What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-11 compared with 2023-05-31 · 323 added, 144 removed, 478 unchanged (49% of the section changed)

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The following discussion and analysis of our consolidated financial condition and results of operations of the Company should be read in conjunction with the preceding consolidated financial statements and notes presented in Item 1.

Financial Statements of this Form 10-Q, as well as with the audited consolidated financial statements and notes for the year ended December 31, 2022, included in our Registration Statement on Form 10 filed with the SEC on February 28, 2023, as amended on April 4, 2023, April 20, 2023, and April 21, 2023, and as declared as effective by the SEC on April 21, 2023.

Historical results of operations and the percentage relationships among any amounts included and any trends that may appear may not indicate trends in operations or results of operations for any future periods.

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We caution readers not to place undue reliance on these statements as a number of important factors could cause the actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates, and intentions expressed in such forward-looking statements.

Important risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of the Company, as applicable, to be materially different from any expected future results, performance, or achievements expressed or implied by such forward-looking information and statements include, but are not limited to, the risks described in Par t II, Item 1A .

Risk Factors in this Form 10-Q.

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In order to maintain its operations and branch locations, the Bank incurs various operating expenses which are further described within the “Results of Operations” later in this section.

As of March 31, 2023, we had total consolidated assets of $3.7 billion, gross loans of $2.0 billion, total deposits of $3.0 billion, and total shareholders’ equity of $289.8 million.

As of March 31, 2023, we had 411 full-time employees.

As of June 30, 2023, we had total consolidated assets of $3.6 billion, gross loans of $2.0 billion, total deposits of $3.0 billion, and total shareholders’ equity of $290.1 million.

As of June 30, 2023, we had 407 full-time employees.

None of our employees are covered by a collective bargaining agreement.

Recent Events in the Financial Services Industry

During March 2023, the FDIC placed two large financial institutions under receivership, marking the third and fourth largest bank failures in U.S.

history, primarily due to liquidity concerns.

In May 2023, another financial institution failed that became the second largest bank failure in U.S.

All of the deposits and substantially all of the assets of that institution were assumed by another financial institution.

These failures have caused general uncertainty and concern regarding the adequacy of liquidity in the banking sector as a whole.

Uncertainty may be compounded by the reach and depth of media attention, including social media, and its ability to disseminate concerns or rumors about any events of these kinds or other similar risks, and has in the past and may in the future lead to market-wide liquidity problems.

These failures underscore the importance of maintaining diversified sources of funding as key measures to ensure the safety and soundness of a financial institution.

While the Company did not experience significant unusual deposit withdrawals related to these recent events, we cannot be assured that similar unusual deposit withdrawal activity will not affect banks generally or affect our Bank in the future.

The heightened focus on liquidity across the banking industry will continue to add to the already increasing competition for deposits as a source of core balance sheet funding, which is expected to cause the cost of funds at banks to continue to rise in the near-term.

Should financial institutions experience shortfalls in core funding, the use of alternative sources of liquidity would most likely cause a further increase in funding costs, placing additional pressure on overall bank profitability across the sector.

In response to events that occurred during the months of March and May 2023 and the attendant stress on economic agents, including various financial stock markets, the Company took multiple proactive measures to mitigate any potential financial and operational impacts.

In response to the bank failures that occurred during March and May 2023 and the attendant stress on economic agents, including various financial stock markets, the Company took multiple proactive measures to mitigate any potential financial and operational impacts.

Such measures included, but were not limited to:

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• stress testing of liquidity and capital metrics based on observed financial conditions with particular emphasis on the causes of such risk events.

For further discussion see Item 1A, under the caption “Risk Factors” in our Registration Statement on Form 10 filed with the SEC on February 28, 2023, and as amended, and declared effective by the SEC on April 21, 2023.

The measures taken

followed meetings convened by a subcommittee provided for in our Asset/Liability policy more fully described in Item 3 .- Quantitative and Qualitative Disclosures About Market Risk – M a r k e t R i s k .

For further discussion see Item 1A, under the caption “Risk Factors” in our Registration Statement.

The measures taken followed meetings convened by a subcommittee provided for in our Asset/Liability policy more fully described in Item 3.- Quantitative and Qualitative Disclosures About Market Risk – Market Risk .

The Company’s key inputs and certain assumptions of the stress testing included, but were not limited to, uninsured deposits, deposit composition and deposit flows, borrowings and borrowing capacity, interest rate movements and sensitivity, unrealized losses in the investment securities portfolio, loan balances and loan demand, credit risks, and current allowances for credit losses.

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The Company intends to continue conducting such stress tests on an interim basis.

As of the date of this filing, the Company believes that the recent events described herein will not have a material impact to the Company’s financial position.

Critical Accounting Policies and Estimates

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In particular, management has identified several accounting policies that, due to the estimates, assumptions, and judgments inherent in those policies, are critical in understanding our financial statements.

The more critical accounting estimates include accounting for credit losses and valuation methodologies.

The more critical accounting estimates include

accounting for credit losses and valuation methodologies.

Additional disclosures regarding the effects of new pronouncements, ASU 2016-13 and ASU 2022-02, are included in this report in Note 1, Nature of Business Activities and Significant Accounting Policies , to the consolidated financial statements under Part 1, Item 1 , “Financial Information.”

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The liability portion of the balance sheet provides liquidity through interest-bearing and non-interest-bearing deposit accounts and through FHLB and other borrowings.

Brokered deposits, federal funds purchased, securities sold under agreements to repurchase, and other short-term borrowings are additional sources of liquidity and basically represent the

Company’s incremental borrowing capacity.

Brokered deposits, federal funds purchased, securities sold under agreements to repurchase, and other short-term borrowings are additional sources of liquidity and basically represent the Company’s incremental borrowing capacity.

These sources of liquidity are used as necessary to fund asset growth and meet short-term liquidity needs.

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In July 2013, the Federal Reserve published the final rules that established a new comprehensive capital framework for banking organizations, commonly referred to as Basel III.

These final rules substantially revised the risk-based capital requirements applicable to bank holding companies and depository institutions.

These final rules substantially revised the risk-based capital

requirements applicable to bank holding companies and depository institutions.

The final rule became effective January 1, 2015, for smaller, non-complex banking organizations with full implementation by January 1, 2019.

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A depository institution that is not “well capitalized” is generally prohibited from accepting brokered deposits and offering interest rates on deposits higher than the prevailing rate in its market, may be subject to asset growth limitations, and may be required to submit capital restoration plans.

As of March 31, 2023, and December 31, 2022, the Bank complied with all regulatory capital standards and qualifies as “well capitalized”.

As of June 30, 2023, and December 31, 2022, the Bank complied with all regulatory capital standards and qualifies as “well capitalized”.

Note 8 - Regulatory Capital Matters in Notes to Consolidated Financial Statements contains additional discussion and analysis regarding the Company and the Bank’s regulatory capital requirements.

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The majority of assets and liabilities of a financial institution are monetary in nature;

therefore, a financial institution differs greatly from most commercial and industrial companies, which have significant investments in fixed assets or

inventories that are greatly impacted by inflation.

therefore, a financial institution differs greatly from most commercial and industrial companies, which have significant investments in fixed assets or inventories that are greatly impacted by inflation.

However, inflation does have an important impact on the growth of total assets in the banking industry and the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity-to-assets ratio.

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The extent of such impacts may vary depending on factors such as the current business and economic conditions, political and regulatory environment, and operational challenges.

Many of these risks and our risk management strategies are described in more detail elsewhere in this Report as well as with the audited consolidated financial statements and notes for the year ended December 31, 2022, included in our Registration Statement on Form 10 filed with the SEC on February 28, 2023, as amended on April 4, 2023, April 20, 2023, and April 21, 2023, and as declared as effective by the SEC on April 21, 2023.

Our success will depend upon, among other things, the following factors that we manage or control:

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The impact of these items, where material, is discussed in the applicable sections of this Management’s Discussion and Analysis of Financial Condition and Results of Operation.

For additional information on the risks we face, see Par t II, Item 1A .

For additional information on the risks we face, see Part II, Item 1A.

- Risk Factors.

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The following table contains selected historical consolidated financial data as of the dates and for the periods shown.

The selected balance sheet data as of March 31, 2023, and December 31, 2022, and the selected income statement data for the three months ended March 31, 2023, and March 31, 2022, have been derived from our consolidated financial statements included elsewhere in this Form 10-Q and should be read in conjunction with the other information contained in this Form 10-Q.

(In thousands, except ratios, share and per share data) March 31, 2023 December 31, 2022

The selected balance sheet data as of June 30, 2023, and June 30, 2022, and the selected income statement data for the three months and six months ended June 30, 2023, and June 30, 2022, have been derived from our consolidated financial statements included elsewhere in this Form 10-Q and should be read in conjunction with the other information contained in this Form 10-Q.

As of the Three Months Ended June 30, As of the Six Months Ended June 30,

(In thousands, except ratios, share and per share data) 2023 2022 2023 2022

Selected Financial Condition Data:

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Total shareholders’ equity 290,072 291,138 290,072 291,138

As of or for the Three Months Ended March 31,

As of or for the Three Months Ended June 30,

As of or for the Six Months Ended June 30,

2023 2022 2023 2022

Selected Operating Data:

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Book value (at period end) $ 39.05 $ 39.21 $ 39.05 $ 39.21

As of or for the Three Months Ended March 31,

As of or for the Three Months Ended June 30,

As of or for the Six Months Ended June 30,

2023 2022 2023 2022

Performance Ratios:

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Interest rate spread (2)

2.25 3.10 2.41 2.97

Net interest margin (3)

2.87 3.15 2.96 3.02

Efficiency ratio (4)

75.12 67.61 72.66 68.50

Capital Ratios:

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Total risk-based capital to risk-weighted assets (5)

18.71 19.16 18.71 19.16

Tier 1 capital to risk-weighted assets (5)

17.60 18.09 17.60 18.09

Tier 1 capital to average assets (5)

11.20 10.94 11.20 10.94

Average equity to average assets (5)

8.01 8.69 7.93 9.55

Asset Quality Ratios:

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Results of Operations

Results of Operations for the Three Months Ended March 31, 2023 and 2022

Consolidated net income for the three months ended March 31, 2023, was $7.5 million compared to $9.1 million earned during the three months ended March 31, 2022.

The $1.6 million, or 17.6%, decrease in net income is primarily the result of increases in non-interest expense and provision for credit losses offset by the increase in net interest income and lower income tax expense.

Net interest income increased by $1.3 million to $24.8 million for the three months ended March 31, 2023, compared to $23.5 million for the three months ended March 31, 2022.

The main drivers for this increase were balance sheet growth, specifically in loans, and higher interest rates offset by higher funding costs on both our deposits and borrowings.

For the three months ended March 31, 2023, the Company recorded credit loss expense of $0.5 million compared to a recapture of provision losses of $2.6 million.

For the three months ended March 31, 2022, the Company was able to recapture provision that was booked to reflect the uncertainty of the COVID-19 pandemic.

For the current period, the adoption of CECL, which requires the Company to estimate provision of credit losses using an expected life-time approach versus an incurred model along with increased loan portfolio balances resulted in a higher credit expense for the three months ended March 31, 2023 compared to the three months ended, March 31, 2022.

Non-interest income increased by $99 thousand, or 2.4%, to $4.2 million for the three months ended March 31, 2023, as compared to $4.1 million for the three months ended March 31, 2022.

The increase in non-interest income was primarily due to dividend income from FHLB stock that increased by $102 thousand and was offset by a lower servicing release premium of $37 thousand recognized in the three months ended March 31, 2023, compared to March 31, 2022.

Non-interest expense increased by $1.2 million, or 6.3%, to $20.4 million for the three months ended March 31, 2023, as compared to $19.2 million for the three months ended March 31, 2022.

The increase was primarily due to fees of $287 thousand paid by the Company due to entering into interest rate swaps designated as fair value hedges and higher legal and audit fees of $345 thousand arising from the filing of our initial Registration Statement.

Results of Operations for the Six Months Ended June 30, 2023, and 2022

Consolidated net income for the six months ended June 30, 2023, was $13.6 million compared to $19.5 million earned during the six months ended June 30, 2022.

The $6.0 million, or 30.6%, decrease in net income is primarily the result of a large recapture of provision expense in the first half of 2022.

Net interest income decreased by $0.5 million to $48.6 million for the six months ended June 30, 2023, compared to $49.1 million for the six months ended June 30, 2022.

The main driver for this decrease was higher deposit and borrowing interest expense, partially offset by higher interest income due to balance sheet growth in loans.

For the six months ended June 30, 2023, the Company recorded credit loss expense of $0.7 million compared to a recapture of provision of $5.2 million for the six months ended June 30, 2022.

For the six months ended June 30, 2022, the Company was able to recapture a provision that was booked to reflect the uncertainty of the COVID-19 pandemic and the sale of a non-performing loan note.

This non-performing loan had a specific reserve prior to the sale of the note.

For the current period, the adoption of CECL (which requires the Company to estimate provision of credit losses using an expected life-

time loss approach versus an incurred model), along with increased loan portfolio balances resulted in a higher credit expense for the six months ended June 30, 2023, compared to the six months ended, June 30, 2022.

Non-interest income increased by $0.2 million, or 2.6%, to $8.8 million for the six months ended June 30, 2023, as compared to $8.6 million for the six months ended June 30, 2022.

The increase in non-interest income was primarily due to increases in other non-interest income, including dividend income from FHLB stock that increased by $258 thousand and income from loan swap fees of $342 thousand, which were offset by a decrease in other non-interest income items of $138 thousand and a lower servicing release premium of $31 thousand in the six months ended June 30, 2023, as compared to the six months ended June 30, 2022.

Non-interest expense increased by $2.2 million, or 5.5%, to $41.7 million for the six months ended June 30, 2023, as compared to $39.5 million for the six months ended June 30, 2022.

The increase was primarily due to higher salaries and employee benefits and higher legal, consulting, and audit fees arising from the filing of our initial Registration Statement and our other required filings.

Net Interest Income and Net Interest Margin

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Interest rate risk is managed by monitoring the pricing, maturity and repricing options of all classes of interest-bearing assets and liabilities.

Net interest income totaled $24.8 million for the three months ended March 31, 2023, compared to $23.5 million for the three months ended March 31, 2022.

The increase in net interest income was primarily driven by a higher volume of interest-bearing assets and higher interest rates offset by higher volume of interest-bearing liabilities and higher interest rates.

Loan interest income was the primary driver of increased net interest income due to both volume and rate.

This increase in interest income was offset by the increased cost of funding through both deposits and borrowings.

The increased pace of rate hikes from the Federal Reserve has resulted in higher deposit rates to retain depositors and increased the cost of borrowings from the FHLB and the Federal Reserve.

The tax-adjusted net interest margin was 3.06% for the three months ended March 31, 2023, compared to 2.89% for the three months ended March 31, 2022.

The increase in tax-adjusted net interest margin was primarily driven by the increase in market rates which increased the yield earned on marketable securities and our loan portfolio.

However, this increase on the interest income was offset by a much faster increase in rates paid on the deposit portfolio and on our borrowings, resulting in a decrease in our net interest spread.

The yield for the three months ended March 31, 2023, for the loan portfolio was 4.81% compared to 3.80% for the three months ended March 31, 2022.

Net interest income totaled $48.6 million for the six months ended June 30, 2023, compared to $49.1 million for the six months ended June 30, 2022.

The decrease in net interest income was primarily driven primarily by higher interest rates and slightly higher average balances on interest-bearing liabilities, mostly offset by higher interest rates on interest-earning assets.

A significant increase in cost of funds for both interest-bearing deposits and borrowed funds was the primary driver of the increase in interest expense.

This increase in interest expense was mostly offset by a substantial increase in interest income from securities and loans along with an increase in the volume of loans.

However, the increased pace of rate hikes from the Federal Reserve has resulted in higher deposit rates to retain depositors and increased the cost of borrowings from the FHLB and the Federal Reserve.

The tax-adjusted net interest margin was 2.96% for the six months ended June 30, 2023, compared to 3.02% for the six months ended June 30, 2022.

The decrease in tax-adjusted net interest margin was primarily driven by the increase in market rates that increased the cost of deposits and other borrowings in excess of the increase in interest income from interest-earning assets.

The yield for the loan portfolio was 4.94% for the six months ended June 30, 2023, compared to 3.89% for the six months ended June 30, 2022.

The increase was primarily the result of increasing loan production with higher interest rates in a rising rate environment.

For the three months ended March 31, 2023, the tax-adjusted yield on the total investment securities portfolio was 3.45% compared to 2.18% for the three months ended March 31, 2022.

The increase was primarily due to higher market interest rates which increased the effective rate earned on investment securities.

The rate paid on interest-bearing deposits increased to 1.09% during the three months ended March 31, 2023, from 0.08% during the three months ended March 31, 2022.

The tax-adjusted yield on the total investment securities portfolio was 3.45% for the six months ended June 30, 2023, compared to 2.35% for the six months ended June 30, 2022.

The increase was primarily due to higher market interest rates that increased the effective rate earned on investment securities and reduced the fair value of these investment securities.

The rate paid on interest-bearing deposits increased to 1.50% during the six months ended June 30, 2023, from 0.08% during the six months ended June 30, 2022.

The increase was a result of market and economic conditions, which led to an increase in our offering rate for selected parts of our deposit portfolio.

Increases in deposit rates rose at a faster pace due to the the increases in the Federal Funds Rate that occurred in the second half of 2022.

Increases in deposit rates rose at a faster pace due to the increases in the Federal Funds Rate that occurred in the second half of 2022.

Continuing increases by the Federal Reserve and in the market rates may negatively impact our cost of funds rate.

The rate paid on FHLB and other borrowings for the three months ended March 31, 2023, was 4.70% compared to 0.60% for the corresponding period in 2022.

The increase was due to the increase in short-term borrowing costs, driven by increases in the Federal Funds Rate during the year that may continue to increase our overall borrowing costs.

The following table sets forth the major components of net interest income and the related yields and rates for the three months ended March 31, 2023, and March 31, 2022, for comparison (dollars in thousands).

For the Three Months Ended March 31,

The rate paid on our borrowings for the six months ended June 30, 2023, was 4.66%, compared to 0.71% for the corresponding period in 2022.

The increase was due to the increase in short-term borrowing costs, driven by increases in the Federal Funds Rate during the year.

Further increases in the Federal Funds Rate may continue to increase our overall borrowing costs.

The following table sets forth the major components of net interest income and the related yields and rates for the six months ended June 30, 2023, and June 30, 2022, for comparison (dollars in thousands).

For the Six Months Ended June 30,

Average Outstanding Balance Interest Income/Expense Rate Earned/Paid Average Outstanding Balance Interest Income/Expense Rate Earned/Paid

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$ 1,961,309 $ 48,060 4.94 % $ 1,755,586 $ 33,868 3.89 %

Interest-earning deposits and fed funds sold 59,107 1,296 4.42 54,189 106 0.39

Taxable securities 1,065,868 19,221 3.64 1,169,064 11,930 2.06

Tax-exempt securities (3)

269,575 3,629 2.71 384,387 6,190 3.25

Total securities 1,335,443 22,850 3.45 1,553,451 18,120 2.35

Total interest-earning assets 3,355,859 72,206 4.34 3,363,226 52,094 3.12

Non-interest-earning assets 250,483 210,966

Total assets $ 3,606,342 $ 3,574,192

Liabilities and shareholders’ equity:

Non-interest-bearing demand $ 901,297 $ 956,026

Interest-bearing demand 563,405 763 0.27 % 596,217 69 0.02 %

Savings 998,826 6,872 1.39 1,124,898 386 0.07

Time 510,912 7,796 3.08 273,617 314 0.23

Total interest-bearing deposits 2,073,143 15,431 1.50 1,994,732 769 0.08

Total deposits 2,974,440 15,431 1.05 2,950,758 769 0.05

FHLB advances and other 322,157 7,447 4.66 261,788 923 0.71

Total interest-bearing liabilities 2,395,300 22,878 1.93 2,256,520 1,692 0.15

Non-interest-bearing liabilities 23,749 20,401

Equity 285,996 341,245

Total liabilities and equity $ 3,606,342 $ 3,574,192

Taxable-equivalent net interest income /net interest spread (4)

49,328 2.41 % 50,402 2.97 %

Taxable-equivalent net interest margin (5)

2.96 % 3.02 %

Taxable-equivalent net adjustment (762) (1,300)

Net interest income $ 48,566 $ 49,102

Net interest-earning assets $ 960,559 $ 1,106,706

(1) Non-accrual loans are included in average loan balances.

(2) Loan fees are included in the calculation of interest income.

(3) Yields and interest income on tax-exempt assets are computed on a taxable-equivalent basis assuming a 21% tax rate.

(4) The interest rate spread represents the difference between the fully taxable-equivalent weighted-average yield on interest-earning assets and the weighted-average cost of interest-bearing liabilities for the period.

(5) The net interest margin represents fully taxable-equivalent net interest income as a percent of average interest-earning assets for the period.

Taxable-equivalent net interest margin, as presented above, is calculated by dividing fully tax-equivalent (“FTE”) net interest income by total average earning assets.

Net interest income, on an FTE basis, is a non-GAAP financial measure

that the Company believes to provide a more accurate picture of the interest margin for comparative purposes.

Management believes FTE net interest income is a standard practice in the banking industry, and when net interest income is adjusted on a FTE basis, yields on taxable, nontaxable, and partially taxable assets are comparable;

however, the adjustment to a FTE basis has no impact on net income.

FTE net interest income is calculated by adding the tax benefit on certain financial interest earning assets, whose interest is tax-exempt, to total interest income and then subtracting total interest expense.

As a non-GAAP measure, FTE net interest income should not be considered as a substitute for the nearest comparable GAAP measure, net interest income.

Net interest income shown elsewhere in this presentation is GAAP net interest income.

The following table reconciles GAAP net interest income to FTE net interest income (in thousands).

Six Months Ended

June 30, 2023 June 30, 2022

GAAP Financial Measurements

Interest Income - Loans $ 48,060 $ 33,868

Interest Income - Securities taxable 19,221 11,930

Interest Income - Securities tax-exempt 2,867 4,890

Interest Income - Other interest income 1,296 106

Interest Expense - Deposits 15,431 769

Interest Expense - Borrowed funds 7,417 892

Interest Expense - Other 30 31

Total Net Interest Income $ 48,566 $ 49,102

Non-GAAP Financial Measurements

Tax Benefit on Tax-Exempt Interest Income - Securities $ 762 $ 1,300

Total Tax Benefit on Tax-Exempt Interest Income (1)

Tax-Equivalent Net Interest Income $ 49,328 $ 50,402

(1) Tax benefit was calculated using the federal statutory tax rate of 21%.

Rate/Volume Analysis

The following table sets forth the dollar difference in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the noted periods and the amount of such change attributable to changes in average balances (volume) or changes in average interest rates.

Interest income and interest expense for the six months ended June 30, 2023, and June 30, 2022, are annualized using an actual days over calendar year method.

The volume variances are equal to the increase or decrease in average balance multiplied by current period rates, and rate variances are equal to the increase or decrease in rate times prior period average balances.

Variances attributable to both rate and volume changes are calculated by multiplying the change in rate by the change in average balance and are allocated to the volume variance.

See table below (in thousands).

Six Months Ended June 30, 2023, compared to June 30, 2022

Dollar Increase (Decrease) Due to Change in:

Average Volume Average

Income from the interest-earning assets:

Loans, gross $ 9,995 $ 18,621 $ 28,616

Securities (1)

(7,522) 17,063 9,541

Interest-bearing deposits and fed funds sold 217 2,183 2,400

Total interest income on interest-earning assets 2,690 37,867 40,557

Expense from the interest-bearing liabilities:

Interest-bearing demand deposits (90) 1,489 1,399

Savings deposits (1,749) 14,827 13,078

Time deposits 7,957 7,132 15,089

Total interest expense on interest-bearing deposits 6,118 23,448 29,566

Borrowings 2,814 10,341 13,155

Total interest expense on interest-bearing liabilities 8,932 33,789 42,721

Taxable-equivalent net interest income

$ (6,242) $ 4,078 $ (2,164)

(1) Yields and interest income on tax-exempt securities have been computed on a taxable-equivalent basis.

Interest Income

Total interest income was $71.4 million for the six months ended June 30, 2023, compared to $50.8 million for the six months ended June 30, 2022, an increase of 40.7%.

The increase in interest income was primarily driven by an increase in both rates and volume for the loan portfolio along with increasing rates for the securities portfolio.

Interest income on loans and securities increased by $14.2 million and $5.3 million, respectively, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Interest Expense

Total interest expense was $22.9 million for the six months ended June 30, 2023, compared to $1.7 million for the six months ended June 30, 2022.

The increase in interest expense was primarily driven by increasing rates for both interest-bearing deposits and borrowed funds and by a lesser extent from balance increases in both deposits and borrowed funds.

Interest expense on interest-bearing deposits and borrowed funds increased by $14.7 million and $6.5 million, respectively, for the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

Provision for (Recapture of) Credit Losses

The provision for credit losses was $0.7 million for the six months ended June 30, 2023, compared to a recapture of $5.2 million for the six months ended June 30, 2022.

The increased provision expense was partly due to the Company estimating credit losses using an expected life-time loss model versus an incurred model but primarily the result of a large recapture in 2022.

The provision recapture, in 2022, was as a result of removing COVID-19 qualitative factors and the sale of a non-performing loan note.

Proceeds obtained for this non-performing loan note were greater than the net of the loan note’s carrying value and specific reserve.

Additionally, loan balances have risen significantly for the six months ended June 30, 2023, versus the six months ended June 30, 2022.

See Note 4 - Allowance for Credit Losses in Notes to Consolidated Financial Statements for further information.

Non-interest Income

The following table sets forth the various components of our non-interest income for the periods indicated (in thousands):

Six Months Ended June 30, Increase (Decrease)

2023 2022 Amount Percent

Fiduciary and wealth management $ 2,642 $ 2,667 $ (25) (0.9) %

Service charges and fees 3,376 3,394 (18) (0.5)

Net gains (losses) on securities (111) 104 (215) (206.7)

Income from company-owned life insurance 1,131 1,079 52 4.8

Other non-interest income 1,801 1,367 434 31.7

Total $ 8,839 $ 8,611 $ 228 2.6 %

Non-interest income increased 2.6% for the six months ended June 30, 2023, compared to the six months ended June 30, 2022.

The increase was primarily driven by an increase in other non-interest income of $434 thousand when compared to the six months ended June 30, 2022.

This increase was due to an increase of $258 thousand in dividends from the FHLB and an increase of $342 thousand from customer swap fees.

The increase was partially offset by the sale of securities which resulted in a loss for the six months ended as of June 30, 2023 resulting in a decrease of $215 thousand when compared to the prior year.

Non-interest Expense

The following table sets forth the various components of our non-interest expense for the periods indicated (in thousands):

Six Months Ended June 30, Increase (Decrease)

2023 2022 Amount Percent

Salaries and wages $ 19,416 $ 19,146 $ 270 1.4 %

Pensions and other employee benefits 4,874 3,940 934 23.7

Occupancy 3,002 3,155 (153) (4.8)

Equipment rentals, depreciation and maintenance 2,796 2,762 34 1.2

Other 11,625 10,530 1,095 10.4

Total $ 41,713 $ 39,533 $ 2,180 5.5 %

Non-interest expense increased 5.5% for the six months ended June 30, 2023, compared to June 30, 2022.

The main drivers for this increase included pensions and other employee benefits which increased by $934.0 thousand primarily due to increases in the costs of employee benefit plans and an increase of $1.1 million in other non-interest expense.

The increase was partially offset by a decrease in occupancy of $153 thousand.

Additionally, the Company incurred legal and consulting expenses associated with filing its Registration Statement and other required SEC filings that increased the total non-interest expense for the six months ended June 30, 2023.

See Note 13 — Other Operating Expenses in Notes to Consolidated Financial Statements for further information on “Other” non-interest expense.

Income Tax Expense

Income tax expense was $1.4 million for the six months ended June 30, 2023, a decrease of $2.4 million from the tax provision for the six months ended June 30, 2022.

The decrease was due to the decrease in net income for the six months ended June 30, 2023, when compared to the prior year.

For the six months ended June 30, 2023, and June 30, 2022, our effective tax rates were 9.4% and 16.4%, respectively.

Results of Operations for the Three Months Ended June 30, 2023, and 2022

Consolidated net income for the three months ended June 30, 2023, was $6.0 million, compared to $10.4 million earned during the three months ended June 30, 2022.

The $4.4 million, or 42.0%, decrease in net income is primarily due to increased funding costs and the change in provision for credit losses that included a recapture of credit losses in the prior year quarter.

Net interest income decreased by $1.8 million to $23.8 million for the three months ended June 30, 2023, compared to $25.6 million for the three months ended June 30, 2022.

The main driver for this decrease was higher funding costs on both

our deposits and borrowings, which was partially offset by an increase in interest income due to both loan growth and higher yielding rates.

For the three months ended June 30, 2023, the Company recorded credit loss expense of $0.2 million compared to a recapture of provision losses of $2.5 million.

For the three months ended June 30, 2022, the Company was able to recapture provision that was booked to reflect the uncertainty of the COVID-19 pandemic and the sale of a non-performing loan note.

This non-performing loan had a specific reserve prior to the sale of the note.

For the current period, the increased loan growth and the adoption of CECL, which requires the Company to estimate provision of credit losses using an expected life-time loss approach versus an incurred model, resulted in a higher credit expense for the three months ended June 30, 2023, compared to the three months ended, June 30, 2022.

Non-interest income increased by $129 thousand, or 2.9%, to $4.6 million for the three months ended June 30, 2023, as compared to $4.5 million for the three months ended June 30, 2022.

The increase in non-interest income was primarily due to dividend income from FHLB stock that increased by $156 thousand in the three months ended June 30, 2023, compared to June 30, 2022.

Non-interest expense increased by $1.0 million, or 4.8%, to $21.3 million for the three months ended June 30, 2023, as compared to $20.4 million for the three months ended June 30, 2022.

The increase was primarily due to increases in personnel related expenses such as salary, pensions, and other employee benefits.

In addition, the Company incurred additional fees related to entering into interest rate swaps designated as fair value hedges and higher legal and audit fees arising from the filing of our initial Registration Statement and other required filings.

Net Interest Income and Net Interest Margin

Net interest income is the principal component of the Company’s income stream and represents the difference, or spread, between interest and fee income generated from earning assets and the interest expense paid on deposits and borrowed funds.

Net interest margin, stated as a percentage, is the yield obtained by dividing the difference between interest income generated on earning assets and the interest expense paid on all funding sources by average earning assets.

Fluctuations in interest rates as well as changes in the volume and mix of earnings assets and interest-bearing liabilities can impact net interest income and net interest margin.

Management closely monitors both total net interest income and the net interest margin and seeks to maximize net interest income without exposing the Company to an excessive level of interest rate risk through our asset and liability policies.

Interest rate risk is managed by monitoring the pricing, maturity and repricing options of all classes of interest-bearing assets and liabilities.

Net interest income totaled $23.8 million for the three months ended June 30, 2023, compared to $25.6 million for the three months ended June 30, 2022.

The decrease in net interest income was primarily driven by both higher interest rates and higher volume of interest-bearing liabilities.

The impact of higher rates on interest-bearing liabilities was partially offset by the increase in volume and rates of interest-earning assets.

The tax-adjusted net interest margin was 2.87% for the three months ended June 30, 2023, compared to 3.15% for the three months ended June 30, 2022.

The decrease in tax-adjusted net interest margin was primarily driven by the increase in market rates that increased the cost of deposit and other borrowings in excess of the increase in the interest income from interest-earning assets.

The yield for the loan portfolio was 5.07% for the three months ended June 30, 2023, compared to 3.98% for the three months ended June 30, 2022.

The increase was primarily the result of increasing loan production with higher interest rates in a rising rate environment.

The tax-adjusted yield on the total investment securities portfolio was 3.45% for the three months ended June 30, 2023, compared to 2.53% for the three months ended June 30, 2022.

The increase was primarily due to higher market interest rates that increased the effective rate earned by reducing the fair value of the average outstanding balance of the investment securities.

The rate paid on interest-bearing deposits increased to 1.88% during the three months ended June 30, 2023, from 0.07% during the three months ended June 30, 2022.

The increase was a result of market and economic conditions, which led to an increase in our offering rate for selected parts of our deposit portfolio.

Increases in deposit rates rose at a faster pace due to the increases in the Federal Funds Rate that continued in the second half of 2022.

Additional increases by the Federal Reserve and in the market rates may negatively impact our cost of funds rate.

The rate paid on our borrowings for the three months ended June 30, 2023, was 4.61%, compared to 0.82% for the corresponding period in 2022.

The increase was due to the increase in short-term borrowing costs, driven by increases in the Federal Funds Rate during the year.

Further increases in the Federal Funds Rate may continue to increase our overall borrowing costs.

The following table sets forth the major components of net interest income and the related yields and rates for the three months ended June 30, 2023, and June 30, 2022, for comparison (dollars in thousands).

For the Three Months Ended June 30,

Average Outstanding Balance Interest Income/Expense Rate Earned/Paid Average Outstanding Balance Interest Income/Expense Rate Earned/Paid

Loans, gross (1)(2)

$ 2,002,482 $ 25,300 5.07 % $ 1,754,723 $ 17,418 3.98 %

Interest-earning deposits and fed funds sold 74,074 988 5.35 50,548 88 0.70

Taxable securities 1,036,576 9,418 3.64 1,148,507 6,572 2.30

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(5) The net interest margin represents fully taxable-equivalent net interest income as a percent of average interest-earning assets for the period.

Net interest margin as presented above is calculated by dividing fully tax-equivalent (“FTE”) net interest income by total average earning assets.

Taxable-equivalent net interest margin, as presented above, is calculated by dividing FTE net interest income by total average earning assets.

Net interest income, on an FTE basis, is a non-GAAP financial measure that the Company believes to provide a more accurate picture of the interest margin for comparative purposes.

Management believes FTE net interest income is a standard practice in the banking industry, and when net interest income is adjusted on an FTE basis, yields on taxable, nontaxable, and partially taxable assets are comparable;

however, the adjustment to an FTE basis has no impact on

however, the adjustment to a FTE basis has no impact on net income.

FTE net interest income is calculated by adding the tax benefit on certain financial interest earning assets, whose interest is tax-exempt, to total interest income then subtracting total interest expense.

As a non-GAAP measure, FTE interest income should not be considered as a substitute for the nearest comparable GAAP measure, net interest income.

The following table reconciles net interest income to FTE net interest income (in thousands).

March 31, 2023 March 31, 2022

As a non-GAAP measure, FTE net interest income should not be considered as a substitute for the nearest comparable GAAP measure, net interest income.

Net interest income shown elsewhere in this presentation is GAAP net interest income.

The following table reconciles GAAP net interest income to FTE net interest income (in thousands).

Three Months Ended

June 30, 2023 June 30, 2022

GAAP Financial Measurements

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Interest income and interest expense for the three months ended June 30, 2023, and June 30, 2022, are annualized using an actual days over calendar year method.

Volume variances are equal to the increase or decrease in average balance multiplied by current period rates, and rate variances are equal to the increase or decrease in rate times prior period average balances.

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See table below (in thousands).

Three Months Ended March 31, 2023, compared to March 31, 2022

Three Months Ended June 30, 2023, compared to June 30, 2022

Dollar Increase (Decrease) Due to Change in:

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Savings deposits (2,589) 18,646 16,057

Time 3,729 5,827 9,556

Time deposits 12,636 7,927 20,563

Total interest expense on interest-bearing deposits 9,896 28,852 38,748

Borrowings 927 10,111 11,038

Total interest expense on interest-bearing liabilities 10,823 38,963 49,786

Taxable-equivalent net interest income

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Interest Income

Total interest income was $34.3 million for the three months ended March 31, 2023, compared to $24.3 million for the three months ended March 31, 2022, an increase of 41.2%.

The increase in interest income was primarily driven by an increase in both rates and volume for the loan portfolio along with rates increasing for the securities portfolio.

Interest income on loans and securities increased by $6.3 million and $3.5 million, respectively.

Total interest income was $37.1 million for the three months ended June 30, 2023, compared to $26.5 million for the three months ended June 30, 2022, an increase of 39.8%.

The increase in interest income was primarily driven by an increase in both rates and volume for the loan portfolio along with increasing rates for the securities portfolio.

Interest income on loans and securities increased by $7.9 million and $1.8 million, respectively, for the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

Interest Expense

Total interest expense was $9.6 million for the three months ended March 31, 2023, compared to $0.8 million for three months ended March 31, 2022.

Total interest expense was $13.3 million for the three months ended June 30, 2023, compared to $0.9 million for the three months ended June 30, 2022.

The increase in interest expense was primarily driven by increasing rates for both deposits and borrowed funds.

The average interest-bearing balances also increased, but primarily, the increase in interest rate expense was due to higher rates.

Interest expense on interest-bearing deposits and borrowed funds increased by $5.0 million and $3.8 million, respectively.

Interest expense on interest-bearing deposits and borrowed funds increased by $9.7 million and $2.8 million, respectively, for the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

Provision for (Recapture of) Credit Losses

The provision for credit losses was $0.5 million for the three months ended March 31, 2023, compared to a recapture of $2.6 million for the three months ended March 31, 2022.

The increased provision expense was primarily due to the Company estimating credit losses using an expected life-time model versus an incurred model.

Additionally, loan balances have risen significantly for the three months ended March 31, 2023, versus the three months ended March 31, 2022.

The provision for credit losses was $0.2 million for the three months ended June 30, 2023, compared to a recapture of $2.5 million for the three months ended June 30, 2022.

The increased provision expense was primarily due to a recapture of provision that was booked to reflect the uncertainty of the COVID-19 pandemic and the sale of a non-performing loan note for three months ended June 30, 2022 and the Company estimating credit losses using an expected life-time loss model versus an incurred model for the three months ended June 30, 2023.

Additionally, loan balances have risen significantly for the three months ended June 30, 2023, versus the three months ended June 30, 2022.

See Note 4 - Allowance for Credit Losses in Notes to Consolidated Financial Statements for further information.

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The following table sets forth the various components of our non-interest income for the periods indicated (in thousands):

Three months ended March 31,

Increase (Decrease)

Three months ended June 30, Increase (Decrease)

2023 2022 Amount Percent

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Service charges and fees 1,741 1,761 (20) (1.1)

Net gains (losses) on securities — 104 (104) (100.0)

Net gains (losses) on securities (111) — (111) n/a

Income from company-owned life insurance 571 542 29 5.4

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Total $ 4,625 $ 4,496 $ 129 2.9 %

Non-interest income increased 2.4% for the three months ended March 31, 2023, compared to the three months ended March 31, 2022.

The increase was primarily driven by an increase in other non-interest income of $146 thousand and an increase in fiduciary and wealth management income of $32 thousand when compared to the three months ended March 31, 2022.

The increase was partially offset by a decrease in net gains from securities of $104 thousand when compared to the prior year quarter.

Non-interest income increased 2.9% for the three months ended June 30, 2023, compared to the three months ended June 30, 2022.

The increase was primarily driven by an increase in other non-interest income of $288 thousand through an increase in customer swap fees and increased dividend from the FHLB.

This increase was partially offset by the loss on the sale of securities in the three months ended June 30, 2023.

Non-interest Expense

The following table sets forth the various components of our non-interest expense for the periods indicated (in thousands):

Three months ended March 31,

Increase (Decrease)

Three months ended June 30, Increase (Decrease)

2023 2022 Amount Percent

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Total $ 21,348 $ 20,368 $ 980 4.8 %

Non-interest expense increased 6.3% for the year ended March 31, 2023, compared to March 31, 2022.

The main drivers for this increase included pensions and other employee benefits which increased by $429 thousand and an increase of $935 thousand in other non-interest expense.

The increase was partially offset by decreases in occupancy of $89 thousand, a decrease in salaries and wages of $35 thousand, and a decrease in equipment rentals, depreciation and maintenance of $40 thousand.

Additionally, the Company incurred legal and consulting expenses associated with filing its Registration Statement and other required SEC filings.

See Note 1 3 —Other Operating Expenses in Notes to Consolidated Financial Statements for further information on “Other” non-interest expense.

Non-interest expense increased 4.8% for the three months ended June 30, 2023, compared to June 30, 2022.

The main drivers for this increase are personal related expenses such as salary, pensions, and other employee benefits which increased by $810 thousand primarily due to increases in the costs of employee benefit plans.

In addition, the Company incurred additional expense related to entering into interest rate swaps designated as fair value hedges and higher legal and audit fees arising from the filing of our initial Registration Statement and other required filings

Income Tax Expense

Income tax expense was $0.6 million for the three months ended March 31, 2023, a decrease of $1.3 million from the tax provision for the three months ended March 31, 2022.

The decrease was due to the Company being able to utilize

additional tax credits for the three months ended March 31, 2023.

For the three months ended March 31, 2023, and March 31, 2022, our effective tax rates were 7.2% and 17.5%, respectively.

Analysis of Financial Condition for the Period Ended March 31, 2023 and December 31, 2022

Assets increased by $108 million to $3.67 billion as of March 31, 2023, compared to $3.56 billion as of December 31, 2022.

Loans increased by $60 million from $1.87 billion as of December 31, 2022, to $1.93 billion as of March 31, 2023.

Deposits increased by $112 million and amounted to $3.03 billion at March 31, 2023, compared to $2.92 billion at December 31, 2022.

This increase in deposits was partially offset by a decrease in borrowed funds of $21.4 million as of March 31, 2023, compared to December 31, 2022.

Income tax expense was $0.8 million for the three months ended June 30, 2023, a decrease of $1.1 million from the tax provision for the three months ended June 30, 2022.

The decrease was due to the decrease in net income for the three months ended June 30, 2023, when compared to the prior year three months ended June 30, 2022.

For the three months ended June 30, 2023, and June 30, 2022, our effective tax rates were 12.0% and 15.5%, respectively.

Analysis of Financial Condition for the Period Ended June 30, 2023, and December 31, 2022

Assets increased by $6.3 million to $3.57 billion as of June 30, 2023, compared to $3.56 billion as of December 31, 2022.

Loans, net of ACL, increased by $108.9 million from $1.87 billion as of December 31, 2022, to $1.98 billion as of June 30, 2023.

Deposits increased by $84.9 million and amounted to $3.01 billion at June 30, 2023, compared to $2.92 billion at December 31, 2022.

Borrowed funds decreased by $94.1 million to $249.0 million as of June 30, 2023, compared to $343.1 million at December 31, 2022.

Investment Securities

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The majority of our AFS investment portfolio is comprised of obligations of states and municipalities and residential mortgage-backed securities.

During the three months ended March 31, 2023, the unrealized losses on our holdings decreased from December 31, 2022, as the decrease in long-term interest rates had a positive impact on the value of our AFS portfolio.

During the six months ended June 30, 2023, the unrealized losses on our holdings decreased from December 31, 2022, as the decrease in long-term interest rate expectations, portfolio runoff, and rebalancing had a positive impact on the value of our AFS portfolio.

On January 1, 2023, the Company adopted the new CECL standard in accordance with ASU 2016-13, which changed the accounting framework by replacing the other-than-temporary impairment (“OTTI”) assessment with the recognition of an ACL.

The Company determined that the declines in market value were due to increases in interest rates and market movements and not due to credit factors.

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

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

Under the prior OTTI framework, the Company did not record any cumulative OTTI expense as of December 31, 2022.

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Management believes the structure of the Bank’s investment portfolio is appropriately aligned with the rest of the balance sheet to protect against significant and unexpected charges against earnings and capital.

The following tables reflect the amortized cost and fair market values for the total portfolio for each category of investment for March 31, 2023, and December 31, 2022 (in thousands):

March 31, 2023

The following tables reflect the amortized cost and fair market values for the total portfolio for each category of investment for June 30, 2023, and December 31, 2022 (in thousands):

June 30, 2023

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

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

The investment maturity table below summarizes contractual maturities for our investment securities at March 31, 2023.

The investment maturity table below summarizes contractual maturities for our investment securities at June 30, 2023.

The actual timing of principal payments may differ from remaining contractual maturities because obligors may have the right to repay certain obligations with or without penalties.

The overall weighted average duration of the Company’s investment portfolio is 4.0 years at March 31, 2023.

The weighted-average yield below represents the effective yield for the investment securities and is calculated based on the amortized cost of each security (dollars in thousands).

The overall weighted average duration of the Company’s investment portfolio is 4.3 years at June 30, 2023.

The weighted-average yield below represents the effective yield for the investment

securities and is calculated based on the amortized cost of each security (dollars in thousands).

Interest on securities below excludes tax-equivalent adjustments.

March 31, 2023

June 30, 2023

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

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The following tables set forth the composition of our loan portfolio as of the dates indicated (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023

December 31, 2022

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

6 unchanged sentences

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

$ 1,926,034 $ 1,866,182

The loan portfolio at March 31, 2023 increased by $64.5 million primarily due to growth in our commercial and residential real estate loan production.

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

The loan portfolio, excluding ACL, at June 30, 2023, increased by $113.7 million primarily due to growth in our commercial and residential real estate loan production.

The Company’s organic growth has occurred in both legacy and newer markets, principally in commercial real estate.

The following table shows the maturity distribution for total loans outstanding as of March 31, 2023.

The following table shows the maturity distribution for total loans outstanding as of June 30, 2023.

The maturity distribution is grouped by remaining scheduled principal payments that are due in the following periods.

The principal balance of loans are indicated by both fixed and floating rate categories in the table below (in thousands).

March 31, 2023

June 30, 2023

Within One Year One Year to Five Years Five Years to 15 Years After 15 Years

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A loan is placed on non-accrual status when (i) the Company is advised by the borrower that scheduled principal or interest payments cannot be met, (ii) when management’s best judgment indicates that payment in full of principal and interest can no longer be expected, or (iii) when any such loan or obligation becomes delinquent for 90 days, unless it is both well-secured and in the process of collection.

The Company’s asset quality remained stable through the first quarter of 2023.

The Company’s non-performing assets, which includes non-performing loans consisting of non-accrual loans, loans that are more than 90 days past due and still accruing, and other real estate owned as of March 31, 2023, totaled $3.2 million.

The following table summarizes the Company’s non-performing assets as of March 31, 2023, and December 31, 2022 (in thousands):

March 31, 2023 December 31, 2022

The Company’s asset quality remained stable through the second quarter of 2023.

The following table summarizes the Company’s non-performing assets as of June 30, 2023, and December 31, 2022 (in thousands):

June 30, 2023 December 31, 2022

Non-accrual loans $ 2,923 $ 5,497

5 unchanged sentences

Refer to the discussion in Note 1.

Nature of Business Activities and Significa nt Accounting Policies in Notes to Consolidated Financial Statements for management’s approach to estimating the ACL.

Nature of Business Activities and Significant Accounting Policies in Notes to Consolidated Financial Statements for management’s approach to estimating the ACL.

The Company maintains the ACL at a level deemed adequate by management for expected credit losses.

As disclosed in Note 1 and Note 4 , on January 1, 2023, the Company implemented CECL and increased the ACL, previously the allowance for credit losses, with a cumulative-effect adjustment to the ACL for credit losses of $4.4 million, which included a

cumulative-effect adjustment to the ACL for off-balance sheet exposures of $274.8 thousand.

The Company’s ACL is calculated quarterly with any adjustment recorded to the provision for credit losses in the consolidated Statement of Income.

Management evaluates the adequacy of the ACL utilizing a defined methodology to determine if it properly addresses the current and expected risks in the loan portfolio, which considers the performance of borrowers and specific evaluation of individually evaluated loans, including historical loss experiences, trends in delinquencies, non-performing loans and other risk assets, and qualitative factors.

Risk factors are continuously reviewed and adjusted, as needed, by management when conditions support a change.

Risk factors are continuously reviewed and adjusted, as needed, by

management when conditions support a change.

Management believes its approach properly addresses relevant accounting and bank regulatory guidance for loans both collectively and individually evaluated.

Gross charged-off loans were $17 thousand and $69 thousand for the three months ended March 31, 2023, and March 31, 2022, respectively.

Gross recoveries totaled $34 thousand and $59 thousand for the three months ended March 31, 2023, and March 31, 2022, respectively.

The ACL as a percentage of gross loans, net of unearned income, was 1.32% and 1.65% as of March 31, 2023, and March 31, 2022, respectively.

The decrease in the allowance coverage ratio was due to one specific credit that increased the coverage ratio for the three months ended March 31, 2022.

The Company recorded a provision of $0.5 million and a provision recapture of $2.6 million for the three months ended March 31, 2023, and March 31, 2022, respectively.

The provision recapture for the three months ended March 31, 2022, was as a result of removing COVID-19 qualitative factors compared to the provision for credit losses for the three months ended March 31, 2023, resulting from the adoption of CECL.

The following table summarizes the changes in the Company’s credit loss experience by portfolio as of (dollars in thousands):

March 31, 2023 March 31, 2022

Gross charged-off loans were $104.0 thousand and $3.3 million for the three months ended June 30, 2023, and June 30, 2022, respectively, and $121.0 thousand and $3.4 million for the six months ended June 30, 2023, and June 30, 2022, respectively.

Gross recoveries totaled $9.0 thousand and $127.0 thousand for the three months ended June 30, 2023, and June 30, 2022, respectively, and $43.0 thousand and $186.0 thousand for the six months ended June 30, 2023, and June 30, 2022, respectively.

The ACL as a percentage of gross loans, net of unearned income, was 1.30% and 1.34% as of June 30, 2023, and June 30, 2022, respectively.

The Company recorded a provision of $310.0 thousand and a provision recapture of $2.5 million for the three months ended June 30, 2023, and June 30, 2022, respectively, and a provision of $833.0 thousand and a provision recapture of $5.2 million for the six months ended June 30, 2023, and June 30, 2022, respectively.

The provision recapture was as a result of removing COVID-19 qualitative factors and the sale of a non-performing loan note.

The following table summarizes the changes in the Company’s credit loss experience by portfolio as of the three and six months ended June 30, 2023, and 2022 (dollars in thousands):

Three months ended Six months ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Loans outstanding at end of period $ 2,000,969 $ 1,748,508 $ 2,000,969 $ 1,748,508

Balance of allowance at beginning of year (21,039) (31,709)

Balance of allowance at beginning of period (25,704) (29,061) (21,039) (31,709)

Impact of the adoption of CECL — (4,125) —

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(3) The Allowance for credit losses as a percentage of non-performing loans ratio is calculated by dividing the ACL at the end of the period by non-accrual loans at the end of the period.

The following table summarizes the ACL and the allowance for credit losses by portfolio with a comparison of the percentage composition in relation to total ACL and allowance for credit losses and total loans as of March 31, 2023, and December 31, 2022 (dollars in thousands).

March 31, 2023

The following table summarizes the ACL and the allowance for credit losses by portfolio with a comparison of the percentage composition in relation to total ACL and allowance for credit losses and total loans as of June 30, 2023, and December 31, 2022 (dollars in thousands).

June 30, 2023

Allowance for credit losses Percent of Allowance in Each Category to Total Allocated ACL Percent of Loans in Each Category to Total Loans

29 unchanged sentences

however, the Company will use borrowings to meet liquidity needs and for temporary funding.

Sources of borrowings include advances from the FHLB of Atlanta,

borrowings from correspondent banks and the Fed Discount Window.

Sources of borrowings include advances from the FHLB of Atlanta, borrowings from correspondent banks, and the Fed Discount Window.

The Company also utilizes brokered time deposits.

For more discussion of brokered time deposits, see the Deposits heading below this section.

As of March 31, 2023, the Company has available unused borrowing capacity of $809.1 million through its available lines of credit with the FHLB of Atlanta and unsecured federal fund lines of credit from correspondent banking relationships.

As of June 30, 2023, the Company has available unused borrowing capacity of $959.0 million through its available lines of credit with the FHLB of Atlanta and unsecured federal fund lines of credit from correspondent banking relationships.

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

The following table shows certain information regarding borrowings as of the three months ended March 31, 2023, and December 31, 2022, respectively (dollars in thousands):

March 31, 2023 December 31, 2022

The following table shows certain information regarding borrowings as of the three months ended June 30, 2023, and December 31, 2022, respectively (dollars in thousands):

June 30, 2023 December 31, 2022

Balance at end of period $ 249,000 $ 343,100

Weighted average interest rate at end of period 4.62% 4.42%

Total deposits increased by $112.0 million from December 31, 2022, to March 31, 2023, due to an increase in the balance of brokered time deposits.

The Company issued brokered time deposits that amounted to $389.2 million at March 31, 2023, and $100.3 million at December 31, 2022, which are included in the table below.

Total deposits increased by $84.9 million from December 31, 2022, to June 30, 2023, due to an increase in the balance of brokered time deposits.

The Company issued brokered time deposits that amounted to $389.1 million as of June 30, 2023, and $100.3 million at December 31, 2022, which are included in the table below.

The following table sets forth the balance of each category of deposits as of the dates indicated (in thousands):

March 31, 2023 December 31, 2022

June 30, 2023

December 31, 2022

Balance Balance

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Management evaluates its utilization of brokered deposits, taking into consideration the interest rate curve and regulatory views on non-core funding sources, and balances this funding source with its funding needs based on growth initiatives.

The Company has deposits that meet or exceed the FDIC insurance limit of $250,000 in the amounts of $715.1 million and $843.4 million at March 31, 2023, and December 31, 2022, respectively.

The following table sets forth maturity ranges of time deposits as of March 31, 2023, that meet or exceed the FDIC insurance limit (in thousands).

March 31, 2023

The Company has deposits that meet or exceed the FDIC insurance limit of $250,000 in the amounts of $681.9 million and $843.4 million at June 30, 2023, and December 31, 2022, respectively.

The following table sets forth maturity ranges of time deposits as of June 30, 2023, that meet or exceed the FDIC insurance limit (in thousands).

June 30, 2023

Due within 3 months or less $ 6,409

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Shareholders’ Equity

Total shareholders’ equity at March 31, 2023, was $289.8 million, compared to $273.5 million at December 31, 2022.

Total shareholders’ equity at June 30, 2023, was $290.1 million, compared to $273.5 million at December 31, 2022.

Shareholders’ equity increased by $16.6 million in part due to a decrease in unrealized losses in the AFS securities portfolio since December 31, 2022.

Accumulated other comprehensive income increased $15.7 million, primarily as a result of a decrease in unrealized losses on AFS investment securities.

Accumulated other comprehensive income increased $13.3 million from December 31, 2022, to June 30, 2023, primarily as a result of a decrease in unrealized losses on AFS investment securities.

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 2. Management’s Discussion and Analysis