What changed in this filing

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Item 1. Financial Statements

2023-11-09 compared with 2023-08-11 · 218 added, 216 removed, 1095 unchanged (28% of the section changed)

2 unchanged sentences

Consolidated Financial Statements:

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)

Consolidated Balance Sheets as of September 30, 2023 (Unaudited), and December 31, 2022

Consolidated Statements of Income for the Three and Nin e Months Ended September 30, 2023, and September 30, 2022 (Unaudited)

Consolidated Statements of Comprehensive Income (Loss) for the Three and Nin e Months Ended September 30, 2023, and September 30, 2022 (Unaudited)

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2023, and September 30, 2022 (Unaudited)

Consolidated Statements of Cash Flows for the Ni ne Months Ended September 30, 2023, and September 30, 2022 (Unaudited)

Notes to the Consolidated Financial Statements (Unaudited)

2 unchanged sentences

(In thousands, except share and per share data)

September 30,

(Unaudited) December 31, 2022

28 unchanged sentences

$ 0.50 par value;

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

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

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

Additional paid-in capital 13,818 12,282

2 unchanged sentences

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

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

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

Total Shareholders’ Equity

6 unchanged sentences

(In thousands, except share and per share data)

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

39 unchanged sentences

(In thousands, except share and per share data)

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

2 unchanged sentences

Unrealized gains (losses) on securities:

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

Unrealized gain (loss) arising during period, net of tax of $ 5,392 and $ 11,375 for the three months ended September 30, 2023, and September 30, 2022, respectively, net of tax of $ 2,212 and $ 40,638 for the nine months ended September 30, 2023, and September 30, 2022, respectively

( 20,285 ) ( 42,793 ) ( 8,322 ) ( 152,878 )

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

Reclassification adjustment for loss (gain) on securities, net of tax of $ — and ($ 9 ) for the three months ended September 30, 2023, and September 30, 2022, respectively, net of tax of ($ 23 ) and $ 13 for the nine months ended September 30, 2023 and September 30, 2022, respectively

— 33 88 ( 49 )

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

Reclassification adjustment for loss (gain) on fair value hedge, net of tax of $ 9 and $ — for the three months ended September 30, 2023, and September 30, 2022, respectively, net of tax of ($ 224 ) and $ — for the nine months ended September 30, 2023, and September 30, 2022, respectively

( 32 ) — 842 —

Unrealized gain (loss) on cash flow hedge:

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

Unrealized holding gain (loss) on cash flow hedge, net of tax of $ 10 and $ 174 for the three months ended September 30, 2023, and September 30, 2022, respectively, net of tax of $ 71 and $ 404 for the nine months ended September 30, 2023, and September 30, 2022, respectively

( 38 ) ( 654 ) ( 267 ) ( 1,519 )

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

Reclassification adjustment for losses (gains) included in net income, net of tax ($ 99 ) and ($ 15 ) for the three months ended September 30, 2023, and September 30, 2022, respectively, net of tax of ($ 264 ) and $ 23 for the nine months ended September 30, 2023, and September 30, 2022, respectively

373 58 995 ( 86 )

5 unchanged sentences

Consolidated Statements of Changes in Shareholders’ Equity

For the Three Months Ended June 30, 2023 and 2022

For the Three Months Ended September 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

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

Net income 4,056 4,056

3 unchanged sentences

Share-based compensation expense, net 610 610

Balance September 30, 2023 7,428,710 $ 4,000 $ 13,818 $ 426,744 $ ( 146,159 ) $ ( 27,584 ) $ 270,819

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

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

Net income 11,137 11,137

3 unchanged sentences

Share-based compensation expense, net 488 488

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

Balance September 30, 2022 7,425,760 $ 4,000 $ 11,801 $ 414,973 $ ( 147,577 ) $ ( 27,726 ) $ 255,471

See Notes to Consolidated Financial Statements.

1 unchanged sentence

Consolidated Statements of Changes in Shareholders’ Equity

For the Six Months Ended June 30, 2023 and 2022

For the Nine Months Ended September 30, 2023 and 2022

(In thousands, except share and per share data)

12 unchanged sentences

Share-based compensation expense, net 1,536 ( 13 ) 1,523

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

Balance September 30, 2023 7,428,710 $ 4,000 $ 13,818 $ 426,744 $ ( 146,159 ) $ ( 27,584 ) $ 270,819

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 1,427 1,427

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

Balance September 30, 2022 7,425,760 $ 4,000 $ 11,801 $ 414,973 $ ( 147,577 ) $ ( 27,726 ) $ 255,471

See Notes to Consolidated Financial Statements.

2 unchanged sentences

(In thousands, except share and per share data)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities

16 unchanged sentences

Originations of loans held-for-sale ( 10,181 ) ( 2,300 )

(Increase) decrease in accrued interest receivable 700 ( 496 )

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

(Increase) in accrued interest receivable ( 117 ) ( 78 )

Decrease in other assets 2,904 2,022

Increase in accrued interest payable and other liabilities 6,329 3,129

9 unchanged sentences

(Increase) in loans made to customers, net ( 183,395 ) ( 15,958 )

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

Net cash flows (used in) investing activities $ ( 50,086 ) $ ( 85,316 )

Cash Flows from Financing Activities

1 unchanged sentence

Net increase (decrease) in interest-bearing accounts 172,525 ( 5,624 )

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

(Decrease) in other short-term borrowings ( 44,100 ) ( 32,000 )

Repayment of finance lease liabilities ( 130 ) ( 113 )

1 unchanged sentence

Sale of treasury stock 141 96

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

Net cash flows provided by financing activities $ 9,320 $ 419

Increase in cash and cash equivalents ( 8,431 ) ( 36,247 )

19 unchanged sentences

Burke & Herbert Financial Services Corp.

was organized as a Virginia corporation on September 14, 2022, to serve as the holding company for Burke & Herbert Bank & Trust Company (“the Bank”), together referred to as the “Company”.

(“Burke & Herbert”) was organized as a Virginia corporation on September 14, 2022, to serve as the holding company for Burke & Herbert Bank & Trust Company (“the Bank”), together referred to as the “Company”.

The Company commenced operations as a bank holding company on October 1, 2022, following a reorganization transaction in which it became the Bank’s holding company.

This transaction was treated as an internal reorganization as all shareholders of the Bank became shareholders of the Company.

As a bank holding company, the Company is subject to regulation and supervision by the Federal Reserve.

In September 2023, the Company elected to be a financial holding company.

As a financial holding company, the Company is subject to regulation and supervision by the Federal Reserve.

The Company has no material operations and owns 100 % of the Bank.

1 unchanged sentence

The Bank is supervised and regulated by the Federal Deposit Insurance Corporation (the “FDIC”) and the Bureau of Financial Institutions of the Virginia State Corporation Commission (the “Virginia BFI”).

The Bank’s primary market area includes northern Virginia, and it has over 20 branches throughout the Northern Virginia region and commercial loan offices in Fredericksburg, Loudoun County, and Richmond, Virginia, and in Bethesda, Maryland.

The Bank’s primary market area includes northern Virginia, and it has 23 branches throughout the Northern Virginia region and commercial loan offices in Fredericksburg, Loudoun County, and Richmond, Virginia, and in Bethesda, Maryland.

The Company’s branch locations accept business and consumer deposits from a diverse customer base.

1 unchanged sentence

The Company’s loan portfolio includes commercial and consumer loans, a substantial portion of which are secured by real estate.

Pending Merger with Summit Financial Group, Inc.

On August 24, 2023, the Company and Summit Financial Group, Inc.

(“Summit”), entered into an Agreement and Plan of Reorganization and Plan of Merger pursuant to which Summit will merge with and into Burke & Herbert, with Burke & Herbert as the continuing corporation (the “merger”).

Immediately following the merger, Summit Community Bank, Inc., a West Virginia banking corporation (“SCB”) and a wholly-owned direct subsidiary of Summit, will merge with and into Burke & Herbert Bank & Trust Company, a Virginia banking corporation and a wholly-owned direct subsidiary of Burke & Herbert, with the Bank as the continuing bank (the “bank merger,” and together with the merger, the “mergers”).

In the merger, Summit shareholders will receive 0.5043 shares of Burke & Herbert common stock for each share of Summit common stock they own (the “exchange ratio”), subject to the payment of cash in lieu of fractional shares.

In addition, each share of Summit series 2021 preferred stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive one share of a newly created series of Burke & Herbert preferred stock having rights, preferences, privileges and voting powers and limitations and restrictions thereof that are not materially less or more favorable to the holders of the Summit series 2021 preferred stock.

Completion of the mergers is subject to receipt of the requisite approvals of the Company’s and Summit’s stockholders, receipt of all required regulatory approvals, and fulfillment of other customary closing conditions.

Basis of Presentation

7 unchanged sentences

All significant intercompany accounts and transactions between the Company and the Bank have been eliminated.

In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period.

In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the

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

reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

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 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.

The results of operations for the three and nine months ended September 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.

8 unchanged sentences

ASU 2022-01 is effective for public business entities for fiscal years beginning after December 15, 2022.

ASU 2022-01 requires a modified retrospective transition method for basis adjustments in which the entity will recognize the cumulative effect of the change on the opening balance of each affected component of equity in the statement

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

of financial position as of the date of adoption.

The Company adopted this ASU on January 1, 2023;

11 unchanged sentences

Retained earnings, net of deferred taxes, decreased by $ 3.4 million.

Results for reporting periods beginning after January 1, 2023, are presented under ASU 2016-13, while prior period amounts continue to be reported in accordance with the incurred loss model under the previously applicable GAAP.

Results for reporting periods beginning after January 1, 2023,

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

are presented under ASU 2016-13, while prior period amounts continue to be reported in accordance with the incurred loss model under the previously applicable GAAP.

The following table illustrates the impact of the adoption of CECL, and the transition away from the incurred loss method, on January 1, 2023.

16 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 generally occurs when the instrument is 90 days past due,

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

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.

11 unchanged sentences

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists, and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

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

the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists, and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an ACL is recognized in other comprehensive income.

Changes in the ACL are recorded as credit loss expense (or recapture).

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

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

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

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

9 unchanged sentences

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,

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

such as those that pertain to the commercial real estate or residential loan portfolios.

A straight-line reversion technique is used for the following four quarters, and in following quarters, the ACL calculation reverts to historical average loss rates.

1 unchanged sentence

As the reasonable and supportable and reversion period forecasts reflect the use of the macroeconomic variable loss drivers, management may consider that an additional or reduced reserve is warranted through qualitative risk factors based on current and expected conditions, including those that utilize supplemental information relative to the macroeconomic variable loss drivers.

Many of these qualitative risk factors considered by management are comparable to legacy factors prior to the adoption of CECL and include the following:

Qualitative risk factors considered by management include the following:

• Nature and volume of loans;

5 unchanged sentences

Loans identified to be individually evaluated under CECL include loans on non-accrual status and may include accruing loans that do not share similar risk characteristics to other accruing loans collectively evaluated.

A specific reserve analysis is applied to the individually evaluated loans, which considers collateral value, an observable market price, or the present value of the expected future cash flows.

A specific reserve analysis is applied to the individually evaluated loans, which considers collateral value, an observable

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

market price, or the present value of the expected future cash flows.

A specific reserve may be assigned if the measured value of the loan using one of the before mentioned methods is less than the current carrying value of the loan.

13 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 $ 7.7 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.

Accrued interest receivable totaled $ 8.3 million on loans and totaled $ 7.6 million on AFS securities at September 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 June 30, 2023, and December 31, 2022, are summarized as follows (in thousands):

June 30, 2023

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

September 30, 2023

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

8 unchanged sentences

Other 9,500 — 1,565 7,935

$ 1,402,600 $ 69 $ 150,479 $ 1,252,190

Total $ 1,400,481 $ 42 $ 176,128 $ 1,224,395

Note 2— Securities (continued)

December 31, 2022

9 unchanged sentences

Other 9,500 — 857 8,643

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

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

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

At September 30, 2023, and December 31, 2022, AFS securities with amortized costs of $ 831.0 million and $ 637.1 million, respectively, and with estimated fair values of $ 709.3 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 nine months ended September 30, 2023, and September 30, 2022, were as follows (in thousands):

September 30, 2023 September 30, 2022

Gross realized gains $ 772 $ 1,117

1 unchanged sentence

Proceeds from sales of securities 77,780 142,475

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):

The tax benefit (provision) related to these net realized gains and losses for September 30, 2023, and September 30, 2022, was $ 23.5 thousand, and ($ 13.2 ) thousand, respectively.

The maturities of AFS securities at September 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 contractual maturities because borrowers have the right to call or prepay some obligations with or without call or prepayment penalties).

Note 2— Securities (continued)

June 30, 2023

September 30, 2023

Amortized Cost

9 unchanged sentences

Other — — 9,500 — 9,500

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

June 30, 2023

Total $ 124,519 $ 456,675 $ 530,948 $ 288,339 $ 1,400,481

Note 2— Securities (continued)

September 30, 2023

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

8 unchanged sentences

Other — — 7,935 — 7,935

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

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

Total $ 120,992 $ 428,100 $ 453,695 $ 221,608 $ 1,224,395

At September 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 June 30, 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):

June 30, 2023

September 30, 2023

Less Than Twelve Months More Than Twelve Months

9 unchanged sentences

Other 6,252 1,249 1,683 316 1,565

$ 73,774 $ 6,022 $ 1,169,095 $ 144,457 $ 150,479

Total $ 47,872 $ 2,069 $ 1,160,970 $ 174,059 $ 176,128

Note 2— Securities (continued)

December 31, 2022

10 unchanged sentences

Other 6,877 623 1,766 234 857

$ 586,464 $ 33,528 $ 752,987 $ 132,297 $ 165,825

Total $ 586,464 $ 33,528 $ 752,987 $ 132,297 $ 165,825

The Company is required to conduct an impairment evaluation on AFS securities to determine whether the Company has the intent to sell the security or it is more likely than not that it will be required to sell the security before recovery.

6 unchanged sentences

If the present value of the cash flows expected to be collected is less than the amortized cost, an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis under the CECL standard, and declines due to non-credit factors are recorded in accumulated other comprehensive income (“AOCI”), net of taxes.

If a credit loss

Note 2— Securities (continued)

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

If a credit loss 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, 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 June 30, 2023.

The Company did not record an ACL on the AFS securities at September 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:

The Company had 403 securities in an unrealized loss position as of September 30, 2023.

The Company has evaluated AFS securities in an unrealized loss position for credit-related impairment at September 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 AFS securities at June 30, 2023.

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

Securities of U.S.

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

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 June 30, 2023.

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

Treasuries and Government Agency securities, 16 Residential Mortgage Backed – Agency securities, and 17 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

Note 2— Securities (continued)

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

Securities of U.S.

States and Municipalities

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.

At September 30, 2023, the unrealized losses associated with 203 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 June 30, 2023.

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

Residential & Commercial Mortgage Backed – Non-Agency Securities

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.

At September 30, 2023, the unrealized losses associated with 96 Residential Mortgage Backed – Non-Agency securities and 33 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 June 30, 2023.

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

Asset-Backed Securities

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.

At September 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 June 30, 2023.

Note 2— Securities (continued)

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

Other Securities

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.

At September 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 June 30, 2023.

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

Restricted stock, at cost

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.

The Company’s investment in Federal Home Loan Bank (“FHLB”) stock totaled $ 7.2 million and $ 16.4 million at September 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 June 30, 2023, and no impairment has been recognized.

The Company does not consider this investment to be impaired at September 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 June 30, 2023, and December 31, 2022, which is carried at cost and is not impaired at June 30, 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 September 30, 2023, and December 31, 2022, which is carried at cost and is not impaired at September 30, 2023.

Note 3— Loans

The Company’s loan portfolio segments, as reported in the tables below, include (i) commercial real estate (ii) owner-occupied commercial real estate (iii) acquisition, construction & development (iv) commercial & industrial (v) single family residential (1-4 units) and (vi) consumer non-real estate and other.

The risks associated with lending activities differ among the various loan segments and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans, and general economic conditions.

The risks associated with lending activities differ

Note 3— Loans (continued)

among the various loan segments and are subject to the impact of changes in interest rates, market conditions of collateral securing the loans, and general economic conditions.

• Commercial real estate loans carry risk associated with either the net operating income generated from the lease of the real estate collateral or income generated from the sale of the collateral.

6 unchanged sentences

• Consumer non-real estate and other loans carry risk associated with the credit-worthiness of the borrower and the value of the collateral, if any.

Note 3— Loans (continued)

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

June 30, 2023 December 31, 2022

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

September 30, 2023 December 31, 2022

Commercial real estate $ 1,260,653 $ 1,109,315

4 unchanged sentences

Consumer non-real estate and other 2,803 3,466

2,000,969 1,887,221

Loans, gross 2,070,616 1,887,221

Allowance for credit losses ( 26,111 ) ( 21,039 )

Loans, net $ 2,044,505 $ 1,866,182

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.

Net deferred loan fees included in the above loan categories totaled $ 3.5 million and $ 3.3 million at September 30, 2023, and December 31, 2022, respectively.

The Company holds $ 3.8 million and $ 7.9 million in Paycheck Protection Program loans, net of deferred fees and costs as of September 30, 2023, and December 31, 2022, respectively.

Note 4— Allowance for Credit Losses

2 unchanged sentences

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

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

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

Management calculates the quantitative portion of collectively evaluated loans for all loan categories using the WARM method.

Management calculates the quantitative portion of collectively evaluated loans for all

Note 4— Allowance for Credit Losses (continued)

loan categories using the WARM method.

For purposes of estimating the Company’s ACL, management generally evaluates collectively evaluated loans by federal call code in order to group loans with similar risk characteristics.

7 unchanged sentences

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).

The following tables presents the activity in the ACL, including the impact of the adoption of CECL, for the three months and nine months ended September 30, 2023, and the activity for the allowance for loan losses for the three months and nine months ended September 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

June 30, 2023

September 30, 2023

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

3 unchanged sentences

Balance, end of period $ 19,612 $ 785 $ 1,765 $ 517 $ 3,386 $ 46 $ — $ 26,111

June 30, 2022

September 30, 2022

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

4 unchanged sentences

Six months ended

June 30, 2023

Nine months ended

September 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 $ 19,612 $ 785 $ 1,765 $ 517 $ 3,386 $ 46 $ — $ 26,111

June 30, 2022

September 30, 2022

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

41 unchanged sentences

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 June 30, 2023, and December 31, 2022, by portfolio segment (in thousands):

June 30, 2023

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

September 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

36 unchanged sentences

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):

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

2023 2022 2021 2020 2019 Prior Revolving Loans Total

58 unchanged sentences

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

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):

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

Collateral-Dependent Loans

1 unchanged sentence

Amortized Cost Related Allowance Amortized Cost Amortized Cost Related Allowance

June 30, 2023

September 30, 2023

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

12 unchanged sentences

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

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

For the three and nine months ended September 30, 2023, the Company did not extend any

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.

modifications to 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 $ 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

The aggregate amount of time deposits, each with a minimum denomination of $250,000, was approximately $ 65.5 million and $ 32.6 million on September 30, 2023, and December 31, 2022, respectively.

Brokered time deposits totaled $ 389.0 million and $ 100.3 million as of September 30, 2023, and December 31, 2022, respectively.

Time deposits through the Certificate of Deposit Account Registry Service program totaled $ 21.8 million at September 30, 2023, compared to $ 11.7 million at December 31, 2022.

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

As of September 30, 2023

Remaining three months ending, December 31, 2023 $ 59,683

Total $ 674,838

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.

At September 30, 2023, and December 31, 2022, amounts included in time deposits for individual retirement accounts totaled $ 30.9 million and $ 36.9 million, respectively.

Overdrafts of $ 197 thousand and $ 503 thousand were reclassified to loans as of September 30, 2023, and the year ended December 31, 2022, respectively.

Note 6— Advances and Other Borrowings

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 %.

The Company had borrowings of $ 299.0 million and $ 343.1 million at September 30, 2023, and December 31, 2022, respectively.

At September 30, 2023, the interest rate on this debt ranged from 4.38 % to 5.57 %.

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

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 average balance outstanding during the nine months ending September 30, 2023, and the year ending December 31, 2022, was $ 302.1 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 Reserve 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 $ 959.0 million in remaining borrowing capacity as of June 30, 2023.

Through these sources, the Company has unused capacity of $ 883.5 million in remaining borrowing capacity as of September 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 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):

The lendable collateral value of securities and loans pledged against available lines of credit as of September 30, 2023, and December 31, 2022, was $ 778.0 million and $ 698.1 million, respectively.

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

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

Due in 2023 $ 49,000

6 unchanged sentences

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,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

1 unchanged sentence

Total lease income $ 576 $ 233 $ 1,726 $ 319

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

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

Operating Leases

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

Remaining three months ending December 31, 2023 $ 575

Thereafter 3,783

9 unchanged sentences

The right-of-use asset and lease liability are included in other assets and other liabilities, respectively, in the Consolidated Balance Sheets.

Note 7— Leased Property (continued)

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

Balance Sheet Classification June 30, 2023 December 31, 2022

Balance Sheet Classification September 30, 2023 December 31, 2022

Right-of-use assets:

6 unchanged sentences

Total lease liabilities $ 8,904 $ 10,337

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,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

4 unchanged sentences

Total lease cost $ 869 $ 705 $ 2,668 $ 2,034

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):

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

Operating Leases Finance Leases

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

Remaining three months ending December 31, 2023 $ 785 $ 81

2024 2,305 327

3 unchanged sentences

Net lease liabilities $ 5,075 $ 3,829

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

Note 7— Leased Property (continued)

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

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

Finance lease weighted average remaining lease term (years) 12.87 12.76

2 unchanged sentences

Operating lease weighted average discount rate 3.02 % 3.19 %

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

Nine Months Ended September 30,

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

Operating cash flows from operating leases $ 2,545 $ 1,871

4 unchanged sentences

Note 8— Regulatory Capital Matters

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies.

Banks and financial holding companies are subject to regulatory capital requirements administered by federal banking agencies.

Capital adequacy guidelines and, additionally for banks, “prompt corrective action” regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices.

4 unchanged sentences

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

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.

Management believes as of September 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 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).

As of September 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 September 30, 2023, and December 31, 2022 (in thousands except for ratios).

Note 8— Regulatory Capital Matters (continued)

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 June 30, 2023

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

As of September 30, 2023, approximately $ 175.0 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

4 unchanged sentences

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

Note 9— Derivatives (continued)

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.

1 unchanged sentence

During the next 12 months, the Company estimates that an additional $ 1.1 million will be reclassified as a reduction to interest income.

Fair value hedges of interest rate risk

The Company is exposed to changes in the fair value of fixed-rate assets due to changes in benchmark interest rates.

The Company uses interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate.

Interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.

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 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)

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

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

$ 298,853 $ — $ ( 1,106 ) $ —

Total $ 298,853 $ — $ ( 1,106 ) $ —

(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 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.

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

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 September 30, 2023, and December 31, 2022 (in thousands):

September 30, 2023

Balance Sheet Location Notional Amount Fair Value

11 unchanged sentences

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 June 30, 2023, and June 30, 2022, as follows (in thousands):

The table below presents the effect of cash flow hedge accounting on AOCI for the three months ended September 30, 2023, and September 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

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

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

2 unchanged sentences

Total $ ( 48 ) $ ( 48 ) $ — $ ( 473 ) $ ( 473 ) $ —

Note 9— Derivatives (continued)

Derivatives in Cash Flow

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

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

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

2 unchanged sentences

Total $ ( 828 ) $ ( 828 ) $ — $ ( 74 ) $ ( 74 ) $ —

Note 9— Derivatives (continued)

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):

The table below presents the effect of cash flow hedge accounting on AOCI for the nine months ended September 30, 2023, and September 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

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

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

3 unchanged sentences

Derivatives in Cash Flow

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

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

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

2 unchanged sentences

Total $ ( 1,924 ) $ ( 1,924 ) $ — $ 108 $ 108 $ —

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.

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

Note 9— Derivatives (continued)

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

Three months ended

June 30, 2023 June 30, 2022

September 30, 2023 September 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

Nine months ended

September 30, 2023 September 30, 2022

Interest Income Interest Expense Interest Income Interest Expense

5 unchanged sentences

Hedged items (1)

( 1,066 ) — — —

Derivatives designated as hedging instruments 776 — — —

5 unchanged sentences

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

(1) The Company voluntary discontinued a fair value hedging relationship and these amounts include the gain or (loss) and the hedging adjustment on a voluntary discontinued hedging relationship.

Note 9— Derivatives (continued)

Credit-risk-related Contingent Features

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.

As of September 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 $ 1.4 million.

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

Note 10— Commitments and Contingencies

11 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.

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

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

September 30, 2023 December 31, 2022

Commitments to extend credit $ 269,097 $ 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 $ 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 recorded a provision for credit losses on unfunded commitments of $ 35.0 thousand for the three months ended September 30, 2023, and a recapture of credit losses on unfunded commitments of $ 69.8 thousand for the nine months ended September 30, 2023.

The ACL on off-balance-sheet credit totaled $ 205.0 thousand at September 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.

15 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

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).

9 unchanged sentences

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

Fair Value Measurements at June 30, 2023 Using:

Fair Value Measurements at September 30, 2023 Using:

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

54 unchanged sentences

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:

Fair Value Measurements at September 30, 2023 Using:

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

20 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 June 30, 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 September 30, 2023, and December 31, 2022 (in thousands except for percentages):

Description Fair Value Valuation Techniques Unobservable Inputs Range Weighted Average

June 30, 2023

September 30, 2023

Impaired loans $ 3,476 Discounted cash flow analysis Market rate for borrower 3.6 % - 8.5 %

2 unchanged sentences

Fair value of financial instruments

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:

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

Fair Value Measurements at September 30, 2023 Using:

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

25 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 three and six months ended June 30, 2023, and June 30, 2022 (in thousands):

Three months ended June 30, 2023

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

Three months ended September 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 $ ( 861 ) $ ( 138,267 ) $ ( 7,031 ) $ ( 146,159 )

Three months ended June 30, 2022

Three months ended September 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

5 unchanged sentences

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

Six months ended June 30, 2023

Nine months ended September 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 $ ( 861 ) $ ( 138,267 ) $ ( 7,031 ) $ ( 146,159 )

Six months ended June 30, 2022

Nine months ended September 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 $ ( 1,605 ) $ ( 139,952 ) $ ( 6,020 ) $ ( 147,577 )

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).

The following table presents amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2023, and September 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

Three months ended Six months ended

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

Three months ended Nine months ended

September 30, 2023 September 30, 2022 September 30, 2023 September 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 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,

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

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

11 unchanged sentences

Total $ 7,417 $ 5,156 $ 19,042 $ 15,686

The Company incurred merger-related expenses of $ 1.7 million for the nine months ended September 30, 2023 including $ 1.6 million which were incurred during the three months ended September 30, 2023.

These expenses are included in the consultant fees and legal expense line items detailed in other operating expenses.

Note 14— Share-Based Compensation

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 $ 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.

Total compensation cost that has been charged against income for the share-based awards granted was $ 610.1 thousand and $ 492.7 thousand for the three months ended September 30, 2023, and September 30, 2022, respectively.

The total income tax benefit was $ 128.1 thousand and $ 103.5 thousand for the three months ended September 30, 2023, and September 30, 2022, respectively.

Total compensation cost that has been charged against income for the share-based awards granted was $ 1.8 million and $ 1.5 million for the nine months ended September 30, 2023, and September 30, 2022, respectively.

The total income tax benefit was $ 377.6 thousand and $ 313.3 thousand for the nine months ended September 30, 2023, and September 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 13,160 shares were issued during the six months ended June 30, 2023, and June 30, 2022, respectively.

A total of 24,705 and 13,160 shares were issued during the nine months ended September 30, 2023, and September 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.

These RSUs vest over three to five years .

Note 14— Share-Based Compensation (continued)

The Board, from time to time, approves performance-based RSU awards that may be earned between a three to five year performance period.

3 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.

12 unchanged sentences

Forfeited — —

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.

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

As of September 30, 2023, there was $ 3.5 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 1.63 years.

4 unchanged sentences

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

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

As of September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

5 unchanged sentences

Diluted EPS 0.55 1.49 2.35 4.11

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.

Note 15— Earnings Per Share (continued)

Stock awards equivalent to 1,368 and zero shares of Common Stock were not considered in computing diluted earnings per common share for the three months ended September 30, 2023, and September 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 nine months ended September 30, 2023, and September 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