What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-14 compared with 2024-05-15 · 327 added, 258 removed, 278 unchanged (68% of the section changed)

1 unchanged sentence

(dollars in thousands, except share and per share data)

Forward Looking Statements

Certain statements contained in this report and other publicly available documents incorporated herein by reference

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Net income totaled $2,972 during the

first quarter of 2024, a decrease of $1,115 from the same period of 2023.

Earnings per share for the first quarter of 2024 finished at $.58 per share, compared to $.82 per share during the first quarter of 2023.

Lower quarterly earnings were largely

the result of decreases in both net interest and noninterest income combined with increases in both provision for credit losses and noninterest expense.

The impact of lower net earnings during the first quarter of 2024 also had a direct impact to the

Company’s annualized net income to average asset ratio, or return on assets, which decreased to 0.83% for the three months ended March 31, 2024, compared to 1.28% for the three months ended March 31, 2023.

In addition, the Company’s net income to

average equity ratio, or return on equity, decreased to 7.77% for the three months ended March 31, 2024, compared to 11.85% for the three months ended March 31, 2023.

During the three months ended March 31, 2024, net interest income decreased $532, or 4.5%, from the same period in 2023.

The decrease was largely related to

the decrease in the net interest margin, which was partially offset by growth in average earning assets, led by strong growth in the loan portfolio.

The net interest margin decreased 60 basis points from 4.21% during the quarter ended March 31, 2023,

to 3.61% during the quarter ended March 31, 2024.

The margin decrease was largely related to the cost of funding sources increasing more than the yield on earning assets.

This increase in the cost of funding was partially linked to the Company’s

decision to increase rates on deposit accounts to attract deposits amidst heightened market competition for such funds.

In addition, the composition of funding sources trended toward certificates of deposit (“CDs”), and wholesale funding sources, which

generally cost more than other funding sources, such as checking, NOW, savings and money market deposit products.

The effects from a lower margin were partially offset by a 10.5% increase in average earning assets, primarily from average loans, which

were up $78,997 during the first quarter of 2024 compared to the same period in 2023, led by the commercial and residential real estate loan segments.

For the same period, the average balance maintained at the Federal Reserve increased $60,307 and

second quarter of 2024, a decrease of $277 from the same period of 2023.

Earnings per share for the second quarter of 2024 finished at $.63 per share, compared to $.68 per share during the second quarter of 2023.

Net income totaled $5,765 during the

six months ended June 30, 2024, a decrease of $1,392 from the same period of 2023.

Earnings per share during the first six months of 2024 finished at $1.21 per share, compared to $1.50 per share during the first six months of 2023.

During both the

quarterly and year-to-date periods, earnings were negatively impacted by higher provision for credit losses and noninterest expense, which were up collectively by $605 and $1,336 over the same periods in 2023, respectively.

During the second quarter of

2024, earnings were positively impacted by a $349 increase in net interest income, while net interest income decreased $183 during the first half of 2024, compared to the same periods in 2023, respectively.

The Company’s noninterest income had a

minimal impact to the change in net earnings during both the quarterly and year-to-date periods of 2024 compared to 2023.

The impact of lower net earnings during 2024 also had a direct impact to the Company’s annualized net income to average asset

ratio, or return on assets, which decreased to 0.84% for the six months ended June 30, 2024, compared to 1.16% for the six months ended June 30, 2023.

In addition, the Company’s net income to average equity ratio, or return on equity, decreased to

8.01% for the six months ended June 30, 2024, compared to 10.63% for the six months ended June 30, 2023.

During the three months ended June 30, 2024, net interest income increased $349, or 3.0%, over the same period in 2023.

During the six months ended June 30,

2024, net interest income decreased $183, or 0.8%, from the same period in 2023.

The quarterly improvement to net interest income was mostly impacted by a $128,928 increase in average earning assets.

This was partially offset by a decrease in the net

interest margin of 29 basis points.

The year-to-date decrease to net interest income was mostly impacted by a decrease in the net interest margin of 44 basis points, which more than offset a $124,072 increase in average earning assets.

The growth in

average earning assets during both the quarterly and year-to-date periods came primarily from loans and interest-bearing deposits with banks, partially offset by lower securities.

Loan increases were led by the commercial and residential real estate

loan segments, while interest-bearing deposits with banks consisted mostly of average balances maintained at the Federal Reserve.

Average securities decreased as maturities were deployed into higher yielding loans.

The Company’s provision for credit loss expense increased $262, or 53.6%, during the first quarter of 2024 compared to the same period in 2023.

was primarily related to a $106 increase in net charge-offs, higher general reserves associated with the growth in loans, and an increase in select

qualitative risk factors.

During the three months ended March 31, 2024, noninterest income decreased $71, or 1.9%, from the same period in 2023.

This decrease was largely due to the

closure of Race Day at the end of 2023.

Due to the closure, there was no mortgage application referral income earned in 2024 compared to $231 in commissions earned during the first quarter of 2023.

This decrease was partially offset by a $114 increase

in service charges on deposit accounts.

During the three months ended March 31, 2024, noninterest expense increased $469, or 4.6%, over the same period in 2023.

The increase was primarily related

to a $283 increase in salaries and employee benefit costs, impacted by higher annual merit increases and higher health insurance premiums.

The Company also experienced increases in both data processing and software expense, which were up $246 during

the first quarter of 2024 compared to the same period in 2023.

The Company’s provision for income taxes decreased $219 during the three months ended March 31, 2024, compared to the same period in 2023.

This was largely

due to the changes in taxable income affected by the factors mentioned above.

At March 31, 2024, total assets were $1,372,599, an increase of $20,464 from year-end 2023.

Decreases to the net interest margin

during both the quarterly and year-to-date periods were largely related to the cost of funding sources increasing more than the yield on earning assets.

This increase in the cost of funding was partially linked to the Company’s decision to increase

rates on deposit accounts to attract deposits amidst heightened market competition for such funds.

In addition, the composition of funding sources trended toward certificates of deposit (“CDs”), and wholesale funding sources, which generally cost more

than other funding sources, such as checking, NOW, savings and money market deposit products.

During the three and six months ended June 30, 2024, the Company’s provision for credit loss expense increased $157 and $419, when compared to the same

periods in 2023, respectively.

The increases during both the quarterly and year-to-date periods came primarily from a higher historical loss factor and

increases in general reserves associated with the growth in loans, partially offset by decreases in both net charge-offs and select qualitative risk factors.

During the three and six months ended June 30, 2024, noninterest income decreased $12, or 0.4%, and $83, or 1.3%, from the same periods in 2023.

decreases were largely due to the closure of Race Day at the end of 2023.

Due to the closure, there was no mortgage application referral income earned in 2024 compared to $16 and $247 in commissions earned during the second quarter and first half of

2023, respectively.

Other decreases came from losses related to both other real estate owned (“OREO”) and the pending sale of premises, which collectively reduced noninterest income by $92 during both the second quarter and first half of 2024 compared

to the same periods in 2023.

These decreases were partially offset by a $78 and $192 increase in service charges on deposit accounts during both the quarterly and year-to-date periods.

During the three and six months ended June 30, 2024, noninterest expense increased $448, or 4.3%, and $917, or 4.4%, over the same periods in 2023.

increases were primarily related to a $345 and $628 increase in salaries and employee benefit costs during both the second quarter and first half of 2024, impacted by higher annual merit increases and higher health insurance premiums.

The Company also

experienced increases in both data processing and professional fee expense, which were collectively up $136 and $276 during the second quarter and first half of 2024 compared to the same periods in 2023.

The changes in the Company’s provision for income taxes during the three and six months ended June 30, 2024, compared to the same periods in 2023, were

largely due to the changes in taxable income affected by the factors mentioned above.

At June 30, 2024, total assets were $1,403,317, an increase of $51,182 from year-end 2023.

Higher assets were primarily impacted by an increase in loans,

which were up $68,384, or 7.0%, from year-end 2023.

Growth in loans came from increases in the commercial real estate loan segment (+4.0%), commercial and industrial loan segment (+2.0%), and residential real estate loan segment (+1.6%), partially

Growth in loans came from increases in the residential real estate loan segment (+12.5%), commercial real estate loan segment (+8.9%), and commercial and industrial loan segment (+3.6%), partially

offset by a decrease in the consumer loan segment (-3.4%).

At March 31, 2024, total liabilities were $1,226,817, up $18,689 from year-end 2023.

At June 30, 2024, total liabilities were $1,257,560, up $49,432 from year-end 2023.

Contributing most to this increase were higher deposit balances, which

increased $51,292 from year-end 2023.

The deposit increase was primarily impacted by higher time deposits and NOW account deposits, partially offset by lower noninterest-bearing demand deposits.

At March 31, 2024, total shareholders' equity was $145,782, up $1,775 from December 31, 2023.

This increase came primarily from quarterly net income,

partially offset by quarterly cash dividends paid and an increase in net unrealized losses on available for sale securities.

Leading deposit growth were interest-bearing deposit balances, up $30,305 from year-end 2023, consisting of higher balances from savings and money market accounts (+5.6%), NOW accounts (+6.0%), and time deposits

Growth in deposits were also impacted by noninterest-bearing demand deposits, which increased $20,987 from year-end 2023.

At June 30, 2024, total shareholders' equity was $145,757, up $1,750 from December 31, 2023.

This increase came primarily from year-to-date net income,

partially offset by quarterly cash dividends paid and the purchase of treasury shares under the Company’s treasury repurchase program.

Regulatory capital ratios of the Company remained higher than the "well capitalized" minimums.

Comparison of Financial Condition

at March 31, 2024 and December 31, 2023

The following discussion focuses, in more detail, on the consolidated financial condition of the Company at March 31, 2024 compared to December 31, 2023.

This discussion should be read in conjunction with the interim consolidated financial statements and the footnotes included in this Form 10‑Q.

at June 30, 2024 and December 31, 2023

The following discussion focuses in more detail on the consolidated financial condition of the Company at June 30, 2024 compared to December 31, 2023.

discussion should be read in conjunction with the interim consolidated financial statements and the footnotes included in this Form 10‑Q.

Cash and Cash Equivalents

At March 31, 2024, cash and cash equivalents were $129,060, an increase of $934, or 0.7%, from December 31, 2023.

The increase came primarily from cash and

noninterest-bearing deposits with banks, which were up $1,170, or 8.2%, from year-end 2023, primarily from higher cash on hand.

Over 88% of cash and cash equivalents is comprised of the Company’s interest-bearing Federal Reserve Bank clearing account,

which contributed most to the $236, or 0.2%, decrease in interest-bearing deposits with banks.

At June 30, 2024, cash and cash equivalents were $107,679, a decrease of $20,447, or 16.0%, from December 31, 2023.

The decrease came primarily from

interest-bearing deposits with banks, which were down $21,057, or 18.5%, from year-end 2023.

Over 85% of cash and cash equivalents is comprised of the Company’s interest-bearing Federal Reserve Bank clearing account, which contributed most to the

decrease in interest-bearing deposits with banks.

The Company utilizes its interest-bearing Federal Reserve Bank clearing account to manage excess funds, as well as to assist in funding earning asset growth.

During the first quarter of 2024, the Company experienced increases in funds primarily from interest-bearing deposits, which were used to reinvest in

higher-yielding loans, and to also help cover deposit runoff in noninterest-bearing demand deposit balances.

The interest rate paid on both the required and excess reserve balances of the Federal Reserve Bank account is based on the targeted

federal funds rate established by the Federal Open Market Committee.

During the first three months of 2024, the rate associated with the Company’s Federal Reserve Bank clearing account remained at the target federal funds rate range of 5.25% to 5.50%.

During the first half of 2024, the Company

utilized a portion of its clearing account balances to reinvest in higher-yielding loans, which helped to reduce the negative effects from net interest margin compression.

The interest rate paid on both the required and excess reserve balances of the

Federal Reserve Bank account is based on the targeted federal funds rate established by the Federal Open Market Committee.

During the first half of 2024, the rate associated with the Company’s Federal Reserve Bank clearing account remained at the

target federal funds rate range of 5.25% to 5.50%.

The interest-bearing deposit balances in the Federal Reserve Bank account are 100% secured by the U.S.

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The Company’s focus during periods of heightened liquidity will be to invest excess funds into longer-term, higher-yielding assets, primarily loans, when opportunities arise.

Total securities of $170,154 at March 31, 2024 were relatively stable when compared to $170,244 at year-end 2023, decreasing just $90, or 0.1%.

Company’s U.S.

Total securities of $170,679 at June 30, 2024 were relatively stable when compared to $170,244 at year-end 2023, increasing $435, or 0.3%.

The Company’s

Government securities portfolio increased $9,712, or 19.3%, from year-end 2023.

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Government securities came primarily from $19,357 in purchases partially offset by $10,000 in maturities.

Completely offsetting the

increase in U.S.

Partially offsetting the increase in

Government securities was a decrease in U.S.

Government agency (“Agency”) mortgage-backed securities, which were down $9,194, or 8.7%, from year-end 2023.

The Company’s investment securities portfolio is made up mostly of Agency

mortgage-backed securities, which represented 59.6% of total investments at March 31, 2024.

During the first quarter of 2024, the Company received proceeds from principal repayments of $4,119.

The monthly repayment of principal has been the primary

advantage of Agency mortgage-backed securities as compared to other types of investment securities, which deliver proceeds upon maturity or call date.

The Company’s investment securities portfolio is made up mostly of Agency mortgage-backed

securities, which represented 56.8% of total investments at June 30, 2024.

During the first half of 2024, the Company received proceeds from principal repayments of $8,489.

The monthly repayment of principal has been the primary advantage of Agency

mortgage-backed securities as compared to other types of investment securities, which deliver proceeds upon maturity or call date.

Included in the decreasing factors mentioned above were changes in net unrealized losses associated with available for sale securities.

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as Commercial Real Estate, Commercial and Industrial, Residential Real Estate, and Consumer.

COMMERCIAL REAL ESTATE BY INDUSTRY

As of June 30, 2024

The following table provides the composition of commercial real estate loans by industry classification (as defined by the North American Industry

Classification System).

(dollars in thousands)

Real Estate Rental and Leasing

Accommodation and Food Services

Health Care and Social Assistance

Manufacturing

Commercial real estate consists of owner-occupied, nonowner-occupied and construction loans.

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estate also includes loan participations with other banks outside the Company’s primary market area.

COMMERCIAL REAL ESTATE BY INDUSTRY

As of March 31, 2024

The following table provides the composition of commercial real estate loans by industry classification (as defined by the North American Industry

Classification System).

(dollars in thousands)

Real Estate Rental and Leasing

Accommodation and Food Services

Health Care and Social Assistance

Manufacturing

Although the Company is not actively seeking to participate in loans originated outside its primary market area, it has taken advantage of the relationships

it has with certain lenders in those areas where the Company believes it can profitably participate with an acceptable level of risk.

Although the Company is not actively seeking to participate in loans originated outside its primary market area, it has taken advantage of the

relationships it has with certain lenders in those areas where the Company believes it can profitably participate with an acceptable level of risk.

Commercial and industrial loans consist of loans to corporate borrowers primarily in small to mid-sized industrial and commercial companies that include

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card receivables are also included as consumer loans.

The Company’s loan balances increased to $989,862 at March 31, 2024, representing an increase of $17,962, or 1.8%, as compared to $971,900 at December 31,

The increase in loans came primarily from the commercial and residential real estate loan portfolios, partially offset by a decrease in the consumer portfolio from year-end 2023.

The Company’s commercial loan portfolio increased $16,178, or 3.4%, from year-end 2023.

Contributing most to this increase were higher loan balances within

the commercial real estate portfolio, which increased $13,003, or 4.0%, from year-end 2023.

The commercial real estate segment comprised the largest portion of the Company’s total loan portfolio at March 31, 2024, at 33.9%.

The increase from year-end

2023 came primarily from new originations within the construction and nonowner-occupied loan segments, which offset the decrease from larger payoffs within owner-occupied loans from year-end 2023.

The Company’s loan balances increased to $1,040,284 at June 30, 2024, representing an increase of $68,384, or 7.0%, as compared to $971,900 at December 31,

The increase in loans came primarily from the residential and commercial real estate loan portfolios, partially offset by a decrease in the consumer portfolio from year-end 2023.

The Company’s residential real estate loan portfolio increased $39,844, or 12.5%, from year-end 2023.

At June 30, 2024, residential real estate loans

represented the largest segment of the Company’s total loan portfolio at 34.5%.

During 2024, mortgage rates continued to increase as a result of an

elevated interest rate environment, which provided the Company with less opportunities to sell long-term fixed rate loans to the secondary market.

With elevated mortgage rates, mortgage customers were selecting more in-house variable rate mortgage

products instead of long-term fixed rate mortgage products.

This had a direct impact on lowering loan volume within the long-term fixed rate loan portfolio (down $3,734) and contributed to a shift into more short-term variable rate mortgages (up

$19,864) at June 30, 2024.

Also contributing to the increase in residential real estate loans was the funding of a warehouse line of credit by the Bank for a mortgage lender.

The warehouse lending line is used by the mortgage lender to make loans for

the purchase of one- to four-family residential real estate properties.

The mortgage lender eventually sells the loan and repays the Bank.

From year-end 2023, warehouse lending balances increased $18,291 during the first half of 2024.

Further increases in loans came from the Company’s commercial loan portfolio, which increased $34,476, or 7.2%, from year-end 2023.

Contributing most to this

increase were higher loan balances within the commercial real estate portfolio, which increased $28,890, or 8.9%, from year-end 2023.

Commercial real estate loans represent the second largest segment of the Company’s total loan portfolio at June 30,

2024, at 33.8%.

The increase from year-end 2023 came primarily from new originations within the nonowner-occupied and construction loan segments.

Commercial loans were also positively impacted by an increase in the commercial and industrial portfolio, which was up $5,589, or 3.6%, from year-end 2023.

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its commercial lending, which generally yields a higher return on investment as compared to other types of loans.

Further increases in loans came from the Company’s residential real estate loan portfolio, which increased $5,234, or 1.6%, from year-end 2023.

real estate loans represent the second largest segment of the Company’s total loan portfolio at 32.8%.

During 2024, mortgage rates continued to increase

as a result of an elevated interest rate environment, which provided the Company with less opportunities to sell long-term fixed rate loans to the secondary market.

With elevated mortgage rates, mortgage customers were selecting more in-house variable

rate mortgage products instead of long-term fixed rate mortgage products.

This had a direct impact on lowering loan volume within the long-term fixed rate loan portfolio (down $1,527) and contributed to a shift into more short-term variable rate

mortgages (up $8,646) at March 31, 2024.

The increases in the Company’s loan balances at March 31, 2024 were partially offset by a decrease in the consumer loan portfolio, which decreased $3,450, or

The increases in the Company’s loan balances at June 30, 2024 were partially offset by a decrease in the consumer loan portfolio, which was down $5,936, or

3.4%, from year-end 2023.

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costs basis is due to credit-related factors or noncredit-related factors.

As of March 31, 2024, the Company determined that all AFS securities that experienced a decline in fair value below the amortized cost basis from year-end 2023 were due to

As of June 30, 2024, the Company determined that all AFS securities that experienced a decline in fair value below the amortized cost basis from year-end 2023 were due to

non-credit related factors.

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

no ACL was recorded, and no provision expense was recognized during the three months ended March 31, 2024 .

no ACL was recorded, and no provision expense was recognized during the three and six months ended June 30, 2024.

For HTM debt securities, the Company evaluates the securities collectively by major security type at each measurement date to determine expected credit

losses based on issuer’s bond rating, historical loss, financial condition, and timely principal and interest payments.

At March 31, 2024, a $2 ACL was recognized based on a .02% cumulative default rate taken from the S&P and Moody’s bond rating

The $2 ACL for HTM debt securities was unchanged from December 31, 2023, resulting in no provision expense during the three months ended March 31, 2024.

At June 30, 2024, a $2 ACL was recognized based on a .02% cumulative default rate taken from the S&P and Moody’s bond rating

The $2 ACL for HTM debt securities was unchanged from December 31, 2023, resulting in no provision expense during the three and six months ended June 30, 2024.

For loans, the Company’s ACL is management’s estimate of expected lifetime credit losses, measured over the contractual life of a loan, that considers

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determined using the present value of expected future cash flows based upon the loan’s original effective interest rate, at the loan’s observable market price, or if the loan was collateral dependent, at the fair value of the collateral.

As of March 31, 2024, the ACL for loans totaled $9,229, or 0.93%, of total loans.

As of June 30, 2024, the ACL for loans totaled $9,431, or 0.91%, of total loans.

As of December 31, 2023, the ACL for loans totaled $8,767, or 0.90%, of

The increase in the ACL of $664, or 7.6%, was all from loans collectively evaluated.

The increase was impacted by additional reserves from a higher historical loss rate within the residential real estate loan segment, and a qualitative

risk adjustment that increased reserves within the commercial real estate segment.

Higher ACL reserves were also impacted by an $18,037 increase in collectively evaluated loan balances during the first quarter of 2024, primarily from the commercial

real estate loan segment.

The increase was impacted by additional reserves from a $68,721 increase in collectively evaluated loan balances during the first half of 2024, primarily

from the residential and commercial real estate loan segments.

Higher ACL reserves were also impacted by a higher historical loss rate within the commercial and residential real estate loan segments, partially offset by a lower qualitative risk

adjustment that decreased reserves within the commercial real estate segment .

The Company experienced higher delinquency levels from year-end 2023.

Nonperforming loans to total loans increased to 0.37% at March 31, 2024, compared to

0.26% at December 31, 2023, and nonperforming assets to total assets increased to 0.27% at March 31, 2024, compared to 0.19% at December 31, 2023.

The increase in both delinquency calculations resulted from an increase in nonaccrual loans, primarily as

a result of one residential real estate loan totaling $927 that was placed into nonaccrual status during the first quarter of 2024.

During the first quarter of 2024, the Company individually evaluated several loans associated with three borrower relationships for expected credit loss.

Nonperforming loans to total loans increased to 0.50% at June 30, 2024, compared to

0.26% at December 31, 2023, and nonperforming assets to total assets increased to 0.38% at June 30, 2024, compared to 0.19% at December 31, 2023.

The increase in both delinquency calculations resulted from a $2,230 increase in nonaccrual loans,

primarily as a result of one single loan relationship secured primarily by residential real estate property that was placed into nonaccrual status during the first half of 2024.

During the first half of 2024, the Company individually evaluated several loans associated with three borrower relationships for expected credit loss.

fair value of the loans’ collateral was measured to the loans’ recorded investment and no expected losses were identified as part of the review.

As a result, there were no specific reserves recorded during the three months ended March 31, 2024.

Management believes that the ACL at March 31, 2024 was appropriate to absorb expected losses in the loan portfolio.

As a result, there were no specific reserves recorded during the three and six months ended June 30, 2024.

Management believes that the ACL at June 30, 2024 was appropriate to absorb expected losses in the loan portfolio.

Changes in the circumstances of

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Deposits continue to be the most significant source of funds used by the Company to support earning assets.

Total deposits at March 31, 2024 increased $21,648, or 1.9%, from year-end 2023.

This change in deposits came primarily from interest-bearing deposit balances, which were up by $37,296, or 4.6%, from year-end 2023, while noninterest-bearing deposits decreased $15,648, or 4.9%, from year-end 2023.

The increase in interest-bearing deposits came primarily from time deposit balances, which increased $17,334, or 4.6%, from year-end

The increase came from retail time deposits, which increased $17,831 from year-end 2023.

As deposit competition increased in 2023 due to the elevated market rate environment, prices on the Company’s retail CDs adjusted upward and influenced a

consumer shift away from both noninterest-bearing deposits and lower-cost savings products, and into a greater number of higher-cost time deposit products, such as CDs.

Wholesale time deposit issuances decreased $498, or 0.6%, from year-end 2023.

Also impacting deposit balance growth were higher interest-bearing NOW account balances, which increased $14,049, or 8.2%, from year-end

This increase was largely driven by higher municipal NOW product balances, particularly within the Gallia County, Ohio, and Mason County, West Virginia, market areas.

Further increases in interest-bearing deposits came from savings and money market account balances, which increased $5,913, or 2.3%,

Total deposits at June 30, 2024 increased $51,292, or 4.6%, from year-end 2023.

This change in deposits came primarily from interest-bearing deposit balances, which were up by $30,305, or 3.8%, from year-end 2023, while noninterest-bearing deposits also increased $20,987, or 6.5%, from year-end 2023.

The increase in interest-bearing deposits came primarily from savings and money market account balances, which increased $14,412, or

5.6%, from year-end 2023.

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balances were down from year-end 2023.

The decrease in noninterest-bearing demand deposits came primarily from the Company’s business and incentive-based checking account

Also impacting deposit balance growth were higher interest-bearing NOW account balances, which increased $10,198, or 6.0%, from year-end

This increase was largely driven by higher municipal NOW product balances, particularly within the Gallia County, Ohio, and Mason County, West Virginia, market areas.

Further increases in interest-bearing deposits came from time deposit balances, which increased $5,695, or 1.5%, from year-end 2023.

increase came from retail time deposits, which increased $23,481 from year-end 2023.

As deposit competition increased in 2023 due to the elevated market rate environment, prices on the Company’s retail CDs adjusted upward and influenced a consumer

shift away from lower-cost savings products, and into a greater number of higher-cost time deposit products, such as CDs.

During the second quarter of 2024, the Company experienced $16,546 in brokered CD maturities, which contributed to a $17,787, or

22.9%, decrease in wholesale time deposit balances from year-end 2023.

The increase in noninterest-bearing demand deposits came primarily from the Company’s incentive-based checking account balances.

While facing increased competition for deposits in its market areas, the Company will continue to emphasize growth and retention in its

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Other Borrowed Funds

Other borrowed funds were $43,261 at March 31, 2024, a decrease of $1,332, or 3.0%, from year-end 2023.

Other borrowed funds were $42,056 at June 30, 2024, a decrease of $2,537, or 5.7%, from year-end 2023.

The decrease was related to the

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Shareholders’ Equity

Total shareholders' equity at March 31, 2024 increased $1,775, or 1.2%, to finish at $145,782, as compared to $144,007 at December 31,

This was primarily from quarterly net income, partially offset by cash dividends paid and a decrease in the fair value of available for sale securities.

The after-tax change in fair value totaled $468 from year-end 2023, as long-term market rates

increased during the first three months of 2024, causing a decrease in the fair value of the Company’s available for sale investment portfolio.

Total shareholders' equity at June 30, 2024 increased $1,750, or 1.2%, to finish at $145,757, as compared to $144,007 at December 31,

This was primarily from quarterly net income, partially offset by cash dividends paid and the purchase of 82,673 treasury shares under the Company’s treasury repurchase program.

The repurchase program was originally approved in 2021 to allow the

Company to repurchase up to $5,000 in additional common shares from time to time up to the plan’s expiration date of August 31, 2024.

As of August 14, 2024, the Company had repurchased approximately $2,967 in common stock.

Comparison of Results of Operations

For the Three Months Ended

March 31, 2024 and 2023

The following discussion focuses, in more detail, on the consolidated results of operations of the Company for the three months ended

March 31, 2024, compared to the same period in 2023.

For the Three and Six Months Ended

June 30, 2024 and 2023

The following discussion focuses, in more detail, on the consolidated results of operations of the Company for the three and six months

ended June 30, 2024, compared to the same period in 2023.

This discussion should be read in conjunction with the interim consolidated financial statements and the footnotes included in this Form 10‑Q.

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assets and interest expense incurred on interest-bearing liabilities.

During the three months ended March 31, 2024, net interest income decreased $532, or 4.5%, compared to the same period in 2023.

The decrease was largely related to the negative

impact of higher average costs paid on deposits and borrowings completely offsetting higher earning asset yields, which contributed to a 60 basis point decrease in the net interest margin.

These negative effects were partially offset by a composition

shift into higher-yielding loans.

Total interest and fee income recognized on the Company’s earning assets increased $3,890, or 28.2%, during the first quarter of 2024, compared to the same

period in 2023.

The earnings growth was impacted by interest on loans, which increased $2,912, or 25.2%.

This improvement was largely related to average loan yield increases impacted by the aggressive actions taken by the Federal Reserve to increase

rates by 425 basis points during 2022 and another 100 basis points during 2023.

During the three months ended June 30, 2024, net interest income increased $349, or 3.0%, compared to the same period in 2023.

Conversely, net interest income decreased $183, or

0.8%, during the six months ended June 30, 2024, compared to the same period in 2023.

The quarterly improvement was mostly impacted by a composition shift into higher-yielding loans, which increased earning asset yields that completely offset the

negative effects of higher average costs paid on deposits and borrowings.

The year-to-date decrease was largely related to the negative impact of higher average costs paid on deposits and borrowings completely offsetting higher earning asset yields,

which contributed to a 44 basis point decrease in the net interest margin.

These negative effects were partially offset by a composition shift into higher-yielding loans during the first half of 2024.

Total interest and fee income recognized on the Company’s earning assets increased $3,635, or 24.2%, during the second quarter of 2024, and $7,525, or 26.1%,

during the first half of 2024, compared to the same periods in 2023.

The earnings growth was impacted by interest on loans, which increased $2,858, or 22.6%, and $5,770, or 23.8%, during the three and six months ended June 30, 2024, compared to the

same periods in 2023, respectively.

This improvement was impacted by increases in both loan yields and average loan balances.

Particularly in the second quarter of 2024, the Company experienced a 9.2% increase in higher-yielding loans, with average

loan balances increasing from $928,418 during the three months ended June 30, 2023 to $1,013,845 during the three months ended June 30, 2024.

This large composition shift to higher-yielding loans contributed to most of the loan interest and fee revenue

improvement during the second quarter of 2024.

Overall, average loans have increased $85,427 and $82,124 during the three and six months ended June 30, 2024, compared to the same periods in 2023.

The increases during both periods came primarily from

loans secured by residential and commercial real estate properties, including average balance increases in the Bank’s warehouse line of credit for a mortgage lender.

Loan revenue improvement also came from average loan yield increases impacted by the

aggressive actions taken by the Federal Reserve to increase rates by 425 basis points during 2022 and another 100 basis points during 2023.

This has contributed to the repricing of a portion of the Company’s loan portfolio.

As a result, the average interest rate yield on loans increased 72 basis points to 6.34%

during the first quarter of 2024, compared to 5.62% during the first quarter of 2023.

Average loans increased $78,996 during the first quarter of 2024, compared to the first quarter of 2023.

The quarter-to-date increase was largely impacted by growth

in average commercial and residential real estate loans.

Total interest income from interest-bearing deposits with banks increased $991 during the first quarter of 2024, compared to the same period in 2023.

increase was largely from a $60,308 increase in average balances associated with the Company’s interest-bearing Federal Reserve Bank clearing account during the first quarter of 2024, compared to the first quarter of 2023.

Increases in Federal Reserve

Bank clearing balances were impacted by the growth in interest-bearing Bank deposits, influenced by product rate increases during 2023 and 2024.

Excess funds also came from the maturities and paydowns on investment securities, as well as new FHLB

As a result, the average

interest rate yield on loans increased 64 basis points to 6.46% during the second quarter of 2024 and increased 69 basis points to 6.40% during the first half of 2024, compared to the same periods in 2023.

Total interest income from interest-bearing deposits with banks increased $775 during the second quarter of 2024, and $1,766 during the first half of 2024,

compared to the same periods in 2023.

This was largely from average balance increases with the Company’s interest-bearing Federal Reserve Bank clearing account, which grew $58,747 and $59,518 during the three and six months ended June 30, 2024,

compared to the same periods in 2023, respectively.

Increases in Federal Reserve Bank clearing balances were impacted by the growth in interest-bearing Bank deposits, influenced by product rate increases during 2023 and 2024.

Excess funds also came

from the maturities and paydowns on investment securities, as well as new FHLB advances.

The Company utilized a portion of these proceeds to fund the growth in loans.

Further impacting interest income from interest-bearing deposits with banks were rate increases associated with the Federal Reserve Bank clearing account.

previously mentioned, the Federal Reserve took action during 2022 and 2023 to increase short-term rates due to rising inflationary concerns.

Since the end of March 2023, the target federal funds rate increased by another 50 basis points, which had a

corresponding effect to the interest rate tied to the Federal Reserve clearing account.

Total interest on securities decreased $81, or 8.1%, during the first quarter of 2024, compared to the same period in 2023, impacted mostly by a $16,983

decrease in average security balances.

During 2023, the Company placed more emphasis on growing its higher-yielding loan portfolio and utilized proceeds from various maturities and repayments of securities to help fund this growth.

The negative impact

from lower average balances was partially offset by a 7 basis point increase in the average yield on securities, which grew to 1.98% during the first quarter of 2024 compared to 1.91% during the first quarter of 2023.

The average yield increase was

positively impacted by the elevated market rate environment during both 2023 and 2024.

Total interest expense incurred on the Company’s interest-bearing liabilities increased $4,422 during the first quarter of 2024, compared to the same period

Further impacting interest income from interest-bearing deposits with banks were rate

increases associated with the Federal Reserve Bank clearing account.

As previously mentioned, the Federal Reserve took action during 2022 and 2023 to increase short-term rates due to rising inflationary concerns.

Since the end of June 2023, the target

federal funds rate increased by another 25 basis points, which had a corresponding effect to the interest rate tied to the Federal Reserve clearing account.

Total interest on securities increased $6, or 0.6%, during the second quarter of 2024, but decreased $75, or 3.8%, during the first half of 2024, compared to

the same periods in 2023.

The minimal to declining impact to security earnings during 2024 was largely from decreases in average security balances, which were down $12,831 and $14,907 during the three and six months ended June 30, 2024, compared to the

same periods in 2023, respectively.

During 2023 and 2024, the Company placed more emphasis on growing its higher-yielding loan portfolio and utilized proceeds from various maturities and repayments of securities to help fund loan growth.

Earnings from

securities were positively impacted by increases in the average yield on securities as a result of the elevated market rate environment during both 2023 and 2024.

Average security yields increased 19 basis points to 2.10% during the second quarter of

2024, which completely offset the negative impact from lower average balances during the quarter.

Average security yields increased 13 basis points to 2.04% during the first half of 2024, which only partially offset the negative impact from lower

average security balances during the year.

Total interest expense incurred on the Company’s interest-bearing liabilities increased $3,286 during the second quarter of 2024, and $7,708 during the first

half of 2024, compared to the same periods in 2023.

Increases in interest expense were impacted by a rise in average costs combined with increases in higher-costing average deposit balances.

As market competition continued to increase, rate offerings on CDs continued to adjust up in 2023.

Company increased CD rates during this time to attract and retain deposits, which has led to more of a consumer demand to reinvest from lower-cost NOW, savings and money market account deposit products (down $63,751 at an average cost of 1.33%) into

more higher-cost time deposit products (up $174,225 at an average cost of 4.63%).

Furthermore, the Company’s average wholesale funding balances increased $49,897, which included the use of brokered CDs (average cost of 4.87%) and FHLB advances (average

cost of 4.03%).

As market competition continued to increase, rate offerings

on CDs continued to adjust up in 2023.

The Company increased CD rates during this time to attract and retain deposits, which has led to more of a consumer demand to reinvest from lower-cost NOW, savings and money market account deposit products (down

$45,269 at an average cost of 1.36% during the year) into more higher-cost time deposit products (up $150,970 at an average cost of 4.67% during the year).

Furthermore, the Company’s average wholesale funding balances increased $34,747 during the year,

which included the use of brokered CDs (average cost of 4.87%) and FHLB advances (average cost of 4.03%).

These higher-cost wholesale deposits were used to fund asset growth, but also contributed to the growth in interest expense over 2023.

As a result of the rate repricings on time deposits and the deposit shift into higher-cost funding

sources, the Company’s total weighted average costs on interest-bearing liabilities increased by 187 basis points from 1.07% at March 31, 2023, to 2.94% at March 31, 2024.

of the rate repricings on time deposits and the deposit shift into higher-cost funding sources, the Company’s total weighted average costs on interest-bearing liabilities increased by 155 basis points from 1.40% at June 30, 2023, to 2.95% at June 30,

The Company’s net interest margin is defined as fully tax-equivalent net interest income as a percentage of average earning assets.

During 2024, the

Company’s first quarter net interest margin decreased to 3.61%, compared to 2023’s first quarter net interest margin of 4.21%.

The quarterly margin decrease was impacted by higher average costs associated with the Bank’s interest-bearing liabilities

due to customer pricing pressures, deposit competition, and a higher utilization of wholesale funding sources.

Furthermore, the Bank continues to experience a deposit composition shift into more higher-cost retail CDs and less lower-cost NOW, savings,

money market, and checking account deposits, which put increased pressure on margin growth during the first quarter of 2024.

Partially offsetting these negative effects during the first quarter of 2024 were increases in earning asset yields and a

higher composition of average loan balances.

The Company’s primary focus is to invest its funds into higher yielding assets, particularly loans, as opportunities arise.

However, if loan balances do not continue to expand and remain a larger component

of overall earning assets, the Company will continue to face pressure within its net interest income and margin improvement.

Company’s second quarter net interest margin decreased to 3.74%, compared to 2023’s second quarter net interest margin of 4.03%.

The Company’s year-to-date net interest margin decreased to 3.68% at June 30, 2024, compared to 2023’s year-to-date net

interest margin of 4.12% at June 30, 2023.

The margin decreases were impacted by higher average costs associated with the Bank’s interest-bearing liabilities due to customer pricing pressures, deposit competition, and a higher utilization of wholesale

funding sources.

Furthermore, the Bank continues to experience a deposit composition shift into more higher-cost retail CDs and less lower-cost NOW, savings, money market, and checking account deposits, which put increased pressure on margin growth

during the three and six months ended June 30, 2024.

Although the net interest margin has decreased from the prior year’s quarterly and year-to-date periods, the net interest margin has improved during 2024 when comparing linked quarters.

comparing the second quarter net interest margin of 3.74% to the first quarter net interest margin of 3.61% from 2024, this represents an increase of 13 basis points.

The increase was related to increases in earning asset yields and a higher

composition of average loan balances due to the 9.2% quarterly increase in average loans.

Positive contributions to the margin have also come from an average deposit mix that is trending back towards checking, NOW, savings and money market deposit

accounts during the second quarter of 2024.

This, along with the benefits of higher-yielding loan growth, contributed to the quarterly increase in net interest income during the three months ended June 30, 2024.

The Company’s primary focus is to invest

its funds into higher yielding assets, particularly loans, as opportunities arise.

However, if loan balances do not continue to expand and remain a larger component of overall earning assets, the Company will continue to face pressure within its net

interest income and margin improvement.

Provision for Credit Losses

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Management performs, on a quarterly basis, a detailed analysis of the ACL that encompasses asset portfolio composition, asset quality, loss experience and other relevant economic factors.

The Company’s

provision for credit losses expense totaled $751 during the three months ended March 31, 2024, an increase of $262, or 53.6%, when compared to $489 in provision expense during the three months ended March 31, 2023.

The increase in credit loss expense

came primarily from loans, impacted by additional reserves associated with certain qualitative risk factors and historical loan loss factors that contributed to $316 in additional provision expense during the first quarter of 2024.

The increasing

factors came primarily from the residential real estate and commercial real estate loan segments.

Further increases in loan provision came from an increase in net charge-offs, which increased $106, or 37.0%, during the first quarter of 2024, compared

to the same period in 2023.

Higher net charge-offs during 2024 came mostly from the consumer loan portfolio and required corresponding increases to provision expense.

Partially offsetting the increasing effects to provision expense mentioned above was

a $4,404 decrease in collectively evaluated loan balances at March 31, 2024 compared to March 31, 2023.

This resulted in less general reserves and a corresponding

decrease to provision expense.

Partially offsetting the increase in credit loss expense on loans was a $130 decrease in credit loss expense on unfunded commitments during the first quarter

of 2024, compared to the same period in 2023.

During the first quarter of 2024, credit loss expense on unfunded commitments was reduced by $106, compared to $24 in credit loss expense during the first quarter of 2023.

This was primarily due to the

increases in funding of commercial real estate construction loans during the first quarter of 2024 that reduced the unused commitments on those funds.

For the three

months ended June 30, 2024, the Company’s provision for credit losses expense totaled $181, an increase of $157 when compared to $24 in provision expense during the three months ended June 30, 2023.

For the six months ended June 30, 2024, the Company’s

provision for credit losses expense totaled $932, an increase of $419 when compared to $513 in provision expense during the six months ended June 30, 2023.

The increase in credit loss expense came primarily from loans, impacted by additional reserves associated with a higher historical loan loss factor and

increases in collectively evaluated loan balances.

In total, these increasing factors contributed to $508 and $639 in additional provision expense during the three and six months ended June 30, 2024, compared to the same periods in 2023, respectively.

The increase in the historical loss factor came primarily from the commercial real estate loan segment.

The growth in collectively evaluated loan balances during the six months ended June 30, 2024 was $2,629 higher than the growth during the same

period in 2023, which resulted in additional general reserves and a corresponding increase to provision expense.

Partially offsetting the increasing effects to provision expense mentioned above were decreases in certain qualitative risk factors and net

charge-offs, which were down $484 and $223 during the three and six months ended June 30, 2024, compared to the same periods in 2023, respectively.

The decrease in the qualitative risk factor came primarily from the commercial real estate loan segment,

while lower net charge-offs during 2024 came primarily from an increase in recoveries within the commercial and industrial loan portfolio.

Credit loss expense during 2024 also came from unfunded commitments, which was up $3 and $133 during the three and six months ended June 30, 2024, compared

to the same periods in 2023, respectively.

This was primarily due to an increase in the originations of several new commercial real estate lines during the second quarter of 2024, as well as a $10,000 increase to a credit line amount on a loan secured

by residential real estate.

These factors increased unused commitments during 2024, which contributed to additional reserves.

Future provisions to the allowance for credit losses will continue to be based on management’s quarterly in-depth evaluation that is discussed in further

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Noninterest Income

Noninterest income decreased $71, or 1.9%, during the three months ended March 31, 2024, compared to the same period in 2023.

Lower noninterest revenue was

largely impacted by decreases in other noninterest income, which decreased $161 from 2023.

The decrease was largely impacted by the closing of Race Day in December 2023, which resulted in a $231 decrease in mortgage application referral income.

Partially offsetting the decrease in other noninterest income was a $114, or 18.7%, increase in service charges on deposit accounts during the first quarter

of 2024, compared to the same period in 2023.

This was impacted by a higher volume of overdraft transactions during the three months ended March 31, 2024.

The remaining noninterest income categories decreased $24, or 0.9%, during the first quarter of 2024, compared to the first quarter of 2023.

The net decrease

came primarily from debit/credit card interchange income (down $28) and tax preparation fees (down $24), partially offset by increases in bank owned life insurance and annuity asset income (up $18) and trust fee income (up $18).

Noninterest income decreased $12, or 0.4%, during the three months ended June 30, 2024, and decreased $83, or 1.3%, during the six months ended June 30,

2024, compared to the same periods from 2023.

Lower noninterest revenue was largely impacted by decreases in other noninterest income, which decreased $121 and $282 during the three and six months ended June 30, 2024, compared to the same periods from

2023, respectively.

The decreases were largely impacted by the closing of Race Day in December 2023, which resulted in a $16 and $247 decrease in mortgage application referral income during the second quarter and first half of 2024, compared to the

same periods from 2023, respectively.

Other noninterest income was also impacted by losses incurred on OREO properties and the sale of bank premises.

During the second quarter of 2024, the Company re-evaluated the fair value of a single property

carried as OREO resulting in a $7 loss adjustment to the property’s fair value.

This is compared to a $38 gain on OREO that was recognized during the second quarter of 2023.

Furthermore, the Company is in the process of completing the sale of one of

its support facilities.

At June 30, 2024, the Company and the prospective buyer reached an agreement on the sale price of the facility.

While the transaction is still subject to further approvals, the Company reduced the carrying value of the facility

to reflect the expected sales price.

This resulted in a $46 loss on sale of bank premises, which further reduced other noninterest income during the second quarter of 2024.

Partially offsetting the decreases in other noninterest income were increases in service charges on deposit accounts, which were up $78, or 11.9%, during the

second quarter of 2024, and $192, or 15.2%, during the first half of 2024, compared to the same periods in 2023.

The increases have been impacted by a higher volume of overdraft transactions during 2024.

The remaining noninterest income categories increased $31, or 1.8%, during the second quarter of 2024, and $7, or 0.2%, during the first half of 2024,

compared to the same periods in 2023.

The net increases came primarily from bank owned life insurance and annuity asset income and trust fee income, partially offset by lower tax preparation fees during the quarter and year-to-date periods.

Noninterest Expense

Noninterest expense increased $469, or 4.6%, during the first quarter of 2024, compared to the same period in 2023.

Contributing most to the increase in

noninterest expense were salaries and employee benefits, which increased $283 during the first quarter of 2024, compared to the same period in 2023.

increase was largely from annual performance- based merit increases and higher health insurance premiums that were recorded in the first quarter of 2024.

Furthermore, the Company’s average full-time equivalent employee base was up seven employees

from 237 at March 31, 2023 to 244 at March 31, 2024.

Partially offsetting the growth in salaries and employee benefit expense was the elimination of staffing for Race Day by April 2023, which resulted in a savings of $192 for the first quarter of

2024, compared to the same period in 2023.

Higher noninterest expense also came from data processing expense, which increased $87 during the first quarter of 2024, compared to the same period in 2023.

Higher costs in this category were the direct result of special programming costs associated with enhancing mobile and desktop user platforms, as well as the volume increase in debit card transactions, which increased processing costs.

Also contributing to higher noninterest expense was software costs, which increased $59 during the first quarter of 2024, compared to the same period in

The increase was largely impacted by various software purchases and enhancements at the Bank to further improve operational efficiencies in 2024.

Higher noninterest expense was also impacted by professional fees, which were up $53 during the first quarter of 2024, compared to the same period in 2023.

Higher professional fees were largely impacted by an increase in legal expense during 2024 due to a higher volume of collection costs.

The remaining noninterest expense categories decreased $13, or 0.5%, during the first quarter of 2024, compared to the same period in 2023.

The net decrease

came primarily from other noninterest expense (down $42) impacted by decreases in various overhead expenses associated with the closing of Race Day, partially offset by higher furniture/equipment expense (up $36).

Noninterest expense increased $448, or 4.3%, during the three months ended June 30, 2024, and increased $917, or 4.4%, during the six months ended June 30,

2024, compared to the same periods from 2023.

Contributing most to the increase in noninterest expense were salaries and employee benefits, which increased $345 and $628 during the three and six months ended June 30, 2024, compared to the same periods

from 2023, respectively.

The e xpense increase was largely from annual performance-based merit increases and higher health insurance premiums.

Furthermore, the

Company’s average full-time equivalent employee base was up five employees from 238 at June 30, 2023 to 243 at June 30, 2024.

Partially offsetting the growth in salaries and employee benefit expense was the elimination of staffing for Race Day by

April 2023, which resulted in a savings of $24 for the second quarter of 2024, and $216 for the first half of 2024, compared to the same periods in 2023.

Higher noninterest expense also came from data processing expense, which increased $62 during the second quarter of 2024, and $149 during the first half of

2024, compared to the same periods from 2023.

which increased processing costs.

Also contributing to higher noninterest expense were professional fees, which increased $74 during the second quarter of 2024, and $127 during the first half

of 2024, compared to the same periods from 2023.

Higher professional fees were largely impacted by an increase in director fees, as well as a general increase in legal fees during 2024 due to a higher volume of collection costs.

The remaining noninterest expense categories decreased $33, or 1.0%, during the second quarter of 2024, and increased $13, or 0.2%, during the first half of

2024, compared to the same periods in 2023.

These changes came primarily from a quarterly and year-to-date decline in other noninterest expense from various overhead expenses associated with the closing of Race Day.

The Race Day closing also

contributed to reducing software expense for the quarter, while minimizing the increase in software expense for the year.

The expense savings from Race Day was partially offset by higher furniture and equipment expenses during the quarterly and

year-to-date periods.

The Company’s efficiency ratio is defined as noninterest expense as a percentage of fully tax-equivalent net interest income plus noninterest income.

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Management continues to place emphasis on managing its balance sheet mix and interest rate sensitivity as well as developing more innovative ways to generate noninterest revenue.

Comparing the three months ended March 31, 2024 to the same period in 2023, the Company has benefited from an increase in earning asset yields due to market rate increases by the Federal Reserve, and a higher composition of higher-yielding loans.

However, the continued trend of increasing deposit rates, a deposit composition shift to higher-cost time deposit balances, and the increased use of higher-cost wholesale funding sources led to margin compression during the first quarter of 2024 and

had a negative impact to quarterly net interest income.

As a result, net interest income during the three months ended March 31, 2024 finished below the net interest income results from the same period in 2023.

Contributions from noninterest income

fell back by 1.9% during the first quarter of 2024, while overhead expense increased 4.6% due to higher annual merit adjustments and health insurance premiums.

The combination of lower net interest and noninterest revenue and higher overhead costs

restricted the Company from generating any efficiency improvement.

As a result, the Company’s quarterly efficiency number increased (regressed) to 71.5% during the three months ended March 31, 2024, from 65.7% during the same period in 2023.

Comparing the three and six months ended June 30, 2024 to the same periods in 2023, the Company has benefited from an increase in earning asset yields due to market rate increases by the Federal Reserve, and a higher composition of higher-yielding

and the first half of 2024 and had a negative impact to year-to-date net interest income.

However, the elevated growth in average loans during the second quarter, combined with a quarterly transition to more lower-cost funding deposits had a positive

impact to quarter-to-date net interest income, which increased over the prior year’s second quarter net interest income results.

While net interest earnings are improving, contributions from noninterest income fell back by 0.4% and 1.3% during the

second quarter and first half of 2024, while overhead expense increased 4.3% and 4.4% during the same periods due to higher annual merit adjustments and health insurance premiums.

The positive effects of lower but improving net interest income were

completely offset by reduced noninterest revenue and higher overhead costs, which restricted the Company from generating any efficiency improvement.

As a result, the Company’s quarterly efficiency number increased (regressed) to 73.4% during the three

months ended June 30, 2024, from 71.9% during the same period in 2023.

The Company’s year-to-date efficiency number also increased (regressed) to 72.4% during the six months ended June 30, 2024, from 68.7% during the same period in 2023.

Provision for income taxes

The Company’s income tax provision decreased $219 during the three months ended March 31, 2024, compared to the same period in 2023.

The change in tax

expense corresponded directly to the change in associated taxable income during 2024 and 2023.

The Company’s income tax provision increased $9 during the three months ended June 30, 2024, and decreased $210 during the six months ended June 30, 2024,

compared to the same periods in 2023.

The changes in tax expense corresponded directly to the changes in associated taxable income during 2024 and 2023.

Capital Resources

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The Bank’s transition amount during year two of the transitional period totaled $2,276, which resulted in the add-back of $1,138 to both Tier 1 capital and average assets as part of the CBLR

calculation for March 31, 2024.

As of March 31, 2024, the Bank’s CBLR was 10.65%.

Cash dividends paid by the Company were $1,050 during the first three months of 2024.

The year-to-date dividends paid totaled $0.22 per

calculation for June 30, 2024.

As of June 30, 2024, the Bank’s CBLR was 10.48%.

Cash dividends paid by the Company were $2,105 during the first half of 2024.

The year-to-date dividends paid totaled $0.44 per share.

Liquidity relates to the Company's ability to meet the cash demands and credit needs of its customers and is provided by the ability to readily convert

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Total cash and cash equivalents, HTM securities maturing within one year, and AFS securities, which totaled $271,333, represented 19.3% of total assets at

March 31, 2024 compared to $290,781 and 21.5% of total assets at December 31, 2023.

June 30, 2024 compared to $290,781 and 21.5% of total assets at December 31, 2023.

This growth in liquid funds came primarily from increases in deposits, as well as increases in borrowings and net proceeds from maturities and paydowns of securities.

A large portion of these dollars were used to fund the 1.8% growth in loans.

Increases in deposits were largely impacted by growth in time deposits, which increased 4.6% from year-end 2023.

large portion of these dollars were used to fund the 7.0% growth in loans.

Increases in deposits were largely impacted by growth in NOW, savings and money market deposits, which increased 5.8% from year-end 2023, as well as growth in

noninterest-bearing deposits, which increased 6.5%, from year-end 2023.

In addition to the on-balance sheet liquidity discussed above, the Bank has established multiple sources of funding to further enhance the Bank’s ability to

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The Bank has pledged collateral to the FHLB and the FRB to establish committed borrowing lines.

At March 31, 2024, the Bank could borrow an additional $81,930 from the FHLB and the borrowing line with the FRB had availability of

At June 30, 2024, the Bank could borrow an additional $86,730 from the FHLB and the borrowing line with the FRB had availability of

For each of these sources, the Bank has established an internal limit of 85% of our borrowing capacity.

In addition to the committed borrowing lines, the Bank has access to several wholesale funding sources, such as, brokered CDs, a $25

million federal funds purchase limit with a correspondent bank, and the ability to bid on available funds from select deposit placement services.

The Bank has established limits for each respective funding source and a collective limit on all wholesale

funding sources.

million federal funds purchase limit with two correspondent banks, and the ability to bid on available funds from select deposit placement services.

The Bank has established limits for each respective funding source and a collective limit on all

wholesale funding sources.

During 2024, the Bank mostly utilized brokered CDs and the FHLB to assist with funding loan growth.

The Bank’s internal limit on brokered CDs is 10% of total assets.

At March 31, 2024, the amount of brokered CDs outstanding was 4.78%

of total assets, as compared to 4.86% at December 31, 2023.

At March 31, 2024, the Bank had utilized 55.35% of our FHLB capacity, an increase from 51.74% at December 31, 2023.

The collective internal limit on all wholesale funding sources is 40% of

total assets.

At March 31, 2024, the Bank’s total wholesale funding sources represented 14.30% of total assets.

Based on the collective internal wholesale funding limit, the Bank had the capacity to borrow an additional $349 million in wholesale funds

and the available funding from the respective wholesale funding sources exceeded this amount, which provides the flexibility to utilize one source more than another due to pricing or availability.

At June 30, 2024, the amount of brokered CDs outstanding

was 3.49% of total assets, as compared to 4.86% at December 31, 2023.

At June 30, 2024, the Bank had utilized 53.18% of our FHLB capacity, an increase from 51.74% at December 31, 2023.

The collective internal limit on all wholesale funding sources is

40% of total assets.

At June 30, 2024, the Bank’s total wholesale funding sources represented 12.53% of total assets.

Based on the collective internal wholesale funding limit, the Bank had the capacity to borrow an additional $381 million in wholesale

funds and the available funding from the respective wholesale funding sources exceeded this amount, which provides the flexibility to utilize one source more than another due to pricing or availability.

As part of performing liquidity stress tests, the Bank monitors and evaluates the exposure to uninsured deposits.

Of the Company’s $1,178,428 in total

deposit balances at March 31, 2024, only 33.9%, or $389,826, were deemed uninsured as per the $250 FDIC threshold.

deposit balances at June 30, 2024, only 35.9%, or $422,598, were deemed uninsured as per the $250 FDIC threshold.

A portion of these deposits are on behalf of public entity customers, which require the Bank to pledge securities or FHLB letters of

1 unchanged sentence

To the extent these deposits left the Bank, the level of unpledged securities and the borrowing capacity at the FHLB would increase or could be utilized to fund the deposit

The sum of current on-balance sheet liquidity and available wholesale funding sources exceeded the balance of uninsured deposits at March 31, 2024.

The sum of current on-balance sheet liquidity and available wholesale funding sources exceeded the balance of uninsured deposits at June 30, 2024.

Included in on-balance sheet liquidity are AFS securities in an unrealized loss position.

39 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis