What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-05-09 compared with 2022-11-04 · 527 added, 545 removed, 918 unchanged (54% of the section changed)

5 unchanged sentences

We have reviewed the accompanying interim consolidated financial information of The First Bancorp, Inc.

and Subsidiary as of September 30, 2022 and 2021 and for the three-month and nine-months periods then ended, and the related notes (collectively referred to as the "interim financial information").

and Subsidiary as of March 31, 2023 and 2022 and for the three-months periods then ended, and the related notes (collectively referred to as the "interim financial information").

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for them to be in conformity with accounting principles generally accepted in the United States of America.

7 unchanged sentences

Portland, Maine

November 4, 2022

Consolidated Balance Sheets (Unaudited)

1 unchanged sentence

and Subsidiary

September 30,

2023 December 31,

2021 September 30,

2022 March 31,

Cash and cash equivalents $ 27,458,000 $ 22,728,000 $ 22,051,000

1 unchanged sentence

Securities available for sale 288,242,000 284,509,000 313,015,000

Securities to be held to maturity (fair value of $ 313,796,000 at September 30, 2022, $ 375,327,000 at December 31, 2021 and $ 379,797,000 at September 30, 2021)

Securities held-to-maturity, net of allowance for credit losses of $ 438,000 at March 31, 2023 1 (fair value of $ 344,053,000 at March 31, 2023, $ 339,011,000 at December 31, 2022 and $ 353,191,000 at March 31, 2022)

391,845,000 393,896,000 377,183,000

2 unchanged sentences

Loans 1,982,847,000 1,914,674,000 1,707,348,000

Less allowance for loan losses 16,387,000 15,521,000 17,507,000

Less allowance for credit losses 23,458,000 16,723,000 15,766,000

Net loans 1,959,389,000 1,897,951,000 1,691,582,000

22 unchanged sentences

Net unrealized loss on securities transferred from available-for-sale to held-to-maturity ( 60,000 ) ( 64,000 ) ( 78,000 )

Net unrealized gain (loss) on cash flow hedging derivative instruments 500,000 — ( 1,537,000 )

Net unrealized gain (loss) on hedging derivative instruments ( 2,192,000 ) 544,000 —

Net unrealized gain on postretirement costs 273,000 273,000 105,000

5 unchanged sentences

Tangible book value per common share $ 17.84 $ 17.93 $ 18.39

1 December 31, 2022 and March 31, 2022 had no allowance for credit losses

See Report of Independent Registered Public Accounting Firm.

3 unchanged sentences

and Subsidiary

For the nine months ended September 30, For the quarter ended September 30,

2022 2021 2022 2021

For the three months ended March 31,

Interest income

Interest and fees on loans (includes YTD tax-exempt income of $ 879,000 for September 30, 2022 and $ 832,000 for September 30, 2021)

Interest and fees on loans (includes YTD tax-exempt income of $ 329,000 for March 31, 2023 and $ 291,000 for March 31, 2022)

$ 24,125,000 $ 16,613,000

Interest on deposits with other banks 40,000 9,000

Interest and dividends on investments (includes YTD tax-exempt income of $ 5,588,000 for September 30, 2022 and $ 5,798,000 for September 30, 2021)

Interest and dividends on investments (includes YTD tax-exempt income of $ 2,002,000 for March 31, 2023 and $ 1,803,000 for March 31, 2022)

4,749,000 3,911,000

5 unchanged sentences

Net interest income 17,475,000 18,620,000

Provision for loan losses 1,300,000 1,575,000 400,000 525,000

Net interest income after provision for loan losses 55,382,000 47,032,000 18,964,000 16,486,000

Provision for credit losses 550,000 450,000

Net interest income after provision for credit losses 16,925,000 18,170,000

Non-interest income

1 unchanged sentence

Service charges on deposit accounts 437,000 437,000

Net securities gains (losses) 7,000 22,000 6,000 ( 142,000 )

Net securities gains — 2,000

Mortgage origination and servicing income, net of amortization 192,000 498,000

16 unchanged sentences

Other comprehensive income (loss) net of tax

Net unrealized loss on securities available for sale, net of taxes $ ( 45,943,000 ) $ ( 5,636,000 ) $ ( 14,866,000 ) $ ( 1,817,000 )

Net unrealized gain (loss) on securities available for sale, net of taxes $ 4,181,000 $ ( 18,343,000 )

Net unrealized gain on transferred securities, net of taxes 4,000 9,000

Net unrealized gain on cash flow hedging derivative instruments 500,000 3,395,000 354,000 546,000

Other comprehensive loss ( 45,423,000 ) ( 2,207,000 ) ( 14,506,000 ) ( 1,257,000 )

Net unrealized loss on hedging derivative instruments ( 2,736,000 ) —

Other comprehensive income (loss) 1,449,000 ( 18,334,000 )

Comprehensive income (loss) $ 9,420,000 $ ( 8,629,000 )

4 unchanged sentences

and Subsidiary

Nine Month Period Ended September 30, 2022 and 2021

Three Month Period Ended March 31, 2023 and 2022

Common stock and

2 unchanged sentences

comprehensive

income (loss) Total

shareholders'

4 unchanged sentences

Net unrealized gain on securities transferred from available for sale to held to maturity, net of tax — — — 9,000 9,000

Net unrealized gain on cash flow hedging derivative instruments, net of tax — — — 3,395,000 3,395,000

Comprehensive income (loss) — — 9,705,000 ( 18,334,000 ) ( 8,629,000 )

5 unchanged sentences

Proceeds from sale of common stock 6,270 199,000 — — 199,000

Balance at September 30, 2021 10,992,950 $ 66,581,000 $ 174,391,000 $ ( 2,235,000 ) $ 238,737,000

Balance at March 31, 2022 11,024,086 $ 67,356,000 $ 186,324,000 $ ( 20,034,000 ) $ 233,646,000

Balance at December 31, 2022 11,045,186 $ 68,545,000 $ 204,343,000 $ ( 43,965,000 ) $ 228,923,000

Net income — — 7,971,000 — 7,971,000

Net unrealized loss on securities available for sale, net of tax — — — ( 45,943,000 ) ( 45,943,000 )

Net unrealized gain on securities available for sale, net of tax — — — 4,181,000 4,181,000

Net unrealized gain on securities transferred from available for sale to held to maturity, net of tax — — — 4,000 4,000

Net unrealized gain on cash flow hedging derivative instruments, net of tax — — — 500,000 500,000

Comprehensive income (loss) — — 29,793,000 ( 45,423,000 ) ( 15,630,000 )

Net unrealized loss on hedging derivative instruments, net of tax — — — ( 2,736,000 ) ( 2,736,000 )

Comprehensive income — — 7,971,000 1,449,000 9,420,000

Cash dividends declared ($ 0.34 per share)

4 unchanged sentences

Proceeds from sale of common stock 7,210 212,000 — — 212,000

Balance at September 30, 2022 11,038,224 $ 68,138,000 $ 198,902,000 $ ( 47,123,000 ) $ 219,917,000

Three Month Period Ended September 30, 2022 and 2021

Common stock and

additional paid-in capital Retained

earnings Accumulated

comprehensive

shareholders'

Shares Amount

Balance at June 30, 2021 10,987,680 $ 66,225,000 $ 168,908,000 $ ( 978,000 ) $ 234,155,000

Net income — — 9,014,000 — 9,014,000

Net unrealized loss on securities available for sale, net of tax — — — ( 1,817,000 ) ( 1,817,000 )

Net unrealized gain on securities transferred from available for sale to held to maturity, net of tax — — — 14,000 14,000

Net unrealized gain on cash flow hedging derivative instruments, net of tax — — — 546,000 546,000

Comprehensive income (loss) — — 9,014,000 ( 1,257,000 ) 7,757,000

Cash dividends declared ($ 0.32 per share)

— — ( 3,518,000 ) — ( 3,518,000 )

Equity compensation expense — 183,000 — — 183,000

Payment to repurchase common stock ( 691 ) — ( 13,000 ) — ( 13,000 )

Proceeds from sale of common stock 5,961 173,000 — — 173,000

Balance at September 30, 2021 10,992,950 $ 66,581,000 $ 174,391,000 $ ( 2,235,000 ) $ 238,737,000

Balance at June 30, 2022 11,030,236 $ 67,737,000 $ 192,565,000 $ ( 32,617,000 ) $ 227,685,000

Net income — — 10,091,000 — 10,091,000

Net unrealized loss on securities available for sale, net of tax — — — ( 14,866,000 ) ( 14,866,000 )

Net unrealized gain on securities transferred from available for sale to held to maturity, net of tax — — — 6,000 6,000

Net unrealized gain on cash flow hedging derivative instruments, net of tax — — — 354,000 354,000

Comprehensive income (loss) — — 10,091,000 ( 14,506,000 ) ( 4,415,000 )

Cash dividends declared ($ 0.34 per share)

Adoption of ASU No.

2016-13 — — ( 6,277,000 ) — ( 6,277,000 )

Equity compensation expense — 198,000 — — 198,000

Amortization of premium for preferred stock issuance — — — — —

Payment to repurchase preferred stock — — — — —

Payment to repurchase common stock — — — — —

Tax benefit from vesting of restricted stock — — — — —

Issuance of restricted stock 1,250 — — — —

Proceeds from sale of common stock 6,738 203,000 — — 203,000

Balance at September 30, 2022 11,038,224 $ 68,138,000 $ 198,902,000 $ ( 47,123,000 ) $ 219,917,000

Balance at March 31, 2023 11,074,182 $ 68,941,000 $ 202,036,000 $ ( 42,516,000 ) $ 228,461,000

See Report of Independent Registered Public Accounting Firm.

2 unchanged sentences

The First Bancorp, Inc.

and Subsidiary

For the nine months ended September 30,

and Subsi diary

For the three months ended March 31,

Cash flows from operating activities

9 unchanged sentences

Net amortization of premiums on investments 122,000 245,000

Net (gain) loss on sale of other real estate owned 1,000 ( 91,000 )

Equity compensation expense 184,000 217,000

Net (increase) decrease in other assets and accrued interest ( 11,362,000 ) 14,364,000

Net increase (decrease) in other liabilities 8,720,000 ( 6,522,000 )

Net (gain) loss on disposal of premises and equipment ( 15,000 ) 2,000

Net increase in other assets and accrued interest ( 7,296,000 ) ( 9,703,000 )

Net increase in other liabilities 4,115,000 5,658,000

Net loss on disposal of premises and equipment 1,000 —

Amortization of investment in limited partnership 76,000 76,000

2 unchanged sentences

Cash flows from investing activities

(Increase) decrease in interest-bearing deposits in other banks 892,000 ( 37,628,000 )

Proceeds from sales of securities available for sale 1,301,000 19,435,000

Increase in interest-bearing deposits in other banks 920,000 48,251,000

Proceeds from maturities, payments and calls of securities available for sale 4,956,000 14,953,000

Proceeds from maturities, payments, calls and sales of securities to be held to maturity 1,594,000 8,363,000

Proceeds from sales of other real estate owned 50,000 999,000

Purchases of securities available for sale ( 3,496,000 ) ( 30,762,000 )

1 unchanged sentence

Redemption of restricted equity securities 9,000 —

Purchase of restricted equity securities — ( 37,000 )

Net increase in loans ( 68,198,000 ) ( 59,904,000 )

Capital expenditures ( 526,000 ) ( 703,000 )

Proceeds from disposal of premises and equipment 38,000 —

Net cash used by investing activities ( 64,741,000 ) ( 35,436,000 )

Cash flows from financing activities

Net increase in demand, savings, and money market accounts 26,681,000 279,620,000

Net increase (decrease) in certificates of deposit 219,971,000 ( 91,018,000 )

Net increase (decrease) in short-term borrowings 37,006,000 ( 28,831,000 )

Net decrease in demand, savings, and money market accounts ( 54,172,000 ) ( 8,500,000 )

Net increase in certificates of deposit 141,996,000 43,742,000

Net decrease in short-term borrowings ( 19,599,000 ) ( 2,628,000 )

Repayment on long-term borrowings ( 3,000 ) ( 2,000 )

6 unchanged sentences

Cash and cash equivalents at end of period $ 27,458,000 $ 22,051,000

For the nine months ended September 30,

For the three months ended March 31,

Interest paid $ 11,460,000 $ 1,901,000

Income taxes paid 5,745,000 4,573,000

Non-cash transactions

Right of use lease asset $ — $ 319,000

Operating lease liability — ( 319,000 )

Change in net unrealized loss on available for sale securities, net of tax ( 4,181,000 ) 18,343,000

16 unchanged sentences

To curtail spread of the virus, governments at all levels encouraged social distancing and many imposed restrictions on travel and group meetings, and/or mandated shut-downs of all but essential businesses.

Vaccination efforts have led to a general re-opening of the economy with few remaining restrictions.

Vaccination efforts led to a general re-opening of the economy with few remaining restrictions.

The Company’s business, financial condition, and results of operations generally rely upon the ability of the Bank’s borrowers to repay their loans, the value of collateral underlying the Bank’s secured loans, and demand for loans and other products and services the Bank offers, which are highly dependent on the business environment in the Bank’s primary markets where it operates and in the United States as a whole.

1 unchanged sentence

In 2020, COVID-19 adversely impacted the tourism industry to a greater degree than other industries;

in 2021, the tourism industry rebounded to enjoy a strong year, and anecdotal evidence points to a good year for the industry in 2022.

the tourism industry rebounded to enjoy a strong years in 2021 and 2022, and anecdotal evidence points to a good year for the industry in 2023.

Milder variants of COVID-19 have become the dominant strains with outbreaks resulting in modest levels of disruption.

The severity of any potential future outbreaks could have an impact on the Company's operating results, though the degree is indeterminable at this time.

Government has announced that the public health emergency declared in response to COVID-19 will end on May 11, 2023.

Government economic programs intended to backstop and bolster the economy through the pandemic, such as the Payroll Protection Program ("PPP") have ended, and the nation's economy has entered an inflationary phase.

3 unchanged sentences

The ongoing conflict between Russia and Ukraine has exacerbated pandemic-related supply chain issues, upset numerous global markets including energy and certain raw materials, and generally added to economic uncertainty and geopolitical instability.

The recent failures of several regional banks in the US further roiled markets and could have a lingering impact.

Any or all could have negative downstream effects on the Company's operating results, the extent of which is indeterminable at this time.

Subsequent Events

Events occurring subsequent to September 30, 2022, have been evaluated as to their potential impact to the financial statements.

Events occurring subsequent to March 31, 2023, have been evaluated as to their potential impact to the financial statements.

Note 2 – Investment Securities

The following table summarizes the amortized cost and estimated fair value of investment securities at September 30, 2022:

The following table summarizes the amortized cost and estimated fair value of investment securities at March 31, 2023:

Cost Unrealized Gains Unrealized Losses Fair Value (Estimated)

11 unchanged sentences

$ 392,283,000 $ 440,000 $ ( 48,670,000 ) $ 344,053,000

Less allowance for credit losses ( 438,000 ) — — —

Net securities to be held to maturity $ 391,845,000 $ — $ — $ —

Restricted equity securities

2 unchanged sentences

$ 3,874,000 $ — $ — $ 3,874,000

Allowance for Credit Losses:

The Company adopted Accounting Standards Codification ("ASC") 326, the Current Expected Credit Loss ("CECL") standard in the current reporting period.

In conjunction with adoption, holdings of Available for Sale ("AFS") Securities and Held to Maturity ("HTM") securities were evaluated to determine the need to establish an allowance for credit losses, if any.

AFS securities, as shown in the table above, consist of securities issued by U.S.

Government Agencies, U.S.

Government Sponsored Entities, State or Local Municipal Governments, or are backed by collateral that is guaranteed by the U.S.

We monitor the credit quality of these investments through credit ratings issued by major rating providers and through substantial price changes not consistent with general market movements.

Each of the AFS securities is deemed to be investment grade, and no allowance for credit loss ("ACL") was established for AFS securities.

Similarly, the agency and mortgage-backed securities in the HTM portfolio were determined to all be investment grade with no ACL required.

Municipal securities within HTM include two private activity bonds issued by well-known customers of the Bank with total balances of $ 20,000,000 as of March 31, 2023.

These bonds carry similar risk characteristics to the commercial real estate - owner occupied segment of the Bank's loan portfolio described in Note 3;

management has elected to apply a loss rate matching the loan segment to the balance of these bonds for purposes of establishing an ACL.

Corporate securities in HTM consist of thirteen individual companies in the banking industry.

Management reviewed the collectability of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, and other performance factors.

It was concluded that aggregate credit risk of the corporate securities was very low and a small ACL was established.

The total ACL for HTM securities was $ 438,000 as of March 31, 2023;

there was no reserve as of December 31, 2022 and March 31, 2022.

Changes in the allowance for credit losses are recorded as credit loss expense, or reversal.

Losses would be charged against the allowance when management believes collection of the full contractual amount due on a security is unlikely.

The following table summarizes the amortized cost and estimated fair value of investment securities at December 31, 2022:

17 unchanged sentences

$ 3,883,000 $ — $ — $ 3,883,000

The following table summarizes the amortized cost and estimated fair value of investment securities at September 30, 2021:

The following table summarizes the amortized cost and estimated fair value of investment securities at March 31, 2022:

Cost Unrealized Gains Unrealized Losses Fair Value (Estimated)

15 unchanged sentences

$ 5,402,000 $ — $ — $ 5,402,000

The following table summarizes the contractual maturities of investment securities at September 30, 2022:

The following table summarizes the contractual maturities of investment securities at March 31, 2023:

Securities available for sale Securities to be held to maturity

15 unchanged sentences

$ 341,113,000 $ 284,509,000 $ 393,896,000 $ 339,011,000

The following table summarizes the contractual maturities of investment securities at September 30, 2021:

The following table summarizes the contractual maturities of investment securities at March 31, 2022:

Securities available for sale Securities to be held to maturity

6 unchanged sentences

$ 338,408,000 $ 313,015,000 $ 377,183,000 $ 353,191,000

At September 30, 2022, securities with a carrying value of $ 343,677,000 were pledged to secure public deposits, repurchase agreements, and for other purposes as required by law.

This compares to securities with a carrying value of $ 297,456,000 as of December 31, 2021 and $ 299,978,000 at September 30, 2021, pledged for the same purposes.

At March 31, 2023, securities with a carrying value of $ 324,716,000 were pledged to secure public deposits, repurchase agreements, and for other purposes as required by law.

This compares to securities with a carrying value of $ 350,411,000 as of December 31, 2022 and $ 238,761,000 at March 31, 2022, pledged for the same purposes.

Gains and losses on the sale of securities are computed by subtracting the amortized cost at the time of sale from the security's selling price, net of accrued interest to be received.

The following table shows securities gains and losses for the nine months and quarters ended September 30, 2022 and 2021:

For the nine months ended September 30, For the quarter ended September 30,

2022 2021 2022 2021

The following table shows securities gains and losses for the three months ended March 31, 2023 and 2022:

For the three months ended March 31,

Proceeds from sales of securities $ — $ —

1 unchanged sentence

Gross realized losses — —

Net gain (loss) $ 7,000 $ 22,000 $ 5,000 $ ( 142,000 )

Net gain $ — $ 2,000

Related income taxes $ — $ —

Management reviews securities with unrealized losses for other than temporary impairment.

As of September 30, 2022, there were 912 securities with unrealized losses held in the Company's portfolio.

These securities were temporarily impaired as a result of changes in interest rates reducing their fair value, of which 138 had been temporarily impaired for 12 months or more.

The Company has the ability and intent to hold its impaired securities until a recovery of their amortized cost, which may be at maturity.

Information regarding securities temporarily impaired as of September 30, 2022 is summarized below:

As of March 31, 2023, there were 781 securities with unrealized losses held in the Company's portfolio.

The Company has the ability and intent to hold its securities which are in an unrealized loss position until a recovery of their amortized cost, which may be at maturity.

The following table summarizes debt securities available-for-sale in an unrealized loss position for which an allowance for credit losses has not been recorded at March 31, 2023, aggregated by major security type and length of time in a continuous unrealized loss position:

Less than 12 months 12 months or more Total

14 unchanged sentences

State and political subdivisions 149,517,000 ( 13,769,000 ) 67,932,000 ( 24,247,000 ) 217,449,000 ( 38,016,000 )

Asset-backed securities 3,495,000 ( 53,000 ) — — 3,495,000 ( 53,000 )

Corporate securities 19,857,000 ( 2,143,000 ) 3,160,000 ( 340,000 ) 23,017,000 ( 2,483,000 )

$ 251,182,000 $ ( 23,126,000 ) $ 310,159,000 $ ( 88,620,000 ) $ 561,341,000 $ ( 111,746,000 )

As of September 30, 2021, there were 184 securities with unrealized losses held in the Company's portfolio.

As of March 31, 2022, there were 548 securities with unrealized losses held in the Company's portfolio.

These securities were temporarily impaired as a result of changes in interest rates reducing their fair value, of which 72 had been temporarily impaired for 12 months or more.

Information regarding securities temporarily impaired as of September 30, 2021 is summarized below:

Information regarding securities temporarily impaired as of March 31, 2022 is summarized below:

Less than 12 months 12 months or more Total

3 unchanged sentences

State and political subdivisions 141,305,000 ( 17,850,000 ) 3,405,000 ( 1,029,000 ) 144,710,000 ( 18,879,000 )

Asset-backed securities 4,340,000 ( 18,000 ) — — 4,340,000 ( 18,000 )

Corporate securities 11,151,000 ( 349,000 ) — — 11,151,000 ( 349,000 )

$ 339,083,000 $ ( 30,283,000 ) $ 163,006,000 $ ( 21,224,000 ) $ 502,089,000 $ ( 51,507,000 )

Credit Quality Indicators:

Agency-backed and government-sponsored enterprise securities have a long history with no credit losses, including during times of severe stress.

The principal and interest payments on agency-guaranteed debt is backed by the U.S.

Government-sponsored enterprises similarly guarantee principal and interest payments and carry an implicit guarantee from the U.S.

Department of the Treasury.

Additionally, government-sponsored enterprise securities are exceptionally liquid, readily marketable, and provide a substantial amount of price transparency and price parity, indicating a perception of zero credit losses.

HTM municipal debt holdings are comprised primarily of high credit quality (rated A- or higher) state and municipal obligations.

High credit quality state and municipal obligations have a history of zero to near-zero credit loss.

HTM municipal debt holdings also includes two unrated private activity bonds issued by well known customers of the Bank.

These securities are regularly monitored as part of an overall credit relationship with the issuers;

both issuers were in good standing as of March 31, 2023.

HTM corporate debt holdings consist of thirteen individual companies in the banking industry.

Management conducts periodic reviews of the collectability of these securities taking into consideration such factors as the financial condition of the issuers;

each were in good standing as of March 31, 2023.

The following table presents the activity in the ACL for held-to-maturity debt securities by major security type for the three months ended March 31, 2023:

State and Political Subdivisions Corporate Securities Total

Allowance for credit losses:

Beginning balance $ — $ — $ —

Impact of adopting ASC 326 229,000 209,000 438,000

Credit loss expense — — —

Securities charged-off — — —

Recoveries — — —

Total ending allowance balance $ 229,000 $ 209,000 $ 438,000

There was no ACL on U.S.

government-sponsored enterprise and agency securities as of March 31, 2023 .

A security is considered to be past due once it is 30 days contractually past due under the terms of the agreement.

As of March 31, 2023, none of the Company’s HTM debt securities were past due or on non-accrual status.

During the third quarter of 2014, the Company transferred securities with a total amortized cost of $ 89,780,000 with a corresponding fair value of $ 89,757,000 from available for sale to held to maturity.

The net unrealized loss, net of taxes, on these securities at the date of the transfer was $ 15,000 .

The net unrealized holding loss at the time of transfer continues to be reported in accumulated other comprehensive income (loss), net of tax and is amortized over the remaining lives of the

securities as an adjustment of the yield.

The net unrealized holding loss at the time of transfer continues to be reported in accumulated other comprehensive income (loss), net of tax and is amortized over the remaining lives of the securities as an adjustment of the yield.

The amortization of the net unrealized loss reported in accumulated other comprehensive income (loss) will offset the effect on interest income of the discount for the transferred securities.

The remaining unamortized balance of the net unrealized losses for the securities transferred from available for sale to held to maturity was $ 67,000 , net of taxes, at September 30, 2022.

This compares to $ 87,000 and $ 99,000 , net of taxes, at December 31, 2021 and September 30, 2021, respectively.

The remaining unamortized balance of the net unrealized losses for the securities transferred from available for sale to held to maturity was $ 60,000 , net of taxes, at March 31, 2023.

This compares to $ 64,000 and $ 78,000 , net of taxes, at December 31, 2022 and March 31, 2022, respectively.

These securities were transferred as a part of the Company's overall investment and balance sheet strategies.

2 unchanged sentences

The Bank uses the FHLB for a portion of its wholesale funding needs.

As of September 30, 2022 and 2021, and December 31, 2021, the Bank's investment in FHLB stock totaled $ 3,477,000 , $ 7,802,000 and $ 4,328,000 , respectively.

As of March 31, 2023 and 2022, and December 31, 2022, the Bank's investment in FHLB stock totaled $ 2,837,000 , $ 4,365,000 and $ 2,846,000 , respectively.

FHLB stock is a non-marketable equity security and therefore is reported at cost, which equals par value.

2 unchanged sentences

The Bank uses FRB for certain correspondent banking services and maintains borrowing capacity at its discount window.

The Bank's investment in FRB stock totaled $ 1,037,000 at September 30, 2022 and 2021 and December 31, 2021, respectively.

The Bank's investment in FRB stock totaled $ 1,037,000 at March 31, 2023 and 2022 and December 31, 2022, respectively.

The Company periodically evaluates its investment in FHLB and FRB stock for impairment based on, among other factors, the capital adequacy of the Banks and their overall financial condition.

No impairment losses have been recorded through September 30, 2022.

No impairment losses have been recorded through March 31, 2023.

The Bank will continue to monitor its investment in these restricted equity securities.

Note 3 – Loans

The following table shows the composition of the Company's loan portfolio by class of financing receivable as of September 30, 2022 and 2021 and at December 31, 2021:

September 30, 2022 December 31, 2021 September 30, 2021

Real estate $ 638,708,000 34.5 % $ 576,198,000 35.0 % $ 550,077,000 34.0 %

Upon adoption of ASU 2016-13/ASC 326, the CECL standard, as described in Notes 4 and 16 of these financial statements, the Company updated the segmentation of its loan portfolio.

The updates primarily consist of reporting what had been a single class, commercial real estate loans, as three classes - commercial real estate owner occupied, commercial real estate non-owner occupied, and commercial multi-family.

In addition home equity installment loans which had previously been included in the residential term class are now included in the home equity revolving and term class.

Loan data as of March 31, 2023 is reported herein with the new class structure while certain prior period data retains the prior class structure.

Loan Portfolio by Class:

The following table shows the composition of the Company's loan portfolio by class of financing receivable as of March 31, 2023 and 2022 and at December 31, 2022:

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

Real estate owner occupied $ 285,224,000 14.4 % $ 256,623,000 13.4 % $ 223,881,000 13.1 %

Real estate non-owner occupied 384,457,000 19.4 % 363,660,000 19.0 % 292,727,000 17.2 %

Construction 72,705,000 3.7 % 93,907,000 4.9 % 102,982,000 6.0 %

Other 310,110,000 16.7 % 264,570,000 16.1 % 288,121,000 17.8 %

Commercial & Industry ("C&I") 339,688,000 17.1 % 319,359,000 16.7 % 267,666,000 15.7 %

Multifamily 81,089,000 4.1 % 79,057,000 4.1 % 71,693,000 4.2 %

Municipal 47,166,000 2.4 % 40,619,000 2.1 % 50,867,000 3.0 %

1 unchanged sentence

Construction 52,712,000 2.7 % 49,907,000 2.6 % 36,272,000 2.1 %

Home equity line of credit 73,938,000 4.0 % 73,632,000 4.5 % 74,594,000 4.6 %

Revolving and term 93,522,000 4.7 % 93,075,000 4.9 % 82,502,000 4.8 %

Consumer 19,435,000 1.0 % 21,063,000 1.1 % 22,077,000 1.3 %

Total $ 1,982,847,000 100.0 % $ 1,914,674,000 100.0 % $ 1,707,348,000 100.0 %

Loan balances include net deferred loan costs of $ 9,978,000 as of September 30, 2022, $ 7,890,000 as of December 31, 2021, and $ 6,597,000 as of September 30, 2021.

Loan balances include net deferred loan costs of $ 10,315,000 as of March 31, 2023, $ 10,132,000 as of December 31, 2022, and $ 9,299,000 as of March 31, 2022.

Net deferred loan costs have increased from a year ago and year-to-date due to loan origination unit volume over the period.

Unearned fees and deferred costs associated with US Small Business Administration ("SBA") Payroll Protection Program ("PPP") loans originated in 2020 and 2021 were fully recognized as of June 30, 2022.

Pursuant to collateral agreements, qualifying first mortgage loans and commercial real estate loans, which totaled $ 464,069,000 at September 30, 2022, were used to collateralize borrowings from the FHLB.

This compares to qualifying loans which totaled $ 364,968,000 at December 31, 2021, and $ 356,517,000 at September 30, 2021.

In addition, commercial, residential construction and home equity loans totaling $ 327,551,000 at September 30, 2022, $ 295,090,000 at December 31, 2021, and $ 291,188,000 at September 30, 2021, were used to collateralize a standby line of credit at the FRB.

In September 2022 the Bank sold a block of 41 mixed performing residential mortgage loans.

This block of loans carried general ledger balances that totaled $ 5.2 million and included a number of past-due, non-accrual, and Troubled Debt Restructure ("TDR") loans.

The impact of the sale on the portfolio is included in the information presented herein.

Unearned fees and deferred costs associated with US Small Business Administration ("SBA") PPP loans originated in 2020 and 2021 were fully recognized as of June 30, 2022.

Pursuant to collateral agreements, qualifying first mortgage loans and commercial real estate loans, which totaled $ 527,949,000 at March 31, 2023, were used to collateralize borrowings from the FHLB.

This compares to qualifying loans which totaled $ 475,233,000 at December 31, 2022, and $ 455,229,000 at March 31, 2022.

In addition, commercial, residential construction and home equity loans totaling $ 373,791,000 at March 31, 2023, $ 338,636,000 at December 31, 2022, and $ 338,463,000 at March 31, 2022, were used to collateralize a standby line of credit at the FRB.

Past Due Loans:

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

Information on the past-due status of loans by class of financing receivable as of September 30, 2022, is presented in the following table:

Information on the past-due status of loans by class of financing receivable as of March 31, 2023, is presented in the following table:

Past Due 60-89 Days

1 unchanged sentence

Past Due Current Total 90+ Days

Real estate $ — $ 4,000 $ 191,000 $ 195,000 $ 638,513,000 $ 638,708,000 $ —

Real estate owner occupied $ — $ 1,000 $ 151,000 $ 152,000 $ 285,072,000 $ 285,224,000 $ —

Real estate non-owner occupied — — — — 384,457,000 384,457,000 —

Construction — — — — 72,705,000 72,705,000 —

Other 172,000 16,000 83,000 271,000 309,839,000 310,110,000 —

C&I 106,000 12,000 182,000 300,000 339,388,000 339,688,000 34,000

Multifamily — — — — 81,089,000 81,089,000 —

Municipal — — — — 47,166,000 47,166,000 —

1 unchanged sentence

Construction — — — — 52,712,000 52,712,000 —

Home equity line of credit 473,000 29,000 — 502,000 73,436,000 73,938,000 —

Revolving and term 498,000 6,000 64,000 568,000 92,954,000 93,522,000 —

Consumer 104,000 15,000 1,000 120,000 19,315,000 19,435,000 1,000

2 unchanged sentences

shortly thereafter, on March 30, 2020, the Coronavirus Aid, Relief, and Economic Security ("CARES") Act was passed.

Both the Interagency Statement and the CARES Act provided an exemption for qualified modifications from TDR designation, which was extended by the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020.

Both the Interagency Statement and the CARES Act provided an exemption for qualified modifications from Trouble Debt Restructured ("TDR") designation, which was extended by the Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020.

So long as modified terms were met, loans in an active modification were not included in past due loan totals and continued to accrue interest.

As of September 30, 2022, COVID-19 related loan modifications have all been resolved.

As of March 31, 2022, COVID-19 related loan modifications had nearly all been resolved, with $ 1,100,000 in retail loan balances remaining in modification status.

There were no loan modifications remaining as of March 31, 2023, as all were resolved prior to September 30, 2022.

Information on the past-due status of loans by class of financing receivable as of December 31, 2022, is presented in the following table:

11 unchanged sentences

Total $ 625,000 $ 121,000 $ 713,000 $ 1,459,000 $ 1,913,215,000 $ 1,914,674,000 $ 241,000

Information on the past-due status of loans by class of financing receivable as of September 30, 2021, is presented in the following table:

Information on the past-due status of loans by class of financing receivable as of March 31, 2022, is presented in the following table:

Past Due 60-89 Days

10 unchanged sentences

Total $ 2,285,000 $ 68,000 $ 1,885,000 $ 4,238,000 $ 1,703,110,000 $ 1,707,348,000 $ 46,000

Non-Accrual Loans:

For all classes, loans are placed on non-accrual status when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement or when principal and interest is 90 days or more past due unless the loan is both well secured and in the process of collection (in which case the loan may continue to accrue interest in spite of its past due status).

1 unchanged sentence

A loan is "in the process of collection" if collection of the loan is proceeding in due course either (1) through legal action, including judgment enforcement procedures, or, (2) in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status in the near future.

Cash payments received on non-accrual loans, which are included in impaired loans, are applied to reduce the loan's principal balance until the remaining principal balance is deemed collectible, after which interest is recognized when collected.

Cash payments received on non-accrual loans, which are included in individually analyzed loans, are applied to reduce the loan's principal balance until the remaining principal balance is deemed collectible, after which interest is recognized when collected.

As a general rule, a loan may be restored to accrual status when payments are current for a substantial period of time, generally six months, and repayment of the remaining contractual amounts is expected, or when it otherwise becomes well secured and in the process of collection.

Information on nonaccrual loans as of September 30, 2022 and 2021 and at December 31, 2021 is presented in the following table:

September 30, 2022 December 31, 2021 September 30, 2021

Real estate $ 195,000 $ 242,000 $ 604,000

The following table presents the amortized costs basis of loans on nonaccrual status as of March 31, 2023, December 31, 2022 and March 31, 2022:

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

Nonaccrual with Allowance for Credit Loss Nonaccrual with no Allowance for Credit Loss Total Nonaccrual Total Nonaccrual

Real estate owner occupied $ — $ 152,000 $ 193,000 $ 604,000

Real estate non-owner occupied — — — —

Construction — 23,000 23,000 27,000

Other 756,000 1,068,000 1,251,000

C&I 530,000 118,000 663,000 1,014,000

Multifamily — — — —

Municipal — — — —

1 unchanged sentence

Construction — — — —

Home equity line of credit 247,000 457,000 482,000

Revolving and term — 534,000 304,000 291,000

Consumer — — —

Total $ 530,000 $ 1,270,000 $ 1,755,000 $ 5,049,000

Impaired loans include TDR loans and loans placed on non-accrual.

Individually Analyzed Loans:

Individually analyzed loans include loans that had been reported as TDR loans prior to adoption of ASU 2022-02 and loans placed on non-accrual.

These loans are measured at the present value of expected future cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent.

If the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, a specific reserve is established for the difference, or, in certain situations, if the measure of an impaired loan is lower than the recorded investment in the loan and estimated selling costs, the difference is written off.

A breakdown of impaired loans by class of financing receivable as of and for the period ended September 30, 2022 is presented in the following table:

For the nine months ended September 30, 2022 For the quarter ended September 30, 2022

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income Average Recorded Investment Recognized Interest Income

If the measure of an individually analyzed loan is lower than the recorded investment in the loan and estimated selling costs, a specific reserve is established for the difference, or, in certain situations, if the measure of an individually analyzed loan is lower than the recorded investment in the loan and estimated selling costs, the difference is written off.

The following table presents the amortized cost basis of collateral-dependent loans as of March 31, 2023 by collateral type:

Commercial Real Estate Residential Real Estate Equipment 1

Real estate owner occupied $ 198,000 $ — $ — $ 198,000

Real estate non-owner occupied 844,000 — — 844,000

Construction 23,000 — — 23,000

C&I 79,000 — 192,000 271,000

Term — 1,438,000 — 1,438,000

Revolving and term — 534,000 — 534,000

Total $ 1,144,000 $ 1,972,000 $ 192,000 $ 3,308,000

1 Collateral may consist of a boat, vehicle or other equipment.

Collateral-dependent loans are loans for which the repayment is expected to be provided substantially by the underlying collateral and there are no other available and reliable sources of repayment.

A breakdown of Individually Analyzed Loans by class of financing receivable as of and for the period ended March 31, 2023 is presented in the following table:

For the three months ended March 31, 2023

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income

With No Related Allowance

Real estate $ 1,295,000 $ 1,607,000 $ — $ 1,497,000 $ 42,000 $ 1,314,000 $ 14,000

Real estate owner occupied $ 338,000 $ 550,000 $ — $ 367,000 $ 8,000

Real estate non-owner occupied 844,000 969,000 — 846,000 3,000

Construction 23,000 25,000 — 462,000 —

Other 399,000 459,000 — 432,000 10,000 405,000 2,000

C&I 118,000 166,000 — 178,000 —

Multifamily — — — — —

Municipal — — — — —

1 unchanged sentence

Construction — — — — —

Home equity line of credit 247,000 279,000 — 298,000 — 249,000 —

Revolving and term 541,000 661,000 — 535,000 —

Consumer — — — — —

1 unchanged sentence

With an Allowance Recorded

Real estate $ — $ — $ — $ 14,000 $ — $ — $ —

Real estate owner occupied $ — $ — $ — $ — $ —

Real estate non-owner occupied — — — — —

Construction — — — — —

Other 552,000 647,000 315,000 745,000 — 679,000 —

C&I 706,000 819,000 291,000 659,000 3,000

Multifamily — — — — —

Municipal — — — — —

1 unchanged sentence

Construction — — — — —

Home equity line of credit — — — 11,000 — — —

Revolving and term 20,000 20,000 3,000 21,000 —

Consumer — — — — —

$ 1,954,000 $ 2,070,000 $ 388,000 $ 1,911,000 $ 18,000

Real estate $ 1,295,000 $ 1,607,000 $ — $ 1,511,000 $ 42,000 $ 1,314,000 $ 14,000

Real estate owner occupied $ 338,000 $ 550,000 $ — $ 367,000 $ 8,000

Real estate non-owner occupied 844,000 969,000 — 846,000 3,000

Construction 23,000 25,000 — 462,000 —

Other 951,000 1,106,000 315,000 1,177,000 10,000 1,084,000 2,000

C&I 824,000 985,000 291,000 837,000 3,000

Multifamily — — — — —

Municipal — — — — —

1 unchanged sentence

Construction — — — — —

Home equity line of credit 247,000 279,000 — 310,000 — 249,000 —

Revolving and term 561,000 681,000 3,000 556,000 —

Consumer — — — — —

$ 5,504,000 $ 6,260,000 $ 388,000 $ 5,992,000 $ 42,000

Substantially all interest income recognized on impaired loans for all classes of financing receivables was recognized on a cash basis as received.

A breakdown of impaired loans by class of financing receivable as of and for the year ended December 31, 2021 is presented in the following table:

Substantially all interest income recognized on individually analyzed loans for all classes of financing receivables was recognized on a cash basis as received.

A breakdown of Individually Analyzed Loans by class of financing receivable as of and for the year ended December 31, 2022 is presented in the following table:

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income

28 unchanged sentences

$ 6,160,000 $ 6,848,000 $ 398,000 $ 9,536,000 $ 204,000

A breakdown of impaired loans by class of financing receivable as of and for the period ended September 30, 2021 is presented in the following table:

For the nine months ended September 30, 2021 For the quarter ended September 30, 2021

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income Average Recorded Investment Recognized Interest Income

A breakdown of Individually Analyzed Loans by class of financing receivable as of and for the period ended March 31, 2022 is presented in the following table:

For the three months ended March 31, 2022

Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment Recognized Interest Income

With No Related Allowance

27 unchanged sentences

$ 11,254,000 $ 12,900,000 $ 712,000 $ 11,442,000 $ 58,000

Loan Modifications:

ASU 2022-02 Troubled Debt Restructurings and Vintage Disclosures amends ASC 326 for entities that have adopted ASU 2016-13, the CECL standard, such as the Company.

ASU 2022-02 eliminates the accounting guidance for TDR and introduces new guidance for enhanced reporting of certain loan modifications to borrowers experiencing financial difficulty.

The following table represents loan modifications made to borrowers experiencing financial difficulty by modification type and class of financing receivable, during the three months ended March 31, 2023:

Term Extension

Amortized Cost Basis at March 31, 2023 % of Total Class of Financing Receivable

C&I $ 23,000 0.01 %

Total $ 23,000

Payment Deferral

Amortized Cost Basis at March 31, 2023 % of Total Class of Financing Receivable

C&I $ 227,000 0.07 %

Total $ 227,000

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty for the three months ended March 31, 2023:

Term Extension

Financial Effect

C&I Extended Term 12 months

Payment Deferral

Financial Effect

C&I Temporary payment accommodation, payments deferred to end of loan.

The Company monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts.

The following table depicts the performance of loans that have been modified:

Payment Status (Amortized Cost Basis)

Current 30-59 Days

Past Due 60-89 Days

Past Due 90+ Days

C&I $ 227,000 $ — $ — $ 23,000

Total $ 227,000 $ — $ — $ 23,000

Troubled Debt Restructured:

Prior to adoption of ASU 2022-02, the Company evaluated loan modifications and other transactions to determined if classification as a TDR was necessary.

A TDR constitutes a restructuring of debt if the Company, for economic or legal reasons related to the borrower's financial difficulties, grants a concession to the borrower that it would not otherwise consider.

To determine whether or not a loan should be classified as a TDR, Management evaluates a loan based upon the following criteria:

To determine whether or not a loan was to be classified as a TDR, Management evaluated a loan based upon the following criteria:

• The borrower demonstrates financial difficulty;

2 unchanged sentences

common concession types include maturity date extension, interest rate adjustments to below market pricing, and deferment of payments.

As of September 30, 2022, the Company had 31 loans with a balance of $ 4,926,000 that have been classified as TDRs.

This compares to 60 loans with a balance of $ 8,341,000 and 64 loans with a balance of $ 10,051,000 classified as TDRs as of December 31, 2021 and September 30, 2021, respectively.

As of December 31, 2022 and March 31, 2022, the company had 29 loans with a balance of $ 4,744,000 and 56 loans with a balance of $ 7,790,000 , respectively, that were classified as TDRs .

The impairment carried as a specific reserve in the allowance for loan losses is calculated by present valuing the expected cash flows on the loan at the original interest rate, or, for collateral-dependent loans, using the fair value of the collateral less costs to sell.

The following table shows TDRs by class and the specific reserve as of September 30, 2022:

Number of Loans Balance Specific Reserves

Real estate 6 $ 1,100,000 $ —

Construction 1 661,000 6,000

Other 4 461,000 83,000

Municipal — — —

Term 20 2,704,000 100,000

Construction — — —

Home equity line of credit — — —

Consumer — — —

31 $ 4,926,000 $ 189,000

The following table shows TDRs by class and the specific reserve as of December 31, 2022:

9 unchanged sentences

29 $ 4,744,000 $ 181,000

The following table shows TDRs by class and the specific reserve as of September 30, 2021:

The following table shows TDRs by class and the specific reserve as of March 31, 2022:

Number of Loans Balance Specific Reserves

8 unchanged sentences

56 $ 7,790,000 $ 499,000

As of September 30, 2022, one of the loans classified as TDR with a total balance of $ 83,000 was more than 30 days past due.

This loan had not been placed on TDR status in the previous 12 months.

The following table shows this TDR by class and the associated specific reserves included in the allowance for loan losses as of September 30, 2022:

As of December 31, 2022, one of the loans classified as TDR with a total balance of $ 97,000 was more than 30 days past due and was not placed on TDR status in the previous 12 months.

The following table shows past-due TDRs by class and the associated specific reserves included in the allowance for loan losses as of December 31, 2022:

Number of Loans Balance Specific Reserves

7 unchanged sentences

1 $ 97,000 $ —

As of September 30, 2021, 12 of the loans classified as TDRs with a total balance of $ 1,095,000 were more than 30 days past due.

Of these loans, two had been placed on TDR status in the previous 12 months.

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of September 30, 2021:

As of March 31, 2022, five of the loans classified as TDRs with a total balance of $ 380,000 were more than 30 days past due.

Of these loans, one had been placed on TDR status in the previous 12 months.

The following table shows these TDRs by class and the associated specific reserves included in the allowance for loan losses as of March 31, 2022:

Number of Loans Balance Specific Reserves

8 unchanged sentences

5 $ 380,000 $ —

For the nine months ended September 30, 2022, one loan was placed on TDR status.

The following table shows this TDR by class and associated specific reserves included in the allowance for loan losses as of September 30, 2022:

Number of Loans Pre-Modification

Recorded Investment Post-Modification Outstanding

Investment Specific Reserves

Real estate — $ — $ — $ —

Construction — — — —

Other — — — —

Municipal — — — —

Term 1 38,000 38,000 —

Construction — — — —

Home equity line of credit — — — —

Consumer — — — —

1 $ 38,000 $ 38,000 $ —

For the nine months ended September 30, 2021, three loans were placed on TDR status.

The following table shows these TDRs by class and associated specific reserves included in the allowance for loan losses as of September 30, 2021:

Number of Loans Pre-Modification

Recorded Investment Post-Modification Outstanding

Investment Specific Reserves

Real estate — $ — $ — $ —

Construction 1 80,000 80,000 —

Other 1 261,000 261,000 261,000

Municipal — — — —

Term 1 9,000 4,000 —

Construction — — — —

Home equity line of credit — — — —

Consumer — — — —

3 $ 350,000 $ 345,000 $ 261,000

For the quarter ended September 30, 2022, one loan was placed on TDR status.

The following table shows this TDR by class and the associated specific reserves included in the allowance for loan losses as of September 30, 2022:

Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment Specific Reserves

Real estate — $ — $ — $ —

Construction — — — —

Other — — — —

Municipal — — — —

Term 1 38,000 38,000 —

Construction — — — —

Home equity line of credit — — — —

Consumer — — — —

1 $ 38,000 $ 38,000 $ —

For the quarter ended September 30, 2021, no loans were placed on TDR status.

As of September 30, 2022, Management is aware of four loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $ 558,000 .

There were also six loans with an outstanding balance of $ 430,000 that were classified as TDRs and on non-accrual status, of which no loans were in the process of foreclosure.

For the three months ended March 31, 2022, no loans were placed on TDR status.

Residential Mortgage Loans in Process of Foreclosure

As of September 30, 2022, there were two mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 166,000 .

This compares to 10 mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 839,000 as of September 30, 2021.

Allowance for Loan Losses

The Company provides for loan losses through the establishment of an allowance for loan losses which represents an estimated reserve for existing losses in the loan portfolio.

A systematic methodology is used for determining the allowance that includes a quarterly review process, risk rating changes, and adjustments to the allowance.

The loan portfolio is classified in eight classes and credit risk is evaluated separately in each class.

Major risk characteristics relevant to each portfolio segment are as follows:

Commercial Real Estate - Commercial real estate loans are impacted by factors such as competitive market forces, vacancy rates, cap rates, net operating incomes, lease renewals, and overall economic demand.

In addition, loans in the recreational and tourism sector can be affected by weather conditions, such as unseasonably low winter snowfalls.

Commercial real estate lending also carries a higher degree of environmental risk than other real estate lending.

Commercial Construction - Commercial construction loans are impacted by factors similar to those for commercial real estate loans in addition to risks related to contractor financial capacity and ability to complete a project within acceptable time frames and within budget.

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

Municipal Loans - The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Residential Real Estate Term - The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Residential Real Estate Construction - Residential construction loans are impacted by factors similar to those for residential real estate term loans in addition to risks related to contractor financial capacity and ability to complete a project within acceptable time frames and within budget.

Home Equity Line of Credit - The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Consumer - The overall health of the economy, including unemployment rates, has an impact on the credit quality of this segment.

The appropriate level of the allowance is evaluated continually based on a review of significant loans, with a particular emphasis on nonaccruing, past due, and other loans that may require special attention.

Other factors include general conditions in local and national economies;

loan portfolio composition and asset quality indicators;

and internal factors such as changes in underwriting policies, credit administration practices, experience, ability and depth of lending management, among others.

The allowance consists of four elements:

(1) specific reserves for loans evaluated individually for impairment;

(2) general reserves for each portfolio segment based on historical loan loss experience;

(3) qualitative reserves judgmentally adjusted for local and national economic conditions, concentrations, portfolio composition, volume and severity of delinquencies and nonaccrual loans, trends of criticized and classified loans, changes in credit policies and underwriting standards, credit administration practices, and other factors as applicable for each portfolio segment;

and (4) unallocated reserves.

As of March 31, 2023 and December 31, 2022, there were two mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 166,000 .

This compares to six mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 714,000 as of March 31, 2022.

Allowance for Credit Losses

Upon adoption of ASC 326, the CECL standard, in the first quarter of 2023, the Company replaced the incurred loss model that recognized losses when it became probable that a credit loss would be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased.

The ACL is a valuation amount that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans.

Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible.

The ACL consists of three elements:

(1) specific reserves for loans individually analyzed;

(2) general reserves for each portfolio segment;

and, (3) qualitative reserves.

All outstanding loans are considered in evaluating the appropriateness of the allowance.

A breakdown of the allowance for loan losses as of September 30, 2022, December 31, 2021, and September 30, 2021, by class of financing receivable and allowance element, is presented in the following tables:

As of September 30, 2022 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

Reserves Total Reserves

Real estate $ — $ 867,000 $ 4,708,000 $ — $ 5,575,000

Loans are segmented by common risk characteristics as delineated in the paragraph below.

Prior to adoption of ASC 326, under the incurred loss methodology, the Company evaluated portfolio risk characteristics largely on loan purpose.

The Company provides for loan losses through the allowance for credit losses which represents an estimated reserve for losses in the loan portfolio.

To determine an appropriate level for general reserves, a discounted cash flow approach is applied to each portfolio segment implementing a probability of default and loss given default estimate based upon a number of factors including historical losses over an economic cycle, economic forecasts, loan prepayment speeds and curtailment rates.

To determine an appropriate level for qualitative reserves, various factors are considered including underwriting policies, credit administration practices, experience, ability and depth of lending management, and economic factors not captured in the general reserve calculation.

Adoption of ASC 326 added $ 6,210,000 to the Allowance for Credit Losses, recorded as a charge to retained earnings at January 1, 2023.

Loan Portfolio Composition & Risk Characteristics:

The loan portfolio is segmented into ten classes and credit risk is evaluated separately in each class.

Major risk characteristics relevant to each portfolio segment are as follows:

Commercial Real Estate Owner Occupied - commercial real estate owner occupied loans consist of mortgage loans to finance investments in real property such as retail space, offices, industrial buildings, hotels, educational facilities, and other specific or mixed use properties.

Loans are typically written with amortizing payment structures.

Collateral values are determined based on appraisals and evaluations in accordance with established policy and regulatory guidelines.

Loans typically have a loan-to-value ratio of up to 80 % based upon current valuation information at the time the loan is made, and are primarily paid by the cash flow generated from the real property, typically the operating entity of owner occupant.

Risk factors typically include competitive market forces, net operating incomes of the operating entity, and overall economic demand.

Loans in the recreational and tourism sector can be affected by weather conditions, such as unseasonably low winter snowfalls.

Commercial real estate lending also carries a higher degree of environmental risk than other types of lending.

Commercial Real Estate Non-Owner Occupied - commercial real estate loans non-owner occupied share many of the purpose, loan structure and risk characteristics of owner-occupied commercial real estate.

Repayment is generally reliant upon cash flow generated from tenants with risk factors also influenced by vacancy rates, cap rates, lease renewals, and underlying financial health of lessees.

Commercial Construction - commercial construction loans consist of loans to finance construction in a mix of owner- and non-owner occupied commercial real estate properties.

Loans typically have construction periods of less than two years , and payment structures during the construction period are typically on an interest only basis, although principal payments may be established depending on the type of construction project being financed.

During the construction phase, commercial construction loans are primarily paid by cash flow generated from the construction project or other operating cash flows from the borrower or guarantors, if applicable.

Commercial construction loans will typically convert to permanent financing from the Company, or loan repayment may come from a third party source in the event that the Company will not be providing permanent term financing.

Collateral valuation and loan-to-value guidelines follow those for commercial real estate loans.

Commercial construction loans are impacted by factors similar to those for commercial real estate loans in addition to risks related to contractor financial capacity and ability to complete a project within acceptable time frames and within budget.

Commercial and Industrial ("C&I") - C&I loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and or capital investment.

C&I loans may be secured or unsecured;

when secured, collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, equipment, and/or other tangible and intangible assets.

C&I loans are primarily paid by the operating cash flow of the borrower.

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

Commercial Multifamily - multifamily loans share structure and risk characteristics with non-owner occupied commercial real estate;

underlying collateral is residential in nature rather than commercial, consisting of properties with five or more units.

Municipal Loans - municipal loans are comprised of loans to municipalities in Maine for capitalized expenditures, construction projects, or tax anticipation notes.

All municipal loans are considered either general obligations of the municipality collateralized by the taxing ability of the municipality for repayment of debt or have a pledge of specific revenues.

The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Residential Real Estate Term - residential term loans consist of residential real estate loans held in the Company's loan portfolio made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors.

Borrower qualifications include favorable credit history combined with supportive income requirements and loan-to-value ratios within established policy and regulatory guidelines.

Collateral values are determined based on appraisals and evaluations in accordance with established policy and regulatory guidelines.

Residential loans typically have a loan-to-value ratio of up to 80 % based on appraisal information at the time the loan is made.

Collateral consists of mortgage liens on one-to four-family residential properties.

Loans are offered with fixed or adjustable rates with amortization terms of up to thirty years .

The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Residential Real Estate Construction - residential construction loans typically consist of loans for the purpose of constructing single family residences to be owned and occupied by the borrower.

Borrower qualifications include favorable credit history combined with supportive income requirements and loan-to-value ratios within established policy and regulatory guidelines.

Residential construction loans normally have construction terms of one year or less and payment during the construction term is typically on an interest only basis from sources including interest reserves, borrower liquidity, and/or income.

Residential construction loans will typically convert to permanent financing from the Company or have another financing commitment in place from an acceptable mortgage lender.

Collateral valuation and loan-to-value guidelines are consistent with those for residential term loans.

Residential construction loans are impacted by factors similar to those for residential real estate term loans in addition to risks related to contractor financial capacity and ability to complete a project within acceptable time frames and within budget.

Home Equity Revolving and Term - home equity revolving and term loans are made to qualified individuals and are secured by senior or junior mortgage liens on owner occupied one- to four-family homes, condominiums, or vacation homes.

The home equity line of credit typically has a variable interest rate and is billed as interest-only payments during the draw period.

At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest.

Loan maturities are normally 300 months.

Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios usually not exceeding 80 % inclusive of priority liens.

Collateral valuation guidelines follow those for residential real estate loans.

The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Consumer - consumer loans include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as autos, recreational vehicles, debt consolidation, personal expenses, or overdraft protection.

Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines.

Consumer loans may be secured or unsecured.

The overall health of the economy, including unemployment rates, has an impact on the credit quality of this segment.

Construction, land, and land development ("CLLD") :

CLLD loans, both commercial and residential, represented 47.6 % of total Bank capital as of March 31, 2023 and remain below the regulatory guidance of 100.0 % of total Bank capital.

Construction loans and non-owner-occupied commercial real estate loans represented 223.1 % of total Bank capital at March 31, 2023 , below the regulatory guidance of 300.0 % of total Bank capital.

Composition of the ACL:

A breakdown of the allowance for credit losses as of March 31, 2023, by class of financing receivable and allowance element, is presented in the following table:

As of March 31, 2023 Specific Reserves on Loans Evaluated Individually General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Total Reserves

Real estate owner occupied $ — $ 3,792,000 $ 678,000 $ 4,470,000

Real estate non-owner occupied — 3,914,000 508,000 4,422,000

Construction — 1,729,000 55,000 1,784,000

Other 315,000 420,000 2,279,000 — 3,014,000

C&I 291,000 3,937,000 610,000 4,838,000

Multifamily — 1,146,000 60,000 1,206,000

Municipal — 272,000 35,000 307,000

1 unchanged sentence

Construction — 939,000 10,000 949,000

Home equity line of credit — 106,000 887,000 — 993,000

Revolving and term 3,000 457,000 143,000 603,000

Consumer — 244,000 27,000 271,000

Unallocated — — — 1,937,000 1,937,000

$ 388,000 $ 20,216,000 $ 2,854,000 $ 23,458,000

A breakdown of the allowance for loan losses as of December 31, 2022 under the incurred loss method, by class of financing receivable and allowance element, is presented in the following table:

As of December 31, 2022 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

10 unchanged sentences

$ 398,000 $ 2,028,000 $ 12,619,000 $ 1,678,000 $ 16,723,000

As of September 30, 2021 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

A breakdown of the allowance for loan losses as of March 31, 2022 under the incurred loss method, by class of financing receivable and allowance element, is presented in the following table:

As of March 31, 2022 Specific Reserves on Loans Evaluated Individually for Impairment General Reserves on Loans Based on Historical Loss Experience Reserves for Qualitative Factors Unallocated

Reserves Total Reserves

9 unchanged sentences

$ 712,000 $ 1,878,000 $ 11,444,000 $ 1,732,000 $ 15,766,000

Qualitative adjustment factors are taken into consideration when determining reserve estimates.

These adjustment factors are based upon Management's evaluation of various current conditions, including those listed below.

• General economic conditions.

• Credit quality trends with emphasis on loan delinquencies, nonaccrual levels, and classified loans.

• Recent loss experience in particular segments of the portfolio.

• Loan volumes and concentrations, including changes in mix.

• Other factors, including changes in quality of the loan origination;

loan policy changes;

changes in credit risk management processes;

Bank regulatory and external loan review examination results.

Qualitative factors applied to the portfolio or segments of the portfolio may include judgments concerning general economic conditions that may affect credit quality, credit concentrations, the pace of portfolio growth, the direction of risk rating movements, policy exception levels, and delinquency levels;

these qualitative factors are also considered in connection with the unallocated portion of our allowance for loan losses.

The qualitative portion of the allowance for loan losses was 0.65 % of related loans as of September 30, 2022, compared to 0.69 % of related loans as of December 31, 2021.

The qualitative portion increased $ 832,000 between December 31, 2021 and September 30, 2022 due to a mix of factors.

These factors included changes in various macroeconomic measures used in the qualitative model, volume changes in certain portfolio segments, ongoing analysis of the loan portfolio in multiple stress scenarios, and performance of COVID-19 related loan modifications.

The unallocated component of the allowance totaled $ 1,937,000 at September 30, 2022, or 11.8 % of the total reserve.

This compares to $ 1,782,000 or 11.5 % as of December 31, 2021.

Maintenance of an unallocated component reflects general imprecision related to portfolio growth along with lingering uncertainty regarding the potential impacts of COVID-19 and wind-down of related government stimulus programs on the loan portfolio.

The allowance for loan losses as a percent of total loans stood at 0.88 % as of September 30, 2022, 0.94 % at December 31, 2021 and 1.08 % as of September 30, 2021.

Commercial loans are comprised of three major classes;

commercial real estate loans, commercial construction loans, and other commercial loans.

Commercial real estate loans consist of mortgage loans to finance investments in real property such as multi-family residential, commercial/retail, office, industrial, hotels, educational, and other specific or mixed use properties.

Commercial real estate loans are typically written with amortizing payment structures.

Collateral values are determined based on appraisals and evaluations in accordance with established policy and regulatory guidelines.

Commercial real estate loans typically have a loan-to-value ratio of up to 80 % based upon current valuation information at the time the loan is made.

Commercial real estate loans are primarily paid by the cash flow generated from the real property, such as operating leases, rents, or other operating cash flows from the borrower.

Commercial construction loans consist of loans to finance construction in a mix of owner- and non-owner occupied commercial real estate properties.

Commercial construction loans typically have maturities of less than two years .

Payment structures during the construction period are typically on an interest only basis, although principal payments may be established depending on the type of construction project being financed.

During the construction phase, commercial construction loans are

primarily paid by cash flow generated from the construction project or other operating cash flows from the borrower or guarantors, if applicable.

At the end of the construction period, loan repayment typically comes from a third party source in the event that the Company will not be providing permanent term financing.

Collateral valuation and loan-to-value guidelines follow those for commercial real estate loans.

Other commercial loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and or capital investment.

Collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, plant and equipment, and/or real estate, if applicable.

Commercial loans are primarily paid by the operating cash flow of the borrower.

Commercial loans may be secured or unsecured.

Other commercial loans also include loans made under the SBA PPP.

These loans are unsecured and carry a 100% guarantee from the SBA.

Municipal loans are comprised of loans to municipalities in Maine for capitalized expenditures, construction projects, or tax anticipation notes.

All municipal loans are considered either general obligations of the municipality and are collateralized by the taxing ability of the municipality for repayment of debt.

Residential loans are comprised of two classes:

term loans and construction loans.

Residential term loans consist of residential real estate loans held in the Company's loan portfolio made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors.

Borrower qualifications include favorable credit history combined with supportive income requirements and loan-to-value ratios within established policy and regulatory guidelines.

Collateral values are determined based on appraisals and evaluations in accordance with established policy and regulatory guidelines.

Residential loans typically have a loan-to-value ratio of up to 80 % based on appraisal information at the time the loan is made.

Collateral consists of mortgage liens on one- to four-family residential properties.

Loans are offered with fixed or adjustable rates with amortization terms of up to thirty years .

Residential construction loans typically consist of loans for the purpose of constructing single family residences to be owned and occupied by the borrower.

Borrower qualifications include favorable credit history combined with supportive income requirements and loan-to-value ratios within established policy and regulatory guidelines.

Residential construction loans will typically convert to permanent financing from the Company or have another financing commitment in place from an acceptable mortgage lender.

Collateral valuation and loan-to-value guidelines are consistent with those for residential term loans.

Home equity lines of credit are made to qualified individuals and are secured by senior or junior mortgage liens on owner occupied one- to four-family homes, condominiums, or vacation homes.

The home equity line of credit typically has a variable interest rate and is billed as interest-only payments during the draw period.

At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest.

Loan maturities are normally 300 months.

Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to- value ratios usually not exceeding 80 % inclusive of priority liens.

Collateral valuation guidelines follow those for residential real estate loans.

Consumer loan products including personal lines of credit and amortizing loans made to qualified individuals for various purposes such as auto, recreational vehicles, debt consolidation, personal expenses, or overdraft protection.

Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines.

Consumer loans may be secured or unsecured.

Construction, land, and land development (CLLD) loans, both commercial and residential, comprise a growing portion of the portfolio.

CLLD loans represented 67.9 % of total Bank capital as of September 30, 2022 and remain below the regulatory guidance of 100.0 % of total Bank capital.

Construction loans and non-owner-occupied commercial real estate loans represented 221.4 % of total Bank capital at September 30, 2022 , below the regulatory guidance of 300.0 % of total Bank capital.

The process of establishing the allowance with respect to the commercial loan portfolio begins when a Loan Officer or Senior Officer (or designee) initially assigns each loan a risk rating, using established credit criteria.

Approximately 60 % of commercial loan outstanding balances, excluding SBA PPP loans, are subject to review and validation annually by an independent consulting firm.

The allowance for credit losses as a percent of total loans stood at 1.18 % as of March 31, 2023, 0.94 % at December 31, 2022 and 0.92 % as of March 31, 2022.

Off-Balance Sheet Credit Exposures:

In the ordinary course of business, the Company enters into commitments to extend credit, including commercial letters of credit and standby letters of credit.

Such financial instruments are recorded as loans when they are funded .

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures:

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.

The ACL on off-balance sheet credit exposures is adjusted through credit loss expense and any adjustment is recognized in net income.

To appropriately measure expected credit losses, management disaggregates the loan portfolio into similar risk characteristics, identical to those determined for the loan portfolio.

An estimated funding rate is then applied to the qualifying unfunded loan commitments and letters of credit using the Company’s own historical experience to estimate the expected funded amount for each loan segment as of the reporting date.

Once the expected funded amount for each loan segment is determined, the loss rate, which is the calculated expected loan loss as a percent of the amortized cost basis for each loan segment, is applied to calculate the ACL on off-balance sheet credit exposures as of the reporting date.

The Company’s allowance for credit losses on unfunded commitments is recognized as a liability, included within other liabilities on the consolidated balance sheet.

The following table presents the activity in the ACL for off-balance sheet credit exposures:

For the three months ended March 31, 2023

Allowance for credit losses:

Beginning balance, prior to adoption of ASC 326 $ 100,000

Impact of adopting ASC 326 1,297,000

Credit loss expense —

Total ending allowance balance $ 1,397,000

Credit Quality Indicators:

To monitor the credit quality of its loan portfolio, management applies an internal risk rating system to categorize commercial loans;

most residential real estate, home equity, and consumer loans are not assigned ratings.

Approximately 60 % of commercial loan outstanding balances are subject to review and validation annually by an independent consulting firm.

Additionally, commercial loan relationships with exposure greater than or equal to $ 750,000 are subject to review annually by the Company's internal credit review function.

The methodology employs Management's judgment as to the level of losses on existing loans based on internal review of the loan portfolio, including an analysis of a borrower's current financial position, and the consideration of current and anticipated economic conditions and their potential effects on specific borrowers and or lines of business.

In determining the Company's ability to collect certain loans, Management also considers the fair value of underlying collateral.

The risk rating system has eight levels, defined as follows:

17 unchanged sentences

The possibility of loss is high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of September 30, 2022:

Real Estate Commercial

Construction Commercial

Other Municipal

Loans All Risk-

1 Strong $ — $ — $ 2,266,000 $ — $ 2,266,000

2 Above Average 7,506,000 141,000 23,364,000 45,998,000 77,009,000

3 Satisfactory 116,378,000 1,802,000 40,189,000 1,204,000 159,573,000

4 Average 423,914,000 85,195,000 202,337,000 1,500,000 712,946,000

5 Watch 89,568,000 41,898,000 40,338,000 — 171,804,000

6 OAEM 955,000 — 62,000 — 1,017,000

7 Substandard 387,000 — 1,554,000 — 1,941,000

8 Doubtful — — — — —

Total $ 638,708,000 $ 129,036,000 $ 310,110,000 $ 48,702,000 $ 1,126,556,000

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of December 31, 2021:

Real Estate Commercial

Construction Commercial

Other Municipal

Loans All Risk-

1 Strong $ — $ — $ 2,118,000 $ — $ 2,118,000

2 Above Average 6,977,000 169,000 7,328,000 46,547,000 61,021,000

3 Satisfactory 98,473,000 2,589,000 60,787,000 349,000 162,198,000

4 Average 378,147,000 47,196,000 154,247,000 1,466,000 581,056,000

5 Watch 88,679,000 29,411,000 37,942,000 — 156,032,000

6 OAEM 3,482,000 — 52,000 — 3,534,000

7 Substandard 440,000 — 2,096,000 — 2,536,000

8 Doubtful — — — — —

Total $ 576,198,000 $ 79,365,000 $ 264,570,000 $ 48,362,000 $ 968,495,000

The following table summarizes the risk ratings for the Company's commercial real estate, commercial construction, commercial other, and municipal loans as of September 30, 2021:

Real Estate Commercial

Construction Commercial

Other Municipal

Loans All Risk-

1 Strong $ — $ — $ 2,434,000 $ 8,000 $ 2,442,000

2 Above Average 9,220,000 175,000 7,144,000 38,787,000 55,326,000

3 Satisfactory 92,596,000 1,831,000 79,693,000 354,000 174,474,000

4 Average 355,252,000 47,003,000 155,189,000 1,467,000 558,911,000

5 Watch 79,885,000 24,293,000 38,505,000 — 142,683,000

6 OAEM 3,899,000 — 32,000 — 3,931,000

7 Substandard 9,225,000 — 5,124,000 — 14,349,000

8 Doubtful — — — — —

Total $ 550,077,000 $ 73,302,000 $ 288,121,000 $ 40,616,000 $ 952,116,000

The following table summarizes the credit quality for the Company's portfolio by risk category of loans and by class by vintage as follows:

Term Loans Amortized Cost Basis by Origination Year

2023 2022 2021 2020 2019 Prior Total

Real estate owner occupied

Pass (risk rating 1-5) $ 15,632,000 $ 77,722,000 $ 43,127,000 $ 30,277,000 $ 39,979,000 $ 78,184,000 $ 284,921,000

Special Mention (risk rating 6) 25,000 — — — — — 25,000

Substandard (risk rating 7) — — — — — 278,000 278,000

Doubtful (risk rating 8) — — — — — — —

Total Real Estate Owner Occupied 15,657,000 77,722,000 43,127,000 30,277,000 39,979,000 78,462,000 285,224,000

Real estate owner occupied

Current period gross write-offs — — — — — 39,000 39,000

Real estate non-owner occupied

Pass (risk rating 1-5) 12,167,000 72,434,000 132,514,000 49,921,000 28,367,000 88,991,000 384,394,000

Special Mention (risk rating 6) — — — — — — —

Substandard (risk rating 7) — — — — — 63,000 63,000

Doubtful (risk rating 8) — — — — — — —

Total Real Estate Non-Owner Occupied 12,167,000 72,434,000 132,514,000 49,921,000 28,367,000 89,054,000 384,457,000

Pass (risk rating 1-5) 3,205,000 46,630,000 7,796,000 421,000 234,000 834,000 59,120,000

Special Mention (risk rating 6) — — — — — — —

Substandard (risk rating 7) — — — — — — —

Doubtful (risk rating 8) — — — — — — —

Total Construction 3,205,000 46,630,000 7,796,000 421,000 234,000 834,000 59,120,000

Pass (risk rating 1-5) 25,052,000 112,238,000 78,357,000 59,431,000 9,229,000 47,179,000 331,486,000

Special Mention (risk rating 6) — 41,000 268,000 400,000 — 12,000 721,000

Substandard (risk rating 7) — 378,000 35,000 13,000 218,000 684,000 1,328,000

Doubtful (risk rating 8) — — — — — — —

Total C&I 25,052,000 112,657,000 78,660,000 59,844,000 9,447,000 47,875,000 333,535,000

Pass (risk rating 1-5) 3,496,000 21,254,000 22,160,000 16,333,000 5,972,000 11,874,000 81,089,000

Special Mention (risk rating 6) — — — — — — —

Substandard (risk rating 7) — — — — — — —

Doubtful (risk rating 8) — — — — — — —

Total Multifamily 3,496,000 21,254,000 22,160,000 16,333,000 5,972,000 11,874,000 81,089,000

Pass (risk rating 1-5) 6,785,000 7,186,000 6,518,000 11,063,000 5,732,000 9,882,000 47,166,000

Special Mention (risk rating 6) — — — — — — —

Substandard (risk rating 7) — — — — — — —

Doubtful (risk rating 8) — — — — — — —

Total Municipal 6,785,000 7,186,000 6,518,000 11,063,000 5,732,000 9,882,000 47,166,000

Term Loans Amortized Cost Basis by Origination Year

2023 2022 2021 2020 2019 Prior Total

Pass (risk rating 1-5) 6,640,000 51,206,000 34,748,000 16,901,000 6,777,000 18,211,000 134,483,000

Special Mention (risk rating 6) — — — — — — —

Substandard (risk rating 7) — — — — — 59,000 59,000

Doubtful (risk rating 8) — — — — — — —

Total Term 6,640,000 51,206,000 34,748,000 16,901,000 6,777,000 18,270,000 134,542,000

Pass (risk rating 1-5) 1,310,000 5,915,000 3,219,000 1,046,000 — — 11,490,000

Special Mention (risk rating 6) — — — — — — —

Substandard (risk rating 7) — — — — — — —

Doubtful (risk rating 8) — — — — — — —

Total Construction 1,310,000 5,915,000 3,219,000 1,046,000 — — 11,490,000

Home Equity Revolving and Term

Pass (risk rating 1-5) 1,472,000 10,440,000 2,194,000 1,453,000 445,000 1,735,000 17,739,000

Special Mention (risk rating 6) — — — — — — —

Substandard (risk rating 7) — — — — — 185,000 185,000

Doubtful (risk rating 8) — — — — — — —

Total Home Equity Revolving and Term 1,472,000 10,440,000 2,194,000 1,453,000 445,000 1,920,000 17,924,000

Pass (risk rating 1-5) 190,000 — — — — 1,000 191,000

Special Mention (risk rating 6) — — — — — — —

Substandard (risk rating 7) — — — — — — —

Doubtful (risk rating 8) — — — — — — —

Total Consumer 190,000 — — — — 1,000 191,000

Current period gross write-offs — 6,000 7,000 11,000 2,000 11,000 37,000

Total risk-rated loans $ 75,974,000 $ 405,444,000 $ 330,936,000 $ 187,259,000 $ 96,953,000 $ 258,172,000 $ 1,354,738,000

Loss Recognition:

Commercial loans are generally charged off when all or a portion of the principal amount is determined to be uncollectible.

This determination is based on circumstances specific to a borrower including repayment ability, analysis of collateral, and other factors as applicable.

Residential loans are comprised of two classes:

term loans, which include traditional amortizing home mortgages, and construction loans, which include loans for owner-occupied residential construction.

Residential loans typically have a 75 % to 80 % loan to value based upon current appraisal information at the time the loan is made.

Home equity loans and lines of credit are typically written to the same underwriting standards.

Consumer loans are primarily amortizing loans to individuals collateralized by automobiles, pleasure craft, and recreation vehicles, typically with a maximum loan to value of 80 % to 90 % of the purchase price of the collateral.

Consumer loans also include a small amount of unsecured short-term time notes to individuals.

Residential loans, consumer loans, and home equity lines of credit are segregated into homogeneous pools with similar risk characteristics.

Trends and current conditions are analyzed and historical loss experience is adjusted accordingly.

Quantitative and qualitative adjustment factors for these segments are consistent with those for the commercial and municipal classes.

Certain loans in the residential, home equity lines of credit, and consumer classes identified as having the potential for further deterioration are analyzed individually to confirm impairment status, and to determine the need for a specific reserve;

however, there is no formal rating system used for these classes.

Consumer loans greater than 120 days past due are generally charged off.

2 unchanged sentences

This is subject to completion of a current assessment of the value of the collateral with any outstanding loan balance in excess of the fair value of the property, less costs to sell, written down or charged-off.

There were no changes to the Company's accounting policies or methodology used to estimate the allowance for loan losses during the nine months ended September 30, 2022.

The following table presents allowance for loan losses activity by class for the nine months and quarter ended September 30, 2022, and allowance for loan loss balances by class and related loan balances by class as of September 30, 2022:

Commercial Municipal Residential Home Equity Line of Credit Consumer Unallocated Total

Real Estate Construction Other Term Construction

For the nine months ended September 30, 2022

Beginning balance $ 5,367,000 $ 746,000 $ 2,830,000 $ 157,000 $ 2,733,000 $ 148,000 $ 925,000 $ 833,000 $ 1,782,000 $ 15,521,000

Charge offs — — 272,000 — — — 29,000 318,000 — 619,000

Recoveries 16,000 — 11,000 — 27,000 — 3,000 128,000 — 185,000

Provision (credit) 192,000 375,000 445,000 3,000 ( 213,000 ) 20,000 94,000 229,000 155,000 1,300,000

Ending balance $ 5,575,000 $ 1,121,000 $ 3,014,000 $ 160,000 $ 2,547,000 $ 168,000 $ 993,000 $ 872,000 $ 1,937,000 $ 16,387,000

For the three months ended September 30, 2022

Beginning balance $ 5,480,000 $ 1,151,000 $ 2,948,000 $ 157,000 $ 2,592,000 $ 191,000 $ 966,000 $ 866,000 $ 1,850,000 $ 16,201,000

The following table presents allowance for credit losses activity by class for the three months ended March 31, 2023:

Dollars in thousands Commercial Municipal Residential Home Equity Consumer Unallocated Total

Real Estate Owner Occupied Real Estate Non-Owner Occupied Construction C&I Multifamily Term Construction Revolving and term

For the three months ended March 31, 2023

Beginning balance, prior to adoption of ASC 326 $ 6,116 $ — $ 821 $ 3,097 $ — $ 162 $ 2,559 $ 199 $ 1,029 $ 1,062 $ 1,678 $ 16,723

Charge offs 39 — — — — — — — — 37 — 76

Recoveries — — — 2 — — 2 — 4 43 — 51

Provision (credit) 96,000 ( 30,000 ) 286,000 3,000 ( 61,000 ) ( 23,000 ) 25,000 17,000 87,000 400,000

Ending balance $ 5,575,000 $ 1,121,000 $ 3,014,000 $ 160,000 $ 2,547,000 $ 168,000 $ 993,000 $ 872,000 $ 1,937,000 $ 16,387,000

Allowance for loan losses as of September 30, 2022

Ending balance specifically evaluated for impairment $ — $ 6,000 $ 315,000 $ — $ 99,000 $ — $ — $ — $ — $ 420,000

Ending balance collectively evaluated for impairment $ 5,575,000 $ 1,115,000 $ 2,699,000 $ 160,000 $ 2,448,000 $ 168,000 $ 993,000 $ 872,000 $ 1,937,000 $ 15,967,000

Related loan balances as of September 30, 2022

Provision 79 107 20 94 22 13 169 15 26 5 — 550

Impact of adopting ASC 326 $ ( 1,686 ) $ 4,315 $ 943 $ 1,645 $ 1,184 $ 132 $ 1,878 $ 735 $ ( 456 ) $ ( 802 ) $ ( 1,678 ) $ 6,210

Ending balance $ 4,470 $ 4,422 $ 1,784 $ 4,838 $ 1,206 $ 307 $ 4,608 $ 949 $ 603 $ 271 $ — $ 23,458

Ending balance specifically evaluated for impairment $ 1,295,000 $ 686,000 $ 951,000 $ — $ 3,176,000 $ — $ 247,000 $ — $ — $ 6,355,000

Ending balance collectively evaluated for impairment $ 637,413,000 $ 128,350,000 $ 309,159,000 $ 48,702,000 $ 591,855,000 $ 41,631,000 $ 73,691,000 $ 20,819,000 $ — $ 1,851,620,000

The following table presents allowance for loan losses activity by class for the year ended December 31, 2021 and allowance for loan loss balances by class and related loan balances by class as of December 31, 2021:

Commercial Municipal Residential Home Equity Line of Credit Consumer Unallocated Total

As of March 31, 2023, the significant model inputs and assumptions used within the discounted cash flow model for purposes of estimating the ACL on loans were:

Macroeconomic (loss) drivers :

The following loss drivers for each loan segment were used to calculate the expected Probability of Default over the forecast and reversion period:

• Commercial Real Estate Owner Occupied:

Federal Open Market Committee ("FOMC") median forecasts of national unemployment and change in national GDP

• Commercial Real Estate Non-Owner Occupied:

FOMC median forecasts of national unemployment and change in national GDP

• Commercial Construction:

FOMC median forecasts of national unemployment and change in national GDP

• Commercial & Industrial:

FOMC median forecasts of national unemployment and change in national GDP

• Commercial Multifamily:

FOMC median forecast of national unemployment and Case-Shiller National Home Price Index

FOMC median forecasts of national unemployment and change in national GDP

• Residential Real Estate Term:

FOMC median forecasts of national unemployment and change in national GDP

• Residential Real Estate Construction:

FOMC median forecast of national unemployment

• Home Equity Revolving & Term:

FOMC median forecasts of national unemployment and change in national GDP

Reasonable and supportable forecast period:

The ACL on loans estimate used a reasonable and supportable forecast period of one year.

Reversion period:

The ACL on loans estimate used a reversion period of one year.

Prepayment speeds:

The estimate of prepayment speed for each loan segment was derived using internally sourced prepayment data.

Qualitative factors:

The ACL on loans estimate incorporated various qualitative factors into the calculation such as changes in lending policies, changes in the nature and volume and terms of loans, changes in the experience, depth and ability of lending management, and economic factors not captured in the quantitative model.

The following table presents allowance for loan losses activity by class for the year ended December 31, 2022:

Dollars in thousands Commercial Municipal Residential Home Equity Line of Credit Consumer Unallocated Total

Real Estate Construction Other Term Construction

5 unchanged sentences

Ending balance $ 6,116 $ 821 $ 3,097 $ 162 $ 2,559 $ 199 $ 1,029 $ 1,062 $ 1,678 $ 16,723

Allowance for loan losses as of December 31, 2021

Ending balance specifically evaluated for impairment $ 42,000 $ 16,000 $ 381,000 $ — $ 137,000 $ — $ — $ — $ — $ 576,000

Ending balance collectively evaluated for impairment $ 5,325,000 $ 730,000 $ 2,449,000 $ 157,000 $ 2,596,000 $ 148,000 $ 925,000 $ 833,000 $ 1,782,000 $ 14,945,000

Related loan balances as of December 31, 2021

Ending balance $ 576,198,000 $ 79,365,000 $ 264,570,000 $ 48,362,000 $ 550,783,000 $ 31,763,000 $ 73,632,000 $ 22,976,000 $ — $ 1,647,649,000

Ending balance specifically evaluated for impairment $ 1,428,000 $ 689,000 $ 1,303,000 $ — $ 8,173,000 $ — $ 457,000 $ 2,000 $ — $ 12,052,000

Ending balance collectively evaluated for impairment $ 574,770,000 $ 78,676,000 $ 263,267,000 $ 48,362,000 $ 542,610,000 $ 31,763,000 $ 73,175,000 $ 22,974,000 $ — $ 1,635,597,000

The following table presents allowance for loan losses activity by class for the nine months and quarter ended September 30, 2021, and allowance for loan loss balances by class and related loan balances by class as of September 30, 2021:

Commercial Municipal Residential Home Equity Line of Credit Consumer Unallocated Total

The following table presents allowance for loan losses activity by class for the three months ended March 31, 2022:

Dollars in thousands Commercial Municipal Residential Home Equity Line of Credit Consumer Unallocated Total

Real Estate Construction Other Term Construction

For the nine months ended September 30, 2021

Beginning balance $ 5,178,000 $ 662,000 $ 3,438,000 $ 171,000 $ 2,579,000 $ 102,000 $ 1,211,000 $ 778,000 $ 2,134,000 $ 16,253,000

Charge offs 71,000 — 286,000 — 41,000 — — 239,000 — 637,000

Recoveries 95,000 — 83,000 — 12,000 — 60,000 66,000 — 316,000

Provision (credit) 1,297,000 217,000 492,000 18,000 211,000 40,000 ( 315,000 ) 262,000 ( 647,000 ) 1,575,000

Ending balance $ 6,499,000 $ 879,000 $ 3,727,000 $ 189,000 $ 2,761,000 $ 142,000 $ 956,000 $ 867,000 $ 1,487,000 $ 17,507,000

For the three months ended September 30, 2021

For the three months ended March 31, 2022

Beginning balance $ 5,367 $ 746 $ 2,830 $ 157 $ 2,733 $ 148 $ 925 $ 833 $ 1,782 $ 15,521

3 unchanged sentences

Ending balance $ 5,369 $ 939 $ 2,956 $ 156 $ 2,648 $ 161 $ 939 $ 866 $ 1,732 $ 15,766

Allowance for loan losses as of September 30, 2021

Ending balance specifically evaluated for impairment $ 138,000 $ 18,000 $ 397,000 $ — $ 129,000 $ — $ — $ — $ — $ 682,000

Ending balance collectively evaluated for impairment $ 6,361,000 $ 861,000 $ 3,330,000 $ 189,000 $ 2,632,000 $ 142,000 $ 956,000 $ 867,000 $ 1,487,000 $ 16,825,000

Related loan balances as of September 30, 2021

Ending balance $ 550,077,000 $ 73,302,000 $ 288,121,000 $ 40,616,000 $ 537,811,000 $ 29,358,000 $ 74,594,000 $ 23,333,000 $ — $ 1,617,212,000

Ending balance specifically evaluated for impairment $ 2,800,000 $ 705,000 $ 1,755,000 $ — $ 8,782,000 $ — $ 503,000 $ 4,000 $ — $ 14,549,000

Ending balance collectively evaluated for impairment $ 547,277,000 $ 72,597,000 $ 286,366,000 $ 40,616,000 $ 529,029,000 $ 29,358,000 $ 74,091,000 $ 23,329,000 $ — $ 1,602,663,000

Note 5 – Stock-Based Compensation

6 unchanged sentences

Other compensation under the 2020 Plan qualifies as performance-based for purposes of Section 162(m) of the Internal Revenue Code, and satisfies NASDAQ guidelines relating to equity compensation.

As of September 30, 2022, 184,487 shares of restricted stock had been granted under the 2010 Plan and 68,934 shares under the 2020 Plan, of which 81,777 shares remain restricted as of September 30, 2022 as detailed in the following table:

As of March 31, 2023, 184,487 shares of restricted stock had been granted under the 2010 Plan and 98,810 shares under the 2020 Plan, of which 85,127 shares remain restricted as of March 31, 2023 as detailed in the following table:

Granted Vesting Term

6 unchanged sentences

2023 2.0 2,946 1.8

2023 1.0 1,750 0.8

The compensation cost related to these non-vested restricted stock grants is $ 2,434,000 and is recognized over the vesting terms of each grant.

In the nine months ended September 30, 2022, $ 610,000 of expense was recognized for these restricted shares, leaving $ 994,000 in unrecognized expense as of September 30, 2022.

In the nine months ended September 30, 2021, $ 672,000 of expense was recognized for restricted shares, leaving $ 855,000 in unrecognized expense as of September 30, 2021.

In the three months ended March 31, 2023, $ 184,000 of expense was recognized for these restricted shares, leaving $ 1,501,000 in unrecognized expense as of March 31, 2023.

In the three months ended March 31, 2022, $ 217,000 of expense was recognized for restricted shares, leaving $ 1,350,000 in unrecognized expense as of March 31, 2022.

Note 6 – Common Stock

Proceeds from sale of common stock totaled $ 588,000 and $ 514,000 for the nine months ended September 30, 2022 and 2021, respectively.

Proceeds from sale of common stock totaled $ 212,000 and $ 199,000 for the three months ended March 31, 2023 and 2022, respectively.

Note 7 – Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (EPS) for the nine months ended September 30, 2022 and 2021:

Income (Numerator) Shares (Denominator) Per-Share Amount

For the nine months ended September 30, 2022

Net income as reported $ 29,793,000

Income available to common shareholders 29,793,000 10,927,920 $ 2.73

Effect of dilutive securities:

restricted stock 98,651

Income available to common shareholders plus assumed conversions $ 29,793,000 11,026,571 $ 2.70

For the nine months ended September 30, 2021

Net income as reported $ 26,723,000

Income available to common shareholders 26,723,000 10,901,793 $ 2.45

Effect of dilutive securities:

restricted stock 82,157

Income available to common shareholders plus assumed conversions $ 26,723,000 10,983,950 $ 2.43

The following table sets forth the computation of basic and diluted earnings per share (EPS) for the quarters ended September 30, 2022 and 2021:

The following table sets forth the computation of basic and diluted earnings per share (EPS) for the three months ended March 31, 2023 and 2022:

Income (Numerator) Shares (Denominator) Per-Share Amount

For the quarter ended September 30, 2022

For the three months ended March 31, 2023

Net income as reported $ 7,971,000

3 unchanged sentences

Income available to common shareholders plus assumed conversions $ 7,971,000 11,066,247 $ 0.72

For the quarter ended September 30, 2021

For the three months ended March 31, 2022

Net income as reported $ 9,705,000

7 unchanged sentences

The Plan is a safe harbor plan whereby the Bank also contributes a minimum 3.0 % of annual compensation to the plan for all eligible employees.

The expense related to the 401(k) plan was $ 752,000 and $ 593,000 for the nine months ended September 30, 2022 and 2021, respectively.

The expense related to the 401(k) plan was $ 326,000 and $ 324,000 for the three months ended March 31, 2023 and 2022, respectively.

Deferred Compensation and Supplemental Retirement Benefits

2 unchanged sentences

There are no active officers eligible for these benefits.

The costs for these benefits are recognized over the service periods of the participating officers in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 712 "Compensation – Nonretirement Postemployment Benefits".

The expense of these supplemental retirement benefits was $ 231,000 and $ 126,000 for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, the associated accrued liability included in other liabilities in the balance sheet was $ 2,888,000 compared to $ 2,872,000 and $ 2,902,000 at December 31, 2021 and September 30, 2021, respectively.

The costs for these benefits are recognized over the service periods of the participating officers in accordance with Financial Accounting Standards Board ("FASB") ASC Topic 712 "Compensation – Nonretirement Postemployment Benefits".

The expense of these supplemental retirement benefits was $ 41,000 and $ 77,000 for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, the associated accrued liability included in other liabilities in the balance sheet was $ 2,862,000 compared to $ 2,893,000 and $ 2,877,000 at December 31, 2022 and March 31, 2022, respectively.

Postretirement Benefit Plans

6 unchanged sentences

The following table sets forth the accumulated postretirement benefit obligation and funded status:

At or for the nine months ended September 30,

At or for the three months ended March 31,

Change in benefit obligation

8 unchanged sentences

The following table sets forth the net periodic pension cost:

For the nine months ended September 30, For the quarter ended September 30,

2022 2021 2022 2021

For the three months ended March 31,

Components of net periodic benefit cost

2 unchanged sentences

Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive income are as follows:

September 30,

2022 December 31, 2021 September 30,

2023 December 31, 2022 March 31,

Unamortized net actuarial gain $ 345,000 $ 345,000 $ 133,000

8 unchanged sentences

Note 9 - Other Comprehensive Income (Loss)

The following table summarizes activity in the unrealized gain or loss on available for sale securities included in other comprehensive income (loss) for the nine months and quarters ended September 30, 2022 and 2021.

For the nine months ended September 30, For the quarter ended September 30,

2022 2021 2022 2021

The following table summarizes activity in the unrealized gain or loss on available for sale securities included in other comprehensive income (loss) for the three months ended March 31, 2023 and 2022.

For the three months ended March 31,

Balance at beginning of period $ ( 44,718,000 ) $ ( 1,718,000 )

Unrealized losses arising during the period ( 58,149,000 ) ( 7,112,000 ) ( 18,812,000 ) ( 2,442,000 )

Reclassification of net realized (gains) losses during the period ( 7,000 ) ( 22,000 ) ( 6,000 ) 142,000

Unrealized gains (losses) arising during the period 5,292,000 ( 23,217,000 )

Reclassification of net realized gains during the period — ( 2,000 )

Related deferred taxes ( 1,111,000 ) 4,876,000

2 unchanged sentences

The reclassification of realized gains is included in the net securities gains line of the consolidated statements of income and comprehensive income and the tax effect is included in the income tax expense line of the same statement.

The following table summarizes activity in the unrealized loss on securities transferred from available for sale to held to maturity included in other comprehensive income for the nine months and quarters ended September 30, 2022 and 2021.

For the nine months ended September 30, For the quarter ended September 30,

2022 2021 2022 2021

The following table summarizes activity in the unrealized loss on securities transferred from available for sale to held to maturity included in other comprehensive income (loss) for the three months ended March 31, 2023 and 2022.

For the three months ended March 31,

Balance at beginning of period $ ( 64,000 ) $ ( 87,000 )

3 unchanged sentences

Balance at end of period $ ( 60,000 ) $ ( 78,000 )

The following table presents the effect of the Company's derivative financial instruments included in other comprehensive income (loss) for the nine months and quarters ended September 30, 2022 and 2021.

For the nine months ended September 30, For the quarter ended September 30,

2022 2021 2022 2021

The following table presents the effect of the Company's derivative financial instruments included in other comprehensive income (loss) for the three months ended March 31, 2023 and 2022.

For the three months ended March 31,

Balance at beginning of period $ 544,000 $ —

Unrealized gains on cash flow hedging derivatives arising during the period 633,000 4,297,000 448,000 691,000

Unrealized losses on cash flow hedging derivatives arising during the period ( 3,463,000 ) —

Related deferred taxes 727,000 —

1 unchanged sentence

Balance at end of period $ ( 2,192,000 ) $ —

There was no activity in the unrealized gain or loss on postretirement benefits included in other comprehensive income (loss) for the nine months and quarters ended September 30, 2022 and 2021.

There was no activity in the unrealized gain or loss on postretirement benefits included in other comprehensive income (loss) for the three months ended March 31, 2023 and 2022.

Note 10 - Financial Derivative Instruments

11 unchanged sentences

The details of the interest rate swap agreements are as follows:

September 30, 2022 December 31, 2021 September 30, 2021

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

Effective Date Maturity Date Variable Index Received Fixed Rate Paid Presentation on Consolidated Balance Sheet Notional Amount Fair Value

1 unchanged sentence

Notional Amount Fair Value

08/02/2019 08/02/2024 1-Month USD Libor 1.590 % Other Liabilities — — — — 12,500,000 ( 381,000 )

08/05/2019 08/05/2024 1-Month USD Libor 1.420 % Other Liabilities — — — — 12,500,000 ( 320,000 )

02/12/2020 02/12/2023 3-Month USD Libor 1.486 % Other Liabilities — — — — 25,000,000 ( 438,000 )

02/12/2020 02/12/2024 3-Month USD Libor 1.477 % Other Liabilities — — — — 25,000,000 ( 601,000 )

06/28/2021 06/28/2026 1-Month USD Libor 1.158 % Other Liabilities — — — — 50,000,000 ( 594,000 )

03/13/2020 03/13/2025 3-Month USD Libor 0.855 % Other Liabilities — — — — 25,000,000 ( 85,000 )

03/13/2020 03/13/2030 3-Month USD Libor 1.029 % Other Assets — — — — 20,000,000 644,000

04/07/2020 04/07/2023 3-Month USD Libor 0.599 % Other Liabilities — — — — 20,000,000 ( 106,000 )

04/07/2020 04/07/2024 3-Month USD Libor 0.643 % Other Liabilities — — — — 20,000,000 ( 64,000 )

04/27/2022 10/27/2023 USD-SOFR-COMPOUND 2.498 % Other Assets $ 10,000,000 $ 133,000 $ 10,000,000 $ 187,000 $ — $ —

1 unchanged sentence

04/27/2022 04/27/2024 USD-SOFR-COMPOUND 2.619 % Other Assets 10,000,000 209,000 10,000,000 269,000 — —

01/10/2023 01/01/2026 USD-SOFR-OIS COMPOUND 3.836 % Other Liabilities 75,000,000 ( 196,000 ) — — — —

03/08/2023 03/01/2026 USD-SOFR-OIS COMPOUND 4.712 % Other Liabilities 40,000,000 ( 1,062,000 ) — — — —

03/08/2023 03/01/2027 USD-SOFR-OIS COMPOUND 4.402 % Other Liabilities 30,000,000 ( 958,000 ) — — — —

03/08/2023 03/01/2028 USD-SOFR-OIS COMPOUND 4.189 % Other Liabilities 30,000,000 ( 1,076,000 ) — — — —

$ 205,000,000 $( 2,774,000 ) $ 30,000,000 $ 689,000 $ — $ —

The Company would reclassify unrealized gains or losses accounted for within accumulated other comprehensive income (loss) into earnings if the interest rate swaps were to become ineffective or the swaps were to terminate.

In the fourth quarter 2021, the Bank terminated its then open interest rate swap positions in order to de-lever the balance sheet and reset wholesale funding costs.

A one-time gain of $ 336,000 was recognized in non-interest income in the fourth quarter 2021.

Amounts paid or received under the swaps are reported in interest expense in the consolidated statement of income, and in interest paid in the consolidated statement of cash flows.

3 unchanged sentences

Such loan level arrangements are not designated as hedges for accounting purposes, and are recorded at fair value in the Company’s consolidated balance sheet.

At September 30, 2022 and 2021, and December 31, 2021, there were six customer loan swap arrangements in place, detailed below:

September 30, 2022 December 31, 2021 September 30, 2021

At March 31, 2023 and 2022, and December 31, 2022, there were six customer loan swap arrangements in place, detailed below:

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

Presentation on Consolidated Balance Sheet Number of Positions Notional Amount Fair Value Number of Positions Notional Amount Fair Value Number of Positions Notional Amount Fair Value

9 unchanged sentences

The Bank's arrangement with its institutional counterparty requires it to post cash or other assets as collateral for its various loan swap contracts in a net liability position based on their fair values and the Bank's credit rating or receive cash collateral for contracts in a net asset position as requested.

At September 30, 2022, there was no collateral posted on its swap contracts or required amount to be pledged.

At March 31, 2023, there was no collateral posted on its swap contracts or required amount to be pledged.

Cessation of LIBOR

4 unchanged sentences

The Company has adopted SOFR as its replacement reference rate index for new transactions.

Each of the customer loan interest rate swap contracts the Company has in place as of September 30, 2022 is tied to a LIBOR tenor expected to be published until June 2023.

Each of the customer loan interest rate swap contracts the Company has in place as of March 31, 2023 is tied to a LIBOR tenor expected to be published until June 2023.

The six contracts shown in the table immediately above have maturity dates of December 19, 2029, August 21, 2030, April 1, 2031, July 1, 2035, October 1, 2035 and October 1, 2039.

It is anticipated that necessary actions to amend these legacy contracts and designate a replacement reference rate index will be undertaken in late 2022.

It is anticipated that necessary actions to amend these legacy contracts to incorporate the new replacement reference rate index will be undertaken prior to June 30, 2023.

Note 11 – Mortgage Servicing Rights

3 unchanged sentences

The model utilizes several assumptions, the most significant of which is loan prepayments, calculated using a three-months moving average of weekly prepayment data published by the Public Securities Association ("PSA") and modeled against the serviced loan portfolio, and the discount rate to discount future cash flows.

As of September 30, 2022, the prepayment assumption using the PSA model was 135, which translates into an anticipated prepayment rate of 6.48 %.

As of March 31, 2023, the prepayment assumption using the PSA model was 130, which translates into an anticipated prepayment rate of 6.24 %.

The discount rate is 9.00 %.

2 unchanged sentences

Amortization of mortgage servicing rights, as well as write-offs due to prepayments of the related mortgage loans, are recorded as a charge against mortgage servicing fee income.

For the nine months ended September 30, 2022 and 2021, servicing rights capitalized totaled $ 299,000 and $ 859,000 , respectively.

Servicing rights amortized for the nine-month periods ended September 30, 2022 and 2021 were $ 402,000 and $ 485,000 , respectively.

The fair value of servicing rights was $ 3,789,000 , $ 3,041,000 , and $ 2,757,000 at September 30, 2022, December 31, 2021 and September 30, 2021, respectively.

The Bank serviced loans for others totaling $ 348,589,000 , $ 356,522,000 , and $ 353,633,000 at September 30, 2022, December 31, 2021, and September 30, 2021, respectively.

The Bank recorded an impairment reserve as of September 30, 2021 and December 31, 2021 for strata with a fair value lower than cost.

There was no impairment reserve as of September 30, 2022.

For the three months ended March 31, 2023 and 2022, servicing rights capitalized totaled $ 7,000 and $ 169,000 , respectively.

Servicing rights amortized for the three-month periods ended March 31, 2023 and 2022 were $ 98,000 and $ 183,000 , respectively.

The fair value of servicing rights was $ 3,505,000 , $ 3,734,000 , and $ 3,435,000 at March 31, 2023, December 31, 2022 and March 31, 2022, respectively.

The Bank serviced loans for others totaling $ 337,585,000 , $ 342,870,000 , and $ 357,494,000 at March 31, 2023, December 31, 2022, and March 31, 2022, respectively.

The Bank recorded an impairment reserve as of March 31, 2022 for strata with a fair value lower than cost.

There was no impairment reserve as of March 31, 2023 and December 31, 2022.

Mortgage servicing rights are included in other assets and detailed in the following table:

September 30, 2022 December 31, 2021 September 30, 2021

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

Mortgage servicing rights $ 8,661,000 $ 8,654,000 $ 8,511,000

8 unchanged sentences

Note 13 - Certificates of Deposit

The following table represents the breakdown of certificates of deposit at September 30, 2022 and 2021, and at December 31, 2021:

September 30, 2022 December 31, 2021 September 30, 2021

The following table represents the breakdown of certificates of deposit at March 31, 2023 and 2022, and at December 31, 2022:

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

Certificates of deposit < $100,000 $ 592,052,000 $ 489,793,000 $ 225,304,000

9 unchanged sentences

For example, securities available for sale are recorded at fair value on a recurring basis.

Other assets, such as other real estate owned and impaired loans, are recorded at fair value on a nonrecurring basis using the lower of cost or market methodology to determine impairment of individual assets.

Other assets, such as other real estate owned and individually analyzed loans, are recorded at fair value on a nonrecurring basis using the lower of cost or market methodology to determine impairment of individual assets.

The Company groups assets and liabilities, which are recorded at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

21 unchanged sentences

However, because there is no market for many of these financial instruments, Management has no basis to determine whether the fair value presented above would be indicative of the value negotiated in an actual sale.

As such, the Company classifies loans as Level 3, except for certain collateral-dependent impaired loans.

Fair values of impaired loans are based on estimated cash flows and are discounted using a rate commensurate with the risk associated with the estimated cash flows, or if collateral dependent, discounted to the appraised value of the collateral as determined by reference to sale prices of similar properties, less costs to sell.

As such, the Company classifies collateral dependent impaired loans for which a specific reserve results in a fair value measure as Level 2.

All other impaired loans are classified as Level 3.

As such, the Company classifies loans as Level 3, except for certain individually analyzed loans.

Fair values of individually analyzed loans are based on estimated cash flows and are discounted using a rate commensurate with the risk associated with the estimated cash flows, or if collateral dependent, discounted to the appraised value of the collateral as determined by reference to sale prices of similar properties, less costs to sell.

As such, the Company classifies individually analyzed loans for which a specific reserve results in a fair value measure as Level 2.

All other individually analyzed loans are classified as Level 3.

Other Real Estate Owned

5 unchanged sentences

Servicing assets and servicing liabilities are reported using the amortization method and compared to fair value for impairment.

In evaluating the fair

values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, type, and term of the underlying loans.

In evaluating the fair values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, type, and term of the underlying loans.

As such, the Company classifies mortgage servicing rights as Level 2.

9 unchanged sentences

The credit value adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties.

As of September 30, 2022 and 2021, and December 31, 2021, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives due to collateral postings.

As of March 31, 2023 and 2022, and December 31, 2022, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives due to collateral postings.

Customer Loan Derivatives

12 unchanged sentences

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present the balances of assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2022, December 31, 2021 and September 30, 2021.

At September 30, 2022

The following tables present the balances of assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2023, December 31, 2022 and March 31, 2022.

At March 31, 2023

Level 1 Level 2 Level 3 Total

9 unchanged sentences

Total assets $ — $ 292,858,000 $ — $ 292,858,000

At September 30, 2022

At March 31, 2023

Level 1 Level 2 Level 3 Total

Interest rate swap agreements $ — $ 3,293,000 $ — $ 3,293,000

Customer loan interest swap agreements $ — $ 4,098,000 $ — $ 4,098,000

8 unchanged sentences

Total securities available for sale — 284,509,000 — 284,509,000

Interest rate swap agreements — 689,000 — 689,000

Customer loan interest swap agreements — 4,910,000 — 4,910,000

Total interest rate swap agreements — 5,599,000 — 5,599,000

Total assets $ — $ 290,108,000 $ — $ 290,108,000

3 unchanged sentences

Total liabilities $ — $ 4,910,000 $ — $ 4,910,000

At September 30, 2021

At March 31, 2022

Level 1 Level 2 Level 3 Total

5 unchanged sentences

Total securities available for sale — 313,015,000 — 313,015,000

Interest rate swap agreements — 644,000 — 644,000

Customer loan interest swap agreements — 2,665,000 — 2,665,000

Total interest swap agreements — 3,307,000 — 3,307,000

Total assets $ — $ 315,680,000 $ — $ 315,680,000

At September 30, 2021

At March 31, 2022

Level 1 Level 2 Level 3 Total

Interest rate swap agreements $ — $ 2,589,000 $ — $ 2,589,000

Customer loan interest swap agreements $ — $ 2,665,000 $ — $ 2,665,000

2 unchanged sentences

The following tables include assets measured at fair value on a nonrecurring basis that have had a fair value adjustment since their initial recognition.

Mortgage servicing rights are presented net of an impairment reserve of $ 26,000 at December 31, 2021 and $ 91,000 at September 30, 2021.

There was no impairment reserve as of September 30, 2022.

The Company had no other real estate owned or related allowance at September 30, 2022, 2021 and December 31, 2021.

Only collateral-dependent impaired loans with a related specific allowance for loan losses or a partial charge off are included in impaired loans for purposes of fair value disclosures.

Impaired loans below are presented net of specific allowances of $ 151,000 , $ 441,000 and $ 457,000 at September 30, 2022, December 31, 2021, and September 30, 2021, respectively.

At September 30, 2022

Mortgage servicing rights are presented net of an impairment reserve of $ 8,000 at March 31, 2022.

There was no impairment reserve as of March 31, 2023 and December 31, 2022.

The Company had no other real estate owned or related allowance at March 31, 2023, 2022 and December 31, 2022.

Only collateral-dependent individually analyzed loans with a related specific allowance for credit losses or a partial charge off are included in individually analyzed loans for purposes of fair value disclosures.

Individually analyzed loans below are presented net of specific allowances of $ 132,000 , $ 135,000 and $ 417,000 at March 31, 2023, December 31, 2022, and March 31, 2022, respectively.

At March 31, 2023

Level 1 Level 2 Level 3 Total

Mortgage servicing rights $ — $ 3,505,000 $ — $ 3,505,000

Impaired loans — 5,000 — 5,000

Individually analyzed loans — 20,000 — 20,000

Total assets $ — $ 3,525,000 $ — $ 3,525,000

2 unchanged sentences

Mortgage servicing rights $ — $ 3,734,000 $ — $ 3,734,000

Impaired loans — 224,000 — 224,000

Individually analyzed loans — 20,000 — 20,000

Total assets $ — $ 3,754,000 $ — $ 3,754,000

At September 30, 2021

At March 31, 2022

Level 1 Level 2 Level 3 Total

Mortgage servicing rights $ — $ 3,435,000 $ — $ 3,435,000

Impaired loans — 224,000 — 224,000

Individually analyzed loans — 200,000 — 200,000

Total assets $ — $ 3,635,000 $ — $ 3,635,000

12 unchanged sentences

Carrying value is used because the accounts have no stated maturity and the customer has the ability to withdraw funds immediately.

The carrying amount and estimated fair values for financial instruments as of September 30, 2022 were as follows:

The carrying amount and estimated fair values for financial instruments as of March 31, 2023 were as follows:

Carrying value Estimated fair value Level 1 Level 2 Level 3

Financial assets

Securities to be held to maturity $ 381,906,000 $ 313,796,000 $ — $ 313,796,000 $ —

Loans (net of allowance for loan losses)

Real estate 632,385,000 615,560,000 — — 615,560,000

Securities to be held to maturity (net of allowance for credit losses) $ 391,845,000 $ 344,053,000 $ — $ 344,053,000 $ —

Loans (net of allowance for credit losses)

Real estate owner occupied 280,754,000 272,879,000 — — 272,879,000

Real estate non-owner occupied 380,035,000 358,065,000 — — 358,065,000

Construction 70,921,000 67,440,000 — — 67,440,000

Other 306,692,000 304,024,000 — 5,000 304,019,000

C&I 334,850,000 323,318,000 — 20,000 323,298,000

Multifamily 79,883,000 76,234,000 — — 76,234,000

Municipal 46,859,000 44,635,000 — — 44,635,000

1 unchanged sentence

Construction 51,763,000 44,686,000 — — 44,686,000

Home equity line of credit 72,812,000 76,287,000 — — 76,287,000

Revolving and term 92,919,000 94,010,000 — — 94,010,000

Consumer 19,164,000 17,360,000 — — 17,360,000

4 unchanged sentences

National certificates of deposit 673,218,000 681,961,000 — 681,961,000 —

Total certificates of deposits 786,176,000 764,546,000 — 764,546,000 —

Total certificates of deposit 1,009,667,000 990,592,000 — 990,592,000 —

Repurchase agreements 51,500,000 51,392,000 — 51,392,000 —

19 unchanged sentences

National certificates of deposit 576,519,000 569,883,000 — 569,883,000 —

Total deposits 566,205,000 568,290,000 — 568,290,000 —

Total certificates of deposit 867,671,000 845,541,000 — 845,541,000 —

Repurchase agreements 64,409,000 64,289,000 — 64,289,000 —

1 unchanged sentence

Total borrowed funds 103,483,000 103,353,000 — 103,353,000 —

The carrying amount and estimated fair values for financial instruments as of September 30, 2021 were as follows:

The carrying amount and estimated fair values for financial instruments as of March 31, 2022 were as follows:

Carrying value Estimated fair value Level 1 Level 2 Level 3

15 unchanged sentences

National certificates of deposit 380,892,000 279,653,000 — 279,653,000 —

Total certificates of deposits 514,567,000 518,892,000 — 518,892,000 —

Total certificates of deposit 609,947,000 518,892,000 — 518,892,000 —

Repurchase agreements 78,623,000 72,990,000 — 72,990,000 —

2 unchanged sentences

Note 16 – Impact of Recently Issued Accounting Standards

In June 2016, the FASB issued Accounting Standards Update (ASU) No.

2016-13, Financial Instruments-Credit Losse s (Topic 326):

Measurement of Credit Losses on Financial Instruments .

Under the new guidance, which will replace the existing incurred loss model for recognizing credit losses, banks and other lending institutions will be required to recognize the full amount of expected credit losses.

The new guidance, which is referred to as the current expected credit loss 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.

A modified version of these requirements also applies to debt securities classified as available for sale.

The ASU was to be effective for all SEC registrants for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

On October 16, 2019, FASB voted to finalize a proposal issued in August 2019 under which the effective implementation date was changed for SEC registrants meeting the definition of a Smaller Reporting Company to fiscal years beginning after December 15, 2022.

Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within such years.

The Company qualifies as a Smaller Reporting Company.

It continues to evaluate the impact of the adoption of the ASU on its consolidated financial statements, and continues to anticipate that it may have a material impact upon adoption.

The Bank formed an implementation committee for ASU No.

Committee members participated in educational seminars on the new standards, identified the historical data sets that will be necessary to implement the new standard, and chose a third-party vendor who provides software solutions for ASU No.

2016-13 modeling and calculation.

An Allowance for Credit Loss Committee has been formed to guide the late stages of implementing the software and eventual adoption of the new standard.

The Bank plans to run incurred loss and current expected credit loss models in parallel until adoption of ASU No.

2016-13 on January 1, 2023.

Adoption of New Accounting Standards:

On January 1, 2023, the Company adopted ASU No.

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

Measurement of Credit Losses on Financial Instruments, as amended, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology.

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

It also applies to off-balance sheet credit exposures not accounted for as loans, such as loan commitments, standby letters of credit, certain lines of credit.

In addition, ASC 326 made changes to the accounting for available-for-sale debt securities.

One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.

The Company adopted ASC 326 using the modified retrospective method for all financial assets, measured at amortized cost, and off-balance-sheet credit exposures.

Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

On adoption, the Company recognized an increase in the allowance for credit losses on held to maturity securities of $ 438,000 , an increase to the allowance for credit losses on loans of $ 6,210,000 , and an increase to the reserve for off-balance sheet commitments of $ 1,297,000 .

The net, after-tax impact of the increases of the allowances for credit losses and reserve for off-balance sheet commitments was a net decrease to retained earnings of $ 6,277,000 shown in the Consolidated Statements of Changes in Stockholders Equity.

Additional details can be found in Notes 3 and 4.

In March 2022, the FASB issued ASU No.

5 unchanged sentences

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

Early adoption is permitted for entities, such as the Company, that have adopted ASU 2017-12.

This ASU is not expected to have a material impact on the consolidated financial statements of the Company.

Also in March 2022, the FASB issued ASU No.

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

Troubled Debt Restructurings (TDRs) and Vintage Disclosures .

The ASU eliminates the current guidance in ASC Subtopic 310-40 regarding troubled debt restructures in its entirety.

After adoption, loan modifications will be determined to be a new loan or a continuation of an existing loan in accordance with current ASC guidance.

Disclosure will consist of information on modifications to debtors experiencing financial difficulty that were in the form of principal forgiveness, an interest rate reduction, an other than insignificant payment delay, a term extension, or any combination of the foregoing.

The ASU will also require disclosure of current-period gross write-offs by year of origination.

ASU 2022-02 is effective for fiscal years beginning after December 15, 2022.

This ASU is not expected to have a material impact on the consolidated financial statements of the Company.

Adoption of ASU 2017-12 has not had a material impact on the consolidated financial statements of the Company.

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