What changed in this filing

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Item 1. Financial Statements

2023-08-04 compared with 2023-05-09 · 341 added, 287 removed, 1158 unchanged (35% 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 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").

and Subsidiary as of June 30, 2023 and 2022 and for the three-month and six-month 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

Consolidated Balance Sheets (Unaudited)

The First Bancorp, Inc.

August 4, 2023

Consolidated Balance Sheets (Unaudited) The First Bancorp, Inc.

and Subsidiary

2023 December 31,

2022 March 31,

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

Cash and cash equivalents $ 25,077,000 $ 22,728,000 $ 23,453,000

1 unchanged sentence

Securities available for sale 278,355,000 284,509,000 301,737,000

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)

Securities held-to-maturity, net of allowance for credit losses of $ 428,000 at June 30, 2023 1 (fair value of $ 336,007,000 at June 30, 2023, $ 339,011,000 at December 31, 2022 and $ 335,950,000 at June 30, 2022)

389,987,000 393,896,000 379,693,000

6 unchanged sentences

Premises and equipment, net 27,808,000 28,277,000 29,010,000

Other real estate owned 64,000 — 51,000

Goodwill 30,646,000 30,646,000 30,646,000

19 unchanged sentences

Net unrealized loss on securities transferred from available-for-sale to held-to-maturity ( 59,000 ) ( 64,000 ) ( 73,000 )

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

Net unrealized gain on hedging derivative instruments 680,000 544,000 146,000

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

5 unchanged sentences

Tangible book value per common share $ 18.15 $ 17.93 $ 17.84

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

1 December 31, 2022 and June 30, 2022 had no allowance for credit losses

See Report of Independent Registered Public Accounting Firm.

3 unchanged sentences

and Subsidiary

For the three months ended March 31,

For the six months ended June 30, For the quarter ended June 30,

2023 2022 2023 2022

Interest income

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

Interest and fees on loans (includes YTD tax-exempt income of $ 801,000 for June 30, 2023 and $ 582,000 for June 30, 2022)

$ 50,531,000 $ 33,899,000 $ 26,406,000 $ 17,286,000

Interest on deposits with other banks 89,000 71,000 49,000 62,000

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)

Interest and dividends on investments (includes YTD tax-exempt income of $ 4,016,000 for June 30, 2023 and $ 3,657,000 for June 30, 2022)

9,478,000 7,994,000 4,729,000 4,083,000

5 unchanged sentences

Net interest income 33,400,000 37,318,000 15,925,000 18,698,000

Provision for credit losses 550,000 450,000

Provision for credit losses - loans 580,000 900,000 30,000 450,000

Reduction in provision for credit losses - debt securities held to maturity ( 10,000 ) — ( 10,000 ) —

Provision for credit losses - off-balance sheet credit exposures 131,000 — 131,000 —

Total provision for credit losses 701,000 900,000 151,000 450,000

Net interest income after provision for credit losses 32,699,000 36,418,000 15,774,000 18,248,000

2 unchanged sentences

Service charges on deposit accounts 934,000 904,000 497,000 467,000

Net securities gains — 2,000

Net securities gains (losses) — 1,000 — ( 1,000 )

Mortgage origination and servicing income, net of amortization 387,000 878,000 195,000 380,000

18 unchanged sentences

Net unrealized gain on transferred securities, net of taxes 5,000 14,000 1,000 5,000

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

Net unrealized gain on hedging derivative instruments 136,000 146,000 2,872,000 146,000

Other comprehensive income (loss) 1,078,000 ( 30,917,000 ) ( 371,000 ) ( 12,583,000 )

5 unchanged sentences

and Subsidiary

Three Month Period Ended March 31, 2023 and 2022

Six Month Period Ended June 30, 2023 and 2022

Common stock and

9 unchanged sentences

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 — — — 146,000 146,000

Comprehensive income (loss) — — 19,702,000 ( 30,917,000 ) ( 11,215,000 )

5 unchanged sentences

Proceeds from sale of common stock 12,619 385,000 — — 385,000

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

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

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

2 unchanged sentences

Net unrealized gain on securities transferred from available for sale to held to maturity, net of tax — — — 5,000 5,000

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

Net unrealized gain on hedging derivative instruments, net of tax — — — 136,000 136,000

Comprehensive income — — 15,365,000 1,078,000 16,443,000

7 unchanged sentences

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

Balance at June 30, 2023 11,081,800 $ 69,351,000 $ 205,539,000 $ ( 42,887,000 ) $ 232,003,000

Three Month Period Ended June 30, 2023 and 2022

Common stock and

additional paid-in capital Retained

earnings Accumulated

comprehensive income (loss) Total

shareholders'

Shares Amount

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

Net income — — 9,997,000 — 9,997,000

Net unrealized loss on securities available for sale, net of tax — — — ( 12,734,000 ) ( 12,734,000 )

Net unrealized gain on securities transferred from available for sale to held to maturity, net of tax — — — 5,000 5,000

Net unrealized gain on cash flow hedging derivative instruments, net of tax — — — 146,000 146,000

Comprehensive income (loss) — — 9,997,000 ( 12,583,000 ) ( 2,586,000 )

Cash dividends declared ($ 0.34 per share)

— — ( 3,750,000 ) — ( 3,750,000 )

Equity compensation expense — 195,000 — — 195,000

Payment to repurchase common stock ( 199 ) — ( 6,000 ) — ( 6,000 )

Proceeds from sale of common stock 6,349 186,000 — — 186,000

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

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

Net income — — 7,394,000 — 7,394,000

Net unrealized loss on securities available for sale, net of tax — — — ( 3,244,000 ) ( 3,244,000 )

Net unrealized gain on securities transferred from available for sale to held to maturity, net of tax — — — 1,000 1,000

Net unrealized gain on cash flow hedging derivative instruments, net of tax — — — 2,872,000 2,872,000

Comprehensive income (loss) — — 7,394,000 ( 371,000 ) 7,023,000

Cash dividends declared ($ 0.35 per share)

— — ( 3,878,000 ) — ( 3,878,000 )

Equity compensation expense — 213,000 — — 213,000

Payment to repurchase common stock ( 555 ) — ( 13,000 ) — ( 13,000 )

Proceeds from sale of common stock 8,173 197,000 — — 197,000

Balance at June 30, 2023 11,081,800 $ 69,351,000 $ 205,539,000 $ ( 42,887,000 ) $ 232,003,000

See Report of Independent Registered Public Accounting Firm.

3 unchanged sentences

and Subsi diary

For the three months ended March 31,

For the six months ended June 30,

Cash flows from operating activities

3 unchanged sentences

Change in deferred taxes ( 1,503,000 ) 48,000

Provision for loan losses 550,000 450,000

Provision for credit losses 701,000 900,000

Loans originated for resale ( 1,679,000 ) ( 16,880,000 )

5 unchanged sentences

Net increase in other assets and accrued interest ( 550,000 ) ( 5,732,000 )

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

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

Net (decrease) increase in other liabilities ( 226,000 ) 2,103,000

Net (gain) loss on disposal of premises and equipment 1,000 ( 14,000 )

Amortization of investment in limited partnership 152,000 152,000

2 unchanged sentences

Cash flows from investing activities

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

(Increase) decrease in interest-bearing deposits in other banks ( 285,000 ) 43,807,000

Proceeds from maturities, payments and calls of securities available for sale 10,619,000 27,123,000

2 unchanged sentences

Purchases of securities to be held to maturity — ( 22,683,000 )

Change in restricted equity securities ( 1,344,000 ) —

Redemption of restricted equity securities — 645,000

Purchase of restricted equity securities — ( 37,000 )

Net increase in loans ( 146,391,000 ) ( 140,977,000 )

Capital expenditures ( 586,000 ) ( 1,107,000 )

Proceeds from disposal of premises and equipment — 37,000

Net cash used by investing activities ( 138,042,000 ) ( 128,246,000 )

2 unchanged sentences

Net increase in certificates of deposit 181,958,000 138,205,000

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

Net (decrease) increase in short-term borrowings ( 13,998,000 ) 45,250,000

Advances on long-term borrowings 25,000,000 —

Repayment on long-term borrowings ( 4,000 ) ( 55,004,000 )

6 unchanged sentences

Cash and cash equivalents at end of period $ 25,077,000 $ 23,453,000

For the three months ended March 31,

For the six months ended June 30,

Interest paid $ 26,369,000 $ 4,503,000

Income taxes paid 3,170,000 3,216,000

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 $ ( 937,000 ) $ 31,077,000

Net transfer from loans to other real estate owned 64,000 51,000

See Report of Independent Registered Public Accounting Firm.

4 unchanged sentences

Note 1 – Basis of Presentation

The First Bancorp, Inc.

("the Company") is a financial holding company that owns all of the common stock of First National Bank ("the Bank").

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

The Company is a financial holding company that owns all of the common stock of the Bank.

The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

3 unchanged sentences

For further information, refer to the consolidated financial statements and notes included in the Company's annual report on Form 10-K for the year ended December 31, 2022.

The acronyms, abbreviations and definitions identified below are used throughout this Form 10-Q, including Item 1 - Financial Statements and Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following is provided to aid the reader and provide a reference page when reviewing these sections of the Form 10-Q.

Acronym Description Acronym Description

ACL Allowance for credit losses GDP Gross domestic product

AFS Available-for-sale GNMA Government National Mortgage Association

ALCO Asset/Liability Committee HTM Held-to-maturity

AOCI Accumulated other comprehensive income (loss) IRS Internal Revenue Service

ASC Accounting Standards Codification LIBOR London Interbank Offered Rate

ASU Accounting Standards Update MPF Mortgage Partnership Finance Program

BTFP Bank Term Funding Program OAEM Other assets especially mentioned

C&I Commercial and Industrial OCC Office of the Comptroller of the Currency

CDs Certificates of deposit OCI Other comprehensive income (loss)

CECL Current Expected Credit Loss OIS Overnight Indexed Swap

CLLD Construction, land, and land development OREO Other real estate owned

DFAST Dodd Frank Act Stress Tests POR Period of Redemption

EPS Earnings per share PPP Paycheck Protection Program

FASB Financial Accounting Standards Board PSA Public Securities Association

FDIC Federal Deposit Insurance Corporation SBA Small Business Association

FHLB Federal Home Loan Bank SEC Securities and Exchange Commission

FHLBB Federal Home Loan Bank of Boston SOFR Secured Overnight Financing Rate

FHLMC Federal Home Loan Mortgage Corporation TDR Troubled debt restructuring

FNMA Federal National Mortgage Association The 2020 Plan The 2020 Equity Incentive Plan

FOMC Federal Open Market Committee The Bank First National Bank

FRB Federal Reserve Board The Company The First Bancorp, Inc.

FRBB Federal Reserve Bank of Boston U.S.

United States of America

GAAP Accounting principles generally accepted in the U.S.

Risks and Uncertainties

In March 2020, the World Health Organization declared a worldwide pandemic as a result of the outbreak of coronavirus disease 2019 ("COVID-19").

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 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.

The Bank's primary market is the State of Maine, which relies upon tourism for a significant percentage of its economic activity.

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

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.

The Consumer Price Index has risen at levels not experienced since the 1980s while the labor market remains very tight, contributing to additional inflationary pressure.

To address the inflation problem, the Federal Reserve has removed accommodative monetary policies and aggressively increased short-term interest rates.

These actions are intended to slow overall economic activity, with a resulting risk of the economy entering into a recession.

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.

The ongoing conflict between Russia and Ukraine has added to economic uncertainty and geopolitical instability.

Concern is developing nationally about the commercial real estate market and the impact a downturn in this sector could have on the banking industry.

The failures in 2023 of several regional banks in the U.S.

caused further disruption in 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 March 31, 2023, have been evaluated as to their potential impact to the financial statements.

Events occurring subsequent to June 30, 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 March 31, 2023:

The following table summarizes the amortized cost and estimated fair value of investment securities at June 30, 2023:

Cost Unrealized Gains Unrealized Losses Fair Value (Estimated)

18 unchanged sentences

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.

The Company adopted ASC 326, the CECL standard, in the first quarter of 2023.

In conjunction with adoption, holdings of AFS and 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.

2 unchanged sentences

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.

Each of the AFS securities is deemed to be investment grade, and no ACL has been established for AFS securities.

Similarly, the agency and mortgage-backed securities in the HTM portfolio have been 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 $ 19,877,000 as of June 30, 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;

2 unchanged sentences

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.

Aggregate credit risk of the corporate securities is considered very low and a small ACL has been established.

The total ACL for HTM securities was $ 428,000 as of June 30, 2023;

there was no reserve as of December 31, 2022 and June 30, 2022.

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

19 unchanged sentences

$ 3,883,000 $ — $ — $ 3,883,000

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

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

Cost Unrealized Gains Unrealized Losses Fair Value (Estimated)

15 unchanged sentences

$ 4,720,000 $ — $ — $ 4,720,000

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

The following table summarizes the contractual maturities of investment securities at June 30, 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 March 31, 2022:

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

Securities available for sale Securities to be held to maturity

6 unchanged sentences

$ 343,249,000 $ 301,737,000 $ 379,693,000 $ 335,950,000

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.

At June 30, 2023, securities with a carrying value of $ 329,615,000 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 $ 318,833,000 at June 30, 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 three months ended March 31, 2023 and 2022:

For the three months ended March 31,

The following table shows securities gains and losses for the six months and quarters ended June 30, 2023 and 2022:

For the six months ended June 30, For the quarter ended June 30,

2023 2022 2023 2022

Proceeds from sales of securities $ — $ — $ — $ —

1 unchanged sentence

Gross realized losses — ( 1,000 ) — ( 1,000 )

Net gain $ — $ 2,000

Net gain (loss) $ — $ 1,000 $ — $ ( 1,000 )

Related income taxes $ — $ — $ — $ —

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

As of June 30, 2023, there were 869 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:

The following table summarizes debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded at June 30, 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

17 unchanged sentences

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

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

As of June 30, 2022, there were 773 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 83 had been temporarily impaired for 12 months or more.

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

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

Less than 12 months 12 months or more Total

14 unchanged sentences

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.

HTM municipal debt holdings also include 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.

both issuers were in good standing as of June 30, 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:

each were in good standing as of June 30, 2023.

The following table presents the activity in the ACL for held-to-maturity debt securities by major security type for the six months ended June 30, 2023:

State and Political Subdivisions Corporate Securities Total

2 unchanged sentences

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

Credit loss expense — — —

Credit loss expense (reduction) ( 5,000 ) ( 5,000 ) ( 10,000 )

Securities charged-off — — —

2 unchanged sentences

There was no ACL on U.S.

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

Government-sponsored enterprise and agency securities as of June 30, 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.

As of June 30, 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 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 $ 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.

The net unrealized holding loss at the time of transfer continues to be reported in AOCI, 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 AOCI 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 $ 59,000 , net of taxes, at June 30, 2023.

This compares to $ 64,000 and $ 73,000 , net of taxes, at December 31, 2022 and June 30, 2022, respectively.

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

The Bank is a member of the Federal Home Loan Bank ("FHLB") of Boston, a cooperatively owned wholesale bank for housing and finance in the six New England States.

As a requirement of membership in the FHLB, the Bank must own a minimum required amount of FHLB stock, calculated periodically based primarily on its level of borrowings from the FHLB.

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

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.

The Bank is also a member of the Federal Reserve Bank ("FRB") of Boston.

As a requirement for membership in the FRB, the Bank must own a minimum required amount of FRB stock.

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 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 March 31, 2023.

The Bank is a member of the FHLBB, a cooperatively owned wholesale bank for housing and finance in the six New England States.

As a requirement of membership in the FHLBB, the Bank must own a minimum required amount of FHLBB stock, calculated periodically based primarily on its level of borrowings from the FHLBB.

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

As of June 30, 2023 and 2022, and December 31, 2022, the Bank's investment in FHLBB stock totaled $ 4,190,000 , $ 3,683,000 and $ 2,846,000 , respectively.

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

The Bank is also a member of the FRBB.

As a requirement for membership in the FRBB, the Bank must own a minimum required amount of FRBB stock.

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

The Bank's investment in FRBB stock totaled $ 1,037,000 at June 30, 2023 and 2022 and December 31, 2022.

The Company periodically evaluates its investment in FHLBB and FRBB 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 June 30, 2023.

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

3 unchanged sentences

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 data as of June 30, 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

The following table shows the composition of the Company's loan portfolio by class of financing receivable as of June 30, 2023 and 2022 and at December 31, 2022:

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

Real estate owner occupied $ 301,320,000 14.6 % $ 256,623,000 13.4 % $ 242,161,000 13.5 %

1 unchanged sentence

Construction 64,094,000 3.1 % 93,907,000 4.9 % 128,927,000 7.2 %

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

C&I 351,854,000 17.1 % 319,359,000 16.7 % 275,714,000 15.4 %

Multifamily 93,124,000 4.5 % 79,057,000 4.1 % 68,856,000 3.9 %

5 unchanged sentences

Total $ 2,060,953,000 100.0 % $ 1,914,674,000 100.0 % $ 1,788,355,000 100.0 %

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.

Loan balances include net deferred loan costs of $ 10,824,000 as of June 30, 2023, $ 10,132,000 as of December 31, 2022, and $ 9,738,000 as of June 30, 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") 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.

Pursuant to collateral agreements, qualifying first mortgage loans and commercial real estate loans, which totaled $ 541,345,000 at June 30, 2023, were used to collateralize borrowings from the FHLB.

This compares to qualifying loans which totaled $ 475,233,000 at December 31, 2022, and $ 461,756,000 at June 30, 2022.

In addition, commercial, residential construction and home equity loans totaling $ 331,836,000 at June 30, 2023, $ 338,636,000 at December 31, 2022, and $ 345,798,000 at June 30, 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 March 31, 2023, is presented in the following table:

Information on the past-due status of loans by class of financing receivable as of June 30, 2023, is presented in the following table:

Past Due 60-89 Days

12 unchanged sentences

Total $ 820,000 $ 1,284,000 $ 738,000 $ 2,842,000 $ 2,058,111,000 $ 2,060,953,000 $ 318,000

On March 22, 2020, banking regulators issued an Interagency Statement on Loan Modifications and Reporting in response to the onset of COVID-19;

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 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 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 March 31, 2022, is presented in the following table:

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

Past Due 60-89 Days

14 unchanged sentences

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 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.

Cash payments received on non-accrual 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.

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

The following table presents the amortized costs basis of loans on nonaccrual status as of June 30, 2023, December 31, 2022 and June 30, 2022:

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

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

Real estate owner occupied $ — $ — $ — $ 193,000 $ 197,000

10 unchanged sentences

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.

Individually analyzed loans include loans placed on non-accrual and loans reported as TDR prior to adoption of ASU 2022-02 Troubled Debt Restructurings and Vintage Disclosures, with balances of $250,000 or more.

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 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

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

Collateral Type

Commercial Real Estate Residential Real Estate Total

Real estate owner occupied $ — $ — $ —

1 unchanged sentence

Construction — — —

C&I 79,000 — 192,000 271,000

Term — 385,000 385,000

1 unchanged sentence

Total $ 725,000 $ 385,000 $ 1,110,000

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

A breakdown of individually analyzed loans by class of financing receivable as of and for the period ended June 30, 2023 is presented in the following table:

For the six months ended June 30, 2023 For the quarter ended June 30, 2023

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

With No Related Allowance

65 unchanged sentences

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

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

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

For the six months ended June 30, 2022 For the quarter ended June 30, 2022

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

With No Related Allowance

28 unchanged sentences

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:

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

Loan modifications may include interest rate reduction, term extension, payment deferral, principle forgiveness or a combination thereof.

It is the intent to minimize future losses while providing borrowers with financial relief.

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

Amortized Cost Basis at June 30, 2023

% of Total Class of Financing Receivable

C&I $ 4,000 0.001 %

Total $ 4,000

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

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty for the three months ended June 30, 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.

C&I Extended Term 90 days

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:

The following table depicts the performance of loans that have been modified during the six months ended June 30, 2023:

Payment Status (Amortized Cost Basis)

5 unchanged sentences

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.

Prior to adoption of ASU 2022-02, the Company evaluated loan modifications and other transactions to determine 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.

4 unchanged sentences

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

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 .

As of December 31, 2022, the company had 29 loans with a balance of $ 4,744,000 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.

10 unchanged sentences

29 $ 4,744,000 $ 181,000

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

Number of Loans Balance Specific Reserves

Real estate 8 $ 1,212,000 $ 42,000

Construction 1 661,000 13,000

Other 5 735,000 326,000

Municipal — — —

Term 41 5,181,000 118,000

Construction — — —

Home equity line of credit — — —

Consumer 1 1,000 —

56 $ 7,790,000 $ 499,000

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.

9 unchanged sentences

1 $ 97,000 $ —

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

For the year ended December 31, 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 December 31, 2022:

Number of Loans Pre-Modification

Recorded Investment Post-Modification Outstanding

Investment Specific Reserves

Real estate — $ — $ — $ —

7 unchanged sentences

1 $ 38,000 $ 38,000 $ —

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

As of December 31, 2022, Management was aware of four loans classified as TDRs that are involved in bankruptcy with an outstanding balance of $ 550,000 .

As of December 31, 2022, there were five loans with an outstanding balance of $ 339,000 that were classified as TDRs and were on non-accrual status, of which none were in the process of foreclosure.

Residential Mortgage Loans in Process of Foreclosure

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.

As of June 30, 2023, there were no mortgage loans collateralized by residential real estate in the process of foreclosure.

This compares to two mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 166,000 as of December 31, 2022, and five mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $ 537,000 as of June 30, 2022.

Allowance for Credit Losses

31 unchanged sentences

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.

Commercial and Industry- 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;

31 unchanged sentences

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.

Construction, land, and land development :

CLLD loans, both commercial and residential, represented 35.5 % of total Bank capital as of June 30, 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 217.0 % of total Bank capital at June 30, 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

A breakdown of the allowance for credit losses as of June 30, 2023, by class of financing receivable and allowance element, is presented in the following table:

As of June 30, 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 $ — $ 3,998,000 $ 721,000 $ 4,719,000

22 unchanged sentences

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

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

A breakdown of the allowance for loan losses as of June 30, 2022 under the incurred loss method, by class of financing receivable and allowance element, is presented in the following table:

As of June 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

9 unchanged sentences

$ 613,000 $ 1,966,000 $ 11,772,000 $ 1,850,000 $ 16,201,000

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.

The allowance for credit losses as a percent of total loans stood at 1.14 % as of June 30, 2023, 0.87 % at December 31, 2022 and 0.91 % as of June 30, 2022.

Off-Balance Sheet Credit Exposures:

8 unchanged sentences

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

The following table presents the activity in the ACL for off-balance sheet credit exposures for the six months ended June 30, 2023 :

Allowance for credit losses:

4 unchanged sentences

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.

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

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

10 unchanged sentences

Credits rated "5" are characterized by borrowers that warrant greater monitoring due to financial condition or unresolved and identified risk factors.

6 Other Assets Especially Mentioned ("OAEM")

6 Other Assets Especially Mentioned

Loans in this category are currently protected but are potentially weak and constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of substandard.

6 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.

Most residential real estate, home equity, and consumer loans are not assigned ratings;

therefore they are categorized as performing and non-performing loans.

Performing loans include loans that are current and loans that are past due less than 90 days.

Loans that are past due more than 90 days are considered non-performing.

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

Dollars in thousands 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

As of June 30, 2023

Real estate owner occupied

4 unchanged sentences

Total Real Estate Owner Occupied 35,166 75,256 42,611 29,034 37,217 71,417 10,432 187 301,320

Real estate owner occupied

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

5 unchanged sentences

Total Real Estate Non-Owner Occupied 23,092 71,871 131,461 49,505 28,265 87,532 4,662 — 396,388

Current period gross write-offs — — — — — — — — —

Pass (risk rating 1-5) 8,436 41,688 8,574 1,737 1,063 2,596 — — 64,094

3 unchanged sentences

Total Construction 8,436 41,688 8,574 1,737 1,063 2,596 — — 64,094

Current period gross write-offs — — — — — — — — —

Pass (risk rating 1-5) 35,422 68,801 55,927 38,437 6,937 40,691 87,193 16,187 349,595

3 unchanged sentences

Total C&I 35,522 69,278 56,278 38,437 7,194 41,278 87,680 16,187 351,854

Current period gross write-offs — — — — — — — — —

Pass (risk rating 1-5) 5,332 31,747 19,329 16,220 5,959 11,259 1,914 — 91,760

3 unchanged sentences

Total Multifamily 5,332 31,747 20,693 16,220 5,959 11,259 1,914 — 93,124

Current period gross write-offs — — — — — — — — —

Pass (risk rating 1-5) 20,516 6,991 4,352 11,036 5,691 9,666 — — 58,252

3 unchanged sentences

Total Municipal 20,516 6,991 4,352 11,036 5,691 9,666 — — 58,252

Current period gross write-offs — — — — — — — — —

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) — — — — — — —

Dollars in thousands 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term Total

As of June 30, 2023

Performing 29,366 137,663 146,868 99,721 41,667 187,272 1,903 134 644,594

Non-performing — — — — 262 271 — — 533

Total Term 29,366 137,663 146,868 99,721 41,929 187,543 1,903 134 645,127

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) — — — — — — —

Current period gross write-offs — — — — — — — — —

Performing 6,627 22,880 — 1,305 — — — — 30,812

Non-performing — — — — — — — — —

Total Construction 6,627 22,880 — 1,305 — — — — 30,812

Current period gross write-offs — — — — — — — — —

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) — — — — — — —

Performing 5,632 9,504 2,188 1,253 744 1,836 67,376 10,675 99,208

Non-performing — — — — — 118 149 191 458

Total Home Equity Revolving and Term 5,632 9,504 2,188 1,253 744 1,954 67,525 10,866 99,666

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

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

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

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

Current period gross write-offs — — — — — — — — —

Performing 2,411 2,684 1,425 2,207 643 4,705 6,241 — 20,316

Non-performing — — — — — — — — —

Total Consumer 2,411 2,684 1,425 2,207 643 4,705 6,241 — 20,316

Current period gross write-offs 1 17 22 14 3 26 — — 83

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

Total loans $ 172,100 $ 469,562 $ 414,450 $ 250,455 $ 128,705 $ 417,950 $ 180,357 $ 27,374 $ 2,060,953

Loss Recognition:

5 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.

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

The following table presents allowance for credit losses activity by class for the six months and quarter ended June 30, 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

For the six months ended June 30, 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

1 unchanged sentence

Recoveries — — — 3 — — 6 — 7 58 — 74

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

Provision (credit) 328 177 ( 295 ) ( 24 ) 128 105 388 ( 325 ) 55 43 — 580

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 $ 4,719 $ 4,492 $ 1,469 $ 4,721 $ 1,312 $ 399 $ 4,831 $ 609 $ 635 $ 278 $ — $ 23,465

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:

For the three months ended June 30, 2023

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

Charge offs — — — — — — — — — 46 — 46

Recoveries — — — 1 — — 4 — 3 15 — 23

Provision (credit) 249 70 ( 315 ) ( 118 ) 106 92 219 ( 340 ) 29 38 — 30

Ending balance $ 4,719 $ 4,492 $ 1,469 $ 4,721 $ 1,312 $ 399 $ 4,831 $ 609 $ 635 $ 278 $ — $ 23,465

As of June 30, 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 :

1 unchanged sentence

• Commercial Real Estate Owner Occupied:

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

FOMC median forecasts of national unemployment and change in national GDP

• Commercial Real Estate Non-Owner Occupied:

31 unchanged sentences

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

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

The following table presents allowance for loan losses activity by class for the six months and quarter ended June 30, 2022:

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

Real Estate Construction Other Term Construction

For the three months ended March 31, 2022

For the six months ended June 30, 2022

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

3 unchanged sentences

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

For the three months ended June 30, 2022

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

Charge offs $ — $ — $ 42 $ — $ — $ — $ — $ 70 $ — $ 112

Recoveries $ 1 $ — $ 1 $ — $ 3 $ — $ — $ 92 $ — $ 97

Provision (credit) $ 110 $ 212 $ 33 $ 1 $ ( 59 ) $ 30 $ 27 $ ( 22 ) $ 118 $ 450

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

Note 5 – Stock-Based Compensation

At the 2010 Annual Meeting, shareholders approved the 2010 Equity Incentive Plan (the "2010 Plan").

The 2010 Plan expired on April 28, 2020, leaving 215,513 shares not issued.

At the 2020 Annual Meeting, shareholders approved the 2020 Equity Incentive Plan (the "2020 Plan").

At the 2020 Annual Meeting, shareholders approved the 2020 Equity Incentive Plan.

The 2020 Plan reserves 400,000 shares of common stock for issuance in connection with stock options, restricted stock awards, and other equity based awards to attract and retain the best available personnel, provide additional incentive to officers, employees, and non-employee Directors, and promote the success of the Company.

2 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 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:

As of June 30, 2023, 98,810 shares of restricted stock had been granted under the 2020 Plan, of which 83,377 shares remain restricted as of June 30, 2023 as detailed in the following table:

Granted Vesting Term

6 unchanged sentences

2023 1.0 1,750 0.6

2023 1.0 1,750 0.8

The compensation cost related to these non-vested restricted stock grants is $ 2,402,000 and is recognized over the vesting terms of each grant.

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.

In the six months ended June 30, 2023, $ 398,000 of expense was recognized for these restricted shares, leaving $ 1,287,000 in unrecognized expense as of June 30, 2023.

In the six months ended June 30, 2022, $ 412,000 of expense was recognized for restricted shares, leaving $ 1,155,000 in unrecognized expense as of June 30, 2022.

Note 6 – Common Stock

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

Proceeds from sale of common stock totaled $ 408,000 and $ 385,000 for the six months ended June 30, 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 three months ended March 31, 2023 and 2022:

The following table sets forth the computation of basic and diluted EPS for the six months ended June 30, 2023 and 2022:

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

For the three months ended March 31, 2023

For the six months ended June 30, 2023

Net income as reported $ 15,365,000

3 unchanged sentences

Income available to common shareholders plus assumed conversions $ 15,365,000 11,079,287 $ 1.39

For the three months ended March 31, 2022

For the six months ended June 30, 2022

Net income as reported $ 19,702,000

3 unchanged sentences

Income available to common shareholders plus assumed conversions $ 19,702,000 11,022,087 $ 1.79

The following table sets forth the computation of basic and diluted EPS for the quarters ended June 30, 2023 and 2022:

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

For the quarter ended June 30, 2023

Net income as reported $ 7,394,000

Income available to common shareholders 7,394,000 10,989,302 $ 0.67

Effect of dilutive securities:

restricted stock 83,501

Income available to common shareholders plus assumed conversions $ 7,394,000 11,072,803 $ 0.67

For the quarter ended June 30, 2022

Net income as reported $ 9,997,000

Income available to common shareholders 9,997,000 10,927,887 $ 0.91

Effect of dilutive securities:

restricted stock 100,142

Income available to common shareholders plus assumed conversions $ 9,997,000 11,028,029 $ 0.91

Note 8 – Employee Benefit Plans

The Bank has a defined contribution plan available to substantially all employees who have completed three months of service.

Employees may contribute up to Internal Revenue Service ("IRS") determined limits and the Bank may match employee contributions not to exceed 3.0 % of compensation depending on contribution level.

Employees may contribute up to IRS determined limits and the Bank may match employee contributions not to exceed 3.0 % of compensation depending on contribution level.

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 $ 326,000 and $ 324,000 for the three months ended March 31, 2023 and 2022, respectively.

The expense related to the 401(k) plan was $ 584,000 and $ 550,000 for the six months ended June 30, 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") 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.

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

The expense of these supplemental retirement benefits was $ 57,000 and $ 154,000 for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, the associated accrued liability included in other liabilities in the balance sheet was $ 2,807,000 compared to $ 2,893,000 and $ 2,882,000 at December 31, 2022 and June 30, 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 three months ended March 31,

At or for the six months ended June 30,

Change in benefit obligation

8 unchanged sentences

The following table sets forth the net periodic pension cost:

For the three months ended March 31,

For the six months ended June 30, For the quarter ended June 30,

2023 2022 2023 2022

Components of net periodic benefit cost

1 unchanged sentence

Net periodic benefit cost $ 10,000 $ 17,000 $ 5,000 $ 9,000

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

2023 December 31, 2022 March 31,

Amounts not yet reflected in net periodic benefit cost and included in AOCI are as follows:

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

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

Deferred tax expense ( 72,000 ) ( 72,000 ) ( 28,000 )

Net unrecognized postretirement benefits included in accumulated other comprehensive income $ 273,000 $ 273,000 $ 105,000

Net unrecognized postretirement benefits included in AOCI $ 273,000 $ 273,000 $ 105,000

A weighted average discount rate of 4.75 % was used in determining the accumulated benefit obligation and the net periodic benefit cost.

5 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 three months ended March 31, 2023 and 2022.

For the three months ended March 31,

The following table summarizes activity in the unrealized gain or loss on available for sale securities included in OCI for the six months and quarters ended June 30, 2023 and 2022.

For the six months ended June 30, For the quarter ended June 30,

2023 2022 2023 2022

Balance at beginning of period $ ( 44,718,000 ) $ ( 1,718,000 ) $ ( 40,537,000 ) $ ( 20,061,000 )

Unrealized gains (losses) arising during the period 1,186,000 ( 39,337,000 ) ( 4,106,000 ) ( 16,120,000 )

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

Reclassification of net realized (gains) losses during the period — ( 1,000 ) — 1,000

Related deferred taxes ( 249,000 ) 8,261,000 862,000 3,385,000

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 (loss) for the three months ended March 31, 2023 and 2022.

For the three months ended March 31,

The following table summarizes activity in the unrealized loss on securities transferred from available for sale to held to maturity included in OCI for the six months and quarters ended June 30, 2023 and 2022.

For the six months ended June 30, For the quarter ended June 30,

2023 2022 2023 2022

Balance at beginning of period $ ( 64,000 ) $ ( 87,000 ) $ ( 60,000 ) $ ( 78,000 )

3 unchanged sentences

Balance at end of period $ ( 59,000 ) $ ( 73,000 ) $ ( 59,000 ) $ ( 73,000 )

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,

The following table presents the effect of the Company's derivative financial instruments included in OCI for the six months and quarters ended June 30, 2023 and 2022.

For the six months ended June 30, For the quarter ended June 30,

2023 2022 2023 2022

Balance at beginning of period $ 544,000 $ — $ ( 2,192,000 ) $ —

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

Unrealized gains on cash flow hedging derivatives arising during the period 172,000 185,000 3,635,000 185,000

Related deferred taxes ( 36,000 ) ( 39,000 ) ( 763,000 ) ( 39,000 )

1 unchanged sentence

Balance at end of period $ 680,000 $ 146,000 $ 680,000 $ 146,000

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.

There was no activity in the unrealized gain or loss on postretirement benefits included in OCI for the six months and quarters ended June 30, 2023 and 2022.

Note 10 - Financial Derivative Instruments

3 unchanged sentences

The Bank’s interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets or liabilities so that changes in interest rates do not have a significant effect on net interest income.

The Bank recognizes its derivative instruments in the consolidated balance sheet at fair value.

The Bank recognizes its derivative instruments in the consolidated balance sheets at fair value.

On the date the derivative instrument is entered into, the Bank designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge).

The Bank formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions.

The Bank formally documents relationships between hedging instruments and hedged items, as well as its risk

management objective and strategy for undertaking hedge transactions.

The Bank also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of hedged items.

Changes in fair value of derivative instruments that are highly effective and qualify as cash flow hedges are recorded in other comprehensive income (loss).

Changes in fair value of derivative instruments that are highly effective and qualify as cash flow hedges are recorded in OCI.

Any ineffective portion is recorded in earnings.

1 unchanged sentence

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

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

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

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

Notional Amount Fair Value

3 unchanged sentences

04/27/2022 04/27/2024 USD-SOFR-COMPOUND 2.619 % Other Assets 10,000,000 219,000 10,000,000 269,000 10,000,000 58,000

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

01/10/2023 01/01/2026 USD-SOFR-OIS COMPOUND 3.836 % Other Assets 75,000,000 1,154,000 — — — —

03/08/2023 03/01/2026 USD-SOFR-OIS COMPOUND 4.712 % Other Liabilities 40,000,000 ( 231,000 ) — — — —

2 unchanged sentences

$ 205,000,000 $ 861,000 $ 30,000,000 $ 689,000 $ 30,000,000 $ 185,000

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.

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.

The Company would reclassify unrealized gains or losses accounted for within AOCI into earnings if the interest rate swaps were to become ineffective or the swaps were to terminate for cash flow hedges, or would amortize the gain or loss over the remaining life of the hedged instrument for fair value hedges.

Amounts paid or received under the swaps are reported in interest income or interest expense in the consolidated statements of income, and reflected in net income in the consolidated statements of cash flows.

Customer loan derivatives

1 unchanged sentence

Through these arrangements, the Bank is able to provide a means for a loan customer to obtain a long-term fixed rate, while it simultaneously contracts with an approved, highly-rated, third-party financial institution as counterparty to swap the fixed rate for a variable rate.

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 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

Such loan level arrangements are not designated as hedges for accounting purposes, and are recorded at fair value in the Company’s consolidated balance sheets.

At June 30, 2023 and 2022, and December 31, 2022, there were six customer loan swap arrangements in place, detailed below:

June 30, 2023 December 31, 2022 June 30, 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

Pay Fixed, Receive Variable Other Assets 6 $ 36,852,000 $ 4,715,000 6 $ 37,411,000 $ 4,910,000 6 $ 38,903,000 $ 3,440,000

Pay Fixed, Receive Variable Other Liabilities — — — — — — 1 12,310,000 ( 566,000 )

6 36,852,000 4,715,000 6 37,411,000 4,910,000 6 38,903,000 3,440,000

Receive Fixed, Pay Variable Other Assets — — — — — — 1 12,310,000 566,000

Receive Fixed, Pay Variable Other Liabilities 6 36,852,000 ( 4,715,000 ) 6 37,411,000 ( 4,910,000 ) 6 38,903,000 ( 3,440,000 )

4 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 March 31, 2023, there was no collateral posted on its swap contracts or required amount to be pledged.

At June 30, 2023, the Bank posted to the counterparty $ 750,000 of cash as collateral on its swap contracts.

There was no required amount to be pledged.

Cessation of LIBOR

The Company is aware that 1) certain tenors of US Dollar ("USD") denominated London Interbank Offering Rate ("LIBOR") indices ceased to be published after December 31, 2021, while other tenors are expected to continue being published until June 30, 2023, and 2) no new contracts referencing LIBOR are to be written after December 31, 2021.

The Federal Reserve formed the Alternative Reference Rates Committee ("ARRC") to guide the transition process in the United States.

ARRC has issued a number of recommendations including the adoption of the Secured Overnight Financing Rate ("SOFR") as a replacement for LIBOR.

The International Swap and Derivatives Association ("ISDA"), the organization that oversees and guides swap and derivatives markets and participants, continues to work on transitions and has issued a voluntary fallback protocol for market participants.

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 March 31, 2023 is tied to a LIBOR tenor expected to be published until June 2023.

The Company adopted SOFR as its replacement reference rate index for each of the customer loan interest rate swap contracts that were tied to a LIBOR tenor.

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 to incorporate the new replacement reference rate index will be undertaken prior to June 30, 2023.

The necessary actions to amend these legacy contracts to incorporate the new replacement reference rate index were undertaken during the second quarter 2023.

Note 11 – Mortgage Servicing Rights

2 unchanged sentences

In evaluating the carrying 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.

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 March 31, 2023, the prepayment assumption using the PSA model was 130, which translates into an anticipated prepayment rate of 6.24 %.

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 PSA and modeled against the serviced loan portfolio, and the discount rate to discount future cash flows.

As of June 30, 2023, the prepayment assumption using the PSA model was 106, which translates into an anticipated prepayment rate of 5.09 %.

The discount rate is 9.375 %.

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 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.

For the six months ended June 30, 2023 and 2022, servicing rights capitalized totaled $ 17,000 and $ 237,000 , respectively.

Servicing rights amortized for the six-month periods ended June 30, 2023 and 2022 were $ 197,000 and $ 291,000 , respectively.

The fair value of servicing rights was $ 3,639,000 , $ 3,734,000 , and $ 3,751,000 at June 30, 2023, December 31, 2022 and June 30, 2022, respectively.

The Bank serviced loans for others totaling $ 332,993,000 , $ 342,870,000 , and $ 354,308,000 at June 30, 2023, December 31, 2022, and June 30, 2022, respectively.

Mortgage servicing rights are included in other assets and detailed in the following table:

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

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

Mortgage servicing rights $ 8,671,000 $ 8,654,000 $ 8,579,000

Accumulated amortization ( 6,358,000 ) ( 6,161,000 ) ( 5,935,000 )

Amortized cost 2,402,000 2,493,000 2,684,000

Impairment reserve — — ( 8,000 )

Carrying value $ 2,313,000 $ 2,493,000 $ 2,644,000

4 unchanged sentences

Note 13 - Certificates of Deposit

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

The following table represents the breakdown of certificates of deposit at June 30, 2023 and 2022, and at December 31, 2022:

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

Certificates of deposit < $100,000 $ 667,552,000 $ 489,793,000 $ 340,876,000

56 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 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.

As of June 30, 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 March 31, 2023, December 31, 2022 and March 31, 2022.

At March 31, 2023

The following tables present the balances of assets and liabilities that were measured at fair value on a recurring basis as of June 30, 2023, December 31, 2022 and June 30, 2022.

At June 30, 2023

Level 1 Level 2 Level 3 Total

9 unchanged sentences

Total assets $ — $ 284,690,000 $ — $ 284,690,000

At March 31, 2023

At June 30, 2023

Level 1 Level 2 Level 3 Total

18 unchanged sentences

Total liabilities $ — $ 4,910,000 $ — $ 4,910,000

At March 31, 2022

At June 30, 2022

Level 1 Level 2 Level 3 Total

5 unchanged sentences

Total securities available for sale — 301,737,000 — 301,737,000

Interest rate swap agreements — 185,000 — 185,000

Customer loan interest swap agreements — 3,440,000 — 3,440,000

Total interest swap agreements — 3,625,000 — 3,625,000

Total assets $ — $ 305,362,000 $ — $ 305,362,000

At March 31, 2022

At June 30, 2022

Level 1 Level 2 Level 3 Total

3 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 $ 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.

Mortgage servicing rights are presented at fair value with no impairment reserve for each of the periods presented.

OREO is presented net of no allowance at June 30, 2023 and 2022.

There was no OREO or related allowance at 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

Individually analyzed loans below are presented net of specific allowances of $ 157,000 , $ 135,000 and $ 335,000 at June 30, 2023, December 31, 2022, and June 30, 2022, respectively.

At June 30, 2023

Level 1 Level 2 Level 3 Total

Mortgage servicing rights $ — $ 3,639,000 $ — $ 3,639,000

OREO — 64,000 — 64,000

Individually analyzed loans — 215,000 — 215,000

5 unchanged sentences

Total assets $ — $ 3,754,000 $ — $ 3,754,000

At March 31, 2022

At June 30, 2022

Level 1 Level 2 Level 3 Total

Mortgage servicing rights $ — $ 3,751,000 $ — $ 3,751,000

OREO — 51,000 — 51,000

Individually analyzed loans — 5,000 — 5,000

13 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 March 31, 2023 were as follows:

The carrying amount and estimated fair values for financial instruments as of June 30, 2023 were as follows:

Carrying value Estimated fair value Level 1 Level 2 Level 3

2 unchanged sentences

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

Real estate 688,497,000 653,180,000 — — 653,180,000

Construction 62,625,000 59,413,000 — — 59,413,000

C&I 334,850,000 323,318,000 — 20,000 323,298,000

Multifamily 79,883,000 76,234,000 — — 76,234,000

Other 438,945,000 427,185,000 — 215,000 426,970,000

Municipal 57,853,000 53,169,000 — — 53,169,000

1 unchanged sentence

Construction 30,203,000 30,089,000 — — 30,089,000

Revolving and term 92,919,000 94,010,000 — — 94,010,000

Home equity line of credit 99,031,000 99,975,000 — — 99,975,000

Consumer 20,038,000 17,984,000 — — 17,984,000

30 unchanged sentences

Total borrowed funds 103,483,000 103,353,000 — 103,353,000 —

The carrying amount and estimated fair values for financial instruments as of March 31, 2022 were as follows:

The carrying amount and estimated fair values for financial instruments as of June 30, 2022 were as follows:

Carrying value Estimated fair value Level 1 Level 2 Level 3

34 unchanged sentences

In March 2023, the FASB issued ASU No.

2022-01 Derivatives and Hedging (Topic 815):

Fair Value Hedging – Portfolio Layer Method.

This ASU expands upon hedge accounting concepts introduced in ASU 2017-12 by allowing multiple hedged layers to be designated for a single closed portfolio of financial assets which may allow a greater proportion of interest rate risk inherent in the assets to be hedged.

The last of layer method outlined in ASU 2017-12 is renamed the portfolio layer method in ASU 2022-01.

ASU 2022-01 also allows, upon adoption, the reclassification of debt securities classified as held to maturity to the available for sale category provided the reclassification takes place within thirty days of adoption and the same debt securities are included in a portfolio layer method hedge within the thirty day period.

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

Adoption of ASU 2017-12 has not had a material impact on the consolidated financial statements of the Company.

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

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

This ASU expands the use of proportional amortization method of accounting — currently allowed only for investments in low-income housing tax credit (LIHTC) structures — to equity investments in other tax credit structures that meet certain criteria.

The proportional amortization method results in (1) the tax credit investment being amortized in proportion to the allocation of tax credits and other tax benefits in each period and (2) net presentation within the income tax line item.

The ASU is effective beginning in 2024 for calendar year-end public business entities.

Adoption is not expected to have a material impact on the Company's consolidated financial statements.

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