What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-15 compared with 2023-11-13 · 138 added, 414 removed, 642 unchanged (46% of the section changed)

3 unchanged sentences

and Subsidiary

September 30,

Consolidated Balance Sheets

23 unchanged sentences

Total deposits

Borrowed funds

Repurchase agreements

Borrowed funds

Junior subordinated debentures

2 unchanged sentences

1,017,715,007

1,010,316,120

Shareholders' Equity

Preferred stock, 1,000,000 shares authorized, 15 shares issued and outstanding

at 09/30/23 and 12/31/22 ($ 100,000 liquidation value, per share)

Preferred stock, 1,000,000 shares authorized, 15 shares issued and outstanding at 03/31/24 and 12/31/23 ($ 100,000 liquidation value, per share)

Common stock - $ 2.50 par value;

15,000,000 shares authorized, 5,700,828

shares issued at 09/30/23 and 5,647,710 shares issued at 12/31/22

15,000,000 shares authorized, 5,745,307 shares issued at 03/31/24 and 5,724,151 shares issued at 12/31/23

Additional paid-in capital

15 unchanged sentences

and Subsidiary

Three Months Ended September 30,

Consolidated Statements of Income

Interest income

Interest and fees on loans

Interest on taxable debt securities

Interest on tax-exempt debt securities

Interest on federal funds sold and overnight deposits

Total interest income

Interest expense

Interest on deposits

Interest on borrowed funds

Interest on repurchase agreements

Interest on junior subordinated debentures

Total interest expense

Net interest income

Provision for credit losses

Net interest income after provision for credit losses

Non-interest income

Income from sold loans

Other income from loans

Total non-interest income

Non-interest expense

Salaries and wages

Employee benefits

Occupancy expenses, net

Other expenses

Total non-interest expense

Income before income taxes

Income tax expense

Earnings per common share

Weighted average number of common shares

used in computing earnings per share

Dividends declared per common share

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Community Bancorp.

and Subsidiary

Nine Months Ended September 30,

Three Months Ended March 31,

Consolidated Statements of Income

12 unchanged sentences

Net interest income

Provision for credit losses

Net interest income after provision for credit losses

Credit loss expense

Net interest income after credit loss expense

Non-interest income

11 unchanged sentences

Earnings per common share

Weighted average number of common shares

used in computing earnings per share

Weighted average number of common shares used in computing earnings per share

Dividends declared per common share

2 unchanged sentences

and Subsidiary

Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended September 30,

Other comprehensive loss, net of tax:

Unrealized holding loss on securities AFS arising during the period

( 5,155,445 )

( 8,978,128 )

Other comprehensive loss, net of tax

( 4,072,800 )

( 7,092,721 )

Total comprehensive loss

$ ( 710,291 )

$ ( 3,482,215 )

Nine Months Ended September 30,

Other comprehensive loss, net of tax:

Unrealized holding loss on securities AFS arising during the period

( 3,615,720 )

( 27,078,956 )

Other comprehensive loss, net of tax

( 2,856,418 )

Consolidated Statements of Comprehensive Income

Three Months Ended March 31,

Other comprehensive (loss) income, net of tax:

Unrealized holding (loss) income on securities AFS arising during the period

( 1,908,870 )

Total comprehensive income (loss)

Other comprehensive (loss) income, net of tax

( 1,508,008 )

Total comprehensive income

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

2 unchanged sentences

Consolidated Statements of Changes in Shareholders' Equity

Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

shareholders'

January 1, 2023

$ ( 20,667,817 )

Balance January 1, 2024

$ ( 15,931,595

Cumulative change in accounting principle (Note 2)

Balance at January 1, 2023 (as adjusted for change

in accounting principle)

Issuance of common stock

4 unchanged sentences

Comprehensive income

Other comprehensive income

March 31, 2023

$ ( 17,994,999 )

$ ( 2,622,777 )

Issuance of common stock

Cash dividends declared

( 1,254,836 )

Preferred stock

Comprehensive loss

Other comprehensive loss

1 unchanged sentence

( 1,508,008 )

June 30, 2023

$ ( 19,451,435 )

$ ( 2,622,777 )

Issuance of common stock

Cash dividends declared

( 1,258,852 )

Preferred stock

Comprehensive loss

Other comprehensive loss

( 4,072,800 )

September 30, 2023

$ ( 23,524,235 )

Balance March 31, 2024

$ ( 17,439,603

*Accumulated other comprehensive loss

The accompanying notes are an integral part of these unaudited interim consolidated financial statements.

Community Bancorp.

and Subsidiary

Consolidated Statements of Changes in Shareholders' Equity

Nine Months Ended September 30, 2022

Three Months Ended March 31 2023

shareholders'

January 1, 2022

$ ( 1,166,971 )

$ ( 2,622,777 )

Issuance of common stock

Cash dividends declared

( 1,236,880 )

Preferred stock

Comprehensive loss

Other comprehensive loss

( 8,744,637 )

March 31, 2022

$ ( 9,911,608 )

$ ( 2,622,777 )

Issuance of common stock

Cash dividends declared

( 1,240,049 )

Preferred stock

Comprehensive loss

Other comprehensive loss

( 5,555,018 )

June 30, 2022

$ ( 15,466,626 )

$ ( 2,622,777 )

Balance January 1, 2023

Cumulative change in accounting principle (Note 2)

Balance at January 1, 2023 (as adjusted for

Change in accounting principle)

Issuance of common stock

3 unchanged sentences

Preferred stock

Comprehensive loss

Other comprehensive loss

( 7,092,721 )

September 30, 2022

$ ( 22,559,347 )

Comprehensive income

Other comprehensive income

Balance March 31, 2023

$ ( 17,994,999

4 unchanged sentences

Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

Cash Flows from Operating Activities:

Adjustments to reconcile net income to net cash provided by

operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization, bank premises and equipment

Provision for credit losses

Credit loss expense

Deferred income tax

Gain on sale of loans

Loss on sale of bank premises and equipment

Gain on sale of bank premises and equipment

Income from CFS Partners

4 unchanged sentences

( 1,608,050 )

(Decrease) increase in taxes payable

Increase in interest receivable

Increase in taxes payable

(Increase) decrease in interest receivable

Decrease in mortgage servicing rights

7 unchanged sentences

Decrease in accrued expenses

( 1,069,838 )

( 1,040,367 )

Increase in other liabilities

3 unchanged sentences

Maturities, calls, pay downs and sales

( 3,991,124 )

( 47,476,763 )

Proceeds from redemption of restricted equity securities

1 unchanged sentence

( 1,759,800 )

Decrease in limited partnership contributions payable

( 1,823,301 )

Investments in limited liability entities

2 unchanged sentences

( 10,074,935 )

Capital expenditures net of proceeds from sales of bank

premises and equipment

Capital expenditures net of proceeds from sales of bank premises and equipment

Recoveries of loans charged off

3 unchanged sentences

Cash Flows from Financing Activities:

Net (decrease) increase in demand and interest-bearing transaction accounts

Net decrease in demand and interest-bearing transaction accounts

( 23,157,006 )

Net (decrease) increase in money market and savings accounts

( 29,855,106 )

Net increase (decrease) in time deposits

Net decrease in money market and savings accounts

( 2,183,259 )

Net decrease in repurchase agreements

( 8,183,145 )

Net increase in time deposits

Net (decrease) increase in repurchase agreements

( 9,089,673 )

Net increase in short-term borrowings

Proceeds from long-term borrowings

Repayments on long-term borrowings

Decrease in finance lease obligations

1 unchanged sentence

Dividends paid on common stock

( 2,771,073 )

Net cash provided by (used in) financing activities

( 30,462,493 )

Net cash provided by financing activities

Net decrease in cash and cash equivalents

3 unchanged sentences

Supplemental Schedule of Cash Paid During the Period:

Income taxes, net of refunds

Supplemental Schedule of Noncash Investing and Financing Activities:

Change in unrealized loss on securities AFS

$ ( 3,615,720 )

Change in unrealized (loss) gain on securities AFS

$ ( 1,908,870 )

1 unchanged sentence

Dividends declared

Increase in dividends payable attributable to dividends declared

(Increase) decrease in dividends payable attributable to dividends declared

Dividends reinvested

9 unchanged sentences

The unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2023, contained in the Company's Annual Report on Form 10-K.

Certain amounts in the 2022 consolidated financial statements were reclassified to conform to the current period presentation.

The reclassification had no effect on net income or shareholders’ equity as previously reported.

The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for any other interim period or the full annual period ending December 31, 2024.

The Company is considered a “smaller reporting company” under the disclosure rules of the SEC, as amended in 2018.

Accordingly, the Company has elected to provide its consolidated statements of income, comprehensive income, cash flows and changes in shareholders’ equity for a two year, rather than a three year, period, and provides certain other smaller reporting company scaled disclosures where management deems it appropriate.

The Company is considered a “smaller reporting company” and a “non-accelerated filer” under the disclosure rules of the SEC.

Accordingly, the Company has elected to provide smaller reporting company scaled disclosures where management deems it appropriate, and to provide its audited consolidated statements of income, comprehensive income, cash flows and changes in shareholders’ equity for a two year, rather than a three year, period.is considered a “smaller reporting company” under the disclosure rules of the SEC, as amended in 2018.

In addition to the definitions provided elsewhere in this quarterly report, the definitions, acronyms and abbreviations identified below are used throughout this report, including in Part I.

2 unchanged sentences

Asset backed security

Financial Accounting Standards Board

Allowance for Credit Losses

Federal Deposit Insurance Corporation

4 unchanged sentences

Federal Home Loan Bank of Boston

Allowance for Credit Losses

Federal Home Loan Mortgage Corporation

Asset Liability Committee

Federal Open Market Committee

Federal Home Loan Mortgage Corporation

Allowance for Loan Losses

Federal Reserve Board

Federal Open Market Committee

Accumulated other comprehensive income

Federal Reserve Bank of Boston

Federal Reserve Board

Accounting Standards Codification

Generally Accepted Accounting Principles

Federal Reserve Bank of Boston

Accounting Standards Update

in the United States

Generally Accepted Accounting Principles

Community Bancorp.

Government sponsored enterprise

in the United States

Community National Bank

Held-to-maturity

Government sponsored enterprise

Bankers Healthcare Group

Insured Cash Sweeps of the IntraFi Network

Held-to-maturity

Borrower-in-Custody

Internal Revenue Service

Insured Cash Sweeps of the IntraFi Network

Board of Directors

Jobs for New England

Internal Revenue Service

Bank owned life insurance

Jobs for New England

Basis point(s)

London Interbank Offered Rate

Bank Term Funding Program

Mortgage-backed security

London Interbank Offered Rate

Certificate of Deposit Accounts Registry

Mortgage servicing rights

Mortgage-backed security

Service of the IntraFi Network

Net interest income

Mortgage servicing rights

Certificates of deposit

Other amortizing security

Net interest income

Core deposit intangible

Off-balance sheet

Other amortizing security

Current Expected Credit Loss

Other comprehensive income (loss)

Off-balance sheet

Community Financial Services Group, LLC

Other real estate owned

Other comprehensive income (loss)

CFS Partners:

Community Financial Services Partners,

Other real estate owned

Other-than-temporary impairment

CME Group Benchmark Administration Ltd.

Private mortgage insurance

11 unchanged sentences

Depository Trust Company

Troubled-debt restructuring

Dividend Reinvestment Plan

Department of Agriculture

Dividend Reinvestment Plan

Veterans Administration

Exchange Act:

Securities Exchange Act of 1934

Veterans Administration

Financial Accounting Standards Board

Recent Accounting Developments

In March 2020, the FASB issued ASU No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, and has issued subsequent amendments thereto, which provide temporary optional guidance to ease the potential burden in accounting for reference rate reform.

The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

It is intended to help stakeholders during the global market-wide reference rate transition period.

In December 2023, the FASB issued ASU No.

2022-06, Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848 , which extended the sunset date of December 31, 2022, to December 31, 2024.

The guidance is effective for all entities as of March 12, 2020, through December 31, 2024.

The Company is assessing ASU No.

2020-04 and its impact on the transition away from LIBOR for its Junior Subordinated Debentures due December 15, 2037, the Company’s only financial instruments that utilize LIBOR as a reference rate.

That transition became effective for the Debentures as of the first London banking day after June 30, 2023 (see the Interest Rate Risk and Asset and Liability Management section of the accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations following these Notes).

In March 2023, the FASB issued ASU No.

2023-02, Investments-Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method .

2014-01, Investments-Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Qualified Affordable Housing Projects , previously introduced the option to apply the proportional amortization method to account for investments made primarily for the purpose of receiving income tax credits and other income tax benefits when certain requirements are met;

however, this guidance limited the proportional amortization method to investments in low-income-housing tax credit (LIHTC) structures.

The proportional amortization method results in the cost of the investment being amortized in proportion to the income tax credits and other income tax benefits received, with the amortization of the investment and the income tax credits being presented net in the income statement as a component of net income tax expense (benefit).

Equity investments in other tax credit structures are typically accounted for using the equity method, which results in investment income, gains and losses, and tax credits being presented gross on the income statement in their respective line items.

The amendments in this update permit reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met.

The amendments in this update are effective for the Company for fiscal years beginning after December 31, 2023, including interim periods within those fiscal years.

Early adoption is permitted in any interim period.

If early adoption is elected, adoption must be as of the beginning of the fiscal year that includes the interim period of adoption.

The amendments in this update must be applied on either a modified retrospective or a retrospective basis.

The Company is analyzing the impact of early adoption of this ASU, and is currently evaluating the impact of this standard for its tax equity investments as well as the impact within the consolidated financial statements.

Accounting Standards Adopted in 2023

The Company adopted the following accounting standards effective January 1, 2023, and applied them to the Company’s interim unaudited consolidated financial statements beginning with the quarter ended March 31, 2023.

Prior periods have not been restated as a result of adoption of these accounting standards.

2016-13, Financial Instruments—Credit Losses (Topic 326) In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

Under that guidance, which replaced the existing incurred loss model for recognizing credit losses, banks and other lending institutions are required to recognize the full amount of expected credit losses over the life of a loan.

The guidance, which is referred to as the current expected credit loss, or CECL model, requires that expected credit losses for financial assets held at the reporting date that are accounted for at amortized cost be measured and recognized based on historical experience and current and reasonably supportable forecasted conditions to reflect the full amount of expected credit losses over the life of the loans.

A modified version of these requirements also applies to debt securities classified as available for sale, which requires that credit losses on those securities be recorded through an allowance for credit losses rather than a write-down.

Upon adoption of this ASU on January 1, 2023, the Company recorded a cumulative-effect adjustment of $ 549,113 as a reduction to retained earnings, with a corresponding adjustment of $ 243,376 increasing the ACL on loans, an adjustment of $ 451,704 , increasing other liabilities for the ACL on off-balance sheet credit exposures, and an adjustment of $ 145,967 increasing deferred tax assets.

There was no allowance recorded for credit losses on AFS debt securities resulting from adoption of this ASU.

2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.

In March 2022, the FASB issued ASU No.

2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.

The guidance amends Topic 326 (CECL) to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty.

Specifically, rather than applying TDR recognition and measurement guidance, under the CECL model creditors will determine whether a modification results in a new loan or continuation of existing loan.

These amendments are intended to enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

Additionally, the amendments to Topic 326 require that an entity disclose current-period gross write-offs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination.

The guidance became effective for the Company beginning with the fiscal year 2023, including interim periods.

Adoption of this ASU did not have a material impact on the consolidated financial statements.

2023-09, Improvements to Income Tax Disclosures.

The ASU provides more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information, such as requiring the disclosure of specific categories in the rate reconciliation and the disaggregation of income tax expense and income taxes paid by federal, state, and foreign taxes.

The ASU is effective for annual periods beginning after December 15, 2024.

The Company does not believe the ASU will have a material impact on the Company's consolidated financial statements.

Earnings per Common Share

1 unchanged sentence

The following tables illustrate the calculation of earnings per common share for the periods presented, as adjusted for the cash dividends declared on the preferred stock:

Three Months Ended September 30,

Net income, as reported

dividends to preferred shareholders

Net income available to common shareholders

Weighted average number of common shares

used in calculating earnings per share

Earnings per common share

Nine Months Ended September 30,

Three Months Ended March 31,

Net income, as reported

1 unchanged sentence

Net income available to common shareholders

Weighted average number of common shares

used in calculating earnings per share

Weighted average number of common shares used in calculating earnings per share

Earnings per common share

1 unchanged sentence

Debt securities AFS as of the balance sheet dates consisted of the following:

September 30, 2023

March 31, 2024

GSE debt securities

13 unchanged sentences

$ 190,706,019

The Company had investments in Agency MBS exceeding 10 % of shareholders’ equity with a book value of $ 130.2 million and $ 135.2 million, respectively, and a fair value of $ 106.8 million and $ 115.2 million, respectively, at September 30, 2023 and December 31, 2022.

The Company had investments in Agency MBS exceeding 10% of shareholders’ equity with a book value of $ 129.2 million and $ 132.0 million, respectively, and a fair value of $ 111.2 million and $ 115.9 million, respectively, as of March 31, 2024 and December 31, 2023.

There was no ACL on AFS debt securities as of March 31, 2024 or December 31, 2023.

Investment securities pledged as collateral for repurchase agreements consisted of certain U.S.

2 unchanged sentences

The aggregate amortized cost and fair value of these pledged investments as of the balance sheet dates were as follows:

September 30, 2023

March 31, 2024

December 31, 2023

1 unchanged sentence

Government securities and U.S.

GSE debt securities with an aggregate amortized cost of $49,934,319 and fair value of $42,323,851 at September 30, 2023.

The Company began utilizing the BTFP during 2023 as a source of liquidity.

For more information on these borrowings, see the Liquidity and Capital Resources section of the accompanying Management’s Discussion and Analysis of Financial Condition and Results of Operations following these Notes.

There were no sales of debt securities during the first nine months of 2023 or 2022.

GSE debt securities with an aggregate amortized cost and fair value of these pledged investments as of the balance sheet dates as follows:

March 31, 2024

December 31, 2023

There were no sales of debt securities during the first three months of 2024 or 2023.

The scheduled maturities of debt securities as of the balance sheet dates were as follows:

September 30, 2023

March 31, 2024

Due in one year or less

15 unchanged sentences

12 months or more

September 30, 2023

March 31, 2024

GSE debt securities

5 unchanged sentences

$ 169,139,204

Less than 12 months

12 months or more

December 31, 2023

9 unchanged sentences

Under the ASU, if the Company intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, then the credit loss is recorded through an allowance rather than as a write-down of the security.

As of September 30, 2023, the Company did not have the intent to sell, nor was it more likely than not that we would be required to sell any of the debt securities AFS in an unrealized loss position prior to recovery and determined that no individual debt securities in an unrealized loss position represented credit losses that would require an allowance for credit losses.

As of March 31, 2024, the Company did not have the intent to sell, nor was it more likely than not that we would be required to sell any of the debt securities AFS in an unrealized loss position prior to recovery and determined that no individual debt securities in an unrealized loss position represented credit losses that would require an allowance for credit losses.

The Company concluded that the unrealized losses were primarily attributed to increases in market interest rates since these securities were purchased under other market conditions.

As of December 31, 2022, in management’s view the unrealized losses on securities AFS were due to market conditions rather than reduced estimated cash flows or deterioration in the creditworthiness of the issuer.

At December 31, 2022, the Company did not intend to sell these securities, did not anticipate that these securities would be required to be sold before anticipated recovery, and expected full principal and interest to be collected.

Therefore, under the accounting principles pertaining to OTTI analysis then in effect, the Company did not consider the declines in the fair value of these securities to be OTTI as of December 31, 2022.

Loans, Allowance for Credit Losses, Credit Quality and Off-Balance Sheet Credit Exposures

The composition of net loans as of the balance sheet dates was as follows:

September 30, 2023

March 31, 2024

December 31, 2023

10 unchanged sentences

$ 836,160,298

Provision for Credit Losses

The provision for credit losses was made up of the following components for the periods indicated:

Three Months Ended September 30,

Provision for loan losses

Provision for credit losses on OBS credit exposure

Provision for credit losses

Nine Months Ended September 30,

Provision for loan losses

Provision for credit losses on OBS credit exposure

Provision for credit losses

The following tables present the activity in the ACL on loans for the three- and nine-month periods following adoption of ASU 2016-13 (CECL) on January 1, 2023 and select information on impairment evaluation by portfolio segment for those interim periods.

As of or for the three months ended September 30, 2023

As of March 31, 2024, purchased loans consisted of $ 5,452,239 in commercial loans and $ 4,755,125 in consumer loans, compared to $ 4,863,263 and $ 5,705,659 , respectively, as of December 31, 2023.

Credit Loss Expense

Credit loss expense was made up of the following components for the periods indicated:

Three Months Ended March 31,

Credit loss expense - loans

Credit loss (reversal) expense - OBS credit exposure

Credit loss expense

The following tables present the activity in the ACL on loans for the periods presented.

As of or for the three months ended March 31, 2024

ACL beginning balance

Provision (credit)

Credit loss expense (reversal)

ACL ending balance

As of or for the nine months ended September 30, 2023

As of or for the year ended December 31, 2023

ACL beginning balance

Impact of adopting CECL

Provision (credit)

Credit loss expense (reversal)

ACL ending balance

ACL evaluated for impairment

Loans evaluated for impairment

$ 126,161,034

$ 407,039,093

$ 206,098,103

$ 838,572,268

The following tables present activity in the ALL and select loan information on impairment evaluation, by portfolio segment, under the incurred loss methodology, for the periods indicated:

As of or for the year ended December 31, 2022

ALL beginning balance

Provision (credit)

ALL ending balance

ALL evaluated for impairment

Loans evaluated for impairment

$ 112,951,873

$ 356,892,986

$ 198,743,375

$ 748,548,608

As of or for the nine months ended September 30, 2022

ALL beginning balance

Provision (credit)

ALL ending balance

ALL evaluated for impairment

Loans evaluated for impairment

$ 121,224,062

$ 324,327,160

$ 192,566,579

$ 724,194,001

As of or for the three months ended March 31, 2023

ACL beginning balance

Impact of adopting CECL

Credit loss expense (reversal)

ACL ending balance

The following is an age analysis of past due loans (including non-accrual) as of the balance sheet dates, by portfolio segment:

September 30, 2023

March 31, 2024

Commercial & industrial

16 unchanged sentences

For all loan segments, loans over 30 days past due are considered delinquent.

The following tables present the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing as of the dates presented.

There were no nonaccrual loans with an ACL at September 30, 2023.

September 30, 2023

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due 90 days or more and still accruing as of the dates presented.

There were no nonaccrual loans with an ACL as of March 31, 2024 or December 31, 2023.

March 31, 2024

Commercial & industrial

7 unchanged sentences

Residential real estate - Jr lien

As of the balance sheet dates presented, residential real estate loans in process of foreclosure consisted of the following:

Number of loans

September 30, 2023

December 31, 2022

Allowance for loan losses (prior to adoption of CECL)

Please refer to Note 4 to the audited consolidated financial statements contained in the Company’s 2022 Annual Report on Form 10-K for a description of the ALL, under previously applicable GAAP, prior to adoption of CECL.

There were no residential real estate loans in process of foreclosure as of March 31, 2024 or December 31, 2023.

Allowance for credit losses

15 unchanged sentences

The Company does not disaggregate its portfolio segments further into classes.

The Company utilizes a discounted cash flow (DCF) approach to calculate the expected loss for each portfolio segment.

The Company utilizes a DCF approach to calculate the expected loss for each portfolio segment.

Within the DCF model, probability of default (PD) and loss given default (LGD) assumptions are applied to calculate the expected loss for each segment.

1 unchanged sentence

The Company's PD and LGD assumptions may be derived from internal historical default and loss experience or from external data where there are not statistically meaningful loss events for a loan segment, or it does not have default and loss data that covers a full economic cycle.

As of September 30, 2023, the primary macroeconomic drivers used within the DCF model included forecasts of civilian unemployment and changes in national gross domestic product (GDP).

As of March 31, 2024, the primary macroeconomic drivers used within the DCF model included forecasts of civilian unemployment and changes in national gross domestic product (GDP).

Management monitors and assesses its macroeconomic drivers at least annually (generally in the fourth quarter, or more frequently as circumstances warrant) to determine whether they continue to be the most predictive indicator of losses within the Company's loan portfolio, and these macroeconomic drivers may change from time to time.

3 unchanged sentences

Management monitors and assesses the forecast and reversion period at least annually, or more frequently as circumstances warrant.

The Company used a one-year forecast and reversion period to calculate the ACL on loans as of September 30, 2023.

The Company used a one-year forecast and reversion period to calculate the ACL on loans as of March 31, 2024.

When the DCF method is used to determine the ACL, management does not adjust the effective interest rate used to discount expected cash flows to incorporate expected prepayments.

15 unchanged sentences

This evaluation is inherently subjective as it requires estimates that are susceptible to revision as more information becomes available.

During the third quarter of 2023, the qualitative factor for collateral in the CRE loan segment was adjusted to reflect the stable values of real estate in the commercial sector.

The qualitative factors are determined based on the various risk characteristics of each loan segment.

During the first quarter of 2024, the qualitative factor for delinquencies in the C&I and CRE portfolios was adjusted to reflect improving trends in those portfolios.

Also, the qualitative factors for collateral in the residential portfolios were adjusted to reflect stabilization of real estate values in that sector.

The qualitative factors are determined by management based on the various risk characteristics of each loan segment.

The Company has policies, procedures, and internal controls that management believes are commensurate with the risk profile of each of these segments.

5 unchanged sentences

A weakened economy, soft consumer spending, unfavorable foreign trade conditions and the rising cost of labor or raw materials are examples of issues that can impact credit quality in this segment.

Purchased – Loans in this segment are loans purchased through a loan purchasing program with Bankers Healthcare Group (BHG).

BHG originates commercial loans to medical professionals nationwide and sells them individually to a secondary market, primarily banks, through a bid process.

Purchased – Loans in this segment are loans purchased through a loan purchasing program with BHG.

BHG originates commercial loans to medical professionals and consumer loans to other professionals nationwide and sells them individually to a secondary market, primarily banks, through a bid process.

The Bank has established conservative credit parameters and expects a low risk of default in this portfolio.

28 unchanged sentences

However, when management determines that foreclosure is probable or when the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

The following table presents the amortized cost basis of collateral-dependent loans as of September 30, 2023, by collateral type:

Commercial & industrial

Commercial real estate

Residential real estate - 1st lien

Including, but not limited to, inventory, equipment and accounts receivable, but excluding real estate.

Impaired loans, by portfolio segment, prior to adoption of ASU 2022-02 (Troubled Debt Restructurings and Vintage Disclosures), were as follows:

As of December 31, 2022

Investment (1)

Related allowance recorded

Commercial & industrial

Residential real estate – 1st lien

Total with related allowance

No related allowance recorded

Commercial & industrial

Commercial real estate

Residential real estate - 1st lien

Residential real estate - Jr lien

Total with no related allowance

Total impaired loans

Recorded investment in impaired loans in the table above includes accrued interest receivable and deferred net loan costs of $ 11,517 .

As of September 30, 2022

Investment (1)

Related allowance recorded

Commercial & industrial

Commercial real estate

Residential real estate - 1st lien

Residential real estate - Jr lien

Total with related allowance

No related allowance recorded

Commercial & industrial

Commercial real estate

Residential real estate - 1st lien

Residential real estate - Jr lien

Total with no related allowance

Total impaired loans

Recorded investment in impaired loans in the table above includes accrued interest receivable and deferred net loan costs of $ 12,627 .

As of September 30, 2022

Three Months Ended

Nine Months Ended

Related allowance recorded

The following table presents the amortized cost basis of collateral-dependent loans as of March 31, 2024, by collateral type:

March 31, 2024

Commercial & industrial

1 unchanged sentence

Residential real estate - 1st lien

Residential real estate - Jr lien

Total with related allowance

No related allowance recorded

December 31, 2023

Commercial & industrial

1 unchanged sentence

Residential real estate - 1st lien

Residential real estate - Jr lien

Total with no related allowance

Total impaired loans

Including, but not limited to, inventory, equipment, and accounts receivable, but excluding real estate.

For all loan segments, the accrual of interest is discontinued when a loan is specifically determined to be impaired or when the loan is delinquent 90 days and management believes, after considering collection efforts and other factors, that the borrower's financial condition is such that collection of interest is considered by management to be doubtful.

35 unchanged sentences

For larger, more complex or adversely rated loans, risk ratings are also assessed at the time of annual or periodic review.

Lenders are required to make immediate disclosure to the Chief Lending Officer of any known increase in loan risk, even if considered temporary in nature.

Lenders are required to make immediate disclosure to the Senior Lender of any known increase in loan risk, even if considered temporary in nature.

The risk ratings within the loan portfolio and current period gross charge-offs, by loan segment and origination year were as follows:

As of or for the nine months ended,

September 30, 2023

As of or for the three months ended,

March 31, 2024

Term Loans Amortized Cost Basis by Origination Year

3 unchanged sentences

Substandard/Doubtful

Total commercial

Current period gross charge-offs

Total purchased

Commercial real estate:

1 unchanged sentence

Substandard/Doubtful

Total commercial real estate

Total municipal

Residential real estate - 1st lien:

1 unchanged sentence

Substandard/Doubtful

Total residential real estate - 1st lien

Residential real estate - Jr lien:

Special mention

Substandard/Doubtful

Total residential real estate - Jr lien

Total consumer

Current period gross charge-offs

Total current period gross charge-offs

As of or for the nine months ended, September 30, 2023, there were (i) no current period gross charge-offs within the Purchased, CRE, Municipal, Residential real estate 1st lien and Residential real estate Jr lien loan segments and (ii) no Special mention or Substandard/Doubtful loans within the Purchased, Municipal and Consumer loan segments.

Before the adoption of ASC 326 (CECL), the risk ratings within the loan portfolio, by segment, as of December 31, 2022, were as follows:

$ 104,697,047

$ 347,732,935

$ 195,269,893

$ 727,442,144

$ 112,951,873

$ 356,892,986

$ 198,743,375

$ 748,548,608

As of or for the three months ended March 31, 2024, there were (i) no current period gross charge-offs within the Purchased, CRE, Municipal, Residential real estate 1st lien and Residential real estate Jr lien loan segments, (ii) no Special mention loans within the Purchased, Municipal, Residential real estate Jr lien and Consumer loan segments, and (iii) no Substandard/Doubtful loans within the Purchased, Municipal and Consumer loan segments.

Modifications of Loans

9 unchanged sentences

Capitalized delinquent accrued interest.

An insignificant delay or insignificant shortfall in the amount of payments typically would not require the loan to be accounted for as modified.

However, pursuant to regulatory guidance, any payment delay longer than three months is generally not considered insignificant.

An insignificant delay or insignificant shortfall in the number of payments typically would not require the loan to be accounted for as modified.

However, pursuant to regulatory guidance, any payment delays longer than three months is generally not considered insignificant.

Management’s assessment of whether a concession has been granted also takes into consideration payments expected to be received from third parties, including third-party guarantors, provided the third party has the ability to perform on the guarantee.

3 unchanged sentences

However, the Company evaluates each potential loan modification on its own merits and does not foreclose the granting of any particular type of concession.

In connection with modifications, the Company takes into account applicable regulatory guidance, including a 2023 interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts.

There were no loan modifications for the first nine months of 2023.

Prior to adoption of ASU 2022-02, new TDRs, by portfolio segment, during the periods presented below were as follows.

Year ended December 31, 2022

Residential real estate – 1st lien

Nine months ended September 30, 2022

Residential real estate – 1st lien

There were no new TDRs for the three months ended September 30, 2022.

There were no TDRs for which there was a payment default during the twelve-month period ended December 31, 2022.

The TDRs for which there was a payment default during the twelve-month period ended September 30, 2022 were as follows:

Commercial real estate

Prior to adoption of ASU 2022-02, TDRs were treated as other impaired loans and carried individual specific reserves with respect to the calculation of the ALL.

These loans were categorized as non-performing, may have been past due, and were generally adversely risk rated.

The TDRs that had defaulted under their restructured terms were generally in collection status and their ALL reserve was typically calculated using the fair value of collateral method.

Prior to adoption of ASU 2022-02, the specific allowances within the ALL related to TDRs as of December 31, 2022 totaled $ 106,280 .

In connection with modifications, the Company considers applicable regulatory guidance, including a 2023 interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts.

There were no loan modifications during the first three months of 2024.

As of the balance sheet dates, the Company evaluates whether it is contractually committed to lend additional funds to debtors with impaired, non-accrual or modified loans.

31 unchanged sentences

Level 2 assets and liabilities include debt securities with quoted prices that are traded less frequently than exchange-traded instruments and derivative contracts whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data.

This category generally includes MSRs, collateral-dependent impaired loans and OREO.

This category generally includes MSRs, individually analyzed loans, loans held-for-sale, and OREO.

Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

25 unchanged sentences

There were no Level 3 assets or liabilities measured on a recurring basis as of the balance sheet dates presented, nor were there any transfers of assets between Levels during either of the periods presented for 2024 or 2023.

September 30,

(market approach)

14 unchanged sentences

There were no Level 1 or Level 3 assets or liabilities measured on a non-recurring basis as of the balance sheet dates presented, nor were there any transfers of assets between levels during either of the periods presented for 2024 or 2023.

September 30,

(market approach)

12 unchanged sentences

The estimated fair values of the Company's financial instruments as of the balance sheet dates were as follows:

September 30, 2023

March 31, 2024

(Dollars in Thousands)

11 unchanged sentences

Other deposits

Brokered deposits

Short-term borrowings

Long-term borrowings

Overnight borrowings

Short-term advances

Long-term advances

Repurchase agreements

18 unchanged sentences

Other deposits

Brokered deposits

Long-term borrowings

Overnight borrowings

Short-term advances

Long-term advances

Repurchase agreements

6 unchanged sentences

The following table shows the changes in the carrying amount of the MSRs, included in other assets in the consolidated balance sheets, for the periods indicated:

Nine Months Ended

September 30,

Three Months Ended

Balance at beginning of year

7 unchanged sentences

The Company has evaluated events and transactions through the date that the financial statements were issued for potential recognition or disclosure in these financial statements, as required by GAAP.

On September 21, 2023, the Company’s Board declared a cash dividend of $ 0.23 per common share, payable November 1, 2023, to shareholders of record as of October 15, 2023.

On March 20, 2024, the Company’s Board declared a cash dividend of $ 0.23 per common share, payable May 1, 2024, to shareholders of record as of April 15, 2024.

This dividend has been recorded in the Company’s consolidated financial statements as of the declaration date, including shares issuable under the DRIP.

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