NEW PEOPLES BANKSHARES INC 10-Q

Item 1 Financial Statements NEW PEOPLES BANKSHARES, INC. CONSOLIDATED BALANCE SHEETS JUNE 30, 2023 AND DECEMBER 31, 2022 (IN THOUSANDS EXCEPT PER SHARE AND SHARE DATA) (UNAUDITED) June 30, December 31, 2023 2022 ASSETS Cash and due from banks 15,238 $ 13,979 Interest-bearing deposits with banks 52,382 46,747 Federal funds sold 63 960 Total cash and cash equivalents 67,683 61,686 Investment securities available-for-sale 93,106 96,076 Loans receivable 609,038 584,613 Allowance for credit losses ( 6,814 ) ( 6,727 ) Net loans 602,224 577,886 Bank premises and equipment, net 18,635 19,290 Other real estate owned 261 261 Accrued interest receivable 2,483 2,555 Deferred taxes, net 4,430 4,623 Bank owned life insurance 4,577 4,549 Right-of-use assets – operating leases 3,557 3,725 Other assets 6,036 4,707 Total assets 802,992 $ 775,358 LIABILITIES Deposits: Noninterest bearing 247,135 $ 249,924 Interest-bearing 460,941 442,783 Total deposits 708,076 692,707 Borrowed funds 26,496 16,496 Lease liabilities – operating leases 3,557 3,725 Accrued interest payable 930 526 Accrued expenses and other liabilities 3,776 4,685 Total liabilities 742,835 718,139 SHAREHOLDERS’ EQUITY Common stock - $ 2.00 par value; 50,000,000 shares authorized; 23,802,857 and 23,848,491 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively 47,606 47,697 Additional paid-in-capital 14,536 14,546 Retained earnings 11,019 8,917 Accumulated other comprehensive loss ( 13,004 ) ( 13,941 ) Total shareholders’ equity 60,157 57,219 Total liabilities and shareholders’ equity 802,992 $ 775,358 The accompanying notes are an integral part of these consolidated financial statements. 3 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED) For the Three Months Ended For the Six Months Ended June 30, June 30, 2023 2022 2023 2022 INTEREST AND DIVIDEND INCOME Loans including fees $ 7,876 6,792 $ 15,258 $ 13,466 Federal funds sold 8 1 16 1 Interest-earning deposits with banks 551 158 1,083 179 Investments 547 482 1,107 917 Dividends on equity securities (restricted) 36 27 76 54 Total interest and dividend income 9,018 7,460 17,540 14,617 INTEREST EXPENSE Deposits 1,645 404 2,791 834 Borrowed funds 373 212 682 318 Total interest expense 2,018 616 3,473 1,152 NET INTEREST INCOME 7,000 6,844 14,067 13,465 PROVISION FOR CREDIT LOSSES 149 75 149 175 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 6,851 6,769 13,918 13,290 NONINTEREST INCOME Service charges and fees 961 897 1,877 1,904 Card processing and interchange 943 1,027 1,842 1,943 Insurance and investment fees 306 242 563 483 Other noninterest income 194 182 520 387 Total noninterest income 2,404 2,348 4,802 4,717 NONINTEREST EXPENSES Salaries and employee benefits 3,652 3,382 7,202 6,657 Occupancy and equipment expense 975 1,017 1,935 2,023 Data processing and telecommunications 619 601 1,261 1,155 Other operating expenses 1,789 1,658 3,505 3,262 Total noninterest expenses 7,035 6,658 13,903 13,097 INCOME BEFORE INCOME TAXES 2,220 2,459 4,817 4,910 INCOME TAX EXPENSE 497 536 1,073 1,066 NET INCOME $ 1,723 1,923 $ 3,744 $ 3,844 Earnings per share Basic and diluted $ 0.07 0.08 $ 0.16 $ 0.16 Average Weighted Shares of Common Stock Basic and diluted 23,817,903 23,915,869 23,829,468 23,918,960 The accompanying notes are an integral part of these consolidated financial statements. 4 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022 (IN THOUSANDS) (UNAUDITED) For the Three Months Ended June 30, For the Six Months Ended June 30, 2023 2022 2023 2022 NET INCOME $ 1,723 $ 1,923 $ 3,744 $ 3,844 Other comprehensive income (loss): Investment securities activity Unrealized (losses) gains arising during the period ( 1,518 ) ( 5,865 ) 1,187 ( 12,756 ) Related tax benefit (expense) 319 1,232 ( 250 ) 2,679 TOTAL OTHER COMPREHENSIVE INCOME (LOSS) ( 1,199 ) ( 4,633 ) 937 ( 10,077 ) TOTAL COMPREHENSIVE INCOME (LOSS) $ 524 $ ( 2,710 ) $ 4,681 $ ( 6,233 ) The accompanying notes are an integral part of these consolidated financial statements. 5 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND 2022 (IN THOUSANDS INCLUDING SHARE DATA) (UNAUDITED) Shares of Common Stock Common Stock Additional Paid-in- Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Balance, December 31, 2021 23,922 $ 47,844 $ 14,570 $ 2,031 $ ( 814 ) $ 63,631 Net income — — — 1,921 — 1,921 Other comprehensive loss, net of tax — — — — ( 5,444 ) ( 5,444 ) Cash dividend declared ($0.05 per share) — — — ( 1,196 ) — ( 1,196 ) Balance, March 31, 2022 23,922 $ 47,844 $ 14,570 $ 2,756 $ ( 6,258 ) $ 58,912 Net income — — — 1,923 — 1,923 Other comprehensive loss, net of tax — — — — ( 4,633 ) ( 4,633 ) Repurchase of common stock ( 16 ) ( 33 ) ( 5 ) — — ( 38 ) Balance, June 30, 2022 23,906 $ 47,811 $ 14,565 $ 4,679 $ ( 10,891 ) $ 56,164 Balance, December 31, 2022 23,848 $ 47,697 $ 14,546 $ 8,917 $ ( 13,941 ) $ 57,219 Net income — — — 2,021 — 2,021 Adoption of ASU 2016-13 — — — ( 212 ) — ( 212 ) Other comprehensive income, net of tax — — — — 2,136 2,136 Repurchase of common stock ( 20 ) ( 40 ) ( 6 ) — — ( 46 ) Cash dividend declared ($0.06 per share) — — — ( 1,430 ) — ( 1,430 ) Balance, March 31, 2023 23,828 $ 47,657 $ 14,540 $ 9,296 $ ( 11,805 ) $ 59,688 Net income — — — 1,723 — 1,723 Other comprehensive loss, net of tax — — — — ( 1,199 ) ( 1,199 ) Repurchase of common stock ( 25 ) ( 51 ) ( 4 ) — — ( 55 ) Balance, June 30, 2023 23,803 $ 47,606 $ 14,536 $ 11,019 $ ( 13,004 ) $ 60,157 The accompanying notes are an integral part of these consolidated financial statements. 6 NEW PEOPLES BANKSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2023 AND 2022 (IN THOUSANDS) (UNAUDITED) 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 3,744 $ 3,844 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 793 916 Provision for credit losses 149 175 Income on bank owned life insurance ( 28 ) ( 12 ) Gain on sale of mortgage loans ( 4 ) ( 20 ) Gain on sale or disposal of premises and equipment ( 134 ) — Gain on sale of other real estate owned — ( 25 ) Loans originated for sale ( 81 ) ( 1,134 ) Proceeds from sales of loans originated for sale 85 1,092 Adjustment of carrying value of other real estate owned — 137 Net amortization/accretion of bond premiums/discounts 151 276 Deferred tax (benefit) expense ( 1 ) 644 Net change in: Accrued interest receivable 72 ( 127 ) Other assets ( 909 ) ( 1,426 ) Accrued interest payable 404 61 Accrued expenses and other liabilities ( 1,191 ) 409 Net cash provided by operating activities 3,050 4,810 CASH FLOWS FROM INVESTING ACTIVITIES Net (increase) decrease in loans ( 24,473 ) 8,730 Purchase of securities available-for-sale — ( 14,861 ) Proceeds from repayments and maturities of securities available-for-sale 4,006 8,571 Net purchase of equity securities (restricted) ( 420 ) ( 2,277 ) Payments for the purchase of premises and equipment ( 813 ) ( 392 ) Proceeds from sales of premises and equipment 809 — Proceeds from sales of other real estate owned — 207 Net cash used in investing activities ( 20,891 ) ( 22 ) CASH FLOWS FROM FINANCING ACTIVITIES Net change in short term borrowings — 60,000 Issuance of long-term debt 10,000 — Net change in noninterest bearing deposits ( 2,789 ) 8,734 Net change in interest bearing deposits 18,158 ( 9,183 ) Dividends paid ( 1,430 ) ( 1,196 ) Repurchase of common stock ( 101 ) ( 38 ) Net cash provided by financing activities 23,838 58,317 Net increase in cash and cash equivalents 5,997 63,105 Cash and cash equivalents, beginning of the period 61,686 60,946 Cash and cash equivalents, end of the period $ 67,683 $ 124,051 Supplemental disclosure of cash paid during the period for: Interest $ 3,069 $ 1,091 Taxes 1,925 325 Supplemental disclosure of non-cash transactions: Loans made to finance sale of other real estate owned — 711 Change in unrealized losses on securities available-for-sale 1,187 ( 12,756 ) The accompanying notes are an integral part of these consolidated financial statements. 7 NEW PEOPLES BANKSHARES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 NATURE OF OPERATIONS Nature of Operations – New Peoples Bankshares, Inc. (New Peoples or the Company) is a financial holding company whose principal activity is the ownership and management of a community bank, New Peoples Bank, Inc. (the Bank). New Peoples and the Bank are organized and incorporated under the laws of the Commonwealth of Virginia. As a state-chartered member bank, the Bank is subject to regulation by the Virginia Bureau of Financial Institutions, the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System (the Federal Reserve). The Bank provides general banking services to individuals, small and medium size businesses and the professional community of southwest Virginia, southern West Virginia, western North Carolina and northeastern Tennessee. These services include commercial and consumer loans along with traditional deposit products such as checking and savings accounts. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES These consolidated financial statements conform to U. S. generally accepted accounting principles (GAAP) and to general industry practices. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the Company’s financial position as of June 30, 2023 and December 31, 2022, and the results of operations for the three- and six-month periods ended June 30, 2023 and 2022. The Notes included herein should be read in conjunction with the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. The results of operations for interim periods are not necessarily indicative of the results of operations that may be expected for a full year or any future period. The consolidated financial statements include New Peoples, the Bank, NPB Insurance Services, Inc., and NPB Web Services, Inc. (hereinafter, collectively referred to as the Company, we, us or our). All significant intercompany balances and transactions have been eliminated. In accordance with Accounting Standards Codification (ASC) 942, Financial Services – Depository and Lending, NPB Capital Trust I and 2 are not included in the consolidated financial statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The determination of the adequacy of the allowance for credit losses is based on estimates that are particularly susceptible to significant changes in the economic environment and market conditions. Certain reclassifications have been made to prior period amounts to conform to current period presentation. None of these reclassifications are considered material and have no impact on net income. The Company’s significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in the Company’s Annual report on Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2022 except for the following: Accounting Standards Adopted in 2023 On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. 8 In addition, CECL made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell. The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The transition adjustment of the adoption of CECL included a decrease in the allowance for credit losses on loans of $80,000, which is presented as a reduction to net loans outstanding, and an increase in the allowance for credit losses on unfunded loan commitments of $348,000, which is recorded within other liabilities. The Company recorded a net decrease to retained earnings of $212,000 as of January 1, 2023 for the cumulative effect of adopting CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Results for reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be reported in accordance with previously applicable accounting standards (“Incurred Loss”). The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined that an allowance for credit losses on available-for-sale securities was not deemed material. The following table illustrates the impact on the allowance for credit losses from the adoption of ASC 326: Schedule of allowance for credit losses on available for sale securities January 1, 2023 As Reported Under ASC 326 December 31, 2022 Pre-ASC 326 Adoption Impact of ASC 326 Adoption (Dollars are in thousands) Assets: Loans, at amortized cost 584,613 584,613 $ — Allowance for credit losses on loans: Real estate secured: Commercial 2,065 2,364 ( 299 ) Construction and land development 509 345 164 Residential 1-4 family 2,639 2,364 275 Multifamily 274 262 12 Farmland 228 153 75 Total real estate loans 5,715 5,488 227 Commercial 622 381 241 Agriculture 27 32 ( 5 ) Consumer and other loans 283 386 ( 103 ) Unallocated — 440 ( 440 ) Total allowance for credit losses for loans 6,647 6,727 ( 80 ) Deferred tax asset 4,679 4,623 56 Liabilities: Allowance for credit losses for unfunded commitments 348 — 348 The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that this policy results in the timely reversal of uncollectible interest. 9 Allowance for Credit Losses – Available-for-sale Securities For available-for-sale securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings. If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income (loss). Changes in the allowance for credit loss are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available-for-sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. As of June 30, 2023, there was no allowance for credit loss related to the available-for-sale portfolio. Loans Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred fees and costs. Accrued interest receivable related to loans totaled $2.0 million as of June 30, 2023 and was reported in accrued interest receivable on the consolidated balance sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating prepayments. The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in the process of collection, or when management believes, after considering economic and business conditions and collection efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days after the contractual due date. All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment performance, and future payments are reasonably assured. Allowance for Credit Losses – Loans The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses. The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Company primarily utilizes the cohort and the probability of default/loss given default methodologies for its reasonable and supportable forecasting of current expected credit losses. To further adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation, the Company may consider the following qualitative adjustment factors: changes to: lending policies and procedures, national and local economic conditions, the experience and ability of management and staff; the volume and severity of past due, rated and nonaccrual assets, loan review system, collateral value, concentrations of credit, and legal or regulatory requirements and competition. The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments and calculates the allowance for credit losses for each using a discounted cash flow methodology: 10 · Commercial Loans. We make commercial loans to qualified businesses in our market area. Our commercial lending consists primarily of commercial and industrial loans to finance accounts receivable, inventory, property, plant and equipment. Commercial business loans generally have a higher degree of risk than residential mortgage loans, but have commensurately higher yields. Residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be easily ascertainable. In contrast, commercial business loans typically are made on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as commercial real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself. Further, the collateral for commercial business loans may depreciate over time and cannot be appraised with as much precision as residential real estate. To manage these risks, our underwriting guidelines generally require us to secure commercial loans with both the assets of the borrowing business and other additional collateral and guarantees that may be available. In addition, we actively monitor certain measures of the borrower, including advance rate, cash flow, collateral value and other appropriate credit factors. · Residential Mortgage Loans. Our residential mortgage loans consist of residential first and second mortgage loans, residential construction loans, home equity lines of credit and term loans secured by first and second mortgages on the residences of borrowers for home improvements, education and other personal expenditures. We make mortgage loans with a variety of terms, including fixed and floating or variable rates and a variety of maturities. Under our underwriting guidelines, residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be easily ascertainable. These loans are made consistent with our appraisal policies and real estate lending policies, which detail maximum loan-to-value ratios and maturities. · Construction Loans. Construction lending entails significant additional risks compared to residential mortgage lending. Construction loans often involve larger loan balances concentrated with single borrowers or groups of related borrowers. Construction loans also involve additional risks attributable to the fact that loan funds are advanced upon the security of property under construction, which is of uncertain value prior to the completion of construction. Thus, it is more difficult to evaluate the total loan funds required to complete a project and related loan-to-value ratios accurately. To minimize the risks associated with construction lending, loan-to-value limitations for residential, multi-family and non-residential construction loans are in place. These are in addition to the usual credit analyses of borrowers. Management feels that the loan-to-value ratios help to minimize the risk of loss and to compensate for normal fluctuations in the real estate market. Maturities for construction loans generally range from 4 to 12 months for residential property and from 6 to 18 months for non-residential and multi-family properties. · Consumer Loans. Our consumer loans consist primarily of installment loans to individuals for personal, family and household purposes. The specific types of consumer loans that we make include home improvement loans, debt consolidation loans and general consumer lending. Consumer loans entail greater risk than residential mortgage loans, particularly in the case of consumer loans that are unsecured, such as lines of credit, or secured by rapidly depreciating assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance due to the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. A borrower may also be able to assert against the Bank as an assignee any claims and defenses that it has against the seller of the underlying collateral. Loans that do not share risk characteristics are evaluated on an individual basis. The Company designates loan relationships of $250,000 or more that have been determined to meet the regulatory definitions of “special mention” or “classified” (together known as “criticized”) as individually evaluated. The fair value of individually evaluated loans is measured using the fair value of collateral (“collateral method”) or the DCF method. 11 · The collateral method is applied to individually evaluated loans for which foreclosure is probable. The collateral method is also applied to individually evaluated loans when borrowers are experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral (“collateral dependent”). The allowance for credit loss is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, the allowance for credit loss is calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, the allowance for credit loss is calculated as the amount by which the loan's amortized cost basis exceeds the fair value of the underlying collateral less estimated cost to sell. The allowance for credit loss may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the loan. · The DCF method is applied to individually evaluated loans that do not meet the criteria for collateral method measurement. Cash flows are projected and discounted using the same method as for collectively evaluated loans, and the Company considers default and prepayment assumptions. Allowance for Credit Losses – Unfunded Commitments Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments, which is included in the provision for credit losses, in the Company’s income statements. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets. On January 1, 2023, concurrent with its adoption of ASU No. 2016-13, the Company adopted ASU No. 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” The amendments eliminate the accounting guidance for troubled debt restructurings (“TDRs”) by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. Disclosures about periods prior to adoption will be presented under GAAP applicable for that period. Similar to its policy under previous GAAP, the Company continues to identify modifications to loans and to determine whether the borrower is experiencing financial difficulty. If the Company determines that the borrower is experiencing financial difficulty, the loan's risk rating is evaluated to determine whether it falls within the regulatory definition of “criticized” and requires individual evaluation. Under previous GAAP, modifications to loans when the borrower was experiencing financial difficulty were designated as TDR and were individually evaluated for the duration of the loan. Under CECL, if a previously modified loan with financial difficulty is subsequently upgraded to a pass rating, it will no longer be individually evaluated. NOTE 3 EARNINGS PER SHARE Basic earnings per share computations are based on the weighted average number of shares outstanding during each period. Diluted earnings per share reflect the additional common shares that would have been outstanding if dilutive potential common shares had been issued. For the three-month and six-month periods ended June 30, 2023 and 2022, there were no potential common shares. Basic and diluted net income per common share calculations follows: Schedule of basic and diluted net loss per common share calculations (Dollars are in thousands, except share and per share data) For the three months ended June 30, For the six months ended June 30, 2023 2022 2023 2022 Net income $ 1,723 $ 1,923 $ 3,744 $ 3,844 Weighted average shares outstanding 23,817,903 23,915,869 23,829,468 23,918,960 Weighted average dilutive shares outstanding 23,817,903 23,915,869 23,829,468 23,918,960 Basic and diluted earnings per share $ 0.07 $ 0.08 $ 0.16 $ 0.16 12 NOTE 4 CAPITAL Capital Requirements and Ratios Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. To qualify as a "Small Bank Holding Company" under federal regulations, a bank must have consolidated assets of $3 billion or less. The primary benefit of being deemed a "Small Bank Holding Company" is the exemption from the requirement to maintain consolidated regulatory capital ratios; instead, regulatory capital ratios only apply at the subsidiary bank level. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (BASEL III rules) became fully phased in on January 1, 2019. Under the BASEL III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer required is 2.50 % . As of June 30, 2023, the Bank had a capital conservation buffer of 8.59%. Amounts recorded to accumulated other comprehensive income (loss) are not included in computing regulatory capital. Management believes as of June 30, 2023, the Bank met all capital adequacy requirements to which it was subject. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of June 30, 2023, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category. In February 2019, the U.S. federal bank regulatory agencies approved a final rule modifying their regulatory capital rules and providing an option to phase-in over a three-year period the Day 1 adverse regulatory capital effects of the CECL accounting standard. Additionally, in March 2020, the U.S. Federal bank regulatory agencies issued an interim final rule that provides banking organizations an option to delay the estimated CECL impact on regulatory capital for an additional two years for a total transition period of up to five years. The final rule was adopted and became effective in September 2020. The Company implemented the CECL model commencing January 1, 2023, and elected not to phase in the effect of CECL on regulatory capital. 13 The Bank’s actual capital amounts and ratios are presented in the following table as of June 30, 2023 and December 31, 2022, respectively. Schedule of capital requirements Actual Minimum Capital Requirement Minimum to Be Well Capitalized Under Prompt Corrective Action Provisions (Dollars are in thousands) Amount Ratio Amount Ratio Amount Ratio June 30, 2023: Total capital to risk weighted assets 95,814 16.59 % $ 46,196 8.00 % $ 55,745 10.00 % Tier 1 capital to risk weighted assets 88,718 15.35 % 34,647 6.00 % 46,196 8.00 % Tier 1 capital to average assets 88,718 11.05 % 32,111 4.00 % 40,139 5.00 % Common equity Tier 1 capital to risk weighted assets 88,718 15.35 % 25,985 4.50 % 37,534 6.50 % December 31, 2022: Total capital to risk weighted assets 93,028 16.50 % $ 45,106 8.00 % $ 56,382 10.00 % Tier 1 capital to risk weighted assets 86,301 15.31 % 33,829 6.00 % 45,106 8.00 % Tier 1 capital to average assets 86,301 10.40 % 33,206 4.00 % 41,508 5.00 % Common equity Tier 1 capital to risk weighted assets 86,301 15.31 % 25,372 4.50 % 36,648 6.50 % NOTE 5 INVESTMENT SECURITIES The amortized cost and estimated fair value of available-for-sale (“AFS”) securities as of June 30, 2023 and December 31, 2022 is as follows: Schedule of securities amortized cost and estimated fair value Gross Gross Amortized Amortized Unrealized Unrealized Fair (Dollars are in thousands) Cost Gains Losses Value June 30, 2023 U.S. Treasuries $ 12,648 $ — $ 892 $ 11,756 U.S. Government Agencies 9,407 4 744 8,667 Taxable municipals 23,000 — 5,468 17,532 Corporate bonds 3,505 — 407 3,098 Mortgage backed securities 61,007 — 8,954 52,053 Total securities available-for-sale $ 109,567 $ 4 $ 16,465 $ 93,106 December 31, 2022 U.S. Treasuries $ 12,642 $ — $ 957 $ 11,685 U.S. Government Agencies 10,129 4 734 9,399 Taxable municipals 23,022 — 6,207 16,815 Corporate bonds 3,512 — 376 3,136 Mortgage backed securities 64,419 — 9,378 55,041 Total securities available-for-sale $ 113,724 $ 4 $ 17,652 $ 96,076 14 The following table details unrealized losses and related fair values in the AFS portfolio. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of June 30, 2023 and December 31, 2022. Schedule of fair value and gross unrealized losses on investment securities Less than 12 Months 12 Months or More Total (Dollars are in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses June 30, 2023 U. S. Treasuries $ 1,446 $ 16 $ 10,308 $ 876 $ 11,754 $ 892 U.S. Government Agencies 1,778 50 6,732 694 8,510 744 Taxable municipals 475 25 17,057 5,443 17,532 5,468 Corporate bonds 985 15 2,113 392 3,098 407 Mortgage backed securities 2,287 71 49,766 8,883 52,053 8,954 Total securities available-for-sale $ 6,971 $ 177 $ 85,976 $ 16,288 $ 92,947 $ 16,465 December 31, 2022 U.S. Treasuries $ 4,761 $ 145 $ 6,922 $ 812 $ 11,683 $ 957 U.S. Government Agencies 5,925 348 3,295 386 9,220 734 Taxable municipals 3,689 1,113 13,127 5,094 16,816 6,207 Corporate bonds 2,375 136 761 240 3,136 376 Mortgage backed securities 11,338 861 43,612 8,517 54,950 9,378 Total securities available-for-sale $ 28,088 $ 2,603 $ 67,717 $ 15,049 $ 95,805 $ 17,652 As of June 30, 2023, there were 219 securities in a loss position, of which 202 have been in a loss position for twelve months or more. Management believes that all unrealized losses have resulted from temporary changes in the interest rates and current market conditions and are not a result of credit deterioration. Management does not intend to sell, and it is not likely that the Bank will be required to sell, any of the securities referenced in the table above before recovery of their amortized cost. None of the individual securities are past due as to principal or interest payments and a number of these securities have explicit or implicit payment guarantees. The remaining securities have credit ratings at or above that necessary to be considered “bank qualified”. Investment securities with a carrying value of $ 36.9 million and $ 27.3 million as of June 30, 2023 and December 31, 2022, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law. There were no sales of available-for-sale investment securities during the three and six months ended June 30, 2023 and 2022. The amortized cost and fair value of investment securities as of June 30, 2023, by contractual maturity, are shown in the following schedule. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Schedule of amortized cost and fair value of investment securities contractual maturity Weighted (Dollars are in thousands) Amortized Fair Average Securities Available-for-Sale Cost Value Yield Due in one year or less $ 2,998 $ 2,951 3.22 % Due after one year through five years 15,295 14,351 2.15 % Due after five years through ten years 17,145 14,891 2.09 % Due after ten years 74,129 60,913 1.90 % Total $ 109,567 $ 93,106 2.00 % The Bank, as a member bank of the Federal Reserve Bank of Richmond (Federal Reserve Bank) and the Federal Home Loan Bank of Atlanta (FHLB), is required to hold stock in each. The Bank also owns stock in CBB Financial Corp., which is a correspondent of the Bank. These equity securities, which are included in other assets on the consolidated balance sheet, are restricted from trading and are recorded at a cost of $ 2.4 million and $ 2.1 million as of June 30, 2023 and December 31, 2022, respectively. The stock has no quoted market value and no ready market exists. When evaluating these securities for impairment, their value is determined based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value. Equity securities are viewed as long-term investments and management believes the Company has the ability and the intent to hold these securities until their value is recovered 15 NOTE 6 LOANS Loans receivable outstanding as of June 30, 2023, and December 31, 2022, are summarized as follows: Schedule of Loans receivable outstanding (Dollars are in thousands) June 30, 2023 December 31, 2022 Real estate secured: Commercial $ 209,780 $ 197,069 Construction and land development 43,279 42,470 Residential 1-4 family 231,626 227,232 Multifamily 34,140 29,710 Farmland 17,628 17,744 Total real estate loans 536,453 514,225 Commercial 47,720 46,697 Agriculture 3,607 3,756 Consumer installment loans 20,651 19,309 All other loans 607 626 Total loans $ 609,038 $ 584,613 Also included in total loans above are deferred loan fees of $ 1.7 million and $ 1.6 million as of June 30, 2023 and December 31, 2022, respectively. Deferred loan costs were $ 1.9 million and $ 1.9 million, as of June 30, 2023 and December 31, 2022, respectively. Income from net deferred fees and costs is recognized over the lives of the respective loans as a yield adjustment. If loans repay prior to scheduled maturities, any unamortized fee or costs is recognized at that time. Loans receivable on nonaccrual status as of June 30, 2023, and December 31, 2022, are summarized as follows: Summary of loans receivable on nonaccrual status CECL Incurred Loss June 30, 2023 December 31, 2022 (Dollars are in thousands) With No Allowance With an Allowance Total Real estate secured: Commercial $ - $ 268 $ 268 $ - Construction and land development - - - 471 Residential 1-4 family 2,097 - 2,097 2,597 Multifamily 199 - 199 268 Farmland - - - 41 Total real estate loans 2,296 268 2,564 3,377 Commercial - - - - Consumer installment loans and other loans 23 - 23 36 Total loans receivable on nonaccrual status $ 2,319 $ 268 $ 2,587 $ 3,413 Total interest income not recognized on nonaccrual loans for the six months ended June 30, 2023, and June 30, 2022, was $28,000 and $11,000, respectively. Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreements. Impaired loans include loans on nonaccrual status and accruing troubled debt restructurings. When determining if the Company would be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement, the Company considered the borrower’s capacity to pay, which included such factors as the borrower’s current financial statements, an analysis of global cash flow sufficient to pay all debt obligations and an evaluation of secondary sources of repayment, such as guarantor support and collateral value. The Company individually assessed for impairment all nonaccrual loans greater than $250,000 and all troubled debt restructurings, whether or not currently classified as such. The tables below include all loans deemed impaired, whether or not individually assessed for impairment. If a loan was deemed impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral. Interest payments on impaired loans were typically applied to principal unless collectability of the principal amount was reasonably assured, in which case interest was recognized on a cash basis. 16 The following table presents loans individually evaluated for impairment by class of loans as of December 31, 2022: Schedule of summary of impaired loans As of December 31, 2022 (Dollars are in thousands) Recorded Investment Unpaid Principal Balance Related Allowance Average Recorded Investment With no related allowance recorded: Real estate secured: Commercial $ 90 $ 131 $ — $ 124 Construction and land development 471 491 — 114 Residential 1-4 family 1,617 1,972 — 1,585 Multifamily — — — — Farmland 248 417 — 307 Commercial 23 31 — 14 Agriculture — — — — Consumer installment loans — — — 1 All other loans — — — — With an allowance recorded: Real estate secured: Commercial 268 338 63 407 Construction and land development — — — 291 Residential 1-4 family 32 48 23 201 Multifamily — — — 20 Farmland — — — 63 Commercial — — — 27 Agriculture — — — — Consumer installment loans — — — — All other loans — — — — Total $ 2,749 $ 3,428 $ 86 $ 3,154 Upon adoption of ASU 2016-13 the Company began evaluating loans that do not share risk characteristics on an individual basis utilizing the collateral or discounted cash flow methods as described in Note 2 Summary of Significant Accounting Policies. The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to those loans as June 30, 2023: As of June 30, 2023 (Dollars are in thousands) Unpaid Principal Balance Related Allowance Real estate secured: Commercial $ 268 $ 64 Construction and land development — — Residential 1-4 family 262 — Multifamily — — Farmland — — Total real estate secured 530 64 Commercial — — Agriculture 109 57 Consumer installment loans — — Total $ 639 $ 121 The following table is an age analysis of past due loans receivable as of June 30, 2023, segregated by class: Summary age analysis of past due loans receivable As of June 30, 2023 (Dollars are in thousands) Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 or More Days Past Due Total Past Due Loans Current Loans Total Loans Real estate secured: Commercial $ 99 $ — $ 268 $ 367 $ 209,413 $ 209,780 Construction and land development — — — — 43,279 43,279 Residential 1-4 family 1,450 877 751 3,078 228,548 231,626 Multifamily — — — — 34,140 34,140 Farmland — — — — 17,628 17,628 Total real estate loans 1,549 877 1,019 3,445 533,008 536,453 Commercial 17 — — 17 47,703 47,720 Agriculture 109 — — 109 3,498 3,607 Consumer installment loans 50 17 23 90 20,561 20,651 All other loans — — — — 607 607 Total loans $ 1,725 $ 894 $ 1,042 $ 3,661 $ 605,377 $ 609,038 17 The following table is an age analysis of past due loans receivable as of December 31, 2022, segregated by class: As of December 31, 2022 (Dollars are in thousands) Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 or More Days Past Due Total Past Due Loans Current Loans Total Loans Real estate secured: Commercial $ 268 $ — $ — $ 268 $ 196,801 $ 197,069 Construction and land development 89 — — 89 42,381 42,470 Residential 1-4 family 3,521 543 341 4,405 222,827 227,232 Multifamily 229 — — 229 29,481 29,710 Farmland 285 — — 285 17,459 17,744 Total real estate loans 4,392 543 341 5,276 508,949 514,225 Commercial 56 — — 56 46,641 46,697 Agriculture — — — — 3,756 3,756 Consumer installment Loans 73 17 17 107 19,202 19,309 All other loans 59 — — 59 567 626 Total loans $ 4,580 $ 560 $ 358 $ 5,498 $ 579,115 $ 584,613 The Company categorizes loans receivable into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans receivable as to credit risk. The Company uses the following definitions for risk ratings: Pass - Loans in this category are considered to have a low likelihood of loss based on relevant information analyzed about the ability of the borrowers to service their debt and other factors. Special Mention - Loans in this category are currently protected but are potentially weak, including adverse trends in borrower’s operations, credit quality or financial strength. Those loans constitute an undue and unwarranted credit risk but not to the point of justifying a substandard classification. The credit risk may be relatively minor yet constitute an unwarranted risk in light of the circumstances. Special mention loans have potential weaknesses which may, if not checked or corrected, weaken the loan or inadequately protect the Company’s credit position at some future date. Substandard - A substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful - Loans classified doubtful have all the weaknesses inherent in loans classified as substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. 18 The following table present the credit risk grade of loans by origination year as of June 30, 2023: Summary of risk category of loans receivable As of June 30, 2023 Dollars are in thousands 2023 2022 2021 2020 2019 Prior Revolving Total Commercial real estate Pass $ 17,674 $ 43,891 $ 47,305 $ 30,822 $ 21,812 $ 46,866 $ 1,042 $ 209,412 Special mention — — — — — 99 — 99 Substandard — — — — — 269 — 269 Total commercial real estate $ 17,674 $ 43,891 $ 47,305 $ 30,822 $ 21,812 $ 47,234 $ 1,042 $ 209,780 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Construction and Land Development Pass $ 4,944 $ 19,547 $ 9,988 $ 4,603 $ 1,453 $ 2,127 $ 71 $ 42,733 Special mention — — — — 436 110 — 546 Substandard — — — — — — — — Total construction and land development $ 4,944 $ 19,547 $ 9,988 $ 4,603 $ 1,889 $ 2,237 $ 71 $ 43,279 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Residential 1-4 family Pass $ 13,532 $ 33,923 $ 44,183 $ 14,297 $ 14,548 $ 88,856 $ 19,901 $ 229,240 Special mention — — — — — 313 — 313 Substandard — — 202 — 40 1,762 69 2,073 Total residential 1-4 family $ 13,532 $ 33,923 $ 44,385 $ 14,297 $ 14,588 $ 90,931 $ 19,970 $ 231,626 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Multifamily Pass $ 4,178 $ 12,021 $ 8,273 $ 2,689 $ 1,106 $ 5,674 $ — $ 33,941 Special mention — — — — — — — — Substandard — — — — — 199 — 199 Total multifamily $ 4,178 $ 12,021 $ 8,273 $ 2,689 $ 1,106 $ 5,873 $ — $ 34,140 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Farmland Pass $ 1,311 $ 2,270 $ 3,602 $ 806 $ 1,233 $ 8,209 $ — $ 17,431 Special mention — — — — 1 196 — 197 Substandard — — — — — — — — Total farmland $ 1,311 $ 2,270 $ 3,602 $ 806 $ 1,234 $ 8,405 $ — $ 17,628 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Commercial Pass $ 8,684 $ 12,819 $ 6,736 $ 1,972 $ 2,621 $ 7,218 $ 7,667 $ 47,717 Special mention — — — — — 3 — 3 Substandard — — — — — — — — Total commercial $ 8,684 $ 12,819 $ 6,736 $ 1,972 $ 2,621 $ 7,221 $ 7,667 $ 47,720 Current period gross charge-offs $ — $ ( 5 ) $ — $ — $ — $ — $ — $ ( 5 ) Agriculture Pass $ 274 $ 639 $ 425 $ 209 $ 112 $ 814 $ 1,134 $ 3,607 Special mention — — — — — — — — Substandard — — — — — — — — Total agriculture $ 274 $ 639 $ 425 $ 209 $ 112 $ 814 $ 1,134 $ 3,607 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — Consumer and All Other Pass $ 5,555 $ 6,869 $ 3,293 $ 1,242 $ 857 $ 1,359 $ 2,058 $ 21,233 Special mention — 2 — — — — — 2 Substandard — 4 — — — 19 — 23 Total consumer and all other $ 5,555 $ 6,875 $ 3,293 $ 1,242 $ 857 $ 1,378 $ 2,058 $ 21,258 Current period gross charge-offs $ ( 97 ) $ ( 34 ) $ ( 5 ) $ — $ — $ ( 37 ) $ — $ ( 173 ) Total $ 56,152 $ 131,985 $ 124,007 $ 56,640 $ 44,219 $ 164,093 $ 31,942 $ 609,038 Total current period gross charge-offs $ ( 97 ) $ ( 39 ) $ ( 5 ) $ — $ — $ ( 37 ) $ — $ ( 178 ) 19 The following table presents the credit risk grade of loans as of December 31, 2022, prior to the adoption of ASU 2016-13, under the incurred loss model: As of December 31, 2022 (Dollars are in thousands) Pass Special Mention Substandard Doubtful Total Real estate secured: Commercial $ 195,376 $ 1,425 $ 268 $ — $ 197,069 Construction and land development 41,882 117 471 — 42,470 Residential 1-4 family 224,228 406 2,598 — 227,232 Multifamily 29,503 207 — — 29,710 Farmland 16,848 855 41 — 17,744 Total real estate loans 507,837 3,010 3,378 — 514,225 Commercial 46,471 226 — — 46,697 Agriculture 3,756 — — — 3,756 Consumer installment loans 19,272 2 35 — 19,309 All other loans 626 — — — 626 Total $ 577,962 $ 3,238 $ 3,413 $ — $ 584,613 NOTE 7 ALLOWANCE FOR CREDIT LOSSES FOR LOANS (“ACLL”) In determining the amount of our allowance for credit losses, we rely on an analysis of our loan portfolio, our experience and our evaluation of general economic conditions. If our assumptions prove to be incorrect, our current allowance may not be sufficient to cover future loan losses and we may experience significant increases to our provision. The following table presents a disaggregated analysis of activity in the allowance for credit losses as of June 30, 2023: Schedule of allocation of portion of allowance Real estate secured (Dollars are in thousands) Commercial Construction and Land Development Residential 1-4 family Multifamily Farmland Commercial Agriculture Consumer and All Other Unallocated Total Six months ended June 30, 2023 Beginning balance $ 2,364 $ 345 $ 2,364 $ 262 $ 153 $ 381 $ 32 $ 386 $ 440 $ 6,727 Adjustment to allowance for adoption of ASU 2016-13 ( 299 ) 164 275 12 75 241 ( 5 ) ( 103 ) ( 440 ) ( 80 ) Charge-offs — — — — — ( 5 ) — ( 173 ) — ( 178 ) Recoveries — 16 15 — — 1 — 97 — 129 Provision for credit losses 212 ( 27 ) ( 71 ) 16 ( 36 ) ( 42 ) 58 106 — 216 Ending balance $ 2,277 $ 498 $ 2,583 $ 290 $ 192 $ 576 $ 85 $ 313 $ — $ 6,814 Three months ended June 30, 2023 Beginning balance $ 2,157 $ 472 $ 2,619 $ 302 $ 192 $ 588 $ 31 $ 300 $ — $ 6,661 Charge-offs — — — — — — — ( 95 ) — ( 95 ) Recoveries — 11 6 — — — — 39 — 56 Provision for credit losses 120 15 ( 42 ) ( 12 ) — ( 12 ) 54 69 — 192 Ending balance $ 2,277 $ 498 $ 2,583 $ 290 $ 192 $ 576 $ 85 $ 313 $ — $ 6,814 20 The following tables present a disaggregated analysis of activity in the allowance for loan losses, for comparative periods, prior to the adoption of ASU 2016-13: Real estate secured (Dollars are in thousands) Commercial Construction and Land Development Residential 1-4 family Multifamily Farmland Commercial Agriculture Consumer and All Other Unallocated Total Year ended December 31, 2022 Beginning balance $ 2,134 $ 189 $ 2,237 $ 254 $ 149 $ 1,099 $ 28 $ 108 $ 537 $ 6,735 Charge-offs ( 5 ) ( 149 ) ( 64 ) ( 111 ) ( 1 ) ( 45 ) ( 1 ) ( 559 ) — ( 935 ) Recoveries 33 6 100 2 14 31 1 115 — 302 Provision 202 299 91 117 ( 9 ) ( 704 ) 4 722 ( 97 ) 625 Ending balance $ 2,364 $ 345 $ 2,364 $ 262 $ 153 $ 381 $ 32 $ 386 $ 440 $ 6,727 Allowance for loan losses at December 31, 2022 Individually evaluated for impairment $ 63 $ — $ 23 $ — $ — $ — $ — $ — $ — $ 86 Collectively evaluated for impairment 2,301 345 2,341 262 153 381 32 386 440 6,641 $ 2,364 $ 345 $ 2,364 $ 262 $ 153 $ 381 $ 32 $ 386 $ 440 $ 6,727 Loans at December 31, 2022 Individually evaluated for impairment $ 358 $ 471 $ 1,649 $ — $ 248 $ 23 $ — $ — $ — $ 2,749 Collectively evaluated for impairment 196,711 41,999 225,583 29,710 17,496 46,965 3,756 19,644 — 581,864 $ 197,069 $ 42,470 $ 227,232 $ 29,710 $ 17,744 $ 46,988 $ 3,756 $ 19,644 $ — $ 584,613 Real estate secured (Dollars are in thousands) Commercial Construction and Land Development Residential 1-4 family Multifamily Farmland Commercial Agriculture Consumer and All Other Unallocated Total For the six months ended June 30, 2022 Beginning balance $ 2,134 $ 189 $ 2,237 $ 254 $ 149 $ 1,099 $ 28 $ 108 $ 537 $ 6,735 Charge-offs — — ( 24 ) ( 61 ) — ( 28 ) — ( 45 ) — ( 158 ) Recoveries — — 22 — — 14 — 28 — 64 Provision 28 261 4 215 ( 8 ) ( 232 ) 1 79 ( 173 ) 175 Ending balance $ 2,162 $ 450 $ 2,239 $ 408 $ 141 $ 853 $ 29 $ 170 $ 364 $ 6,816 For the three months ended June 30, 2022 Beginning balance $ 2,132 $ 229 $ 2,198 $ 313 $ 143 $ 1,005 $ 28 $ 112 $ 599 $ 6,759 Charge-offs — — ( 24 ) — — — — ( 31 ) — ( 55 ) Recoveries — — 8 — — 3 — 26 — 37 Provision 30 221 57 95 ( 2 ) ( 155 ) 1 63 ( 235 ) 75 Ending balance $ 2,162 $ 450 $ 2,239 $ 408 $ 141 $ 853 $ 29 $ 170 $ 364 $ 6,816 Allowance for loan losses as of June 30, 2022 Individually evaluated for impairment $ 77 $ 207 $ 47 $ 50 $ — $ — $ — $ — $ — $ 381 Collectively evaluated for impairment 2,085 243 2,192 358 141 853 29 170 364 6,435 $ 2,162 $ 450 $ 2,239 $ 408 $ 141 $ 853 $ 29 $ 170 $ 364 $ 6,816 Loans as of June 30, 2022 Individually evaluated for impairment $ 394 $ 755 $ 1,743 $ 50 $ 281 $ 25 $ — $ — $ — $ 3,248 Collectively evaluated for impairment 196,216 36,935 221,979 37,561 17,774 46,672 3,623 21,623 — 582,383 $ 196,610 $ 37,690 $ 223,722 $ 37,611 $ 18,055 $ 46,697 $ 3,623 $ 21,623 $ — $ 585,631 21 Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. NOTE 8 MODIFICATIONS MADE TO BORROWERS EXPERIENCING FINANCIAL DIFFICULTY The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon asset origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. The Company uses a discounted cash flow methodology to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Company modifies loans by providing principal forgiveness on certain of its real estate loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. In some cases, the Company will modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. There were no loans modified to borrowers experiencing financial difficulty in the three or six months ended June 30, 2023. Additionally, there were no loans that had a payment default during the quarter that were modified in the previous 12 months. Prior to adoption of ASC 2022-02, there were $2.0 million in loans classified as troubled debt restructurings as of December 31, 2022. All loans considered to be troubled debt restructurings are individually evaluated for impairment as part of the allowance for loan losses calculation. No loans modified during the three and six months ended June 30, 2022 were considered to be troubled debt restructurings. For the three and six months ended June 30, 2022, there were no loans modified as a troubled debt restructuring that subsequently defaulted within twelve months of the loan modification. Generally, a restructured troubled debt is considered to be in default once it becomes 90 days or more past due following a modification. NOTE 9 CREDIT ALLOWANCE FOR UNFUNDED COMMITMENTS The Company maintains a separate allowance for credit losses on off-balance-sheet credit exposures, including unfunded loan commitments, which is included in other liabilities on the consolidated balance sheet. The allowance for credit losses for off-balance-sheet credit exposures is adjusted through a provision for credit losses in the income statement. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life, utilizing the same models and approaches for the Company's other loan portfolio segments described above, as these unfunded commitments share similar risk characteristics as its loan portfolio segments. The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that may be drawn prior to the cancellation of the arrangement. On January 1, 2023, the Company recorded an adjustment to initiate an allowance for credit losses for unfunded commitments of $348,000 for the adoption of ASC Topic 326. For the three and six months ended June 30, 2023, the Company recorded a reversal to the provision for credit losses for unfunded commitments of $43,000, and $66,000, respectively. As of June 30, 2023, the liability for credit losses on off-balance-sheet credit exposures included in other liabilities was $282,000. 22 NOTE 10 OTHER REAL ESTATE OWNED The following table summarizes the activity in other real estate owned for the six months ended June 30, 2023, and the year ended December 31, 2022: Schedule of other real estate owned (Dollars are in thousands) June 30, 2023 December 31, 2022 Balance, beginning of period $ 261 $ 1,361 Additions — — Transfers from premises and equipment — — Proceeds from sales — ( 207 ) Loans made to finance sales — ( 711 ) Adjustment of carrying value — ( 197 ) Net gains from sales — 15 Balance, end of period $ 261 $ 261 As of June 30, 2023, four loans totaling $383,000 were in the process of foreclosure. NOTE 11 FAIR VALUES The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures topic of Financial Accounting Standards Board (the FASB) ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market and in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. The fair value guidance provides a consistent definition of fair value, which focuses on exit price in the principal or most advantageous market and in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reported date. Level 2: Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are valued using other financial instruments, the parameters of which can be directly observed. Level 3: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. 23 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 are as follows: Investment Securities Available-for-sale - Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices. The Company’s available-for-sale securities, totaling $ 93.1 million and $ 96.1 million as of June 30, 2023 and December 31, 2022, respectively, are the only assets whose fair values are measured on a recurring basis using Level 2 inputs from an independent pricing service. Collateral Dependent Loans with an ACL - In accordance with ASC 326, we may determine that an individual loan exhibits unique risk characteristics which differentiate it from other loans within our loan pools. In such cases, the loans are evaluated for expected credit losses on an individual basis and excluded from the collective evaluation. Specific allocations of the allowance for credit losses are determined by analyzing the borrower's ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower's industry, among other things. A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. In such cases, expected credit losses are based on the fair value of the collateral at the measurement date, adjusted for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. We reevaluate the fair value of collateral supporting collateral dependent loans on a quarterly basis. The fair value of real estate collateral supporting collateral dependent loans is evaluated by appraisal services using a methodology that is consistent with the Uniform Standards of Professional Appraisal Practice. Other Real Estate Owned –Other real estate owned is adjusted to fair value upon transfer of the loans, or former bank premises, to other real estate owned. These assets are carried at the lower of their carrying value or fair value. Fair value is based upon observable market prices, when available, reduced by estimated disposition costs, which the Company considers to be nonrecurring Level 2 inputs. When observable market prices are not available, management determines the fair value of the foreclosed asset using independent third-party appraisals, evaluated to determine whether or not the property is further impaired below the appraised value, and adjusts for estimated costs of disposition. The Company records foreclosed assets as nonrecurring Level 3. Assets and liabilities measured at fair value are as follows as of June 30, 2023: Schedule of summary of assets and liabilities measured at fair value June 30, 2023 (Dollars are in thousands) Quoted market price in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) (On a recurring basis) Available-for-sale investments U.S. Treasuries $ — $ 11,756 $ — U.S. Government Agencies — 8,667 — Taxable municipals — 17,532 — Corporate bonds — 3,098 — Mortgage-backed securities — 52,053 — (On a non-recurring basis) Other real estate owned — — 261 Collateral dependent loans with ACL: Commercial real estate — — 204 Agriculture — — 52 Total $ — $ 93,106 $ 517 24 Assets and liabilities measured at fair value are as follows as of December 31, 2022 (for purpose of this table the impaired loans are shown net of the related allowance): December 31, 2022 (Dollars are in thousands) Quoted market price in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) (On a recurring basis) Available-for-sale investments U.S. Treasuries $ — $ 11,685 — U.S. Government Agencies — 9,399 $ — Taxable municipals — 16,815 — Corporate bonds — 3,136 — Mortgage-backed securities — 55,041 — (On a non-recurring basis) Other real estate owned — — 261 Impaired loans — — 213 Total $ — $ 96,076 $ 474 For Level 3 assets measured at fair value on a recurring or non-recurring basis as of June 30, 2023 and December 31, 2022, the significant unobservable inputs used in the fair value measurements were as follows: Schedule of significant unobservable inputs In level 3 assets (Dollars are in thousands) Fair Value at June 30, 2023 Fair Value at December 31, 2022 Valuation Technique Significant Unobservable Inputs General Range of Significant Unobservable Input Values Collateral dependent loans with ACL: Appraised Value Discounts to reflect current market conditions, ultimate collectability, and estimated costs to sell 0 – 18 % Commercial real estate $ 204 $ 213 Agriculture 52 — Other Real Estate Owned $ 261 $ 261 Appraised Value/Comparable Sales/Other Estimates from Independent Sources Discounts to reflect current market conditions and estimated costs to sell 0 – 18 % Fair Value of Financial Instruments Fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practical to estimate the value is based upon the characteristics of the instruments and relevant market information. Financial instruments include cash, evidence of ownership in an entity, or contracts that convey or impose on an entity that contractual right or obligation to either receive or deliver cash for another financial instrument. The following summary presents the methodologies and assumptions used to estimate the fair value of the Company’s financial instruments presented below. The information used to determine fair value is highly subjective and judgmental in nature and, therefore, the results may not be precise. Subjective factors include, among other things, estimates of cash flows, risk characteristics, credit quality, and interest rates, all of which are subject to change. Since the fair value is estimated as of the balance sheet date, the amounts that will actually be realized or paid upon settlement or maturity on these various instruments could be significantly different. 25 The carrying amount and fair value of the Company’s financial instruments that are not required to be measured or reported at fair value on a recurring basis as of June 30, 2023, and December 31, 2022, are as follows: Schedule of estimated fair value of financial instruments Fair Value Measurements (Dollars are in thousands) Carrying Amount Fair Value Quoted market price in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) June 30, 2023 Financial instruments – assets Net loans $ 602,224 $ 572,741 $ — $ — $ 572,741 Financial instruments – liabilities Time deposits 220,197 219,049 — 219,049 — Borrowed funds 26,496 23,785 — 23,785 — December 31, 2022 Financial instruments – assets Net loans $ 577,886 $ 552,675 $ — $ 552,462 $ 213 Financial instruments – liabilities Time deposits 188,233 187,179 — 187,179 — Borrowed funds 16,496 14,825 — 14,825 — Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates. Estimated fair values have been determined by the Company using historical data, as generally provided in the Company’s regulatory reports, and an estimation methodology suitable for each category of financial instruments. The Company’s fair value estimates, methods and assumptions are set forth below for the Company’s other financial instruments. The carrying values of cash and due from banks, federal funds sold, interest-bearing deposits, deposits with no stated maturities, trust preferred securities and accrued interest approximates fair value and are excluded from the table above. In accordance with our adoption of Accounting Standards Update (ASU) 2016-01 in 2018, the methods utilized to measure the fair value of financial instruments as of June 30, 2023 and December 31, 2022, represent an approximation of exit price; however, an actual exit price may differ. NOTE 12 LEASING ACTIVITIES As of June 30, 2023, the Bank leases four branch offices and sublets a lot adjacent to another branch office. The lease agreements have maturity dates ranging from May 2032 to December 2041. It is assumed that there are currently no circumstances in which the leases would be terminated prior to expiration. The weighted average remaining life of the lease terms as of June 30, 2023 was 9.11 years. The discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded to the lease term for each transaction. This methodology is expected to be used for any other subsequent lease agreements. The weighted average discount rate for the leases as of June 30, 2023 was 3.29 % . For the six months ended June 30, 2023 and 2022, operating lease expenses were $ 224,000 and $ 228,000 , respectively. The Company’s other operating leases were evaluated and determined to be immaterial to the financial statements. As of June 30, 2023, future minimum rental commitments under the non-cancellable operating leases discussed above are as follows (dollars are in thousands): Schedule of future minimum rental commitments under the non-cancellable operating leases 2023 $ 228 2024 456 2025 456 2026 456 2027 477 Thereafter 2,226 Total lease payments 4,299 Less: imputed interest ( 742 ) Total $ 3,557 26 NOTE 13 BORROWED FUNDS Included in Borrowed Funds is an FHLB Advance of $ 10.0 million as of June 30, 2023, bearing an interest rate of 3.51 % maturing on May 4, 2028 . No FHLB Advances were outstanding at December 31, 2022. For additional information on borrowed funds, refer to Note 18 in Item 8 of Form 10-K for the year ended December 31, 2022. NOTE 14 REVENUE FROM CONTRACTS WITH CUSTOMERS All our revenue from contracts with customers as defined in ASC 606 is recognized within noninterest income. Refer to Note 23 in our Annual Report on Form 10-K for the year ended December 31, 2022 for a description of how each revenue stream is accounted for under ASC 606. The following table presents noninterest income by revenue stream for the three and six months ended June 30, 2023 and 2022: Schedule of revenue from contracts with customers For the three months ended For the six months ended June 30, June 30, (Dollars are in thousands) 2023 2022 2023 2022 Service charges and fees $ 961 $ 897 $ 1,877 $ 1,904 Card processing and interchange income 943 1,027 1,842 1,943 Insurance and investment fees 306 242 563 483 Other noninterest income 194 182 520 387 Total noninterest income $ 2,404 $ 2,348 $ 4,802 $ 4,717 NOTE 15 NONINTEREST EXPENSES Other operating expenses, included as part of noninterest expenses, consisted of the following for the periods presented: Schedule of noninterest expenses For the three months ended June 30, For the six months ended June 30, (Dollars are in thousands) 2023 2022 2023 2022 Advertising $ 70 $ 64 $ 107 $ 92 ATM network expense 370 380 730 747 Legal, accounting and professional fees 325 257 660 488 Consulting fees 41 62 132 129 Loan related expenses 127 103 216 200 Printing and supplies 48 39 90 72 FDIC insurance premiums 88 54 176 103 Other real estate owned expenses, net 10 15 16 145 Other operating expenses 710 684 1,378 1,286 Total other operating expenses $ 1,789 $ 1,658 $ 3,505 $ 3,262 NOTE 16 RECENT ACCOUNTING DEVELOPMENTS The following is a summary of recent authoritative announcements: In June 2016, per ASU No. 2016-13, ‘Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,’ the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The Company adopted this guidance on January 1, 2023. The Company recognized an adjustment to retained earnings in the amount of $212,000, and recorded an adjustment to the allowance for credit losses in loans and unfunded commitments on loans in the amount of $80,000 and $348,000, respectively. In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company does not expect the adoption of ASU 2022-03 to have a material impact on its consolidated financial statements. 27 In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. For entities that have adopted ASU 2016-13, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted ASU 2016-13, the effective dates for ASU 2022-02 are the same as the effective dates in ASU 2016-13. Early adoption is permitted if an entity has adopted ASU 2016-13. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company adopted this guidance on January 1, 2023 and it did not have a material impact on the consolidated financial statements. In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”. ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023. To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The ASU is effective for all entities upon issuance. The Company is assessing ASU 2022-06 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments that have not already been transitioned to an alternative reference rate. In July 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)”. This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. ASU 2023-03 is effective upon addition to the FASB Codification. The Company does not expect the adoption of ASU 2023-03 to have a material impact on its consolidated financial statements. Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows. 28