PEOPLES BANCORP OF NORTH CAROLINA INC 10-Q

Item 1. Financial Statements PEOPLES BANCORP OF NORTH CAROLINA, INC. Consolidated Balance Sheets March 31, 2024 and December 31, 2023 (Dollars in thousands) March 31, December 31, Assets 2024 2023 (Unaudited) (Audited) Cash and due from banks $ 26,272 32,819 Interest-bearing deposits 71,824 49,556 Cash and cash equivalents 98,096 82,375 Investment securities available for sale 394,664 391,924 Other investments 2,858 2,874 Total securities 397,522 394,798 Mortgage loans held for sale 1,292 686 Loans 1,106,670 1,093,066 Less allowance for credit losses ( 10,847 ) ( 11,041 ) Net loans 1,095,823 1,082,025 Premises and equipment, net 16,330 16,702 Cash surrender value of life insurance 18,250 18,134 Right of use lease asset 4,553 4,731 Accrued interest receivable and other assets 37,694 36,459 Total assets $ 1,669,560 1,635,910 Liabilities and Shareholders' Equity Deposits: Noninterest-bearing demand $ 462,966 432,687 Interest-bearing demand, MMDA & savings 633,740 620,244 Time, over $250,000 148,819 148,904 Other time 206,839 190,210 Total deposits 1,452,364 1,392,045 Securities sold under agreements to repurchase 59,216 86,715 Junior subordinated debentures 15,464 15,464 Lease liability 4,660 4,832 Accrued interest payable and other liabilities 16,764 15,838 Total liabilities 1,548,468 1,514,894 Commitments and contingencies Shareholders' equity: Preferred stock, no par value; authorized 5,000,000 shares; no shares issued and outstanding - - Common stock, no par value; authorized 20,000,000 shares; issued and outstanding 5,455,999 shares at March 31, 2024 and 5,534,499 shares at December 31, 2023 48,627 50,625 Common stock held by deferred compensation trust, at cost; 164,970 shares at March 31, 2024 and 158,356 shares at December 31, 2023 ( 1,943 ) ( 1,910 ) Deferred compensation 1,943 1,910 Retained earnings 111,775 109,756 Accumulated other comprehensive loss ( 39,310 ) ( 39,365 ) Total shareholders' equity 121,092 121,016 Total liabilities and shareholders' equity $ 1,669,560 1,635,910 See accompanying Notes to Consolidated Financial Statements. 4 Table of Contents PEOPLES BANCORP OF NORTH CAROLINA, INC. Consolidated Statements of Earnings Three Months Ended March 31, 2024 and 2023 (Dollars in thousands, except per share amounts) 2024 2023 (Unaudited) (Unaudited) Interest income: Interest and fees on loans $ 15,138 12,883 Interest on due from banks 907 383 Interest on investment securities: U.S. Government sponsored enterprises 2,591 2,230 State and political subdivisions 695 862 Other 479 443 Total interest income 19,810 16,801 Interest expense: Interest-bearing demand, MMDA & savings deposits 2,060 1,488 Time deposits 3,681 516 Junior subordinated debentures 284 248 Other 481 211 Total interest expense 6,506 2,463 Net interest income 13,304 14,338 Provision for credit losses 91 224 Net interest income after provision for credit losses 13,213 14,114 Non-interest income: Service charges 1,340 1,341 Other service charges and fees 184 182 Loss on sale of securities, net - ( 2,488 ) Mortgage banking income 51 93 Insurance and brokerage commissions 246 228 Appraisal management fee income 2,414 2,094 Miscellaneous 1,803 2,161 Total non-interest income 6,038 3,611 Non-interest expense: Salaries and employee benefits 6,980 6,500 Occupancy 2,111 2,014 Professional fees 392 399 Advertising 199 189 Debit card expense 312 273 FDIC insurance 191 110 Appraisal management fee expense 1,904 1,650 Other 2,427 2,567 Total non-interest expense 14,516 13,702 Earnings before income taxes 4,735 4,023 Income tax expense 787 851 Net earnings $ 3,948 3,172 Basic net earnings per share $ 0.74 0.58 Diluted net earnings per share $ 0.72 0.56 Cash dividends declared per share $ 0.35 0.34 See accompanying Notes to Consolidated Financial Statements. 5 Table of Contents PEOPLES BANCORP OF NORTH CAROLINA, INC. Consolidated Statements of Comprehensive Income Three Months Ended March 31, 2024 and 2023 (Dollars in thousands) 2024 2023 (Unaudited) (Unaudited) Net earnings $ 3,948 3,172 Other comprehensive income : Unrealized holding gains on securities available for sale 71 9,421 Reclassification adjustment for losses on securities available for sale included in net earnings - 2,488 Total other comprehensive income , before income taxes 71 11,909 Income tax benefit related to other comprehensive income : Unrealized holding gains on securities available for sale ( 16 ) ( 2,164 ) Reclassification adjustment for losses on sales of securities available for sale included in net earnings - ( 572 ) Total income tax expense related to other comprehensive income ( 16 ) ( 2,736 ) Total other comprehensive income, net of tax 55 9,173 Total comprehensive income $ 4,003 12,345 See accompanying Notes to Consolidated Financial Statements. 6 Table of Contents PEOPLES BANCORP OF NORTH CAROLINA, INC. Consolidated Statements of Changes in Shareholders' Equity Three Months Ended March 31, 2024 and 2023 (Dollars in thousands) Common Stock Held By Accumulated Deferred Other Common Stock Retained Deferred Compensation Comprehensive Shares Amount Earnings Compensation Trust Income (Loss) Total (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Balance, December 31, 2023 5,534,499 $ 50,625 109,756 1,910 ( 1,910 ) ( 39,365 ) 121,016 Common stock repurchase ( 78,500 ) ( 1,998 ) - - - - ( 1,998 ) Cash dividends declared on common stock - - ( 1,929 ) - - - ( 1,929 ) Equity incentive plan, net - - - 33 ( 33 ) - - Net earnings - - 3,948 - - - 3,948 Change in accumulated other comprehensive income (loss), net of tax - - - - - 55 55 Balance, March 31, 2024 5,455,999 $ 48,627 111,775 1,943 ( 1,943 ) ( 39,310 ) 121,092 Balance, December 31, 2022 5,636,830 $ 52,636 100,156 2,181 ( 2,181 ) ( 47,597 ) 105,195 Adoption of new accounting standard, net of tax - - ( 838 ) - - - ( 838 ) Cash dividends declared on common stock - - ( 1,925 ) - - - ( 1,925 ) Restricted stock units exercised 191 6 - - - - 6 Equity incentive plan, net - - - ( 344 ) 344 - - Net earnings - - 3,172 - - - 3,172 Change in accumulated other comprehensive income (loss), net of tax - - - - - 9,173 9,173 Balance, March 31, 2023 5,637,021 $ 52,642 100,565 1,837 ( 1,837 ) ( 38,424 ) 114,783 See accompanying Notes to Consolidated Financial Statements. 7 Table of Contents PEOPLES BANCORP OF NORTH CAROLINA, INC. Consolidated Statements of Cash Flows Three Months Ended March 31, 2024 and 2023 (Dollars in thousands) 2024 2023 (Unaudited) (Unaudited) Cash flows from operating activities: Net earnings $ 3,948 3,172 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation, amortization and accretion 671 903 Provision for credit losses 91 224 Deferred income taxes ( 208 ) ( 229 ) Loss on sale of investment securities net - 2,488 Restricted stock expense 6 ( 49 ) Proceeds from sales of mortgage loans held for sale 3,097 4,621 Origination of mortgage loans held for sale ( 3,703 ) ( 4,827 ) Cash surrender value of life insurance ( 116 ) ( 103 ) Change in: Right of use lease asset 178 167 Other assets ( 1,043 ) ( 380 ) Lease liability ( 172 ) ( 152 ) Other liabilities 920 2,207 Net cash provided by operating activities 3,669 8,042 Cash flows from investing activities: Purchases of investment securities available for sale ( 9,710 ) - Proceeds from sales, calls and maturities of investment securities available for sale 3,000 52,023 Proceeds from paydowns of investment securities available for sale 3,859 3,305 Proceeds from paydowns of other investment securities 37 37 Redemption (purchase) of FHLB stock ( 10 ) 2 Net change in loans ( 13,889 ) ( 19,566 ) Purchases of premises and equipment ( 128 ) ( 566 ) Net cash provided (used) by investing activities ( 16,841 ) 35,235 Cash flows from financing activities: Net change in deposits 60,319 ( 21,774 ) Net change in securities sold under agreement to repurchase ( 27,499 ) ( 8,153 ) Proceeds from Fed Funds purchased - 43,275 Repayments of Fed Funds purchased - ( 43,275 ) Common stock repurchased ( 1,998 ) - Cash dividends paid on common stock ( 1,929 ) ( 1,925 ) Net cash provided (used) by financing activities 28,893 ( 31,852 ) Net change in cash and cash equivalents 15,721 11,425 Cash and cash equivalents at beginning of period 82,375 71,596 Cash and cash equivalents at end of period $ 98,096 83,021 8 Table of Contents PEOPLES BANCORP OF NORTH CAROLINA, INC. Consolidated Statements of Cash Flows, continued Three Months Ended March 31, 2024 and 2023 (Dollars in thousands) 2024 2023 (Unaudited) (Unaudited) Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 7,991 2,275 Income taxes $ 236 - Noncash investing and financing activities: Change in unrealized loss on investment securities available for sale, net $ 55 9,173 Restricted stock units exercised $ - 6 Allowance for credit losses record upon adoption of ASU 326, net of tax $ - ( 838 ) See accompanying Notes to Consolidated Financial Statements. 9 Table of Contents PEOPLES BANCORP OF NORTH CAROLINA, INC. Notes to Consolidated Financial Statements ( Unaudited ) (1) Summary of Significant Accounting Policies The Consolidated Financial Statements include the financial statements of Peoples Bancorp of North Carolina, Inc. (the “Company”) and its wholly owned subsidiary, Peoples Bank (the “Bank”), along with the Bank’s wholly owned subsidiaries, Peoples Investment Services, Inc. (“PIS”), Real Estate Advisory Services, Inc. (“REAS”), Community Bank Real Estate Solutions, LLC (“CBRES”) and PB Real Estate Holdings, LLC. All significant intercompany balances and transactions have been eliminated in consolidation. In June 2006, the Company formed a wholly owned Delaware statutory trust, PEBK Capital Trust II (“PEBK Trust II”), to facilitate the issuance of $20.6 million of trust preferred securities. PEBK Trust II is not included in the Consolidated Financial Statements. The Consolidated Financial Statements in this report (other than the Consolidated Balance Sheet at December 31, 2023) are unaudited. In the opinion of management, all adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented have been included. Management has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these Consolidated Financial Statements in conformity with generally accepted accounting principles in the United States (“GAAP”). Actual results could differ from those estimates. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by management in deciding how to allocate resources and in assessing performance. Management has determined that the Company has two significant operating segment: Banking Operations and CBRES, as discussed more fully in Note 7. In determining the appropriateness of segment definition, the Company considers the criteria of Accounting Standards Codification (“ASC”) 280, Segment Reporting. The Company’s accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. Many of the Company’s accounting policies require significant judgment regarding valuation of assets and liabilities and/or significant interpretation of the specific accounting guidance. A description of the Company’s significant accounting policies can be found in Note 1 of the Notes to Consolidated Financial Statements in the Company’s 2023 Annual Report to Shareholders which is Appendix A to the Proxy Statement for the 2024 Annual Meeting of Shareholders. There have been no significant changes to the application of significant accounting policies since December 31, 2023. 10 Table of Contents Recent Accounting Pronouncements The following table provides a summary of Accounting Standards Updates (“ASU’s”) issued by the FASB that the Company has not adopted as of March 31, 2024, which may impact the Company’s financial statements. ASU Description Effective Date Effect on Financial Statements or Other Significant Matters ASU 2023-07 Segment Reporting (Topic 280) The ASU provides amendments to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses January 1, 2025 The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures. ASU 2024-01 Compensation—Stock Compensation (Topic 718) The ASU adds an illustrative example (with four fact patterns) on how an entity would apply Accounting Standards Codification (ASC) 718 scope guidance. January 1, 2025 The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures. ASU 2024-02 Codification Improvements Amendments to Remove References to Concepts Statements The ASU removes 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 are a substitute for actual wording from a Concepts Statement. In most cases, the ASU is not intended to result in significant accounting changes for most entities. January 1, 2025 The adoption of this guidance is not expected to have a material impact on the Company’s results of operations, financial position or disclosures. Other accounting standards that have been issued or proposed by FASB or other standards-setting bodies are not expected to have a material impact on the Company’s results of operations, financial position or disclosures. Reclassification Certain amounts in the 2023 consolidated financial statements have been reclassified to conform to the 2024 presentation. These reclassifications did not have any impact on shareholders’ equity or net earnings. (2) Comprehensive Income The Company reports as comprehensive income all changes in shareholders’ equity during the year from sources other than shareholders. Other comprehensive income refers to all components (revenues, expenses, gains, and losses) of comprehensive income that are excluded from net income. The Company’s only component of other comprehensive income is unrealized gains and losses, net of income tax, on investment securities available for sale. The following table presents the changes in accumulated other comprehensive loss for the three months ended March 31, 2024 and 2023: For the three months ended (dollars in thousands) March 31, 2024 March 31, 2023 Beginning balance $ ( 39,365 ) $ ( 47,597 ) Other comprehensive loss before reclassifications, net 55 9,173 Amounts reclassified from accumulated other comprehensive loss, net - - Net current period other comprehensive loss 55 9,173 Ending balance $ ( 39,310 ) $ ( 38,424 ) (3) Net Earnings Per Share Net earnings per share is based on the weighted average number of shares outstanding during the period while the effects of potential shares outstanding during the period are included in diluted earnings per share. The average market price during the applicable period is used to compute equivalent shares. The reconciliation of the amounts used in the computation of both “basic earnings per share” and “diluted earnings per share” for the three months ended March 31, 2024 and 2023 is as follows: For the three months ended March 31, 2024 Net Earnings (Dollars in thousands) Weighted Average Number of Shares Per Share Amount Basic earnings per share $ 3,948 5,318,671 $ 0.74 Effect of dilutive securities: Restricted stock units - unvested 18,143 Shares held in deferred comp plan by deferred compensation trust 164,336 Diluted earnings per share $ 3,948 5,501,150 $ 0.72 11 Table of Contents For the three months ended March 31, 2023 Net Earnings (Dollars in thousands) Weighted Average Number of Shares Per Share Amount Basic earnings per share $ 3,172 5,475,603 $ 0.58 Effect of dilutive securities: Restricted stock units - unvested 16,967 Shares held in deferred comp plan by deferred compensation trust 163,680 Diluted earnings per share $ 3,172 5,656,250 $ 0.56 (4) Investment Securities Investment securities available for sale at March 31, 2024 and December 31, 2023 are as follows: (Dollars in thousands) March 31, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasuries $ 7,977 - 891 7,086 U.S. Government sponsored enterprises 10,669 - 625 10,044 GSE - Mortgage-backed securities 259,899 204 22,987 237,116 Private label mortgage-backed securities 37,294 6 1,948 35,352 State and political subdivisions 129,859 - 24,793 105,066 Total $ 445,698 210 51,244 394,664 (Dollars in thousands) December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value U.S. Treasuries $ 10,974 - 830 10,144 U.S. Government sponsored enterprises 11,111 - 596 10,515 GSE - Mortgage-backed securities 257,705 185 22,988 234,902 Private label mortgage-backed securities 33,317 16 2,063 31,270 State and political subdivisions 129,922 - 24,829 105,093 Total $ 443,029 201 51,306 391,924 The current fair value and associated unrealized losses on investments in securities with unrealized losses at March 31, 2024 and December 31, 2023 are summarized in the tables below, with the length of time the individual securities have been in a continuous loss position. (Dollars in thousands) March 31, 2024 Less than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasuries $ - - 7,086 891 7,086 891 U.S. government sponsored enterprises - - 10,044 625 10,044 625 GSE -Mortgage-backed securities 21,715 550 199,648 22,437 221,363 22,987 Private label mortgage-backed securities 8,142 35 26,089 1,913 34,231 1,948 State and political subdivisions - - 105,066 24,793 105,066 24,793 Total $ 29,857 585 347,933 50,659 377,790 51,244 (Dollars in thousands) December 31, 2023 Less than 12 Months 12 Months or More Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses U.S. Treasuries $ - - 10,144 830 10,144 830 U.S. government sponsored enterprises - - 10,515 596 10,515 596 GSE -Mortgage-backed securities 24,167 546 203,234 22,442 227,401 22,988 Private label mortgage-backed securities 3,416 43 23,095 2,020 26,511 2,063 State and political subdivisions - - 105,093 24,829 105,093 24,829 Total $ 27,583 589 352,081 50,717 379,664 51,306 12 Table of Contents At March 31, 2024, unrealized losses in the investment securities portfolio relating to debt securities totaled $ 51.2 million. The unrealized losses on these debt securities arose due to changing interest rates and are considered to be temporary. From the March 31, 2024 tables above, both of the U.S. Treasury securities, all 108 of the securities issued by state and political subdivisions contained unrealized losses, all seven of the securities issued by U.S. Government sponsored enterprises (“GSE”), 114 of the 124 GSE mortgage-backed securities, and 15 of the 16 private label mortgage backed securities contained unrealized losses. The Company did not have any reserves on available for sale securities at March 31, 2024, as no credit related losses were identified in the Company’s March 31, 2024 analysis. At December 31, 2023, unrealized losses in the investment securities portfolio relating to debt securities totaled $ 51.3 million. The unrealized losses on these debt securities arose due to changing interest rates and are considered to be temporary. From the December 31, 2023 tables above, all three of the U.S. Treasury securities, all 108 of the securities issued by state and political subdivisions contained unrealized losses, all seven of the securities issued by GSE, 114 of the 121 GSE mortgage-backed securities, and 12 of the 14 private label mortgage backed securities contained unrealized losses. The Company did not have an allowance for credit losses on available for sale securities at December 31, 2023, as no credit related losses were identified in the Company’s December 31, 2023 CECL analysis. The amortized cost and estimated fair value of investment securities available for sale at March 31, 2024, presented by contractual maturity, are shown below. Expected maturities of mortgage-backed securities will differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties. March 31, 2024 (Dollars in thousands) Amortized Cost Fair Value Due within one year $ 2,996 2,938 Due from one to five years 16,180 14,702 Due from five to ten years 57,483 48,321 Due after ten years 71,846 56,235 Mortgage-backed securities 297,193 272,468 Total $ 445,698 394,664 No securities available for sale were sold during the three months ended March 31, 2024. During the three months ended March 31, 2023, proceeds from sales of securities available for sale were $ 51.0 million and resulted in gross losses of $ 2.7 million and gross gains of $ 177,000 . Securities with a fair value of approximately $ 109.0 million and $ 132.0 million at March 31, 2024 and December 31, 2023, respectively, were pledged to secure public deposits and for other purposes as required by law. 13 Table of Contents (5) Loans Major classifications of loans at March 31, 2024 and December 31, 2023 are summarized as follows: (Dollars in thousands) March 31, 2024 December 31, 2023 Real estate loans: Construction and land development $ 129,284 136,401 Single-family residential 375,621 372,825 Commercial 438,683 425,820 Multifamily and farmland 71,545 63,042 Total real estate loans 1,015,133 998,088 Loans not secured by real estate: Commercial 68,138 70,544 Farm 534 550 Consumer 6,643 6,966 All other 16,222 16,918 Total loans 1,106,670 1,093,066 Less allowance for credit losses ( 10,847 ) ( 11,041 ) Total net loans $ 1,095,823 1,082,025 The Bank makes loans and extensions of credit primarily within the Catawba Valley region of North Carolina, which encompasses Catawba, Alexander, Iredell and Lincoln counties and also in Mecklenburg, Wake, Rowan and Forsyth counties of North Carolina. Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate, the value of which is dependent upon the real estate market. Risk characteristics of the major components of the Bank’s loan portfolio are discussed below: · Construction and land development loans – The risk of loss is largely dependent on the initial estimate of whether the property’s value at completion equals or exceeds the cost of property construction and the availability of take-out financing. During the construction phase, a number of factors can result in delays or cost overruns. If the estimate is inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan, sale of the property, or by seizure of collateral. · Single-family residential loans – Declining home sales volumes, decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans. · Commercial real estate loans – Repayment is dependent on income being generated in amounts sufficient to cover operating expenses and debt service. These loans also involve greater risk because they are generally not fully amortizing over the loan period, but rather have a balloon payment due at maturity. A borrower’s ability to make a balloon payment typically will depend on being able to either refinance the loan or timely sell the underlying property. · Commercial loans – Repayment is generally dependent upon the successful operation of the borrower’s business. In addition, the collateral securing the loans may depreciate over time, be difficult to appraise, be illiquid, or fluctuate in value based on the success of the business. · Multifamily and farmland loans – Decreased real estate values and higher than normal levels of unemployment could contribute to losses on these loans. Loans are considered past due if the required principal and interest payments have not been received within 30 days of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Generally, a loan is placed on non-accrual status when it is over 90 days past due and there is reasonable doubt that all principal will be collected. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. 14 Table of Contents The following tables present an age analysis of past due loans, by loan type, as of March 31, 2024 and December 31, 2023: March 31, 2024 (Dollars in thousands) Loans 30- 89 Days Past Due Nonaccrual Total Past Due Loans Total Current Loans Total Loans Accruing Loans 90 or More Days Past Due Real estate loans: Construction and land development $ - 43 43 129,241 129,284 - Single-family residential 5,787 3,323 9,110 366,511 375,621 - Commercial 915 - 915 437,768 438,683 - Multifamily and farmland - 72 72 71,473 71,545 - Total real estate loans 6,702 3,438 10,140 1,004,993 1,015,133 - Loans not secured by real estate: Commercial 143 552 695 67,443 68,138 - Farm - - - 534 534 - Consumer 29 1 30 6,613 6,643 - All other - - - 16,222 16,222 - Total loans $ 6,874 3,991 10,865 1,095,805 1,106,670 - December 31, 2023 (Dollars in thousands) Loans 30- 89 Days Past Due Nonaccrual Total Past Due Loans Total Current Loans Total Loans Accruing Loans 90 or More Days Past Due Real estate loans: Construction and land development $ 5 45 50 136,351 136,401 - Single-family residential 3,761 3,302 7,063 365,762 372,825 - Commercial 13 - 13 425,807 425,820 - Multifamily and farmland - 76 76 62,966 63,042 - Total real estate loans 3,779 3,423 7,202 990,886 998,088 - Loans not secured by real estate: Commercial 125 463 588 69,956 70,544 - Farm - 1 1 549 550 - Consumer 63 - 63 6,903 6,966 - All other - - - 16,918 16,918 - Total loans $ 3,967 3,887 7,854 1,085,212 1,093,066 - The following table presents non-accrual loans as of March 31, 2024 and December 31, 2023: March 31, 2024 Nonaccrual Loans Nonaccrual Loans Total With No With Nonaccrual (Dollars in thousands) Allowance Allowance Loans Real estate loans: Construction and land development $ 43 - 43 Single-family residential 3,197 126 3,323 Commercial - - - Multifamily and farmland 72 - 72 Total real estate loans 3,312 126 3,438 Loans not secured by real estate: Commercial 254 298 552 Consumer 1 - 1 Total $ 3,567 424 3,991 15 Table of Contents December 31, 2023 Nonaccrual Loans Nonaccrual Loans Total With No With Nonaccrual (Dollars in thousands) Allowance Allowance Loans Real estate loans: Construction and land development $ 45 - 45 Single-family residential 3,302 - 3,302 Commercial - - - Multifamily and farmland 76 - 76 Total real estate loans 3,423 - 3,423 Loans not secured by real estate: Commercial 31 432 463 Consumer 1 - 1 Total $ 3,455 432 3,887 No interest income was recognized on non-accrual loans for the three months ended March 31, 2024 and 2023. The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination or acquisition. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification. Because of the measurement methodologies used to estimate the allowance, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, the Bank modifies loans by providing principal forgiveness on certain loans. When principal forgiveness is provided, the amortized cost basis of the asset is written off against the allowance for credit losses. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. In some cases, the Bank may modify a certain loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession, such as principal forgiveness, may be granted. The following tables show the amortized cost basis at March 31, 2024 and 2023 of the loans to borrowers experiencing financial difficulty that were modified during the three months ended March 31, 2024 and 2023, disaggregated by loan class and type of concession granted. (Dollars in thousands) Term Extension Amortized Cost Basis at March 31, 2024 % of Loan Class Loan class: Commercial not secured by real estate 73 0.11 % Total $ 73 (Dollars in thousands) Term Extension Amortized Cost Basis at March 31, 2023 % of Loan Class Loan class: Commercial real estate 686 0.17 % Total $ 686 16 Table of Contents The following tables describes the financial effect of the modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2024 and 2023 March 31, 2024 Term Extension Loan Class Financial Effect Commercial real estate Line of credit converted to amortizing term loan . March 31, 2023 Term Extension Loan Class Financial Effect Commercial real estate Extended existing amortization from 148 months to 173 months to keep existing payment the same with the current market rate . No loans modified in the three months ended March 31, 2024 and 2023 that were made to borrowers experiencing financial difficulty had been written off at March 31, 2024 and 2023. The Bank closely monitors the performance of those loans that are modified because borrowers are experiencing financial difficulty so as to understand the effectiveness of its modification efforts. The following tables show the performance of loans that have been modified in the three months ended March 31, 2024 and 2023. March 31, 2024 (Dollars in thousands) Payment Status (Amortized Cost Basis) Current 30 - 89 Days Past Due 90 + Days Past Due Loan type: Commercial real estate 73 - - Total $ 73 - - March 31, 2023 (Dollars in thousands) Payment Status (Amortized Cost Basis) Current 30 - 89 Days Past Due 90 + Days Past Due Loan type: Commercial real estate 686 - - Total $ 686 - - 17 Table of Contents The following tables present changes in the allowance for credit losses for the three months ended March 31, 2024 and 2023. (Dollars in thousands) Real Estate Loans Construction and Land Development Single-Family Residential Commercial Multifamily and Farmland Commercial Farm Consumer and All Other Total Three months ended March 31, 2024 Allowance for credit losses: Beginning balance $ 3,913 3,484 2,317 268 812 2 245 11,041 Charge-offs - - - - ( 446 ) - ( 210 ) ( 656 ) Recoveries - 56 201 - 6 - 36 299 Provision (recovery) for loan losses (1) ( 233 ) 57 ( 173 ) 45 300 - 167 163 Ending balance $ 3,680 3,597 2,345 313 672 2 238 10,847 Allowance for credit loss-loans $ 3,680 3,597 2,345 313 672 2 238 10,847 Allowance for credit losses loan commitments 1,692 5 - - - - 1 1,698 Total allowance for credit losses $ 5,372 3,602 2,345 313 672 2 239 12,545 (1) Excludes provision for credit losses related to unfunded commitments. Note 8,"Commitments and Contingencies" in the condensed consolidated financial statements provides more detail concerning the provision for credit losses related to unfunded commitments. (Dollars in thousands) Real Estate Loans Construction and Land Development Single-Family Residential Commercial Multifamily and Farmland Commercial Farm Consumer and All Other Unallocated Total Three months ended March 31, 2023 Allowance for credit losses: Beginning balance $ 1,415 3,085 3,207 164 657 - 214 1,752 10,494 Adjustment for CECL implementation (1) 1,584 64 ( 986 ) 115 ( 295 ) 2 48 ( 1,752 ) ( 1,220 ) Charge-offs - - - - - - ( 166 ) - ( 166 ) Recoveries - 11 2 - 9 - 60 - 82 Provision (recovery) for loan losses (1) 250 31 21 19 ( 23 ) ( 1 ) 130 - 427 Ending balance $ 3,249 3,191 2,244 298 348 1 286 - 9,617 Allowance for credit loss-loans $ 3,249 3,191 2,244 298 348 1 286 - 9,617 Allowance for credit losses loan commitments 2,004 67 - - - - 4 - 2,075 Total allowance for credit losses $ 5,253 3,258 2,244 298 348 1 290 - 11,692 (1) Excludes adjustment for CECL implemenation and provision for credit losses related to unfunded commitments. Note 8,"Commitments and Contingencies" in the condensed consolidated financial statements provides more detail concerning the implementation adjustment and provision for credit losses related to unfunded commitments. Three loans, totaling $891,000, were individually evaluated as of March 31, 2024, including two loans, totaling $816,000, that were collateral dependent. The were no collateral dependent loans individually evaluated at December 31, 2023. The following table shows collateral dependent loans at March 31, 2024. 18 Table of Contents (Dollars in thousands) March 31, 2024 Amortized Cost Allowance (1) Real estate loans: Construction and land development $ - - Single-family residential 370 126 Commercial - - Multifamily and farmland - - Total real estate loans 370 126 Loans not secured by real estate: Commercial 446 223 Farm - - Consumer - - All other - - Total $ 816 349 (1) Based on estimated value of residential real estate collateral and motor boat inventory collateral. The Bank utilizes several credit quality indicators to manage credit risk in an ongoing manner. The Bank uses an internal risk grade system that categorizes loans into pass, watch or substandard categories. The Bank uses the following credit quality indicators: · Pass – Includes loans ranging from excellent quality with a minimal amount of credit risk to loans with higher risk and servicing needs but still are considered to be acceptable. The higher risk loans in this category are not problem credits presently, but may be in the future if the borrower is unable to change its present course. · Watch – These loans are currently performing satisfactorily, but there has been some recent past due history on repayment and there are potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank’s position at some future date. · Substandard – A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged (if there is any). There is a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. There is a distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. · Doubtful – Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. · Loss – Loans classified Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be affected in the future. 19 Table of Contents The following table presents by credit quality indicator, loan class and year of origination, the amortized cost of the Bank’s loans as of March 31, 2024. Term Loans by Origination Year Revolving Loans Revolving Converted to Total (dollars in thousands) 2024 2023 2022 2021 2020 Prior Loans Term Loans Loans March 31, 2024 Real Estate Loans Construction and land development Pass $ 8,151 41,527 56,601 9,869 6,571 5,110 924 - 128,753 Watch - - - 447 - - - - 447 Substandard - - - - - 84 - - 84 Total Construction and land development $ 8,151 41,527 56,601 10,316 6,571 5,194 924 - 129,284 Single family Pass $ 5,227 32,390 79,539 46,367 23,390 75,395 106,257 - 368,565 Watch - - - - - 1,462 860 - 2,322 Substandard - - 370 - - 3,991 373 - 4,734 Total single family $ 5,227 32,390 79,909 46,367 23,390 80,848 107,490 - 375,621 Commercial Pass $ 19,992 46,189 113,557 77,096 61,101 113,221 1,890 - 433,046 Watch - 230 - - 115 4,884 - - 5,229 Substandard - - - - 408 - - - 408 Total commercial $ 19,992 46,419 113,557 77,096 61,624 118,105 1,890 - 438,683 Multifamily and farmland Pass $ 216 8,892 21,451 21,335 6,467 12,725 340 - 71,426 Watch - - - - - 46 - - 46 Substandard - - - - - 73 - - 73 Total multifamily and farmland $ 216 8,892 21,451 21,335 6,467 12,844 340 - 71,545 Total real estate loans $ 33,586 129,228 271,518 155,114 98,052 216,991 110,644 - 1,015,133 Loans not secured by real estate Commercial Pass $ 2,464 8,737 13,570 4,332 2,381 13,711 21,270 - 66,465 Watch - 627 - 73 286 134 1 - 1,121 Substandard - 31 521 - - - - - 552 Total Commercial $ 2,464 9,395 14,091 4,405 2,667 13,845 21,271 - 68,138 Farm Pass $ - 195 40 68 - 19 212 - 534 Watch - - - - - - - - - Substandard - - - - - - - - - Total farm $ - 195 40 68 - 19 212 - 534 Consumer Pass $ 453 1,967 1,150 306 178 116 2,467 - 6,637 Watch - - - - - - 1 - 1 Substandard - - - 1 - 1 3 - 5 Total consumer $ 453 1,967 1,150 307 178 117 2,471 - 6,643 All other Pass $ 392 - 6,360 450 257 3,422 5,206 - 16,087 Watch - - - - - 73 62 - 135 Substandard - - - - - - - - - Total all other $ 392 - 6,360 450 257 3,495 5,268 - 16,222 Total loans not secured by real estate $ 3,309 11,557 21,641 5,230 3,102 17,476 29,222 - 91,537 Total loans $ 36,895 140,785 293,159 160,344 101,154 234,467 139,866 - 1,106,670 20 Table of Contents The following table presents by credit quality indicator, loan class and year of origination, gross loan charge-offs as of March 31, 2024. Gross Loan Charge-offs by Origination Year Revolving Loans Revolving Converted to Total (dollars in thousands) 2024 2023 2022 2021 2020 Prior Loans Term Loans Loans Real estate loans: Construction and land development $ - - - - - - - - - Single-family residential - - - - - - - - - Commercial - - - - - - - - - Multifamily and farmland - - - - - - - - - Total real estate loans - - - - - - - - - Loans not secured by real estate: Commercial - 347 99 - - - - - 446 Consumer - - 4 - - 99 - - 103 All other - - - - - 107 - - 107 Total gross charge-offs $ - 347 103 - - 206 - - 656 21 Table of Contents The following table presents by credit quality indicator, loan class and year of origination, the amortized cost of the Bank’s loans as of December 31, 2023. Term Loans by Origination Year Revolving Loans Revolving Converted to Total (dollars in thousands) 2023 2022 2021 2020 2019 Prior Loans Term Loans Loans December 31, 2023 Real Estate Loans Construction and land development Pass $ 40,034 71,429 10,736 6,692 1,721 3,914 1,337 - 135,863 Watch - - 448 - - - - - 448 Substandard - - - - - 90 - - 90 Total Construction and land development $ 40,034 71,429 11,184 6,692 1,721 4,004 1,337 - 136,401 Single family Pass $ 32,333 76,326 47,490 24,813 12,984 64,847 106,962 - 365,755 Watch - - - - 89 1,389 860 - 2,338 Substandard - - - - 11 4,342 379 - 4,732 Total single family $ 32,333 76,326 47,490 24,813 13,084 70,578 108,201 - 372,825 Commercial Pass $ 45,755 109,255 78,645 61,973 29,579 92,753 2,158 - 420,118 Watch 232 - - 116 - 4,943 - - 5,291 Substandard - - - 411 - - - - 411 Total commercial $ 45,987 109,255 78,645 62,500 29,579 97,696 2,158 - 425,820 Multifamily and farmland Pass $ 7,987 13,286 21,512 6,624 3,158 9,851 501 - 62,919 Watch - - - - - 47 - - 47 Substandard - - - - - 76 - - 76 Total multifamily and farmland $ 7,987 13,286 21,512 6,624 3,158 9,974 501 - 63,042 Total real estate loans $ 126,341 270,296 158,831 100,629 47,542 182,252 112,197 - 998,088 Loans not secured by real estate Commercial Pass $ 9,561 14,122 4,841 2,942 2,232 12,030 23,411 - 69,139 Watch - - - - 57 102 783 - 942 Substandard 31 - - - - - - - 31 Loss - 82 - - - - 350 432 Total Commercial $ 9,592 14,204 4,841 2,942 2,289 12,132 24,544 - 70,544 Farm Pass $ 198 42 83 - 1 27 199 - 550 Watch - - - - - - - - - Substandard - - - - - - - - - Total farm $ 198 42 83 - 1 27 199 - 550 Consumer Pass $ 2,262 1,352 404 222 72 58 2,591 - 6,961 Watch - - - - - - - - - Substandard - - 2 - - - 3 - 5 Total consumer $ 2,262 1,352 406 222 72 58 2,594 - 6,966 All other Pass $ 79 6,401 474 274 599 3,698 5,256 - 16,781 Watch - - - - - 74 63 - 137 Substandard - - - - - - - - - Total all other $ 79 6,401 474 274 599 3,772 5,319 - 16,918 Total loans not secured by real estate $ 12,131 21,999 5,804 3,438 2,961 15,989 32,656 - 94,978 Total loans $ 138,472 292,295 164,635 104,067 50,503 198,241 144,853 - 1,093,066 22 Table of Contents The following table presents by credit quality indicator, loan class and year of origination, gross loan charge-offs as of December 31, 2023. Gross Loan Charge-offs by Origination Year Revolving Loans Revolving Converted to Total (dollars in thousands) 2023 2022 2021 2020 2019 Prior Loans Term Loans Loans Real estate loans: Construction and land development $ - - - - - - - - - Single-family residential - - - - - - - - - Commercial - - - - - - - - - Multifamily and farmland - - - - - - - - - Total real estate loans - - - - - - - - - Loans not secured by real estate: Commercial - 49 51 16 - 13 - - 129 Farm - - - - - - - - - Consumer - 41 53 6 1 468 - - 569 All other - - - - - - - - - Total gross charge-offs $ - 90 104 22 1 481 - - 698 (6) Leases As of March 31, 2024, the Bank had operating right of use assets of $ 4.6 million and operating lease liabilities of $ 4.7 million. The Bank maintains operating leases on land and buildings for some of the Bank’s branch facilities and loan production offices. Most leases include one option to renew, with renewal terms extending up to 15 years. The exercise of renewal options is based on the judgment of management as to whether or not the renewal option is reasonably certain to be exercised. Factors in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of leasehold improvements, the value of renewal rates compared to market rates, and the presence of factors that would cause a significant economic penalty to the Bank if the option is not exercised. Leases with a term of 12 months or less are not recorded on the balance sheet and instead are recognized in lease expense on a straight-line basis over the lease term. The following table presents lease cost and other lease information as of March 31, 2024 and 2023. (Dollars in thousands) March 31, 2024 March 31, 2023 Operating lease cost $ 815 $ 206 Other information: Cash paid for amounts included in the measurement of lease liabilities 787 201 Operating cash flows from operating leases - - Right-of-use assets obtained in exchange for new lease liabilities - operating leases - - Weighted-average remaining lease term - operating leases 8.30 9.12 Weighted-average discount rate - operating leases 2.74 % 2.60 % The following table presents lease maturities as of March 31, 2024. 2024 $ 615 2025 773 2026 650 2027 612 2028 510 Thereafter 2,115 Total 5,275 Less: Imputed Interest ( 615 ) Operating Lease Liability $ 4,660 23 Table of Contents (7) Securities Sold Under Agreements to Repurchase (“repurchase agreements”) The Bank utilizes repurchase agreements to facilitate the needs of our customers and provide additional funding to our balance sheet. Repurchase agreements are transactions whereby we offer to sell to a counterparty an undivided interest in an eligible security at an agreed upon purchase price, and which obligates the Bank to repurchase the security on an agreed upon date at an agreed upon repurchase price plus interest at an agreed upon rate. Securities sold under repurchase agreements are recorded at the amount of cash received in connection with the transaction and are reflected in the accompanying consolidated balance sheet. Repurchase agreements are subject to terms and conditions of the master repurchase agreements between the Bank and the customer and are accounted for as secured borrowings. At March 31, 2024 and December 31, 2023, repurchase agreements totaled $ 59.2 million and $ 86.7 million, respectively. These borrowings were collateralized with government-sponsored enterprise securities with a market value of $ 69.1 million and $ 89.8 million at March 31, 2024 and December 31, 2023, respectively. We monitor collateral levels on a continuous basis and maintain records of each transaction specifically describing the applicable security and the counterparty’s fractional interest in that security, and we segregate the security from its general assets in accordance with regulations governing custodial holdings of securities. The primary risk with repurchase agreements is market risk associated with the securities securing the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying securities. (8) Commitments and Contingencies The Bank is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheet. The contract amounts of those instruments reflect the extent of involvement the Bank has in particular classes of financial instruments. The exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making commitments to extend credit and standby letters of credit as it does for on-balance-sheet instruments. In most cases, the Bank requires collateral or other security to support financial instruments with credit risk. (Dollars in thousands) Contractual Amount 3/31/24 12/31/23 Financial instruments whose contract amount represent credit risk: Commitments to extend credit $ 370,525 367,482 Standby letters of credit $ 3,328 3,721 Commitments to extend credit are conditional agreements to lend to a customer. Commitments generally have fixed expiration dates and because they may expire without being drawn upon, the total commitment amount of $ 373.9 million does not necessarily represent future cash requirements. Standby letters of credit are conditional commitments issued by the Bank to pay a third party on behalf of a customer. Those letters of credit are primarily issued to businesses in the Bank’s delineated market area. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds real estate, equipment, automobiles and customer deposits as collateral supporting those commitments for which collateral is deemed necessary. The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, when this extension of credit is not unconditionally cancelable. The allowance for off-balance sheet credit exposures is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding activity and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans. The allowance for credit losses for unfunded loan commitments of $ 1.7 million and $ 2.1 million at March 31, 2024 and 2023, respectively, is separately classified on the balance sheet within Other Liabilities. The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three months ended March 31, 2024 and 2023. (dollars in thousands) March 31, 2024 March 31, 2023 Beginning Balance $ 1,770 $ - Cummulative effect of change in accounting principle - 2,278 Provision for (recovery of) credit losses ( 72 ) ( 203 ) Ending balance $ 1,698 $ 2,075 24 Table of Contents (9) Fair Value The Company is required to disclose fair value information about financial instruments, whether or not recognized at fair value on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair value of the Company’s financial instruments are detailed below. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather a good faith estimate of the increase or decrease in the value of financial instruments held by the Company since purchase, origination, or issuance. The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are: · Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets. · Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market. · Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques. Investment Securities Available for Sale Fair values of investment securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges when available. If quoted prices are not available, fair value is determined using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Fair values for investment securities with quoted market prices are reported in the Level 1 fair value category. Fair value measurements obtained from independent pricing services are reported in the Level 2 fair value category. All other fair value measurements are reported in the Level 3 fair value category. Mortgage Loans Held for Sale Mortgage loans held for sale are carried at lower of aggregate cost or market value. The cost of mortgage loans held for sale approximates the market value. Mortgage loans held for sale are reported in the Level 2 fair value category. Management determined that the valuation technique used at current period end and prior period end are more appropriately classified as Level 2 and has updated in the current period and prior period year end classifications to Level 2. Loans The fair value of loans, excluding previously presented individually evaluated loans measured at fair value on a non-recurring basis, is estimated using discounted cash flow analyses. The discount rates used to determine fair value use interest rate spreads that reflect factors such as liquidity, credit, and nonperformance risk of the loans. Loans are reported in the Level 3 fair value category, as the pricing of loans is more subjective than the pricing of other financial instruments. Mutual Funds For mutual funds held in the deferred compensation trust, the carrying value is a reasonable estimate of fair value. Mutual funds held in the deferred compensation trust are included in other assets on the balance sheet and reported in the Level 1 fair value category. FHLB Borrowings The fair value of FHLB borrowings is estimated based upon discounted future cash flows using a discount rate comparable to the current market rate for such borrowings. FHLB borrowings are reported in the Level 2 fair value category. Management determined that the valuation technique used at current period end and prior period end are more appropriately classified as Level 2 and has updated in the current period and prior period year end classifications to Level 2. Commitments to Extend Credit and Standby Letters of Credit Commitments to extend credit and standby letters of credit are generally short-term in duration and made at variable interest rates. Therefore, both the carrying value and estimated fair value associated with these instruments are immaterial. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. 25 Table of Contents Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in the estimates. The tables below present all financial instruments measured at fair value on a recurring basis by level within the fair value hierarchy, as of March 31, 2024 and December 31, 2023. (Dollars in thousands) March 31, 2024 Fair Value Level 1 Valuation Level 2 Valuation Level 3 Valuation U.S. Treasuries $ 7,086 - 7,086 - U.S. Government sponsored enterprises 10,044 - 10,044 - GSE - Mortgage-backed securities 237,116 - 237,116 - Private label mortgage-backed securities 35,352 - 35,352 - State and political subdivisions 105,066 - 105,066 - (Dollars in thousands) December 31, 2023 Fair Value Level 1 Valuation Level 2 Valuation Level 3 Valuation U.S. Treasuries $ 9,814 - 9,814 - U.S. Government Sponsored enterprises 11,539 - 11,539 - Mortgage-backed securities 273,838 - 273,838 - State and political subdivisions 150,203 - 150,203 - Mutual funds held in deferred compensation trust 1,327 - 1,327 The fair value measurements for mortgage loans held for sale and individually evaluated loans on a non-recurring basis at March 31, 2024 and December 31, 2023 are presented below. The fair value measurement process uses certified appraisals and other market-based information; however, in many cases, it also requires significant input based on management’s knowledge of, and judgment about, current market conditions, specific issues relating to the collateral and other matters. As a result, all fair value measurements for individually evaluated loans and other real estate are considered Level 3. (Dollars in thousands) Fair Value Measurements March 31, 2024 Level 1 Valuation Level 2 Valuation Level 3 Valuation Individually evaluated loans $ 467 - - 467 (Dollars in thousands) Fair Value Measurements December 31, 2023 Level 1 Valuation Level 2 Valuation Level 3 Valuation Individually evaluated loans $ - - - - 26 Table of Contents (Dollars in thousands) Fair Value March 31, 2024 Fair Value December 31, 2023 Valuation Technique Significant Unobservable Inputs General Range of Significant Unobservable Input Values Individually evaluated loans $ 467 $ - Appraised value Discounts to reflect current market conditions and ultimate collectability 0 - 25 % The carrying amount and estimated fair value of financial instruments at March 31, 2024 and December 31, 2023 are as follows: (Dollars in thousands) Fair Value Measurements at March 31, 2024 Carrying Amount Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $ 98,096 98,096 - - 98,096 Investment securities available for sale 394,664 - 394,664 - 394,664 Other investments 2,858 - - 2,858 2,858 Mortgage loans held for sale 1,292 - 1,292 - 1,292 Loans, net 1,095,823 - - 1,083,635 1,083,635 Mutual funds held in deferred compensation trust 2,394 2,394 - - 2,394 Liabilities: Deposits $ 1,452,364 - 1,456,401 - 1,456,401 Securities sold under agreements to repurchase 59,216 - 59,216 - 59,216 Junior subordinated debentures 15,464 - 15,464 - 15,464 (Dollars in thousands) Fair Value Measurements at December 31, 2023 Carrying Amount Level 1 Level 2 Level 3 Total Assets: Cash and cash equivalents $ 82,375 82,375 - - 82,375 Investment securities available for sale 391,924 - 391,924 - 391,924 Other investments 2,874 - - 2,874 2,874 Mortgage loans held for sale 686 - 686 - 686 Loans, net 1,082,025 - - 1,071,178 1,071,178 Mutual funds held in deferred compensation trust 2,171 2,171 - - 2,171 Liabilities: Deposits $ 1,392,045 - 1,397,351 - 1,397,351 Securities sold under agreements to repurchase 86,715 - 86,715 - 86,715 Junior subordinated debentures 15,464 - 15,464 - 15,464 (10) Reportable Segments The Company has two reportable segments, as described below. Banking Operations – This segment reflects the consolidated Bank, excluding CBRES. The primary source of revenue for this segment is net interest income. 27 Table of Contents CBRES – A Bank subsidiary that provides appraisal management services to community banks. The primary source of revenue for this segment is appraisal management fee income. The following table presents financial information for the reportable segments. The information provided under the caption “Other” represents financial information for the Company, which is not considered to be a reportable segment, and is included to reconcile the results of the reportable segments to the Consolidated Financial Statements prepared in conformity with GAAP. (Dollars in thousands) Banking Operations CBRES Other Consolidated As of and for the three months ended March 31, 2024 Interest income $ 19,801 $ - $ 9 $ 19,810 Interest expense 6,222 - 284 6,506 Net interest income 13,579 - ( 275 ) 13,304 Provision for credit losses 91 - - 91 Noninterest income 3,624 - - 3,624 Appraisal management fee income - 2,414 - 2,414 Noninterest expense 12,106 344 162 12,612 Appraisal management fee expense - 1,904 - 1,904 Income tax expense (benefit) 841 38 ( 92 ) 787 Net income (loss) $ 4,165 $ 128 $ ( 345 ) $ 3,948 Total assets $ 1,665,209 $ 3,847 $ 504 $ 1,669,560 As of and for the three months ended March 31, 2023 Interest income $ 16,793 $ - $ 8 $ 16,801 Interest expense 2,215 - 248 2,463 Net interest income 14,578 - ( 240 ) 14,338 Provision for credit losses 224 - - 224 Noninterest income 1,517 - - 1,517 Appraisal management fee income - 2,094 - 2,094 Noninterest expense 11,564 334 154 12,052 Appraisal management fee expense - 1,650 - 1,650 Income tax expense (benefit) 909 25 ( 83 ) 851 Net income (loss) $ 3,398 $ 85 $ ( 311 ) $ 3,172 Total assets $ 1,598,863 $ 3,329 $ 500 $ 1,602,692 28 Table of Contents