What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-09 compared with 2024-05-07 · 211 added, 152 removed, 629 unchanged (37% of the section changed)

28 unchanged sentences

Similarly, the use of different estimates or assumptions could produce different provisions for credit losses which would likely result in changes to the Company's net income.

In the current period the ACL-Loans increased by $177,000, the ACL-Off-Balance Commitments decreased by $360,000 and the ACL-HTM Securities decreased by $252,000.

In the six months ended June 30, 2024 the ACL-Loans increased by $663,000, the ACL-Off-Balance Commitments decreased by $353,000 and the ACL-HTM Securities decreased by $285,000.

Further discussion of the ACL may be found in Note 2, "Investment Securities", Note 3, "Loans", and Note 4, "Allowance for Credit Losses", to the consolidated financial statements contained in Item 1 of the Form 10-Q.

7 unchanged sentences

A finding that the Company's methodology for valuation of its investment securities is materially incorrect could result in changes to the carrying value of securities on its balance sheet and corresponding changes in shareholders equity position.

As of March 31, 2024 the fair value of AFS securities decreased by $7.6 million and the fair value of HTM securities decreased by $10.8 million from that of December 31, 2023.

As of June 30, 2024 the fair value of AFS securities decreased by $8.6 million and the fair value of HTM securities decreased by $17.0 million from that of December 31, 2023.

These decreases are due to a combination of higher interest rates leading to lower market prices for the underlying securities and incoming cash flow from these investments being re-deployed to other segments of the balance sheet.

21 unchanged sentences

The nation's economy continues to demonstrate areas of strength and areas of weakness.

The high inflation experienced post-pandemic has moderated, yet continues to run above the FOMC's 2% target, and the pace of progress has slowed as evidenced by higher than expected readings of the Consumer Price Index in the first quarter of 2024.

The labor market remains very tight with very low rates of unemployment and strong job creation, each contributing to inflationary pressure.

The high inflation experienced post-pandemic has moderated, yet continues to run above the FOMC's 2% target, and the pace of progress to target has slowed as evidenced by higher than expected readings of the Consumer Price Index in the first quarter of 2024.

The labor market remains tight with continued low rates of unemployment and strong but slowing job creation;

wage pressures which had contributed to to inflationary pressure appear to be softening.

To address the inflation problem, FOMC aggressively increased short-term interest rates throughout 2022 and into 2023, and has been on hold since the summer of 2023.

The FOMC has signaled rate reductions beginning later this year, however recent discussion has pushed the timing of cuts out further and at less depth than initial guidance suggested.

If the FOMC does not increase rates enough or cuts rates too early, it risks an ongoing inflation problem;

The FOMC has signaled rate reductions beginning later this year, however the timing and depth of cuts is uncertain.

If the FOMC has not increased rates enough or begins rate cuts too early, it risks an ongoing inflation problem;

an overshoot on maintaining elevated interest rates risks entering the economy into a recession.

20 unchanged sentences

A Federal Income Tax rate of 21.0% was used in 2024 and 2023.

For the three months ended March 31,

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

Dollars in thousands

2024 2023 2024 2023

Net interest income as presented $ 29,955 $ 33,400 $ 15,075 $ 15,925

5 unchanged sentences

The following table provides a reconciliation between the GAAP and non-GAAP efficiency ratio:

For the three months ended March 31,

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

Dollars in thousands

2024 2023 2024 2023

Non-interest expense, as presented $ 23,011 $ 21,565 $ 11,250 $ 10,715

10 unchanged sentences

The following table provides a reconciliation of average tangible common equity to the Company's consolidated financial statements, which have been prepared in accordance with GAAP:

For the three months ended March 31,

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

Dollars in thousands

2024 2023 2024 2023

Average shareholders' equity as presented $ 244,202 $ 235,242 $ 244,321 $ 232,991

3 unchanged sentences

The following table provides a reconciliation to Net Income:

For the three months ended March 31,

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

Dollars in thousands 2024 2023 2024 2023

Net Income, as presented $ 12,192 $ 15,365 $ 6,171 $ 7,394

provision (reduction) for credit losses (513) 550

credit loss (reduction) expense (1) 701 512 151

income taxes expense 2,550 3,208 1,299 1,535

1 unchanged sentence

Executive Summary

Net income for the three months ended March 31, 2024 was $6.0 million, down $2.0 million or 24.5% from the same period in 2023 due primarily to a decrease in net interest income resulting from higher funding costs.

Earnings per common share on a fully diluted basis were $0.54 for the three months ended March 31, 2024, down $0.18 or 25.0% from the $0.72 posted for the same period in 2023.

Net income for the six months ended June 30, 2024 was $12.2 million, down $3.2 million or 20.7% from the same period in 2023 due primarily to a decrease in net interest income resulting from higher funding costs.

Earnings per common share on a fully diluted basis were $1.10 for the six months ended June 30, 2024, down $0.29 or 21.1% from the $1.39 posted for the same period in 2023.

Dividends totaling $0.71 per share have been declared year-to-date, representing a payout to our shareholders of 64.3% of basic earnings per share for the period.

Net interest income on a tax-equivalent basis was down $2.5 million or 14.1% in the three months ended March 31, 2024 compared to the same period in 2023.

The tax equivalent net interest margin for the three months ended March 31, 2024, was 2.22%, down from 2.78% for the same period in 2023.

For the quarter ended June 30, 2024, net income was $6.2 million, down $1.2 million or 16.5% from the same period in 2023.

Earnings per common share on a fully diluted basis were $0.55 for the quarter ended June 30, 2024, down $0.11 or 17.1% from the $0.67 posted for the same period in 2023.

Net interest income on a tax-equivalent basis was down $3.4 million or 9.7% in the six months ended June 30, 2024 compared to the same period in 2023.

The tax equivalent net interest margin for the six months ended June 30, 2024, was 2.21%, down from 2.62% for the same period in 2023.

The period to period change in net interest income and net interest margin is primarily attributable to increased funding costs.

Non-interest income for the three months ended March 31, 2024 was $3.6 million, up $71,000 or 2.0%, from the three months ended March 31, 2023.

As compared to the prior year period, mortgage banking revenue decreased $62,000 or 32.3% on lower volume of mortgage sales and negative marks taken against mortgage servicing rights valuation.

Service charges on deposit accounts were up $62,000, or 14.2%, while debit card revenue was even with the three months ended March 31, 2024.

For the quarter ended June 30, 2024, net interest income on a tax- equivalent basis decreased $825,000 or 5.0% compared to the same period in 2023, with the net interest margin at 2.21% compared to 2.46% for the same period in 2023.

Non-interest income for the six months ended June 30, 2024 was $7.8 million, up $358,000 or 4.8%, from the six months ended June 30, 2023.

As compared to the prior year, service charges on deposit accounts were up $107,000, or 11.5%, and debit card revenue increased $43,000, or 1.7%.

Revenue at First National Wealth Management increased $102,000 or 4.3% over the same period.

Non-interest expense for the three months ended March 31, 2024 was $11.8 million, up $911,000 or 8.4% from the three months ended March 31, 2023.

Mortgage banking revenue decreased $68,000 or 17.6% on lower volume of mortgage sales and negative marks taken against mortgage servicing rights valuation.

Non-interest expense for the six months ended June 30, 2024 was $23.0 million, up $1.4 million or 6.7% from the six months ended June 30, 2023.

FDIC insurance premiums increased $248,000 from the same period in 2023, salaries and employee benefits increased 6.8% and other operating expense increased 5.4% over the same period.

Asset quality continues to be strong and stable.

Non-performing assets stood at 0.09% of total assets as of March 31, 2024, up slightly from 0.07% of total assets as of December 31, 2023 and 0.06% of total assets as of March 31, 2023.

Total past-due loans remain low and were 0.09% of total loans as of March 31, 2024, down from 0.18% and 0.10% of total loans as of December 31, 2023 and March 31, 2023, respectively.

The provision for credit losses on loans for the first three months of 2024 was $99,000, down from the $550,000 provisioned in the same period in 2023.

The effects of improved economic projections and strong asset quality offset the effects of loan growth and other factors in the first quarter model, resulting in lower provision expense for the current period as compared to the prior period.

Recoveries in the first quarter of prior period loan charge-offs outpaced current period charge-offs, resulting in a net addition to the allowance for credit losses on loans.

Net recoveries for the three months ended March 31, 2024 was $78,000 or 0.015% of average loans on an annualized basis, compared to net charge-offs of $25,000 or 0.010% of three months ended March 31, 2023.

The ACL for loans increased $177,000 between December 31, 2023 and March 31, 2024, and now stands at 1.11% of loans outstanding as of March 31, 2024, down from 1.13% at December 31, 2023 and 1.18% at March 31, 2023.

The Company's balance sheet continued to expand in the first three months of 2024 as total assets increased $31.5 million or 1.1% year-to-date.

The loan portfolio increased $44.3 million or 2.1% in the three months ended March 31, 2024 and $190.9 million or 9.6% from a year ago.

Loan growth in the first three months of 2024 was centered in the commercial and residential portfolios.

Commercial loans increased by $34.0 million during the period, led by increases in owner-occupied commercial real estate of $12.7 million, non-owner occupied commercial real estate of $9.5 million, commercial & industrial loans of $6.8 million and multifamily of $7.9 million;

commercial construction balances decreased by $2.9 million as a number of projects converted to permanent financing.

Residential term loans increased by $3.2 million in the first three months of 2024 and residential construction loans increased by $2.5 million during the same period.

Non-performing assets stood at 0.09% of total assets as of June 30, 2024, up slightly from 0.07% of total assets as of December 31, 2023 and 0.06% of total assets as of June 30, 2023.

Total past-due loans remain low and were 0.15% of total loans as of June 30, 2024, down from 0.18% and slightly up from 0.14% of total loans as of December 31, 2023 and June 30, 2023, respectively.

The provision for credit losses on loans for the first six months of 2024 was $638,000, up from the $580,000 provisioned in the same period in 2023.

The provision year-to-date in 2024 has been driven by loan growth, strong credit quality, and generally favorable economic forecasts.

Net recoveries for the six months ended June 30, 2024 were $25,000 or 0.002% of average loans on an annualized basis, compared to net charge-offs of $48,000 or 0.005% as of the six months ended June 30, 2023.

The ACL for loans increased $663,000 between December 31, 2023 and June 30, 2024, and now stands at 1.10% of loans outstanding as of June 30, 2024, as compared to 1.13% at December 31, 2023 and 1.14% at June 30, 2023.

The Company's balance sheet continued to expand in the first six months of 2024 as total assets increased $138.2 million or 4.7% year-to-date.

The loan portfolio increased $118.2 million or 5.6% in the six months ended June 30, 2024 and $186.7 million or 9.1% from a year ago.

Loan growth in the first six months of 2024 was centered in the commercial and residential portfolios.

Commercial loans increased by $83.9 million during the period, led by increases in owner-occupied commercial real estate of $26.2 million, non-owner occupied commercial real estate of $16.3 million, commercial & industrial loans of $15.5 million, multifamily of $12.2 million and commercial construction of $10.1 million.

Residential term loans increased by $11.2 million in the first six months of 2024 and residential construction loans increased by $3.2 million during the same period.

The investment portfolio decreased $12.5 million year-to-date and decreased $15.4 million from a year ago based upon cash flow of amortizing securities, limited reinvestment or new purchases, and changes in the carrying value of AFS securities.

On the liability side of the balance sheet, total deposits decreased $21.6 million, or 0.8%, year-to-date to $2.58 billion.

Low-cost deposits decreased $61.7 million, in line with seasonal deposit patterns.

Money market balances increased $15.9 million and local CDs decreased $10.2 million.

To balance the seasonal changes and to support earning asset growth, wholesale CDs increased $5.4 year-to-date and borrowings increased by $85.1 million.

Low-cost deposits (Demand, NOW, Savings) have decreased $74.3 million, attributable in part to seasonal deposit patterns, and also to factors such as depositor preference for alternate investment vehicles and spend-down by municipal depositors of remaining stimulus funding.

Money market balances have increased $11.2 million year-to-date, while local CDs decreased $10.6 million.

To balance this activity and to support earning asset growth, wholesale CDs have increased $52.1 year-to-date and borrowings have increased by $161.0 million, mostly short-term.

Remaining well capitalized is a top priority for The Company.

The Company's total risk-based capital ratio was 13.54% as of March 31, 2024, solidly above the well-capitalized threshold of 10.0% set by the FDIC, the FRBB, and the OCC.

Among the Company's operating ratios, the return on average assets was 0.82% and return on average tangible common equity of 11.36% for the three months ended March 31, 2024 compared to 1.16% and 15.64%, respectively, for the same period in 2023.

Our non-GAAP efficiency ratio continues to be an important component in the Company's overall performance and stood at 61.15% for the three months ended March 31, 2024 compared to 49.98% for the same period in 2023.

The Company's total risk-based capital ratio was 13.24% as of June 30, 2024, solidly above the well-capitalized threshold of 10.0% set by the FDIC, the FRBB, and the OCC.

Among the Company's operating ratios, the return on average assets was 0.82% and return on average tangible common equity of 11.49% for the six months ended June 30, 2024 compared to 1.10% and 15.16%, respectively, for the same period in 2023.

Our non-GAAP efficiency ratio continues to be an important component in the Company's overall performance and stood at 58.70% for the six months ended June 30, 2024 compared to 51.10% for the same period in 2023, the change being attributable primarily to lower levels of net interest income.

Net Interest Income

Total interest income of $35.0 million for the three months ended March 31, 2024 was an increase of $6.1 million or 21.0% compared to total interest income of $28.9 million for the same period of 2023.

Total interest income of $71.5 million for the six months ended June 30, 2024 was an increase of $11.4 million or 19.0% compared to total interest income of $60.1 million for the same period of 2023.

Growth in earning assets coupled with higher interest rates resulted in the period-to-period increase.

Higher market interest rates resulting from FOMC actions coupled with changing customer product preferences to higher cost money market and CD products led to total interest expense of $20.1 million for the three months ended March 31, 2024, an increase of $8.7 million or 75.8% compared to total interest expense for the three months ended March 31, 2023.

As a result, net interest income of $14.9 million for the three months ended March 31, 2024 was a decrease of $2.6 million or 14.8% compared to net interest income of $17.5 million for the same period ended March 31, 2023.

The Company's net interest margin on a tax-equivalent basis for the three months ended March 31, 2024 was 2.22%, down from 2.78% for the first three months of 2023.

Tax-exempt interest income amounted to $2.5 million for the three months ended March 31, 2024 compared to $2.3 million for the three months ended March 31, 2023.

The following table presents the amount of interest earned or paid, as well as the average yield or rate on an annualized basis, for each major category of assets or liabilities for the three months ended March 31, 2024 and 2023.

Higher market interest rates resulting from FOMC actions coupled with changing customer product preferences to higher cost money market and CD products led to total interest expense of $41.6 million for the six months ended June 30, 2024, an increase of $14.9 million or 55.8% compared to total interest expense for the six months ended June 30, 2023.

As a result, net interest income of $30.0 million for the six months ended June 30, 2024 was a decrease of $3.4 million or 10.3% compared to net interest income of $33.4 million for the same period ended June 30, 2023.

The Company's net interest margin on a tax-equivalent basis for the six months ended June 30, 2024 was 2.21%, down from 2.62% for the first six months of 2023.

Tax-exempt interest income amounted to $5.1 million for the six months ended June 30, 2024 compared to $4.8 million for the six months ended June 30, 2023.

The following tables present the amount of interest earned or paid, as well as the average yield or rate on an annualized basis, for each major category of assets or liabilities for the six months and quarters ended June 30, 2024 and 2023.

Tax-exempt income is calculated on a tax-equivalent basis, using a 21.0% Federal Income Tax rate.

For the three months ended

March 31, 2024 March 31, 2023

For the six months ended

June 30, 2024 June 30, 2023

Dollars in thousands

4 unchanged sentences

Investments 10,428 3.18 % 10,546 3.11 %

Loans held for sale — 0.00 % — 0.00 %

Loans 62,339 5.75 % 50,743 5.15 %

7 unchanged sentences

Net interest margin 2.21 % 2.62 %

The following table presents changes in interest income and expense attributable to changes in interest rates and volume for interest-earning assets and liabilities for the three months ended March 31, 2024 compared to 2023.

For the quarters ended

June 30, 2024 June 30, 2023

Dollars in thousands

interest Average

Yield/Rate Amount of

interest Average

Interest on earning assets

Interest-bearing deposits $ 56 5.59 % $ 49 5.45 %

Investments 5,192 3.19 % 5,264 3.10 %

Loans held for sale — 0.00 % — 0.00 %

Loans 31,996 5.81 % 26,532 5.26 %

Total interest-earning assets 37,244 5.22 % 31,845 4.72 %

Interest expense

Deposits 19,816 3.47 % 14,475 2.68 %

Other borrowings 1,667 3.61 % 784 2.33 %

Total interest expense 21,483 3.48 % 15,259 2.66 %

Net interest income $ 15,761 $ 16,586

Interest rate spread 1.74 % 2.06 %

Net interest margin 2.21 % 2.46 %

The following tables present changes in interest income and expense attributable to changes in interest rates and volume for interest-earning assets and liabilities for the six months and quarters ended June 30, 2024 compared to 2023.

Tax-exempt income is calculated on a tax-equivalent basis, using a 21% Federal Income Tax rate.

For the three months ended March 31, 2024 compared to 2023

For the six months ended June 30, 2024 compared to 2023

Dollars in thousands

12 unchanged sentences

1 Represents the change attributable to a combination of change in rate and change in volume.

For the quarter ended June 30, 2024 compared to 2023

Dollars in thousands

Volume Rate Rate/Volume 1

Interest on earning assets

Interest-bearing deposits $ 6 $ 1 $ — $ 7

Investment securities (202) 135 (5) (72)

Loans held for sale — — — —

Loans 2,508 2,701 255 5,464

Change in interest income 2,312 2,837 250 5,399

Interest expense

Deposits 902 4,179 260 5,341

Other borrowings 298 424 161 883

Change in interest expense 1,200 4,603 421 6,224

Change in net interest income $ 1,112 $ (1,766) $ (171) $ (825)

Average Daily Balance Sheets

The following table shows the Company's average daily balance sheets for the three months ended March 31, 2024 and 2023:

For the three months ended

The following table shows the Company's average daily balance sheets for the six months and quarters ended June 30, 2024 and 2023:

For the six months ended For the quarters ended

Dollars in thousands

March 31, 2024 March 31, 2023

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

Cash and cash equivalents $ 24,002 $ 22,993 $ 24,485 $ 23,236

Interest-bearing deposits in other banks 4,867 3,671 4,030 3,608

Securities available for sale (includes tax exempt securities of $36,490 and $36,636 at March 31, 2024 and 2023, respectively)

Securities available for sale (includes tax exempt securities of $36,483 and $36,630 at June 30, 2024 and 2023, respectively)

272,772 286,004 269,647 284,047

Securities to be held to maturity, net of ACL (included tax exempt securities of $253,412 and $257,279 at March 31, 2024 and 2023, respectively)

Securities to be held to maturity, net of ACL (included tax exempt securities of $252,892 and $256,942 at June 30, 2024 and 2023, respectively)

380,487 391,948 378,076 390,907

6 unchanged sentences

Premises and equipment 28,473 28,163 28,255 28,122

Other real estate owned 6 2 11 4

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

19 unchanged sentences

Net unrealized loss on securities transferred from available for sale to held to maturity (54) (61) (52) (60)

Net unrealized gain on cash flow hedging derivative instruments 455 796

Net unrealized gain (loss) on cash flow hedging derivative instruments 684 (546) 912 (1,873)

Net unrealized gain on postretirement benefit costs 303 273 303 273

2 unchanged sentences

Non-Interest Income

Non-interest income of $3.6 million for the three months ended March 31, 2024 is an increase of $71,000 compared to the same period in 2023.

Mortgage banking revenue was down $62,000, or 32.3%;

Non-interest income of $7.8 million for the six months ended June 30, 2024 is an increase of $358,000 compared to the same period in 2023.

Service charges on deposit accounts were up $107,000, or 11.5%, debit card revenue was up $43,000, or 1.7%, and revenue at First National Wealth Management increased $102,000 or 4.3%.

Over the same period, Mortgage banking revenue was down $68,000, or 17.6%;

the decrease is attributable to a year-to-year decrease in mortgage origination activity and marks against mortgage servicing rights.

Service charges on deposit accounts were up $62,000, or 14.2%, while debit card revenue was even with the three months ended March 31, 2024.

Revenue at First National Wealth Management increased $42,000 or 3.7% over the same period.

Non-interest income of $4.2 million for the quarter ended June 30, 2024 is an increase of $287,000 compared to the same period in 2023, due primarily to a 21.5% increase in other operating income led by loan related fees, coupled with increases in investment management fees and service charges consistent with year-to-date performance.

Non-Interest Expense

Non-interest expense of $11.8 million for the three months ended March 31, 2024 is an increase of 8.4% or $911,000 compared to non-interest expense of $10.9 million for the same period in 2023.

Salaries and employee benefits increased $337,000 or 5.9%, and other operating expense increased $270,000 or 10.4%.

FDIC insurance premiums increased by $220,000 due to a base rate increase impacting all banks.

Income taxes on operating earnings were $1.3 million for the three months ended March 31, 2024, down $422,000 from the same period in 2023.

The carrying value of the Company's investment portfolio decreased by $10.8 million between December 31, 2023 and March 31, 2024 from $670.7 million to $659.8 million.

The change in value of the portfolio is attributable to a combination of incoming cash flow from amortizing investments, limited re-investment or new purchases, the effects of interest rate movement on the fair value of AFS holdings, and the impact of the ACL for HTM securities.

As of March 31, 2024, mortgage-backed securities had a carrying value of $273.5 million and a fair value of $262.2 million.

Non-interest expense of $23.0 million for the six months ended June 30, 2024 is an increase of 6.7% or $1.4 million compared to non-interest expense of $21.6 million for the same period in 2023.

Salaries and employee benefits increased $745,000 or 6.8%, furniture and equipment expense was up $160,000 or 6.1% on higher software costs, and and other operating expense increased $294,000 or 5.4%.

FDIC insurance premiums increased by $248,000 due to a change in base assessment rate which became effective in the second quarter of 2023 and balance sheet expansion.

Non-interest expense of $11.3 million for the quarter ended June 30, 2024 is increase of 5.0% compared to non-interest expense of $10.7 million for the same period in 2023 due to the reasons mentioned.

Income taxes on operating earnings were $2.6 million for the six months ended June 30, 2024, down $658,000 from the same period in 2023.

The carrying value of the Company's investment portfolio decreased by $12.5 million between December 31, 2023 and June 30, 2024 from $670.7 million to $658.1 million.

The change in value of the portfolio is attributable to a combination of incoming cash flow from amortizing investments, limited re-investment or new purchases, and the effects of interest rate movement on the fair value of AFS holdings.

As of June 30, 2024, mortgage-backed securities had a carrying value of $272.3 million and a fair value of $261.0 million.

Of this total, securities with a fair value of $74.8 million or 28.7% of the mortgage-backed portfolio were issued by GNMA and securities with a fair value of $185.7 million or 71.3% of the mortgage-backed portfolio were issued by FHLMC and FNMA.

15 unchanged sentences

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 AFS to HTM was $54,000 at March 31, 2024.

This compares to $56,000 and $60,000, net of taxes, at December 31, 2023 and March 31, 2023, respectively.

The remaining unamortized balance of the net unrealized losses for the securities transferred from AFS to HTM was $51,000 at June 30, 2024.

This compares to $56,000 and $59,000, net of taxes, at December 31, 2023 and June 30, 2023, respectively.

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

The following table sets forth the Company's investment securities at their carrying amounts as of March 31, 2024 and 2023 and December 31, 2023.

The following table sets forth the Company's investment securities at their carrying amounts as of June 30, 2024 and 2023 and December 31, 2023.

Dollars in thousands

March 31, 2024 December 31, 2023 March 31, 2023

June 30, 2024 December 31, 2023 June 30, 2023

Securities available for sale

19 unchanged sentences

In conjunction with adoption, holdings of AFS Securities and HTM securities were evaluated to determine the need to establish an ACL, if any.

The total ACL for HTM securities was $182,000 as of March 31, 2024, $434,000 as of December 31, 2023 and $438,000 March 31, 2023.

The total ACL for HTM securities was $149,000 as of June 30, 2024, $434,000 as of December 31, 2023 and $428,000 June 30, 2023.

Further details are included in Note 2 of the accompanying financial statements.

The following table sets forth yields and contractual maturities of the Company's investment securities as of March 31, 2024.

The following table sets forth yields and contractual maturities of the Company's investment securities as of June 30, 2024.

Yields on tax-exempt securities have been computed on a tax-equivalent basis using a tax rate of 21%.

35 unchanged sentences

AFS Debt Securities in an Unrealized Loss Position

The securities portfolio contains certain AFS securities where the amortized cost of which exceeds fair value, which at March 31, 2024 amounted to $54.3 million, or 16.35% of the amortized cost of the total securities portfolio.

The securities portfolio contains certain AFS securities where the amortized cost of which exceeds fair value, which at June 30, 2024 amounted to $55.0 million, or 16.74% of the amortized cost of the total securities portfolio.

At December 31, 2023, this amount was $50.4 million, or 15.18% of the amortized cost of total securities portfolio.

6 unchanged sentences

Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral.

As of March 31, 2024, the Company had AFS debt securities in an unrealized loss position with a fair value of $260.7 million and unrealized losses of $54.3 million, as identified in the table below.

AFS Securities in a continuous unrealized loss position more than twelve months amounted to a fair value of $251.6 million as of March 31, 2024, compared with $257.7 million at December 31, 2023.

As of June 30, 2024, the Company had AFS debt securities in an unrealized loss position with a fair value of $259.8 million and unrealized losses of $55.0 million, as identified in the table below.

AFS Securities in a continuous unrealized loss position more than twelve months amounted to a fair value of $245.5 million as of June 30, 2024, compared with $257.7 million at December 31, 2023.

The Company has concluded that these securities are fully collectible and that no charge against the allowance is required.

This conclusion was based on the issuer's continued satisfaction of the securities obligations in accordance with their contractual terms and the expectation that the issuer will continue to do so, Management's intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value which may be at maturity, the expectation that the Company will receive 100% of future contractual cash flows, as well as the evaluation of the fundamentals of the issuer's financial condition and other objective evidence.

The following table summarizes AFS debt securities in an unrealized loss position for which an ACL has not been recorded at March 31, 2024:

The following table summarizes AFS debt securities in an unrealized loss position for which an ACL has not been recorded at June 30, 2024:

Less than 12 months 12 months or more Total

6 unchanged sentences

State and political subdivisions 4,484 (62) 28,616 (6,840) 33,100 (6,902)

Asset-backed securities 1,300 (3) — — 1,300 (3)

$ 14,235 $ (108) $ 245,549 $ (54,858) $ 259,784 $ (54,966)

3 unchanged sentences

Government-sponsored agencies & enterprises.

As of March 31, 2024, there were $6.3 million of unrealized losses on these securities compared to $6.2 million at December 31, 2023.

As of June 30, 2024, there were $6.3 million of unrealized losses on these securities compared to $6.2 million at December 31, 2023.

All of these securities were credit rated "AAA" or "AA+" by the major credit rating agencies.

5 unchanged sentences

Government-sponsored enterprises.

As of March 31, 2024, there were $41.6 million of unrealized losses on these securities compared with $38.5 million at December 31, 2023.

As of June 30, 2024, there were $41.8 million of unrealized losses on these securities compared with $38.5 million at December 31, 2023.

All of these securities were credit rated "AAA" or "AA+" by the major credit rating agencies.

2 unchanged sentences

Government-sponsored enterprises have minimal credit risk, as these agencies and enterprises play a vital role in the nation's financial markets.

Management believes that the unrealized losses at March 31, 2024 were attributable to changes in current market yields and spreads since the date the underlying securities were purchased, and that 100% of the amounts contractually due will be realized.

Management believes that the unrealized losses at June 30, 2024 were attributable to changes in current market yields and spreads since the date the underlying securities were purchased, and that 100% of the amounts contractually due will be realized.

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

AFS Obligations of state and political subdivisions.

As of March 31, 2024, there were $6.3 million of unrealized losses on these securities compared to $5.7 million at December 31, 2023.

As of June 30, 2024, there were $6.9 million of unrealized losses on these securities compared to $5.7 million at December 31, 2023.

Municipal securities are supported by the general taxing authority of the municipality or a dedicated revenue stream, and, in the case of school districts, are generally supported by state aid.

At March 31, 2024, all municipal bond issuers were current on contractually obligated interest and principal payments.

The Company attributes the unrealized losses at March 31, 2024 to changes in prevailing market yields and pricing spreads since the date the underlying securities were purchased, combined with current market liquidity conditions and disruption in the financial markets in general.

At June 30, 2024, all municipal bond issuers were current on contractually obligated interest and principal payments.

The Company attributes the unrealized losses at June 30, 2024 to changes in prevailing market yields and pricing spreads since the date the underlying securities were purchased, combined with general market conditions.

The Company has the ability and intent to hold these securities until a recovery of their amortized cost, which may be at maturity, and believes that 100% of the amounts contractually due will be realized.

AFS Asset-backed securities.

As of March 31, 2024, there were no unrealized losses on these securities compared to $9,000 at December 31, 2023.

As of June 30, 2024, there were $3,000 of unrealized losses on these securities compared to $9,000 at December 31, 2023.

These securities consist of U.S.

Government backed student loans along with other credit enhancements.

FHLBB and FRBB Stock

2 unchanged sentences

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

As of March 31, 2024, the Bank's investment in FHLBB stock totaled $4.9 million.

This compares to $2.3 million as of December 31, 2023 and $2.8 million as of March 31, 2023.

As of June 30, 2024, the Bank's investment in FHLBB stock totaled $6.1 million.

This compares to $2.3 million as of December 31, 2023 and $4.2 million as of June 30, 2023.

FHLBB stock is a non-marketable equity security and therefore is reported at cost, subject to adjustments for any observable market transactions on the same or similar instruments of the investee.

No impairment losses have been recorded through March 31, 2024.

No impairment losses have been recorded through June 30, 2024.

The Bank is also a member of the FRBB.

1 unchanged sentence

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 $1.0 million at March 31, 2024 and 2023, and December 31, 2023.

The Bank's investment in FRBB stock totaled $1.0 million at June 30, 2024 and 2023, and December 31, 2023.

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 March 31, 2024.

No impairment losses have been recorded through June 30, 2024.

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

1 unchanged sentence

Loans held for sale are carried at the lower of cost or market value.

There were no loans held for sale as of March 31, 2024 and 2023 and December 31, 2023.

There were no loans held for sale as of June 30, 2024 and 2023 and December 31, 2023.

The Company provides loans to customers within our market area, the State of Maine, with very limited exposures outside of Maine.

Loans are originated primarily via our network of branch offices, along with an online channel for residential mortgage loans.

The loan portfolio increased during the first three months of 2024, with total loans at $2.17 billion at March 31, 2024, up $44.3 million or 2.1% from total loans of $2.13 billion at December 31, 2023.

Commercial loans increased $34.0 million or 2.8% between December 31, 2023 and March 31, 2024, municipal loans increased $3.3 million or 6.5%, residential term loans increased $3.2 million, residential construction increased $2.5 million, and home equity lines of credit increased $1.8 million.

The loan portfolio increased during the first six months of 2024, with total loans at $2.25 billion at June 30, 2024, up $118.2 million or 5.6% from total loans of $2.13 billion at December 31, 2023.

Commercial loans increased $83.9 million or 6.7% between December 31, 2023 and June 30, 2024, municipal loans increased $10.7 million or 20.8%, residential term loans increased $11.2 million, residential construction increased $3.2 million, and home equity lines of credit increased $8.2 million.

The loan portfolio is segmented into eleven classes.

5 unchanged sentences

Further descriptions of each class, and the risk factors associated with each, are included in Note 4 of the accompanying financial statements.

The following table summarizes the loan portfolio, by class, at March 31, 2024 and 2023 and December 31, 2023.

The following table summarizes the loan portfolio, by class, at June 30, 2024 and 2023 and December 31, 2023.

Dollars in thousands

March 31, 2024 December 31, 2023 March 31, 2023

June 30, 2024 December 31, 2023 June 30, 2023

Real estate owner occupied $ 341,043 15.1 % $ 314,819 14.8 % $ 301,320 14.6 %

10 unchanged sentences

Total loans $ 2,247,670 100.0 % $ 2,129,454 100.0 % $ 2,060,953 100.0 %

The following table sets forth certain information regarding the contractual maturities of the Bank's loan portfolio as of March 31, 2024.

The following table sets forth certain information regarding the contractual maturities of the Bank's loan portfolio as of June 30, 2024.

Dollars in thousands

12 unchanged sentences

Total loans $ 15,858 $ 339,144 $ 230,295 $ 1,662,373 $ 2,247,670

The following table provides a listing of loans by class, between variable and fixed rates as of March 31, 2024.

The following table provides a listing of loans by class, between variable and fixed rates as of June 30, 2024.

Fixed-Rate Adjustable-Rate Total

14 unchanged sentences

Loan Concentrations

As of March 31, 2024, the Bank had two concentration of loans in two particular industries that exceeded 10% of its total loan portfolio:

As of June 30, 2024, the Bank had two concentration of loans in two particular industries that exceeded 10% of its total loan portfolio:

(1) loans to hotels (except Casino hotels) and motels, totaling $246.0 million, or 10.95% of total loans;

and (2) loans to lessors of residential buildings and dwellings, totaling $243.3 million, or 10.83% of total loans.

This compares to one concentration of loans in one particular industry that exceeded 10% of its total loan portfolio, hotels (except Casino hotels) and motels, totaling $223.5 million, or 11.27% of total loans, as of March 31, 2023.

This compares to one concentration of loans in one particular industry that exceeded 10% of its total loan portfolio, hotels (except Casino hotels) and motels, totaling $225.9 million, or 10.96% of total loans, as of June 30, 2023.

Credit Risk Management and Allowance for Credit Losses on Loans

20 unchanged sentences

The ACL includes reserve amounts assigned to IAL.

This includes loans placed on non-accrual and loans reported as TDR prior to adoption of ASU 2022-02, with balances of $250,000 or more.

This includes loans with balances of $250,000 or more that have either been placed into non-accrual, were loans reported as TDR prior to adoption of ASU 2022-02, or are loans identified by management as having characteristics that merit individual analysis.

A specific reserve is allocated to an individual loan when the amount of a probable loss is estimable on the basis of its collateral value, the present value of anticipated future cash flows, or its net realizable value.

At March 31, 2024, IAL with specific reserves totaled $606,000 and the amount of such reserves was $243,000.

At June 30, 2024, IAL with specific reserves totaled $597,000 and the amount of such reserves was $241,000.

This compares to IAL with specific reserves of $919,000 at December 31, 2023 and the amount of such reserves was $264,000.

The total ACL on loans at March 31, 2024 is considered by Management to be appropriate to address the potential for credit losses inherent in the loan portfolio at that date.

The total ACL on loans at June 30, 2024 is considered by Management to be appropriate to address the potential for credit losses inherent in the loan portfolio at that date.

However, determination of the appropriate allowance level is based upon a number of assumptions made about future events, which we believe are reasonable, but which may or may not prove valid.

Thus, there can be no assurance charge-offs in future periods will not exceed the ACL or that additional increases in the ACL will not be necessary.

The following table summarizes the allocation of allowance by loan class as of March 31, 2024 and 2023 and December 31, 2023.

The following table summarizes the allocation of allowance by loan class as of June 30, 2024 and 2023 and December 31, 2023.

The percentages are the portion of each loan class to total loans.

Dollars in thousands

March 31, 2024 December 31, 2023 March 31, 2023

June 30, 2024 December 31, 2023 June 30, 2023

Real estate owner occupied $ 5,253 15.1 % $ 4,633 14.8 % $ 4,719 14.6 %

10 unchanged sentences

Total $ 24,693 100.0 % $ 24,030 100.0 % $ 23,465 100.0 %

The ACL totaled $24.2 million at March 31, 2024, compared to $24.0 million as of December 31, 2023 and $23.5 million as of March 31, 2023.

A breakdown of the ACL on loans as of March 31, 2024, by loan class and allowance element, is presented in the following table:

The ACL totaled $24.7 million at June 30, 2024, compared to $24.0 million as of December 31, 2023 and $23.5 million as of June 30, 2023.

A breakdown of the ACL on loans as of June 30, 2024, by loan class and allowance element, is presented in the following table:

Dollars in thousands

13 unchanged sentences

Based upon Management's evaluation, provisions are made to maintain the allowance as a best estimate of expected losses within the portfolio.

The provision for credit losses to maintain the allowance was $99,000 for the first three months of 2024 and $550,000 the first three months of 2023.

Net recoveries were $78,000 in the first three months of 2024, compared to net charge-offs of $25,000 in the first three months of 2023.

The ACL as a percentage of outstanding loans was 1.11% as of March 31, 2024, down from 1.13% as of December 31, 2023, and down from 1.18% as of March 31, 2023.

The following table summarizes the activities in our ACL for the three months ended March 31, 2024 and 2023 and for the year ended December 31, 2023:

The provision for credit losses to maintain the allowance was $638,000 for the first six months of 2024 and $580,000 the first six months of 2023.

Net recoveries were $25,000 in the first six months of 2024, compared to net charge-offs of $48,000 in the first six months of 2023.

The ACL as a percentage of outstanding loans was 1.10% as of June 30, 2024, down from 1.13% as of December 31, 2023, and down from 1.14% as of June 30, 2023.

The following table summarizes the activities in our ACL for the six months ended June 30, 2024 and 2023 and for the year ended December 31, 2023:

Dollars in thousands

March 31, 2024 December 31, 2023 March 31, 2023

June 30, 2024 December 31, 2023 June 30, 2023

Balance at the beginning of period $ 24,030 $ 16,723 $ 16,723

22 unchanged sentences

Net loans (recovered) charged off (25) 233 48

Provision for credit losses 99 1,330 550

Credit loss expense 638 1,330 580

Adoption of ASU No.

8 unchanged sentences

Utilization assumptions are based upon an independent analysis of the Bank's historical data.

The ACL for unfunded commitments is reported on the Company's consolidated balance sheets within other liabilities and totaled $895,000 as of March 31, 2024.

The ACL for unfunded commitments is reported on the Company's consolidated balance sheets within other liabilities and totaled $902,000 as of June 30, 2024.

Nonperforming Loans

9 unchanged sentences

All payments made on nonaccrual loans are applied to the principal balance of the loan.

Nonperforming loans, expressed as a percentage of total loans, totaled 0.12% at March 31, 2024 compared to 0.10% at December 31, 2023 and 0.09% at March 31, 2023.

The following table shows the distribution of nonperforming loans by class as of March 31, 2024 and 2023 and December 31, 2023:

Nonperforming loans, expressed as a percentage of total loans, totaled 0.11% at June 30, 2024 compared to 0.10% at December 31, 2023 and 0.08% at June 30, 2023.

The following table shows the distribution of nonperforming loans by class as of June 30, 2024 and 2023 and December 31, 2023:

Dollars in thousands

March 31, 2024 December 31, 2023 March 31, 2023

June 30, 2024 December 31, 2023 June 30, 2023

Real estate owner occupied $ 383 $ — $ —

15 unchanged sentences

These are loans for which we expect to collect all amounts due, including past-due interest.

As of March 31, 2024, loans 90 days or more day past due and still accruing interest totaled $50,000, compared to $429,000 at December 31, 2023 and $208,000 at March 31, 2023.

As of June 30, 2024, loans 90 days or more day past due and still accruing interest totaled $87,000, compared to $429,000 at December 31, 2023 and $318,000 at June 30, 2023.

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

2 unchanged sentences

Past Due Loans

The Bank's overall loan delinquency ratio was 0.09% at March 31, 2024 compared to 0.18% at December 31, 2023 and 0.10% at March 31, 2023.

Loans 90 days delinquent and accruing decreased from $429,000 at December 31, 2023 to $50,000 as of March 31, 2024.

The following table sets forth loan delinquencies as of March 31, 2024 and 2023 and December 31, 2023:

The Bank's overall loan delinquency ratio was 0.15% at June 30, 2024 compared to 0.18% at December 31, 2023 and 0.14% at June 30, 2023.

Loans 90 days delinquent and accruing decreased from $429,000 at December 31, 2023 to $87,000 as of June 30, 2024.

The following table sets forth loan delinquencies as of June 30, 2024 and 2023 and December 31, 2023:

Dollars in thousands

March 31, 2024 December 31, 2023 March 31, 2023

June 30, 2024 December 31, 2023 June 30, 2023

Real estate owner occupied $ 950 $ — $ 37

18 unchanged sentences

Based on historical experience, the credit quality of some of these loans may improve due to improvements in the economy as well as changes in collateral values or the financial condition of the borrowers, while the credit quality of other loans may deteriorate, resulting in some amount of loss.

At March 31, 2024, there were no potential problem loans reported.

At June 30, 2024, there were four potential problem loans reported with a balance of $608,000 or 0.03% of total loans.

This compares to three potential problem loans with a balance of $180,000 or 0.01% of total loans at December 31, 2023.

As of March 31, 2024, there were four residential loans in the process of foreclosure totaling $510,000.

As of June 30, 2024, there were two residential loans in the process of foreclosure totaling $127,000.

The Bank's residential foreclosure process begins when a loan becomes 75 days past due at which time a Demand/Breach Letter is sent to the borrower.

3 unchanged sentences

A foreclosure auction date is then set 30 days from the POR expiration date if the default is not cured.

As of March 31, 2024, there were no commercial loans in the process of foreclosure.

As of June 30, 2024, there were no commercial loans in the process of foreclosure.

The Bank's commercial foreclosure process begins when a loan becomes 60 days past due, at which time a default letter is issued.

9 unchanged sentences

The Bank follows the published guidelines of each investor.

Loans serviced for FHLMC and FNMA have been sold without recourse, and the Bank has no liability for these loans in the

event of foreclosure.

Loans serviced for FHLMC and FNMA have been sold without recourse, and the Bank has no liability for these loans in the event of foreclosure.

A de minimis volume of loans has been sold to and serviced for MPF to date.

4 unchanged sentences

Real estate acquired through foreclosure is carried at the lower of fair value less estimated cost to sell or the cost of the asset and is not included as part of the ACL totals.

At March 31, 2024 and 2023, and December 31, 2023, there were no OREO properties and no allowance for losses.

At June 30, 2024 there was one property owned with an OREO balance of $208,000, with no allowance for OREO losses.

This compares to December 31, 2023, when there were no OREO properties and no allowance for losses, and June 30, 2023, when there was one property owned with an OREO balance of $64,000, with no allowance for OREO losses.

The table below presents the composition of OREO at June 30, 2024 and 2023, and December 31, 2023:

Dollars in thousands

June 30, 2024 December 31, 2023 June 30, 2023

Carrying Value

Term $ 208 $ — $ 64

Construction — — —

Revolving and Term — — —

Consumer — — —

Total 208 — 64

Related Allowance

Construction — — —

Revolving and Term — — —

Consumer — — —

Term 208 — 64

Construction — — —

Revolving and Term — — —

Consumer — — —

Total $ 208 $ — $ 64

Liquidity is the ability of a financial institution to meet maturing liability obligations, depositor withdrawal requests, and customer loan demand.

The Bank's lead source of liquidity is deposits, including brokered deposits, which funded 86.5% of total average assets in the first three months of 2024, down slightly from 86.7% a year ago.

The Bank's lead source of liquidity is deposits, including brokered deposits, which funded 85.7% of total average assets in the first six months of 2024, down slightly from 86.4% a year ago.

Other sources of funding include discretionary use of purchased liabilities (e.g., FHLBB term or overnight advances, and other borrowings), cash flows from the securities portfolio and loan repayments.

4 unchanged sentences

In Management's estimation, risks are concentrated amongst several major categories:

runoff of in-market deposit balances, an inability to renew wholesale sources of funding, and materially increased utilization of available credit lines by borrowers.

runoff of in-market deposit balances, an

inability to renew wholesale sources of funding, and materially increased utilization of available credit lines by borrowers.

Of these, potential runoff of deposit balances would have the most significant impact on contingent liquidity.

8 unchanged sentences

Government or Agency bond collateral, available capacity at FHLBB, and available authorized brokered deposit issuance capacity.

As of March 31, 2024, the Bank had primary sources of contingent liquidity of $804.0 million or 27.3% of its total assets.

As of June 30, 2024, the Bank had primary sources of contingent liquidity of $804.0 million or 26.3% of its total assets.

It is Management's opinion that this is an appropriate level.

5 unchanged sentences

As the sole shareholder of the Bank, the Company is entitled to such dividends when and as declared by the Bank's Board of Directors from legally available funds.

For the three-months periods ended March 31, 2024 and 2023 the Bank declared dividends to the Company of $3.9 million and $3.8 million, respectively.

For the six-month periods ended June 30, 2024 and 2023 the Bank declared dividends to the Company of $7.9 million and $7.6 million, respectively.

The Bank's regulator, the OCC, may limit the amount of dividends declared and paid in a calendar year based upon certain factors.

Further discussion may be found in Shareholder's Equity below.

During the first three months of 2024, total deposits decreased by $50.7 million or 1.9% from December 31, 2023 levels.

Low-cost deposits (demand, NOW, and savings accounts) decreased by $61.7 million or 5.0% in the first three months of 2024.

Money market deposits increased $15.9 million or 5.2%, and certificates of deposit decreased $4.8 million or 0.5% as depositors shifted balances to higher cost product types and brokered certificates of deposit were issued to support earning asset growth.

During the first six months of 2024, total deposits decreased by $21.6 million or 0.8% from December 31, 2023 levels.

Low-cost deposits (demand, NOW, and savings accounts) decreased by $74.3 million or 6.1% in the first six months of 2024.

Money market deposits increased $11.2 million or 3.7%, and certificates of deposit increased $41.5 million or 3.9% as depositors shifted balances to higher cost product types and brokered certificates of deposit were issued to support earning asset growth.

The decrease in total deposits for the period was consistent with Management's estimates based upon historical seasonal deposit behaviors.

Between March 31, 2023 and March 31, 2024, total deposits increased by $82.3 million or 3.3%.

Between June 30, 2023 and June 30, 2024, total deposits increased by $78.2 million or 3.1%.

Low-cost deposits decreased by $92.8 million or 7.5%, money market accounts increased $108.9 million or 52.3%, and certificates of deposit increased $62.1 million or 5.9%.

Estimated uninsured deposits totaled $417.2 million or 16.4% of total deposits as of March 31, 2024, and $407.4 million or 15.7% of total deposits as of December 31, 2023.

Estimated uninsured deposits totaled $414.4 million or 16.1% of total deposits as of June 30, 2024, and $407.4 million or 15.7% of total deposits as of December 31, 2023.

The company has pledged assets as collateral covering certain deposits;

these amounts were $314.2 million and $340.5 million as of March 31, 2024 and December 31, 2023, respectively.

these amounts were $310.9 million and $340.5 million as of June 30, 2024 and December 31, 2023, respectively.

Borrowed Funds

1 unchanged sentence

This funding may also be used to balance seasonal deposit flows or to carry out interest rate risk management strategies, and may be used to replace or supplement other sources of funding, including core deposits and certificates of deposit.

During the three months ended March 31, 2024, borrowed funds increased $85.1 million or 122.2% from December 31, 2023.

This included a $61.9 million increase in FHLBB advances, and a $25.0 million advance under the FRBB's BTFP, both at rates more favorable than other funding alternatives.

Between March 31, 2023 and March 31, 2024, borrowed funds increased by $70.9 million or 84.5%.

During the six months ended June 30, 2024, borrowed funds increased $161.0 million.

This change consisted of a $91 million increase in short term FHLBB, FRBB and customer repurchase agreement borrowings, and a $70 million increase in long-term advances from the FHLBB.

Between June 30, 2023 and June 30, 2024, borrowed funds increased by $116.1 million.

Capital Resources

Shareholders' equity as of March 31, 2024 was $242.6 million, compared to $243.1 million as of December 31, 2023 and $228.5 million as of March 31, 2023.

The Company's earnings in the first three months of 2024, net of dividends declared, added $2.1 million to shareholders' equity.

The net unrealized loss on AFS securities, net of tax, presented in accordance with FASB ASC Topic 320 "Investments – Debt and Equity Securities" stands at $42.8 million as of March 31, 2024 and was $39.6 million as of December 31, 2023.

Shareholders' equity as of June 30, 2024 was $244.7 million, compared to $243.1 million as of December 31, 2023 and $232.0 million as of June 30, 2023.

The Company's earnings in the first six months of 2024, net of dividends declared, added $4.3 million to shareholders' equity.

The net unrealized loss on AFS securities, net of tax, presented in accordance with FASB ASC Topic 320 "Investments – Debt and Equity Securities" stands at $43.4 million as of June 30, 2024 and was $39.6 million as of December 31, 2023.

Additional information about the net unrealized loss on AFS securities was provided in Note 2 of the Consolidated Financial Statements and in the AFS Debit Securities section of Management's Discussion and Analysis of Financial Condition and Results of Operations.

A cash dividend of $0.35 per share was declared in the first quarter of 2024.

The dividend payout ratio, which is calculated by dividing dividends declared per share by basic earnings per share, was 63.64% for the first three months of 2024 compared to 46.58% for the same period in 2023.

A cash dividend of $0.36 per share was declared in the second quarter of 2024.

The dividend payout ratio, which is calculated by dividing dividends declared per share by basic earnings per share, was 64.31% for the first six months of 2024 compared to 49.29% for the same period in 2023.

In determining future dividend payout levels, the Board of Directors carefully analyzes capital requirements and earnings retention, as set forth in the Company's Dividend Policy.

6 unchanged sentences

In order to avoid limitations on capital distributions, including dividend payments, the Company must hold a capital conservation buffer of 2.5% above the adequately capitalized risk-based capital ratios.

The Company met each of the well-capitalized ratio guidelines at March 31, 2024.

The following tables indicate the capital ratios for the Bank and the Company at March 31, 2024 and December 31, 2023.

As of March 31, 2024 Leverage Common Equity Tier 1 Tier 1 Total Risk-Based

The Company met each of the well-capitalized ratio guidelines at June 30, 2024.

The following tables indicate the capital ratios for the Bank and the Company at June 30, 2024 and December 31, 2023:

As of June 30, 2024 Leverage Common Equity Tier 1 Tier 1 Total Risk-Based

Bank 8.42 % 11.98 % 11.98 % 13.19 %

10 unchanged sentences

The Bank maintains and annually updates a capital plan over a five year horizon.

the capital plan was last updated in the third quarter of 2023.

The capital plan was last updated and approved by the Board in July 2024.

Based upon reasonable assumptions of growth and operating performance, the base capital plan model projects that the Bank will be well capitalized throughout the five year period.

6 unchanged sentences

Derivative instruments that Management periodically uses as part of its interest rate risk management strategy may include interest rate swap agreements, interest rate floor agreements, and interest rate cap agreements.

At March 31, 2024, the Bank had two outstanding off-balance sheet, derivative instruments, designated as cash flow hedges and four off-balance sheet, derivative instruments, designated as fair value hedges.

At June 30, 2024, the Bank had one outstanding off-balance sheet, derivative instrument, designated as cash flow hedges and four off-balance sheet, derivative instruments, designated as fair value hedges.

These derivative instruments were interest rate swap agreements, with notional principal amounts totaling $75.0 million and $150.0 million, respectively, and an unrealized gain of $787,000, net of taxes.

2 unchanged sentences

The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that Management believes to be creditworthy and by limiting the amount of exposure to each counter-party.

At March 31, 2024, the Bank's derivative instrument counterparties had a composite credit rating of “A-” based upon the ratings of several major credit rating agencies.

At June 30, 2024, the Bank's derivative instrument counterparties had a composite credit rating of “A-” based upon the ratings of several major credit rating agencies.

The interest rate swap agreements were entered into by the Bank to limit its exposure to rising interest rates.

4 unchanged sentences

Credit risk is mitigated by prudent underwriting of the loan customer and financial institution counterparties.

As of March 31, 2024, the Bank had seven loan swap agreements in place with a total notional value of $81.2 million.

As of June 30, 2024, the Bank had eight loan swap agreements in place with a total notional value of $85.9 million.

Contractual Obligations

The following table sets forth the contractual obligations of the Company as of March 31, 2024:

The following table sets forth the contractual obligations of the Company as of June 30, 2024:

Dollars in thousands

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis