What changed in this filing

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Item 1. Financial Statements

2024-05-15 compared with 2023-11-14 · 262 added, 581 removed, 607 unchanged (58% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE

SEPTEMBER 30, 2023

MARCH 31, 2024

AND DECEMBER 31, 2023

THOUSANDS EXCEPT PER SHARE AND SHARE DATA)

September 30,

and due from banks

14 unchanged sentences

SHAREHOLDERS’

Common stock - $ 2.00 par

Common stock - $ 2.00 par value;

50,000,000 shares authorized;

23,711,787 and 23,745,900 shares issued and outstanding at

September 30, 2023 and December 31, 2022, respectively

March 31, 2024 and December 31, 2023, respectively

paid-in-capital

6 unchanged sentences

STATEMENTS OF INCOME

FOR THE THREE AND

NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

FOR THE THREE MONTHS

ENDED MARCH 31, 2024 AND 2023

THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

8 unchanged sentences

INTEREST INCOME

FOR CREDIT LOSSES

OF) PROVISION FOR CREDIT LOSSES

INTEREST INCOME AFTER

FOR CREDIT LOSSES

OF) PROVISION FOR CREDIT LOSSES

charges and fees

processing and interchange

and investment fees

services fees

gain on sale and disposal of premises and equipment

noninterest income

11 unchanged sentences

CONSOLIDATED STATEMENTS

OF COMPREHENSIVE (LOSS) INCOME

FOR THE THREE AND

NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

the Three Months Ended

September 30,

the Nine Months Ended

September 30,

OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS

ENDED MARCH 31, 2024 AND 2023

the Three Months Ended March 31,

comprehensive (loss) income:

securities activity

losses arising during the period

OTHER COMPREHENSIVE LOSS

COMPREHENSIVE (LOSS) INCOME

(losses) gains arising during the period

tax benefit (expense)

OTHER COMPREHENSIVE (LOSS) INCOME

COMPREHENSIVE INCOME

The accompanying notes

3 unchanged sentences

OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE AND

NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

FOR THE THREE MONTHS

ENDED MARCH 31, 2024 AND 2023

(IN THOUSANDS INCLUDING

3 unchanged sentences

Shareholders’ Equity

Balance, June

comprehensive loss, net of tax

of common stock

Balance, September 30,

Balance, December

comprehensive loss, net of tax

Adoption of ASU 2016-13

comprehensive income, net of tax

Cash dividend declared

1 unchanged sentence

of common stock

Balance, September 30,

Balance, June 30, 2023

comprehensive loss, net of tax

of common stock

September 30, 2023

Balance, March 31, 2023

Balance, December 31, 2023

Adoption of ASU 2016-13

comprehensive loss, net of tax

Cash dividend declared

($0.07 per share)

of common stock

dividend declared ($0.06 per share)

September 30, 2023

March 31, 2024

The accompanying notes

3 unchanged sentences

OF CASH FLOWS

FOR THE NINE MONTHS

ENDED SEPTEMBER 30, 2023 AND 2022

FOR THE THREE MONTHS

ENDED MARCH 31, 2024 AND 2023

FLOWS FROM OPERATING ACTIVITIES

1 unchanged sentence

operating activities:

for credit losses

(loss) on bank owned life insurance

of) provision for credit losses

on bank owned life insurance

on sale of mortgage loans

(loss) on sale or disposal of premises and equipment

on sale of other real estate owned

(gain) on sale or disposal of premises and equipment

originated for sale

from sales of loans originated for sale

of carrying value of other real estate owned

Net amortization/accretion

6 unchanged sentences

FLOWS FROM INVESTING ACTIVITIES

Net (increase)

decrease in loans

of securities available-for-sale

from repayments and maturities of securities available-for-sale

of equity securities (restricted)

Net (purchase)

redemption of equity securities (restricted)

for the purchase of premises and equipment

from sale of premises and equipment

from sales of other real estate owned

cash (used in) provided by investing activities

cash used in investing activities

FLOWS FROM FINANCING ACTIVITIES

in short term borrowings

of long-term debt

in noninterest bearing deposits

2 unchanged sentences

cash provided by financing activities

Net (decrease)

increase in cash and cash equivalents

in cash and cash equivalents

and cash equivalents, beginning of the period

2 unchanged sentences

disclosure of non-cash transactions:

made to finance sale of other real estate owned

in unrealized losses on securities available-for-sale

24 unchanged sentences

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 September 30, 2023 and December 31, 2022, and the results of

operations for the three- and nine-month periods ended September 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.

necessary to present fairly the Company’s financial position as of March 31, 2024 and December 31, 2023, and the results of operations

for the three-month periods ended March 31, 2024 and 2023.

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, 2023.

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

23 unchanged sentences

31, 2023 except for the following:

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

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.

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.

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.

upon adoption of ASC 326, the Company determined that an allowance for credit losses on available-for-sale securities was not deemed

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

As Reported Under ASC 326

31, 2022 Pre-ASC 326 Adoption

of ASC 326 Adoption

in thousands)

at amortized cost

for credit losses on loans:

estate secured:

and land development

real estate loans

and other loans

allowance for credit losses for loans

for credit losses for unfunded commitments

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

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.

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

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 September 30, 2023, there was no allowance for credit loss related to the available-for-sale

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 $2.2 million at September 30, 2023 and was reported in accrued interest receivable on the consolidated balance

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:

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:

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.

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

· Construction

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.

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.

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.

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”).

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

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

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 TDRs 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.

Accounting Standards

Adopted in 2024 –

In March 2023, the

Financial Accounting Standards Board (FASB) issued ASU 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” These amendments allow reporting

entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program

giving rise to the related income tax credits.

ASU 2023-02 was effective for the Company on January 1, 2024.

The adoption of ASU 2023-02

had no material impact on the consolidated financial statements.

In March 2023, the

Financial Accounting Standards Board (FASB) issued ASU 2023-01, “Leases (Topic 842):

Common Control Arrangements.” These

amendments require entities to amortize leasehold improvements associated with common control leases over the useful life to the common

control group.

ASU 2023-01 was effective for the Company on January 1, 2024.

The adoption of ASU 2023-01 had no material impact on the

consolidated financial statements.

In June 2022, the

Financial Accounting Standards Board (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

ASU 2022-03 was effective for the Company on January 1, 2024.

The adoption of ASU 2022-03 had no material impact on the consolidated

financial statements.

In August 2020, the

Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2020-06 “Debt – Debt with Conversion

and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):

for Convertible Instruments and Contracts in an Entity’s Own Equity.” The ASU simplifies accounting for convertible instruments

by removing major separation models required under current U.S.

Consequently, more convertible debt instruments will be reported

as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded

conversion features.

The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative

scope exception, which will permit more equity contracts to qualify for it.

The ASU also simplifies the diluted earnings per share (EPS)

calculation in certain areas.

In addition, the amendment updates the disclosure requirements for convertible instruments to increase

the information transparency.

ASU 2020-06 was effective for the Company on January 1, 2024.

The adoption of ASU 2020-06 had no material

impact on the consolidated financial statements.

NOTE 3 EARNINGS

4 unchanged sentences

For the three-month

and nine-month periods ended September 30, 2023 and 2022, there were no potential common shares.

Basic and diluted net income per common

share calculations follows:

periods ended March 31, 2024 and 2023, there were no potential common shares.

Basic and diluted net income per common share calculations

Schedule of basic and diluted net loss per common share calculations

2 unchanged sentences

the three months

ended September 30,

the nine months

ended September 30,

ended March 31,

average shares outstanding

22 unchanged sentences

The capital conservation buffer required is 2.50%.

At September 30, 2023, the Bank had a capital conservation buffer

At March 31, 2024, the Bank had a capital conservation buffer of 8.54%.

Amounts recorded to accumulated other comprehensive income (loss) are not included in computing regulatory capital.

believes as of September 30, 2023, the Bank met all capital adequacy requirements to which it was subject.

Management believes

as of March 31, 2024, the Bank met all capital adequacy requirements to which it was subject.

Prompt corrective

1 unchanged sentence

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.

At September 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.

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.

At March 31, 2024, 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.

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.

rule was adopted and became effective in September 2020.

The Company implemented the CECL model commending January 1, 2023, and elected

not to phase in the effect of CECL on regulatory capital.

actual capital amounts and ratios are presented in the following table as of September 30, 2023 and December 31, 2022, respectively.

Schedule of capital requirements

to phase in over a three-year period the Day 1 adverse regulatory capital effects of the Current Expected Credit Loss (“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.

actual capital amounts and ratios are presented in the following table as of March 31, 2024 and December 31, 2023, respectively.

Capital Requirement

1 unchanged sentence

in thousands)

September 30,

March 31, 2024:

capital to risk weighted assets

10 unchanged sentences

The amortized cost and estimated fair

value of available-for-sale (“AFS”) securities as of September 30, 2023 and December 31, 2022 are as follows:

value of available-for-sale (“AFS”) securities as of March 31, 2024 and December 31, 2023 are as follows:

Schedule of securities amortized cost and estimated fair value

in thousands)

September 30, 2023

March 31, 2024

Government Agencies

7 unchanged sentences

This information is aggregated by the length of time that individual

securities have been in a continuous unrealized loss position as of September 30, 2023 and December 31, 2022.

securities have been in a continuous unrealized loss position as of March 31, 2024 and December 31, 2023.

Schedule of fair value and gross unrealized losses on investment securities

8 unchanged sentences

securities available-for-sale

As of September 30,

As of March 31, 2024,

there were 212 securities in a loss position, of which 209 have been in a loss position for twelve months or more.

9 unchanged sentences

Investment securities

with a carrying value of $ 35.3 million and $ 27.3 million as of September 30, 2023 and December 31, 2022, respectively, were pledged as

collateral to secure public deposits and for other purposes required or permitted by law.

with a carrying value of $36.0 million and $36.8 million as of March 31, 2024 and December 31, 2023, 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 nine months ended September 30, 2023 and 2022.

of available-for-sale investment securities during the three months ended March 31, 2024 and 2023.

The amortized cost

and fair value of investment securities as of September 30, 2023, by contractual maturity, are shown in the following schedule.

and fair value of investment securities as of March 31, 2024, by contractual maturity, are shown in the following schedule.

maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without

1 unchanged sentence

Schedule of amortized cost and fair value of investment securities contractual maturity

(Dollars in thousands)

Securities Available-for-Sale

in thousands)

Available-for-Sale

in one year or less

one year through five years

five years through ten years

after one year through five years

after five years through ten years

after ten years

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.

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 $ 2.7 million

and $ 2.1 million as of September 30, 2023 and December 31, 2022, respectively.

The stock has no quoted market value and no ready market

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.

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 $2.7

million and $2.7 million as of March 31, 2024 and December 31, 2023, 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.

Loans receivable

outstanding as of September 30, 2023, and December 31, 2022, are summarized as follows:

Schedule of Loans receivable outstanding

outstanding as of March 31, 2024, and December 31, 2023, are summarized as follows:

Summary of loans receivable outstanding

in thousands)

4 unchanged sentences

Also included in

total loans above are deferred loan fees of $1.8 million and $1.6 million as of September 30, 2023 and December 31, 2022, respectively.

Deferred loan costs were $2.0 million and $1.9 million, as of September 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.

total loans above are deferred loan fees of $1.8 million and $1.8 million as of March 31, 2024 and December 31, 2023, respectively.

loan costs were $2.0 million and $2.0 million, as of March 31, 2024 and December 31, 2023, 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 September 30, 2023, and December 31, 2022, are summarized as follows:

on nonaccrual status as of March 31, 2024, and December 31, 2023, are summarized as follows:

Summary of loans receivable on nonaccrual status

in thousands)

(Dollars in thousands)

estate secured:

and land development

real estate loans

2 unchanged sentences

Total interest income

not recognized on nonaccrual loans for the nine months ended September 30, 2023, and September 30, 2022, was $33,000 and $22,000, 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 included 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.

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.

The following table

presents loans individually evaluated for impairment by class of loans as of December 31, 2022:

not recognized on nonaccrual loans for the three months ended March 31, 2024, and March 31, 2023, was $26,000 and $13,000, respectively.

The Company evaluates

loans that do not share risk characteristics on an individual basis utilizing the collateral or discounted cash flow methods.

The following

table presents the unpaid principal balance of collateral dependent loans, which are individually evaluated to determine expected credit

losses, and the related ACL allocated to those loans as March 31, 2024 and December 31, 2023:

Schedule of summary of impaired loans

of December 31, 2022

in thousands)

Principal Balance

no related allowance recorded:

estate secured:

and land development

installment loans

an allowance recorded:

estate secured:

and land development

installment loans

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 September 30, 2023:

of September 30, 2023

in thousands)

Principal Balance

(Dollars in thousands)

estate secured:

and land development

real estate secured

installment loans

real estate loans

The following table

is an age analysis of past due loans receivable as of September 30, 2023, segregated by class:

Summary age analysis of past due loans receivable

is an age analysis of past due loans receivable as of March 31, 2024, segregated by class:

in thousands)

31 unchanged sentences

on the basis of currently existing facts, conditions, and values highly questionable and improbable.

The following table

presents the credit risk grade of loans by origination year as of September 30, 2023:

Summary of risk category of loans receivable

As of September 30, 2023

The following table presents the credit

risk grade of loans by origination year as of March 31, 2024:

As of March 31, 2024

are in thousands)

14 unchanged sentences

current period gross charge-offs

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:

of December 31, 2022

in thousands)

estate secured:

The following table

presents the credit risk grade of loans by origination year as of December 31, 2023:

As of December

(Dollars are in thousands)

commercial real estate

period gross charge-offs

and Land Development

real estate loans

installment loans

construction and land development

period gross charge-offs

residential 1-4 family

period gross charge-offs

and All Other

consumer and all other

period gross charge-offs

Total current period gross charge-offs

NOTE 7 ALLOWANCE

6 unchanged sentences

The following

table presents a disaggregated analysis of activity in the allowance for credit losses for loans as of September 30, 2023:

Schedule of allocation of portion of allowance

table presents a disaggregated analysis of activity in the allowance for credit losses for loans as of March 31, 2024 and December 31,

estate secured

are in thousands)

(Dollars are in thousands)

and Land Development

and All Other

Nine months ended

September 30, 2023

Beginning balance

Adjustment to allowance for

adoption of ASU 2016-13

for credit losses

Ending balance

Three months ended September

Three months ended March

Beginning balance

for credit losses

Provision for credit losses

Ending balance

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:

estate secured

are in thousands)

in thousands)

and Land Development

2 unchanged sentences

Beginning balance

Ending balance

for loan losses at December 31, 2022

Individually evaluated for

evaluated for impairment

Loans at December 31, 2022

Individually evaluated for

evaluated for impairment

estate secured

are in thousands)

and Land Development

and All Other

Nine months ended September

Beginning balance

Ending balance

Three months ended September

Beginning balance

Adjustment to allowance for adoption of ASU 2016-13

Provision for credit losses

Ending balance

Allowance for loan losses

as of June 30, 2022

Individually evaluated for

evaluated for impairment

Loans as of September 30,

Individually evaluated for

evaluated for impairment

Allocation of

a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

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

22 unchanged sentences

may be granted.

There were no loans

modified to borrowers experiencing financial difficulty in the three or nine months ended September 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.

loans modified during the three and nine months ended September 30, 2022 were considered to be troubled debt restructurings.

During the three

months ended September 30, 2022, one loan modified as a troubled debt restructuring totaling $6,000 defaulted within twelve months of

the loan modification.

During the nine months ended September 30, 2022, two loans modified as troubled debt restructurings totaling $73,000

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.

There were no

loans modified to borrowers experiencing financial difficulty in the three months ended March 31, 2024 and March 31, 2023,

respectively.

Additionally, there were no loans that had a payment default during the three months ended March 31, 2024 and March

31, 2023, respectively that were modified in the previous 12 months.

NOTE 9 CREDIT

ALLOWANCE FOR UNFUNDED COMMITMENTS

ALLOWANCE FOR UNFUNDED COMMITMENT S

The Company maintains

12 unchanged sentences

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 nine months ended September 30, 2023, the Company recorded a reversal to the provision for credit losses

for unfunded commitments of $6,000, and $73,000, respectively.

As of September 30, 2023, the liability for credit losses on off-balance-sheet

credit exposures included in other liabilities was $275,000.

As of March 31, 2024

and December 31, 2023, the liability for credit losses on off-balance-sheet credit exposures included in other liabilities was $238,000

and $285,000, respectively.

During the three months ended March 31, 2024, a recovery totaling $47,000 was included in the (Recovery of)

Provision for Credit Losses.

NOTE 10 OTHER

REAL ESTATE OWNED

REAL ESTATE OWNE D

The following table

summarizes the activity in other real estate owned for the nine months ended September 30, 2023, and the year ended December 31, 2022:

Schedule of other real estate owned

summarizes the activity in other real estate owned for the three months ended March 31, 2024, and the year ended December 31, 2023:

in thousands)

beginning of period

from premises and equipment

from insurance claims

made to finance sales

of carrying value

gains from sales

end of period

As of September 30, 2023, two loans totaling

$109,145 were in the process of foreclosure.

As of March 31, 2024 six loans totaling

$516,000 were in the process of foreclosure, of which five loans totaling $242,000 were secured by residential real estate.

NOTE 11 FAIR VALUES

42 unchanged sentences

is based upon quoted prices.

The Company’s available-for-sale securities, totaling $ 87.5 million and $ 96.1 million as of September

The Company’s available-for-sale securities, totaling $89.0 million and $89.8 million as of March

31, 2024 and December 31, 2023, respectively, are the only assets whose fair values are measured on a recurring basis using Level 2 inputs

26 unchanged sentences

Assets and liabilities

measured at fair value are as follows as of September 30, 2023:

Schedule of summary of assets and liabilities measured at fair value

measured at fair value are as follows as of March 31, 2024 and December 31, 2023:

in thousands)

9 unchanged sentences

dependent loans with ACL:

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

in thousands)

8 unchanged sentences

Other real estate owned

dependent loans with ACL:

For Level 3 assets

measured at fair value on a recurring or non-recurring basis as of September 30, 2023 and December 31, 2022, the significant unobservable

measured at fair value on a recurring or non-recurring basis as of March 31, 2024 and December 31, 2023, the significant unobservable

inputs used in the fair value measurements were as follows:

2 unchanged sentences

Fair Value at

September 30, 2023

March 31, 2024

Fair Value at

2 unchanged sentences

Range of Significant Unobservable Input Values

Collateral dependent loans with ACL:

Appraised Value

dependent loans with ACL:

to reflect current market conditions, ultimate collectability, and estimated costs to sell

Value/Other estimates from Independent Sources

to reflect current market conditions, ultimate collectability, and estimated costs to sell

Real Estate Owned

5 unchanged sentences

upon the characteristics of the instruments and relevant market information.

Financial instruments include cash, evidence of ownership

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

10 unchanged sentences

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 September 30, 2023, and December 31, 2022, are as follows:

Schedule of estimated fair value of financial instruments

basis as of March 31, 2024, and December 31, 2023, are as follows:

Value Measurements

24 unchanged sentences

The carrying values

of cash and due from banks, federal funds sold, deposits with no stated maturities, 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 September 30, 2023 and December 31, 2022, represent an approximation of exit price;

however, an actual exit price may differ.

of cash and due from banks, federal funds sold, bank owned life insurance, deposits with no stated maturities, and accrued interest approximates

fair value and are excluded from the table above.

NOTE 12 LEASING

of September 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 September 30, 2023 was 8.85 years.

of March 31, 2024, the Bank leases four branch offices, one administrative office 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 March 31, 2024

was 9.10 years.

discount rate used in determining the lease liability for each individual lease was the FHLB fixed advance rate which corresponded to

1 unchanged sentence

This methodology is expected to be used for any other subsequent lease agreements.

average discount rate for the leases as of September 30, 2023 was 3.29 % .

For the three and

nine months ended September 30, 2023, operating lease expenses were $ 117,000 and $ 341,000 , respectively.

For the three and nine months

ended September 30, 2022, operating lease expenses were $ 115,000 and $ 342,000 respectively.

average discount rate for the leases as of March 31, 2024 was 3.37%.

For the three months

ended March 31, 2024 and 2023, operating lease expenses were $140,000 and $114,000, respectively.

Company’s other operating leases were evaluated and determined to be immaterial to the financial statements.

As of September 30,

As of March 31, 2024,

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

Total lease payments

lease payments

imputed interest

13 BORROWED FUNDS

in Borrowed Funds is one FHLB Advance of $ 10.0 million as of September 30, 2023 bearing an interest rate of 3.51 % maturing on May 4,

No FHLB advances were outstanding as of 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.

funds totaled $36,186 and $36,186 as of March 31, 2024 and December 31, 2023, respectively.

For additional information on borrowed funds,

refer to Note 18 in Item 8 of Form 10-K for the year ended December 31, 2023.

14 REVENUE FROM CONTRACTS WITH CUSTOMERS

2 unchanged sentences

Report on Form 10-K for the year ended December 31, 2023 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 nine months ended September 30, 2023 and 2022:

The following table presents noninterest income by revenue stream for the three months ended March 31, 2024 and 2023:

Schedule of revenue from contracts with customers

the three months ended

the nine months ended

in thousands)

8 unchanged sentences

Schedule of noninterest expenses

the three months ended September 30,

the nine months ended September 30,

the three months ended

in thousands)

10 unchanged sentences

a summary of recent authoritative announcements:

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.

does not expect the adoption of ASU 2022-03 to have a material impact on its 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

The ASU is effective for all entities upon issuance.

The Company completed its transition away from LIBOR for its loan and other

financial instruments that have not already been transitioned to an alternative reference rate.

This transition had no material impact

on earnings or capital.

In July 2023, the

31 unchanged sentences

impact on its consolidated financial statements.

In December 2023,

the Financial Accounting Standards Board (FASB) issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.”

The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information

for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax

income by the entity’s applicable statutory rate, on an annual basis.

Additionally, the amendments in this ASU require an entity

to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount

of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent

of total income taxes paid (net of refunds received).

Lastly, the amendments in this ASU require an entity to disclose income (or loss)

from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or

benefit) from continuing operations disaggregated by federal, state, and foreign.

This ASU is effective for annual periods beginning

after December 15, 2024.

Early adoption is permitted.

The amendments should be applied on a prospective basis;

however, retrospective

application is permitted.

The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial

In March 2024, the

Financial Accounting Standards Board (FASB) issued ASU 2024-02, “Codification Improvements – Amendments to Remove References

to the Concepts Statements”.

This ASU contains amendments to the Codification that remove references to various Concepts Statements.

In most instances, the references are extraneous and not required to understand or apply the guidance.

In other instances, the references

were used in prior Statements to provide guidance in certain topical areas.

This ASU is effective for fiscal years beginning after December

Early adoption is permitted.

The amendments should be applied prospectively to all new transactions recognized on or after

the date that the entity first applies the amendments or retrospectively to the beginning of the earliest comparative period presented

in which the amendments were first applied.

If an entity adopts the amendments retrospectively, it should adjust the opening balance

of retained earnings as of the beginning of the earliest comparative period presented.

The Company does not expect the adoption of ASU

2024-02 to have a material impact on its consolidated financial statements.

Other accounting

2 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