What changed in this filing

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Item 1. Financial Statements

2024-11-08 compared with 2024-08-09 · 190 added, 127 removed, 740 unchanged (30% of the section changed)

2 unchanged sentences

Consolidated Balance Sheets

June 30, 2024 (Unaudited) and December 31, 2023

September 30, 2024 (Unaudited) and December 31, 2023

(in thousands except share and per share data)

June 30, 2024

September 30, 2024

December 31, 2023

23 unchanged sentences

Common stock, $ 0.01 par value, 120,000,000 shares authorized;

42,705,729 shares issued and outstanding at June 30, 2024 and December 31, 2023

42,705,729 shares issued and outstanding at September 30, 2024 and December 31, 2023

Additional paid-in capital

9 unchanged sentences

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

INTEREST AND DIVIDEND INCOME

Interest and fees on loans

Interest on securities

Interest on cash equivalents and other

Interest on investment securities

Interest and dividends on cash equivalents and other

Total interest and dividend income

9 unchanged sentences

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

NON-INTEREST INCOME

NONINTEREST INCOME

Customer service fees

2 unchanged sentences

Swap contract income

Loss on sale of available-for-sale securities, net

Employee retention credit income

NON-INTEREST EXPENSES

Total noninterest income

NONINTEREST EXPENSE

Salaries and employee benefits

5 unchanged sentences

General and administrative expenses

Total noninterest expense

INCOME BEFORE TAXES

8 unchanged sentences

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

OTHER COMPREHENSIVE INCOME, NET OF TAX:

11 unchanged sentences

Income (Loss)

Balance, March 31, 2023

Balance, June 30, 2023

Other comprehensive income, net of tax

Balance, September 30, 2023

Balance, June 30, 2024

Balance, March 31, 2024

Other comprehensive income, net of tax

ESOP shares committed to be released ( 43,057 shares)

Balance, June 30, 2024

For the Six Months Ended

Balance, September 30, 2024

For the Nine Months Ended

Stock Held by

3 unchanged sentences

Adoption of ASU 2016-13

Other comprehensive loss, net of tax

Balance, June 30, 2023

Other comprehensive income, net of tax

Balance, September 30, 2023

Balance, December 31, 2023

Other comprehensive loss, net of tax

Adoption of ASU 2023-02

Other comprehensive income, net of tax

Net costs from stock offering and issuance of common shares

1 unchanged sentence

ESOP shares committed to be released ( 127,766 shares)

Balance, June 30, 2024

Balance, September 30, 2024

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

2 unchanged sentences

(Unaudited - Dollars in thousands)

For the Six Months Ended

June 30, 2024

June 30, 2023

For the Nine Months Ended

September 30, 2024

September 30, 2023

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash from operating activities:

Net accretion of available-for-sale securities

Net amortization (accretion) of available-for-sale securities

Loss on sale of available-for-sale securities

Amortization of core deposit intangible

7 unchanged sentences

Increase in cash surrender values of BOLI

Establishment of solar income tax credit investment basis reduction deferred tax liability

Deferred income tax benefit

2 unchanged sentences

Prepaid expenses and other assets

Income tax refunds receivable

Accrued expenses and other liabilities

4 unchanged sentences

Purchases of available-for-sale securities

Proceeds from sales of available-for-sale securities

Proceeds from maturities, calls and paydowns of available-for-sale securities

3 unchanged sentences

Net change in non-public investments

Purchases of BOLI policies

Purchases of banking premises and equipment

13 unchanged sentences

Cumulative effect adjustment of adoption of ASC 326, net of income taxes

Unrealized gains on available-for-sale securities

Cumulative effect adjustment of adoption of ASU 2023-02, net of income taxes

Unrealized (gains) losses on available-for-sale securities

Unrealized holding losses on cash flow hedge

16 unchanged sentences

Note 2 – Basis of Presentation

The Company’s accompanying unaudited consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.

The Company’s accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.

Accordingly, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

2 unchanged sentences

Intercompany transactions and balances are eliminated in consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position as of June 30, 2024 and the results of operations and cash flows for the interim periods ended June 30, 2024 and 2023.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position as of September 30, 2024 and the results of operations and cash flows for the interim periods ended September 30, 2024 and 2023.

All interim amounts have not been audited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the fiscal year.

2 unchanged sentences

As such, the Company will adopt standards on the nonpublic company effective dates until such time that we no longer qualify as an EGC.

Relevant standards that were adopted during the nine months ended September 30, 2024:

In March 2023, the FASB issued ASU 2023-02, Investments–Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (“ASU 2023-02”).

This update permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method (“PAM”) if the following conditions are met:

● It is probable that the income tax credits allocable to the tax equity investor will be available;

● The tax equity investor does not have the ability to exercise significant influence over the operating and financial policies of the underlying project;

● Substantially all of the projected benefits are from income tax credits and other income tax benefits.

Projected benefits include income tax credits, other income tax benefits, and other non-income-tax-related benefits.

The projected benefits are determined on a discounted basis, using a discount rate that is consistent with the cash flow assumptions used by the tax equity investor in making its decision to invest in the project;

● The tax equity investor’s projected yield based solely on the cash flows from the income tax credits and other income tax benefits is positive;

● The tax equity investor is a limited liability investor in the limited liability entity for both legal and tax purposes, and the tax equity investor’s liability is limited to its capital investment.

Under existing accounting standards, PAM is allowable only for equity investments in low-income-housing tax credit structures.

Under PAM, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense (benefit).

Updates made by ASU 2023-02 allow a reporting entity to make an accounting policy election to apply PAM on a tax-credit-program-by-tax-credit-program basis beyond just low-income-housing tax credits.

The Company has made an accounting policy election to account for its investments in solar income tax credit investments using PAM.

The Company adopted ASU 2023-02 during the quarter ended September 30, 2024, with a modified retrospective adoption reflected as of January 1, 2024, which resulted in a $ 10.2 million reduction in retained earnings and nonpublic investments.

Certain previously reported amounts have been reclassified to conform to the current period’s presentation.

17 unchanged sentences

Credit Losses

June 30, 2024

September 30, 2024

(in thousands)

16 unchanged sentences

Municipal obligations

The Company did not record a provision for estimated credit losses on any available-for-sale securities for the three and six months ended June 30, 2024.

Excluded from the table above is accrued interest on available-for-sale securities of $ 1.5 million at June 30, 2024 and December 31, 2023, which is included within accrued interest receivable on the consolidated balance sheets.

Additionally, the Company did no t record any write-offs of accrued interest income on available-for-sale securities for the three and six months ended June 30, 2024.

No securities held by the Company were delinquent on contractual payments at June 30, 2024, no r were any securities placed on non-accrual status for the three and six months then ended.

The following is a summary of actual maturities of certain available-for-sale securities as of June 30, 2024.

The Company did not record a provision for estimated credit losses on any available-for-sale securities for the three and nine months ended September 30, 2024.

Excluded from the table above is accrued interest on available-for-sale securities of $ 1.3 million and $ 1.2 million at September 30, 2024 and December 31, 2023, respectively, which is included within accrued interest receivable on the consolidated balance sheets.

Additionally, the Company did no t record any write-offs of accrued interest income on available-for-sale securities for the three and nine months ended September 30, 2024.

No securities held by the Company were delinquent on contractual payments at September 30, 2024, no r were any securities placed on non-accrual status for the three and nine months then ended.

The following is a summary of actual maturities of certain available-for-sale securities as of September 30, 2024.

The amortized cost and fair values are based on the contractual maturity dates.

10 unchanged sentences

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale.

There were no sales of securities during the three and six months ended June 30, 2024 and 2023.

The carrying value of securities pledged to secure borrowings from the Federal Reserve Bank was $ 48.4 million and $ 49.6 million as of June 30, 2024 and December 31, 2023, respectively.

During the three and nine months ended September 30, 2024, the Company sold $ 29.3 million of available-for-sale securities and recognized gross realized losses of $ 1.9 million and gross realized gains of $ 30,000 .

There were no sales of available-for-sale securities during the three and nine months ended September 30, 2023.

The carrying value of securities pledged to secure borrowings from the Federal Reserve Bank was $ 42.5 million and $ 49.6 million as of September 30, 2024 and December 31, 2023, respectively.

The following tables present fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates stated.

2 unchanged sentences

(Dollars in thousands)

June 30, 2024

September 30, 2024

Number of Securities

15 unchanged sentences

Included in corporate bonds are investments in senior and subordinated debt of banks and bank holding companies, some of which do not have investment ratings.

At June 30, 2024, available-for-sale debt securities had unrealized losses with aggregate depreciation of 8.4 %, from the Company’s amortized cost basis.

At September 30, 2024, available-for-sale debt securities had unrealized losses with aggregate depreciation of 7.0 % from the Company’s amortized cost basis.

These unrealized losses relate to changes in market interest rates since acquiring the securities.

As management has the intent and ability to hold debt securities until maturity or cost recovery, no allowance for credit losses on securities is deemed necessary as of June 30, 2024.

As management has the intent and ability to hold available-for-sale debt securities until maturity or cost recovery, no allowance for credit losses on securities is deemed necessary as of September 30, 2024.

Note 4 – Loans Receivable, Allowance for Credit Losses and Credit Quality

27 unchanged sentences

For those loans that do not share similar risk characteristics, the Company evaluates the ACL needs on an individual (or loan by loan) basis.

This population of individually evaluated loans (or loan relationships with the same primary source of repayment) is determined on a quarterly basis and consists of loans with a risk rating of substandard or worse, a balance exceeding $ 500,000 , and loan terms differing significantly from other pooled loans.

In accordance with the Company’s policy, non-accrual residential real estate loans that are well secured (loan-to-value < 75 %) are not considered to warrant a downgrade to substandard risk rating and are therefore excluded from individually evaluated loans.

This population of individually evaluated loans (or loan relationships with the same primary source of repayment) is determined on a quarterly basis and consists of:

loans with a risk rating of substandard or worse and a balance exceeding $ 500,000 , or loan terms differing significantly from other pooled loans.

In accordance with the Company’s policy, non-accrual residential real estate loans that are below $ 500,000 and well secured (loan-to-value < 60 %) are excluded from individually evaluated loans.

Measurement of credit loss is based on the expected future cash flows of an individually evaluated loan, discounted at the loan’s effective interest rate, or measured on an observable market value, if one exists, or the estimated market value of the collateral underlying the loan, discounted to consider estimated costs to sell the collateral for collateral-dependent loans.

5 unchanged sentences

Loans consist of the following as of the dates stated:

June 30, 2024

September 30, 2024

December 31, 2023

11 unchanged sentences

Allowance for credit losses

Included in the above are approximately $ 415.2 million and $ 365.9 million in loans to borrowers in the cannabis industry at June 30, 2024 and December 31, 2023, respectively.

Of that total, $ 252.7 million and $ 207.7 million were direct loans to cannabis companies and were collateralized by real estate at June 30, 2024 and December 31, 2023, respectively.

For the two most recent reporting periods ended December 31, 2023 and March 31, 2024, the Company disclosed loans to borrowers in the cannabis industry of $ 320.5 million and $ 334.3 million, respectively.

Based on revised classifications, the amount of loans to borrowers in the cannabis industry at December 31, 2023 and March 31, 2024 was $ 365.9 million and $ 373.4 million, respectively.

Included in the above are approximately $ 458.0 million and $ 365.9 million in loans to borrowers in the cannabis industry at September 30, 2024 and December 31, 2023, respectively.

Of that total, $ 301.9 million and $ 207.7 million were direct loans to cannabis companies and were collateralized by real estate at September 30, 2024 and December 31, 2023, respectively.

For the reporting period ended December 31, 2023, the Company disclosed loans to borrowers in the cannabis industry of $ 320.5 million.

Based on revised classifications, the amount of loans to borrowers in the cannabis industry at December 31, 2023 was $ 365.9 million.

The reclassification did not have a significant impact on the calculation of the allowance for credit losses.

During the three months ended June 30, 2024 and 2023, the Company purchased approximately $ 14.1 million and $ 20.6 million of consumer loan pools, respectively.

During the six months ended June 30, 2024 and 2023, the Company purchased approximately $ 19.6 million and $ 25.6 million of consumer loan pools, respectively.

The loans purchased during the three and six months ended June 30, 2024 and 2023 included loan pools collateralized by boats, recreational vehicles, automobiles and solar panels.

During the three months ended September 30, 2024 and 2023, the Company purchased approximately $ 13.3 million and $ 8.7 million of consumer loan pools, respectively.

During the nine months ended September 30, 2024 and 2023, the Company purchased approximately $ 32.9 million and $ 34.5 million of consumer loan pools, respectively.

The loans purchased during the three and nine months ended September 30, 2024 included loan pools collateralized by boats, recreational vehicles and automobiles.

The loans purchased during the three and nine months ended September 30, 2023 included loan pools collateralized by boats, recreational vehicles, automobiles and solar panels.

The outstanding balances of these consumer purchased loan pools, shown net of premium (discount) are as follows as of the dates stated:

June 30, 2024

September 30, 2024

Premium (Discount)

13 unchanged sentences

Home improvement loans

The carrying value of loans pledged to secure advances from the FHLB were $ 1.25 billion and $ 1.24 billion as of June 30, 2024 and December 31, 2023, respectively.

The carrying value of loans pledged to secure advances from the FHLB were $ 1.25 billion and $ 1.24 billion as of September 30, 2024 and December 31, 2023, respectively.

The following table presents the aging of the amortized cost of loans receivable by loan category as of the date stated:

June 30, 2024

September 30, 2024

More Past Due

18 unchanged sentences

The following table presents the amortized cost of nonaccrual loans receivable by loan category as of the dates stated:

June 30, 2024

September 30, 2024

December 31, 2023

6 unchanged sentences

Commercial and industrial

During the three and six months ended June 30, 2024, the Company reversed $ 149,000 of interest income for loans that were placed on non-accrual.

During the three and six months ended June 30, 2023, the Company did no t reverse any interest income for loans that were placed on non-accrual.

During the three and nine months ended September 30, 2024, the Company reversed $ 232,000 of interest income for loans that were placed on non-accrual.

During the three and nine months ended September 30, 2023, the Company did no t reverse any interest income for loans that were placed on non-accrual.

Credit Quality Information

10 unchanged sentences

Non-accrual residential real estate loans that are well secured (LTV< 60 %) are not considered to warrant a downgrade to a substandard risk rating.

Non-accrual commercial loans are downgraded to a substandard risk rating.

Loans rated 8:

6 unchanged sentences

Management uses the results of these reviews as part of its annual review process.

The following table presents the amortized cost of loans receivable by internal risk grade by year of origination as of June 30, 2024.

Also presented are current period gross charge-offs by loan type and vintage year for the three months ended June 30, 2024:

The following table presents the amortized cost of loans receivable by internal risk grade by year of origination as of September 30, 2024.

Also presented are current period gross charge-offs by loan type and vintage year for the three months ended September 30, 2024:

Term Loans Amortized Cost Basis by Origination Year (in thousands)

28 unchanged sentences

Current period gross charge-offs

(1) Consumer loans are not formally risk rated and included $ 2.0 million of loans on non-accrual as of June 30, 2024.

(1) Consumer loans are not formally risk rated and included $ 2.1 million of loans on non-accrual as of September 30, 2024.

The following table presents the amortized cost of loans receivable by internal risk grade by year of origination as of December 31, 2023.

32 unchanged sentences

The following table presents an analysis of the change in the ACL by major loan segment for the periods stated:

For the Three Months Ended June 30, 2024

For the Three Months Ended September 30, 2024

Commercial and

(in thousands)

Balance at March 31, 2024

Balance at June 30, 2024

Provision for (release of) credit losses

Recoveries of loans previously charged-off

Balance at June 30, 2024

For the Six Months Ended June 30, 2024

Balance at September 30, 2024

For the Nine Months Ended September 30, 2024

Commercial and

3 unchanged sentences

Recoveries of loans previously charged-off

Balance at June 30, 2024

For the Three Months Ended June 30, 2023

Balance at September 30, 2024

For the Three Months Ended September 30, 2023

Construction and

2 unchanged sentences

(in thousands)

Balance at March 31, 2023

Balance at June 30, 2023

Provision for (release of) credit losses

Recoveries of loans previously charged off

Balance at June 30, 2023

For the Six Months Ended June 30, 2023

Balance at September 30, 2023

For the Nine Months Ended September 30, 2023

Construction and

6 unchanged sentences

Recoveries of loans previously charged off

Balance at June 30, 2023

The following table presents the amortized cost of collateral-dependent loans as of June 30, 2024 and December 31, 2023:

June 30, 2024

Balance at September 30, 2023

The following table presents the amortized cost of collateral-dependent loans as of September 30, 2024 and December 31, 2023:

September 30, 2024

December 31, 2023

5 unchanged sentences

The Company closely monitors the performance of borrowers experiencing financial difficulty to understand the effectiveness of its loan modification efforts.

During the three and six months ended June 30, 2024, the Company modified one commercial real estate loan with an amortized cost basis of $ 6.2 million, or 0.01 % of total commercial real estate loans, through an interest rate reduction and maturity extension.

The modified loan has performed in accordance with its modified terms during the three and six months ended June 30, 2024.

The Company did no t modify any loans to borrowers experiencing financial difficulty during the three and six months ended June 30, 2023.

During the nine months ended September 30, 2024, the Company modified one participation commercial real estate loan with an amortized cost basis of $ 6.2 million, or 0.01 % of total commercial real estate loans, through an interest rate reduction and maturity extension.

The modified loan experienced a $ 4.0 million charge-off during the three and nine months ended September 30, 2024 resulting from a shortfall in the projected sale price of the underlying real estate collateral.

The Company did no t modify any loans to borrowers experiencing financial difficulty during the three months ended September 30, 2024 nor the three and nine months ended September 30, 2023.

Note 5 – Employee Benefits

7 unchanged sentences

The Company accrued for this amount at March 31, 2024 and withdrew from the Plan in the second quarter of 2024.

The Company is in the process of liquidating the Plan.

Director Pension Plan – The Company has a director defined benefit pension plan (“Director Pension Plan”), c overing directors who were in service prior to 2023 and have met the plan’s vesting requirements .

The Company’s liabilities for the Director Pension Plan are calculated by an independent actuary who used the “projected unit credit” actuarial method to determine the normal cost and actuarial liability.

The liability for the Director Pension Plan amounted to $ 5.9 million and $ 5.7 million as of June 30, 2024 and December 31, 2023, respectively, and are recorded on the consolidated balance sheets.

The expense under this plan (recorded in salaries and employee benefits in the consolidated statements of income) approximated $ 181,000 and $ 283,000 for the three months ended June 30, 2024 and 2023, respectively, and $ 361,000 and $ 566,000 for the six months ended June 30, 2024 and 2023, respectively.

The Company’s liabilities for the Director Pension Plan are calculated by an independent actuary who uses the “projected unit credit” actuarial method to determine the normal cost and actuarial liability.

The liability for the Director Pension Plan amounted to $ 5.9 million and $ 5.7 million as of September 30, 2024 and December 31, 2023, respectively, and is recorded on the consolidated balance sheets.

The expense under this plan (recorded in salaries and employee benefits in the consolidated statements of income) approximated $ 181,000 and $ 283,000 for the three months ended September 30, 2024 and 2023, respectively, and $ 542,000 and $ 849,000 for the nine months ended September 30, 2024 and 2023, respectively.

The Company records an estimate of net periodic pension cost for the director pension plan to accrued retirement liabilities on the consolidated balance sheet on a quarterly basis.

4 unchanged sentences

however, all key officers will be fully vested upon the attainment of age 65.

The obligations under these plans are included in accrued retirement liabilities on the Company’s consolidated balance sheets and approximated $ 2.5 million and $ 2.4 million as of June 30, 2024 and December 31, 2023, respectively.

The expense under these plans (recorded in salaries and employee benefits in the consolidated statements of income) approximated $ 100,000 and $ 89,000 for the three months ended June 30, 2024 and 2023, respectively, and $ 200,000 and $ 177,000 for the six months ended June 30, 2024 and 2023, respectively.

The obligations under these plans are included in accrued retirement liabilities on the Company’s consolidated balance sheets and approximated $ 2.6 million and $ 2.4 million as of September 30, 2024 and December 31, 2023, respectively.

The expense under these plans (recorded in salaries and employee benefits in the consolidated statements of income) approximated $ 100,000 and $ 89,000 for the three months ended September 30, 2024 and 2023, respectively, and $ 299,000 and $ 266,000 for the nine months ended September 30, 2024 and 2023, respectively.

Long-Term Incentive Plan – In January 2020, the Company put into place a long-term incentive plan for certain members of its management team where benefits are awarded annually on a discretionary basis and cliff vest after three years .

Under this plan, individuals are granted “phantom shares” and benefits are accrued based upon the projected growth of the Bank’s capital.

The obligations under this plan are included in accrued retirement liabilities on the Company’s consolidated balance sheets and approximated $ 11.7 million and $ 11.1 million as of June 30, 2024 and December 31, 2023, respectively.

The expense under this plan (recorded in salaries and employee benefits in the consolidated statements of income) approximated $ 1.8 million and $ 1.1 million for the three months ended June 30, 2024 and 2023, respectively, and $ 3.2 million and $ 2.2 million for the six months ended June 30, 2024 and 2023, respectively.

The obligations under this plan are included in accrued retirement liabilities on the Company’s consolidated balance sheets and approximated $ 13.5 million and $ 11.1 million as of September 30, 2024 and December 31, 2023, respectively.

The expense under this plan (recorded in salaries and employee benefits in the consolidated statements of income) approximated $ 1.8 million and $ 1.1 million for the three months ended September 30, 2024 and 2023, respectively, and $ 5.0 million and $ 3.4 million for the nine months ended September 30, 2024 and 2023, respectively.

401(k) Plan – The Company has an employee tax deferred incentive plan (the “401(k) plan”) under which the Company makes voluntary contributions within certain limitations.

All employees who meet specified age and length of service requirements are eligible to participate in the 401(k) plan.

The amount contributed by the Company to the 401(k) Plan is included in salaries and employee benefits expense.

The amounts contributed to the 401(k) plan for the three months ended June 30, 2024 and 2023 were $ 726,000 and $ 476,000 , respectively, and $ 1.3 million and $ 934,000 for the six months ended June 30, 2024 and 2023, respectively.

The amount contributed by the Company to the 401(k) Plan is included in salaries and employee benefits in the consolidated statements of income .

The amounts contributed to the 401(k) plan for the three months ended September 30, 2024 and 2023 were $ 626,000 and $ 559,000 , respectively, and $ 2.0 million and $ 1.5 million for the nine months ended September 30, 2024 and 2023, respectively.

Employment and Change in Control Agreements – The Company entered into employment agreements with the Chief Executive Officer and the Chief Operating Officer that renew for one additional year each January 1 st .

10 unchanged sentences

As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a liability on the Company’s consolidated balance sheets.

Total compensation expense recognized in connection with the ESOP was $ 628,000 and $ 1.2 million for the three and six months ended June 30, 2024, respectively.

The Company did no t recognize any compensation expense related to the ESOP for the three and six months ended June 30, 2023.

Total compensation expense recognized in connection with the ESOP was $ 762,000 and $ 2.0 million for the three and nine months ended September 30, 2024, respectively.

The Company did no t recognize any compensation expense related to the ESOP for the three and nine months ended September 30, 2023.

The following table presents share information held by the ESOP:

June 30, 2024

September 30, 2024

December 31, 2023

16 unchanged sentences

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for June 30, 2024 and December 31, 2023.

These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for September 30, 2024 and December 31, 2023.

Available-for-sale securities – Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.

7 unchanged sentences

Assets measured and reported at estimated fair value on a recurring basis are summarized below:

June 30, 2024

September 30, 2024

(in thousands)

20 unchanged sentences

Derivative liabilities

The Company had no purchases, sales, transfers or changes in fair value of level 3 assets during the three months ended June 30, 2024 and 2023.

The Company had no purchases, sales, transfers or changes in fair value of level 3 assets during the three and nine months ended September 30, 2024 and 2023.

The Company may also be required from time to time to measure certain other assets on a non-recurring basis in accordance with U.S.

16 unchanged sentences

The following table summarizes assets measured at fair value on a non-recurring basis:

June 30, 2024

September 30, 2024

(in thousands)

5 unchanged sentences

Mortgage servicing rights

For Level 3 assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 2024 and December 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

For Level 3 assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2024 and December 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

Collateral-dependent loans

10 unchanged sentences

The exit price notion is a market-based measurement of fair value that is represented by the price to sell an asset or transfer a liability in the principal market (or most advantageous market in the absence of a principal market) on the measurement date.

For June 30, 2024 and December 31, 2023, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.

As of September 30, 2024 and December 31, 2023, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.

The following tables present the estimated fair values, related carrying amounts, and valuation level of the financial instruments as of the dates stated:

June 30, 2024

September 30, 2024

(In thousands)

24 unchanged sentences

These financial instruments include commitments to originate loans, to disburse funds to borrowers on unused construction and land development loans, and to disburse funds on committed but unused lines of credit.

These financial agreements involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.

These financial agreements involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.

The contract amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

9 unchanged sentences

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

As of June 30, 2024 and December 31, 2023, the maximum potential amount of the Company’s obligation was $ 6.7 million and $ 7.5 million, respectively, for standby letters of credit.

As of September 30, 2024 and December 31, 2023, the maximum potential amount of the Company’s obligation was $ 6.5 million and $ 7.5 million, respectively, for standby letters of credit.

The Company’s outstanding letters of credit generally have a term of less than one year.

2 unchanged sentences

Financial instruments whose contract amounts represents off-balance sheet credit risk and are not reflected on the Company’s consolidated balance sheets consist of the following at the dates stated:

June 30, 2024

September 30, 2024

December 31, 2023

6 unchanged sentences

Potential losses on off-balance sheet loan commitments are estimated using the same risk factors used to determine the allowance for credit losses on loans, adjusted for the likelihood that funding will occur.

The allowance for off-balance sheet commitments is recorded within other liabilities on the consolidated balance sheets and amounted to $ 5.8 million and $ 6.0 million as of June 30, 2024 and December 31, 2023, respectively.

For the three months ended June 30, 2024 and 2023, the Company recorded a release of the allowance for unfunded commitments of $ 762,000 and a provision for unfunded commitments of $ 86,000 , respectively.

For the six months ended June 30, 2024 and 2023, the Company recorded a release of the allowance for unfunded commitments of $ 223,000 and a provision for unfunded commitments of $ 86,000 , respectively.

The allowance for off-balance sheet commitments is recorded within other liabilities on the consolidated balance sheets and amounted to $ 3.4 million and $ 6.0 million as of September 30, 2024 and December 31, 2023, respectively.

For the three months ended September 30, 2024, the Company recorded a release of the allowance for unfunded commitments of $ 2.4 million.

For the three months ended September 30, 2023, the Company did not record a provision for unfunded commitments.

For the nine months ended September 30, 2024 and 2023, the Company recorded a release of the allowance for unfunded commitments of $ 2.6 million and a provision for unfunded commitments of $ 86,000 , respectively.

Note 8 – Derivatives and Hedging Activities

12 unchanged sentences

These fees were capitalized into loans receivable and are being amortized against loan income over the contractual lives of the remaining designated residential loans.

The unamortized amount of this cost basis adjustment is $ 982,000 and $ 1.0 million at June 30, 2024 and December 31, 2023, respectively.

During the three months ended June 30, 2024 and 2023, the Company recognized amortization expense related to this cost basis adjustment of $ 26,000 and $ 41,000 , respectively.

During the six months ended June 30, 2024 and 2023, the Company recognized amortization expense related to this cost basis adjustment of $ 51,000 and $ 71,000 , respectively.

The unamortized amount of this cost basis adjustment is $ 949,000 and $ 1.0 million at September 30, 2024 and December 31, 2023, respectively.

During the three months ended September 30, 2024 and 2023, the Company recognized amortization expense related to this cost basis adjustment of $ 31,000 and $ 41,000 , respectively.

During the nine months ended September 30, 2024 and 2023, the Company recognized amortization expense related to this cost basis adjustment of $ 81,000 and $ 113,000 , respectively.

Non-designated Hedges – Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting.

2 unchanged sentences

Those interest rate swap and cap agreements are simultaneously hedged by offsetting interest rate swaps and caps that are executed with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.

As of June 30, 2024, the Company had 54 interest rate swap agreements with an aggregate notional amount of $ 355.6 million compared to 52 interest rate swap agreements and one interest rate cap agreement with an aggregate notional amount of $ 338.6 million related to this program as of December 31, 2023.

As of September 30, 2024, the Company had 58 interest rate swap agreements with an aggregate notional amount of $ 383.8 million compared to 52 interest rate swap agreements and one interest rate cap agreement with an aggregate notional amount of $ 338.6 million related to this program as of December 31, 2023.

Risk Participation Agreements – Risk Participation Agreements (“RPAs”) are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party.

7 unchanged sentences

Settlement amounts are generally calculated based on the fair value of the swap plus outstanding accrued interest receivable from the customer.

As of June 30, 2024, the Company had 17 RPAs with an aggregate notional amount of $ 45.0 million related to this program compared to 16 RPAs with an aggregate notional amount of $ 44.5 million as of December 31, 2023.

As of September 30, 2024, the Company had 17 RPAs with an aggregate notional amount of $ 45.0 million related to this program compared to 16 RPAs with an aggregate notional amount of $ 44.5 million as of December 31, 2023.

These RPAs all represent “participations-in” and generally have terms ranging from five to ten years .

1 unchanged sentence

Liabilities (2)

June 30, 2024

September 30, 2024

(in thousands)

12 unchanged sentences

Location of Gain or (Loss)

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

in Income on Derivative

3 unchanged sentences

Other non-interest income

Swap contract fees, net of brokerage costs, recognized in earnings on the above noted interest rate products and RPA contracts approximated $ 265,000 and $ 1.0 million for the three months ended June 30, 2024 and 2023, respectively, and $ 752,000 and $ 1.1 million for the six months ended June 30, 2024 and 2023, respectively.

Swap contract fees, net of brokerage costs, recognized in earnings on the above noted interest rate products and RPA contracts approximated $ 375,000 and $ 950,000 for the three months ended September 30, 2024 and 2023, respectively, and $ 1.1 million and $ 2.1 million for the nine months ended September 30, 2024 and 2023, respectively.

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults (or is capable of being declared in default) on any of its indebtedness, then the Company could also be declared in default on its derivative obligations, and it could be required to terminate its derivative positions with the counterparty.

The Company also has agreements with certain of its derivative counterparties that contain a provision whereby if the counterparty fails to maintain its status as a well-capitalized institution, then the Company could be required to terminate its derivative positions with the counterparty.

In order to mitigate counterparty default risk in conjunction with these interest rate products and RPA credit contracts, the Company was required to maintain $ 9.1 million of collateral deposit accounts with the counterparties to these agreements as of June 30, 2024 and December 31, 2023.

Note 9 – Other Comprehensive Income (Loss)

3 unchanged sentences

For the Three Months Ended

June 30, 2024

June 30, 2023

September 30, 2024

September 30, 2023

(In thousands)

2 unchanged sentences

Change in fair value of available-for-sale securities

Reclassification adjustment for realized gains in net income

Reclassification adjustment for realized (losses) gains in net income

Net change in fair value of available-for-sale securities

3 unchanged sentences

Total other comprehensive income (loss)

For the Six Months Ended

June 30, 2024

June 30, 2023

For the Nine Months Ended

September 30, 2024

September 30, 2023

(In thousands)

2 unchanged sentences

Change in fair value of available-for-sale securities

Reclassification adjustment for realized gains in net income

Reclassification adjustment for realized (losses) gains in net income

Net change in fair value of available-for-sale securities

3 unchanged sentences

Total other comprehensive income (loss)

The following table presents the components of accumulated other comprehensive loss as of June 30, 2024 and December 31, 2023:

June 30, 2024

The following table presents the components of accumulated other comprehensive loss as of September 30, 2024 and December 31, 2023:

September 30, 2024

December 31, 2023

(In thousands)

Net unrealized holding losses on securities available-for-sale, net of tax

Net unrealized holding losses on available-for-sale securities, net of tax

Unrecognized director pension plan benefits, net of tax

10 unchanged sentences

The Company no longer meets the requirement for the CBLR framework due to its unfunded loan commitments being over 25.0% of its capital for more than two consecutive quarters.

As a result, the Company operated under the risk-based framework for the three and six months ended June 30, 2024.

As a result, the Company operated under the risk-based framework for the three and nine months ended September 30, 2024.

Under this framework, quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of Total Capital, Tier 1 Capital and Common Equity Tier 1 Capital to Risk-Weighted Assets, and Tier 1 Capital to Total Average Assets (as defined in the regulations).

Management believes, as of June 30, 2024, that the Company and the Bank meet all capital adequacy requirements to which each is subject.

As of June 30, 2024, the Company and the Bank were categorized as well capitalized under the regulatory framework for prompt corrective action.

Management believes, as of September 30, 2024, that the Company and the Bank meet all capital adequacy requirements to which each is subject.

As of September 30, 2024, the Company and the Bank were categorized as well capitalized under the regulatory framework for prompt corrective action.

To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below.

There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios are presented in the table as of the dates indicated:

The Bank’s actual capital amounts and ratios are presented in the table as of the date indicated:

To be well capitalized

3 unchanged sentences

action provisions

June 30, 2024

September 30, 2024

(in thousands)

7 unchanged sentences

(to Total Average Assets)

The Company’s consolidated capital ratios are consistent with the Bank’s regulatory capital ratios as reported above for June 30, 2024 and December 31, 2023.

The Company’s actual consolidated capital amounts and ratios are presented in the table as of the date indicated:

To be well capitalized

For minimum capital

under prompt corrective

adequacy purposes

action provisions

September 30, 2024

(in thousands)

Total Capital

(to Risk-Weighted Assets)

Tier 1 Capital

(to Risk-Weighted Assets)

Common Equity Tier I Capital

(to Risk-Weighted Assets)

Tier 1 Capital

(to Total Average Assets)

Note 11 – Earnings Per Share (“EPS”)

Basic EPS represents net income available to common shareholders divided by the weighted-average number of common shares outstanding during the period.

Diluted earnings per share have been calculated in a manner similar to that of basic earnings per share except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares (such as those resulting from the exercise of stock options) were issued during the period, computed using the treasury stock method.

There were no securities that had a dilutive effect during the three and six months ended June 30, 2024 and 2023.

Unallocated ESOP shares are not deemed outstanding for earnings per share calculations.

Diluted EPS have been calculated in a manner similar to that of basic EPS except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares (such as those resulting from the exercise of stock options) were issued during the period, computed using the treasury stock method.

There were no securities that had a dilutive effect during the three and nine months ended September 30, 2024 and 2023.

Unallocated ESOP shares are not deemed outstanding for EPS calculations.

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

(Dollars in thousands, except per share data)

9 unchanged sentences

Basic and diluted

For the three and six months ended June 30, 2024 and 2023, there were no anti-dilutive shares.

For the three and nine months ended September 30, 2024 and 2023, there were no anti-dilutive shares.

Note 12 — Investments in Solar Income Tax Credit Projects

The Company has investments in qualified solar income tax credit projects (“SITCPs”) that provide solar income tax credits (“SITC”) and operating loss benefits over a five-year period.

Effective September 30, 2024, with a modified retrospective application to January 1, 2024, the Company adopted ASU No.

2023-02 and began to apply the proportional amortization method of accounting for its SITCPs.

Prior to the adoption of ASU No.

2023-02, the Company applied the equity method of accounting for its SITCPs.

For the three and nine months ended September 30, 2024, the Company recorded $ 14.7 million and $ 17.3 in solar income tax credit, respectively and $ 18.0 million of amortization attributable to the SITCPs within Income Tax Expense in its Consolidated Statements of Income.

For the three and nine months ended September 30, 2023, the Company recorded no tax credits within Income Tax Expense in its Consolidated Statements of Income and amortization of $ 341,000 and $ 1.0 million, respectively, within Other Noninterest Expense on the Consolidated Statement of Income.

At September 30, 2024 and December 31, 2023, the Company’s carrying value of SITCPs was $ 731,000 and $ 10.2 million, respectively, recorded in Non-Public Investments on the Consolidated Balance Sheets.

Remaining funding obligations related to these SITCPs recorded in Accrued Expenses and Other Liabilities on the Consolidated Balance Sheets amounted to $ 5.6 million and $ 0 at September 30, 2024 and December 31, 2023, respectively.

For the remaining funding obligations at September 30, 2024, 100 % are expected to be funded during 2025.

For more information on the adoption of ASU 2023-02, refer to Note 2 — Basis of Presentation.

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