What changed in this filing

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Item 1. Financial Statements

2024-10-30 compared with 2024-08-01 · 185 added, 132 removed, 1010 unchanged (24% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

September 30,

2024 December 31,

32 unchanged sentences

Preferred stock, $ 1 par value, 2,500,000 shares authorized, none issued or outstanding

Common stock, $ 1 par value, 10,000,000 shares authorized, 5,501,562 and 5,513,459 issued and outstanding at June 30, 2024 and December 31, 2023, respectively

Common stock, $ 1 par value, 10,000,000 shares authorized, 5,501,943 and 5,513,459 issued and outstanding at September 30, 2024 and December 31, 2023, respectively

Additional paid-in capital 9,460 9,605

6 unchanged sentences

Consolidated Statements of Income

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

(In Thousands, Except Per Share Data) 2024 2023 2024 2023

13 unchanged sentences

Net Interest Income 28,842 26,350 82,342 76,524

(Benefit) provision for credit losses ( 120 ) 1,407 29 1,767

Provision for credit losses

2,063 1,190 2,092 2,957

Net Interest Income After Provision for Credit Losses

2 unchanged sentences

Mortgage banking income 7,047 4,405 16,962 10,326

Purchased receivable income 1,242 1,018 2,587 1,995

Bankcard fees 1,196 1,022 3,218 2,916

Purchased receivable income 1,033 1,180 3,620 3,175

Service charges on deposit accounts 605 550 1,726 1,512

8 unchanged sentences

Professional and outside services 903 803 2,384 2,326

Insurance expense 692 647 1,471 1,204

Marketing expense 860 499 2,063 1,996

Insurance expense 596 640 2,067 1,844

OREO expense, net rental income and gains on sale 2 ( 784 ) ( 387 ) ( 766 )

14 unchanged sentences

Consolidated Statements of Comprehensive Income

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(In Thousands) 2024 2023 2024 2023

2 unchanged sentences

Securities available for sale:

Unrealized holding gains (losses) arising during the period $ 2,806 ($ 4,414 ) $ 3,098 $ 3,705

Unrealized holding gains arising during the period

$ 10,591 $ 1,320 $ 13,689 $ 5,025

Derivatives and hedging activities:

3 unchanged sentences

( 2,872 ) ( 557 ) ( 3,847 ) ( 1,606 )

Other comprehensive income (loss), net of tax 2,048 ( 2,958 ) 2,452 2,639

Other comprehensive income, net of tax

7,231 1,402 9,682 4,040

Comprehensive income

64 unchanged sentences

Balance as of June 30, 2024 5,502 $ 5,502 $ 9,208 $ 246,475 ($ 13,985 ) $ 247,200

Cash dividend on common stock ($ 0.62 per share)

— — — ( 3,458 ) — ( 3,458 )

Stock-based compensation expense — — 265 — — 265

Exercise of stock options and vesting of restricted stock units, net — — ( 13 ) — — ( 13 )

Other comprehensive gain, net of tax

— — — — 7,231 7,231

Net income — — — 8,825 — 8,825

Balance as of September 30, 2024 5,502 $ 5,502 $ 9,460 $ 251,842 ($ 6,754 ) $ 260,050

See notes to consolidated financial statements

1 unchanged sentence

Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(In Thousands) 2024 2023

18 unchanged sentences

Gain on sale of other real estate owned ( 392 ) ( 929 )

Impairment on other real estate owned — 123

Net changes in assets and liabilities:

1 unchanged sentence

Decrease in other assets — 1,903

(Decrease) in other liabilities ( 8,381 ) ( 4,668 )

(Decrease) increase in other liabilities ( 6,808 ) 1,127

Net Cash (Used) by Operating Activities

8 unchanged sentences

Proceeds from redemption of FHLB stock 23,534 2,923

Increase in purchased receivables, net

Decrease (increase) in purchased receivables, net

13,278 ( 14,584 )

8 unchanged sentences

Financing Activities:

(Decrease) in deposits

( 21,249 ) ( 84,900 )

Increase in borrowings 30,286 50,792

Increase in deposits 140,512 40,719

(Decrease) increase in borrowings ( 321 ) 49,686

Repurchase of common stock ( 788 ) ( 6,539 )

Cash dividends paid ( 10,120 ) ( 10,154 )

Net Cash Provided by (Used) Financing Activities

Net Cash Provided by Financing Activities

129,283 73,712

5 unchanged sentences

Interest paid $ 29,286 $ 18,340

Noncash commitments to invest in Low Income Housing Tax Credit Partnerships $ — $ 14,273

Transfer of loans to other real estate owned $ — $ 273

13 unchanged sentences

The Company has evaluated subsequent events and transactions for potential recognition or disclosure.

Operating results for the interim period ended June 30, 2024 are not necessarily indicative of the results anticipated for the year ending December 31, 2024.

Operating results for the interim period ended September 30, 2024 are not necessarily indicative of the results anticipated for the year ending December 31, 2024.

These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

38 unchanged sentences

Marketable Equity Securities

The Company held marketable equity securities with fair values of $ 12.4 million and $ 13.2 million at June 30, 2024 and December 31, 2023, respectively.

The Company held marketable equity securities with fair values of $ 13.0 million and $ 13.2 million at September 30, 2024 and December 31, 2023, respectively.

The gross realized and unrealized gains (losses) recognized on marketable equity securities in other operating income in the Company's Consolidated Statements of Income were as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(In Thousands) 2024 2023 2024 2023

Unrealized (loss) gain on marketable equity securities ($ 60 ) ($ 234 ) $ 254 ($ 457 )

Gain on sale of marketable equity securities, net — — — —

Unrealized gain (loss) on marketable equity securities

$ 576 $ 12 $ 830 ($ 445 )

Total $ 576 $ 12 $ 830 ($ 445 )

3 unchanged sentences

(In Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Fair Value

June 30, 2024

September 30, 2024

Securities available for sale

4 unchanged sentences

(In Thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value

June 30, 2024

September 30, 2024

Securities held to maturity

16 unchanged sentences

Total securities held to maturity, net of ACL $ 36,750 $ — ($ 3,337 ) $ 33,413

Gross unrealized losses on available for sale securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2024 and December 31, 2023 were as follows:

Gross unrealized losses on available for sale securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2024 and December 31, 2023 were as follows:

Less Than 12 Months More Than 12 Months Total

(In Thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses

March 31, 2024

September 30, 2024

Securities available for sale

12 unchanged sentences

Consideration is given to the extent to which the fair value is less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated recovery in fair value.

At June 30, 2024, the Company had 59 available for sale securities in an unrealized loss position without an ACL.

At June 30, 2024, the Company had five held to maturity securities in an unrealized loss position without an ACL.

At September 30, 2024, the Company had 50 available for sale securities in an unrealized loss position without an ACL.

At September 30, 2024, the Company had five held to maturity securities in an unrealized loss position without an ACL.

Management does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost.

The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.

Accordingly, as of June 30, 2024, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, primarily changes in interest rates, and therefore no losses have been recognized in the Company's Consolidated Statements of Income.

At June 30, 2024 and December 31, 2023, carrying amounts of $ 175.6 million and $ 180.1 million in securities were pledged for deposits and borrowings, respectively.

The amortized cost and estimated fair values of debt securities at June 30, 2024, are distributed by contractual maturity as shown below.

Accordingly, as of September 30, 2024, management believes that the unrealized losses detailed in the previous table are due to noncredit-related factors, primarily changes in interest rates, and therefore no losses have been recognized in the Company's Consolidated Statements of Income.

At September 30, 2024 and December 31, 2023, carrying amounts of $ 179.2 million and $ 180.1 million in securities were pledged for deposits and borrowings, respectively.

The amortized cost and estimated fair values of debt securities at September 30, 2024, are distributed by contractual maturity as shown below.

Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

13 unchanged sentences

Total $ 46,405 $ 46,485

There were no proceeds from sales of investment securities for the three or six-month periods ending June 30, 2024 and 2023.

A summary of interest income for the three and six-month periods ending June 30, 2024 and 2023, on available for sale investment securities are as follows:

Three Months Ended June 30, Six Months Ended June 30,

There were no proceeds from sales of investment securities for the three or nine-month periods ending September 30, 2024 and 2023.

A summary of interest income for the three and nine-month periods ending September 30, 2024 and 2023, on available for sale investment securities are as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(In Thousands) 2024 2023 2024 2023

7 unchanged sentences

Loans Held for Sale

Loans held for sale are comprised entirely of 1-4 family residential mortgage loans as of June 30, 2024 and December 31, 2023.

Loans held for sale are comprised entirely of 1-4 family residential mortgage loans as of September 30, 2024 and December 31, 2023.

The Company designates loans held for sale as either carried at fair value or the lower of cost or fair value at loan level at origination.

1 unchanged sentence

The following table presents amortized cost and unpaid principal balance of loans, categorized by the segments used in the Company's Current Expected Credit Losses (“CECL”) methodology to assess credit risk, for the periods indicated:

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

(In Thousands) Amortized Cost Unpaid Principal Difference Amortized Cost Unpaid Principal Difference

14 unchanged sentences

Allowance for credit losses ( 19,528 ) ( 17,270 )

$ 1,858,213 $ 1,884,225 ($ 8,318 ) $ 1,772,227 $ 1,798,053 ($ 8,556 )

The difference between the amortized cost and unpaid principal balance is net deferred origination fees totaling $ 8.3 million at June 30, 2024 and $ 8.6 million at December 31, 2023.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 8.7 million and $ 7.4 million at June 30, 2024 and December 31, 2023, respectively, and is included in other assets in the Consolidated Balance Sheets.

Amortized cost in the above table includes $ 1.6 million and $ 2.8 million as of June 30, 2024 and December 31, 2023, respectively, in Paycheck Protection Program loans administered by the U.S.

Net loans $ 1,988,037 $ 2,016,311 ($ 8,746 ) $ 1,772,227 $ 1,798,053 ($ 8,556 )

The difference between the amortized cost and unpaid principal balance is net deferred origination fees totaling $ 8.7 million at September 30, 2024 and $ 8.6 million at December 31, 2023.

Accrued interest on loans, which is excluded from the amortized cost of loans held for investment, totaled $ 9.0 million and $ 7.4 million at September 30, 2024 and December 31, 2023, respectively, and is included in other assets in the Consolidated Balance Sheets.

Amortized cost in the above table includes $ 1.2 million and $ 2.8 million as of September 30, 2024 and December 31, 2023, respectively, in Paycheck Protection Program loans administered by the U.S.

Small Business Administration within the Commercial & industrial loan segment.

1 unchanged sentence

The table below presents activity in the ACL related to loans held for investment for the periods indicated.

Three Months Ended June 30, Beginning Balance Credit Loss Expense (Benefit) Charge-offs Recoveries Ending Balance

Three Months Ended September 30, Beginning Balance Credit Loss Expense (Benefit) Charge-offs Recoveries Ending Balance

(In Thousands)

27 unchanged sentences

Total $ 15,645 $ 750 ($ 91 ) $ 187 $ 16,491

Six Months Ended June 30, Beginning Balance Credit Loss Expense (Benefit) Charge-offs Recoveries Ending Balance

Nine Months Ended September 30, Beginning Balance Credit Loss Expense (Benefit) Charge-offs Recoveries Ending Balance

(In Thousands)

28 unchanged sentences

The following table shows gross charge-offs by year of loan origination for the periods indicated:

Six Months Ended June 30,

Nine Months Ended September 30,

(In Thousands) 2024 2023 2022 2021 2020 Prior Total

Agricultural production, including commercial fishing $ — $ — $ 25 $ — $ — $ — $ 25

Consumer loans 2 — 13 — — — 15

Total $ 2 $ — $ 38 $ — $ — $ — $ 40

26 unchanged sentences

Generally, current period renewals of credit are re-underwritten at the point of renewal and considered current period originations for purposes of the table below.

June 30, 2024 2024 2023 2022 2021 2020 Prior Total

September 30, 2024 2024 2023 2022 2021 2020 Prior Total

(In Thousands)

116 unchanged sentences

Due Current Total Greater Than 90 Days Past Due Still Accruing

June 30, 2024

September 30, 2024

Commercial & industrial loans $ 325 $ 2,761 $ — $ 3,086 $ 411,115 $ 414,201 $ —

28 unchanged sentences

Nonaccrual loans:

Nonaccrual loans net of government guarantees totaled $ 4.8 million and $ 5.0 million at June 30, 2024 and December 31, 2023, respectively.

Nonaccrual loans net of government guarantees totaled $ 4.9 million and $ 5.0 million at September 30, 2024 and December 31, 2023, respectively.

The following table presents loans on nonaccrual status and loans on nonaccrual status for the periods presented for which there was no related ACL.

All loans with no ACL are individually evaluated for credit losses in the Company's CECL methodology.

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

(In Thousands) Nonaccrual Nonaccrual With No ACL Nonaccrual Nonaccrual With No ACL

2 unchanged sentences

Owner occupied properties 231 231 271 260

Non-owner occupied and multifamily properties — — — —

Residential real estate:

7 unchanged sentences

Net nonaccrual loans $ 4,944 $ 4,368 $ 5,002 $ 4,898

There was no interest on nonaccrual loans reversed through interest income during the three and six-month periods ending June 30, 2024 or June 30, 2023.

There was no interest earned on nonaccrual loans with a principal balance during the three and six-month periods ending June 30, 2024 and June 30, 2023.

However, the Company recognized interest income of $ 32,000 and $ 205,000 in the three-month periods ending June 30, 2024 and 2023, respectively, and $ 234,000 and $ 384,000 in the six-month periods ending June 30, 2024 and 2023, respectively, related to interest collected on nonaccrual loans whose principal had been paid down to zero.

There was no interest on nonaccrual loans reversed through interest income during the three and nine-month periods ending September 30, 2024 or September 30, 2023.

There was no interest earned on nonaccrual loans with a principal balance during the three and nine-month periods ending September 30, 2024 and September 30, 2023.

However, the Company recognized interest income of $ 11,000 and $ 200,000 in the three-month periods ending September 30, 2024 and 2023, respectively, and $ 245,000 and $ 584,000 in the nine-month periods ending September 30, 2024 and 2023, respectively, related to interest collected on nonaccrual loans whose principal had been paid down to zero.

Loan Modifications:

2 unchanged sentences

When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL.

The Company may provide multiple types of concessions on one loan.

The Company may provide multiple types of concessions on any one loan.

The following table shows the amortized cost basis of the loans that were both experiencing financial difficulty and modified as of the dates indicated, by class and type of modification.

The percentage of the amortized cost basis of loans that were modified to borrowers experiencing financial difficulty as compared to the amortized cost basis of each class of financing receivable is also presented below:

Three Months Ended June 30, 2024

Term Modification Payment Modification Total Modifications Percentage of Class of Financing Receivable

Three Months Ended September 30, 2024

Payment Modification Term and payment modifications Total Modifications Percentage of Class of Financing Receivable

(In Thousands)

Commercial & industrial loans $ — $ 195 $ 195 0.05 %

Residential real estate:

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 372 — 372 0.82 %

Total $ 372 $ 195 $ 567 0.03 %

Three Months Ended June 30, 2023

Term Modification Payment Modification Total Modifications Percentage of Class of Financing Receivable

Three Months Ended September 30, 2023

Term Modification Term and payment modifications Total Modifications Percentage of Class of Financing Receivable

(In Thousands)

Commercial & industrial loans $ 2,468 $ 1,988 $ 4,456 1.06 %

Commercial real estate:

Owner occupied properties $ — $ 271 $ 271 0.08 %

Residential real estate:

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 119 — 119 0.43 %

1-4 family residential construction loans 109 — 109 0.34 %

Other construction, land development and raw land loans 968 577 1,545 1.29 %

Total $ 1,196 $ 848 $ 2,044 0.12 %

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Term Modification Term and payment modifications Total Modifications Percentage of Class of Financing Receivable

1 unchanged sentence

Commercial & industrial loans $ 4,033 $ 448 $ 4,481 1.08 %

Residential real estate:

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens — — 372 0.82 %

Total $ 4,033 $ 448 $ 4,853 0.24 %

Six Months Ended June 30, 2023

Term Modification Term and payment modifications Total Modifications Percentage of Class of Financing Receivable

Nine Months Ended September 30, 2023

Term Modification Payment Modification Term and payment modifications Total Modifications Percentage of Class of Financing Receivable

(In Thousands)

Commercial & industrial loans $ 1,511 $ 1,985 $ — $ 3,496 0.84 %

Commercial real estate:

Owner occupied properties — — 271 271 0.08 %

Residential real estate:

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 119 — — 119 0.43 %

1-4 family residential construction loans 109 — — 109 0.34 %

Other construction, land development and raw land loans 968 — 577 1,545 1.29 %

Total $ 2,707 $ 1,985 $ 848 $ 5,540 0.32 %

1 unchanged sentence

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty as of the dates indicated:

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

Principal Forgiveness Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (months)

1 unchanged sentence

Commercial & industrial loans $ — — % 73

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Principal Forgiveness Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (months)

(In Thousands)

Commercial & industrial loans $ — — % 3

Six Months Ended June 30, 2024

Commercial real estate:

Owner occupied properties $ — — % 5

Residential real estate:

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens — — % 5

1-4 family residential construction loans — — % 5

Other construction, land development and raw land loans — — % 5

Nine Months Ended September 30, 2024

Principal Forgiveness Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (months)

1 unchanged sentence

Commercial & industrial loans $ — 8 % 10

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Principal Forgiveness Weighted-Average Interest Rate Reduction Weighted-Average Term Extension (months)

1 unchanged sentence

Commercial & industrial loans $ — — % 20

Commercial real estate:

Owner occupied properties — — % 5

Residential real estate:

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens — — % 5

1-4 family residential construction loans — — % 5

Other construction, land development and raw land loans — — % 5

The following table presents the amortized cost basis of loans that had a payment default during the period indicated and were modified in the twelve months before default to borrowers experiencing financial difficulty:

Three Months Ended June 30, 2024 Six Months Ended June 30, 2024

Three Months Ended September 30, 2024 Nine Months Ended September 30, 2024

Term modification Term modification

5 unchanged sentences

Total $ — $ 977

There were no loans that had a payment default during the three or six-month periods ended June 30, 2023 which were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

Three Months Ended September 30, 2023

Term modification Term and payment modification

(In Thousands)

Commercial real estate:

Owner occupied properties $ — $ 271

Residential real estate:

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 119 —

1-4 family residential construction loans 109 —

Other construction, land development and raw land loans 968 577

Total $ 1,196 $ 848

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

The following table presents the payment performance of loans that have been modified in the last twelve months as of the date indicated:

June 30, 2024

Greater Than 89 Days Past Due Total Past Due Current

September 30, 2024

60-89 Days Past Due Greater Than 89 Days Past Due Total Past Due Current

(In Thousands)

7 unchanged sentences

Total $ 445 $ 1,458 $ 1,903 $ 4,854 $ 6,757

June 30, 2023

Greater Than 89 Days Past Due Total Past Due Current Total

September 30, 2023

30-59 Days Past Due Greater Than 89 Days Past Due Total Past Due Current Total

(In Thousands)

Commercial & industrial loans $ 1,511 $ — $ 1,511 $ 1,985 $ 3,496

Commercial real estate:

Owner occupied properties — 271 271 — 271

Residential real estate:

1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens — 119 119 — 119

1-4 family residential construction loans — 109 109 — 109

Other construction, land development and raw land loans — 1,545 1,545 — 1,545

Total $ — $ 2,044 $ 3,555 $ 1,985 $ 5,540

Upon the Company's determination that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off.

Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount.

Purchased Receivables

Purchased receivables are carried at their principal amount outstanding, net of an ACL, and have a maturity of less than one year .

There were no purchased receivables past due at June 30, 2024 or December 31, 2023, and there were no restructured purchased receivables at June 30, 2024 or December 31, 2023.

There were no purchased receivables past due at September 30, 2024 or December 31, 2023, and there were no restructured purchased receivables at September 30, 2024 or December 31, 2023.

Income on purchased receivables is accrued and recognized on the principal amount outstanding using an effective interest method except when management believes doubt exists as to the collectability of the income or principal.

There were no nonperforming purchased receivables as of June 30, 2024 and there was one nonperforming purchased receivable with a balance of $ 808,000 as of December 31, 2023 for which management was not accruing income.

There was no activity and no balance in the ACL for purchased receivables as of June 30, 2024 or December 31, 2023.

There were no nonperforming purchased receivables as of September 30, 2024 and there was one nonperforming purchased receivable with a balance of $ 808,000 as of December 31, 2023 for which management was not accruing income.

There was no activity and no balance in the ACL for purchased receivables as of September 30, 2024 or December 31, 2023.

The following table summarizes the components of net purchased receivables for the dates indicated:

(In Thousands) June 30, 2024 December 31, 2023

(In Thousands) September 30, 2024 December 31, 2023

Purchased receivables $ 23,564 $ 36,842

3 unchanged sentences

Mortgage servicing rights

The following table details the activity in the Company's mortgage servicing rights (“MSR”) for the three and six-month periods ended June 30, 2024 and 2023:

Three Months Ended June 30, Six Months Ended June 30,

The following table details the activity in the Company's mortgage servicing rights (“MSR”) for the three and nine-month periods ended September 30, 2024 and 2023:

Three Months Ended September 30, Nine Months Ended September 30,

(In Thousands) 2024 2023 2024 2023

8 unchanged sentences

(2) Represents changes due to collection/realization of expected cash flows over time.

The following table details information related to our serviced mortgage loan portfolio as of June 30, 2024 and December 31, 2023:

(In Thousands) June 30, 2024 December 31, 2023

The following table details information related to our serviced mortgage loan portfolio as of September 30, 2024 and December 31, 2023:

(In Thousands) September 30, 2024 December 31, 2023

Balance of mortgage loans serviced for others $ 1,166,585 $ 1,044,516

2 unchanged sentences

MSR as a percentage of serviced loans 1.85 % 1.87 %

The Company recognized servicing fees of $ 1.1 million and $ 906,000 during the three-month periods ending June 30, 2024 and 2023, respectively, and $ 2.1 million and $ 1.8 million during the six-month periods ending June 30, 2024 and 2023, respectively, which includes contractually specified servicing fees and ancillary fees as a component of other noninterest income in the Company's Consolidated Statements of Income.

The Company recognized servicing fees of $ 1.1 million and $ 937,000 during the three-month periods ending September 30, 2024 and 2023, respectively, and $ 3.2 million and $ 2.7 million during the nine-month periods ending September 30, 2024 and 2023, respectively, which includes contractually specified servicing fees and ancillary fees as a component of other noninterest income in the Company's Consolidated Statements of Income.

The following table outlines the weighted average key assumptions used in measuring the fair value of MSRs and the sensitivity of the current fair value of MSRs to immediate adverse changes in those assumptions as of the dates indicated.

See Note 8 for additional information on key assumptions for MSRs.

See Note 8 for additional information on key assumptions for MSR fair value determinations.

(In Thousands)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Fair value of MSRs

25 unchanged sentences

Commercial servicing rights

The commercial servicing rights asset (“CSR”) has a carrying value of $ 2.1 million at June 30, 2024 and $ 2.2 million December 31, 2023, respectively, and is included in other assets and carried at fair value on the Company's Consolidated Balance Sheets.

Total commercial loans serviced for others were $ 273.2 million and $ 282.2 million at June 30, 2024 and December 31, 2023, respectively.

Key assumptions used in measuring the fair value of the CSR as of June 30, 2024 and December 31, 2023 include a constant prepayment rate of 11.76 % and a discount rate of 9.50 %.

The commercial servicing rights asset (“CSR”) has a carrying value of $ 2.1 million at September 30, 2024 and $ 2.2 million at December 31, 2023, respectively, and is included in other assets and carried at fair value on the Company's Consolidated Balance Sheets.

Total commercial loans serviced for others were $ 275.8 million and $ 282.2 million at September 30, 2024 and December 31, 2023, respectively.

Key assumptions used in measuring the fair value of the CSR as of September 30, 2024 and December 31, 2023 include a constant prepayment rate of 11.76 % and a discount rate of 9.50 %.

The Company's lease commitments consist primarily of agreements to lease land and office facilities that it occupies to operate several of its retail branch locations that are classified as operating leases and are recognized on the balance sheet as right-of-use (“ROU”) assets and lease liabilities.

As of June 30, 2024, the Company has operating lease ROU assets of $ 8.2 million and operating lease liabilities of $ 8.3 million.

As of September 30, 2024, the Company has operating lease ROU assets of $ 7.6 million and operating lease liabilities of $ 7.6 million.

As of December 31, 2023, the Company had operating lease ROU assets of $ 9.1 million and operating lease liabilities of $ 9.1 million.

The Company did not have any agreements that are classified as finance leases as of June 30, 2024 or December 31, 2023.

The Company did not have any agreements that are classified as finance leases as of September 30, 2024 or December 31, 2023.

The following table presents additional information about the Company's operating leases for the periods indicated:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(In Thousands) 2024 2023 2024 2023

10 unchanged sentences

(In Thousands) Operating Leases

2024 (Six months) $ 1,381

2024 (Three months) $ 678

Thereafter 3,878

7 unchanged sentences

Similarly, the Company could be required to settle its obligations under the agreement if specific regulatory events occur, such as if the Company were issued a prompt corrective action directive or a cease and desist order, or if certain regulatory ratios fall below specified levels.

The Company pledged $ 566,000 as of June 30, 2024 and $ 566,000 as of December 31, 2023, in available for sale securities to collateralize fair value shortfalls on interest rate swap agreements.

The Company had interest rate swaps related to commercial loans with an aggregate notional amount of $ 228.0 million and $ 218.0 million at June 30, 2024 and December 31, 2023, respectively.

At June 30, 2024, the notional amount of interest rate swaps is made up of 21 variable to fixed rate swaps to commercial loan customers totaling $ 114.0 million, and 21 fixed to variable rate swaps with a counterparty totaling $ 114.0 million.

Changes in fair value from these 21 interest rate swaps offset each other in the three and six-month periods ending June 30, 2024.

The Company recognized $ 10,000 and $ 61,000 fee income related to interest rate swaps in the three-month periods ending June 30, 2024 and 2023, respectively, and $ 73,000 and $ 61,000 in fee income related to interest rate swaps in the six-month periods ending June 30, 2024 and 2023, respectively.

The Company pledged $ 580,000 as of September 30, 2024 and $ 566,000 as of December 31, 2023, in available for sale securities to collateralize fair value shortfalls on interest rate swap agreements.

The Company had interest rate swaps related to commercial loans with an aggregate notional amount of $ 278.6 million and $ 218.0 million at September 30, 2024 and December 31, 2023, respectively.

At September 30, 2024, the notional amount of interest rate swaps is made up of 23 variable to fixed rate swaps to commercial loan customers totaling $ 139.3 million, and 23 fixed to variable rate swaps with a counterparty totaling $ 139.3 million.

Changes in fair value from these 23 interest rate swaps offset each other in the three and nine-month periods ending September 30, 2024.

The Company recognized $ 287,000 and no fee income related to interest rate swaps in the three-month periods ending September 30, 2024 and 2023, respectively, and $ 361,000 and $ 61,000 in fee income related to interest rate swaps in the nine-month periods ending September 30, 2024 and 2023, respectively.

Interest rate swap income is recorded in other operating income on the Consolidated Statements of Income.

5 unchanged sentences

The floating rate that the dealer pays is now equal to the three month CME SOFR plus tenor spread adjustment 0.26 % plus 1.37 %, which reprices quarterly on the payment date.

This rate was 6.97 % as of June 30, 2024.

The Company pledged $ 130,000 in cash to collateralize initial margin and fair value exposure of our counterparty on this interest rate swap as of June 30, 2024 and December 31, 2023.

This rate was 6.58 % as of September 30, 2024.

The Company pledged $ 130,000 in cash to collateralize initial margin and fair value exposure of our counterparty on this interest rate swap as of September 30, 2024 and December 31, 2023.

Changes in the fair value of this interest rate swap are reported in other comprehensive income on the Consolidated Statements of Income.

The unrealized gain, net of tax on this interest rate swap was $ 1.2 million as of June 30, 2024 and the unrealized gain, net of tax was $ 1.0 million as of December 31, 2023.

The unrealized gain, net of tax on this interest rate swap was $ 863,000 as of September 30, 2024 and the unrealized gain, net of tax was $ 1.0 million as of December 31, 2023.

Derivatives related to home mortgage banking activities

4 unchanged sentences

Market risk with respect to commitments to originate loans arises from changes in the value of contractual positions due to changes in interest rates.

RML had commitments to originate mortgage loans held for sale totaling $ 88.0 million and $ 22.9 million at June 30, 2024 and December 31, 2023, respectively.

RML had commitments to originate mortgage loans held for sale totaling $ 77.6 million and $ 22.9 million at September 30, 2024 and December 31, 2023, respectively.

Changes in the value of RML's interest rate derivatives are recorded in mortgage banking income on the Consolidated Statements of Income.

None of these derivatives are designated as hedging instruments.

The following table presents the fair value of derivatives not designated as hedging instruments at June 30, 2024 and December 31, 2023:

The following table presents the fair value of derivatives not designated as hedging instruments at September 30, 2024 and December 31, 2023:

(In Thousands) Asset Derivatives

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Balance Sheet Location Fair Value Fair Value

1 unchanged sentence

Interest rate lock commitments Other assets 1,327 342

Retail interest rate contracts Other assets 120 —

Total $ 10,257 $ 10,812

(In Thousands) Liability Derivatives

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Balance Sheet Location Fair Value Fair Value

3 unchanged sentences

The following table presents the net gains (losses) of derivatives not designated as hedging instruments for periods indicated below:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(In Thousands) Income Statement Location 2024 2023 2024 2023

5 unchanged sentences

We do not offset such financial instruments for financial reporting purposes.

The following table summarizes the derivatives that have a right of offset as of June 30, 2024 and December 31, 2023:

June 30, 2024 Gross amounts not offset in the Statement of Financial Position

The following table summarizes the derivatives that have a right of offset as of September 30, 2024 and December 31, 2023:

September 30, 2024 Gross amounts not offset in the Statement of Financial Position

(In Thousands) Gross amounts of recognized assets and liabilities Gross amounts offset in the Statement of Financial Position Net amounts of assets and liabilities presented in the Statement of Financial Position Financial Instruments Collateral Posted Net Amount

1 unchanged sentence

Interest rate swaps $ 8,930 $ — $ 8,930 $ — $ — $ 8,930

Retail interest rate contracts 120 — 120 — — 120

Liability Derivatives

Interest rate swaps $ 8,930 $ — $ 8,930 $ — $ 8,930 $ —

Retail interest rate contracts 96 — 96 — — 96

December 31, 2023 Gross amounts not offset in the Statement of Financial Position

20 unchanged sentences

Interest rate contracts are valued in a model, which uses as its basis a discounted cash flow technique incorporating credit valuation adjustments to reflect nonperformance risk in the measurement of fair value.

Although the Company has determined that the majority of inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation

adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties.

However, as of June 30, 2024, the Company has assessed the significance of the impact of these adjustments on the overall valuation of its interest rate positions and has determined that they are not significant to the overall valuation of its interest rate derivatives.

Although the Company has determined that the

majority of inputs used to value its interest rate derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties.

However, as of September 30, 2024, the Company has assessed the significance of the impact of these adjustments on the overall valuation of its interest rate positions and has determined that they are not significant to the overall valuation of its interest rate derivatives.

As a result, the Company has classified its interest rate derivative valuations in Level 2 of the fair value hierarchy.

17 unchanged sentences

Estimated fair values as of the periods indicated are as follows:

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

(In Thousands) Carrying Amount Fair Value Carrying Amount Fair Value

10 unchanged sentences

Interest rate swaps 10,568 10,568 11,836 11,836

Retail interest rate contracts 120 120 — —

Level 3 inputs:

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(In Thousands) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)

June 30, 2024

September 30, 2024

Available for sale securities

9 unchanged sentences

Commercial servicing rights 2,136 — — 2,136

Retail interest rate contracts 120 — — 120

Total other assets $ 35,169 $ — $ 10,136 $ 25,033

Interest rate swaps $ 8,930 $ — $ 8,930 $ —

Retail interest rate contracts 96 — 96 —

Total other liabilities $ 9,026 $ — $ 9,026 $ —

16 unchanged sentences

Total other liabilities $ 10,483 $ — $ 10,483 $ —

The following tables provide a reconciliation of the assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis during the three and six-month periods ended June 30, 2024 and 2023:

(In Thousands) Beginning balance Change included in earnings Purchases and issuances Sales and settlements Ending balance Net change in unrealized gains (losses) relating to items held at end of period

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

Interest rate lock commitments $ 1,059 ($ 647 ) $ 5,173 ($ 4,258 ) $ 1,327 $ 1,327

2 unchanged sentences

Total $ 24,252 ($ 1,625 ) $ 6,664 ($ 4,258 ) $ 25,033 $ 1,327

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Interest rate lock commitments $ 851 ($ 267 ) $ 2,021 ($ 2,087 ) $ 518 $ 518

3 unchanged sentences

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Interest rate lock commitments $ 342 ($ 1,375 ) $ 11,102 ($ 8,742 ) $ 1,327 $ 1,327

2 unchanged sentences

Total $ 22,106 ($ 2,604 ) $ 14,273 ($ 8,742 ) $ 25,033 $ 1,327

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Interest rate lock commitments $ 440 ($ 819 ) $ 6,253 ($ 5,356 ) $ 518 $ 518

2 unchanged sentences

Total $ 21,204 ($ 2,642 ) $ 8,826 ($ 5,356 ) $ 22,032 $ 518

There were no changes in unrealized gains and losses for the three and six-month periods ending June 30, 2024 and 2023 included in other comprehensive income for recurring Level 3 fair value measurements.

As of and for the periods ending June 30, 2024 and December 31, 2023, except for certain assets as shown in the following table, no impairment or valuation adjustment was recognized for assets recognized at fair value on a nonrecurring basis.

There were no changes in unrealized gains and losses for the three and nine-month periods ending September 30, 2024 and 2023 included in other comprehensive income for recurring Level 3 fair value measurements.

As of and for the periods ending September 30, 2024 and December 31, 2023, except for certain assets as shown in the following table, no impairment or valuation adjustment was recognized for assets recognized at fair value on a nonrecurring basis.

For loans individually measured for credit losses, the Company classifies fair value measurements using observable inputs, such as external appraisals, as Level 2 valuations in the fair value hierarchy, and unobservable inputs, such as in-house evaluations, as Level 3 valuations in the fair value hierarchy.

(In Thousands) Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)

June 30, 2024

September 30, 2024

Loans individually measured for credit losses $ 247 $ — $ — $ 247

3 unchanged sentences

Total $ — $ — $ — $ —

The following table presents the (gains) losses resulting from nonrecurring fair value adjustments for the three and six-month periods ended June 30, 2024 and 2023:

Three Months Ended June 30, Six Months Ended June 30,

The following table presents the (gains) losses resulting from nonrecurring fair value adjustments for the three and nine-month periods ended September 30, 2024 and 2023:

Three Months Ended September 30, Nine Months Ended September 30,

(In Thousands) 2024 2023 2024 2023

Loans individually measured for credit losses $ 114 $ — $ 117 $ —

Other real estate owned — 123 — 123

Total loss from nonrecurring measurements $ 114 $ 123 $ 117 $ 123

Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)

The following tables provide a description of the valuation technique, unobservable input, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a recurring and nonrecurring basis at June 30, 2024 and December 31, 2023:

Financial Instrument Valuation Technique - Recurring Basis

Unobservable Input Weighted Average Rate Range

June 30, 2024

September 30, 2024

Interest rate lock commitment External pricing model Pull through rate 91.42 %

11 unchanged sentences

Unobservable Input Weighted Average Rate Range

June 30, 2024

September 30, 2024

Loans individually measured for credit losses In-house valuation of collateral Discount rate 47 %

3 unchanged sentences

The Community Banking segment's principal business focus is the offering of loan and deposit products to business and consumer customers in its primary market areas.

As of June 30, 2024, the Community Banking segment operated 20 branches throughout Alaska.

As of September 30, 2024, the Community Banking segment operated 20 branches throughout Alaska.

The Home Mortgage Lending segment's principal business focus is the origination and sale of mortgage loans for 1-4 family residential properties.

Summarized financial information for the Company's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables:

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

(In Thousands) Community Banking Home Mortgage Lending Consolidated

12 unchanged sentences

Net income $ 7,548 $ 1,277 $ 8,825

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

(In Thousands) Community Banking Home Mortgage Lending Consolidated

12 unchanged sentences

Net income $ 7,802 $ 572 $ 8,374

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

(In Thousands) Community Banking Home Mortgage Lending Consolidated

12 unchanged sentences

Net income $ 23,239 $ 2,805 $ 26,044

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

(In Thousands) Community Banking Home Mortgage Lending Consolidated

12 unchanged sentences

Net income $ 20,725 ($ 1,944 ) $ 18,781

June 30, 2024

September 30, 2024

(In Thousands) Community Banking Home Mortgage Lending Consolidated

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 1. Financial Statements