What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-11 compared with 2023-05-31 · 301 added, 205 removed, 1010 unchanged (33% of the section changed)

2 unchanged sentences

Consolidated Financial Statements:

Consolidated Balance Sheets as of March 31, 2023 (Unaudited) , and December 31, 2022

Consolidated Statements of Income for the Three Months Ended March 31, 2023 , and March 31, 2022 (Unaudited)

Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2023 , and March 31, 2022 ( Unaudited)

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2023 , and March 31, 2022 (Unaudited)

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 , and March 31, 2022 (Un a u dited)

Consolidated Balance Sheets as of June 3 0 , 2023 (Unaudited), and December 31, 2022

Consolidated Statements of Income for the Three and Six Months Ended June 3 0 , 2023, and June 3 0 , 2022 (Unaudited)

Consolidated Statements of Comprehensive Income (Loss) for the Three a nd S ix Months Ended June 3 0 , 2023, and June 3 0 , 2022 (Unaudited)

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended June 3 0 , 2023, and June 3 0 , 2022 (Unaudited)

Consolidated Statements of Cash Flows for the Six Months Ended June 3 0 , 2023, and June 3 0 , 2022 (Unaudited)

Notes to the Consolidated Financial Statements (Unaudited)

4 unchanged sentences

Cash and due from banks $ 9,047 $ 9,124

Interest-bearing deposits with banks 106,323 41,171

Interest-earning deposits with banks 71,752 41,171

Cash and cash equivalents 80,799 50,295

3 unchanged sentences

Loans 2,000,969 1,887,221

Allowance for credit losses (a) ( 25,704 ) ( 21,039 )

Allowance for credit losses ( 25,919 ) ( 21,039 )

Net loans 1,975,050 1,866,182

19 unchanged sentences

$ 0.50 par value;

20,000,000 shares authorized and 8,000,000 issued at March 31, 2023, and December 31, 2022;

7,427,840 shares outstanding at March 31, 2023, and 7,425,760 shares outstanding at December 31, 2022

20,000,000 shares authorized and 8,000,000 issued at June 30, 2023, and December 31, 2022;

7,428,710 shares outstanding at June 30, 2023, and 7,425,760 shares outstanding at December 31, 2022

Additional paid-in capital 13,208 12,282

2 unchanged sentences

Treasury stock ( 27,584 ) ( 27,725 )

572,160 shares, at cost, at March 31, 2023, and 574,240 shares, at cost, at December 31, 2022

571,290 shares, at cost, at June 30, 2023, and 574,240 shares, at cost, at December 31, 2022

Total Shareholders’ Equity

2 unchanged sentences

$ 3,569,226 $ 3,562,898

(a) Amount at March 31, 2023, reflects the impact of adopting Accounting Standards update 2016-13 - Financial Instruments - Credit Losses, which is commonly referred to as the Current Expected Credit Losses (CECL) standard, and our transition from an incurred loss methodology for these reserves to an expected credit loss methodology.

Prior period amounts represent Allowance for Loan and Lease Losses (ALLL) under the incurred loss methodology.

See Note 1 - Nature of Business Activities and Significant Accounting Policies in Notes to Consolidated Financial Statements for additional information related to our adoption of this standard.

See Notes to Consolidated Financial Statements.

2 unchanged sentences

(In thousands, except share and per share data)

Three months ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Interest income

17 unchanged sentences

Net gains (losses) on securities ( 111 ) — ( 111 ) 104

Income from life insurance 560 537

Income from company-owned life insurance 571 542 1,131 1,079

Other non-interest income 1,119 831 1,801 1,367

10 unchanged sentences

821 1,900 1,405 3,833

$ 6,034 $ 10,397 $ 13,558 $ 19,523

Earnings per common share:

5 unchanged sentences

(In thousands, except share and per share data)

Three months ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Net income $ 6,034 $ 10,397 $ 13,558 $ 19,523

1 unchanged sentence

Unrealized gains (losses) on securities:

Unrealized gain (loss) arising during period, net of tax of ($ 4,577 ) for March 31, 2023, and $ 16,962 for March 31, 2022

Unrealized gain (loss) arising during period, net of tax of $ 1,397 and $ 12,302 for the three months ended June 30, 2023, and June 30, 2022, respectively, net of tax of ($ 3,180 ) and $ 29,263 for the six months ended June, 30, 2023, and June 30, 2022, respectively

( 5,254 ) ( 46,277 ) 11,964 ( 110,085 )

Reclassification adjustment for loss (gain) on securities, net of tax of $ — for March 31, 2023, and $ 22 for March 31, 2022

Reclassification adjustment for loss (gain) on a fair value hedge, net of tax of $ 496 for March 31, 2023, $ — for March 31, 2022

Reclassification adjustment for loss (gain) on securities, net of tax of ($ 23 ) and $ — for the three months ended June 30, 2023, and June 30, 2022, respectively, net of tax of ($ 23 ) and $ 22 for the six months ended June 30, 2023 and June 30, 2022, respectively

88 — 88 ( 82 )

Reclassification adjustment for loss (gain) on fair value hedge, net of tax of ($ 728 ) and $ — for the three months ended June 30, 2023, and June 30, 2022, respectively, net of tax of ($ 232 ) and $ — for the six months ended June 30, 2023, and June 30, 2022, respectively

2,739 — 873 —

Unrealized gain (loss) on cash flow hedge:

Unrealized holding gain (loss) on cash flow hedge, net of tax of ($ 13 ) for March 31, 2023, and $ 133 for March 31, 2022

Reclassification adjustment for losses (gains) included in net income, net of tax ($ 76 ) for March 31, 2023, and $ 16 for March 31, 2022

Unrealized holding gain (loss) on cash flow hedge, net of tax of $ 73 and $ 96 for the three months ended June 30, 2023, and June 30, 2022, respectively, net of tax of $ 61 and $ 230 for the six months ended June 30, 2023, and June 30, 2022, respectively

( 275 ) ( 362 ) ( 228 ) ( 865 )

Reclassification adjustment for losses (gains) included in net income, net of tax ($ 89 ) and $ 23 for the three months ended June 30, 2023, and June 30, 2022, respectively, net of tax of ($ 166 ) and $ 38 for the six months ended June 30, 2023, and June 30, 2022, respectively

334 ( 85 ) 621 ( 144 )

Total other comprehensive income (loss) ( 2,368 ) ( 46,724 ) 13,318 ( 111,176 )

4 unchanged sentences

Consolidated Statements of Changes in Shareholders’ Equity

For the Three Months Ended June 30, 2023 and 2022

(In thousands, except share and per share data)

5 unchanged sentences

Shares Outstanding Amount

Balance March 31, 2023 7,427,840 $ 4,000 $ 12,686 $ 424,532 $ ( 123,809 ) $ ( 27,626 ) $ 289,783

Net income 6,034 6,034

Other comprehensive income (loss) ( 2,368 ) ( 2,368 )

(Purchase) sale of treasury stock, net 870 42 42

Cash dividends, declared ( 3,936 ) ( 3,936 )

Share-based compensation expense, net 522 ( 5 ) 517

Balance June 30, 2023 7,428,710 $ 4,000 $ 13,208 $ 426,625 $ ( 126,177 ) $ ( 27,584 ) $ 290,072

Balance March 31, 2022 7,424,320 $ 4,000 $ 10,891 $ 401,311 $ ( 57,497 ) $ ( 27,795 ) $ 330,910

Net income 10,397 10,397

Other comprehensive income (loss) ( 46,724 ) ( 46,724 )

(Purchase) sale of treasury stock, net 1,440 69 69

Cash dividends, declared ( 3,936 ) ( 3,936 )

Share-based compensation expense, net 422 422

Balance June 30, 2022 7,425,760 $ 4,000 $ 11,313 $ 407,772 $ ( 104,221 ) $ ( 27,726 ) $ 291,138

See Notes to Consolidated Financial Statements.

Burke & Herbert Financial Services Corp.

Consolidated Statements of Changes in Shareholders’ Equity

For the Six Months Ended June 30, 2023 and 2022

(In thousands, except share and per share data)

Common Stock Additional Paid-in

Capital Retained

Earnings Comprehensive

Income (Loss) Treasury

Stock Shareholders’

Shares Outstanding Amount

Balance December 31, 2022 7,425,760 $ 4,000 $ 12,282 $ 424,391 $ ( 139,495 ) $ ( 27,725 ) $ 273,453

5 unchanged sentences

Share-based compensation expense, net 926 ( 13 ) 913

Balance March 31, 2023 7,427,840 $ 4,000 $ 12,686 $ 424,532 $ ( 123,809 ) $ ( 27,626 ) $ 289,783

Balance June 30, 2023 7,428,710 $ 4,000 $ 13,208 $ 426,625 $ ( 126,177 ) $ ( 27,584 ) $ 290,072

Balance December 31, 2021 7,423,760 $ 4,000 $ 10,374 $ 396,120 $ 6,955 $ ( 27,822 ) $ 389,627

4 unchanged sentences

Share-based compensation expense, net 939 939

Balance March 31, 2022 7,424,320 $ 4,000 $ 10,891 $ 401,311 $ ( 57,497 ) $ ( 27,795 ) $ 330,910

Balance June 30, 2022 7,425,760 $ 4,000 $ 11,313 $ 407,772 $ ( 104,221 ) $ ( 27,726 ) $ 291,138

See Notes to Consolidated Financial Statements.

2 unchanged sentences

(In thousands, except share and per share data)

Three months ended March 31,

Six Months Ended June 30,

Cash Flows from Operating Activities

3 unchanged sentences

Amortization of housing tax credits 2,796 3,073

Realized (gain) on sales of available-for-sale securities — ( 104 )

Realized loss (gain) on sales of available-for-sale securities 111 ( 104 )

Provision for (recapture of) credit losses 729 ( 5,176 )

12 unchanged sentences

(Increase) decrease in other assets 2,750 ( 968 )

Increase (decrease) in accrued interest payable and other liabilities 2,216 ( 896 )

Increase in accrued interest payable and other liabilities 656 1,761

Net cash flows provided by operating activities $ 22,864 $ 30,972

8 unchanged sentences

(Increase) in loans made to customers, net ( 113,748 ) ( 12,639 )

Net cash flows (used in) investing activities $ ( 30,997 ) $ ( 18,193 )

Net cash flows provided by (used in) investing activities $ 24,688 $ ( 69,674 )

Cash Flows from Financing Activities

Net increase (decrease) in non-interest-bearing accounts ( 84,296 ) 56,901

Net increase in interest-bearing accounts 165,960 5,567

(Decrease) in other short-term borrowings ( 21,400 ) ( 50,000 )

Net increase (decrease) in interest-bearing accounts 169,159 ( 29,896 )

Increase (decrease) in other short-term borrowings ( 94,100 ) 35,000

Repayment of finance lease liabilities ( 80 ) ( 76 )

1 unchanged sentence

Sale of treasury stock 141 96

Net cash flows provided by financing activities $ 86,715 $ ( 13,745 )

Increase (decrease) in cash and cash equivalents 66,644 ( 17,743 )

Net cash flows provided by (used in) financing activities $ ( 17,048 ) $ 54,154

Increase in cash and cash equivalents 30,504 15,452

Cash and cash equivalents

12 unchanged sentences

Lease liability arising from obtaining right-of-use assets — 502

Transfers from portfolio loans to loans held-for-sale — 19,594

Financing of sale from loan held-for-sale — 9,000

See Notes to Consolidated Financial Statements.

25 unchanged sentences

In the opinion of management, all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of operations in these financial statements, have been made.

The results of operations for the three months ended March 31, 2023, are not necessarily indicative of the results to be expected for any other interim period or for the full year.

The results of operations for the three and six months ended June 30, 2023, are not necessarily indicative of the results to be expected for any other interim period or for the full year.

All amounts and disclosures included in this quarterly report as of December 31, 2022, were derived from the Company’s audited consolidated financial statements.

11 unchanged sentences

of financial position as of the date of adoption.

The Company adopted this ASU on January 1, 2023, on a prospective basis;

The Company adopted this ASU on January 1, 2023;

therefore, there was no impact to the consolidated financial statements.

29 unchanged sentences

The Company did not record an ACL for securities upon adoption.

The Company elected not to measure an ACL for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on non-accrual status, which is generally when the instrument is 90 days past due, or

The Company elected not to measure an ACL for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on non-accrual status, which generally occurs when the instrument is 90 days past due,

Note 1— Nature of Business Activities and Significant Accounting Policies (continued)

earlier if the Company believes the collection of interest is doubtful.

or earlier if the Company believes the collection of interest is doubtful.

The Company has concluded that this policy results in the timely reversal of uncollectible interest.

15 unchanged sentences

Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

At March 31, 2023, there was no ACL related to the AFS security portfolio.

At June 30, 2023, there was no ACL related to the AFS security portfolio.

Refer to Note 2 - Securities in Notes to the Consolidated Financial Statements.

8 unchanged sentences

The Company is using a remaining useful life or weighted average remaining maturity (“WARM”) methodology to estimate its current expected credit losses.

For purposes of calculating reserves in collectively evaluated loans, ACL calculation segments the Company’s loan portfolio using federal call codes to group loans which share similar risk characteristics.

For purposes of calculating reserves in collectively evaluated loans, the ACL calculation segments the Company’s loan portfolio using federal call codes to group loans which share similar risk characteristics.

In order to generate reasonable and supportable forecasts of loss rates over a two-year period, the ACL calculation utilizes macroeconomic variable loss drivers, which may include aggregate macroeconomic indicators pertaining to such items as equity market conditions or interest rates, as well as other variables that are portfolio-specific,

28 unchanged sentences

The Company has elected to exclude accrued interest from the amortized cost basis in its determination of the ACL and elected the policy to write-off accrued interest receivable directly through the reversal of interest income.

Accrued interest receivable totaled $ 7.5 million on loans and totaled $ 7.9 million on AFS securities at March 31, 2023, and is included in accrued interest receivable on the Company’s Consolidated Balance Sheets.

Accrued interest receivable totaled $ 7.7 million on loans and totaled $ 7.4 million on AFS securities at June 30, 2023, and is included in accrued interest receivable on the Company’s Consolidated Balance Sheets.

Note 2— Securities

The carrying amount of AFS securities and their approximate fair values at March 31, 2023, and December 31, 2022, are summarized as follows (in thousands):

March 31, 2023

The carrying amount of AFS securities and their approximate fair values at June 30, 2023, and December 31, 2022, are summarized as follows (in thousands):

June 30, 2023

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

21 unchanged sentences

$ 1,537,420 $ 162 $ 165,825 $ 1,371,757

At March 31, 2023, and December 31, 2022, AFS securities with amortized costs of $ 799.3 million and $ 637.1 million, respectively, and with estimated fair values of $ 714.5 million and $ 552.5 million, respectively, were pledged to serve as collateral for secured borrowings, derivative exposures, or to secure public deposits as required or permitted by law.

As of March 31, 2023, the Company entered into a fair value hedge using the portfolio layer method that is described in further detail within Note 9 - Derivatives .

The gross realized gains, realized losses, and proceeds from the sales of securities for the three months ended March 31, 2023, and March 31, 2022, were as follows (in thousands):

March 31, 2023 March 31, 2022

At June 30, 2023, and December 31, 2022, AFS securities with amortized costs of $ 834.8 million and $ 637.1 million, respectively, and with estimated fair values of $ 735.5 million and $ 552.5 million, respectively, were pledged to serve as collateral for secured borrowings, derivative exposures, or to secure public deposits as required or permitted by law.

The gross realized gains, realized losses, and proceeds from the sales of securities for the six months ended June 30, 2023, and June 30, 2022, were as follows (in thousands):

June 30, 2023 June 30, 2022

Gross realized gains $ 773 $ 727

1 unchanged sentence

Proceeds from sales of securities 77,780 87,033

The tax benefit (provision) related to these net realized gains and losses for March 31, 2023, and March 31, 2022, was zero , and $ 21.8 thousand, respectively.

The maturities of AFS securities at March 31, 2023, were as follows (in thousands):

The tax benefit (provision) related to these net realized gains and losses for June 30, 2023, and June 30, 2022, was $ 23.3 thousand, and ($ 21.8 ) thousand, respectively.

The maturities of AFS securities at June 30, 2023, were as follows (in thousands):

(Expected maturities of securities not due at a single maturity date are based on average life at estimated prepayment speed.

Expected maturities may differ from

Expected maturities may differ from contractual maturities because borrowers have the right to call or prepay some obligations with or without call or prepayment penalties).

Note 2— Securities (continued)

contractual maturities because borrowers have the right to call or prepay some obligations with or without call or prepayment penalties).

March 31, 2023

June 30, 2023

Amortized Cost

10 unchanged sentences

$ 105,665 $ 463,737 $ 615,595 $ 217,603 $ 1,402,600

March 31, 2023

June 30, 2023

One Year or Less One to Five Years Five to Ten Years After Ten Years Total

9 unchanged sentences

$ 102,003 $ 438,142 $ 538,874 $ 173,171 $ 1,252,190

At March 31, 2023, and December 31, 2022, there were no holdings of securities of any one issuer, other than the U.S.

At June 30, 2023, and December 31, 2022, there were no holdings of securities of any one issuer, other than the U.S.

Government and its agencies, in any amount greater than 10% of shareholders’ equity.

Note 2— Securities (continued)

The following table shows the gross unrealized losses and fair value of the Company’s securities with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2023, and December 31, 2022.

AFS securities in a continuous unrealized loss position for less than twelve months and more than twelve months are as follows (in thousands):

March 31, 2023

June 30, 2023

Less Than Twelve Months More Than Twelve Months

34 unchanged sentences

is recognized in earnings, subsequent improvements to the expectation of collectability will be recognized through the ACL.

If the fair value of the security increases above its amortized cost, the unrealized gain will be recorded in accumulated other comprehensive income, net of taxes, on the consolidated statements of financial condition.

If the fair value of the security increases above its amortized cost, the unrealized gain will be recorded in accumulated other comprehensive income, net of taxes, in the consolidated statements of financial condition.

Prior to implementation of the CECL standard, unrealized losses caused by a credit event would require the direct write-down of the AFS security through the other-than-temporary impairment approach.

The Company did not record an ACL on the AFS securities at March 31, 2023, or upon implementation of CECL on January 1, 2023.

As of both periods, the Company considers the unrealized losses on the AFS securities to be related to fluctuations in market conditions, primarily interest rates, and not reflective of deterioration in credit.

The Company had 451 securities in an unrealized loss position as of March 31, 2023.

The Company has evaluated available-for-sale securities in an unrealized loss position for credit related impairment at March 31, 2023, and concluded no impairment existed based on a combination of factors, which included:

The Company did not record an ACL on the AFS securities at June 30, 2023.

The Company considers the unrealized losses on the AFS securities to be related to fluctuations in market conditions, primarily interest rates, and not reflective of deterioration in credit.

The Company had 402 securities in an unrealized loss position as of June 30, 2023.

The Company has evaluated AFS securities in an unrealized loss position for credit related impairment at June 30, 2023, and concluded no impairment existed based on a combination of factors, which included:

(1) the securities are of high credit quality, (2) unrealized losses are primarily the result of market volatility and increases in market interest rates, (3) the contractual terms of the investments do not permit the issuer(s) to settle the securities at a price less than the par value of each investment, (4) issuers continue to make timely principal and interest payments, and (5) the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis.

As such, there was no ACL on available-for-sale securities at March 31, 2023.

As such, there was no ACL on AFS securities at June 30, 2023.

Securities of U.S.

Treasury and Federal Agencies and Federal Agency Mortgage (Residential and Commercial) Backed Securities

At March 31, 2023, the unrealized losses associated with 12 U.S.

At June 30, 2023, the unrealized losses associated with 12 U.S.

Treasuries and Government Agency securities, 16 Residential Mortgage Backed – Agency securities, and 16 Commercial Mortgage Backed – Agency securities were generally driven by changes in interest rates and not due to credit losses given the explicit or implicit guarantees provided by the U.S.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at March 31, 2023.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2023.

Securities of U.S.

States and Municipalities

At March 31, 2023, the unrealized losses associated with 214 State and Municipal securities were primarily caused by changes in interest rates and not the credit quality of the securities.

At June 30, 2023, the unrealized losses associated with 202 State and Municipal securities were primarily caused by changes in interest rates and not the credit quality of the securities.

These securities are investment grade and were generally underwritten in accordance with our own investment standards prior to the decision to purchase, without relying on a bond insurer’s guarantee in making the investment decision.

1 unchanged sentence

As a result, we expect to recover the entire amortized cost basis of these securities.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at March 31, 2023.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2023.

Residential & Commercial Mortgage Backed – Non-Agency Securities

At March 31, 2023, the unrealized losses associated with 108 Residential Mortgage Backed – Non-Agency securities and 36 Commercial Mortgage Backed – Non-Agency securities were generally driven by changes in interest rates, credit spreads, and projected collateral losses.

At June 30, 2023, the unrealized losses associated with 96 Residential Mortgage Backed – Non-Agency securities and 34 Commercial Mortgage Backed – Non-Agency securities were generally driven by changes in interest rates, credit spreads, and projected collateral losses.

We assess for credit impairment by estimating the present value of expected cash flows.

1 unchanged sentence

Based on our assessment of the expected credit losses and the credit enhancement level of the securities, we expect to recover the entire amortized cost of these securities.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at March 31, 2023.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2023.

Asset-Backed Securities

At March 31, 2023, the unrealized losses associated with 28 Asset-Backed securities were generally driven by changes in interest rates, credit spreads, and projected collateral losses.

At June 30, 2023, the unrealized losses associated with 23 Asset-Backed securities were generally driven by changes in interest rates, credit spreads, and projected collateral losses.

We assess for credit impairment by estimating the present value of expected cash flows.

1 unchanged sentence

Based on our assessment of the expected credit losses and the credit enhancement level of the securities, we expect to recover the entire amortized cost of these securities.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at March 31, 2023.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2023.

Note 2— Securities (continued)

Other Securities

At March 31, 2023, the unrealized losses associated with 3 securities were primarily driven by interest rates and not the credit quality of the securities.

These investments are underwritten in accordance with our own investment standards prior to the decision to purchase, without relying on a bond insurer’s guarantee in making the investment decision.

At June 30, 2023, the unrealized losses associated with 3 securities were primarily driven by interest rates and not the credit quality of the securities.

These investments were underwritten in accordance with our own investment standards prior to the decision to purchase, without relying on a bond insurer’s guarantee in making the investment decision.

Based on our assessment of the expected credit losses, we expect to recover the entire amortized cost basis of the securities.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at March 31, 2023.

Therefore, the Company has concluded that the unrealized losses for these securities do not require an ACL at June 30, 2023.

Restricted stock, at cost

The Company’s investment in Federal Home Loan Bank (“FHLB”) stock totaled $ 9.1 million and $ 16.4 million at March 31, 2023, and December 31, 2022, respectively.

The Company’s investment in Federal Home Loan Bank (“FHLB”) stock totaled $ 3.9 million and $ 16.4 million at June 30, 2023, and December 31, 2022, respectively.

FHLB stock is generally viewed as a long-term investment and as a restricted investment security, which is carried at cost, because there is no market for the stock other than the FHLB or member institutions.

Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.

The Company does not consider this investment to be impaired at March 31, 2023, and no impairment has been recognized.

The Company does not consider this investment to be impaired at June 30, 2023, and no impairment has been recognized.

FHLB stock is included in a separate line item Restricted stock, at cost on the Consolidated Balance Sheets and is not part of the Company’s AFS securities portfolio.

The Company’s Restricted stock line item on the Consolidated Balance Sheets also includes an investment in Community Bankers’ Bank, totaling $ 50 thousand at both March 31, 2023, and December 31, 2022, which is carried at cost and is not impaired at March 31, 2023.

The Company’s Restricted stock line item on the Consolidated Balance Sheets also includes an investment in Community Bankers’ Bank, totaling $ 50 thousand at both June 30, 2023, and December 31, 2022, which is carried at cost and is not impaired at June 30, 2023.

Note 3— Loans

4 unchanged sentences

• Owner-occupied commercial real estate loans carry risk associated with the operations of the business that occupies the property and the value of the collateral.

• Acquisition, construction and development loans carry risk associated with the credit-worthiness of the borrower, project completion within budget, sale after completion, and the value of the collateral.

• Acquisition, construction & development loans carry risk associated with the credit-worthiness of the borrower, project completion within budget, sale after completion, and the value of the collateral.

• Commercial & industrial loans carry the risk associated with the operations of the business and the value of the collateral, if any.

3 unchanged sentences

Note 3— Loans (continued)

Loan balances at March 31, 2023, and December 31, 2022, by portfolio segment were as follows (in thousands):

March 31, 2023 December 31, 2022

Loan balances at June 30, 2023, and December 31, 2022, by portfolio segment were as follows (in thousands):

June 30, 2023 December 31, 2022

Commercial real estate $ 1,198,840 $ 1,109,315

7 unchanged sentences

Loans, net $ 1,975,050 $ 1,866,182

Net deferred loan fees included in the above loan categories totaled $ 3.3 million and $ 3.3 million at March 31, 2023, and December 31, 2022, respectively.

The Company holds $ 6.4 million and $ 7.9 million in Paycheck Protection Program (“PPP”) loans, net of deferred fees and costs as of March 31, 2023, and December 31, 2022, respectively.

Net deferred loan fees included in the above loan categories totaled $ 3.4 million and $ 3.3 million at June 30, 2023, and December 31, 2022, respectively.

The Company holds $ 5.7 million and $ 7.9 million in Paycheck Protection Program (“PPP”) loans, net of deferred fees and costs as of June 30, 2023, and December 31, 2022, respectively.

Note 4— Allowance for Credit Losses

1 unchanged sentence

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables.

For further discussion on the Company’s accounting policies and policy elections related to the accounting standards update refer to Note 1 - Nature of B usiness Activities and Significant Accounting Policies in these Notes to Consolidated Financial Statements.

All information presented as of March 31, 2023, is in accordance with ASC 326.

For further discussion on the Company’s accounting policies and policy elections related to the accounting standards update refer to Note 1 - Nature of Business Activities and Significant Accounting Policies in these Notes to Consolidated Financial Statements.

All information presented as of June 30, 2023, is in accordance with ASC 326.

All other information presented prior to January 1, 2023, is in accordance with previous applicable GAAP.

7 unchanged sentences

Based on management’s analysis, adjustments may be applied for additional factors impacting the risk of loss in the loan portfolio beyond the information that is used to calculate a reasonable and supportable forecast and a reversion period forecast on collectively evaluated loans.

Management may consider an additional or reduced reserve as warranted through qualitative risk factors based on the current and expected conditions, as measured in supplemental information relative to the macroeconomic variable loss drivers used to calculate a reasonable and supportable forecast and a reversion period

Note 4— Allowance for Credit Losses (continued)

These qualitative risk factors considered by management are largely comparable to legacy factors prior to the adoption of CECL.

The following table presents the activity in the ACL, including the impact of the adoption of CECL, for the three months ended March 31, 2023, and the activity for the allowance for loan losses for the three months ended March 31, 2022 (in thousands).

Note 4— Allowance for Credit Losses (continued)

The following tables presents the activity in the ACL, including the impact of the adoption of CECL, for the three months and six months ended June 30, 2023, and the activity for the allowance for loan losses for the three months and six months ended June 30, 2022 (in thousands).

Commercial real estate Owner-occupied commercial real estate Acquisition, construction & development Commercial & industrial Single family residential (1-4 units) Consumer non-real estate and other Unallocated Total

Three months ended

March 31, 2023

June 30, 2023

Balance, beginning of period $ 18,409 $ 556 $ 1,852 $ 700 $ 4,030 $ 157 $ — $ 25,704

Provision for (recapture of) credit losses 227 163 ( 533 ) ( 59 ) 487 25 — 310

Charge-offs — — — ( 29 ) — ( 75 ) — ( 104 )

Recoveries 3 — — — 3 3 — 9

Balance, end of period $ 18,639 $ 719 $ 1,319 $ 612 $ 4,520 $ 110 $ — $ 25,919

June 30, 2022

Balance, beginning of period $ 22,773 $ 663 $ 2,316 $ 113 $ 1,451 $ 14 $ 1,731 $ 29,061

Provision for (recapture of) loan losses ( 3,968 ) 61 1,291 101 ( 49 ) 26 — ( 2,538 )

Charge-offs ( 3,261 ) — — — — ( 27 ) — ( 3,288 )

Recoveries 4 — — — 117 6 — 127

Balance, end of period $ 15,548 $ 724 $ 3,607 $ 214 $ 1,519 $ 19 $ 1,731 $ 23,362

Six months ended

June 30, 2023

Beginning balance, prior to adoption of CECL $ 15,477 $ 635 $ 2,082 $ 438 $ 2,379 $ 28 $ — $ 21,039

4 unchanged sentences

Balance, end of period $ 18,639 $ 719 $ 1,319 $ 612 $ 4,520 $ 110 $ — $ 25,919

March 31, 2022

June 30, 2022

Balance, beginning of period $ 25,112 $ 611 $ 2,189 $ 165 $ 2,434 $ 18 $ 1,180 $ 31,709

3 unchanged sentences

Balance, end of period $ 15,548 $ 724 $ 3,607 $ 214 $ 1,519 $ 19 $ 1,731 $ 23,362

Note 4— Allowance for Credit Losses (continued)

The information presented in the table below is not required for periods after the adoption of CECL.

12 unchanged sentences

Impaired loans included loans on non-accrual status and accruing TDRs.

Note 4— Allowance for Credit Losses (continued)

factors as the borrower’s current financial statements, an analysis of the global cash flow sufficient to pay all debt obligations, and an evaluation of secondary sources of repayment, such as guarantor support and collateral value.

When determining if the Company would be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considered the borrower’s capacity to pay, which included such factors as the borrower’s current financial statements, an analysis of the global cash flow sufficient to pay all debt obligations, and an evaluation of secondary sources of repayment, such as guarantor support and collateral value.

The following table presents information related to impaired loans (in thousands) by portfolio segment as of December 31, 2022:

18 unchanged sentences

(1) Cash basis interest income recognized approximates interest income recognized shown as of the twelve months ended December 31, 2022.

Note 4— Allowance for Credit Losses (continued)

The recorded investment in loans excludes accrued interest receivable and loan origination fees, net due to immateriality.

The following table presents the aging of the recorded investment in past due loans as of March 31, 2023, and December 31, 2022, by portfolio segment (in thousands):

March 31, 2023

The following table presents the aging of the recorded investment in past due loans as of June 30, 2023, and December 31, 2022, by portfolio segment (in thousands):

June 30, 2023

30 - 59 Days Past Due 60 - 89 Days Past Due 90 Days or More Past Due Total Past Due Current Loans Total Loans 90 Days Past Due & Still Accruing Non-accrual loans

15 unchanged sentences

Total $ 1,403 $ 158 $ 546 $ 2,107 $ 1,885,114 $ 1,887,221 $ — $ 5,497

Note 4— Allowance for Credit Losses (continued)

Credit Quality Indicators

16 unchanged sentences

While there may be the possibility of some recovery in the future, it is not practical or desirable to defer writing off these loans at the present time.

Note 4— Allowance for Credit Losses (continued)

The Company has a portfolio of smaller homogenous loans that are not individually risk rated that are included within the single family residential and consumer non-real estate and other loan classes.

Generally, these loan classes are rated in a “Pass” unless these loans are on non-accrual and are then classified as substandard.

The following table presents the amortized cost basis of the loan portfolio, by year of origination, loan class, and credit quality, as of March 31, 2023 (in thousands):

Generally, these loan classes are rated as “Pass” unless these loans are on non-accrual and are then classified as substandard.

The following table presents the amortized cost basis of the loan portfolio, by year of origination, loan class, and credit quality, as of June 30, 2023 (in thousands):

2023 2022 2021 2020 2019 Prior Revolving Loans Total

6 unchanged sentences

Total $ 109,677 $ 284,407 $ 217,324 $ 24,134 $ 84,288 $ 474,035 $ 4,975 $ 1,198,840

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ —

Year to date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ —

Owner-occupied commercial real estate

5 unchanged sentences

Total $ 2,569 $ 30,300 $ 9,622 $ 15,225 $ 13,021 $ 49,194 $ 4,535 $ 124,466

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ —

Note 4— Allowance for Credit Losses (continued)

Year to date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ —

Acquisition, construction & development

5 unchanged sentences

Total $ 2,941 $ 26,843 $ 14,504 $ — $ 779 $ 46,053 $ 1,610 $ 92,730

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ —

Year to date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ —

Commercial & industrial

5 unchanged sentences

Total $ 19,732 $ 17,575 $ 8,041 $ 523 $ 41 $ 1,595 $ 11,635 $ 59,142

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ —

Year to date gross charge-offs $ — $ — $ — $ 29 $ — $ — $ — $ 29

Single family residential (1-4 units)

5 unchanged sentences

Total $ 55,068 $ 130,556 $ 62,272 $ 32,897 $ 41,566 $ 149,501 $ 51,084 $ 522,944

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ —

Year to date gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ —

Note 4— Allowance for Credit Losses (continued)

Consumer non-real estate and other

5 unchanged sentences

Total $ 227 $ 270 $ 161 $ 248 $ 435 $ 397 $ 1,109 $ 2,847

Current period gross charge-offs $ — $ 17 $ — $ — $ — $ — $ — $ 17

Year to date gross charge-offs $ 92 $ — $ — $ — $ — $ — $ — $ 92

The value of outstanding loans by credit quality indicators as of December 31, 2022 were as follows (in thousands):

8 unchanged sentences

Total $ 1,752,599 $ 65,761 $ 68,861 $ — $ — $ 1,887,221

Note 4— Allowance for Credit Losses (continued)

The following tables present information about collateral dependent loans that were individually evaluated for purposes of determining the ACL as of March 31, 2023 (in thousands):

The following tables present information about collateral-dependent loans that were individually evaluated for purposes of determining the ACL as of June 30, 2023 (in thousands):

Collateral-Dependent Loans

1 unchanged sentence

Amortized Cost Related Allowance Amortized Cost Amortized Cost Related Allowance

March 31, 2023

June 30, 2023

Commercial real estate $ — $ — $ — $ — $ —

12 unchanged sentences

The Company may also provide multiple types of modifications on an individual loan.

For the three months ended March 31, 2023, the Company did not extend any modifications to borrowers experiencing financial difficulty that had a more-than-insignificant direct change in the contractual cash flows of the loan.

For the three and six months ended June 30, 2023, the Company did not extend any modifications to

Note 4— Allowance for Credit Losses (continued)

borrowers experiencing financial difficulty that had a more-than-insignificant direct change in the contractual cash flows of the loan.

The Company did not extend any modifications that were defined as TDRs during the year ended December 31, 2022.

Note 5— Deposits

The aggregate amount of time deposits, each with a minimum denomination of $250,000, was approximately $ 35.7 million and $ 32.6 million on March 31, 2023, and December 31, 2022, respectively.

Brokered time deposits totaled $ 389.2 million at March 31, 2023.

There were $ 100.3 million in brokered time deposits at December 31, 2022.

Time deposits through the Certificate of Deposit Account Registry Service (“CDARS”) program totaled $ 13.1 million at March 31, 2023, compared to $ 11.7 million at December 31, 2022.

At March 31, 2023, the scheduled maturities of time deposits for the remaining nine months ending December 31, 2023 and the following five years were as follows (in thousands):

As of March 31, 2023

Remaining nine months ending, December 31, 2023 $ 130,833

Note 5— Deposits (continued)

At March 31, 2023, and December 31, 2022, amounts included in time deposits for individual retirement accounts totaled $ 35.2 million and $ 36.9 million, respectively.

Overdrafts of $ 277 thousand and $ 503 thousand were reclassified to loans as of the three months ended March 31, 2023, and the year ended December 31, 2022, respectively.

The aggregate amount of time deposits, each with a minimum denomination of $250,000, was approximately $ 48.5 million and $ 32.6 million on June 30, 2023, and December 31, 2022, respectively.

Brokered time deposits totaled $ 389.1 million and $ 100.3 million as of June 30, 2023, and December 31, 2022, respectively.

Time deposits through the Certificate of Deposit Account Registry Service (“CDARS”) program totaled $ 18.8 million at June 30, 2023, compared to $ 11.7 million at December 31, 2022.

At June 30, 2023, the scheduled maturities of time deposits for the remaining six months ending December 31, 2023 and the following five years were as follows (in thousands):

As of June 30, 2023

Remaining six months ending, December 31, 2023 $ 99,479

Total $ 634,044

At June 30, 2023, and December 31, 2022, amounts included in time deposits for individual retirement accounts totaled $ 32.0 million and $ 36.9 million, respectively.

Overdrafts of $ 102 thousand and $ 503 thousand were reclassified to loans as of June 30, 2023, and the year ended December 31, 2022, respectively.

Note 6— Advances and Other Borrowings

The Company had borrowings of $ 321.7 million and $ 343.1 million at March 31, 2023, and December 31, 2022, respectively.

At March 31, 2023, the interest rate on this debt ranged from 4.38 % to 4.88 %.

The Company had borrowings of $ 249.0 million and $ 343.1 million at June 30, 2023, and December 31, 2022, respectively.

At June 30, 2023, the interest rate on this debt ranged from 4.38 % to 5.20 %.

At December 31, 2022, the interest rate on this debt ranged from 4.13 % to 4.57 %.

The average balance outstanding during the three months ending March 31, 2023, and the year ending December 31, 2022, was $ 358.1 million and $ 269.5 million, respectively.

The average balance outstanding during the six months ending June 30, 2023, and the year ending December 31, 2022, was $ 257.2 million and $ 269.5 million, respectively.

The Company’s short-term borrowings from time-to-time may consist of advances from the FHLB of Atlanta, unsecured lines from Correspondent Banks, and secured lines from the Federal Discount Window.

The Company has available lines of credit with the FHLB of Atlanta and unsecured federal funds lines of credit from correspondent banking relationships.

Through these sources, the Company has unused capacity of $ 809.1 million in remaining borrowing capacity as of March 31, 2023.

Through these sources, the Company has unused capacity of $ 959.0 million in remaining borrowing capacity as of June 30, 2023.

The Advances on credit lines are secured by both securities and loans.

The amount of securities and loans pledged against available lines of credit as of March 31, 2023, and December 31, 2022, was $ 620.7 million and $ 698.1 million, respectively.

The contractual maturities of this debt as of March 31, 2023, are as follows (in thousands):

The amount of securities and loans pledged against available lines of credit as of June 30, 2023, and December 31, 2022, was $ 782.9 million and $ 698.1 million, respectively.

As of June 30, 2023, all of the Company’s borrowings will mature within one calendar year.

The contractual maturities of these borrowings as of June 30, 2023, are as follows (in thousands):

Due in 2023 $ 49,000

Due in 2024 200,000

Total $ 249,000

Note 7— Leased Property

2 unchanged sentences

These operating leases are typically payable in monthly installments with terms ranging from around two years to around twelve years and may contain renewal options.

The components of lease income, which was included in non-interest expense on the Consolidated Statements of Income, were as follows for the three months ended (in thousands):

March 31, 2023 March 31, 2022

The components of lease income, which was included in non-interest expense on the Consolidated Statements of Income, were as follows (in thousands):

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Operating lease income $ 575 $ 43 $ 1,150 $ 86

Total lease income $ 575 $ 43 $ 1,150 $ 86

The remaining maturities of operating lease receivables as of March 31, 2023, are as follows (in thousands):

The remaining maturities of operating lease receivables as of June 30, 2023, are as follows (in thousands):

Operating Leases

Remaining nine months ending December 31, 2023 $ 1,726

Remaining six months ending December 31, 2023 $ 1,151

Thereafter 3,783

Total lease receivables $ 12,514

Note 7— Leased Property (continued)

Lessee Arrangements

8 unchanged sentences

Right-of-use assets and liabilities by lease type, and the associated balance sheet classifications are as follows (in thousands):

Balance Sheet Classification March 31, 2023 December 31, 2022

Balance Sheet Classification June 30, 2023 December 31, 2022

Right-of-use assets:

6 unchanged sentences

Total lease liabilities $ 8,503 $ 10,337

The components of total lease cost were as follows for the period ending (in thousands):

March 31, 2023 March 31, 2022

Note 7— Leased Property (continued)

The components of total lease cost were as follows (in thousands):

Three months ended June 30, Six months ended June 30,

2023 2022 2023 2022

Finance lease cost

3 unchanged sentences

Total lease cost $ 905 $ 661 $ 1,799 $ 1,329

Note 7— Leased Property (continued)

The Company’s future undiscounted lease payments for finance and operating leases with initial terms of one year or more as of March 31, 2023, are as follows (in thousands):

The Company’s future undiscounted lease payments for finance and operating leases with initial terms of one year or more as of June 30, 2023, are as follows (in thousands):

Operating Leases Finance Leases

Remaining nine months ending December 31, 2023 $ 2,606 $ 165

Remaining six months ending December 31, 2023 $ 1,591 $ 110

2024 2,305 224

3 unchanged sentences

Net lease liabilities $ 5,837 $ 2,666

The following table presents additional information about the Company’s leases as of March 31, 2023, and December 31, 2022.

Supplemental lease information (dollars in thousands) March 31, 2023 December 31, 2022

The following table presents additional information about the Company’s leases as of June 30, 2023, and December 31, 2022.

Supplemental lease information (dollars in thousands) June 30, 2023 December 31, 2022

Finance lease weighted average remaining lease term (years) 12.26 12.76

2 unchanged sentences

Operating lease weighted average discount rate 3.06 % 3.19 %

Cash paid for amounts included in the measurement of lease liabilities March 31, 2023 March 31, 2022

Cash paid for amounts included in the measurement of lease liabilities June 30, 2023 June 30, 2022

Operating cash flows from operating leases $ 1,739 $ 1,238

11 unchanged sentences

The net unrealized gain or loss on AFS securities is not included in computing regulatory capital.

Management believes as of March 31, 2023, the Company and the Bank meet all capital adequacy requirements to which they are subject.

Note 8— Regulatory Capital Matters (continued)

Management believes as of June 30, 2023, the Company and the Bank meet all capital adequacy requirements to which they are subject.

“Prompt corrective action” regulations provide five classifications:

2 unchanged sentences

If “undercapitalized”, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required.

As of March 31, 2023, and December 31, 2022, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for “prompt corrective action”.

The following table presents the actual and required capital amounts and ratios for the Company and the Bank at March 31, 2023, and December 31, 2022 (in thousands except for ratios).

Note 8— Regulatory Capital Matters (continued)

As of June 30, 2023, and December 31, 2022, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for “prompt corrective action”.

The following table presents the actual and required capital amounts and ratios for the Company and the Bank at June 30, 2023, and December 31, 2022 (in thousands except for ratios).

Actual Minimum Required for Capital Adequacy Purposes (includes applicable Capital Conservation Buffer) To Be Well Capitalized Under Prompt Corrective Action Regulations

Amount Ratio Amount Ratio Amount Ratio

As of March 31, 2023

As of June 30, 2023

Total Capital to risk weighted assets

41 unchanged sentences

Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.

As of March 31, 2023, approximately $ 188.5 million of retained earnings was available for dividend declaration without regulatory approval.

As of June 30, 2023, approximately $ 190.8 million of retained earnings was available for dividend declaration without regulatory approval.

Note 9— Derivatives

2 unchanged sentences

The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements.

Note 9— Derivatives (continued)

Cash flow hedges of interest rate risk

3 unchanged sentences

Interest rate floors designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for an up-front premium.

During the first quarter of 2023, such derivatives were used to hedge the variable cash flows associated with variable-rate assets.

Note 9— Derivatives (continued)

During 2023, such derivatives were used to hedge the variable cash flows associated with variable-rate assets.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in AOCI and subsequently reclassified into interest income in the same period(s) during which the hedged transaction affects earnings.

6 unchanged sentences

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in interest income.

As of March 31, 2023, the following amounts were recorded on the balance sheet related to the cumulative basis adjustment for fair value hedges (in thousands):

As of June 30, 2023, the following amounts were recorded on the balance sheet related to the cumulative basis adjustment for fair value hedges (in thousands):

Line Item in the Statement of Financial Position in Which the Hedged Item is Included Carrying Amount of the Hedged Assets/(Liabilities) Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets/(Liabilities)

March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022

Securities available-for-sale, at fair value (1)

2 unchanged sentences

(1) These amounts include the amortized cost basis of closed portfolios of AFS securities used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the designated hedged period.

At March 31, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $ 302.4 million;

the cumulative basis adjustments associated with these hedging relationships was $ 2.4 million;

and the amounts of the designated hedged items were $ 300.0 million.

At June 30, 2023, the amortized cost basis of the closed portfolios used in these hedging relationships was $ 298.9 million and the cumulative basis adjustments associated with these hedging relationships was $ 1.1 million.

(2) The entire balance represents the hedging adjustment on a voluntary discontinued hedging relationship.

The Company has allocated the basis adjustment to the remaining individual assets in the closed portfolio and will amortize the basis adjustment over a period consistent with amortization of other discounts or premiums on the assets.

Derivatives not designated as hedges

4 unchanged sentences

Changes in the fair value of interest rate swaps are recorded in other non-interest expense and sum to zero because of offsetting terms of swaps with borrowers and swaps with dealer counterparties.

The table below presents the fair value of the Company’s derivative financial instruments, which includes accrued interest, as well as their classification on the Consolidated Balance Sheets as of March 31, 2023, and December 31, 2022 (in thousands):

March 31, 2023

Note 9— Derivatives (continued)

The table below presents the fair value of the Company’s derivative financial instruments, which includes accrued interest, as well as their classification on the Consolidated Balance Sheets as of June 30, 2023, and December 31, 2022 (in thousands):

June 30, 2023

Balance Sheet Location Notional Amount Fair Value

1 unchanged sentence

Interest rate swaps related to cash flow hedges Other liabilities $ 50,000 $ 1,836

Interest rate swaps related to fair value hedges Other liabilities 300,000 2,283

Derivatives not designated as hedges:

1 unchanged sentence

Interest rate swaps related to customer loans Other liabilities 66,709 1,740

Note 9— Derivatives (continued)

December 31, 2022

2 unchanged sentences

Interest rate swaps related to cash flow hedges Other liabilities $ 50,000 $ 2,254

Interest rate swaps related to fair value hedges N/A — —

Derivatives not designated as hedges:

1 unchanged sentence

Interest rate swaps related to customer loans Other liabilities 34,674 1,311

The table below presents the effect of cash flow hedge accounting on AOCI for the three months ended March 31, 2023, and March 31, 2022, as follows (in thousands):

The table below presents the effect of cash flow hedge accounting on AOCI for the three months ended June 30, 2023, and June 30, 2022, as follows (in thousands):

Derivatives in Cash Flow

Hedging Relationships March 31, 2023 Location of Gain or (Loss) Reclassified from AOCI into Income March 31, 2023

Hedging Relationships June 30, 2023 Location of Gain or (Loss) Reclassified from AOCI into Income June 30, 2023

Amount of Gain or (Loss) Recognized in OCI on Derivative

3 unchanged sentences

Derivatives in Cash Flow

Hedging Relationships March 31, 2022 Location of Gain or (Loss) Reclassified from AOCI into Income March 31, 2022

Hedging Relationships June 30, 2022 Location of Gain or (Loss) Reclassified from AOCI into Income June 30, 2022

Amount of Gain or (Loss) Recognized in OCI on Derivative

3 unchanged sentences

Note 9— Derivatives (continued)

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income as of March 31, 2023, and March 31, 2022.

The table below presents the effect of cash flow hedge accounting on AOCI for the six months ended June 30, 2023, and June 30, 2022, as follows (in thousands):

Derivatives in Cash Flow

Hedging Relationships June 30, 2023 Location of Gain or (Loss) Reclassified from AOCI into Income June 30, 2023

Amount of Gain or (Loss) Recognized in OCI on Derivative

Amount of Gain or (Loss) Recognized in OCI Included Component Amount of Gain or (Loss) Recognized in OCI Excluded Component Amount of Gain or (Loss) Reclassified from AOCI into Income Amount of Gain or (Loss) Reclassified from AOCI into Income Included Component Amount of Gain or (Loss) Reclassified from AOCI into Income Excluded Component

Interest Rate Products $ ( 289 ) $ ( 289 ) $ — Interest Income $ ( 786 ) $ ( 786 ) $ —

Total $ ( 289 ) $ ( 289 ) $ — $ ( 786 ) $ ( 786 ) $ —

Derivatives in Cash Flow

Hedging Relationships June 30, 2022 Location of Gain or (Loss) Reclassified from AOCI into Income June 30, 2022

Amount of Gain or (Loss) Recognized in OCI on Derivative

Interest Rate Products $ ( 1,095 ) $ ( 1,095 ) $ — Interest Income $ 182 $ 182 $ —

Total $ ( 1,095 ) $ ( 1,095 ) $ — $ 182 $ 182 $ —

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income for the three and six months ended June 30, 2023, and June 30, 2022.

Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships

March 31, 2023 March 31, 2022

Three months ended

June 30, 2023 June 30, 2022

Interest Income Interest Expense Interest Income Interest Expense

12 unchanged sentences

Amount of gain or (loss) reclassified from AOCI into income - excluded component — — — —

Note 9— Derivatives (continued)

Location and Amount of Gain or (Loss) Recognized in Income on Fair Value and Cash Flow Hedging Relationships

Six months ended

June 30, 2023 June 30, 2022

Interest Income Interest Expense Interest Income Interest Expense

Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded.

$ ( 1,117 ) $ — $ 182 $ —

The effects of fair value and cash flow hedging:

Gain or (loss) on fair value hedging relationships in Subtopic 815-20

Interest contracts

Hedged items ( 1,106 ) — — —

Derivatives designated as hedging instruments 776 — — —

Gain or (loss) on cash flow hedging relationships in Subtopic 815-20

Interest contracts

Amount of gain or (loss) reclassified from AOCI into income ( 786 ) — 182 —

Amount of gain or (loss) reclassified from AOCI into income as a result that a forecasted transaction is no longer probable of occurring — — — —

Amount of gain or (loss) reclassified from AOCI into income - included component ( 786 ) — 182 —

Amount of gain or (loss) reclassified from AOCI into income - excluded component — — — —

Credit-risk-related Contingent Features

As of March 31, 2023, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk related to these agreements, was $ 4.1 million.

As of March 31, 2023, the Company has posted the full amount of collateral related to these agreements.

As of June 30, 2023, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for non-performance risk related to these agreements, was $ 1.8 million.

As of June 30, 2023, the Company has posted the full amount of collateral related to these agreements.

Note 10— Commitments and Contingencies

3 unchanged sentences

The Company has elected the fair value option (“FVO”) on both the best-efforts forward commitments and the consumer mortgage loans held-for-sale in order to economically hedge the effect of changes in interest rates resulting from the commitment to fund the loans.

The net gains (losses) relating to the free-standing derivative instruments (interest rate lock commitments) were $ 4.2 thousand and $( 74.5 ) thousand at March 31, 2023, and March 31, 2022.

The notional amount of loan pipeline that resulted in interest rate lock commitments at March 31, 2023, and March 31, 2022, was $ 838 thousand and $ 1.4 million, respectively.

Interest Rate lock commitments are not designated as hedging instruments, and therefore, changes in the fair value of these free-standing derivative instruments are reported as non-interest income.

2 unchanged sentences

These financial instruments include commitments to extend credit, commercial letters of credit, and revolving lines of credit.

Note 10— Commitments and Contingencies (continued)

Many of our lending relationships contain both funded and unfunded elements.

2 unchanged sentences

Since many of our commitments to extend credit may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash flow requirements.

A summary of the contractual amounts of the Company’s financial instruments outstanding at March 31, 2023, and December 31, 2022, is as follows (in thousands):

March 31, 2023 December 31, 2022

Note 10— Commitments and Contingencies (continued)

A summary of the contractual amounts of the Company’s financial instruments outstanding at June 30, 2023, and December 31, 2022, is as follows (in thousands):

June 30, 2023 December 31, 2022

Commitments to extend credit $ 247,319 $ 291,265

5 unchanged sentences

Allowance for credit losses - off-balance-sheet credit exposures

The Company recorded a recapture of credit losses on unfunded commitments of $ 7.5 thousand for the three months ended March 31, 2023.

The ACL on off-balance-sheet credit totaled $ 267.3 thousand at March 31, 2023, and is included in accrued interest and other liabilities on the accompanying Consolidated Balance Sheets.

The Company recorded a recapture of credit losses on unfunded commitments of $ 97.3 thousand for the three months ended June 30, 2023, and a recapture of credit losses on unfunded commitments of $ 104.7 thousand for the six months ended June 30, 2023.

The ACL on off-balance-sheet credit totaled $ 170.0 thousand at June 30, 2023, and is included in accrued interest and other liabilities on the accompanying Consolidated Balance Sheets.

The Company is a party to litigation, claims, and proceedings arising in the normal course of business that are ordinary and routine to the nature of the Company’s business and operations.

10 unchanged sentences

In instances in which multiple levels of inputs are used to measure fair value, hierarchy classification is based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company’s assessment of the significance of

Note 11— Fair Value Measurements (continued)

a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The Company used the following methods and significant assumptions to estimate fair value:

2 unchanged sentences

For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing.

Matrix pricing is a mathematical technique commonly used to price debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on securities’ relationship to other benchmark quoted securities (Level 2 inputs).

Note 11— Fair Value Measurements (continued)

quoted securities (Level 2 inputs).

For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

7 unchanged sentences

These loans currently consist of one-to-four family residential loans originated for sale in the secondary market.

Note 11— Fair Value Measurements (continued)

Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):

Fair Value Measurements at March 31, 2023 Using:

Fair Value Measurements at June 30, 2023 Using:

Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs

13 unchanged sentences

Derivatives $ — $ 1,740 $ — $ 1,740

Note 11— Fair Value Measurements (continued)

Financial liabilities

18 unchanged sentences

Derivatives $ — $ 3,565 $ — $ 3,565

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements:

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a non-recurring basis in the financial statements:

Individually evaluated loans

Upon the adoption of CECL, loans individually evaluated for credit expected losses included non-accrual loans and other loans that do not share similar risk characteristics to loans in the CECL loan pools and have been classified as Level 3.

Individually evaluated loans with an allocation to the ACL are measured at fair value on a nonrecurring basis.

Any fair value adjustments are recorded in the period incurred as provision for credit losses on the Consolidated Statements of Income.

Individually evaluated loans with an allocation to the ACL are measured at fair value on a non-recurring basis.

Note 11— Fair Value Measurements (continued)

value adjustments are recorded in the period incurred as provision for credit losses on the Consolidated Statements of Income.

Prior to adoption of CECL and ASU 2022-02, which eliminated the TDR accounting model, loans were designated as impaired when, in the judgment of management and based on current information and events, it was probable that all amounts due, according to the contractual terms of the loan agreement, would not be collected.

9 unchanged sentences

Assets acquired through foreclosure or other proceedings are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.

These assets are subsequently accounted for at lower of cost or fair value less estimated costs

Note 11— Fair Value Measurements (continued)

These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell.

Fair value is commonly based on recent real estate appraisals, which are updated no less frequently than annually.

Any fair value adjustments are recorded in the period incurred and expensed against current earnings.

Assets that were measured at fair value on a nonrecurring basis during the period are summarized below (in thousands):

Fair Value Measurements at March 31, 2023 Using:

Assets that were measured at fair value on a non-recurring basis during the period are summarized below (in thousands):

Fair Value Measurements at June 30, 2023 Using:

Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs

8 unchanged sentences

Other real estate owned — — — —

Note 11— Fair Value Measurements (continued)

Fair Value Measurements at December 31, 2022 Using:

9 unchanged sentences

Other real estate owned — — — —

The following table presents quantitative information about Level 3 Fair Value Measurements for assets measured at fair value on a non-recurring basis at March 31, 2023, and December 31, 2022 (in thousands except for percentages):

The following table presents quantitative information about Level 3 Fair Value Measurements for assets measured at fair value on a non-recurring basis at June 30, 2023, and December 31, 2022 (in thousands except for percentages):

Description Fair Value Valuation Techniques Unobservable Inputs Range Weighted Average

March 31, 2023

June 30, 2023

Impaired loans $ 3,883 Discounted cash flow analysis Market rate for borrower 3.6 % - 8.5 %

1 unchanged sentence

Impaired loans $ 2,496 Discounted cash flow analysis Market rate for borrower 4.5 % - 6.0 %

Note 11— Fair Value Measurements (continued)

Fair value of financial instruments

The carrying amounts and estimated fair values of financial instruments not carried at fair value, at March 31, 2023, and December 31, 2022, were as follows (in thousands):

Fair Value Measurements at March 31, 2023 Using:

The carrying amounts and estimated fair values of financial instruments not carried at fair value, at June 30, 2023, and December 31, 2022, were as follows (in thousands):

Fair Value Measurements at June 30, 2023 Using:

Carrying Amount Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs

2 unchanged sentences

Cash and due from banks $ 9,047 $ 9,047 $ — $ — $ 9,047

Interest-bearing deposits with banks 106,323 106,323 — — 106,323

Interest-earning deposits with banks 71,752 71,752 — — 71,752

Loans, net 1,975,050 — — 1,834,415 1,834,415

5 unchanged sentences

Accrued interest 3,832 — 3,832 — 3,832

Note 11— Fair Value Measurements (continued)

Fair Value Measurements at December 31, 2022 Using:

12 unchanged sentences

Note 12— Accumulated Other Comprehensive Income (Loss)

The following table presents changes in accumulated other comprehensive income (loss) by component, net of tax, for the periods ending March 31, 2023, and March 31, 2022 (in thousands):

March 31, 2023

The following table presents changes in accumulated other comprehensive income (loss) by component, net of tax, for the three and six months ended June 30, 2023, and June 30, 2022 (in thousands):

Three months ended June 30, 2023

Gains and Losses on Cash Flow Hedges Unrealized Gains and Losses on Available-for-Sale Securities Defined Benefit Pension Items Accumulated Other Comprehensive Income

4 unchanged sentences

Ending Balance $ ( 1,196 ) $ ( 117,950 ) $ ( 7,031 ) $ ( 126,177 )

March 31, 2022

Three months ended June 30, 2022

Gains and Losses on Cash Flow Hedges Unrealized Gains and Losses on Available-for-Sale Securities Defined Benefit Pension Items Accumulated Other Comprehensive Income

4 unchanged sentences

Ending Balance $ ( 1,009 ) $ ( 97,192 ) $ ( 6,020 ) $ ( 104,221 )

The following table presents amounts reclassified out of each component of accumulated other comprehensive income (loss) for the periods ending March 31, 2023, and December 31, 2022 (in thousands).

Note 12— Accumulated Other Comprehensive Income (Loss) (continued)

Six months ended June 30, 2023

Gains and Losses on Cash Flow Hedges Unrealized Gains and Losses on Available-for-Sale Securities Defined Benefit Pension Items Accumulated Other Comprehensive Income

Beginning Balance $ ( 1,589 ) $ ( 130,875 ) $ ( 7,031 ) $ ( 139,495 )

Net unrealized gains (losses) ( 228 ) 11,964 — 11,736

net realized (gains) losses reclassified to earnings 621 961 — 1,582

Net change in pension plan benefits — — — —

Ending Balance $ ( 1,196 ) $ ( 117,950 ) $ ( 7,031 ) $ ( 126,177 )

Six months ended June 30, 2022

Gains and Losses on Cash Flow Hedges Unrealized Gains and Losses on Available-for-Sale Securities Defined Benefit Pension Items Accumulated Other Comprehensive Income

Beginning Balance $ — $ 12,975 $ ( 6,020 ) $ 6,955

Net unrealized gains (losses) ( 865 ) ( 110,085 ) — ( 110,950 )

net realized (gains) losses reclassified to earnings ( 144 ) ( 82 ) — ( 226 )

Net change in pension plan benefits — — — —

Ending Balance $ ( 1,009 ) $ ( 97,192 ) $ ( 6,020 ) $ ( 104,221 )

The following table presents amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2023, and June 30, 2022 (in thousands).

Details about Accumulated Other Comprehensive Income Components Amount Reclassified From Accumulated Other Comprehensive Income Affected Line Item in the Statements of Income

March 31, 2023 March 31, 2022

Three months ended Six months ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Cash flow hedges:

9 unchanged sentences

Note 13— Other Operating Expense

Other operating expense from the Consolidated Statements of Income for the three months ended March 31, 2023, and March 31, 2022, is as follows (in thousands):

Three months ended

Other operating expense from the Consolidated Statements of Income for the three and six months ended June 30, 2023, and June 30, 2022, is as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

FDIC assessment $ 686 $ 345 $ 1,033 $ 680

12 unchanged sentences

The Company has a share-based incentive plan described below that allows it to offer a variety of equity compensation awards subject to approval.

Total compensation cost that has been charged against income for the share-based awards granted was $ 580.6 thousand and $ 506.2 thousand for the three months ended March 31, 2023, and March 31, 2022, respectively.

The total income tax benefit was $ 121.9 thousand and $ 106.3 thousand for the three months ended March 31, 2023, and March 31, 2022, respectively.

Total compensation cost that has been charged against income for the share-based awards granted was $ 607.2 thousand and $ 492.8 thousand for the three months ended June 30, 2023, and June 30, 2022, respectively.

The total income tax benefit was $ 127.5 thousand and $ 103.5 thousand for the three months ended June 30, 2023, and June 30, 2022, respectively.

Total compensation cost that has been charged against income for the share-based awards granted was $ 1.2 million and $ 999 thousand for the six months ended June 30, 2023, and June 30, 2022, respectively.

The total income tax benefit was $ 249.4 thousand and $ 209.8 thousand for the six months ended June 30, 2023, and June 30, 2022, respectively.

2019 Stock Incentive Plan

7 unchanged sentences

Compensation expense is recognized over the vesting period of the awards based on the fair value of the award at grant date.

A total of 24,705 and 12,160 shares were issued during the three months ended March 31, 2023, and March 31, 2022, respectively.

A total of 24,705 and 13,160 shares were issued during the six months ended June 30, 2023, and June 30, 2022, respectively.

For time-based RSUs, the fair value was determined by using the closing stock price on the date prior to the grant date.

5 unchanged sentences

The market capitalization target will be determined by the Board.

Note 14— Share-Based Compensation (continued)

The fair value for performance-based RSU awards was determined by using a Monte Carlo simulation analysis to estimate the achievement of the market capitalization target determined by the Board.

1 unchanged sentence

(1) expected term, (2) expected volatility, (3) risk-free rate, and (4) dividend yield.

The expected term

Note 14— Share-Based Compensation (continued)

was based on the stated performance period.

The expected term was based on the stated performance period.

Management used the expected volatility from a peer group.

3 unchanged sentences

The following is a summary of the Company’s RSU awards:

Nonvested Shares Shares Weighted-Average Grant-Date Fair Value

Nonvested at December 31, 2022 122,440 $ 48.00

Non-vested Shares Shares Weighted-Average Grant-Date Fair Value

Non-vested at December 31, 2022 122,440 $ 48.00

Granted 24,705 67.81

1 unchanged sentence

Forfeited — —

Nonvested at March 31, 2023 144,025 $ 51.34

As of March 31, 2023, there was $ 4.7 million of total unrecognized compensation costs related to nonvested shares granted under the 2019 SIP.

Non-vested at June 30, 2023 142,585 $ 51.24

As of June 30, 2023, there was $ 4.1 million of total unrecognized compensation costs related to non-vested shares granted under the 2019 SIP.

The cost is expected to be recognized over a weighted average period of 1.85 years.

4 unchanged sentences

The 2023 SIP authorized the issuance of 250,000 shares, subject to an annual increase in available shares.

As of March 31, 2023, no share-based awards have been issued under the 2023 SIP.

As of June 30, 2023, no share-based awards have been issued under the 2023 SIP.

Note 15— Earnings Per Share

3 unchanged sentences

Dilutive potential Common Stock has no effect on income available to common shareholders.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2023 2022 2023 2022

Net income (in thousands) $ 6,034 $ 10,397 $ 13,558 $ 19,523

4 unchanged sentences

Diluted EPS 0.80 1.39 1.80 2.62

Stock awards equivalent to zero and zero shares of Common Stock were not considered in computing diluted earnings per common share for March 31, 2023, and March 31, 2022, respectively, because they were antidilutive.

Stock awards equivalent to zero and 890 shares of Common Stock were not considered in computing diluted earnings per common share for the three months ended June 30, 2023, and June 30, 2022, respectively, because they were antidilutive.

Stock awards equivalent to zero and zero shares of Common Stock were not considered in computing diluted earnings per share for the six months ended June 30, 2023, and June 30, 2022, respectively, because they were antidilutive.

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