loans or securities that are placed on nonaccrual status,

which is generally when the instrument is

90 days past due, or earlier if the Company believes the collection of interest is doubtful.

has concluded that

this policy results in the timely reversal of uncollectible interest.

The Company also adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic

Troubled Debt

Restructurings and Vintage Disclosures”

on January 1, 2023, the effective date of the guidance, on a prospective basis.

ASU 2022-02 eliminated the accounting guidance for TDRs, while enhancing disclosure requirements

for certain loan

refinancings and restructurings by creditors when a borrower is experiencing

financial difficulty.

Specifically, rather than

applying the recognition and measurement guidance for TDRs, an entity

must apply the loan refinancing and restructuring

guidance to determine whether a modification results in a new loan or a

continuation of an existing loan.

Additionally,

2022-02 requires an entity to disclose current-period gross write-offs

by year of origination for financing receivables within

the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at

Amortized Cost.

ASU 2022-02 did not

have a material impact on the Company’s consolidated

financial statements.

Loans that management has the intent and ability to hold for the foreseeable

future or until maturity or payoff are reported

at amortized cost.

Amortized cost is the principal balance outstanding, net of purchase premiums

and discounts and

deferred fees and costs.

Accrued interest receivable related to loans is recorded

in other assets on the consolidated balance

Interest income is accrued on the unpaid principal balance.

Loan origination fees,

net of certain direct origination

costs, are deferred and recognized in interest income using methods that approximate a

level yield without anticipating

The accrual of interest is generally discontinued when a loan becomes 90 days past due and

is not well collateralized and in

the process of collection, or when management believes, after considering economic and

business conditions and collection

efforts, that the principal or interest will not be collectible in the normal

course of business.

Past due status is based on

contractual terms of the loan.

A loan is considered to be past due when a scheduled payment has

not been received 30 days

after the contractual due date.

All accrued interest is reversed against interest income when a loan is placed on nonaccrual

Interest received on such

loans is accounted for using the cost-recovery method, until qualifying for return to accrual.

Under the cost-recovery

method, interest income is not recognized until the loan balance is reduced to zero.

Loans are returned to accrual status

when all the principal and interest amounts contractually due are brought current, there is a

sustained period of repayment

performance, and future payments are reasonably assured.

Allowance for Credit Losses – Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized

cost basis to present the net

amount expected to be collected on the loans.

Loans are charged off

against the allowance when management believes the

uncollectibility of a loan balance is confirmed.

Expected recoveries do not exceed the aggregate

of amounts previously

charged-off and expected to be charged-off.

Accrued interest receivable is excluded from the estimate of credit losses.

The allowance for credit losses represents management’s

estimate of lifetime credit losses inherent in loans as of the

balance sheet date.

The allowance for credit losses is estimated by management using relevant

available information, from

both internal and external sources, relating to past events, current conditions, and reasonable and

supportable forecasts.

The Company’s loan loss estimation process

includes procedures to appropriately consider the unique characteristics of

respective loan segments (commercial and industrial, construction and land development,

commercial real estate,

residential real estate, and consumer loans).

These segments are further disaggregated into loan classes, the level at

credit quality is monitored.

See Note 5, Loans and Allowance for Credit Losses, for additional information about our

Credit loss assumptions are estimated using a discounted cash flow ("DCF") model

for each loan segment,

except consumer

The weighted average remaining life method is used to estimate credit loss assumptions

for consumer loans.

The DCF model calculates an expected life-of-loan loss percentage by considering the

forecasted probability that a

borrower will default (the “PD”), adjusted for relevant forecasted macroeconomic

factors, and LGD, which is the estimate

of the amount of net loss in the event of default.

This model utilizes historical correlations between default experience and

certain macroeconomic factors as determined through a statistical regression analysis.

The forecasted Alabama

unemployment rate is considered in the model for commercial and industrial, construction

and land development,

commercial real estate,

and residential real estate loans.

In addition, forecasted changes in the Alabama home price index

is considered in the model for construction and land development and residential real

estate loans;

forecasted changes in the

national commercial real estate (“CRE”) price index is considered

in the model for commercial real estate and multifamily

and forecasted changes in the Alabama gross state product is considered

in the model for multifamily loans.

Projections of these macroeconomic factors, obtained from an independent third

party, are utilized to predict

quarterly rates

of default based on the statistical PD models.

Expected credit losses are estimated over the contractual term of the loan, adjusted

for expected prepayments and principal

payments (“curtailments”) when appropriate.

determination of the contract term excludes expected

extensions, renewals, and modifications unless the extension or

renewal option is included in the contract at the reporting

date and is not unconditionally cancellable by the Company.

To the extent the lives of the

loans in the portfolio extend

beyond the period for which a reasonable and supportable forecast can be

made (which is 4 quarters for the Company), the

Company reverts, on a straight-line basis back to the historical rates over an 8 quarter reversion

The weighted average remaining life method was deemed most appropriate

for the consumer loan segment because

consumer loans contain many different payment structures,

payment streams and collateral.

The weighted average

remaining life method uses an annual charge-off rate over several vintages

to estimate credit losses.

The average annual

charge-off rate is applied to the contractual term adjusted for

Additionally, the allowance

for credit losses calculation includes subjective adjustments for qualitative risk

factors that are

believed likely to cause estimated credit losses to differ from

historical experience.

These qualitative adjustments may

increase reserve levels and include adjustments for lending management experience and

risk tolerance, loan review and

audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations,

trends in underlying

collateral, external factors and economic conditions not already captured.

Loans secured by real estate with balances equal to or greater than $500 thousand and loans not secured

by real estate with

balances equal to or greater than $250 thousand that do not share risk characteristics

are evaluated on an individual basis.

When management determines that foreclosure is probable and the borrower

is experiencing financial difficulty,

expected credit losses are based on the estimated fair value of collateral held at the reporting

date, adjusted for selling costs

as appropriate.

Allowance for Credit Losses – Unfunded Commitments

Financial instruments include off-balance sheet credit instruments,

such as commitments to make loans and commercial

letters of credit issued to meet customer financing needs.

The Company’s

exposure to credit loss in the event of

nonperformance by the other party to the financial instrument for off-balance sheet

loan commitments is represented by the

contractual amount of those instruments.

Such financial instruments are

recorded when they are funded.

The Company records an allowance for credit losses on off-balance

sheet credit exposures, unless the commitments to

extend credit are unconditionally cancelable, through a charge to provision

for credit losses in the Company’s consolidated

statements of earnings.

The allowance for credit losses on off-balance sheet credit exposures

is estimated by loan segment

at each balance sheet date under the current expected credit loss model using the same

methodologies as portfolio loans,

taking into consideration the likelihood that funding will occur as well as any third-party

The allowance for

unfunded commitments is included in other liabilities on the Company’s

consolidated balance sheets.

On January 1, 2023, the Company recorded an adjustment for unfunded commitments of

$77 thousand upon the adoption of

At September 30, 2023,

the liability for credit losses on off-balance-sheet credit exposures included in other

liabilities was $

Provision for Credit Losses

The composition of the provision for (recoveries of) credit losses for the respective periods

is presented below.

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands)

Provision for credit losses:

Reserve for unfunded commitments (1)

Total provision for credit

Reserve requirements for unfunded commitments were reported as a component of other

noninterest expense prior

to the adoption of ASC 326.

On January 1, 2024, the Company adopted ASU 2023-02,

Investments – Equity Method and Joint Ventures

Accounting for Investments in Tax

Credit Structures Using

the Proportional Amortization Method

The amendments in this

Update permit reporting entities to elect to account for their equity investments made primarily

to receive income tax

credits and other income tax benefits,

regardless of the program from which the income tax credits or

benefits are received,

using the proportional amortization method if certain conditions are met.

The new standard

is effective for fiscal years, and

interim periods within those fiscal years, beginning after December 15,

The Company adopted ASU 2023-02

effective January 1, 2024 and recorded a cumulative effect of change

in accounting standard adjustment which reduced

beginning retained earnings by $0.3 million.

The Company will prospectively account for its investments in New Market

Tax Credits (“NMTCs”)

using the proportional amortization method through charges to the

provision for income taxes.

Note 3, Variable

Interest Entities.

BASIC AND DILUTED NET EARNINGS PER SHARE

1 unchanged sentence

common shares outstanding for

the respective period.

Diluted net earnings per share reflect the potential dilution that could occur

upon exercise of

securities or other rights for, or convertible into, shares of the

Company’s common stock.

At September 30, 2023 and

2022, respectively, the Company

had no such securities or rights issued or outstanding, and therefore, no dilutive effect

consider for the diluted net earnings per share calculation.

The basic and diluted net earnings per share computations for the respective periods are

presented below

Quarter ended September 30,

Nine months ended September 30,

the quarters ended March 31, 2024 and 2023, respectively.

Diluted net earnings per share reflect the potential dilution that

could occur upon exercise of securities or other rights for,

or convertible into, shares of the Company’s common

March 31, 2024 and 2023, respectively,

the Company had no such securities or rights issued or outstanding, and

no dilutive effect to consider for the diluted net earnings per share calculation.

The basic and diluted net earnings per share computations for the respective periods

are presented below

Quarter ended March 31,

(Dollars in thousands, except share and per share data)

9 unchanged sentences

resources for the entity to support its activities.

At September 30, 2023, the Company did not have any consolidated VIEs to

disclose but did have one nonconsolidated

VIE, discussed below.

At March 31, 2024, the Company did not have any consolidated VIEs but did have one nonconsolidated

VIE, discussed

New Markets Tax

Credit Investment

The New Markets Tax Credit

(“NMTC”) program provides federal tax incentives to investors to make investments

distressed communities and promotes economic improvement through the development

of successful businesses in these

The NMTC is available to investors over seven years and is subject to recapture if certain events occur

during such period.

At September 30, 2023 and December 31, 2022, respectively,

the Company had one such investment in

the amounts of $1.8 million and $2.1 million, respectively,

which was included in other assets in the consolidated balance

The Company’s equity investment in the

NMTC entity meets the definition of a VIE.

While the Company’s

investment exceeds 50% of the outstanding equity interests, the Company does not consolidate

the VIE because it does not

meet the characteristics of a primary beneficiary since the Company lacks the power to direct

the activities of the VIE.

available to investors over seven years and are subject to

recapture if certain events occur during such period.

respectively,

investment exceeds

the outstanding

equity interest

not consolidate

activities of

and therefore

primary beneficiary

On March 29, 2023, the FASB

issued ASU 2023-02, which was effective beginning in 2024 for

public business entities.

proportional amortization

method results in

credit investment

being amortized

in proportion

allocation of

credits and other tax

benefits in each

net presentation within

the income tax

The cumulative effects

million pre-tax

January 1, 2024.

Summary of Significant Accounting Policies – Accounting

Standards Adopted in 2024.

(Dollars in thousands)

3 unchanged sentences

New Markets Tax Credit investment

At September 30, 2023 and December 31, 2022, respectively,

At March 31, 2024 and December 31, 2023, respectively,

all securities within the scope of ASC 320,

Investments –

Debt and Equity Securities,

Investments – Debt

and Equity Securities,

were classified as available-for-sale.

The fair value and amortized cost for securities available-

for-sale by contractual maturity at September 30, 2023 and December

31, 2022, respectively, are

presented below.

The fair value and amortized cost for securities available-for-

sale by contractual maturity at March 31, 2024 and December 31, 2023,

respectively, are presented below.

Gross Unrealized

(Dollars in thousands)

September 30, 2023

March 31, 2024

Agency obligations (a)

9 unchanged sentences

government agencies or government-sponsored

Expected lives of these

securities may differ from contractual maturities because (i)

issuers may have the right to call or repay such securities

obligations with or without prepayment penalties and (ii) loans incuded in Agency MBS

generally have the right to

prepay such loan in whole or in part at any time.

Securities with aggregate fair values of $

million and $

million at September 30, 2023 and December 31, 2022,

respectively, were pledged to

secure public deposits, securities sold under agreements to repurchase, Federal Home

Bank of Atlanta (“FHLB of Atlanta”) advances, and for other purposes required

or permitted by law.

Other assets on the accompanying consolidated balance sheets include non-marketable

at March 31, 2024 and December 31, 2023, respectively,

were pledged to secure public deposits, securities sold under agreements to repurchase,

Federal Home Loan Bank of

Atlanta (“FHLB of Atlanta”) advances, and for other purposes required or

permitted by law.

Included in other assets on the accompanying consolidated balance sheets include non-marketable

equity investments.

amounts of non-marketable equity investments were $

million at September 30, 2023 and $

million at December 31,

Non-marketable equity investments include FHLB of Atlanta tock, Federal Reserve

Bank of Atlanta (“FRB”) stock,

and stock in a privately held financial institution.

carrying amounts of non-marketable equity investments were $

million at March 31, 2024 and December 31, 2023,

respectively.

Non-marketable equity investments include FHLB of Atlanta stock,

Federal Reserve Bank of Atlanta

(“FRB”) stock, and stock in a privately held financial institution.

Gross Unrealized Losses and Fair Value

The fair values and gross unrealized losses on securities at September 30,

The fair values and gross unrealized losses on securities at March 31, 2024

and December 31, 2023, respectively,

segregated by those securities that have been in an unrealized

loss position for less than 12 months and 12 months or

segregated by those securities that have been in an unrealized loss position for

less than 12 months and 12 months or

longer, are presented below.

2 unchanged sentences

(Dollars in thousands)

September 30, 2023:

March 31, 2024:

Agency obligations

3 unchanged sentences

State and political subdivisions

For the securities in the previous table, the Company assesses whether or not it intends to

sell or is more likely than not that

the Company will be required to sell the securities before recovery of the amortized

cost basis, which may be maturity.

Because the Company currently does not intend to sell those securities that have an

unrealized loss at September 30, 2023

and it is not more-likely-than-not that the Company will be required to sell the security before

recovery of their amortized

cost bases, which may be maturity,

the Company has determined that no provision for credit loss is necessary.

the Company evaluates whether any portion of the decline in fair value of available-for-sale

securities is the result of credit

deterioration, which would require the recognition of a provision to increase

the allowance for credit losses.

evaluations consider the extent to which the amortized cost of the security exceeds its

fair value, changes in credit ratings

and any other known adverse conditions related to the specific security.

The unrealized losses associated with available-for-

sale securities at September 30, 2023 are driven by changes in market interest rates and

are not due to the credit quality of

the securities, and accordingly,

no allowance for credit losses is considered necessary for available-for-sale

securities at

September 30, 2023.

These securities will continue to be monitored as a part

of the Company's ongoing evaluation of credit

Management evaluates

the financial performance of the issuers on a quarterly basis to determine if it is probable

that the issuers can make all contractual principal and interest payments.

For the securities in the previous table, the Company considers the severity of the unrealized

loss as well the Company’s

intent to hold the securities to maturity or the recovery of the cost basis.

Unrealized losses have not been recognized into

income as the decline in fair value is largely due to changes in interest rates and other

market conditions.

For the securities

in the previous table as of March 31, 2024, management does not intend to sell and it is likely that

management will not be

required to sell the securities prior to their recovery.

Agency Obligations

Investments in agency obligations are guaranteed of full and timely payments

by the issuing agency.

management's analysis and judgement, there were no credit losses attributable

to the Company’s investments in agency

obligations at March 31, 2024.

Investments in agency mortgage backed securities (“MBS”) are issued by Ginnie Mae,

Fannie Mae, and Freddie Mac.

Each of these agencies provide a guarantee of full and timely payments of principal and

interest by the issuing agency.

Based on management's analysis and judgement, there were no credit losses attributable

to the Company’s investments

agency MBS at March 31, 2024.

State and Political Subdivisions

Investments in state and political subdivisions are securities issued by various

municipalities in the United States.

majority of the portfolio was rated AA or higher,

with no securities rated below investment grade at March 31, 2024.

Based on management's analysis and judgement, there were no credit losses attributable

to the Company’s investments

state and political subdivisions at March 31, 2024.

Realized Gains and Losses

The following table presents the gross realized gains and losses on sales of securities.

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands)

Gross realized gains

Realized gains, net

The Company had no realized gains or losses on sale of securities during the quarters ended

March 31, 2024 and 2023,

respectively.

LOANS AND ALLOWANCE

FOR CREDIT LOSSES

September 30,

(Dollars in thousands)

10 unchanged sentences

Loans secured by real estate were approximately 84.2% of the Company’s

total loan portfolio at September 30, 2023.

September 30, 2023, the Company’s

geographic loan distribution was concentrated primarily in Lee County,

total loan portfolio at March 31, 2024.

31, 2024, the Company’s geographic

loan distribution was concentrated primarily in Lee County,

surrounding areas.

70 unchanged sentences

consumers that are secured by a primary residence or second home.

These loans are underwritten in

These loans are underwritten

in accordance

with the Bank’s general loan policies and

3 unchanged sentences

Investment property

– primarily includes loans to finance income-producing 1-4 family residential properties.

– primarily includes loans

to finance income-producing 1-4 family residential properties.

the primary source of repayment is dependent upon income generated

14 unchanged sentences

The following is a summary of current, accruing past due, and nonaccrual loans by portfolio

segment and class as of

September 30, 2023 and December 31, 2022.

segment and class as of March

31, 2024 and December 31, 2023.

(Dollars in thousands)

September 30, 2023:

March 31, 2024:

Commercial and industrial

23 unchanged sentences

standard asset classification system used by the federal banking agencies.

The following table presents credit quality

indicators for the loan portfolio segments and classes by year of origination as of September

These categories are

utilized to develop the associated allowance for credit losses using historical losses adjusted

for qualitative and

environmental factors and are defined as follows:

Pass – loans which are well protected by the current net worth and paying capacity of the

obligor (or guarantors, if

These categories are utilized to develop the

associated allowance for credit losses using historical losses adjusted

for qualitative and environmental factors and are

defined as follows:

Pass – loans which are well protected by the current net worth and paying capacity

of the obligor (or guarantors, if

any) or by the fair value, less cost to acquire and sell, of any underlying collateral.

4 unchanged sentences

These loans are not adversely classified and do

not expose an institution to sufficient risk to warrant an adverse classification.

not expose an institution to sufficient risk to warrant an adverse

classification.

Substandard Accruing – loans that exhibit a well-defined weakness which presently jeopardizes

3 unchanged sentences

Company may incur a loss in the future if these weaknesses are not corrected

Nonaccrual – includes loans where management has determined that full payment

of principal and interest is not

Nonaccrual – includes loans where management has determined that

full payment of principal and interest is not

Substandard accrual and nonaccrual loans are often collectively referred to as “classified.”

The following tables presents credit quality indicators for the loan portfolio segments and

classes by year of origination as

of March 31, 2024 and December 31, 2023.

The December 31, 2023 table has been revised to correct revolving loans and

properly allocate loans by year of origination.

Summary of Significant Accounting Policies – Correction of

Year of Origination

(Dollars in thousands)

September 30, 2023:

March 31, 2024:

Commercial and industrial

14 unchanged sentences

Current period gross charge-offs

Year of Origination

(Dollars in thousands)

September 30, 2023:

March 31, 2024:

Special mention

18 unchanged sentences

Total current period gross charge-offs

Year of Origination

(Dollars in thousands)

1 unchanged sentence

Commercial and industrial

Special mention

Total commercial and industrial

Current period gross charge-offs

Construction and land development

Special mention

Total construction and land development

Current period gross charge-offs

Commercial real estate:

Owner occupied

Total commercial real estate

Special mention

Total owner occupied

Current period gross charge-offs

Special mention

Total hotel/motel

Current period gross charge-offs

Year of Origination

(Dollars in thousands)

December 31, 2023:

Special mention

Total multi-family

Current period gross charge-offs

Special mention

Current period gross charge-offs

Residential real estate:

Consumer mortgage

Special mention

Total consumer mortgage

Current period gross charge-offs

Investment property

Total residential real estate

Special mention

Total investment property

Current period gross charge-offs

Consumer installment

The following table is a summary of the Company’s

nonaccrual loans by major categories as of September 30, 2023

December 31, 2022.

Incurred Loss

September 30, 2023

December 31, 2022

Loans with an

(Dollars in thousands)

Commercial and industrial

Commercial real estate

Residential real estate

The following table presents the amortized cost basis of collateral dependent loans, which

are individually evaluated to

determine expected credit losses:

(Dollars in thousands)

Business Assets

September 30, 2023:

Commercial and industrial

Commercial real estate

Special mention

Total consumer installment

Current period gross charge-offs

Special mention

Total current period gross charge-offs

Allowance for Credit Losses

The Company adopted ASC 326

on January 1, 2023, which introduced the CECL methodology for estimating all expected

The Company adopted ASC 326 on January 1, 2023, which introduced the CECL

methodology for estimating all expected

losses over the life of a financial asset.

4 unchanged sentences

with the collectively evaluated pools, evaluations are performed on an individual

The following table details the changes in the allowance for credit losses by portfolio segment for

the respective periods.

September 30, 2023

The composition of the provision for credit losses for the respective periods

is presented below.

Quarter ended March 31,

(Dollars in thousands)

Provision for credit losses:

Reserve for unfunded commitments

Total provision for credit

The following table details the changes in the allowance for credit losses for loans, by portfolio

segment, for the respective

(Dollars in thousands)

Commercial and

Quarter ended:

March 31, 2024

Beginning balance

2 unchanged sentences

Ending balance

Nine months ended:

Quarter ended:

March 31, 2023

Beginning balance

3 unchanged sentences

Ending balance

September 30, 2022

The following table presents the amortized cost basis of collateral dependent loans, which

are individually evaluated to

determine expected credit losses as of March 31, 2024 and December 31, 2023:

(Dollars in thousands)

Commercial and

Quarter ended:

Beginning balance

Net (charge-offs) recoveries

Provision for loan losses

Ending balance

Nine months ended:

Beginning balance

Net (charge-offs) recoveries

Provision for loan losses

Ending balance

The following table presents an analysis of the allowance for loan losses and recorded

investment in loans by portfolio

segment and impairment methodology as of September 30, 2022 as determined, prior

to the adoption of ASC 326.

Collectively evaluated (1)

Individually evaluated (2)

(In thousands)

September 30, 2022:

Commercial and industrial

Construction and land development

March 31, 2024:

Commercial real estate

Residential real estate

Consumer installment

Represents loans collectively evaluated for impairment,

prior to the adopton of ASC 326, in accordance with ASC

Contingencies, and pursuant to amendments by ASU 2010-20

regarding allowance for non-impaired loans.

Represents loans individually evaluated for impairment, prior

to the adoption of ASC 326, in accordance with ASC

Receivables, and pursuant to amendments by ASU 2010-20 regarding

allowance for impaired loans.

Impaired loans

The following tables present impaired loans at December 31, 2022 as determined under

ASC 310 prior to the adoption of

Loans that have been fully charged-off are not included in the following

The related allowance generally

represents the following components that correspond to impaired loans:

Individually evaluated impaired loans equal to or greater than $500 thousand secured

by real estate (nonaccrual

construction and land development, commercial real estate, and residential real estate

Individually evaluated impaired loans equal to or greater than $250 thousand not secured

by real estate

(nonaccrual commercial and industrial and consumer installment loans).

The following tables set forth certain information regarding the Company’s

impaired loans that were individually evaluated

for impairment at December 31, 2022.

December 31, 2023:

(Dollars in thousands)

Unpaid principal

Charge-offs and

payments applied

investment (3)

Related allowance

With no allowance recorded:

Commercial and industrial

Commercial real estate

Owner occupied

Total commercial real estate

With allowance recorded:

Commercial and industrial

Commercial real estate:

Owner occupied

Total commercial real estate

impaired loans

(1) Unpaid principal balance represents the contractual obligation

due from the customer.

(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well

as interest payments that have been

applied against the outstanding principal balance subsequent

to the loans being placed on nonaccrual status.

(3) Recorded investment represents the unpaid principal balance

less charge-offs and payments applied;

it is shown before

any related allowance for loan losses.

Pursuant to the adoption of ASU 2022-02, effective January 1, 2023,

the Company prospectively discontinued the

recognition and measurement guidance previously required for

troubled debt restructurings (TDRs).

As of September 30,

2023, the Company had no loans that would have previously required

disclosure as TDRs.

The following table provides the average recorded investment in impaired loans, if

any, by portfolio

segment, and the

amount of interest income recognized on impaired loans after impairment by portfolio

segment and class during the quarter

and nine months ended September 30, 2022 as determined under ASC 310

prior to the adoption of ASC 326.

Quarter ended September 30, 2022

Nine months ended September 30, 2022

Total interest

The following table is a summary of the Company’s

nonaccrual loans by major categories as of March 31, 2024 and

December 31, 2023.

Nonaccrual loans

(Dollars in thousands)

Impaired loans:

with no Allowance

with an Allowance

Nonaccrual Loans

March 31, 2024

Commercial real estate

Total commercial real estate

Residential real estate

Investment property

Total residential real estate

December 31, 2023

Commercial real estate

Residential real estate

MORTGAGE SERVICING

2 unchanged sentences

corresponding mortgage loans are sold.

An estimate of the fair value of the Company’s MSRs is

determined using

assumptions that market participants would use in estimating future net servicing

income, including estimates of

prepayment speeds, discount rates, default rates, costs to service, escrow account earnings,

contractual servicing fee

income, ancillary income, and late fees.

An estimate of the Company’s MSRs is determined

using assumptions that market

participants would use in estimating future net servicing income, including estimates

of prepayment speeds, discount rate,

default rates, cost to service, escrow account earnings, contractual servicing

fee income, ancillary income, and late fees.

Subsequent to the date of transfer, the Company

has elected to measure its MSRs

under the amortization method.

Under the amortization method, MSRs are amortized in proportion to, and over

has elected to measure its MSRs under the amortization method.

the amortization method, MSRs are amortized in proportion to, and over the period

of, estimated net servicing income.

The Company generally sells, without recourse, conforming, fixed-rate, closed-end,

residential mortgages to Fannie Mae,

where the Company services the mortgages sold and records MSRs.

MSRs are included in other assets on the

accompanying consolidated balance sheets.

Increases in market interest rates generally increase the fair value of MSRs by reducing

prepayments and refinancings and

therefore reducing the prepayment speed.

The Company has recorded MSRs related to loans sold to Fannie Mae.

The Company generally sells conforming, fixed-

rate, closed-end, residential mortgages to Fannie Mae.

MSRs are included in other assets on the accompanying

consolidated balance sheets.

The Company evaluates MSRs for impairment on a quarterly basis.

5 unchanged sentences

as the fair value changes.

Changes in the valuation allowance are recognized in earnings as a component

Changes in the valuation allowance are recognized in earnings as a component of

lending income.

The following table details the changes in amortized MSRs and the related valuation allowance for

the respective periods.

Quarter ended September 30,

Nine months ended September 30,

The change in amortized MSRs and the related valuation allowance for the quarters

ended March 31, 2024 and 2023 are

presented below.

Quarter ended March 31,

(Dollars in thousands)

36 unchanged sentences

transfers between levels have been affected.

The nature of the Company’s financial assets

and liabilities generally is such

The nature of the Company’s financial

assets and liabilities generally is such

that transfers in and out of any level are expected to be infrequent.

months ended September 30, 2023, there

were no transfers between levels and no changes in valuation techniques for the Company’s

For the quarter ended

March 31, 2024, there were no

transfers between levels and no changes in valuation techniques for the Company’s

financial assets and liabilities.

23 unchanged sentences

The following table presents the balances of the assets and liabilities measured at fair value

on a recurring basis as of

September 30, 2023 and December 31, 2022, respectively,

by caption, on the accompanying consolidated balance sheets by

ASC 820 valuation hierarchy (as described above).

on a recurring basis as of March

31, 2024 and December 31, 2023, respectively,

by caption, on the accompanying consolidated balance sheets by ASC 820

valuation hierarchy (as described above).

Quoted Prices in

2 unchanged sentences

(Dollars in thousands)

September 30, 2023:

March 31, 2024:

Securities available-for-sale:

40 unchanged sentences

Periodically, the

Company will review broker surveys and other market research to

validate significant assumptions used in the model.

Company will review broker surveys and other market research to validate

significant assumptions used in the model.

significant unobservable inputs include mortgage prepayment speeds or

6 unchanged sentences

on a nonrecurring basis as of

September 30, 2023 and December 31, 2022, respectively,

by caption, on the accompanying consolidated balance sheets

and by FASB ASC 820

valuation hierarchy (as described above):

March 31, 2024 and December 31, 2023, respectively,

by caption, on the accompanying consolidated balance sheets and by

FASB ASC 820 valuation

hierarchy (as described above):

Quoted Prices in

2 unchanged sentences

(Dollars in thousands)

September 30, 2023:

March 31, 2024:

Loans held for sale

Total assets at fair value

4 unchanged sentences

estimated fair value.

Loans considered impaired under ASC 310-10-35 Receivables,

prior to the adoption of ASC 326.

This amount reflects the recorded

investment in impaired loans, net of any related allowance

for loan losses.

Quantitative Disclosures for Level 3 Fair Value

At September 30, 2023 and December 31, 2022, the Company had no Level 3 assets

measured at fair value on a recurring

For Level 3 assets measured at fair value on a non-recurring basis at September

30, 2023 and and December 31,

2022, the significant unobservable inputs used in the fair value measurements and

the range of such inputs with respect to

such assets are presented below.

At March 31, 2024 and December 31, 2023, the Company had no Level 3 assets measured

at fair value on a recurring basis.

For Level 3 assets measured at fair value on a non-recurring basis at March 31, 2024

and December 31, 2023, the

significant unobservable inputs used in the fair value measurements and

the range of such inputs with respect to such assets

are presented below.

(Dollars in thousands)

1 unchanged sentence

Unobservable Input

September 30, 2023:

March 31, 2024:

Collateral dependent loans

5 unchanged sentences

December 31, 2023:

Impaired loans

Collateral dependent loans

Appraisal discounts

34 unchanged sentences

The fair value of loans was measured using an exit price notion.

Loans held for sale

Fair values of loans held for sale are determined using quoted secondary market

prices for similar loans.

Time Deposits

4 unchanged sentences

related estimated fair value, and placement in the fair value hierarchy of the Company’s

instruments at September 30, 2023 and December 31, 2022 are presented below.

This table excludes financial instruments

for which the carrying amount approximates fair value.

instruments at March 31, 2024 and December 31, 2023 are presented below.

This table excludes financial instruments for

which the carrying amount approximates fair value.

Financial assets for which fair value approximates carrying value

12 unchanged sentences

(Dollars in thousands)

September 30, 2023:

March 31, 2024:

Financial Assets:

Loans, net (1)

Loans held for sale

Financial Liabilities:

9 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements