UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended ~~September~~June 30, ~~2022~~2023

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-38647

FVCBankcorp, Inc.

(Exact name of registrant as specified in its charter)


Virginia						47-5020283
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)


11325 Random Hills Road
Suite 240
Fairfax,	Virginia	22030
(Address of principal executive offices)		(Zip Code)

(703) 436-3800

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value

FVCB

The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Table of Contents


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

~~13,991,830~~17,802,148 shares of common stock, par value $0.01 per share, outstanding as of ~~November 4, 2022~~August 11, 2023

Table of Contents

FVCBankcorp, Inc.

INDEX TO FORM 10-Q


PART I — FINANCIAL INFORMATION			3

Item 1. Financial Statements:			3

Consolidated Balance Sheets at ~~September~~June 30 ~~30, 2022~~, 2023 (unaudited) and December 31, ~~2021~~2022			3

Consolidated Statements of Income For the Three and ~~Nine~~Six Months Ended ~~September~~June 30 ~~30,~~, 2023 and 2022 ~~and 2021~~ (unaudited)			54

Consolidated Statements of Comprehensive Income (Loss) For the Three and Six ~~Nine~~Months Ended ~~September~~June 30 ~~30,~~, 2023 and 2022 ~~and 2021~~ (unaudited)			65

Consolidated Statements of Cash Flows For the ~~Nine~~S ix Months Ended ~~September~~June 30 ~~30,~~, 2023 and 2022 ~~and 2021~~ (unaudited)			76

Consolidated Statements of Changes in Stockholders’ Equity For the Three and ~~Nine~~Six Months Ended ~~September~~June 30 ~~30,~~, 2023 and 2022 ~~and 2021~~ (unaudited)			87

Notes to Unaudited Consolidated Financial Statements ~~(unaudited)~~			98

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			3840

Item 3. Quantitative and Qualitative Disclosures About Market Risk			6571

Item 4. Controls and Procedures			6571

PART II — OTHER INFORMATION			6672

Item 1. Legal Proceedings			6672

Item 1A. Risk Factors			6672

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			6672

Item 3. Defaults Upon Senior Securities			6672

Item 4. Mine Safety Disclosures			6672

Item 5. Other Information			6672

Item 6. Exhibits			6673

SIGNATURES			6874

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

FVCBankcorp, Inc. and Subsidiary

Consolidated Balance Sheets

~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022

(In thousands, except share data)


				September 30, 2022		December 31, 2021*					June 30, 2023		December 31, 2022*
				(Unaudited)							(Unaudited)
Assets	Assets							Assets
Cash and due from banks	Cash and due from banks			$	11,820	$	24,613	Cash and due from banks			$	8,281	$	7,253
Interest-bearing deposits at other financial institutions	Interest-bearing deposits at other financial institutions			56,522		216,345		Interest-bearing deposits at other financial institutions			66,723		74,300
Securities held-to-maturity (fair value of $0.2 million and $0.3 million at September 30, 2022 and December 31, 2021, respectively)				264		264
Securities held-to-maturity (fair value of $0.3 million and $0.3 million at June 30, 2023 and December 31, 2022, respectively), net of ACL of $0 at June 30, 2023 and December 31, 2022.								Securities held-to-maturity (fair value of $0.3 million and $0.3 million at June 30, 2023 and December 31, 2022, respectively), net of ACL of $0 at June 30, 2023 and December 31, 2022.			264		264
Securities available-for-sale, at fair value	Securities available-for-sale, at fair value			282,215		357,774		Securities available-for-sale, at fair value			231,204		278,069
Restricted stock, at cost	Restricted stock, at cost			9,061		6,372		Restricted stock, at cost			4,909		15,612
Loans, net of allowance for loan losses of $15.3 million and $13.8 million at September 30, 2022 and December 31, 2021, respectively				1,699,160		1,490,020
Loans, net of allowance for credit losses of $19.4 million and $16.0 million at June 30, 2023 and December 31, 2022, respectively								Loans, net of allowance for credit losses of $19.4 million and $16.0 million at June 30, 2023 and December 31, 2022, respectively			1,884,372		1,824,394
Premises and equipment, net	Premises and equipment, net			1,290		1,584		Premises and equipment, net			1,103		1,220
Accrued interest receivable	Accrued interest receivable			8,459		8,074		Accrued interest receivable			10,465		9,435
Prepaid expenses	Prepaid expenses			3,428		1,393		Prepaid expenses			4,894		3,273
Deferred tax assets, net	Deferred tax assets, net			18,637		8,629		Deferred tax assets, net			17,809		18,533
Goodwill and intangibles, net	Goodwill and intangibles, net			7,849		8,052		Goodwill and intangibles, net			7,682		7,790
Bank owned life insurance (BOLI)				55,016		39,171
Bank owned life insurance ("BOLI")								Bank owned life insurance ("BOLI")			56,066		55,371
Operating lease right-of-use assets	Operating lease right-of-use assets			10,044		10,167		Operating lease right-of-use assets			9,347		9,680
Other assets	Other assets			41,219		30,466		Other assets			41,253		39,128
Total assets	Total assets			$	2,204,984	$	2,202,924	Total assets			$	2,344,372	$	2,344,322

Liabilities and Stockholders' Equity
Liabilities	Liabilities							Liabilities
Deposits:	Deposits:							Deposits:
Noninterest-bearing	Noninterest-bearing			$	513,711	$	581,293	Noninterest-bearing			$	436,972	$	438,269
Interest-bearing checking, savings and money market	Interest-bearing checking, savings and money market			1,071,768		1,071,059		Interest-bearing checking, savings and money market			872,508		883,480
Time deposits	Time deposits			303,805		231,417		Time deposits			778,562		508,413
Total deposits	Total deposits			$	1,889,284	$	1,883,769	Total deposits			$	2,088,042	$	1,830,162

Federal Home Loan Bank (FHLB) advances				$	75,000	$	25,000
Federal funds purchased								Federal funds purchased			$	—	$	30,000
Federal Home Loan Bank ("FHLB") advances								Federal Home Loan Bank ("FHLB") advances			—		235,000
Subordinated notes, net of issuance costs	Subordinated notes, net of issuance costs			19,551		19,510		Subordinated notes, net of issuance costs			19,592		19,565
Accrued interest payable	Accrued interest payable			845		1,034		Accrued interest payable			2,685		1,269
Operating lease liabilities	Operating lease liabilities			10,759		11,111		Operating lease liabilities			10,044		10,394
Reserves for unfunded commitments								Reserves for unfunded commitments			801		—
Accrued expenses and other liabilities	Accrued expenses and other liabilities			14,910		52,704		Accrued expenses and other liabilities			12,157		15,550
Total liabilities	Total liabilities			$	2,010,349	$	1,993,128	Total liabilities			$	2,133,321	$	2,141,940

Commitments and Contingent Liabilities	Commitments and Contingent Liabilities							Commitments and Contingent Liabilities

Stockholders' Equity	Stockholders' Equity	2022	2021					Stockholders' Equity	2023	2022
Preferred stock, $0.01 par value	Preferred stock, $0.01 par value							Preferred stock, $0.01 par value
Shares authorized	Shares authorized	1,000,000	1,000,000					Shares authorized	1,000,000	1,000,000
Shares issued and outstanding	Shares issued and outstanding	—	—	$	—	$	—	Shares issued and outstanding	—	—
Common stock, $0.01 par value	Common stock, $0.01 par value							Common stock, $0.01 par value
Shares authorized	Shares authorized	20,000,000	20,000,000					Shares authorized	20,000,000	20,000,000
Shares issued and outstanding	Shares issued and outstanding	13,991,881	13,727,045	140		137		Shares issued and outstanding	17,783,305	17,475,109	178		175
Additional paid-in capital	Additional paid-in capital			124,091		121,798		Additional paid-in capital			124,713		123,886
Retained earnings	Retained earnings			109,984		89,904		Retained earnings			116,922		114,888
Accumulated other comprehensive (loss), net	Accumulated other comprehensive (loss), net			(39,580)		(2,043)		Accumulated other comprehensive (loss), net			(30,762)		(36,567)
Total stockholders' equity	Total stockholders' equity			$	194,635	$	209,796	Total stockholders' equity			$	211,051	$	202,382
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity			$	2,204,984	$	2,202,924	Total liabilities and stockholders' equity			$	2,344,372	$	2,344,322

See Notes to Consolidated Financial Statements.

~~Table of Contents~~

*Derived from audited consolidated financial statements.

Table of Contents

FVCBankcorp, Inc. and Subsidiary

Consolidated Statements of Income

For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(In thousands, except per share data)

~~(Unaudited)~~


		For the Three Months Ended				For the Nine Months Ended					For the Three Months Ended				For the Six Months Ended
		September 30,				September 30,					June 30,				June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Interest and Dividend Income	Interest and Dividend Income									Interest and Dividend Income
Interest and fees on loans	Interest and fees on loans	$	19,344	$	16,217	$	52,194	$	47,899	Interest and fees on loans	$	24,986	$	17,243	$	48,382	$	32,850
Interest and dividends on securities held-to-maturity	Interest and dividends on securities held-to-maturity	2		2		5		5		Interest and dividends on securities held-to-maturity	1		2		3		2
Interest and dividends on securities available-for-sale	Interest and dividends on securities available-for-sale	1,481		996		4,471		2,586		Interest and dividends on securities available-for-sale	1,247		1,503		2,635		2,991
Dividends on restricted stock	Dividends on restricted stock	93		82		253		245		Dividends on restricted stock	125		78		371		161
Interest on deposits at other financial institutions	Interest on deposits at other financial institutions	171		89		417		205		Interest on deposits at other financial institutions	844		200		1,146		245
Total interest and dividend income	Total interest and dividend income	$	21,091	$	17,386	$	57,340	$	50,940	Total interest and dividend income	$	27,203	$	19,026	$	52,537	$	36,249

Interest Expense	Interest Expense									Interest Expense
Interest on deposits	Interest on deposits	$	2,892	$	1,848	$	6,619	$	5,703	Interest on deposits	$	12,012	$	1,897	$	20,793	$	3,727
Interest on federal funds purchased	Interest on federal funds purchased	237		—		248		—		Interest on federal funds purchased	—		11		11		11
Interest on short-term debt	Interest on short-term debt	178		89		336		257		Interest on short-term debt	546		73		2,816		158
Interest on subordinated notes	Interest on subordinated notes	258		970		773		2,272		Interest on subordinated notes	257		258		515		515
Total interest expense	Total interest expense	$	3,565	$	2,907	$	7,976	$	8,232	Total interest expense	$	12,815	$	2,239	$	24,135	$	4,411

Net Interest Income	Net Interest Income	$	17,526	$	14,479	$	49,364	$	42,708	Net Interest Income	$	14,388	$	16,787	$	28,402	$	31,838
Provision for loan losses		365		—		1,900		—
Net interest income after provision for loan losses		$	17,161	$	14,479	$	47,464	$	42,708
Provision for credit losses										Provision for credit losses	618		1,185		860		1,535
Net interest income after provision for credit losses										Net interest income after provision for credit losses	$	13,770	$	15,602	$	27,542	$	30,303
Noninterest Income	Noninterest Income									Noninterest Income
Service charges on deposit accounts	Service charges on deposit accounts	$	241	$	278	$	706	$	768	Service charges on deposit accounts	$	232	$	230	$	447	$	464
BOLI income	BOLI income	352		249		844		746		BOLI income	362		254		694		492
Income from minority membership interest		(160)		364		754		364
(Loss) income from minority membership interests										(Loss) income from minority membership interests	20		2		(781)		914
Loss on sale of securities available-for-sale										Loss on sale of securities available-for-sale	—		—		(4,592)		—
Other income	Other income	142		170		540		659		Other income	277		159		496		399
Total noninterest income		$	575	$	1,061	$	2,844	$	2,537
Total noninterest (loss) income										Total noninterest (loss) income	$	891	$	645	$	(3,736)	$	2,269

Noninterest Expenses	Noninterest Expenses									Noninterest Expenses
Salaries and employee benefits	Salaries and employee benefits	$	5,202	$	4,717	$	15,094	$	13,723	Salaries and employee benefits	$	5,092	$	4,914	$	10,107	9,891
Occupancy and equipment expense		676		810		2,328		2,437
Occupancy expense										Occupancy expense	610		553		1,238		1,153
Internet banking and software expense										Internet banking and software expense	583		416		1,144		799
Data processing and network administration	Data processing and network administration	595		520		1,688		1,633		Data processing and network administration	611		550		1,233		1,092
State franchise taxes	State franchise taxes	509		496		1,527		1,487		State franchise taxes	584		509		1,169		1,018
Audit, legal and consulting fees	Audit, legal and consulting fees	235		356		884		1,213		Audit, legal and consulting fees	247		288		431		649
Merger and acquisition expense	Merger and acquisition expense	—		1,107		125		1,107		Merger and acquisition expense	—		—		—		125
Loan related expenses		242		417		230		830
Loan related (benefit)/expenses										Loan related (benefit)/expenses	116		(59)		388		(12)
FDIC insurance	FDIC insurance	155		160		515		590		FDIC insurance	357		180		537		360
Marketing, business development and advertising	Marketing, business development and advertising	93		55		270		160		Marketing, business development and advertising	206		89		360		177
Director fees	Director fees	168		180		503		471		Director fees	180		155		360		335
Postage, courier and telephone	Postage, courier and telephone	33		46		124		141		Postage, courier and telephone	47		40		96		91
Internet banking		173		132		474		406
Core deposit intangible and other amortization		97		75		298		233
Core deposit intangible amortization										Core deposit intangible amortization	52		131		107		138
Tax credit amortization										Tax credit amortization	32		—		63		63
Other operating expenses	Other operating expenses	421		355		1,198		1,104		Other operating expenses	486		450		980		778
Total noninterest expenses	Total noninterest expenses	$	8,599	$	9,426	$	25,258	$	25,535	Total noninterest expenses	$	9,203	$	8,216	$	18,213	$	16,657
Net income before income tax expense	Net income before income tax expense	$	9,137	$	6,114	$	25,050	$	19,710	Net income before income tax expense	$	5,458	$	8,031	$	5,593	$	15,915
Income tax expense	Income tax expense	2,094		1,432		4,970		4,294		Income tax expense	1,225		1,606		739		2,876
Net income	Net income	$	7,043	$	4,682	$	20,080	$	15,416	Net income	$	4,233	$	6,425	$	4,854	$	13,039
Earnings per share, basic	Earnings per share, basic	$	0.50	$	0.34	$	1.44	$	1.13	Earnings per share, basic	$	0.24	$	0.37	$	0.28	$	0.75
Earnings per share, diluted	Earnings per share, diluted	$	0.48	$	0.32	$	1.36	$	1.06	Earnings per share, diluted	$	0.23	$	0.35	$	0.27	$	0.71

See Notes to Consolidated Financial Statements.

Table of Contents

FVCBankcorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Loss)

For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(In thousands)

(Unaudited)

For the Three Months Ended For the Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Net income $ 7,043 $ 4,682 $ 20,080 $ 15,416
Other comprehensive (loss):
Unrealized (loss) on securities available for sale, net of tax benefit of $3,614 and $11,014 for the three and nine months ended September 30, 2022, respectively, and net of tax benefit of $450 and $696 for the three and nine months ended September 30, 2021, respectively. (13,555) (1,688) (41,433) (2,786)
Unrealized gain on interest rate swaps, net of tax expense of $842 and $1,037 for the three and nine months ended September 30, 2022 and net of tax expense of $17 and $73 for the three and nine months ended September 30, 2021, respectively. 3,167 61 3,896 274
Total other comprehensive (loss) $ (10,388) $ (1,627) $ (37,537) $ (2,512)
Total comprehensive (loss) income $ (3,345) $ 3,055 $ (17,457) $ 12,904


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net income	$	4,233	$	6,425	$	4,854	$	13,039
Other comprehensive income (loss):
Unrealized gain (loss) on securities available for sale, net of tax benefit of $651 for the three months ended June 30, 2023, and net of tax expense of $8 for the six months ended June 30, 2023, and net of tax benefit of $2,700 and $7,400 for the three and six months ended June 30, 2022, respectively.	(2,307)		(10,199)		28		(27,878)
Unrealized gain on interest rate swaps, net of tax expense of $1,243 and $621 for the three and six months ended June 30, 2023, respectively,and net of tax expense of $59 and $194 for the three and six months ended June 30, 2022, respectively.	4,407		221		2,195		729
Reclassification adjustment for securities losses realized in income, net of tax expense of $0 and $1,010 for the three and six months ended June 30, 2023, respectively, and $0 for each of the three and six months ended June 30, 2022, respectively.	—		—		3,582		—
Total other comprehensive income (loss)	$	2,100	$	(9,978)	$	5,805	$	(27,149)
Total comprehensive income (loss)	$	6,333	$	(3,553)	$	10,659	$	(14,110)

See Notes to Consolidated Financial Statements.

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FVCBankcorp, Inc. and Subsidiary

Consolidated Statements of Cash Flows

For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(In thousands)

(Unaudited)


		2022		2021			2023		2022
Cash Flows From Operating Activities	Cash Flows From Operating Activities					Cash Flows From Operating Activities
Net income	Net income	$	20,080	$	15,416	Net income	$	4,854	$	13,039
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	Depreciation	317		427		Depreciation	207		215
Provision for loan losses		1,900		—
Provision for credit losses						Provision for credit losses	860		1,535
Net amortization of premium of securities	Net amortization of premium of securities	484		347		Net amortization of premium of securities	213		333
Net accretion of deferred loan costs and fees	Net accretion of deferred loan costs and fees	(1,767)		(4,490)		Net accretion of deferred loan costs and fees	(849)		(1,228)
Net accretion of acquisition accounting adjustments	Net accretion of acquisition accounting adjustments	(125)		(331)		Net accretion of acquisition accounting adjustments	(421)		(98)
Income from minority membership interest		(754)		(364)
Loss on sale of available-for-sale investment securities						Loss on sale of available-for-sale investment securities	4,592		—
Loss (income) from minority membership interest						Loss (income) from minority membership interest	781		(914)
Amortization of subordinated debt issuance costs	Amortization of subordinated debt issuance costs	41		466		Amortization of subordinated debt issuance costs	27		27
Core deposits intangible and other amortization		298		233
Stock-based compensation expense		799		749
Core deposits intangible amortization						Core deposits intangible amortization	107		138
Tax credits amortization						Tax credits amortization	63		63
Equity-based compensation expense						Equity-based compensation expense	650		452
BOLI income	BOLI income	(844)		(746)		BOLI income	(694)		(492)
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Increase in accrued interest receivable, prepaid expenses and other assets		(12,368)		(15,916)
Increase (decrease) in accrued interest payable, accrued expenses and other liabilities		5,833		(4,899)
Net cash provided by (used in) operating activities		$	13,894	$	(9,108)
Increase in accrued interest receivable, prepaid expenses, and other assets						Increase in accrued interest receivable, prepaid expenses, and other assets	(5,756)		(4,344)
Increase (decrease) in accrued interest payable, accrued expenses, and other liabilities						Increase (decrease) in accrued interest payable, accrued expenses, and other liabilities	854		(2,272)
Net cash provided by operating activities						Net cash provided by operating activities	$	5,488	$	6,454

Cash Flows From Investing Activities	Cash Flows From Investing Activities					Cash Flows From Investing Activities
Decrease (increase) in interest-bearing deposits at other financial institutions		$	159,823	$	(2,259)
(Increase) decrease in interest-bearing deposits at other financial institutions						(Increase) decrease in interest-bearing deposits at other financial institutions	$	7,577	$	20,158
Purchases of securities available-for-sale	Purchases of securities available-for-sale	(47,160)		(181,219)		Purchases of securities available-for-sale	—		(46,160)
Proceeds from maturities and calls of securities available-for-sale		—		5,000
Proceeds from sales of securities available-for-sale						Proceeds from sales of securities available-for-sale	35,778		—
Proceeds from redemptions of securities available-for-sale	Proceeds from redemptions of securities available-for-sale	29,564		28,599		Proceeds from redemptions of securities available-for-sale	10,899		20,481
Net (purchase) redemption of restricted stock		(2,689)		191
Net (increase) decrease in loans		(209,141)		1,233
Net redemption (purchase) of restricted stock						Net redemption (purchase) of restricted stock	10,702		(190)
Net increase in loans						Net increase in loans	(62,379)		(159,459)
Purchase of bank-owned life insurance	Purchase of bank-owned life insurance	(15,000)		—		Purchase of bank-owned life insurance	—		(15,000)
Distribution received from minority owned investment	Distribution received from minority owned investment	1,040		—		Distribution received from minority owned investment	—		1,040
Purchases of premises and equipment, net	Purchases of premises and equipment, net	(129)		(428)		Purchases of premises and equipment, net	(90)		(71)
Net cash used in investing activities		$	(83,692)	$	(148,883)
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	$	2,487	$	(179,201)

Cash Flows From Financing Activities	Cash Flows From Financing Activities					Cash Flows From Financing Activities
Net (decrease) increase in noninterest-bearing, interest-bearing checking, savings, and money market deposits	Net (decrease) increase in noninterest-bearing, interest-bearing checking, savings, and money market deposits	$	(66,873)	$	239,420	Net (decrease) increase in noninterest-bearing, interest-bearing checking, savings, and money market deposits	$	(12,269)	$	56,393

Net increase in FHLB advances		50,000		—
(Decrease) increase in federal funds purchased						(Decrease) increase in federal funds purchased	(30,000)		115,000
Net decrease in FHLB advances						Net decrease in FHLB advances	(235,000)		—
Net increase (decrease) in time deposits	Net increase (decrease) in time deposits	72,381		(62,423)		Net increase (decrease) in time deposits	270,142		(12,990)
Payments due to call of subordinated notes		—		(10,500)
Repurchase of shares of common stock						Repurchase of shares of common stock	(1,448)		—
Taxes from vesting of restricted stock units						Taxes from vesting of restricted stock units	(83)		—
Common stock issuance	Common stock issuance	1,497		1,041		Common stock issuance	1,711		1,461
Net cash provided by financing activities		$	57,005	$	167,538
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	$	(6,947)	$	159,864
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	$	(12,793)	$	9,547	Net increase (decrease) in cash and cash equivalents	$	1,028	$	(12,883)
Cash and cash equivalents, beginning of year	Cash and cash equivalents, beginning of year	24,613		20,835		Cash and cash equivalents, beginning of year	7,253		24,613
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	11,820	$	30,382	Cash and cash equivalents, end of period	$	8,281	$	11,730

See Notes to Consolidated Financial Statements.

Table of Contents

FVCBankcorp, Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders’ Equity

For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(In thousands)

(Unaudited)


		Shares	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total			Shares	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balance at December 31, 2020		13,511	$	135	$	119,568	$	67,971	$	1,826	$	189,500
Net income		—	—		—		15,416		—		15,416
Other comprehensive loss		—	—		—		—		(2,512)		(2,512)
Common stock issuance for options exercised, net		156	2		1,039		—		—		1,041
Vesting of restricted stock grants		20	—		—		—		—		—
Stock-based compensation expense		—	—		749		—		—		749
Balance at September 30, 2021		13,687	$	137	$	121,356	$	83,387	$	(686)	$	204,194
Balance at June 30, 2021		13,648	$	136	$	120,905	$	78,705	$	941	$	200,687
Net income		—	—		—		4,682		—		4,682
Other comprehensive loss		—	—		—		—		(1,627)		(1,627)
Common stock issuance for options exercised, net		20	1		162		—		—		163
Vesting of restricted stock grants		19	—		—		—		—		—
Stock-based compensation expense		—	—		289		—		—		289
Balance at September 30, 2021		13,687	$	137	$	121,356	$	83,387	$	(686)	$	204,194
Balance at December 31, 2021	Balance at December 31, 2021	13,727	$	137	$	121,798	$	89,904	$	(2,043)	$	209,796	Balance at December 31, 2021	13,727	$	137	$	121,798	$	89,904	$	(2,043)	$	209,796
Net income	Net income	—	—		—		20,080		—		20,080		Net income	—	—		—		13,039		—		13,039
Other comprehensive loss	Other comprehensive loss	—	—		—		—		(37,537)		(37,537)		Other comprehensive loss	—	—		—		—		(27,149)		(27,149)
Common stock issuance for options exercised, net	Common stock issuance for options exercised, net	219	3		1,494		—		—		1,497		Common stock issuance for options exercised, net	215	3		1,458		—		—		1,461
Vesting of restricted stock grants	Vesting of restricted stock grants	46	—		—		—		—		—		Vesting of restricted stock grants	28	—		—		—		—		—
Stock-based compensation expense	Stock-based compensation expense	—	—		799		—		—		799		Stock-based compensation expense	—	—		452		—		—		452
Balance at September 30, 2022		13,992	$	140	$	124,091	$	109,984	$	(39,580)	$	194,635
Balance at June 30, 2022	Balance at June 30, 2022	13,971	$	140	$	123,710	$	102,941	$	(29,192)	$	197,599	Balance at June 30, 2022	13,971	$	140	$	123,708	$	102,943	$	(29,192)	$	197,599
Balance at March 31, 2022													Balance at March 31, 2022	13,967	$	140	$	123,429	$	96,518	$	(19,214)	$	200,873
Net income	Net income	—	—		—		7,043		—		7,043		Net income	—	—		—		6,425		—		6,425
Other comprehensive loss	Other comprehensive loss	—	—		—		—		(10,388)		(10,388)		Other comprehensive loss	—	—		—		—		(9,978)		(9,978)
Common stock issuance for options exercised, net	Common stock issuance for options exercised, net	3	—		33		—		—		33		Common stock issuance for options exercised, net	4	—		31		—		—		31
Vesting of restricted stock grants	Vesting of restricted stock grants	18	—		—		—		—		—		Vesting of restricted stock grants	—	—		—		—		—		—
Stock-based compensation expense	Stock-based compensation expense	—	—		348		—		—		348		Stock-based compensation expense	—	—		248		—		—		248
Balance at September 30, 2022		13,992	$	140	$	124,091	$	109,984	$	(39,580)	$	194,635
Balance at June 30, 2022													Balance at June 30, 2022	13,971	$	140	$	123,708	$	102,943	$	(29,192)	$	197,599
Balance at December 31, 2022													Balance at December 31, 2022	17,475	$	175	$	123,886	$	114,888	$	(36,567)	$	202,382
Net income													Net income	—	—		—		4,854		—		4,854
Impact of adoption of ASU 2016-13													Impact of adoption of ASU 2016-13	—	—		—		(2,808)		—		(2,808)
Other comprehensive income													Other comprehensive income	—	—		—		—		5,805		5,805
Repurchase of common stock													Repurchase of common stock	(116)	(1)		(1,447)		(12)		—		(1,460)
Common stock issuance for options exercised, net													Common stock issuance for options exercised, net	360	4		1,707		—		—		1,711
Vesting of restricted stock grants													Vesting of restricted stock grants	64	—		(83)		—		—		(83)
Stock-based compensation expense													Stock-based compensation expense	—	—		650		—		—		650
Balance at June 30, 2023													Balance at June 30, 2023	17,783	$	178	$	124,713	$	116,922	$	(30,762)	$	211,051
Balance at March 31, 2023													Balance at March 31, 2023	17,705	$	177	$	124,152	$	112,689	$	(32,862)	$	204,156
Net income													Net income	—	—		—		4,233		—		4,233
Other comprehensive income													Other comprehensive income	—	—		—		—		2,100		2,100
Repurchase of common stock													Repurchase of common stock	(25)	—		(228)		—		—		(228)
Common stock issuance for options exercised, net													Common stock issuance for options exercised, net	70	1		500		—		—		501
Vesting of restricted stock grants													Vesting of restricted stock grants	33	—		(37)		—		—		(37)
Stock-based compensation expense													Stock-based compensation expense	—	—		326		—		—		326
Balance at June 30, 2023													Balance at June 30, 2023	17,783	$	178	$	124,713	$	116,922	$	(30,762)	$	211,051

See Notes to Consolidated Financial Statements.

Table of Contents

Notes to Unaudited Consolidated Financial Statements

Note 1. Organization and Summary of Significant Accounting Policies

Organization

FVCBankcorp, Inc. (the "Company"), a Virginia corporation, was formed in 2015 and is registered as a bank holding company under the Bank Holding Company Act of 1956, as amended. The Company is headquartered in Fairfax, Virginia. The Company conducts its business activities through the branch offices of its wholly owned subsidiary bank, FVCbank (the "Bank"). The Company exists primarily for the purposes of holding the stock of its subsidiary, the Bank.

The Bank was organized under the laws of the Commonwealth of Virginia to engage in a general banking business serving the Washington, D.C. and Baltimore metropolitan areas. The Bank commenced operations on November 27, 2007 and is a member of the Federal Reserve System (the "Federal Reserve") and the Federal Deposit Insurance Corporation (the "FDIC"). It is subject to the regulations of the Board of Governors of the Federal Reserve and the State Corporation Commission of Virginia. Consequently, it undergoes periodic examinations by these regulatory authorities.

On August 31, 2021, the Company announced that the Bank had made an investment in Atlantic Coast Mortgage, LLC (“ACM”) for $20.4 million. As a result of this investment, the Bank has obtained a 28.7% ownership interest in ACM, which is subject to an earnback option of up to 3.7% over a three year period. The investment is accounted for using the equity method of accounting. In addition, the Bank provides a warehouse lending facility to ACM, which includes a construction-to-permanant financing line, and has developed portfolio mortgage products to diversify the Bank's held to investment loan portfolio.

On December 15, 2022, the Company announced that the Board of Directors approved a five-for-four split of the Company's common stock in the form of a 25% stock dividend for shareholders of record on January 9, 2023, payable on January 31, 2023. Earnings per share and all other per share information reflected in the Company's consolidated financial statements have been adjusted for the five-for-four split of the Company's common stock for comparative purposes.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and follow general practice within the banking industry. Accordingly, the unaudited consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements; however, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of the interim periods presented have been made. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s audited financial statements for the year ended December 31, ~~2021.~~2022. Certain prior period amounts have been reclassified to conform to current period presentation.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company. All material intercompany balances and transactions have been eliminated in consolidation.

Significant Accounting Policies

The accounting and reporting policies of the Company are in accordance with GAAP and conform to general practices within the banking industry.

~~Recent Accounting Pronouncements~~Allowance for Credit Losses

~~In June 2016,~~The Company adopted the ~~Financial Accounting Standards Board~~current expected credit loss model ("~~FASB"~~CECL") ~~issued~~under Accounting Standards Update ("ASU") ~~No.~~ 2016-13, ~~“Financial~~"Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments.”~~Instruments” on January 1, 2023. The ~~amendments~~Company recorded a net reduction of retained earnings of $2.8 million upon adoption. The adoption adjustment included an increase in ~~this ASU, among other things, require~~ the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accountingallowance for credit losses on ~~available-for-sale debt securities and purchased financial assets with credit deterioration. The FASB has issued multiple updates~~loans of $2.9 million in addition to ~~ASU 2016-13 as codified in Topic 326, including ASUs 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASUs have provided for various minor technical corrections and improvements~~an increase of $0.8 million to the ~~codification~~reserve for unfunded commitments.

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Notes to Unaudited Consolidated Financial Statements

(Continued)

Allowance for Credit Losses - Loans and Unfunded Commitments

The allowance for credit losses represents an estimate of the expected credit losses in the Company's held for investment loan portfolio as of a valuation date. Accounting Standards Codification ("ASC") 326 replaced the incurred loss impairment model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the held for investment loan portfolio. Loans, or portions thereof, are charged off against the allowance for credit losses when they are deemed uncollectible. Expected recoveries are recorded to the extent they do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Reserves on loans that do not share risk characteristics are evaluated on an individual basis. Nonaccrual loans are specifically reviewed for loss potential and when deemed appropriate are assigned a reserve based on an individual evaluation. The remainder of the portfolio, representing all loans not evaluated individually for impairment, is segmented based on call report code and processed through a cash flow valuation model. In particular, loan-level probability of default ("PD") and severity (also referred to as loss given default ("LGD")) is applied to derive a baseline expected loss as of the valuation date. These expected default and severity rates, which are regression-derived and based on peer historical loan-level performance data, are calibrated to incorporate the Company's reasonable and supportable forecast of future losses as well as any necessary qualitative adjustments.

Typically, financial institutions use their historical loss experience and trends in losses for each loan segment which are then adjusted for portfolio trends and economic and environmental factors in determining the allowance for credit losses. Since the Bank’s inception in 2007, the Company has experienced minimal loss history within its loan portfolio. Due to the fact that limited internal loss history exists to generate statistical significance, management determined it was most prudent to rely on peer data when deriving its best estimate of PD and LGD. As part of the Company's estimation process, management will continue to assess the reasonableness of the data, assumptions, and model methodology utilized to derive its allowance for credit losses.

For each of the modeled loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, PD rates, and LGD rates. The modeling of expected prepayment speeds is based on internal loan-level historical data. The Company utilizes national unemployment for its reasonable and supportable forecasting of expected default within the cash flow model. To further adjust the allowance for credit losses for expected losses not already within the quantitative component of the calculation, the Company may consider qualitative factors as prescribed in ASC 326.

Financial instruments include off-balance sheet credit instruments such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company's exposure to credit loss in the event of nonperformance by the other ~~transition matters. Smaller reporting companies who file~~party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The Company records a reserve for unfunded commitments on off-balance sheet credit exposures through a charge to provision for credit loss expense in its Consolidated Statement of Income. The reserve for unfunded commitments is estimated by call report code segmentation as of the valuation date under the CECL model using the same methodologies as portfolio loans taking utilization rates into consideration. The reserve for unfunded commitments is reflected as a liability on the Company's Consolidated Balance Sheet.

The Company's methodology utilized in the estimation of the allowance for credit losses, which is performed at least quarterly, is designed to be dynamic and responsive to changes in its loan portfolio credit quality, composition, and forecasted economic conditions. The review of the reasonableness and appropriateness of the allowance for credit losses is reviewed by the CECL Committee for approval as of the valuation date. Additionally, information is provided to the Board of Directors on a quarterly basis along with the ~~U.S. Securities~~Company's consolidated financial statements.

Collateral Dependent Financial Assets

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Notes to Unaudited Consolidated Financial Statements

(Continued)

~~("SEC"), such as~~exceeds the ~~Company, and all other entities who do not file with~~net present value ("NPV") from the ~~SEC are required~~operation of the collateral. When repayment is expected to ~~apply~~be from the ~~guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022. The Company has identified a third-party vendor to assist in~~sale of the ~~measurement of~~collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

Allowance for Credit Losses - Securities

The Company evaluates its available-for-sale and held-to-maturity debt securities portfolios for expected credit losses as of the valuation date under ~~this standard. The implementation committee~~ASC 326. For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is more likely than not that it would be required to sell, the security before recovery of its amortized cost basis. If either criterion is met, the security’s amortized cost basis is written down to fair value through income during the current period. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has ~~completed~~resulted from credit losses or other driving factors. If the ~~data collection process, validated~~Company's assessment indicates that a credit loss exists, the ~~data inputs, determined its allowance methodology,~~present value of cash flows expected to be collected from the security is ~~running the model parallel~~compared to the ~~Company’s incurred loss model, and~~amortized cost basis of the security. If the present value of cash flows expected to be collected is ~~subjecting~~less than the ~~model to validation~~amortized cost basis, an ACL is recorded for the ~~quarter ended September 30, 2022.~~ credit loss (which represents the difference between the expected cash flows and amortized cost basis), limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income.

The entire amount of an impairment loss is recognized in earnings only when: (1) the Company intends to sell the security; or (2) it is more likely than not that the Company will have to sell the security before recovery of the Company's amortized cost basis; or (3) the Company does not expect to recover the entire amortized cost basis of the security. In all other situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in shareholders' equity as comprehensive income, net of deferred taxes.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses. Losses are charged against the allowance for credit losses when the Company believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Any impairment not recorded through an allowance for credit loss is recognized in other comprehensive income as a noncredit-related impairment.

As part of its estimation process, the Company have made a policy election to exclude accrued interest from the amortized cost basis of available-for-sale debt securities and report accrued interest separately in other assets in the Consolidated Balance Sheet. Available-for-sale debt securities are placed on nonaccrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on nonaccrual status. Accordingly, the Company does not recognize an allowance for credit loss against accrued interest receivable. This approach is consistent with the Company's nonaccrual policy implemented for its loan portfolio.

The Company ~~plans~~separately evaluates its held-to-maturity investment securities for any credit losses. If it determines that a security indicates evidence of deteriorated credit quality, the security is individually-evaluated and a discounted cash flow analysis is performed and compared to ~~disclose~~ the ~~impact~~amortized cost basis. As of ~~ASU 2016-13 on its consolidated financial statements~~June 30, 2023, the Company had one security classified as held-to-maturity with an amortized cost basis of ~~December 31, 2022, prior to adoption, which will occur January 1, 2023.~~$264 thousand with the remainder of the securities portfolio held as available-for-sale.

~~Effective November 25, 2019, the SEC adopted Staff~~Recent Accounting Bulletin ("SAB") 119. SAB 119 updated portions of SEC interpretative guidance to align with FASB Accounting Standards Codification ("ASC") 326, “Financial Instruments - Credit Losses.” It covers topics including (1) measuring current expected credit losses; (2) development, governance, and documentation of a systematic methodology; (3) documenting the results of a systematic methodology; and (4) validating a systematic methodology.Pronouncements

In March 2020, the ~~FASB~~Financial Accounting Standards Board ("FASB") issued ASU 2020-04 ~~“Reference~~"Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.”" These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the FASB issued ASU 2021-01 ~~“Reference~~"Reference Rate Reform (Topic 848): Scope.”" This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients

Table of Contents

Notes to Unaudited Consolidated Financial Statements

(Continued)

and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020.

We have certain loans, interest rate swap agreements, investment securities, and debt obligations with interest rates indexed to LIBOR. The administrator of LIBOR announced that the most commonly used U.S. dollar LIBOR settings would cease to be published or cease to be representative after June 30, 2023. Central banks and regulators around the world have commissioned working groups to find suitable replacements for LIBOR and other benchmark rates and to implement financial benchmark reforms more generally. There continues to be uncertainty regarding the use of alternative reference rates ("ARRs"), which may cause disruptions in a variety of markets, as well as adversely impact its business, operations and financial results.

The Adjustable Interest Rate (LIBOR) Act, enacted in March 2022, provides a statutory framework to replace LIBOR with a benchmark rate based on Secured Overnight Funding Rate ("SOFR") for contracts governed by U.S. law that have no or ineffective fallbacks. Although governmental authorities have endeavored to facilitate an orderly discontinuation of LIBOR, no assurance can be provided that this aim will be achieved or that the use, level, and volatility of LIBOR or other interest rates, or the value of LIBOR-based securities will not be adversely affected.

To facilitate an orderly transition from interbank offered rates and other benchmark rates to ARRs, the Company has established an enterprise-wide initiative led by senior management. The objective of this initiative is to identify, assess and monitor risks associated with the expected discontinuation or unavailability of benchmarks, including LIBOR, achieve operational readiness and engage impacted clients in connection with the transition to ARRs. The Company is assessing ASU 2020-04 and its impact on the ~~Company’s~~Company's transition away from LIBOR for its loan and other financial instruments.

In August 2020, the FASB issued ASU ~~No.~~ 2020-06 ~~“Debt –~~"Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging –- Contracts in ~~Entity’s~~Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an ~~Entity’s~~Entity's Own Equity.”" The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share ~~("EPS")~~ calculation in certain areas. In addition, the amendment updates the disclosure requirements for convertible instruments to increase the information transparency. For public business entities, excluding smaller reporting companies, the amendments in the ASU are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. For all other entities, including the Company, the standard will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-06 to have a material impact on its consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, "Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions". ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company does not expect the adoption of ASU 2022-03 to have a material impact on its consolidated financial statements.

In December 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848". ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the LIBOR would would cease being

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Notes to Unaudited Consolidated Financial Statements

(Continued)

published. In 2021, the administrator of LIBOR delayed the intended cessation date of certain tenors of LIBOR to June 30, 2023.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The ASU is effective for all entities upon issuance. The Company is assessing ASU 2022-06 and its impact on the Company's transition away from LIBOR for its loan and other financial instruments.

In March 2023, the FASB issued ASU 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method”. These amendments allow reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The ASU is effective for public business entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted for all entities in any interim period. The Company does not expect the adoption of ASU 2023-02 to have a material impact on its consolidated financial statements.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The ASU, as amended, requires an entity to measure expected credit losses for financial assets carried at amortized cost based on historical experience, current conditions, and reasonable and supportable forecasts. Among other things, the ASU also amended the impairment model for available for sale securities and addressed purchased financial assets with deterioration. This standard is commonly referred to as the current expected credit loss ("CEC") methodology. ASU 2016-13 was effective for the Company on January 1, 2023. The adjustment recorded at adoption to the overall allowance for credit losses, which consisted of adjustments to the allowance for credit losses on loans and reserve for unfunded loan commitments, was $3.7 million. The adjustment, net of tax, recorded to stockholders’ equity totaled $2.8 million at January 1, 2023.

In March 2022, the FASB issued ASU No. 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the ~~current expected credit losses ("CECL")~~CECL model. The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables

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and net investment in leases by year of origination in the vintage disclosures. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of troubled debt ~~restructurings~~restructuring ("TDRs"), an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. ~~For entities that have adopted ASU 2016-13,~~ ASU 2022-02 iswas effective for ~~fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted ASU 2016-13,~~ the ~~effective dates for~~Company on January 1, 2023. ASU 2022-02 ~~are~~resulted in no material impact to the same as the effective dates in ASU 2016-13. Early adoption is permitted if an entity has adopted ASU 2016-13. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is currently assessing the impact that ASU 2022-02 will have on itsCompany's consolidated financial statements.

In March 2022, the FASB issued ASU No. 2022-01, “Derivatives and Hedging (Topic 815), Fair Value Hedging—Portfolio Layer Method.” ASU 2022-01 clarifies the guidance in ASC 815 on fair value hedge accounting of interest rate risk for portfolios of financial assets and is intended to better align hedge accounting with an organization’s risk management strategies. In 2017, FASB issued ASU 2017-12 to better align the economic results of risk management activities with hedge accounting. One of the major provisions of that standard was the addition of the last-of-layer hedging method. For a closed portfolio of fixed-rate prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, such as mortgages or mortgage-backed securities, the last-of-layer method allows an entity to hedge its exposure to fair value changes due to changes in interest rates for a portion of the portfolio that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. ASU 2022-01 renames that method the portfolio layer method. ~~For public business entities,~~ ASU 2022-01 iswas effective for ~~fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The~~the Company ~~does not expect the adoption of~~on January 1, 2023. ASU 2022-01 ~~to have a~~resulted in no material impact ~~on its~~to the Company's consolidated financial statements.

In ~~June 2022,~~October 2021, the FASB issued ASU ~~2022-03, “Fair Value Measurement~~2021-08, “Business Combinations (Topic ~~820)~~805): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity securityAccounting for Contract Assets and ~~therefore, is not considered in measuring fair value.~~Contract Liabilities from Contracts with Customers”. The ASU isrequires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with

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customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. ASU 2021-08 was effective for ~~fiscal years, including interim periods within those fiscal years, beginning after December 15,~~the Company on January 1, 2023. ~~Early adoption is permitted. The Company does not expect the adoption of~~ ASU ~~2022-03 to have a~~2021-08 resulted in no material impact ~~on its~~to the Company's consolidated financial statements.

Note 2. Securities

Amortized cost and fair values of securities held-to-maturity and securities available-for-sale as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, are as follows:


	June 30, 2023
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
Held-to-maturity
Securities of state and local municipalities tax exempt	$	264	$	—	$	(12)	$	252
Total Held-to-maturity Securities	$	264	$	—	$	(12)	$	252
Available-for-sale
Securities of U.S. government and federal agencies	$	13,559	$	—	$	(2,316)	$	11,243
Securities of state and local municipalities tax exempt	1,003		—		(4)		999
Securities of state and local municipalities taxable	481		—		(59)		422
Corporate bonds	20,208		—		(2,921)		17,287
SBA pass-through securities	68		—		(6)		62
Mortgage-backed securities	238,450		—		(40,791)		197,659
Collateralized mortgage obligations	4,330		—		(798)		3,532
Total Available-for-sale Securities	$	278,099	$	—	$	(46,895)	$	231,204


		September 30, 2022									December 31, 2022
(In thousands)	(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value		(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)		Fair Value
Held-to-maturity	Held-to-maturity									Held-to-maturity
Securities of state and local municipalities tax exempt	Securities of state and local municipalities tax exempt	$	264	$	—	$	(21)	$	243	Securities of state and local municipalities tax exempt	$	264	$	—	$	(12)	$	252
Total Held-to-maturity Securities	Total Held-to-maturity Securities	$	264	$	—	$	(21)	$	243	Total Held-to-maturity Securities	$	264	$	—	$	(12)	$	252
Available-for-sale	Available-for-sale									Available-for-sale
Securities of U.S. government and federal agencies	Securities of U.S. government and federal agencies	$	13,558	$	—	$	(2,552)	$	11,006	Securities of U.S. government and federal agencies	$	13,559	$	—	$	(2,555)	$	11,004
Securities of state and local municipalities tax exempt	Securities of state and local municipalities tax exempt	1,387		—		(31)		1,356		Securities of state and local municipalities tax exempt	1,385		—		(9)		1,376
Securities of state and local municipalities taxable	Securities of state and local municipalities taxable	519		—		(28)		491		Securities of state and local municipalities taxable	506		—		(62)		444
Corporate bonds	Corporate bonds	21,214		—		(1,781)		19,433		Corporate bonds	21,212		—		(2,154)		19,058
SBA pass-through securities	SBA pass-through securities	75		—		(7)		68		SBA pass-through securities	74		—		(7)		67
Mortgage-backed securities	Mortgage-backed securities	289,417		—		(49,329)		240,088		Mortgage-backed securities	282,858		—		(45,424)		237,434
Collateralized mortgage obligations	Collateralized mortgage obligations	11,057		—		(1,284)		9,773		Collateralized mortgage obligations	9,998		—		(1,312)		8,686
Total Available-for-sale Securities	Total Available-for-sale Securities	$	337,227	$	—	$	(55,012)	$	282,215	Total Available-for-sale Securities	$	329,592	$	—	$	(51,523)	$	278,069

As a result of the adoption of ASC 326, no allowance for credit losses was recognized as of June 30, 2023 related to the Company's investment portfolio.

The Company had $2.4 million and $4.1 million in securities pledged with the Federal Reserve Bank of Richmond ("FRB") to collateralize certain municipal deposits at June 30, 2023 and December 31, 2022, respectively. The Company

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December 31, 2021
(In thousands)
Amortized
Cost
Gross Unrealized Gains Gross Unrealized (Losses)
Fair
Value
Held-to-maturity
Securities of state and local municipalities tax exempt $ 264 $ 6 $ — $ 270
Total Held-to-maturity Securities $ 264 $ 6 $ — $ 270
Available-for-sale
Securities of U.S. government and federal agencies $ 13,719 $ — $ (283) $ 13,436
Securities of state and local municipalities tax exempt 1,393 58 — 1,451
Securities of state and local municipalities taxable 607 — (11) 596
Corporate bonds 13,970 259 (78) 14,151
SBA pass-through securities 107 1 — 108
Mortgage-backed securities 316,313 1,352 (3,827) 313,838
Collateralized mortgage obligations 14,230 113 (149) 14,194
Total Available-for-sale Securities $ 360,339 $ 1,783 $ (4,348) $ 357,774

~~The Company~~ had $4.2 million and $5.8 million in securities pledged with the Federal Reserve Bank of Richmond ("FRB") to collateralize certain municipal deposits at September 30, 2022 and December 31, 2021, respectively. ~~The Company had $106.3~~$124.7 million in securities pledged with the Virginia Department of Treasury to collateralize certain municipal deposits at ~~September~~June 30, ~~2022.~~2023. There were ~~$79.7~~$104.6 million securities pledged to the Virginia Department of Treasury at December 31, ~~2021.~~2022.

The Company monitors the credit quality of held-to-maturity securities through the use of credit rating. The Company monitors credit rating on a periodic basis. The following table summarizes the amortized cost of held-to-maturity securities at June 30, 2023, aggregated by credit quality indicator:


(In thousands)	Held-to-maturity
June 30, 2023	Securities of state and local municipalities tax exempt
Aa3	$	264
Total	$	264

The following table shows fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021, respectively. Two securities were~~2022, respectively. One security was held as of ~~September~~June 30, ~~2022~~2023 for which the book value and fair value were equal and therefore neither an unrealized gain nor loss was reflected herein. The reference point for determining when securities are in an unrealized loss position is month-end. Therefore, it is possible that a security’s market value exceeded its amortized cost on other ~~days~~days during the past twelve-month period. Available-for-sale securities that have been in a continuous unrealized loss position as of June 30, 2023 are as follows:


	Less Than 12 Months				12 Months or Longer				Total
(In thousands)
At June 30, 2023	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities of U.S. government and federal agencies	$	—	$	—	$	11,243	$	(2,316)	$	11,243	$	(2,316)
Securities of state and local municipalities tax exempt	999		(4)		—		—		999		(4)
Securities of state and local municipalities taxable	—		—		422		(59)		422		(59)
Corporate bonds	4,522		(437)		12,015		(2,484)		16,537		(2,921)
SBA pass-through securities					62		(6)		62		(6)
Mortgage-backed securities	2,661		(171)		194,998		(40,620)		197,659		(40,791)
Collateralized mortgage obligations	—		—		3,532		(798)		3,532		(798)
Total	$	8,182	$	(612)	$	222,272	$	(46,283)	$	230,454	$	(46,895)

Available-for-sale and held-to-maturity securities that have been in a continuous unrealized loss position as of December 31, 2022 are as follows:

Less Than 12 Months 12 Months or Longer Total
(In thousands)
At September 30, 2022
Fair
Value
Unrealized Losses Fair
Value Unrealized Losses Fair
Value Unrealized Losses
Securities of U.S. government and federal agencies $ — $ — $ 11,006 $ (2,552) $ 11,006 $ (2,552)
Securities of state and local municipalities tax exempt 1,599 (52) — — 1,599 (52)
Securities of state and local municipalities taxable — — 491 (28) 491 (28)
Corporate bonds 14,968 (1,497) 2,715 (284) 17,683 (1,781)
SBA pass-through securities 68 (7) — — 68 (7)
Mortgage-backed securities 106,032 (18,884) 134,056 (30,445) 240,088 (49,329)
Collateralized mortgage obligations 6,803 (571) 2,970 (713) 9,773 (1,284)
Total $ 129,470 $ (21,011) $ 151,238 $ (34,022) $ 280,708 $ (55,033)

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(In thousands)	(In thousands)	Less Than 12 Months				12 Months or Longer				Total				(In thousands)	Less Than 12 Months				12 Months or Longer				Total
At December 31, 2021		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
At December 31, 2022														At December 31, 2022	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Securities of U.S. government and federal agencies	Securities of U.S. government and federal agencies	$	13,275	$	(283)	$	—	$	—	$	13,275	$	(283)	Securities of U.S. government and federal agencies	$	—	$	—	$	11,004	$	(2,555)	$	11,004	$	(2,555)
Securities of state and local municipalities tax exempt														Securities of state and local municipalities tax exempt	1,628		(21)		—		—		1,628		(21)
Securities of state and local municipalities taxable	Securities of state and local municipalities taxable	595		(11)		—		—		595		(11)		Securities of state and local municipalities taxable	—		—		444		(62)		444		(62)
Corporate bonds	Corporate bonds	3,922		(78)		—		—		3,922		(78)		Corporate bonds	12,344		(1,119)		5,964		(1,035)		18,308		(2,154)
SBA pass-through securities														SBA pass-through securities	—		—		67		(7)		67		(7)
Mortgage-backed securities	Mortgage-backed securities	216,278		(3,175)		19,225		(652)		235,503		(3,827)		Mortgage-backed securities	26,486		(1,831)		210,948		(43,593)		237,434		(45,424)
Collateralized mortgage obligations	Collateralized mortgage obligations	3,362		(82)		1,814		(67)		5,176		(149)		Collateralized mortgage obligations	2,601		(238)		6,085		(1,074)		8,686		(1,312)
Total	Total	$	237,432	$	(3,629)	$	21,039	$	(719)	$	258,471	$	(4,348)	Total	$	43,059	$	(3,209)	$	234,512	$	(48,326)	$	277,571	$	(51,535)

Securities of U.S. government and federal agencies: The unrealized losses on three available-for-sale securities were caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments.

Securities of state and local municipalities tax-exempt: The unrealized ~~losses~~loss on ~~three~~two of the investments in securities of state and local municipalities ~~were~~was caused by interest rate increases. The contractual terms of ~~those~~these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. These investments carry an S&P investment grade rating of AA+ ~~and AA.~~.

Securities of state and local municipalities taxable: The unrealized loss on one of the investments in securities of state and local municipalities was caused by interest rate increases. The contractual terms of this investment does not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. The investment carries an S&P investment grade rating of AAA.

Corporate bonds: The unrealized losses on the investments in corporate bonds were caused by interest rate increases. The contractual terms of ~~those~~these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. One of these investments carries an S&P investment grade rating of ~~BBB+, while one has a rating of BBB-.~~BBB. The remaining 1413 investments do not carry a rating.

SBA pass-through securities: The unrealized losses on one available-for-sale security was caused by interest rate increases. The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments.

Mortgage-backed securities: The unrealized losses on the Company’s investment in ~~106~~57 mortgage-backed securities were caused by interest rate increases. The contractual cash flows of those investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not consider those investments to be ~~other-than-temporarily~~ impaired at ~~September~~June 30, ~~2022.~~2023.

Collateralized mortgage obligations ("CMOs"): The unrealized loss associated with 3012 CMOs was caused by interest rate increases. The contractual cash flows of these investments are guaranteed by an agency of the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the amortized cost basis of the Company’s investments. Because the decline in market value is attributable to changes in interest rates and not credit quality, the Company does not consider those investments to be ~~other-than-temporarily~~ impaired at ~~September~~June 30, ~~2022.~~2023.

The Company has evaluated its available-for-sale investments securities in an unrealized loss position for credit related impairment at June 30, 2023 and December 31, 2022 and concluded no impairment existed based on several factors which included: (1) the majority of these securities are of high credit quality, (2) unrealized losses are primarily the result of market volatility and increases in market interest rates, (3) issuers continue to make timely principal and interest payments, and (4) the Company does not intend to sell any of the investments and the accounting standard of “more likely than not” has not been met for the Company to be required to sell any of the investments before recovery of its amortized cost basis.

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Additionally, the Company’s mortgage-backed investment securities are primarily guaranteed by the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association and do not have credit risk given the implicit and explicit government guarantees associated with these agencies.

In the first quarter of 2023, the Company executed a balance sheet repositioning strategy and sold available-for-sale investment securities with a total book value of $40.3 million at a pre-tax loss of $4.6 million and used the net proceeds to reduce existing high cost short-term FHLB advances and to fund higher yielding newly originated commercial loans. The deleverage strategy provides the Company with improved liquidity, enhanced tangible common equity, and additional run rate earnings.

The amortized cost and fair value of securities as of ~~September~~June 30, ~~2022,~~2023, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations without penalties.

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~~(Continued)~~


		September 30, 2022									June 30, 2023
		Held-to-maturity				Available-for-sale					Held-to-maturity				Available-for-sale
(In thousands)	(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		(In thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
After 1 year through 5 years	After 1 year through 5 years	$	264	$	243	$	3,726	$	3,611	After 1 year through 5 years	$	264	$	252	$	2,138	$	2,117
After 5 years through 10 years	After 5 years through 10 years	—		—		48,957		43,588		After 5 years through 10 years	—		—		34,677		29,338
After 10 years	After 10 years	—		—		284,544		235,016		After 10 years	—		—		241,284		199,749
Total	Total	$	264	$	243	$	337,227	$	282,215	Total	$	264	$	252	$	278,099	$	231,204

For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, proceeds from principal repayments of securities were ~~$29.5~~$10.9 million and ~~$28.6~~$20.5 million, respectively. During the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, proceeds from sales, calls and maturities of securities were $0$35.8 million and ~~$5.0 million,~~zero, respectively. There were no$4.6 million gross realized ~~gains or~~ losses during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021, respectively.~~zero for the six months ended June 30, 2022.

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Note 3. Loans and Allowance for ~~Loan~~Credit Losses

A summary of loan balances by type follows:

September 30, 2022 December 31, 2021
(In thousands) Originated Acquired Total Originated Acquired Total
Commercial real estate $ 1,014,838 $ 15,488 $ 1,030,326 $ 887,310 $ 18,802 $ 906,112
Commercial and industrial 208,399 2,997 211,396 199,040 3,710 202,750
Commercial construction 150,918 579 151,497 186,572 1,043 187,615
Consumer real estate 293,707 19,371 313,078 176,682 23,922 200,604
Consumer nonresidential 9,130 24 9,154 10,277 27 10,304
$ 1,676,992 $ 38,459 $ 1,715,451 $ 1,459,881 $ 47,504 $ 1,507,385
Less:
Allowance for loan losses 15,313 — 15,313 13,829 — 13,829
Unearned income and (unamortized premiums), net 978 — 978 3,536 — 3,536
Loans, net $ 1,660,701 $ 38,459 $ 1,699,160 $ 1,442,516 $ 47,504 $ 1,490,020


	June 30, 2023
(In thousands)	Total
Commercial real estate	$	1,111,249
Commercial and industrial	253,242
Commercial construction	158,713
Consumer real estate	374,986
Consumer nonresidential	5,624
	$	1,903,814
Less:
Allowance for credit losses	19,442
Loans, net	$	1,884,372


	December 31, 2022
(In thousands)	Originated		Acquired		Total
Commercial real estate	$	1,085,513	$	14,748	$	1,100,261
Commercial and industrial	242,307		2,913		245,220
Commercial construction	147,436		503		147,939
Consumer real estate	322,579		17,012		339,591
Consumer nonresidential	7,661		24		7,685
	$	1,805,496	$	35,200	$	1,840,696
Less:
Allowance for credit losses	16,040		—		16,040
Unearned income and (unamortized premiums), net	262		—		262
Loans, net	$	1,789,194	$	35,200	$	1,824,394

The loan portfolio summary is presented on amortized cost basis as of June 30, 2023. For the year ended December 31, 2022, the loan portfolio is presented at outstanding principal balance.

During 2018, as a result of the Company’s acquisition of Colombo Bank ("Colombo"), the loan portfolio was segregated between loans initially accounted for under the amortized cost method (referred to as “originated” loans) and loans acquired (referred to as “acquired” loans).

The loans segregated to the acquired loan portfolio were initially measured at fair value and subsequently accounted for under either ASC 310-30 or ASC 310-20. The outstanding principal balance and related carrying amount of acquired loans included in the consolidated balance sheets as of ~~September 30, 2022 and~~ December 31, ~~2021 are~~2022 is as follows:


(In thousands)	~~September 30,~~December 31, 2022
Purchased credit impaired acquired loans evaluated individually for credit losses
Outstanding principal balance	$	~~168~~24
Carrying amount	—
Other acquired loans
Outstanding principal balance	~~38,909~~35,604
Carrying amount	~~38,459~~35,200
Total acquired loans
Outstanding principal balance	~~39,077~~35,628
Carrying amount	~~38,459~~35,200


~~(In thousands)~~	~~December 31, 2021~~
~~Purchased credit impaired acquired loans evaluated individually for credit losses~~
~~Outstanding principal balance~~	$	~~207~~
~~Carrying amount~~	—
~~Other acquired loans~~
~~Outstanding principal balance~~	~~48,049~~
~~Carrying amount~~	~~47,504~~
~~Total acquired loans~~
~~Outstanding principal balance~~	~~48,256~~
~~Carrying amount~~	~~47,504~~

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The following table presents changes during the ~~nine months ended September 30, 2022 and the~~ year ended December 31, ~~2021, respectively,~~2022, in the accretable yield on purchased credit impaired loans for which the Company applies ASC 310-30.


(In thousands)
Balance at January 1, 2022	$	3
Accretion	~~(33)~~(197)
Reclassification of nonaccretable difference due to changes in expected cash flows	2333
Other changes, net	7161
Balance at ~~September 30,~~December 31, 2022	$	—

~~(In thousands)~~

~~Balance at January 1, 2021~~$~~216~~ ~~Accretion(217)Reclassification of nonaccretable difference due to changes in expected cash flows~~54 ~~Other changes, net(50)Balance at December 31, 2021~~$3

An analysis of the allowance for ~~loan~~credit losses for the ~~Three~~three and ~~Nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, and for the year ended December 31, ~~2021,~~2022, follows:

Allowance for ~~Loan~~Credit Losses

For the Three Months Ended ~~September~~June 30, ~~2022~~2023

(In thousands)


		Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Real Estate		Consumer Nonresidential		Total			Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Real Estate		Consumer Nonresidential		Total
Allowance for credit losses:	Allowance for credit losses:													Allowance for credit losses:
Beginning Balance, July 1		$	10,067	$	2,256	$	1,765	$	728	$	141	$	14,957
Beginning Balance, April 1														Beginning Balance, April 1	$	11,324	$	2,596	$	1,698	$	3,374	$	66	$	19,058
Charge-offs	Charge-offs	—		—		—		—		(28)		(28)		Charge-offs	—		(350)		—		—		(15)		(365)
Recoveries	Recoveries	—		—		—		—		19		19		Recoveries	—		2		—		—		7		9
Provision	Provision	362		(124)		(165)		310		(18)		365		Provision	(202)		617		4		309		12		740
Ending Balance		$	10,429	$	2,132	$	1,600	$	1,038	$	114	$	15,313
Ending Balance, June 30,														Ending Balance, June 30,	$	11,122	$	2,865	$	1,702	$	3,683	$	70	$	19,442

Allowance for ~~Loan~~Credit Losses

For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023

(In thousands)

Commercial Real Estate Commercial and Industrial Commercial Construction Consumer Real Estate Consumer Nonresidential Total
Allowance for credit losses:
Beginning Balance, January 1 $ 8,995 $ 1,827 $ 2,009 $ 781 $ 217 $ 13,829
Charge-offs — (396) — — (82) (478)
Recoveries — — — 1 61 62
Provision 1,434 701 (409) 256 (82) 1,900
Ending Balance $ 10,429 $ 2,132 $ 1,600 $ 1,038 $ 114 $ 15,313

~~Table of Contents~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Continued)~~

~~Allowance for Loan Losses~~

~~For the Three Months Ended September 30, 2021~~

~~(In thousands)~~

Commercial Real Estate Commercial and Industrial Commercial Construction Consumer Real Estate Consumer Nonresidential Total
Allowance for credit losses:
Beginning Balance, July 1 $ 8,969 $ 2,032 $ 2,360 $ 673 $ 325 $ 14,359
Charge-offs (24) — — — (24) (48)
Recoveries — — — 31 21 52
Provision 569 (410) (135) 27 (51) —
Ending Balance $ 9,514 $ 1,622 $ 2,225 $ 731 $ 271 $ 14,363

~~Allowance for Loan Losses~~

~~For the Nine Months Ended September 30, 2021~~

~~(In thousands)~~

Commercial Real Estate Commercial and Industrial Commercial Construction Consumer Real Estate Consumer Nonresidential Total
Allowance for credit losses:
Beginning Balance, January 1 $ 9,291 $ 2,546 $ 1,960 $ 690 $ 471 $ 14,958
Charge-offs (476) (117) — — (201) (794)
Recoveries 24 — — 35 140 199
Provision 675 (807) 265 6 (139) —
Ending Balance $ 9,514 $ 1,622 $ 2,225 $ 731 $ 271 $ 14,363

~~Allowance for Loan Losses~~

~~For the Year Ended December 31, 2021~~

~~(In thousands)~~

Commercial Real Estate Commercial and Industrial Commercial Construction Consumer Real Estate Consumer Nonresidential Total
Allowance for credit losses:
Beginning Balance, January 1 $ 9,291 $ 2,546 $ 1,960 $ 690 $ 471 $ 14,958
Charge-offs (477) (117) — — (255) (849)
Recoveries 24 — — 35 161 220
Provision 157 (602) 49 56 (160) (500)
Ending Balance $ 8,995 $ 1,827 $ 2,009 $ 781 $ 217 $ 13,829

~~Table of Contents~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Continued)~~

~~The following tables present the recorded investment in loans and impairment method as of September 30, 2022 and 2021, and at December 31, 2021, by portfolio segment:~~

~~Allowance for Loan Losses~~

~~At September 30, 2022~~

~~(In thousands)~~

Commercial Real Estate Commercial and Industrial Commercial Construction Consumer Real Estate Consumer Nonresidential Total
Allowance for credit losses:
Ending Balance
Individually evaluated for impairment $ 71 $ 92 $ — $ 1 $ — $ 164
Purchased credit impaired — — — — — —
Collectively evaluated for impairment 10,358 2,040 1,600 1,037 114 15,149
$ 10,429 $ 2,132 $ 1,600 $ 1,038 $ 114 $ 15,313

~~Loans Receivable~~

~~At September 30, 2022~~

~~(In thousands)~~

Commercial Real Estate Commercial and Industrial Commercial Construction Consumer Real Estate Consumer Nonresidential Total
Financing receivables:
Ending Balance
Individually evaluated for impairment $ 11,357 $ 4,753 $ — $ 89 $ — $ 16,199
Purchased credit impaired — — — — — —
Collectively evaluated for impairment 1,018,969 206,643 151,497 312,989 9,154 1,699,252
$ 1,030,326 $ 211,396 $ 151,497 $ 313,078 $ 9,154 $ 1,715,451


	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Real Estate		Consumer Nonresidential		Total
Allowance for credit losses:
Beginning Balance, Prior to January 1, 2023 Adoption of ASC 326	$	10,777	$	2,623	$	1,499	$	1,044	$	97	$	16,040
Impact of Adoption of ASC 326	498		452		70		1,856		(12)		2,864
Charge-offs	—		(350)		—		—		(15)		(365)
Recoveries	—		3		—		1		28		32
Provision	(153)		137		133		782		(28)		871
Ending Balance, June 30,	$	11,122	$	2,865	$	1,702	$	3,683	$	70	$	19,442

Table of Contents

Notes to Unaudited Consolidated Financial Statements

(Continued)

Allowance for ~~Loan~~Credit Losses

~~At September~~For the Three Months Ended June 30, ~~2021~~2022

(In thousands)

Commercial Real Estate Commercial and Industrial Commercial Construction Consumer Real Estate Consumer Nonresidential Total
Allowance for credit losses:
Ending Balance
Individually evaluated for impairment $ 701 $ 270 $ — $ 22 $ — $ 993
Purchased credit impaired — — — — — —
Collectively evaluated for impairment 8,813 1,352 2,225 709 271 13,370
$ 9,514 $ 1,622 $ 2,225 $ 731 $ 271 $ 14,363


	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Real Estate		Consumer Nonresidential		Total
Allowance for credit losses:
Beginning Balance, April 1	$	9,218	$	1,987	$	1,772	$	610	$	176	$	13,763
Charge-offs	—		—		—		—		(17)		(17)
Recoveries	—		—		—		1		25		26
Provision	849		269		(7)		117		(43)		1,185
Ending Balance June 30	$	10,067	$	2,256	$	1,765	$	728	$	141	$	14,957

~~Loans Receivable~~

~~At September~~Allowance for Credit Losses

For the Six Months Ended June 30, ~~2021~~2022

(In thousands)

Commercial Real Estate Commercial and Industrial Commercial Construction Consumer Real Estate Consumer Nonresidential Total
Financing receivables:
Ending Balance
Individually evaluated for impairment $ 11,928 $ 5,230 $ 1,596 $ 414 $ — $ 19,168
Purchased credit impaired — — — — — —
Collectively evaluated for impairment 858,539 216,851 204,997 165,683 8,245 1,454,315
$ 870,467 $ 222,081 $ 206,593 $ 166,097 $ 8,245 $ 1,473,483

~~Allowance for Loan Losses~~

~~At December 31, 2021~~

~~(In thousands)~~

Commercial Real Estate Commercial and Industrial Commercial Construction Consumer Real Estate Consumer Nonresidential Total
Allowance for credit losses:
Ending Balance
Individually evaluated for impairment $ — $ 181 $ — $ 5 $ — $ 186
Purchased credit impaired — — — — — —
Collectively evaluated for impairment 8,995 1,646 2,009 776 217 13,643
$ 8,995 $ 1,827 $ 2,009 $ 781 $ 217 $ 13,829


	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Real Estate		Consumer Nonresidential		Total
Allowance for credit losses:
Beginning Balance, January 1	$	8,995	$	1,827	$	2,009	$	781	$	217	$	13,829
Charge-offs	—		(396)		—		—		(53)		(449)
Recoveries	—		—		—		1		41		42
Provision	1,072		825		(244)		(54)		(64)		1,535
Ending Balance June 30	$	10,067	$	2,256	$	1,765	$	728	$	141	$	14,957

Allowance for Credit Losses

For the Year Ended December 31, 2022

(In thousands)


	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Real Estate		Consumer Nonresidential		Total
Allowance for credit losses:
Beginning Balance, January 1	$	8,995	$	1,827	$	2,009	$	781	$	217	$	13,829
Charge-offs	—		(396)		—		—		(101)		(497)
Recoveries	—		—		—		1		78		79
Provision	1,782		1,192		(510)		262		(97)		2,629
Ending Balance December 31	$	10,777	$	2,623	$	1,499	$	1,044	$	97	$	16,040

Table of Contents

Notes to Unaudited Consolidated Financial Statements

(Continued)

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of June 30, 2023:


(dollars in thousands)	Real Estate		Business / Other Assets
Collateral-Dependent Loans
Commercial real estate	$	—	$	—
Commercial and industrial	—		—
Commercial construction	—		—
Consumer real estate	2,292		—
Consumer nonresidential	—		—
Total	$	2,292	$	—

The following tables present the recorded investment in loans and evaluation method as of June 30, 2022 and at December 31, 2022, by portfolio segment:

Allowance for Credit Losses

At June 30, 2022

(In thousands)


	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Real Estate		Consumer Nonresidential		Total
Allowance for credit losses:
Ending Balance
Individually evaluated for impairment	$	—	$	83	$	—	$	2	$	—	$	85
Purchased credit impaired	—		—		—		—		—		—
Collectively evaluated for impairment	10,067		2,173		1,765		726		141		14,872
	$	10,067	$	2,256	$	1,765	$	728	$	141	$	14,957

Loans Receivable

At ~~December 31, 2021~~June 30, 2022

(In thousands)

Commercial Real Estate Commercial and Industrial Commercial Construction Consumer Real Estate Consumer Nonresidential Total
Financing receivables:
Ending Balance
Individually evaluated for impairment $ 11,915 $ 5,214 $ 1,557 $ 343 $ — $ 19,029
Purchased credit impaired — — — — — —
Collectively evaluated for impairment 894,197 197,536 186,058 200,261 10,304 1,488,356
$ 906,112 $ 202,750 $ 187,615 $ 200,604 $ 10,304 $ 1,507,385

~~Impaired loans by class excluding purchased credit impaired, at September 30, 2022 and December 31, 2021, are summarized as follows:~~

~~Impaired Loans – Originated Loan Portfolio~~

(In thousands) Recorded Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded Investment Interest
Income Recognized
September 30, 2022
With an allowance recorded:
Commercial real estate $ 1,703 $ 1,703 $ 71 $ 1,704 $ 98
Commercial and industrial 1,678 1,688 92 1,688 78
Commercial construction — — — — —
Consumer real estate 89 89 1 91 4
Consumer nonresidential — — — — —
$ 3,470 $ 3,480 $ 164 $ 3,483 $ 180
September 30, 2022
With no related allowance:
Commercial real estate $ 9,654 $ 9,654 $ — $ 9,654 $ 357
Commercial and industrial 3,075 3,075 — 3,124 152
Commercial construction — — — — —
Consumer real estate — — — — —
Consumer nonresidential — — — — —
$ 12,729 $ 12,729 $ — $ 12,778 $ 509


	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Real Estate		Consumer Nonresidential		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	11,357	$	4,569	$	105	$	90	$	—	$	16,121
Purchased credit impaired	—		—		—		—		—		—
Collectively evaluated for impairment	972,999		215,478		162,089		289,699		9,932		1,650,197
	$	984,356	$	220,047	$	162,194	$	289,789	$	9,932	$	1,666,318

Table of Contents

Notes to Unaudited Consolidated Financial Statements

(Continued)

Allowance for Credit Losses

At December 31, 2022

(In thousands)


	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Real Estate		Consumer Nonresidential		Total
Allowance for credit losses:
Ending Balance
Individually evaluated for impairment	$	—	$	86	$	—	$	—	$	—	$	86
Purchased credit impaired	—		—		—		—		—		—
Collectively evaluated for impairment	10,777		2,537		1,499		1,044		97		15,954
	$	10,777	$	2,623	$	1,499	$	1,044	$	97	$	16,040

Loans Receivable

At December 31, 2022

(In thousands)


	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Real Estate		Consumer Nonresidential		Total
Financing receivables:
Ending Balance
Individually evaluated for impairment	$	1,703	$	1,319	$	—	$	1,041	$	—	$	4,063
Purchased credit impaired	—		—		—		—		—		—
Collectively evaluated for impairment	1,098,558		243,901		147,939		338,550		7,685		1,836,633
	$	1,100,261	$	245,220	$	147,939	$	339,591	$	7,685	$	1,840,696

Impaired loans by class excluding purchased credit impaired at December 31, 2022, are summarized as follows:

Table of Contents

Notes to Unaudited Consolidated Financial Statements

(Continued)

Impaired Loans – Originated Loan Portfolio


(In thousands)	(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized		(In thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2021
December 31, 2022												December 31, 2022
With an allowance recorded:	With an allowance recorded:											With an allowance recorded:
Commercial real estate	Commercial real estate	$	—	$	—	$	—	$	—	$	—	Commercial real estate	$	—	$	—	$	—	$	—	$	—
Commercial and industrial	Commercial and industrial	1,678		1,688		181		1,711		95		Commercial and industrial	1,319		1,329		86		1,604		107
Commercial construction	Commercial construction	—		—		—		—		—		Commercial construction	—		—		—		—		—
Consumer real estate	Consumer real estate	93		93		5		95		7		Consumer real estate	—		—		—		—		—
Consumer nonresidential	Consumer nonresidential	—		—		—		—		—		Consumer nonresidential	—		—		—		—		—
		$	1,771	$	1,781	$	186	$	1,806	$	102		$	1,319	$	1,329	$	86	$	1,604	$	107
December 31, 2021
December 31, 2022												December 31, 2022
With no related allowance:	With no related allowance:											With no related allowance:
Commercial real estate	Commercial real estate	$	11,915	$	11,915	$	—	$	11,947	$	581	Commercial real estate	$	1,703	$	1,703	$	—	$	1,704	$	135
Commercial and industrial	Commercial and industrial	3,536		3,536		—		3,660		238		Commercial and industrial	—		—		—		—		—
Commercial construction	Commercial construction	1,557		1,596		—		1,597		174		Commercial construction	—		—		—		—		—
Consumer real estate	Consumer real estate	250		250		—		250		28		Consumer real estate	1,041		1,044		—		1,048		34
Consumer nonresidential	Consumer nonresidential	—		—		—		—		—		Consumer nonresidential	—		—		—		—		—
		$	17,258	$	17,297	$	—	$	17,454	$	1,021		$	2,744	$	2,747	$	—	$	2,752	$	169

There were no impaired loans in the acquired loan portfolio at ~~both September 30, 2022 and~~ December 31, ~~2021, respectively.~~2022. No additional funds are committed to be advanced in connection with the impaired loans. There were no nonaccrual loans excluded from the impaired loan disclosure.

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis typically includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. The Company uses the following definitions for risk ratings:

Pass — Loans listed as pass include larger non-homogeneous loans not meeting the risk rating definitions below and smaller, homogeneous loans not assessed on an individual basis.

Special Mention — Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard — Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the enhanced possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful — Loans classified as doubtful include those loans which have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently known facts, conditions and values, improbable.

Loss — Loans classified as loss include those loans which are considered uncollectible and of such little value that their continuance as loans is not warranted. Even though partial recovery may be achieved in the future, it is neither practical nor desirable to defer writing off these loans.

2122

Table of Contents

Notes to Unaudited Consolidated Financial Statements

(Continued)

Based on the most recent analysis performed, ~~the risk category~~amortized cost basis of loans by risk category, class and year of ~~loans~~origination was as follows as of ~~September~~June 30, ~~2022 and December 31, 2021:~~2023:

~~As of September 30, 2022 – Originated Loan Portfolio~~

(In thousands) Commercial Real Estate Commercial and Industrial Commercial Construction Consumer Real Estate Consumer Nonresidential Total
Grade:
Pass $ 997,848 $ 203,246 $ 150,918 $ 293,555 $ 9,130 $ 1,654,697
Special mention 5,633 400 — 63 — 6,096
Substandard 11,357 4,753 — 89 — 16,199
Doubtful — — — — — —
Loss — — — — — —
Total $ 1,014,838 $ 208,399 $ 150,918 $ 293,707 $ 9,130 $ 1,676,992

~~As of September 30, 2022 – Acquired Loan Portfolio~~

(In thousands) Commercial Real Estate Commercial and Industrial Commercial Construction Consumer Real Estate Consumer Nonresidential Total
Grade:
Pass $ 14,022 $ 2,997 $ 579 $ 19,371 $ 24 $ 36,993
Special mention 1,466 — — — — 1,466
Substandard — — — — — —
Doubtful — — — — — —
Loss — — — — — —
Total $ 15,488 $ 2,997 $ 579 $ 19,371 $ 24 $ 38,459

~~As of December 31, 2021 – Originated Loan Portfolio~~

(In thousands) Commercial Real Estate Commercial and Industrial Commercial Construction Consumer Real Estate Consumer Nonresidential Total
Grade:
Pass $ 875,395 $ 193,426 $ 182,497 $ 176,271 $ 10,277 $ 1,437,866
Special mention — 400 2,518 68 — 2,986
Substandard 11,915 5,214 1,557 343 — 19,029
Doubtful — — — — — —
Loss — — — — — —
Total $ 887,310 $ 199,040 $ 186,572 $ 176,682 $ 10,277 $ 1,459,881


(In thousands)	Prior		2019		2020		2021		2022		2023		Revolving Loans Amort. Cost Basis		Revolving Loans Convert. to Term		Total
Commercial Real Estate
Grade:
Pass	$	357,128	$	85,980	$	80,241	$	151,864	$	212,934	$	61,578	$	154,685	$	—	$	1,104,410
Special mention	5,348		1,491		—		—		—		—		—		—		6,839
Substandard			—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total	$	362,476	$	87,471	$	80,241	$	151,864	$	212,934	$	61,578	$	154,685	$	—	$	1,111,249
Commercial and Industrial
Grade:
Pass	$	7,327	$	2,957	$	8,834	$	16,291	$	79,083	$	66,194	$	72,556	$	—	$	253,242
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total	$	7,327	$	2,957	$	8,834	$	16,291	$	79,083	$	66,194	$	72,556	$	—	$	253,242
Commercial Construction
Grade:
Pass	$	11,555	$	344	$	—	$	10,464	$	—	$	709	$	135,641	$	—	$	158,713
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total	$	11,555	$	344	$	—	$	10,464	$	—	$	709	$	135,641	$	—	$	158,713
Consumer Real Estate
Grade:
Pass	$	41,844	$	8,305	$	10,410	$	29,583	$	200,023	$	45,668	$	36,046	$	—	$	371,879
Special mention	—		—		—		—		756		—		59		—		815
Substandard	865		—		—		—		837		—		590		—		2,292
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total	$	42,709	$	8,305	$	10,410	$	29,583	$	201,616	$	45,668	$	36,695	$	—	$	374,986
Consumer Nonresidential
Grade:
Pass	$	778	$	—	$	13	$	5	$	59	$	81	$	4,688	$	—	$	5,624
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Loss	—		—		—		—		—		—		—		—		—
Total	$	778	$	—	$	13	$	5	$	59	$	81	$	4,688	$	—	$	5,624
Total Recorded Investment	$	424,845	$	99,077	$	99,498	$	208,207	$	493,692	$	174,230	$	404,265	$	—	$	1,903,814

2223

Table of Contents

Notes to Unaudited Consolidated Financial Statements

(Continued)

As of June 30, 2023 – Total Loan Portfolio


(In thousands)	Total
Grade:
Pass	$	1,893,868
Special mention	7,654
Substandard	2,292
Doubtful	—
Loss	—
Total Recorded Investment	$	1,903,814

Based on the most recent analysis performed, the risk category of loans by class of loans was as follows as of December 31, 2022:

As of December 31, ~~2021~~2022 – Originated Loan Portfolio


(In thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Real Estate		Consumer Nonresidential		Total
Grade:
Pass	$	1,077,526	$	237,638	$	147,436	$	320,735	$	7,661	$	1,790,996
Special mention	6,284		3,350		—		803		—		10,437
Substandard	1,703		1,319		—		1,041		—		4,063
Doubtful	—		—		—		—		—		—
Loss	—		—		—		—		—		—
Total	$	1,085,513	$	242,307	$	147,436	$	322,579	$	7,661	$	1,805,496

As of December 31, 2022 – Acquired Loan Portfolio


(In thousands)	(In thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Real Estate		Consumer Nonresidential		Total		(In thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Consumer Real Estate		Consumer Nonresidential		Total
Grade:	Grade:													Grade:
Pass	Pass	$	18,802	$	3,710	$	1,043	$	23,922	$	27	$	47,504	Pass	$	14,748	$	2,913	$	503	$	17,012	$	24	$	35,200
Special mention	Special mention	—		—		—		—		—		—		Special mention	—		—		—		—		—		—
Substandard	Substandard	—		—		—		—		—		—		Substandard	—		—		—		—		—		—
Doubtful	Doubtful	—		—		—		—		—		—		Doubtful	—		—		—		—		—		—
Loss	Loss	—		—		—		—		—		—		Loss	—		—		—		—		—		—
Total	Total	$	18,802	$	3,710	$	1,043	$	23,922	$	27	$	47,504	Total	$	14,748	$	2,913	$	503	$	17,012	$	24	$	35,200

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes larger non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. At ~~September~~June 30, ~~2022,~~2023, the Company had ~~$6.1~~$7.7 million in ~~originated~~ loans identified as special mention, ~~an increase~~a decrease from ~~$3.0~~$10.4 million at December 31, ~~2021.~~2022. Special mention rated loans are loans that have a potential weakness that deserves management’s close

Table of Contents

Notes to Unaudited Consolidated Financial Statements

(Continued)

attention; however, the borrower continues to pay in accordance with their contract. Loans rated as special mention do not have a specific reserve and are considered well-secured.

At ~~September~~June 30, ~~2022,~~2023, the Company had ~~$16.2~~$2.3 million in loans identified as substandard, a decrease of ~~$2.8~~$1.8 million from December 31, ~~2021.~~2022. The ~~decrease~~increase in substandard loans was primarily related to ~~two loans totaling $1.8 million which were sold at a discount.~~the addition of one loan. Substandard rated loans are loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, a liquidation analysis is completed. At ~~September~~June 30, ~~2022, specific reserves on originated and acquired loans~~2023, an individually assessed allowance for credit losses totaling ~~$164~~$42 thousand has been ~~allocated within the allowance for loan losses~~estimated to supplement any shortfall of collateral.

Past due and nonaccrual loans presented by loan class were as follows at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021:~~2022

As of ~~September~~June 30, 2023


(In thousands)	30-59 days past due		60-89 days past due		90 days or more past due		Total past due loans		Current		Nonaccruals		Total Recorded Investment in Loans
Commercial real estate	$	1,641	$	—	$	—	$	1,641	$	1,109,608	$	—	$	1,111,249
Commercial and industrial	—		—		—		—		253,242		—		253,242
Commercial construction	—		—		36		36		158,677		—		158,713
Consumer real estate	—		554		—		554		373,005		1,427		374,986
Consumer nonresidential	4		14		—		18		5,606		—		5,624
Total	$	1,645	$	568	$	36	$	2,249	$	1,900,138	$	1,427	$	1,903,814

As of December 31, 2022 – Originated Loan Portfolio


(In thousands)	(In thousands)	30-59 days past due		60-89 days past due		90 days or more past due		Total past due		Current		Total loans		90 days past due and still accruing		Nonaccruals		(In thousands)	30-59 days past due		60-89 days past due		90 or more past due		Total past due		Current		Total loans		90 days past due and still accruing		Nonaccruals
Commercial real estate	Commercial real estate	$	—	$	397	$	1,830	$	2,227	$	1,012,611	$	1,014,838	$	127	$	1,703	Commercial real estate	$	546	$	—	$	2,096	$	2,642	$	1,082,871	$	1,085,513	$	393	$	1,703
Commercial and industrial	Commercial and industrial	—		258		1,678		1,936		206,463		208,399		—		1,678		Commercial and industrial	512		—		1,319		1,831		240,476		242,307		—		1,319
Commercial construction	Commercial construction	—		—		—		—		150,918		150,918		—		—		Commercial construction	—		—		125		125		147,311		147,436		125		—
Consumer real estate	Consumer real estate	544		19		130		693		293,014		293,707		130		—		Consumer real estate	805		—		953		1,758		320,821		322,579		825		128
Consumer nonresidential	Consumer nonresidential	—		—		28		28		9,102		9,130		28		—		Consumer nonresidential	—		63		—		63		7,598		7,661		—		—
Total	Total	$	544	$	674	$	3,666	$	4,884	$	1,672,108	$	1,676,992	$	285	$	3,381	Total	$	1,863	$	63	$	4,493	$	6,419	$	1,799,077	$	1,805,496	$	1,343	$	3,150

As of December 31, 2022 – Acquired Loan Portfolio


(In thousands)	30-59 days past due		60-89 days past due		90 or more past due		Total past due		Current		Total loans		90 days past due and still accruing		Nonaccruals
Commercial real estate	$	—	$	—	$	—	$	—	$	14,748	$	14,748	$	—	$	—
Commercial and industrial	—		—		—		—		2,913		2,913		—		—
Commercial construction	—		—		—		—		503		503		—		—
Consumer real estate	—		—		—		—		17,012		17,012		—		—
Consumer nonresidential	—		—		—		—		24		24		—		—
Total	$	—	$	—	$	—	$	—	$	35,200	$	35,200	$	—	$	—

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(Continued)

AsThe following presents nonaccrual loans as of ~~September~~June 30, ~~2022 – Acquired Loan Portfolio~~2023:

(In thousands) 30-59 days past due 60-89 days past due 90 or more past due Total past due Current Total loans 90 days past due and still accruing Nonaccruals
Commercial real estate $ — $ — $ — $ — $ 15,488 $ 15,488 $ — $ —
Commercial and industrial — — — — 2,997 2,997 — —
Commercial construction — — — — 579 579 — —
Consumer real estate — — — — 19,371 19,371 — —
Consumer nonresidential — — — — 24 24 — —
Total $ — $ — $ — $ — $ 38,459 $ 38,459 $ — $ —

~~As of December 31, 2021 – Originated Loan Portfolio~~

(In thousands) 30-59 days past due 60-89 days past due 90 or more past due Total past due Current Total loans 90 days past due and still accruing Nonaccruals
Commercial real estate $ — $ — $ — $ — $ 887,310 $ 887,310 $ — $ —
Commercial and industrial — — 1,678 1,678 197,362 199,040 — 1,678
Commercial construction — — 1,557 1,557 185,015 186,572 — 1,557
Consumer real estate — — 250 250 176,432 176,682 — 250
Consumer nonresidential 14 21 18 53 10,224 10,277 18 —
Total $ 14 $ 21 $ 3,503 $ 3,538 $ 1,456,343 $ 1,459,881 $ 18 $ 3,485

~~As of December 31, 2021 – Acquired Loan Portfolio~~


(In thousands)		30-59 days past due		60-89 days past due		90 or more past due		Total past due		Current		Total loans		90 days past due and still accruing		Nonaccruals
(dollars in thousands)																		(dollars in thousands)	Nonaccrual with No Allowance for Credit Losses				Nonaccrual with an Allowance for Credit Losses		Total Nonaccrual Loans		Interest Income Recognized
Nonaccrual Loans																		Nonaccrual Loans
Commercial real estate	Commercial real estate	$	—	$	—	$	—	$	—	$	18,802	$	18,802	$	—	$	—	Commercial real estate	$	—			$	—	$	—	$	—
Commercial and industrial	Commercial and industrial	—		—		—		—		3,710		3,710		—		—		Commercial and industrial	—				—		—		—
Commercial construction	Commercial construction	—		—		—		—		1,043		1,043		—		—		Commercial construction	—				—		—		—
Consumer real estate	Consumer real estate	234		—		5		239		23,683		23,922		5		—		Consumer real estate	1,427				—		1,427		28
Consumer nonresidential	Consumer nonresidential	2		—		—		2		25		27		—		—		Consumer nonresidential	—				—		—		—
Total	Total	$	236	$	—	$	5	$	241	$	47,263	$	47,504	$	5	$	—	Total	$	1,427	$	1,427	$	—	$	1,427	$	28

There were no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

There were overdrafts of ~~$247~~$233 thousand and ~~$58 thousand~~$1.3 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, which have been reclassified from deposits to loans. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, loans with a carrying value of ~~$352.1~~$577.4 million and ~~$290.3~~$458.7 million, respectively, were pledged to the ~~Federal Home Loan Bank of Atlanta ("FHLB").~~

~~There were no defaults of TDRs during the twelve months since restructuring for the nine months ended September 30, 2022 and 2021.~~

~~There were no loans designated as TDRs during the nine months ended September 30, 2022 and 2021, respectively.~~FHLB.

AsModifications with Borrowers Experiencing Financial Difficulty

On January 1, 2023, the Company adopted ASU 2022-02, which eliminates the accounting guidance for TDRs and enhances the disclosure requirements for certain loan modifications when a borrower is experiencing financial difficulty ("FDMs"). FDMs occur as a result of ~~September~~loss mitigation activities. A variety of solutions are offered to borrowers, including loan modifications that may result in principal forgiveness, interest rate reductions, term extensions, payment delays, repayment plans or combinations thereof. FDMs exclude loans held for sale and loans accounted for under the fair value option. Loans with guarantor support, or guaranteed loans are included in the Company's disclosed population of FDMs when those loan modifications are granted to a borrower experiencing financial difficulty.

There were 4 loans of $7.1 million modified during the the six months ended June 30, ~~2022~~2023 with a combination of payment delays and ~~December 31, 2021,~~contractual extension to the maturity of the loan. No loans were modified with principal and interest forgiveness or an interest rate reduction. All loans modified during the six month ended June 30, 2023 are performing according the modified contractual terms.

Prior to the adoption of ASC 326, the Company had zero reserves for unfunded commitments as of December 31, 2022. Upon adoption of ASC 326, the Company established a ~~recorded investment~~reserve for unfunded commitments of $811 thousand as of January 1, 2023. As of June 30, 2023, the reserve for unfunded commitments increased to 801 thousand.

The following table presents a breakdown of the provision for credit losses included in ~~TDRs~~the Consolidated Statements of ~~$89 thousand and $92 thousand, respectively.~~Income for the applicable periods:


	For the Three Months Ended					For the Six Months Ended
(In thousands)		June 30, 2023		June 30, 2022			June 30, 2023		June 30, 2022
Provision for credit losses - loans		$	740	$	1,185		$	871	$	1,535
Provision for credit losses - unfunded commitments		(122)		—			(11)		—
Total provision for credit losses		$	618	$	1,185		$	860	$	1,535

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(Continued)

~~The concessions made in the TDRs were related to the reduction in the stated interest rate for the remaining life of the debt.~~

Note 4. Derivative Financial Instruments

The Company enters into interest rate swap agreements ~~(swap agreements)~~("swap agreements") to facilitate the risk management strategies needed to accommodate the needs of its banking customers. The Company mitigates the risk of entering into these loan agreements by entering into equal and offsetting swap agreements with highly-rated third party financial institutions. These back-to-back swap agreements are free-standing derivatives and are recorded at fair value in the Company’s consolidated balance sheets (asset positions are included in other assets and liability positions are included in other liabilities) as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022. The Company is party to master netting arrangements with its financial institution counterparty; however, the Company does not offset assets and liabilities under these arrangements for financial statement presentation purposes. The master netting arrangements provide for a single net settlement of all swap agreements, as well as collateral, in the event of default on, or termination of, any one contract. Parties to a centrally cleared over-the-counter derivative exchange daily payments that reflect the daily change in value of the derivative. These payments, commonly referred to as variation margin, are recorded as settlements of the derivatives’ mark-to-market exposure rather than collateral against the exposures, which effectively results in any centrally cleared derivative having a Level 2 fair value that approximates zero on a daily basis, and therefore, these swap agreements were not included in the offsetting table in the Fair Value Measurement section. As of ~~September~~June 30, ~~2022,~~2023, the Company had entered into 1416 interest rate swap agreements which are collateralized with $30 thousand in cash. There were 1915 interest rate swap agreements outstanding as of December 31, ~~2021~~2022 which were collateralized with ~~$6.7 million~~$30 thousand in cash.

The notional amount and fair value of the Company’s derivative financial instruments as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 were as follows:


		September 30, 2022					June 30, 2023
		Notional Amount		Fair Value			Notional Amount		Fair Value
		(In thousands)					(In thousands)
Interest Rate Swap Agreements	Interest Rate Swap Agreements					Interest Rate Swap Agreements
Receive Fixed/Pay Variable Swaps	Receive Fixed/Pay Variable Swaps	$	71,105	$	4,710	Receive Fixed/Pay Variable Swaps	$	82,026	$	4,358
Pay Fixed/Receive Variable Swaps	Pay Fixed/Receive Variable Swaps	71,105		(4,710)		Pay Fixed/Receive Variable Swaps	82,026		(4,358)


		December 31, 2021					December 31, 2022
		Notional Amount		Fair Value			Notional Amount		Fair Value
		(In thousands)					(In thousands)
Interest Rate Swap Agreements	Interest Rate Swap Agreements					Interest Rate Swap Agreements
Receive Fixed/Pay Variable Swaps	Receive Fixed/Pay Variable Swaps	$	80,643	$	6,052	Receive Fixed/Pay Variable Swaps	$	74,178	$	4,260
Pay Fixed/Receive Variable Swaps	Pay Fixed/Receive Variable Swaps	80,643		(6,052)		Pay Fixed/Receive Variable Swaps	74,178		(4,260)

Interest Rate Risk Management—Cash Flow Hedging Instruments

The Company uses FHLB advances and other wholesale funding from time to time as a source of funds for use in the Company’s lending and investment activities and other general business purposes. This wholesale funding exposes the Company to increased interest rate risk as a result of the variability in cash flows (future interest payments). The Company believes it is prudent to reduce this interest rate risk. To meet this objective, the Company entered into interest rate swap agreements whereby the Company reduces the interest rate risk associated with the Company’s variable rate advances (or other wholesale funding) from the designation date and going through the maturity date.

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the information pertaining to outstanding interest rate swap agreements used to hedge variability in cash flows ~~(FHLB advances which are included in other borrowed funds on the consolidated balance sheet) and its wholesale deposits (which are included in total deposits on the consolidated balance sheet)~~ was as follows:

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Notes to Unaudited Consolidated Financial Statements

(Continued)


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022		December 31, 2021		(Dollars in thousands)	June 30, 2023		December 31, 2022
Notional amount	Notional amount	$	145,000	$	60,000	Notional amount	$	250,000	$	145,000
Weighted average pay rate	Weighted average pay rate	2.12%		0.87%		Weighted average pay rate	3.25%		2.12%
Weighted average receive rate	Weighted average receive rate	3.45%		0.21%		Weighted average receive rate	5.06%		4.74%
Weighted average maturity in years	Weighted average maturity in years	3.75		1.10		Weighted average maturity in years	4.53		3.49
Unrealized gain (loss) relating to interest rate swaps		$	4,856	$	(77)
Unrealized gain relating to interest rate swaps						Unrealized gain relating to interest rate swaps	$	7,067	$	4,251

These agreements provided for the Company to receive payments determined by a specific index ~~(three month LIBOR or three month Secured Overnight Financing Rate ("SOFR"))~~ in exchange for making payments at a fixed rate. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the unrealized ~~loss~~gain relating to interest rate swaps designated as hedging instruments of the variability of cash flows associated with the interest payments on FHLB advances and wholesale deposits are reported in other comprehensive ~~(loss)~~ income. These amounts are subsequently reclassified into interest expense as a yield adjustment in the same period in which the related interest on the ~~advance~~funding affects earnings. The Company measures cash flow hedging relationships for effectiveness on a monthly basis, and at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the hedges were highly effective and the amount of ineffectiveness reflected in earnings was de minimus.

Note 5. Financial Instruments with Off-Balance Sheet Risk

The Company is party to credit-related 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. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.

The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in making commitments as it does for on-balance sheet instruments.

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the following financial instruments were outstanding, which contract amounts represent credit risk:


(In thousands)	(In thousands)	September 30, 2022		December 31, 2021		(In thousands)	June 30, 2023		December 31, 2022
Commitments to grant loans	Commitments to grant loans	$	218,782	$	90,591	Commitments to grant loans	$	36,768	$	135,441
Unused commitments to fund loans and lines of credit	Unused commitments to fund loans and lines of credit	250,418		183,145		Unused commitments to fund loans and lines of credit	242,920		235,617
Commercial and standby letters of credit	Commercial and standby letters of credit	9,356		8,930		Commercial and standby letters of credit	6,158		6,503

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed. The amount of collateral obtained, if it is deemed necessary by the Company, is based on management’s credit evaluation of the customer.

Commercial and standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and

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~~Notes to Unaudited Consolidated Financial Statements~~

~~(Continued)~~

private borrowing arrangements. Substantially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting those commitments, if deemed necessary.

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Notes to Unaudited Consolidated Financial Statements

(Continued)

The Company enters into rate lock commitments to finance residential mortgage loans with its customers. These commitments offer the borrower an interest rate guarantee provided the loan meets underwriting guidelines and closes within the timeframe established by the Company.

The Company maintains its cash accounts with the FRB and correspondent banks. The total amount of cash on deposit in correspondent banks exceeding the federally insured limits was ~~$15.5 million~~$119 thousand and ~~$32.8~~$1.4 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

Note 6. Stock-Based Compensation Plan

The Company’s Amended and Restated 2008 Option Plan (the "Plan"), which is stockholder-approved, was adopted to advance the interests of the Company by providing selected key employees of the Company, their affiliates, and directors with the opportunity to acquire shares of common stock in connection with their service to the Company. In May 2022, the stockholders approved an amendment to the Plan to extend the term and increase the number of shares authorized for issuance under the Plan by 200,000 shares. The Company has granted stock options and restricted stock units under the Plan.

The maximum number of shares with respect to which awards may be made is 2,929,296 shares of common stock, subject to adjustment for certain corporate events. Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant, generally vest annually over four years of continuous service and have ten years contractual terms. At ~~September~~June 30, ~~2022, 130,322~~2023, 148,125 shares were available to grant under the Plan.

No options were granted during the three ~~and nine~~ months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. For the ~~nine~~three months ended ~~September~~June 30, ~~2022,~~2023, there were ~~4,772~~63,634 shares withheld from issuance upon exercise of options in order to cover the cost of the exercise by the participant. There were no4,772 shares withheld from issuance upon exercise of options in order to cover the cost of the exercise by the participant during the three ~~and nine~~ months ended ~~September~~June 30, ~~2021.~~2022.

A summary of option activity under the Plan as of ~~September~~June 30, ~~2022~~2023 and changes during the ~~nine~~six months ended is presented below:


Options	Options	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Contractual Remaining Term (Years)	Aggregate Intrinsic Value (1)		Options	Number of Shares	Weighted- Average Exercise Price		Weighted- Average Contractual Remaining Term (Years)	Aggregate Intrinsic Value (1)
Outstanding at January 1, 2022		1,544,893	$	8.31	2.46
Outstanding at January 1, 2023								Outstanding at January 1, 2023	1,621,920	$	6.82	1.81
Granted	Granted	—	—					Granted	—
Exercised	Exercised	(221,599)	7.15					Exercised	(423,380)	5.97
Forfeited or expired	Forfeited or expired	(97)	8.56					Forfeited or expired	(20,437)	5.73
Outstanding and Exercisable at September 30, 2022		1,323,197	$	8.50	2.05	$	14,113,207
Outstanding and Exercisable at June 30, 2023								Outstanding and Exercisable at June 30, 2023	1,178,103	$	7.15	1.81	$	4,268,625

(1)The aggregate intrinsic value of stock options represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on ~~September~~June 30, ~~2022.~~2023. This amount changes based on changes in the market value of the Company’s common stock.

As of ~~September~~June 30, ~~2022,~~2023, all outstanding stock options granted under the Plan are fully vested and amortized. There was $9 $0 thousand in income tax benefit related to stock options exercised and recognized in the income statement for share-based compensation arrangements for the three months ended June 30, 2023. There was $31 thousand in income tax benefit related to stock options exercised and recognized in the income statement for share-based compensation arrangements for the three months ended ~~September~~June 30, 2022. ~~There was no income tax benefit related to stock options exercised and~~Tax benefits recognized in the income statement for share-based compensation arrangements ~~for~~during the six months ended June 30, 2023 and 2022 totaled $479 thousand and $235 thousand, respectively.

Restricted stock units relating to 9,438 shares were granted during the six months ended June 30, 2023. There were 119,720 restricted stock units granted during the three months ended ~~September~~June 30, ~~2021. Tax benefits recognized for~~2022. For the six months ended June 30, 2023, there were 7,190 shares withheld from issuance upon vesting of restricted stock units in order to cover the cost of the vesting by the participant. There were no shares withheld from issuance upon vesting of restricted stock units in order to cover the cost of the vesting by the participant during the six months ended June 30, 2022.

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(Continued)

~~nonqualified stock options during the nine months ended September 30, 2022 and 2021 totaled $367 thousand and $125 thousand, respectively.~~

Restricted stock units relating to 120,070 shares were granted during the nine months ended September 30, 2022. There were 116,488 restricted stock units granted during the nine months ended September 30, 2021.

A summary of the Company’s restricted stock unit grant activity as of ~~September~~June 30, ~~2022~~2023 is shown below.


		Number of Shares	Weighted Average Grant Date Fair Value			Number of Shares	Weighted Average Grant Date Fair Value per share
Nonvested at January 1, 2022		151,403	$	17.92
Nonvested at January 1, 2023					Nonvested at January 1, 2023	278,245	$	14.63
Granted	Granted	120,070	18.65		Granted	9,438	10.55
Vested	Vested	(46,629)	18.16		Vested	(70,642)	14.48
Forfeited	Forfeited	(5,027)	18.23		Forfeited	(12,112)	15.43
Balance at September 30, 2022		219,817	$	18.26
Balance at June 30, 2023					Balance at June 30, 2023	204,929	$	14.45

The compensation cost that has been charged to income for the Plan was ~~$348~~$326 thousand and ~~$289~~$248 thousand for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021, respectively. Total compensation cost for the nine months ended September 30,~~ 2022, ~~and 2021 was $799 thousand and $749 thousand,~~ respectively. As of ~~September~~June 30, ~~2022,~~2023, there was ~~$3.5~~$2.4 million of total unrecognized compensation cost related to nonvested restricted stock units granted under the Plan. The cost is expected to be recognized over a weighted-average period of 3631 months.

Note 7. Fair Value Measurements

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with Fair Value Measurements and Disclosures topic of FASB ASC, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date (exit price). Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

Fair Value Hierarchy

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

~~Table of Contents~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Continued)~~


Level 1 —			Valuation is based on quoted prices in active markets for identical assets and liabilities.

Level 2 —			Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.

Level 3 —			Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

Table of Contents

Notes to Unaudited Consolidated Financial Statements

(Continued)

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements:

Securities available-for-sale: Securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that considers observable market data (Level 2).

Cash flow hedges: The Company has loan interest rate swap derivatives ~~that~~and interest rate swap derivatives on certain time deposits and borrowings, which the latter are designated as cash flow ~~hedges and~~hedges. These derivatives are recorded at fair value using published yield curve rates from a national valuation service. These observable rates and inputs are applied to a third party industry-wide valuation model, and therefore, the valuations fall into a Level 2 category.

The following table presents the balances of financial assets and liabilities measured at fair value on a recurring basis as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


					Fair Value Measurements at September 30, 2022 Using													Fair Value Measurements at June 30, 2023 Using
(In thousands)	(In thousands)	Balance as of September 30, 2022			Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs		(In thousands)		Balance as of June 30, 2023			Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs
Description	Description			(Level 1)			(Level 2)			(Level 3)	Description						(Level 1)			(Level 2)			(Level 3)
Assets	Assets													Assets
Available-for-sale	Available-for-sale												Available-for-sale
Securities of U.S. government and federal agencies	Securities of U.S. government and federal agencies	$	11,006		$	—		$	11,006		$	—	Securities of U.S. government and federal agencies		$	11,243		$	—		$	11,243		$	—
Securities of state and local municipalities tax exempt	Securities of state and local municipalities tax exempt	1,356			—			1,356			—		Securities of state and local municipalities tax exempt		999			—			999			—
Securities of state and local municipalities taxable	Securities of state and local municipalities taxable	491			—			491			—		Securities of state and local municipalities taxable		422			—			422			—
Corporate bonds	Corporate bonds	19,433			—			19,433			—		Corporate bonds		17,287			—			17,287			—
SBA pass-through securities	SBA pass-through securities	68			—			68			—		SBA pass-through securities		62			—			62			—
Mortgage-backed securities	Mortgage-backed securities	240,088			—			240,088			—		Mortgage-backed securities		197,659			—			197,659			—
Collateralized mortgage obligations	Collateralized mortgage obligations	9,773			—			9,773			—		Collateralized mortgage obligations		3,532			—			3,532			—
Total Available-for-Sale Securities	Total Available-for-Sale Securities	$	282,215		$	—		$	282,215		$	—	Total Available-for-Sale Securities		$	231,204		$	—		$	231,204		$	—
Derivative assets - interest rate swaps	Derivative assets - interest rate swaps	4,710			—			4,710			—		Derivative assets - interest rate swaps		$	4,358		$	—		$	4,358		—
Derivative assets - cash flow hedge	Derivative assets - cash flow hedge	4,856			—			4,856			—		Derivative assets - cash flow hedge		7,067			—			7,067			—��
Liabilities	Liabilities												Liabilities
Derivative liabilities - interest rate swaps	Derivative liabilities - interest rate swaps	4,710			—			4,710			—		Derivative liabilities - interest rate swaps		4,358			—			4,358			—
Derivative liabilities - cash flow hedge		—			—			—			—

2931

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(Continued)


					Fair Value Measurements at December 31, 2021 Using													Fair Value Measurements at December 31, 2022 Using
(In thousands)	(In thousands)	Balance as of December 31, 2021			Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs		(In thousands)		Balance as of December 31, 2022			Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs
Description	Description			(Level 1)			(Level 2)			(Level 3)	Description						(Level 1)			(Level 2)			(Level 3)
Assets	Assets													Assets
Available-for-sale	Available-for-sale												Available-for-sale
Securities of U.S. government and federal agencies	Securities of U.S. government and federal agencies	$	13,436		$	—		$	13,436		$	—	Securities of U.S. government and federal agencies		$	11,004		$	—		$	11,004		$	—
Securities of state and local municipalities tax exempt	Securities of state and local municipalities tax exempt	1,451			—			1,451			—		Securities of state and local municipalities tax exempt		1,376			—			1,376			—
Securities of state and local municipalities taxable	Securities of state and local municipalities taxable	596			—			596			—		Securities of state and local municipalities taxable		444			—			444			—
Corporate bonds	Corporate bonds	14,151			—			14,151			—		Corporate bonds		19,058			—			19,058			—
SBA pass-through securities	SBA pass-through securities	108			—			108			—		SBA pass-through securities		67			—			67			—
Mortgage-backed securities	Mortgage-backed securities	313,838			—			313,838			—		Mortgage-backed securities		237,434			—			237,434			—
Collateralized mortgage obligations	Collateralized mortgage obligations	14,194			—			14,194			—		Collateralized mortgage obligations		8,686			—			8,686			—
Total Available-for-Sale Securities	Total Available-for-Sale Securities	$	357,774		$	—		$	357,774		$	—	Total Available-for-Sale Securities		$	278,069		$	—		$	278,069		$	—
Derivative assets - interest rate swaps	Derivative assets - interest rate swaps	6,052			—			6,052			—		Derivative assets - interest rate swaps		$	4,260		$	—		$	4,260		—
Derivative assets - cash flow hedge													Derivative assets - cash flow hedge		4,251			—			4,251			—
Liabilities	Liabilities												Liabilities
Derivative liabilities - interest rate swaps	Derivative liabilities - interest rate swaps	6,052			—			6,052			—		Derivative liabilities - interest rate swaps		4,260			—			4,260			—
Derivative liabilities - cash flow hedge		77			—			77			—

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower of cost or market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements:

At June 30, 2023, all of the Company's individually evaluated loans were evaluated based upon the fair value of the collateral. In accordance with ASC 820, individually evaluated loans where an allowance is established based on the the fair value of collateral (i.e., those loans that are collateral dependent) require classification in the fair value hierarchy. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral is a house or building in the process of construction, has the value derived by discounting comparable sales due to lack of similar properties, or is discounted by the Company due to marketability, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).

Impaired Loans (prior to adoption of ASC 326): Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. The measurement of loss associated with impaired loans can be based on either the present value of future cash flows, observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral is a house or building in the process of construction, has the value derived by discounting comparable sales due to lack of

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Notes to Unaudited Consolidated Financial Statements

(Continued)

similar properties, or is discounted by the Company due to marketability, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business’s financial statements if not considered significant using observable market data. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the allowance for ~~loan~~credit losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for ~~loan~~credit losses on the Consolidated Statements of Income.

~~Table of Contents~~

~~Notes to Unaudited Consolidated Financial Statements~~

~~(Continued)~~

The following table summarizes the Company’s assets that were measured at fair value on a nonrecurring basis at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


					Fair Value Measurements Using													Fair Value Measurements Using
(In thousands)	(In thousands)	Balance as of September 30, 2022			Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs		(In thousands)		Balance as of June 30, 2023			Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs
Description	Description			(Level 1)			(Level 2)			(Level 3)	Description						(Level 1)			(Level 2)			(Level 3)
Assets	Assets													Assets
Impaired loans
Collateral-dependent loans													Collateral-dependent loans
Commercial real estate	Commercial real estate	$	1,632		$	—		$	—		$	1,632	Commercial real estate		$	738		$	—		$	—		$	738
Commercial and industrial		1,586			—			—			1,586
Consumer residential		88			—			—			88
Total Impaired loans		$	3,306		$	—		$	—		$	3,306
Total Collateral-dependent loans													Total Collateral-dependent loans		$	738		$	—		$	—		$	738


					Fair Value Measurements Using													Fair Value Measurements Using
(In thousands)	(In thousands)	Balance as of December 31, 2021			Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs		(In thousands)		Balance as of December 31, 2022			Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs
Description	Description			(Level 1)			(Level 2)			(Level 3)	Description						(Level 1)			(Level 2)			(Level 3)
Assets	Assets													Assets
Impaired loans	Impaired loans												Impaired loans
Commercial and industrial	Commercial and industrial	$	1,497		$	—		$	—		$	1,497	Commercial and industrial		$	1,233		$	—		$	—		$	1,233
Consumer residential		88			—			—			88
Total Impaired loans	Total Impaired loans	$	1,585		$	—		$	—		$	1,585	Total Impaired loans		$	1,233		$	—		$	—		$	1,233

The following table displays quantitative information about Level 3 Fair Value Measurements for ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:

Quantitative information about Level 3 Fair Value Measurements for September 30, 2022
(Dollars In thousands)
Assets Fair Value Valuation Technique(s) Unobservable input Range
(Avg.)
Impaired loans
Commercial real estate $ 1,632 Discounted appraisal value Marketability/Selling costs 10% - 10% 10.00 %
Commercial and industrial 1,586 Discounted appraised value Marketability/Selling costs 8% - 8% 8.00 %
Consumer residential 88 Discounted appraised value Marketability/Selling costs 8% - 8% 8.00 %
Total impaired loans $ 3,306 Discounted appraised value Marketability/Selling costs 8% - 10% 8.99 %

Quantitative information about Level 3 Fair Value Measurements for June 30, 2023

(Dollars In thousands)

Assets

Fair Value

Valuation Technique(s)

Unobservable input

Range

(Avg.)

Collateral-dependent loans

Commercial real estate

738

Discounted appraised value

Marketability/Selling costs

5.63% - 5.63%

5.63

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~~Notes to Unaudited Consolidated Financial Statements~~

~~(Continued)~~

Quantitative information about Level 3 Fair Value Measurements for December 31, 2021

Quantitative information about Level 3 Fair Value Measurements for December 31, 2022

(Dollars In thousands)

Assets

Fair Value

Valuation Technique(s)

Unobservable input

Range

(Avg.)

Assets

Fair Value

Valuation Technique(s)

Unobservable input

Range

(Avg.)

Impaired loans

Commercial and industrial

1,497

Discounted appraised value

Marketability/Selling costs

8% - 8%

8.00

Commercial and industrial

1,233

Discounted appraised value

Marketability/Selling costs

8% - 8%

8.00

Consumer residential

Discounted appraised value

Marketability/Selling costs

8% - 8%

8.00

Total impaired loans

1,585

Discounted appraised value

Marketability/Selling costs

8% - 8%

8.00

The following presents the carrying amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022. Fair values for ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~ 2022

Table of Contents

Notes to Unaudited Consolidated Financial Statements

(Continued)

are estimated under the exit price notion in accordance with ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.”


					Fair Value Measurements as of September 30, 2022, using													Fair Value Measurements as of June 30, 2023, using
		Carrying Amount			Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs				Carrying Amount			Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs
(In thousands)	(In thousands)			Level 1			Level 2			Level 3	(In thousands)						Level 1			Level 2			Level 3
Financial assets:	Financial assets:													Financial assets:
Cash and due from banks	Cash and due from banks	$	11,820		$	11,820		$	—		$	—	Cash and due from banks		$	8,281		$	8,281		$	—		$	—
Interest-bearing deposits at other institutions	Interest-bearing deposits at other institutions	56,522			56,522			—			—		Interest-bearing deposits at other institutions		66,723			66,723			—			—
Securities held-to-maturity	Securities held-to-maturity	264			—			243			—		Securities held-to-maturity		264			—			252			—
Securities available-for-sale	Securities available-for-sale	282,215			—			282,215			—		Securities available-for-sale		231,204			—			231,204			—
Restricted stock	Restricted stock	9,061			—			9,061			—		Restricted stock		4,909			—			4,909			—
Loans, net	Loans, net	1,699,160			—			—			1,623,176		Loans, net		1,884,372			—			—			1,777,184
Bank owned life insurance	Bank owned life insurance	55,016			—			55,016			—		Bank owned life insurance		56,066			—			56,066			—
Accrued interest receivable	Accrued interest receivable	8,459			—			8,459			—		Accrued interest receivable		10,465			—			10,465			—
Derivative assets - interest rate swaps													Derivative assets - interest rate swaps		4,358			—			4,358			—
Derivative assets - cash flow hedge													Derivative assets - cash flow hedge		7,067			—			7,067			—

Financial liabilities:	Financial liabilities:												Financial liabilities:
Checking, savings and money market accounts	Checking, savings and money market accounts	$	1,585,479		$	—		$	1,585,479		$	—	Checking, savings and money market accounts		$	1,309,480		$	—		$	1,309,480		$	—
Time deposits	Time deposits	303,805			—			303,733			—		Time deposits		778,562			—			778,371			—
Federal funds purchased		—			—			—			—
FHLB advances		75,000			—			75,000			—
Subordinated notes	Subordinated notes	19,551			—			18,763			—		Subordinated notes		19,592			—			18,763			—
Accrued interest payable	Accrued interest payable	845			—			845			—		Accrued interest payable		2,685			—			2,685			—
Derivative liabilities - interest rate swaps													Derivative liabilities - interest rate swaps		4,358			—			4,358			—

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(Continued)


					Fair Value Measurements as of December 31, 2021, using													Fair Value Measurements as of December 31, 2022, using
		Carrying Amount			Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs				Carrying Amount			Quoted Prices in Active Markets for Identical Assets			Significant Other Observable Inputs			Significant Unobservable Inputs
(In thousands)	(In thousands)			Level 1			Level 2			Level 3	(In thousands)						Level 1			Level 2			Level 3
Financial assets:	Financial assets:													Financial assets:
Cash and due from banks	Cash and due from banks	$	24,613		$	24,613		$	—		$	—	Cash and due from banks		$	7,253		$	7,253		$	—		$	—
Interest-bearing deposits at other institutions	Interest-bearing deposits at other institutions	216,345			216,345			—			—		Interest-bearing deposits at other institutions		74,300			74,300			—			—
Securities held-to-maturity	Securities held-to-maturity	264			—			270			—		Securities held-to-maturity		264			—			252			—
Securities available-for-sale	Securities available-for-sale	357,774			—			357,774			—		Securities available-for-sale		278,069			—			278,069			—
Restricted stock	Restricted stock	6,372			—			6,372			—		Restricted stock		15,612			—			15,612			—
Loans, net	Loans, net	1,490,020			—			—			1,493,185		Loans, net		1,824,394			—			—			1,756,984
Bank owned life insurance	Bank owned life insurance	39,171			—			39,171			—		Bank owned life insurance		55,371			—			55,371			—
Accrued interest receivable	Accrued interest receivable	8,074			—			8,074			—		Accrued interest receivable		9,435			—			9,435			—
Derivative assets - interest rate swaps													Derivative assets - interest rate swaps		4,260			—			4,260			—
Derivative assets - cash flow hedge													Derivative assets - cash flow hedge		4,251			—			4,251			—

Financial liabilities:	Financial liabilities:												Financial liabilities:
Checking, savings and money market accounts	Checking, savings and money market accounts	$	1,652,352		$	—		$	1,652,352		$	—	Checking, savings and money market accounts		$	1,321,749		$	—		$	1,321,749		$	—
Time deposits	Time deposits	231,417			—			232,837			—		Time deposits		508,413			—			510,754			—
Fed funds purchased													Fed funds purchased		30,000			—			30,000			—
FHLB advances	FHLB advances	25,000			—			25,000			—		FHLB advances		235,000			—			235,000			—
Subordinated notes	Subordinated notes	19,510			—			18,133			—		Subordinated notes		19,565			—			18,856			—
Accrued interest payable	Accrued interest payable	1,034			—			1,034			—		Accrued interest payable		1,269			—			1,269			—
Derivative liabilities - interest rate swaps													Derivative liabilities - interest rate swaps		4,260			—			4,260			—

Note 8. Earnings Per Share

Basic earnings per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of stock which then shared in the earnings of the Company. Holders of the Company’s restricted stock units do not have voting rights during the vesting period and therefore, restricted stock units are not included in the computation of basic earnings per share. Weighted average shares – diluted includes the potential dilution of stock options and restricted stock units as of ~~September~~June 30, 2023 and 2022, ~~and 2021 includes only the potential dilution of stock options.~~respectively.

The following shows the weighted average number of shares used in computing earnings per share and the effect of weighted average number of shares of dilutive potential common stock. Dilutive potential common stock has no effect on income available to common stockholders. There were ~~no anti-dilutive~~54,132 restricted stock units excluded from weighted average dilutive shares for ~~each of~~ the three and ~~nine month periods~~six months ended ~~September~~June 30, 2023 and 2022 ~~and September 30, 2021.~~as the shares were anti-dilutive.

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(Continued)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)	(In thousands, except per share data)	2022		2021		2022		2021		(In thousands, except per share data)	2023		2022		2023		2022

Net income	Net income	$	7,043	$	4,682	$	20,080	$	15,416	Net income	$	4,233	$	6,425	$	4,854	$	13,039

Weighted average number of shares	Weighted average number of shares	13,988		13,683		13,930		13,636		Weighted average number of shares	17,711		17,462		17,644		17,377

Effect of dilutive securities, restricted stock units and options	Effect of dilutive securities, restricted stock units and options	784		929		855		919		Effect of dilutive securities, restricted stock units and options	348		1,125		534		1,113

Weighted average diluted shares	Weighted average diluted shares	14,772		14,612		14,785		14,555		Weighted average diluted shares	18,059		18,587		18,178		18,490

Basic EPS	Basic EPS	$	0.50	$	0.34	$	1.44	$	1.13	Basic EPS	$	0.24	$	0.37	$	0.28	$	0.75
Diluted EPS	Diluted EPS	$	0.48	$	0.32	$	1.36	$	1.06	Diluted EPS	$	0.23	$	0.35	$	0.27	$	0.71

Note 9. Accumulated Other Comprehensive Income (Loss)

Changes in accumulated other comprehensive income (loss) ("AOCI") for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 are shown in the following table. The Company has two components, which are available-for-sale securities and cash flow hedges, for the periods presented.


(In thousands)	(In thousands)							(In thousands)
Three Months Ended September 30, 2022		Available-for-Sale Securities		Cash Flow Hedges		Total
Three Months Ended June 30, 2023								Three Months Ended June 30, 2023	Available-for-Sale Securities		Cash Flow Hedges		Total
Balance, beginning of period	Balance, beginning of period	$	(29,861)	$	669	$	(29,192)	Balance, beginning of period	$	(34,009)	$	1,147	$	(32,862)
Net unrealized (losses) gains during the period	Net unrealized (losses) gains during the period	(13,555)		3,167		(10,388)		Net unrealized (losses) gains during the period	(2,307)		4,407		2,100

Other comprehensive (loss) income, net of tax	Other comprehensive (loss) income, net of tax	(13,555)		3,167		(10,388)		Other comprehensive (loss) income, net of tax	(2,307)		4,407		2,100
Balance, end of period	Balance, end of period	$	(43,416)	$	3,836	$	(39,580)	Balance, end of period	$	(36,316)	$	5,554	$	(30,762)


(In thousands)	(In thousands)							(In thousands)
Nine Months Ended September 30, 2022		Available-for-Sale Securities		Cash Flow Hedges		Total
Six Months Ended June 30, 2023								Six Months Ended June 30, 2023	Available-for-Sale Securities		Cash Flow Hedges		Total
Balance, beginning of period	Balance, beginning of period	$	(1,983)	$	(60)	$	(2,043)	Balance, beginning of period	$	(39,926)	$	3,359	$	(36,567)
Net unrealized (losses) gains during the period	Net unrealized (losses) gains during the period	(41,433)		3,896		(37,537)		Net unrealized (losses) gains during the period	28		2,195		2,223
Other comprehensive income (loss), net of tax		(41,433)		3,896		(37,537)
Net reclassification adjustment for losses realized in income								Net reclassification adjustment for losses realized in income	3,582		—		3,582
Other comprehensive (loss) income, net of tax								Other comprehensive (loss) income, net of tax	3,610		2,195		5,805
Balance, end of period	Balance, end of period	$	(43,416)	$	3,836	$	(39,580)	Balance, end of period	$	(36,316)	$	5,554	$	(30,762)


(In thousands)	(In thousands)							(In thousands)
Three Months Ended September 30, 2021		Available-for-Sale Securities		Cash Flow Hedges		Total
Three Months Ended June 30, 2022								Three Months Ended June 30, 2022	Available-for-Sale Securities		Cash Flow Hedges		Total
Balance, beginning of period	Balance, beginning of period	$	1,323	$	(382)	$	941	Balance, beginning of period	$	(19,662)	$	448	$	(19,214)
Net unrealized (losses) gains during the period	Net unrealized (losses) gains during the period	(1,688)		61		(1,627)		Net unrealized (losses) gains during the period	(10,199)		221		(9,978)
Other comprehensive (loss) income, net of tax	Other comprehensive (loss) income, net of tax	(1,688)		61		(1,627)		Other comprehensive (loss) income, net of tax	(10,199)		221		(9,978)
Balance, end of period	Balance, end of period	$	(365)	$	(321)	$	(686)	Balance, end of period	$	(29,861)	$	669	$	(29,192)

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Notes to Unaudited Consolidated Financial Statements

(Continued)


(In thousands)	(In thousands)							(In thousands)
Nine Months Ended September 30, 2021		Available-for-Sale Securities		Cash Flow Hedges		Total
Six Months Ended June 30, 2022								Six Months Ended June 30, 2022	Available-for-Sale Securities		Cash Flow Hedges		Total
Balance, beginning of period	Balance, beginning of period	$	2,421	$	(595)	$	1,826	Balance, beginning of period	$	(1,983)	$	(60)	$	(2,043)
Net unrealized (losses) gains during the period	Net unrealized (losses) gains during the period	(2,786)		274		(2,512)		Net unrealized (losses) gains during the period	(27,878)		729		(27,149)

Other comprehensive income (loss), net of tax		$	(2,786)	$	274	$	(2,512)
Other comprehensive (loss) income, net of tax								Other comprehensive (loss) income, net of tax	(27,878)		729		(27,149)
Balance, end of period	Balance, end of period	$	(365)	$	(321)	$	(686)	Balance, end of period	$	(29,861)	$	669	$	(29,192)

There were no gains for the three ~~and nine~~ months ended ~~September~~June 30, ~~2022 and 2021, respectively,~~2023, that were reclassified from AOCI into income. During the first quarter of 2023, $40.3 million in investment securities available-for-sale, or 12% of the investment portfolio, were sold with a realized after-tax loss of $3.6 million. There were no gains that were reclassified from AOCI into income for the three and six month ended June 30, 2022, respectively.

Note 10. Subordinated Notes

On June 20, 2016, the Company issued $25.0 million of fixed-to-floating rate subordinated notes due June 30, 2026, in a private placement to accredited investors. Interest was payable at 6.00% per annum, from and including June 20, 2016 to, but excluding, June 30, 2021, semi-annually in arrears. From and including June 30, 2021 to the maturity date or early redemption date, the interest rate was to reset quarterly to an interest rate per annum equal to the then current three-month LIBOR rate plus 487 basis points, payable quarterly in arrears.

The Company had the option, on any scheduled interest payment date, to redeem the subordinated notes, in whole

or in part, upon not fewer than 30 nor greater than 60 days’ notice to holders, at a redemption price equal to 100% of the principal amount of the subordinated notes to be redeemed plus accrued and unpaid interest to, but excluding, the date of redemption. In August 2021, the Company provided a redemption notice to each holder of the subordinated notes that the notes would be redeemed on September 30, 2021 or such later date as the holder returned its note to the Company. The Company redeemed and paid $23.8 million of principal during the year ended December 31, 2021. The remaining note holders redeemed their notes with a principal balance of $1.2 million in February 2022. The notes stopped accruing interest effective as of the September 30, 2021 redemption date.

On October 13, 2020, the Company completed its private placement of $20.0 million of its 4.875% Fixed to Floating Subordinated Notes due 2030 (the "Notes") to certain qualified institutional buyers and accredited investors. The Notes have a maturity date of October 15, 2030 and carry a fixed rate of interest of 4.875% for the first five years. Thereafter, the Notes will pay interest at 3-month SOFR plus 471 basis points, resetting quarterly. The Notes include a right of prepayment without penalty on or after October 15, 2025. The Notes have been structured to qualify as Tier 2 capital for regulatory purposes.

Note 11. Revenue Recognition

The Company recognizes revenue in accordance with ASU 2014-09 ‘‘Revenue from Contracts with Customers’’ ~~(Topic 606)~~("Topic 606") and all subsequent ASUs that modified Topic 606 in recognizing revenue. Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. In addition, certain non-interest income streams such as fees associated with mortgage servicing rights, gain on sale of securities, bank-owned life insurance income, financial guarantees, derivatives, and certain credit card fees are also not in scope of the new guidance. Topic 606 is applicable to non-interest revenue streams such as trust and asset management income, deposit related fees, interchange fees, merchant income, and insurance commissions. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company’s revenue is generated from contracts with customers. Non-interest revenue streams in-scope of Topic 606 are discussed below.

Service Charges on Deposit Accounts

Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and personal checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are

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Notes to Unaudited Consolidated Financial Statements

(Continued)

~~account related fees are~~ largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to customers’ accounts.

Fees, Exchange and Other Service Charges

Fees, exchange, and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges and are included in other income on the Company’s consolidated statements of income. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. This income is reflected in other income on the Company’s consolidated statements of income.

Other Income

Other non-interest income consists of loan swap fees, insurance commissions, and other miscellaneous revenue streams not meeting the criteria above. When the Company enters into an interest rate swap agreement, the Company may receive an additional one-time payment fee which is recognized as income when received. The Company receives monthly recurring commissions based on a percentage of premiums issued and revenue is recognized when received. Any residual miscellaneous fees are recognized as they occur, and therefore, the Company determined this consistent practice satisfies the obligation for performance.

The following presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months and ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021:~~respectively:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	(In thousands)	2022		2021		2022		2021		(In thousands)	2023		2022		2023		2022
Non-interest Income	Non-interest Income									Non-interest Income
In-scope of Topic 606	In-scope of Topic 606									In-scope of Topic 606
Service Charges on Deposit Accounts	Service Charges on Deposit Accounts	$	241	$	278	$	706	$	768	Service Charges on Deposit Accounts	$	232	$	230	$	447	$	464
Fees, Exchange, and Other Service Charges	Fees, Exchange, and Other Service Charges	101		101		282		275		Fees, Exchange, and Other Service Charges	84		91		171		181
Other income	Other income	8		1		97		183		Other income	23		24		77		90
Non-interest Income (in-scope of Topic 606)	Non-interest Income (in-scope of Topic 606)	350		380		1,085		1,226		Non-interest Income (in-scope of Topic 606)	339		345		695		735
Non-interest Income (out-scope of Topic 606)	Non-interest Income (out-scope of Topic 606)	225		681		1,759		1,311		Non-interest Income (out-scope of Topic 606)	552		300		(4,431)		1,534
Total Non-interest Income	Total Non-interest Income	$	575	$	1,061	$	2,844	$	2,537	Total Non-interest Income	$	891	$	645	$	(3,736)	$	2,269

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Notes to Unaudited Consolidated Financial Statements

(Continued)

Contract Balances

A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s non-interest revenue streams are largely based on transactional activity. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, the Company did not have any significant contract balances.

Contract Acquisition Costs

Under Topic 606, an entity is required to capitalize, and subsequently amortize into expense, certain incremental costs of obtaining a contract with a customer if these costs are expected to be recovered. The incremental costs of obtaining a contract are those costs that an entity incurs to obtain a contract with a customer that it would not have incurred if the contract had not been obtained (for example, sales commission). The Company utilizes the practical expedient which allows entities to immediately expense contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. The Company did not capitalize any contract acquisition cost during the ~~nine~~three months ended ~~September~~June 30, ~~2022~~2023 or ~~2021.~~2022.

Note 12. Supplemental Cash Flow Information

Below is additional information regarding the Company’s cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.


		For the Nine Months Ended September 30,					For the Six Months Ended June 30,
(In thousands)	(In thousands)	2022		2021		(In thousands)	2023		2022
Supplemental Disclosure of Cash Flow Information:	Supplemental Disclosure of Cash Flow Information:					Supplemental Disclosure of Cash Flow Information:
Cash paid for:	Cash paid for:					Cash paid for:
Interest on deposits and borrowed funds	Interest on deposits and borrowed funds	$	8,158	$	7,733	Interest on deposits and borrowed funds	$	22,691	$	4,742
Income taxes	Income taxes	6,283		3,846		Income taxes	2,360		4,743
Noncash investing and financing activities:	Noncash investing and financing activities:					Noncash investing and financing activities:
Unrealized loss on securities available-for-sale		(52,447)		(3,483)
Unrealized gain (loss) on securities available-for-sale						Unrealized gain (loss) on securities available-for-sale	4,628		(35,278)
Unrealized gain on interest rate swaps	Unrealized gain on interest rate swaps	4,932		347		Unrealized gain on interest rate swaps	2,816		923

Transfer of called subordinated notes to other liabilities		—		14,500
Adoption of CECL accounting standard						Adoption of CECL accounting standard	(2,808)		—
Right-of-use assets obtained in the exchange for lease liabilities during the current period	Right-of-use assets obtained in the exchange for lease liabilities during the current period	522		—		Right-of-use assets obtained in the exchange for lease liabilities during the current period	397		—
Modification of existing right-of-use assets and lease liability		304		—

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following presents management’s discussion and analysis of our consolidated financial condition at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 and the results of our operations for the ~~three and nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022. This discussion should be read in conjunction with our unaudited consolidated financial statements and the notes thereto appearing elsewhere in this report and the audited consolidated financial statements and the notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. Results of operations for the three and ~~nine~~six month ~~periods~~period ended ~~September~~June 30, ~~2022~~2023 are not necessarily indicative of the results of operations for the balance of ~~2022,~~2023, or for any other ~~period.~~periods. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause results to differ materially from management’s expectations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-Q, as well as other periodic reports filed with the U.S. Securities and Exchange Commission, and written or oral communications made from time to time by or on behalf of FVCBankcorp, Inc. and our subsidiary (the “Company”), may contain statements relating to future events or future results of the Company that are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and are typically identified with words such as “may,” “could,” “should,” “will,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “aim,” “intend,” “plan,” or words or phases of similar meaning. We caution that the forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements.

The following factors, among others, could cause our financial performance to differ materially from that expressed in such forward-looking statements:

•risks, uncertainties and other factors relating to the COVID-19 pandemic, including the length of time that the pandemic continues; the imposition of any restrictions on business operations and/or travel; the effect of the pandemic on the general economy and on the businesses of our borrowers and their ability to make payments on their obligations; the remedial actions and stimulus measures adopted by federal, state and local governments; the inability of employees to work due to illness, quarantine, or government mandates; and the effectiveness and acceptance of vaccines against COVID-19 and its variants;

•general business and economic conditions, including higher inflation and its impacts, nationally or in the markets that the Company serves could adversely affect, among other things, real estate valuations, unemployment levels, the ability of businesses to remain viable, and consumer and business confidence, which could lead to decreases in demand for loans, deposits, and other financial services that the Company provides and increases in loan delinquencies and defaults;

•the risk of changes in interest rates on levels, composition and costs of deposits, loan demand, and the values and liquidity of loan collateral, securities, and interest sensitive assets and liabilities;

•changes in the Company’s liquidity requirements could be adversely affected by changes in its assets and liabilities;

•changes in the assumptions underlying the establishment of reserves for ~~possible~~expected loan losses;

•changes in market conditions, specifically declines in the commercial and residential real estate market, volatility and disruption of the capital and credit markets, and soundness of other financial institutions we do business with;

•risks inherent in making loans such as repayment risks and fluctuating collateral values;

•the Company’s investment securities portfolio is subject to credit risk, market risk, and liquidity risk as well as changes in the estimates used to value the securities in the portfolio;

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•the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”), inflation, interest rate, market and monetary fluctuations;

•declines in the Company's common stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to record a noncash impairment charge to earnings in future periods;

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•the strength of the United States economy in general and the strength of the local economies in which we conduct operations;

•geopolitical conditions, including acts or threats of terrorism, or actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad;

•the occurrence of significant natural disasters, including severe weather conditions, floods, health related issues, and other catastrophic events;

•our management of risks inherent in our real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of our collateral and our ability to sell collateral upon any foreclosure;

•changes in consumer spending and savings habits;

•technological and social media changes;

•changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or our subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products;

•the impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance, and the application thereof by regulatory bodies;

•the impact of changes in laws, regulations and policies affecting the real estate industry;

•the effect of changes in accounting policies and practices, as may be adopted from time to time by bank regulatory agencies, the U.S. Securities and Exchange Commission, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setting bodies;

•the timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;

•the willingness of users to substitute competitors’ products and services for our products and services;

•the effect of acquisitions we may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions;

•changes in the level of our nonperforming assets and charge-offs;

•our involvement, from time to time, in legal proceedings and examination and remedial actions by regulators; and

•potential exposure to fraud, negligence, computer theft and cyber-crime.

The foregoing factors should not be considered exhaustive and should be read together with other cautionary statements that are included in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, including those discussed in the section entitled “Risk Factors”. If one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this Form 10-Q. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We will not update the forward-looking statements to reflect actual results or changes in the factors affecting the forward-looking statements. New risks and uncertainties may emerge from time to time, and it is not possible for us to predict their occurrence or how they will affect us.

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Overview

We are a bank holding company headquartered in Fairfax County, Virginia. Our sole subsidiary, FVCbank (the “Bank”), was formed in November 2007 as a community-oriented, locally-owned and managed commercial bank under the laws of the Commonwealth of Virginia. The Bank offers a wide range of traditional bank loan and deposit products and services to both our commercial and retail customers. Our commercial relationship officers focus on attracting small and medium sized businesses, commercial real estate developers and builders, including government contractors, non-profit organizations, and professionals. Our approach to our market features competitive customized financial services offered to customers and prospects in a personal relationship context by seasoned professionals.

On October 12, 2018, we completed our acquisition of Colombo Bank ("Colombo"), which was headquartered in Rockville, Maryland, and added five banking locations in Washington, D.C., and Montgomery County and the City of Baltimore in Maryland.

On August 31, 2021, we announced that the Bank made an investment in Atlantic Coast Mortgage, LLC (“ACM”) for $20.4 million to obtain a 28.7% ownership interest in ACM. The ownership interest is subject to an earnback option of up to 3.7% over athe next three ~~year period.~~years, and our investment had decreased to 27.7% as of December 31, 2022. In addition, the Bank provides a warehouse lending facility to ACM, which includes a construction-to-permanent financing line, and has developed portfolio mortgage products to diversify our held for investment loan portfolio.

On December 15, 2022, the Company announced that the Board of Directors approved a five-for-four split of the Company's common stock in the form of a 25% stock dividend for shareholders of record on January 9, 2023, payable on January 31, 2023. Earnings per share and all other per share information reflected herein have been adjusted for the five-for-four split of the Company's common stock for comparative purposes.

On October 12, 2018, we completed our acquisition of Colombo Bank (“Colombo”), which was headquartered in Rockville, Maryland, and added five banking locations in Washington, D.C., and Montgomery County and the City of Baltimore in Maryland.

Net interest income is our primary source of revenue. We define revenue as net interest income plus non-interest income. As discussed further in “Quantitative and Qualitative Disclosures About Market Risk” below, we manage our balance sheet and interest rate risk exposure to maximize, and concurrently stabilize, net interest income. We do this by monitoring our liquidity position and the spread between the interest rates earned on interest-earning assets and the interest rates paid on interest-bearing liabilities. We attempt to minimize our exposure to interest rate risk, but are unable to eliminate it entirely. In addition to managing interest rate risk, we also analyze our loan portfolio for exposure to credit risk. Loan defaults and foreclosures are inherent risks in the banking industry, and we attempt to limit our exposure to these risks by carefully underwriting and then monitoring our extensions of credit. In addition to net interest income, non-interest income is a complementary source of revenue for us and includes, among other things, service charges on deposits and loans, income from minority membership interest in ACM, merchant services fee income, insurance commission income, income from bank owned life insurance (“BOLI”), and gains and losses on sales of investment securities available-for-sale.

Critical Accounting Policies

General

The accounting principles we apply under U.S. generally accepted accounting principles (“GAAP”) are complex and require management to apply significant judgment to various accounting, reporting and disclosure matters. Management must use assumptions, judgments and estimates when applying these principles where precise measurements are not possible or practical. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions and estimates. Changes in such judgments, assumptions and estimates may have a significant impact on the consolidated financial statements. Actual results, in fact, could differ from initial estimates.

The accounting policies we view as critical are those relating to judgments, assumptions and estimates regarding the determination of the allowance for ~~loan~~credit losses - loans & reserve for unfunded commitments, allowance for credit losses - securities, and fair value measurements.

Allowance for ~~Loan~~Credit Losses - Loans & Unfunded Commitments

We maintain the allowance for ~~loan~~credit losses at a level that represents management’s best estimate of ~~known and inherent~~expected losses in our loan portfolio. We ~~are not required to implement~~adopted the provisions of the current expected credit losses ("CECL") accounting standard ~~(“CECL”) until~~as of January 1, 2023 in accordance with the required implementation date and ~~are continuing~~recorded the impact of the adoption to ~~account for~~retained earnings, net of deferred income taxes, as required by the ~~allowance for loan losses under~~standard. Prior to the adoption of CECL, we utilized an incurred loss ~~model. Both the amount of the provision expense and the level~~model to derive our best estimate of the allowance for loan losses are impacted by many factors, including general and industry-specific economic conditions, actual and expected credit losses, historical trends and specific conditions of individual borrowers. Unusual and infrequently occurring events, such as weather-related disasters and health-related events, such as the COVID-19 pandemic and associated efforts to restrict the spread of the disease, may impact our assessment of possible credit losses. As a part of our analysis, we use comparative peer group data and qualitative factors such as levels of and trends in delinquencies, nonaccrual loans, charged-off loans, changes in volume and terms of loans, effects of changes in lending policy, experience, ability and depth of management,

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~~national~~Accounting Standards Codification ("ASC") 326 requires that an estimate of CECL be immediately recognized and ~~local economic trends and conditions, concentrations~~reevaluated over the contractual life of ~~credit, competition, and loan review results to support estimates.~~

the financial asset. The allowance for credit losses ("ACL") is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loan ~~losses is~~portfolio. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Expected recoveries are recorded to the extent they do not exceed the aggregate of amounts previously and expected to be charged-off.

Reserves on loans that do not share risk characteristics are evaluated on an individual basis. Nonaccrual loans are specifically reviewed for loss potential and when deemed appropriate are assigned a reserve based ~~first~~ on ~~a segmentation~~an individual evaluation. The remainder of the ~~loan~~ portfolio, ~~by general loan type, or portfolio segments. For originated~~representing all loans ~~certain portfolio segments are further disaggregated and~~not evaluated ~~collectively~~individually for impairment, is segmented based on ~~loan segments,~~call report code and processed through a cash flow valuation model. In particular, loan-level probability of default ("PD") and severity (also referred to as loss given default ("LGD")) is applied to derive a baseline expected loss as of the valuation date. These expected default and severity rates, which are ~~largely~~regression-derived and based on ~~the type~~peer historical loan-level performance data, are calibrated to incorporate our reasonable and supportable forecast of collateral underlying each loan. For purposes of this analysis, we categorize loans into one of five categories: commercial and industrial, commercial real estate, commercial construction, consumer residential, and consumer nonresidential loans. future losses as well as any necessary qualitative adjustments.

Typically, financial institutions use their historical loss experience and trends in losses for each loan ~~category~~segment which are then adjusted for portfolio trends and economic and environmental factors in determining the allowance for ~~loan~~credit losses. Since the Bank’s inception in 2007, we have experienced minimal loss history within our loan portfolio. ~~Because~~Due to the fact that limited internal loss history exists to generate statistical significance, we determined it was most prudent to rely on peer data when deriving our best estimate of ~~this,~~PD and LGD. As part of our estimation process, we will continue to assess the reasonableness of the data, assumptions, and model methodology utilized to derive our allowance model uses the average loss rates of similar institutions (our custom peer group) as a baseline which is then adjusted based on our particular qualitative loan portfolio characteristics and environmental factors. The indicated loss factors resulting from this analysis are applied for credit losses.

For each of the ~~five categories~~modeled loan segments, we generate cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, PD rates, and LGD rates. The modeling of ~~loans.~~expected prepayment speeds is based on internal loan-level historical data. For our cash flow model, we utilize national unemployment for its reasonable and supportable forecasting of expected default. To further adjust the ACL for expected losses not already within the quantitative component of the calculation, we may consider qualitative factors as prescribed in ASC 326.

Financial instruments include off-balance sheet credit instruments such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. We record a reserve for unfunded commitments on off-balance sheet credit exposures through a charge to provision for credit loss expense in our Consolidated Statement of Income. The reserve for unfunded commitments is estimated by call report code segmentation as of the valuation date under the CECL model using the same methodologies as portfolio loans taking utilization rates into consideration. The reserve for unfunded commitments is reflected as a liability on our Consolidated Balance Sheet.

While our methodology in establishing the ACL attributes portions of a combined reserve to multiple elements, we believe that the combined allowance of credit losses (which is inclusive of the reserve for unfunded commitments) represents the most appropriate coverage metric for loss absorption purposes.

Our ~~peer group is defined by selecting commercial banking institutions of similar size within Virginia, Maryland and~~methodology utilized in the District of Columbia. This is known as our custom peer group. The commercial banking institutions comprising the custom peer group can change based on certain factors including but not limited to the characteristics, size, and geographic footprintestimation of the ~~institution. We have identified 22 banks for our custom peer group~~ACL, which ~~are within $1 billion~~is performed at least quarterly, is designed to ~~$3 billion~~be dynamic and responsive to changes in total assets, the majority of whom are geographically concentrated in the Washington, D.C. metropolitan area in which we operate, as this area has experienced more stable economic conditions than many other areas of the country. These baseline peer group loss rates are then adjusted based on an analysis of our loan portfolio ~~characteristics, trends,~~credit quality, composition, and forecasted economic ~~considerations~~conditions. The review of the reasonableness and ~~other conditions that should be considered in assessing our credit risk. Our peer loss rates are updated~~appropriateness of the ACL is reviewed by the CECL Committee for approval as of the valuation date. Additionally, information is provided to the Board of Directors on a quarterly ~~basis.~~basis along with our consolidated financial statements.

The allowance for loan losses consists of specific and general components. The specific component relates to loans that are determined to be impaired and, therefore, individually evaluated for impairment. We individually assign loss factors to all loans that have been identified as having loss attributes, as indicated by deterioration in the financial condition of the borrower or a decline in underlying collateral value if the loan is collateral dependent. We evaluate the impairment of certain loans on a loan by loan basis for those loans that are adversely risk rated. Measurement of impairment is based on the expected future cash flows of an impaired loan, which are discounted at the loan’s effective interest rate, or measured on an observable market value, if one exists, or the fair value of the collateral underlying the loan, discounted to consider estimated costs to sell the collateral for collateral-dependent loans. If the net collateral value is less than the loan balance (including accrued interest and any unamortized premium or discount associated with the loan) we recognize an impairment and establish a specific reserve for the impaired loan.

Credit losses are an inherent part of our business and, although we believe the methodologies for determining the ~~allowance for loan losses~~ACL and the current level of the allowance and reserve on unfunded commitments are appropriate, it is possible that there may be unidentified losses in the portfolio at any particular time that may become evident at a future date pursuant to additional internal analysis or regulatory comment. Additional provisions for such losses, if necessary, would be recorded, and would negatively impact earnings.

Collateral Dependent Financial Assets

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Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the net present value ("NPV") from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

Allowance for Credit Losses - Securities

We evaluate our available-for-sale and held-to-maturity debt securities portfolios for expected credit losses as of the valuation date under ASC 326. For available-for-sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or if it is more likely than not that we will be required to sell, the security before recovery of our amortized cost basis. If either criterion is met, the security’s amortized cost basis is written down to fair value through income during the current period. For available-for-sale debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other driving factors. If our assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, an ACL is recorded for the credit loss (which represents the difference between the expected cash flows and amortized cost basis), limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income.

The entire amount of an impairment loss is recognized in earnings only when: (1) we intend to sell the security; or (2) it is more likely than not that we will have to sell the security before recovery of our amortized cost basis; or (3) we do not expect to recover the entire amortized cost basis of the security. In all other situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in shareholders' equity as comprehensive income, net of deferred taxes.

Changes in the ACL are recorded as a provision for (or reversal of) credit losses. Losses are charged against the ACL when we believe the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Any impairment not recorded through an ACL is recognized in other comprehensive income as a noncredit-related impairment.

As part of our estimation process, we have made a policy election to exclude accrued interest from the amortized cost basis of available-for-sale debt securities and report accrued interest separately in other assets in the Consolidated Balance Sheet. Available-for-sale debt securities are placed on nonaccrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on nonaccrual status. Accordingly, we do not recognize an ACL against accrued interest receivable. This approach is consistent with our nonaccrual policy implemented for our loan portfolio.

We separately evaluate our held-to-maturity investment securities for any credit losses. If we determine that a security indicates evidence of deteriorated credit quality, the security is individually-evaluated and a discounted cash flow analysis is performed and compared to the amortized cost basis. As of June 30, 2023, we had one security classified as held-to-maturity with an amortized cost basis of $264 thousand with the remainder of the securities portfolio held as available-for-sale.

Fair Value Measurements

We determine the fair values of financial instruments based on the fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value. Our investment securities available-for-sale are recorded at fair value using reliable and unbiased evaluations by an industry-wide valuation service. This service uses evaluated pricing models that vary based on asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs. Depending on the availability of observable inputs and prices, different

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valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable.

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LIBOR and Other Benchmark Rates

We ~~have~~previously had certain loans, interest rate swap agreements, ~~and~~ investment securities, ~~whose~~and debt obligations with interest ~~rate is~~rates indexed to the London Interbank Offered Rate ~~(“LIBOR”~~("LIBOR"). In 2017, the Financial Conduct Authority (the authority that regulates the calculation of LIBOR) announced its intention to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In December 2020, theThe administrator of LIBOR announced ~~its intention to (i) cease~~that the ~~publication of the one-week and two-month~~most commonly used U.S. dollar LIBOR ~~after December 31, 2021, and (ii)~~settings would cease ~~the publication of all other tenors of U.S. dollar LIBOR (one, three, six and 12 month LIBOR)~~to be published or cease to be representative after June 30, 2023. In October 2021, the federal bank regulatory agencies issued a Joint Statement on Managing the LIBOR Transition. In that guidance, the agencies offered their regulatory expectations and outlined potential supervisory and enforcement consequences for banks that fail to adequately plan for and implement the transition away from LIBOR. The failure to properly transition away from LIBOR may result in increased supervisory scrutiny.

Central banks and regulators around the world have commissioned working groups to find suitable replacements for ~~Interbank Offered Rates (“IBOR”) and other benchmark rates~~LIBOR and to implement financial benchmark reforms more generally. ~~These actions have resulted in~~There continues to be uncertainty regarding the use of alternative reference rates ~~(“ARRs”~~("ARRs") ~~and could~~, which may cause disruptions in a variety of markets, as well as adversely impact our business, operations and financial results.

The Adjustable Interest Rate (LIBOR) Act, enacted in March 2022, provides a statutory framework to replace LIBOR with a benchmark rate based on Secured Overnight Funding Rate for contracts governed by U.S. law that have no or ineffective fallbacks. Although governmental authorities have endeavored to facilitate an orderly discontinuation of LIBOR, no assurance can be provided that this aim will be achieved or that the use, level, and volatility of LIBOR or other interest rates, or the value of LIBOR-based securities will not be adversely affected.

To facilitate an orderly transition from ~~IBORs~~interbank offered rates and other benchmark rates to ARRs, we ~~have~~ established an enterprise-wide initiative led by senior management. The objective of this initiative iswas to identify, assess and monitor risks associated with the expected discontinuation or unavailability of benchmarks, including LIBOR, achieve operational readiness and engage impacted clients in connection with the transition to ARRs. ~~To mitigate the risks associated with the expected discontinuation~~As of ~~LIBOR,~~June 30, 2023, we no longer have ceased originating LIBOR-linked loans, implemented fallback language for LIBOR-linked commercial loans, adhered to the International Swaps and Derivatives Association 2020 Fallbacks Protocol for interest rate swap agreements, and have updated our systems to accommodate loans linked to the Secured Overnight Financing Rate ("SOFR"). In accordance with regulatory guidance, we ceased entering into new LIBOR transactions at the end of 2021 and have selected SOFR as the rateany financial instruments that ~~best represents an alternative~~are indexed to LIBOR. Uncertainty as to the adoption, market acceptance or availability of SOFR or other alternative reference rates may adversely affect the value of LIBOR-based loans and securities in our portfolio and may impact the availability and cost of hedging instruments and borrowings.

Results of Operations— Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

Overview

We recorded net income of ~~$7.0~~$4.2 million, or ~~$0.48~~$0.23 per diluted common share, for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to net income of ~~$4.7~~$6.4 million, or ~~$0.32~~$0.35 per diluted common share, for the three months ended ~~September~~June 30, ~~2021, an increase~~2022, a decrease of ~~$2.4~~$2.2 million, or ~~50%~~34%. Net interest income ~~increased $3.0~~decreased $2.4 million, or ~~21%~~14%, to ~~$17.5~~$14.4 million for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$14.5~~$16.8 million for the ~~three months ended September 30, 2021.~~same period of 2022. Provision for ~~loan~~credit losses of ~~$365~~$618 thousand was recorded for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~no provision being recorded~~$1.2 million for the same period of ~~2021. Non-interest~~2022. Noninterest income was ~~$575~~$891 thousand ~~compared to $1.1~~and $645 thousand for the three months ended June 30, 2023 and 2022, respectively. Noninterest expense was $9.2 million for the three months ended ~~September~~June 30, ~~2022 and 2021, respectively. Non-interest expense was $8.6 million~~2023, compared to ~~$9.4~~$8.2 million for the three months ended ~~September~~June 30, 2022, and ~~2021, respectively.~~increase of $1.0 million, or 12%.

The annualized return on average assets for the three months ended ~~September~~June 30, 2023 and 2022 was 0.73% and ~~2021 was 1.32% and 0.91%~~1.21%, respectively. The annualized return on average equity for the three months ended ~~September~~June 30, 2023 and 2022 was 8.17% and ~~2021 was 13.87% and 9.18%~~12.93%, respectively.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we recorded net income of ~~$20.1~~$4.9 million, or ~~$1.36~~$0.27 diluted earnings per ~~diluted common~~ share, compared to net income of ~~$15.4~~$13.0 million, or ~~$1.06~~$0.71 diluted earnings per ~~diluted common~~ share for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Net income for the six months ended June 30, 2023 was impacted by an after-tax loss totaling $3.6 million from the February sale of available-for-sale investment securities. Additionally, net income for the six months ended June 30, 2023 included our portion of losses from our membership interest in ACM, which was $609 thousand, net of tax, compared to income of $713 thousand, net of tax, for the six months ended June 30, 2022. Net interest income ~~increased $6.7~~for the six months ended June 30, 2023 was $28.4 million, ~~or 16%,~~compared to ~~$49.4~~$31.8 million for the ~~nine~~same period in 2022, a decrease of $3.4 million, or 11%. Provision for credit losses for the six months ended ~~September~~June 30, ~~2022,~~2023 was $900 thousand, compared to ~~$42.7~~$1.5 million ~~for the nine months ended September 30, 2021. Provision for loan losses was $1.9 million for the nine months ended September 30, 2022, compared to no provision for loan losses~~ for the same period of ~~2021.~~2022. Non-interest income ~~increased $307 thousand, or 12%,~~was a loss of $3.7 million compared to ~~$2.8~~income of $2.3 million for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~as compared to $2.5~~respectively. Noninterest expense was $18.2 million and $16.7 million for the ~~same nine month period of 2021. Non-interest expense was $25.3 million for the nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~compared to $25.5~~respectively, an increase of $1.6 million, ~~for the same nine month period of 2021.~~or 9%.

~~The annualized return~~Commercial bank operating earnings, which exclude the losses on ~~average assets~~the above-noted securities sales, and 2022 merger-related expenses, all net of tax, for the ~~nine~~three months ended ~~September~~June 30, 2023 and June 30, 2022 were $4.2 million and ~~2021 was 1.28% and 1.05%, respectively. The annualized return on average equity for the nine months ended September 30, 2022 and 2021 was 13.14% and 10.35%, respectively.~~

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$6.4 million, respectively, a decrease of $2.2 million. For the six months ended June 30, 2023 and June 30, 2022, commercial bank operating earnings were $8.4 million and $13.1 million, respectively. Diluted commercial bank operating earnings per share for the three months ended June 30, 2023 and June 30, 2022 was $0.23 and $0.35, respectively. For the six months ended June 30, 2023 and 2022, diluted commercial bank operating earnings per share was $0.46 and $0.71, respectively. We consider commercial bank operating earnings a useful financial measure of our operating performance than net income. Commercial bank operating earnings is determined by methods other than in accordance with GAAP. A reconciliation of non-GAAP financial measures to their most comparable financial measure in accordance with GAAP can be found in the tables below.

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Reconciliation of Net Income (GAAP) to Commercial Bank Operating Earnings (Non-GAAP)

For the Three and Six Months Ended June 30, 2023 and 2022

(Dollars in thousands, except per share data)


	For the Three Months Ended June 30,
	2023			2022
Net income (as reported)	$	4,232		$	6,425
Add: Merger and acquisition expense	—			—
Add: Loss on sale of available-for-sale investment securities	—			—
(Subtract) Add: (Provision) Benefit for income taxes associated with non-GAAP adjustments	—			—
Non-GAAP Commercial Bank Operating Earnings, excluding above items	$	4,232		$	6,425
Earnings per share - basic (GAAP net income)	0.24			0.37
Earnings per share - Non-GAAP expenses including provision for income taxes	—			—
Earnings per share - basic (non-GAAP core bank operating earnings)	$	0.24		$	0.37
Earnings per share - diluted (GAAP net income)	$	0.23		$	0.35
Earnings per share - Non-GAAP expenses including provision for income taxes	—			—
Earnings per share - diluted (non-GAAP core bank operating earnings)	$	0.23		$	0.35
Return on average assets (GAAP net income)	0.73		%	1.21		%
Non-GAAP expenses including provision for income taxes	—		%	—		%
Return on average assets (non-GAAP core bank operating earnings)	0.73		%	1.21		%
Return on average equity (GAAP net income)	8.17		%	12.93		%
Non-GAAP expenses including provision for income taxes	—		%	—		%
Return on average equity (non-GAAP core bank operating earnings)	8.17		%	12.93		%

	For the Six Months Ended June 30,
	2023			2022
Net income (as reported)	$	4,854		$	13,039
Add: Merger and acquisition expense	—			125
Add: Loss on sale of available-for-sale investment securities	4,592			—
(Subtract) Add: (Provision) Benefit for income taxes associated with non-GAAP adjustments	(1,010)			(28)
Non-GAAP Commercial Bank Operating Earnings, excluding above items	$	8,436		$	13,136
Earnings per share - basic (GAAP net income)	0.28			0.75
Earnings per share - Non-GAAP expenses including provision for income taxes	0.20			0.01
Earnings per share - basic (non-GAAP core bank operating earnings)	$	0.48		$	0.76
Earnings per share - diluted (GAAP net income)	$	0.27		$	0.71
Earnings per share - Non-GAAP expenses including provision for income taxes	0.19			—
Earnings per share - diluted (non-GAAP core bank operating earnings)	$	0.46		$	0.71
Return on average assets (GAAP net income)	0.42		%	1.26		%
Non-GAAP expenses including provision for income taxes	0.32		%	—		%
Return on average assets (non-GAAP core bank operating earnings)	0.74		%	1.26		%
Return on average equity (GAAP net income)	4.70		%	12.78		%
Non-GAAP expenses including provision for income taxes	3.47		%	0.09		%
Return on average equity (non-GAAP core bank operating earnings)	8.17		%	12.87		%

Net Interest Income/Margin

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Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The following table presents average balance ~~sheet~~ information, interest income, interest expense and the corresponding average yields earned and rates paid for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

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Average ~~Balance Sheets~~Balances and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities

For the Three Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(Dollars in thousands)


		2022						2021							2023							2022
		Average Balance		Interest Income/Expense		Average Yield/ Rate		Average Balance		Interest Income/Expense		Average Yield/ Rate			Average Balance			Interest Income/Expense		Average Yield/ Rate		Average Balance			Interest Income/Expense		Average Yield/ Rate
Assets	Assets													Assets
Interest-earning assets:	Interest-earning assets:													Interest-earning assets:
Loans (1):	Loans (1):													Loans (1):
Commercial real estate	Commercial real estate	$	1,003,052	$	11,195	4.46	%	$	858,179	$	8,902	4.15	%	Commercial real estate	$	1,119,042	$	$	13,541	4.84	%	$	940,338	$	$	10,215	4.35	%
Commercial and industrial	Commercial and industrial	208,245		2,684		5.16	%	141,665		1,617		4.56	%	Commercial and industrial	223,701			4,205		7.52	%	213,703			2,490		4.66	%
Paycheck protection program		4,752		102		8.55	%	79,225		1,205		6.08	%
Commercial construction	Commercial construction	156,429		2,163		5.53	%	211,656		2,641		4.99	%	Commercial construction	156,471			2,814		7.19	%	174,896			2,067		4.73	%
Consumer residential	Consumer residential	285,588		3,021		4.23	%	163,901		1,642		4.01	%	Consumer residential	362,500			4,283		4.73	%	242,867			2,295		3.78	%
Consumer nonresidential	Consumer nonresidential	9,455		179		7.57	%	11,529		210		7.29	%	Consumer nonresidential	6,099			143		9.36	%	9,327			176		7.53	%
Total loans (1)	Total loans (1)	1,667,521		19,344		4.64	%	1,466,155		16,217		4.42	%	Total loans (1)	1,867,813			24,986		5.35	%	1,581,131			17,243		4.36	%

Investment securities (2)	Investment securities (2)	341,995		1,485		1.74	%	219,295		1,000		1.82	%	Investment securities (2)	281,485			1,250		1.78	%	351,525			1,508		1.72	%
Restricted stock	Restricted stock	7,412		93		5.02	%	6,224		82		5.27	%	Restricted stock	7,502			125		6.64	%	6,015			78		5.23	%
Deposits at other financial institutions and federal funds sold	Deposits at other financial institutions and federal funds sold	40,814		171		1.68	%	243,409		89		0.15	%	Deposits at other financial institutions and federal funds sold	66,781			844		5.07	%	99,650			200		0.81	%

Total interest-earning assets and interest income	Total interest-earning assets and interest income	2,057,742		21,093		4.10	%	1,935,083		17,388		3.59	%	Total interest-earning assets and interest income	2,223,581			27,205		4.89	%	2,038,321			19,029		3.73	%

Noninterest-earning assets:	Noninterest-earning assets:													Noninterest-earning assets:
Cash and due from banks	Cash and due from banks	4,958						24,325						Cash and due from banks	6,930							4,716
Premises and equipment, net	Premises and equipment, net	1,344						1,544						Premises and equipment, net	1,152							1,452
Accrued interest and other assets	Accrued interest and other assets	92,985						101,963						Accrued interest and other assets	96,656							85,433
Allowance for loan losses		(15,072)						(14,384)
Allowance for credit losses														Allowance for credit losses	(19,068)							(14,109)
Total assets	Total assets	$	2,141,957					$	2,048,531					Total assets	2,309,251							2,115,813

Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity													Liabilities and Stockholders' Equity
Interest - bearing liabilities:	Interest - bearing liabilities:													Interest - bearing liabilities:
Interest - bearing deposits:	Interest - bearing deposits:													Interest - bearing deposits:

Interest checking	Interest checking	$	737,907	$	1,320	0.72	%	$	616,422	$	845	0.55	%	Interest checking	$	531,440	$	$	3,546	2.68	%	$	794,757		$	1,007	0.51	%
Savings and money markets	Savings and money markets	314,105		727		0.92	%	308,092		344		0.44	%	Savings and money markets	245,306			1,289		2.11	%	329,831			446		0.54	%
Time deposits	Time deposits	213,845		752		1.41	%	233,539		618		1.06	%	Time deposits	393,877			3,563		3.63	%	177,525			446		1.01	%
Wholesale deposits	Wholesale deposits	41,957		93		0.88	%	35,000		41		0.47	%	Wholesale deposits	377,126			3,615		3.84	%	35,000			(2)		(0.03	%)
Total interest - bearing deposits	Total interest - bearing deposits	1,307,814		2,892		0.88	%	1,193,053		1,848		0.62	%	Total interest - bearing deposits	1,547,749			12,012		3.11	%	1,337,113			1,897		0.57	%

Other borrowed funds	Other borrowed funds	101,444		673		2.65	%	68,889		1,059		6.15	%	Other borrowed funds	76,759			803		4.20	%	46,946			342		2.92	%

Total interest-bearing liabilities and interest expense	Total interest-bearing liabilities and interest expense	1,409,258		3,565		1.01	%	1,261,942		2,907		0.92	%	Total interest-bearing liabilities and interest expense	1,624,508			12,815		3.16	%	1,384,059			2,239		0.65	%

Noninterest-bearing liabilities:	Noninterest-bearing liabilities:													Noninterest-bearing liabilities:
Demand deposits	Demand deposits	506,700						555,941						Demand deposits	454,299							509,991
Other liabilities	Other liabilities	22,910						26,581						Other liabilities	23,145							22,998
Common stockholders' equity	Common stockholders' equity	203,089						204,067						Common stockholders' equity	207,299							198,765
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	2,141,957					$	2,048,531					Total liabilities and stockholders' equity	$	2,309,251						$	2,115,813

Net interest income and net interest margin	Net interest income and net interest margin			$	17,528	3.38	%			$	14,481	2.97	%	Net interest income and net interest margin				$	14,390	2.60	%				$	16,790	3.30	%

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(1)Nonaccrual loans are included in average balances and do not have a material effect on the average yield. Interest income on nonaccruing loans was not material for the periods presented. Net loan fees and late charges included in interest income on loans totaled ~~$917~~$422 thousand and ~~$1.5 million~~$774 thousand for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

(2)The average yields for investment securities are reported on a fully taxable equivalent basis at aan effective rate of 22% for June 30, 2023 and 21% for ~~both 2022 and 2021.~~June 30, 2022.

The level of net interest income is affected primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates.

The following table shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities for the three months ended ~~September~~June 30, ~~2022.~~2023.

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Rate and Volume Analysis

For the Three Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(Dollars in thousands)


		2022 Compared to 2021							2023 Compared to 2022
		Average Volume		Average Rate		Increase (Decrease)			Average Volume		Average Rate		Increase (Decrease)
Interest income:	Interest income:							Interest income:

Loans (1):	Loans (1):							Loans (1):
Commercial real estate	Commercial real estate	$	1,503	$	790	$	2,293	Commercial real estate	$	1,941	$	1,385	$	3,326
Commercial and industrial	Commercial and industrial	755		312		1,067		Commercial and industrial	116		1,599		1,715
Paycheck protection program		(1,132)		29		(1,103)
Commercial construction	Commercial construction	(689)		211		(478)		Commercial construction	(218)		965		747
Consumer residential	Consumer residential	1,219		160		1,379		Consumer residential	1,130		858		1,988
Consumer nonresidential	Consumer nonresidential	(38)		7		(31)		Consumer nonresidential	(60)		27		(33)
Total loans (1)	Total loans (1)	1,618		1,509		3,127		Total loans (1)	2,909		4,834		7,743

Investment securities (2)	Investment securities (2)	557		(72)		485		Investment securities (2)	(293)		36		(257)
Restricted stock	Restricted stock	16		(5)		11		Restricted stock	20		26		46
Deposits at other financial institutions and federal funds sold	Deposits at other financial institutions and federal funds sold	(73)		155		82��		Deposits at other financial institutions and federal funds sold	(66)		710		644

Total interest income	Total interest income	2,118		1,587		3,705		Total interest income	2,570		5,606		8,176

Interest expense:	Interest expense:							Interest expense:

Interest - bearing deposits:	Interest - bearing deposits:							Interest - bearing deposits:
Interest checking	Interest checking	173		302		475		Interest checking	(309)		2,848		2,539
Savings and money markets	Savings and money markets	15		368		383		Savings and money markets	(109)		951		842
Time deposits	Time deposits	(43)		177		134		Time deposits	580		2,537		3,117
Wholesale deposits	Wholesale deposits	10		42		52		Wholesale deposits	10		3,607		3,617
Total interest - bearing deposits	Total interest - bearing deposits	155		889		1,044		Total interest - bearing deposits	172		9,943		10,115

Other borrowed funds	Other borrowed funds	489		(875)		(386)		Other borrowed funds	220		241		461
Total interest expense	Total interest expense	644		14		658		Total interest expense	392		10,184		10,576

Net interest income	Net interest income	$	1,474	$	1,573	$	3,047	Net interest income	$	2,178	$	(4,578)	$	(2,400)

(1)Nonaccrual loans are included in average balances and do not have a material effect on the average yield. Interest income on nonaccruing loans was not material for the periods presented.

(2)The average yields for investment securities are reported on a fully taxable equivalent basis at aan effective rate of 22% for June 30, 2023 and 21% for ~~both 2022 and 2021.~~June 30, 2022.

Net interest income totaled $14.4 million, a decrease of $2.4 million, or 14%, for ~~the~~ three months ended ~~September~~June 30, ~~2022 was $17.5 million,~~2023, compared to ~~$14.5 million for the three months ended September~~June 30, ~~2021, an increase of $3.0 million, or 21%.~~2022. The ~~increase~~decrease in net interest income ~~was~~is primarily due to an increase in funding costs, which have increased precipitously as a result of ~~our growth in average earning assets combined~~Federal Reserve monetary policy coupled with ~~continued increases in~~ the ~~average yields earned on loans during 2022 as compared~~need to ~~2021.~~ meet intense competition from market area banks, brokerages and the U.S. Treasury.

Average earning assets increased ~~$122.7~~$185.3 million to ~~$2.1~~$2.22 billion during the ~~third~~second quarter of ~~2022~~2023 as ~~compared~~compared to ~~$1.9~~$2.04 billion for the same period of ~~2021,~~2022, primarily related to average growth in our loan portfolio of ~~$201.4~~$286.7 million ~~($275.8 million excluding U.S. Small Business Administration's Paycheck Protection Program ("PPP") loans)~~ for the ~~third~~second quarter of ~~2022~~2023 as compared to the same period of ~~2021. Interest income during~~2022. This growth was offset by a decrease in average investment securities of $70.0 million for the ~~third~~ quarter ofended June 30, 2023 as compared to the year ago quarter for 2022, ~~increased due to both loan growth and~~ a ~~rise in interest rates earned on the portfolio. The average balance~~

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result of the ~~investment~~securities sale executed during the first quarter of 2023 and the decrease in the market value of the securities portfolio ~~increased $122.7 million to $342.0 milli~~during the past year.

Interest income for the three months ended ~~September~~June 30, ~~2022 as compared $219.3~~2023 increased $8.2 million to $27.2 million from $19.0 million for the ~~same period~~three months ended June 30, 2022. Loan interest income during the second quarter of ~~2021, which contributed~~2023 increased $7.7 million as compared to the year ago quarter due to both loan growth and an increase in ~~interest income of $557 thousand offset by a decrease in interest income of $72~~yields earned on the portfolio. Income from investment securities decreased $258 thousand for the ~~decrease in the average yield of the portfolio, for th~~e three months ended ~~September~~June 30, ~~2022 as~~2023 compared to the same period of ~~2021. Average~~2022, primarily as a result of a decrease in volume due to the securities sale. This decrease was offset by an increase of $644 thousand in interest income from deposits at other financial institutions ~~and federal funds sold decreased $202.6 million to $40.8 million from $243.4 million~~ for the ~~same period~~second quarter of ~~2021 as we invested this excess liquidity~~2023 compared to the second quarter of 2022, which was primarily due to the increase in ~~our loan portfolio at higher interest rates.~~rates earned on those funds.

Total average interest-bearing deposits increased ~~$114.8~~$210.6 million to ~~$1.3~~$1.55 billion for the three months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$1.2~~$1.34 billion for the three months ended ~~September~~June 30, ~~2021.~~2022. Average noninterest-bearing deposits decreased ~~$49.2~~$55.7 million to ~~$506.7~~$454.3 million for the three months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$555.9~~$510.0 million for the same period in 2021. The largest increase in average interest-bearing customer deposit balances was in our interest checking, which increased $121.5 million compared to 2021. As customers move balances to non-maturity deposit products, average balances for time deposits decreased $19.7 million as compared to 2021.2022. Average wholesale deposits increased ~~$7.0~~$342.1 million to ~~$42.0~~$377.1 million ~~representing only 3.0% of average interest-bearing liabilities,~~ for the three months ended ~~September~~June 30, ~~2022~~2023 compared to $35.0 million for the same period in ~~2021. Other~~2022. Average other borrowed funds, which include federal funds purchased, FHLB advances, and our subordinated notes, increased ~~$32.6~~$29.8 million to ~~$101.4~~$76.8 million at ~~September~~June 30, ~~2022~~2023 compared to ~~$68.9~~$46.9 million at ~~September~~June 30, ~~2021. At September 30, 2021, we redeemed $25 million in subordinated notes, which was the primary driver of the decrease in interest~~2022.

Interest expense ~~on other borrowed funds, which decreased $386 thousand~~ for the three months ended ~~September~~June 30, ~~2022 as compared~~2023 increased $10.6 million to ~~2021.~~

~~The yield on interest-earning assets increased 51 basis points to 4.10%~~$12.8 million from $2.2 million for the three months ended ~~September~~June 30, ~~2022, compared to 3.59%~~2022. Deposit interest expense for the ~~same period~~second quarter of ~~2021. The average yield of the loan portfolio for the three month periods ended September 30, 2022 and 2021 was 4.64% and 4.42%, respectively. Net deferred fees recorded from PPP loan forgiveness~~2023 increased ~~the average yield of the loan portfolio by only 2 basis points for the three months ended September 30, 2022,~~$10.1 million compared to ~~27 basis points for~~ the year ago ~~quarter.~~ ~~The cost~~quarter primarily as a result of ~~interest-bearing deposits~~ increased ~~26 basis points to 0.88% for the three months ended September 30, 2022, compared to 0.62% for the same period of 2021,~~rates, which ~~was primarily attributable~~contributed $9.9 million to the ~~repricing of our interest-bearing deposits due to higher interest rates.~~increase.

Our net interest margin, on a tax equivalent basis, for the three months ended ~~September~~June 30, 2023 and 2022 was 2.60% and ~~2021 was 3.38% and 2.97%~~3.30%, respectively. The ~~increase~~decrease in our net interest margin was primarily a result of the increase in the ~~yields earned on~~cost of our ~~interest-earning assets~~interest-bearing liabilities during ~~2022 as~~2023 compared to ~~2021,~~2022, a result of the ~~current~~ rising rate environment. ~~Additionally, we recorded $380 thousand in accelerated debt issuance costs during the third quarter of 2021, which decreased net interest margin by 8~~The yield on interest-earning assets increased 116 basis points to 4.89% for the ~~third quarter~~three months ended June 30, 2023, compared to 3.73% for the same period of ~~2021.~~ 2022. The average yield of the loan portfolio for the three month periods ended June 30, 2023 and 2022 was 5.35% and 4.36%, respectively, an increase of 99 basis points. The cost of interest-bearing deposits increased 254 basis points to 3.11% for the three months ended June 30, 2023, compared to 0.57% for the same period of 2022, which was primarily attributable to the repricing of our interest-bearing deposits due to higher interest rates. Cost of deposits (which includes noninterest-bearing deposits) was 2.40% for the three months ended June 30, 2023 compared to 0.41% for the same three month period of 2022. Cost of other borrowed funds increased 128 basis points to 4.20% for the three months ended June 30, 2023 compared to 2.92% for the three months ended June 30, 2022.

Average balances of nonperforming loans, which consist of nonaccrual loans, are included in the net interest margin calculation and did not have a material impact on our net interest margin in ~~2022~~2023 and ~~2021.~~2022.

Net interest income, on a tax equivalent basis, is a non-GAAP financial measure that we believe provides a more accurate picture of the interest margin for comparative purposes. To derive our net interest margin on a tax equivalent basis, net interest income is adjusted to reflect tax-exempt income on an equivalent before tax basis with a corresponding increase in income tax expense. For purposes of this calculation, we use our statutory tax rates for the periods presented. This measure ensures comparability of net interest income arising from taxable and tax-exempt sources.

The following table provides a reconciliation of our GAAP net interest income to our tax equivalent net interest income.

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Supplemental Financial Data and Reconciliations to GAAP Financial Measures

For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(Dollars in thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
GAAP Financial Measurements:
Interest income:
Loans $ 19,344 $ 16,217 $ 52,194 $ 47,899
Deposits at other financial institutions and federal funds sold 171 89 417 205
Investment securities available‑for‑sale 1,481 996 4,471 2,586
Investment securities held‑to‑maturity 2 2 5 5
Restricted stock 93 82 253 245
Total interest income 21,091 17,386 57,340 50,940
Interest expense:
Interest‑bearing deposits 2,892 1,848 6,619 5,703
Other borrowed funds 673 1,059 1,357 2,529
Total interest expense 3,565 2,907 7,976 8,232
Net interest income $ 17,526 $ 14,479 $ 49,364 $ 42,708
Non‑GAAP Financial Measurements:
Add: Tax benefit on tax‑exempt interest income - securities 2 2 8 10
Total tax benefit on tax-exempt interest income $ 2 $ 2 $ 8 $ 10
Tax equivalent net interest income $ 17,528 $ 14,481 $ 49,372 $ 42,718


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
GAAP Financial Measurements:
Interest income:
Loans	$	24,986	$	17,243	$	48,382	$	32,850
Deposits at other financial institutions and federal funds sold	844		200		1,146		245
Investment securities available‑for‑sale	1,247		1,503		2,635		2,991
Investment securities held‑to‑maturity	1		2		3		2
Restricted stock	125		78		371		161
Total interest income	27,203		19,026		52,537		36,249
Interest expense:
Interest‑bearing deposits	12,012		1,897		20,793		3,727
Other borrowed funds	803		342		3,342		684
Total interest expense	12,815		2,239		24,135		4,411
Net interest income	$	14,388	$	16,787	$	28,402	$	31,838
Non‑GAAP Financial Measurements:
Add: Tax benefit on tax‑exempt interest income - securities	2		3		3		5
Total tax benefit on tax-exempt interest income	$	2	$	3	$	3	$	5
Tax equivalent net interest income	$	14,390	$	16,790	$	28,405	$	31,843

The following table presents average balance ~~sheet~~ information, interest income, interest expense and the corresponding average ~~yield~~yields earned and rates paid for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~

2022.

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Average Balance Sheets and Interest Rates on Interest-Earning Assets and Interest-Bearing Liabilities

For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(Dollars in thousands)
2022 2021
Average Balance Interest Income/Expense Average Yield/
Rate Average Balance Interest Income/Expense
Average Yield/
Rate
Assets
Interest-earning assets:
Loans (1):
Commercial real estate $ 952,824 $ 30,856 4.32 % $ 812,623 $ 25,913 4.25 %
Commercial and industrial 196,156 6,832 4.64 % 124,460 4,382 4.69 %
Paycheck protection program 11,243 555 6.58 % 126,310 4,511�� 4.76 %
Commercial construction 170,483 6,379 4.99 % 214,798 7,449 4.62 %
Consumer residential 234,959 7,050 4.00 % 164,678 4,950 4.01 %
Consumer nonresidential 9,373 522 7.43 % 12,836 694 7.21 %
Total loans (1) 1,575,038 52,194 4.42 % 1,455,705 47,899 4.39 %
Investment securities (2) 348,245 4,484 1.72 % 171,864 2,601 2.02 %
Restricted stock 6,533 253 5.16 % 6,284 245 5.20 %
Deposits at other financial institutions and federal funds sold 87,176 417 0.64 % 218,557 205 0.13 %
Total interest-earning assets and interest income 2,016,992 57,348 3.79 % 1,852,410 50,950 3.67 %
Noninterest-earning assets:
Cash and due from banks 6,811 18,575
Premises and equipment, net 1,452 1,559
Accrued interest and other assets 88,096 97,020
Allowance for loan losses (14,349) (14,567)
Total assets $ 2,099,002 $ 1,954,997
Liabilities and Stockholders' Equity
Interest - bearing liabilities:
Interest - bearing deposits:
Interest checking $ 743,193 $ 3,323 0.60 % $ 568,742 $ 2,304 0.54 %
Savings and money markets 319,871 1,522 0.64 % 294,730 1,019 0.46 %
Time deposits 192,099 1,640 1.14 % 239,332 2,257 1.26 %
Wholesale deposits 37,344 134 0.48 % 38,553 123 0.43 %
Total interest - bearing deposits 1,292,507 6,619 0.68 % 1,141,357 5,703 0.67 %
Other borrowed funds 64,511 1,357 2.80 % 69,037 2,529 4.90 %
Total interest-bearing liabilities and interest expense 1,357,018 7,976 0.78 % 1,210,394 8,232 0.91 %
Noninterest-bearing liabilities:
Demand deposits 514,238 518,478
Other liabilities 23,990 27,516
Common stockholders' equity 203,756 198,609
Total liabilities and stockholders' equity $ 2,099,002 $ 1,954,997
Net interest income and net interest margin $ 49,372 3.27 % $ 42,718 3.08 %


	2023							2022
	Average Balance			Interest Income/Expense		Average Yield/ Rate		Average Balance			Interest Income/Expense		Average Yield/ Rate
Assets
Interest-earning assets:
Loans (1):
Commercial real estate	$	1,108,700	$	$	26,221	4.73	%	$	927,294	$	$	19,643	4.24	%
Commercial and industrial	224,290			8,049		7.18	%	204,554			4,620		4.52	%
Commercial construction	155,010			5,453		7.04	%	177,627			4,216		4.75	%
Consumer residential	355,069			8,357		4.71	%	209,224			4,028		3.85	%
Consumer nonresidential	6,424			302		9.41	%	9,331			343		7.36	%
Total loans (1)	1,849,493			48,382		5.23	%	1,528,030			32,850		4.30	%

Investment securities (2)	296,715			2,641		1.78	%	351,423			2,998		1.77	%
Restricted stock	11,358			371		6.51	%	6,085			161		5.28	%
Deposits at other financial institutions and federal funds sold	46,606			1,146		4.96	%	103,913			245		0.48	%

Total interest-earning assets and interest income	2,204,172			52,540		4.77	%	1,989,451			36,254		3.64	%

Noninterest-earning assets:
Cash and due from banks	5,874							7,753
Premises and equipment, net	1,180							1,507
Accrued interest and other assets	95,670							92,402
Allowance for credit losses	(18,061)							(13,981)
Total assets	2,288,835							2,077,132

Liabilities and Stockholders' Equity
Interest - bearing liabilities:
Interest - bearing deposits:

Interest checking	$	525,637	$	$	6,461	2.48	%	$	745,880		$	2,004	0.54	%
Savings and money markets	268,867			2,763		2.07	%	322,802			795		0.50	%
Time deposits	347,972			5,742		3.33	%	181,045			888		0.99	%
Wholesale deposits	314,706			5,827		3.73	%	35,000			40		0.23	%
Total interest - bearing deposits	1,457,182			20,793		2.88	%	1,284,727			3,727		0.59	%

Other borrowed funds	163,312			3,342		4.13	%	45,737			684		3.02	%

Total interest-bearing liabilities and interest expense	1,620,494			24,135		3.00	%	1,330,464			4,411		0.67	%

Noninterest-bearing liabilities:
Demand deposits	437,161							518,070
Other liabilities	24,768							24,540
Common stockholders' equity	206,412							204,058
Total liabilities and stockholders' equity	$	2,288,835						$	2,077,132

Net interest income and net interest margin				$	28,405	2.60	%				$	31,843	3.23	%

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(1)Nonaccrual loans are included in average balances and do not have a material effect on the average yield. Interest income on nonaccruing loans was not material for the periods presented. Net loan fees and late charges included in interest income on loans totaled ~~$2.5 million~~$921 thousand and ~~$4.9~~$1.5 million for ~~the nine~~the six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

(2)The average yields for investment securities are reported on a fully taxable equivalent basis at aan effective rate of 22% for June 30, 2023 and 21% for ~~both 2022 and 2021.~~June 30, 2022.

The level of net interest income is affected primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates.

The following table shows the effect that these factors had on the interest earned from our interest-earning assets and interest incurred on our interest-bearing liabilities for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022.

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Rate and Volume Analysis

For the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(Dollars in thousands)

2022 Compared to 2021
Average
Volume Average
Rate Increase
(Decrease)
Interest income:
Loans (1):
Commercial real estate $ 4,471 $ 472 $ 4,943
Commercial and industrial 2,524 (74) 2,450
Paycheck protection program (4,109) 153 (3,956)
Commercial construction (1,537) 467 (1,070)
Consumer residential 2,113 (13) 2,100
Consumer nonresidential (187) 15 (172)
Total loans (1) 3,275 1,020 4,295
Investment securities (2) 2,669 (786) 1,883
Restricted stock 10 (2) 8
Deposits at other financial institutions and federal funds sold (122) 334 212
Total interest income 5,832 566 6,398
Interest expense:
Interest - bearing deposits:
Interest checking 708 311 1,019
Savings and money markets 64 439 503
Time deposits (446) (171) (617)
Wholesale deposits (4) 15 11
Total interest - bearing deposits 322 594 916
Other borrowed funds (159) (1,013) (1,172)
Total interest expense 163 (419) (256)
Net interest income $ 5,669 $ 985 $ 6,654


	2023 Compared to 2022
	Average Volume		Average Rate		Increase (Decrease)
Interest income:

Loans (1):
Commercial real estate	$	3,843	$	2,735	$	6,578
Commercial and industrial	446		2,983		3,429
Commercial construction	(537)		1,774		1,237
Consumer residential	2,808		1,521		4,329
Consumer nonresidential	(108)		67		(41)
Total loans (1)	6,452		9,080		15,532

Investment securities (2)	(467)		110		(357)
Restricted stock	140		70		210
Deposits at other financial institutions and federal funds sold	(127)		1,028		901

Total interest income	5,998		10,288		16,286

Interest expense:

Interest - bearing deposits:
Interest checking	(602)		5,059		4,457
Savings and money markets	(116)		2,084		1,968
Time deposits	817		4,037		4,854
Wholesale deposits	318		5,469		5,787
Total interest - bearing deposits	417		16,649		17,066

Other borrowed funds	1,758		900		2,658
Total interest expense	2,175		17,549		19,724

Net interest income	$	3,823	$	(7,261)	$	(3,438)

(1)Nonaccrual loans are included in average balances and do not have a material effect on the average yield. Interest income on nonaccruing loans was not material for the periods presented.

(2)The average yields for investment securities are reported on a fully taxable equivalent basis at aan effective rate of 22% for June 30, 2023 and 21% for ~~both~~June 30, 2022 ~~and 2021.~~

Net interest income for the six month ended June 30, 2023 and June 30, 2022, was $28.4 million and $31.8 million, respectively, a decrease of $3.4 million, or 10%. Net interest income totaled $14.4 million, a decrease of $2.4 million, or 14%, for three months ended June 30, 2023, compared to June 30, 2022. The decrease in net interest income is again primarily due to an increase in funding costs, which have increased significantly over the last 15 months.

Average earning assets increased $214.7 million to $2.20 billion during the six months ended June 30, 2023 as compared to $1.99 billion for the same period of 2022, primarily related to average growth in our loan portfolio of $321.5 million for the six months of 2023 as compared to the same period of 2022. This growth was offset by a decrease in average investment securities of $54.7 million for the year-to-date period ended June 30, 2023 as compared to the same

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~~Net interest income~~year ago period for 2022, a result of the ~~nine months ended September 30, 2022 was $49.4 million, compared to $42.7~~securities sale executed during the first quarter of 2023 and the decrease in the market value of the securities portfolio during the past year. The average balance for deposits at other financial institutions also decreased $57.3 million for the ~~nine~~six months ended ~~September~~June 30, 2021, an increase of $6.7 million, or 16%. The increase in net interest income was a result of our growth in average earning assets complemented by continued increases in the average yields earned on loans during 2022 as compared to 2021. Average earning assets increased $164.6 million to $2.0 billion during the first nine months of 2022 as compared $1.9 billion ~~for the same period of 2021, primarily related to average growth in our loan portfolio of $119.3 million ($234.4 million excluding PPP loans) for the nine months ended September 30, 2022 as~~2023 compared to the same period of ~~2021, contributing $3.3~~2022, as excess liquidity was used to fund loan originations.

Interest income for the six months ended June 30, 2023 increased $16.3 million to $52.5 million from $36.3 million for the six months ended June 30, 2022. Loan interest income during the first half of 2023 increased $15.5 million as compared to the ~~$6.4 million~~year ago six month period as a result of both loan growth and an increase in yields earned on the portfolio. Income from investment securities decreased $357 thousand for the six months ended June 30, 2023 compared to the same period of 2022, primarily as a result of a decrease in volume due to the securities sale. This decrease was offset by an increase of $901 thousand in interest income from deposits at other financial institutions for thethe first ~~nine~~six months of ~~2022. The~~2023 compared to the same period of 2022, which was primarily due to the increase in rates earned on those funds.

Total average ~~balance of the investment securities portfolio~~interest-bearing deposits increased ~~$176.4~~$172.5 million to ~~$348.2~~$1.46 billion for the six months ended June 30, 2023 compared to $1.28 billion for the six months ended June 30, 2022. Average noninterest-bearing deposits decreased $80.9 million to $437.2 million for the ~~nine~~six months en~~ded September~~ended June 30, ~~2022 as~~2023 compared ~~$171.9~~to $518.1 million for the same period of 2021, which contributed to an increase in interest income of $2.7 million offset by a decrease in interest income of $786 thousand for the decrease in the average yield of the portfolio for the nine months ended September 30, 2022 as compared to 2021.2022. Average wholesale deposits ~~at other financial institutions and federal funds sold decreased $131.4~~increased $279.7 million to $8~~7.2 million from $218.6~~$314.7 million for the ~~same period of 2021 as we invested this excess liquidity in our loan portfolio at higher interest rates.~~

~~Total average interest-bearing deposits increased $151.2 million to $1.3 billion for the nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$1.1 billion for the nine months ended September 30, 2021. Average noninterest-bearing deposits decreased $4.2 million to $514.2 million for the nine months ended September 30, 2022 compared to $518.5~~$35.0 million for the same period in 2021. The largest increase in average interest-bearing deposit balances was in our interest checking, which increased $174.5 million to $743.2 million for the nine months ended September 30, 2022 from $568.7 million for the nine months ended September 30, 2021. As customers move balances to non-maturity deposit products, average balances for time deposits decreased $47.2 million as compared to the nine month average for 2021. Other2022. Average other borrowed funds, which include federal funds purchased, ~~Federal Home Loan Bank of Atlanta ("FHLB")~~FHLB advances, and our subordinated notes, ~~decreased $4.5~~increased $117.6 million to $$163.3 million at June 30, 2023 compared to $45.7 million at June 30, 2022.

~~64.5~~

Interest expense for the six months ended June 30, 2023 increased $19.7 million to $24.1 million from $4.4 million for the six months ended June 30, 2022. Deposit interest expense for the year-to-date period of 2023 increased $17.1 million compared to ~~$69.0 million.~~ ~~The corresponding decrease in expense related to other borrowed funds is~~the year ago six month period primarily as a result of ~~redeeming $25~~increased rates, which contributed $16.6 million in subordinated debt during the third quarter of 2021. As a result of this redemption and prudent funding management, interest expense on other borrowed funds decreased by $1.2 million for the nine months ended September 30, 2022 as compared to 2021.

The yield on interest-earning assets increased 12 basis points to 3.79% for the nine months ended September 30, 2022, compared to 3.67% for the same period of 2021. The average yield of the loan portfolio for the nine months ended September 30, 2022 was 4.42% compared to 4.39% for the same period of 2021. Net deferred fees recorded from PPP loan forgiveness increased the average yield of the loan portfolio by only ~~4 basis points~~ ~~for the nine months ended September 30, 2022, compared to 33 basis points for~~ ~~the same period of 2021. The cost of interest-bearing deposits increased 1 basis point to 0.68% for the nine months ended September 30, 2022, compared to 0.67% for the same period of 2021, which was~~ ~~primarily attributable~~ to the ~~repricing of our interest-bearing deposits due to higher interest rates.~~increase.

Our net interest margin, on a tax equivalent basis, for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 was 2.60% and ~~2021 was 3.27% and 3.08%~~3.23%, respectively. The ~~increase~~decrease in our net interest margin was primarily a result of the increase in the ~~yields earned on~~cost of our ~~interest-earning assets~~interest-bearing liabilities during ~~2022 as~~2023 compared to ~~2021,~~2022, a result of the ~~current~~ rising rate environment. ~~Average balances~~The yield on interest-earning assets increased 113 basis points to 4.77% for the six months ended June 30, 2023, compared to 3.64% for the same period of ~~nonperforming loans,~~2022. The average yield of the loan portfolio for the six month periods ended June 30, 2023 and 2022 was 5.23% and 4.30%, respectively, an increase of 93 basis points. The cost of interest-bearing deposits increased 229 basis points to 2.88% for the six months ended June 30, 2023, compared to 0.59% for the same period of 2022, which ~~consist~~was primarily attributable to the repricing of ~~nonaccrual loans, are included in~~our interest-bearing deposits due to higher interest rates. Cost of deposits (which includes noninterest-bearing deposits) was 2.20% for the ~~net interest margin calculation and did not have a material impact on our net interest margin in 2022 and 2021.~~six months ended June 30, 2023 compared to 0.41% for the same six month period of 2022. Cost of other borrowed funds increased 111 basis points to 4.13% for the six months ended June 30, 2023 compared to 3.02% for the six months ended June 30, 2022.

Provision Expense and Allowance for ~~Loan~~Credit Losses

Our policy is to maintain the allowance for ~~loan~~credit losses at a level that represents our best estimate of ~~inherent~~expected losses in the loan ~~portfolio.~~portfolio as of the valuation date. Both the amount of the provision and the level of the allowance for ~~loan~~credit losses are impacted by many factors, including general and industry-specific economic conditions, actual and expected credit losses, historical trends and specific conditions of individual borrowers. We ~~are not required to implement the provisions~~adopted CECL as of ~~CECL until~~ January 1, 2023 in accordance with the required implementation date and recorded the impact of the adoption to retained earnings, net of deferred income taxes, as ~~such~~required by the standard. Note that prior to the adoption of CECL, we ~~are continuing~~utilized an incurred loss model to ~~account for~~derive our best estimate of the allowance for loan losses.

As a result of the adoption of CECL, reserves for credit losses ~~under~~increased $3.7 million and consisted of increases to the ~~incurred loss model.~~

Weallowance for credit losses on loans as well as an increase in reserves for unfunded commitments (referred to as combined ACL herein). For the second quarter and first six months of 2023, subsequent to the aforementioned adoption, the Company recorded a provision for ~~loan~~credit losses of ~~$365~~$618 thousand and $860 thousand, respectively, compared to a provision of $1.2 million for the three months ended ~~September~~June 30, 2022 ~~compared to no~~and a provision ~~for loan losses being recorded~~of $1.5 million for the ~~same period of 2021. For the nine~~six months ended ~~September~~June 30, ~~2022, we recorded~~2022. The Company continues to lend to well-established and relationship-driven borrowers and has a ~~provision for loan losses~~proven track record of ~~$1.9 million compared~~low historical credit losses.

We continue to ~~no provision for loan losses being recorded~~maintain our disciplined credit guidelines during the current rising rate environment. We proactively monitor the impact of rising interest rates on our adjustable loans as the industry navigates through this economic cycle of increased inflation and higher interest rates. Credit quality metrics remained strong for the same period of 2021. The increase in provision for loan losses is primarily related to supporting the growth in the loan portfolio for the quarter and year-to-date periods of September 30, 2022 compared to the same periods of 2021. Nosecond

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provision for loan losses was recorded for the three and nine month periods of September 30, 2021 primarily as a result of improvement in credit quality metrics of our loan portfolio and local economic conditions for those time periods.

~~We recorded net charge-offs of $9 thousand during the third~~ quarter of 2023 with reserves on the individually evaluated portfolio decreasing to $42 thousand as of June 30, 2023, down from $86 thousand at December 31, 2022, and ~~net charge-offs of $416 thousand for the year-to-date period of 2022. Specific reserves increased to $164 thousand for the three months ended September 30, 2022, up~~down from $85 thousand at June 30, 2022, ~~and down from $186 thousand at December 31, 2021 as~~ a result of valuation adjustments. We recorded net charge-offs of $356 thousand during the second quarter of 2023 and net recoveries of $8 thousand for same period of 2022. For the six months ended June 30, 2023 and 2022, we recorded net charge-offs of $333 thousand and $407 thousand, respectively.

See “Asset Quality” below for additional information on the credit quality of the loan ~~portfolio.~~portfolio. The allowance for ~~loan~~credit losses at ~~September~~June 30, ~~2022~~2023 was ~~$15.3~~$19.4 million compared to ~~$13.8~~$16.0 million at December 31, ~~2021.~~2022. Our allowance for ~~loan loss ratio~~credit losses on loans as a percent of total loans, net of deferred fees and costs, ~~and excluding PPP loans,~~ was ~~0.89%~~1.02% at ~~September~~June 30, ~~2022,~~2023, compared to ~~0.94%~~0.87% at December 31, ~~2021.~~2022.

Noninterest Income

The following table provides detail for non-interest income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

Non-Interest Income

For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(Dollars in thousands)


		For the Three Months Ended September 30,				Change from Prior Year				For the Nine Months Ended September 30,				Change from Prior Year					For the Three Months Ended June 30,				Change from Prior Year
		2022		2021		Amount		Percent		2022		2021		Amount		Percent			2023		2022		Amount		Percent
Service charges on deposit accounts	Service charges on deposit accounts	$	241	$	278	$	(37)	(13.3)	%	$	706	$	768	$	(62)	(8.1)	%	Service charges on deposit accounts	$	232	$	230	$	2	0.9	%
Fees on loans	Fees on loans	32		26		6		23.1	%	159		74		85		114.9	%	Fees on loans	169		43		126		293.0	%

BOLI income	BOLI income	352		249		103		41.4	%	844		746		98		13.1	%	BOLI income	362		254		108		42.5	%
Income from minority membership interest	Income from minority membership interest	(160)		364		(524)		(144.0)	%	754		364		390		107.1	%	Income from minority membership interest	20		2		18		900.0	%
Other fee income	Other fee income	110		144		(34)		(23.6)	%	381		585		(204)		(34.9)	%	Other fee income	108		116		(8)		(6.9)	%
Total non‑interest income	Total non‑interest income	$	575	$	1,061	$	(486)	(45.8)	%	$	2,844	$	2,537	$	307	12.1	%	Total non‑interest income	$	891	$	645	$	246	38.1	%

																			For the Six Months Ended June 30,				Change from Prior Year
																			2023		2022		Amount		Percent
Service charges on deposit accounts																		Service charges on deposit accounts	$	447	$	464	$	(17)	(3.7)	%
Fees on loans																		Fees on loans	246		127		119		93.7	%
BOLI income																		BOLI income	694		492		202		41.1	%
(Loss) income from minority membership interest																		(Loss) income from minority membership interest	(781)		914		(1,695)		(185.4)	%
Loss on sale of available-for-sale securities																		Loss on sale of available-for-sale securities	(4,592)		—		(4,592)		(100.0)	%
Other fee income																		Other fee income	250		272		(22)		(8.1)	%
Total non‑interest income (loss)																		Total non‑interest income (loss)	$	(3,736)	$	2,269	$	(6,005)	(264.7)	%

~~Non-interest~~Noninterest income includes service charges on deposits and loans, loan swap fee income, income from our membership interest in ACM and other investments, income from our BOLI policies, and other fee income, and continues to supplement our operating results. Non-interest income for the three months ended ~~September~~June 30, ~~2022 and 2021~~2023 was ~~$575~~$891 thousand ~~and $1.1 million, respectively. We recorded a net loss of $160~~compared to $645 thousand ~~on our membership interest in ACM~~ for the three month ended June 30, 2022. For the six months ended ~~September~~June 30, ~~2022,~~2023, we recorded noninterest income as a ~~reflection~~loss of ~~the current mortgage environment,~~$3.7 million compared to income of ~~$364 thousand~~$2.3 million for ~~the year ago quarter.~~ same period in 2022.

Fee income from ~~fees on~~ loans was $32 thousand for the quarter ended September 30, 2022, compared to $26 thousand for the third quarter of 2021. Service charges on deposits and other fee income totaled $351 thousand for the third quarter of 2022, a decrease of $71 thousand from the year ago quarter. Income from BOLI increased $103 thousand to $352$169 thousand for the three months ended ~~September~~June 30, ~~2022 from $249~~2023, compared to $43 thousand for the three months ended ~~September 30, 2021, as we purchased $15 million in BOLI during the second quarter of 2022.~~

~~Non-interest income for the nine months ended September~~June 30, 2022, ~~and 2021 was $2.8 million and $2.5 million, respectively. The~~an increase of $126 thousand, primarily due to an increase in ~~non-interest income during the first nine months of 2022 is primarily attributable to the Bank’s income associated with its investment in ACM, recording $754 thousand during the first nine months of 2022 compared to $364 thousand for the first nine months of 2021. Fee income from fees on loans, service~~back-to-back loan swap fee income. Service charges on ~~deposits,~~deposit accounts and other fee income ~~was $1.2 million~~totaled $340 thousand for the ~~nine~~three months ended ~~September~~June 30, ~~2022, a decrease of $181~~2023, compared to $346 thousand ~~as compared to~~for the same period ~~of 2021.~~in 2022. Income from ~~BOLI increased to $844~~our minority membership interest in ACM was $20 thousand for the ~~year-to-date period of 2022,~~three months ended June 30, 2023 compared to ~~$746~~$2 thousand for the same period of ~~2021 as we purchased $15 million in~~2022. Income from BOLI ~~during~~increased $108 thousand to $362 thousand for the ~~second quarter of 2022.~~three months ended June 30, 2023,

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compared to $254 thousand for the same period of 2022, as we purchased additional BOLI totaling $15 million during the second quarter of 2022.

Non-interest income for the six months ended June 30, 2023 was a loss of $3.7 million for the six months ended June 30, 2023 compared to income of $2.3 million for same period in 2022. The decrease in non-interest income is primarily attributable to a loss on sale of available-for-sale securities of $4.6 million resulting from a balance sheet repositioning completed in the first quarter of 2023. Additionally, we recorded a loss of $781 thousand related to the Bank's minority investment in ACM during the first six months of 2023. Fee income from loans was $246 thousand for the six months ended June 30, 2023, compared to $127 thousand for the six months ended June 30, 2022, an increase of $119 thousand, primarily due to an increase in back-to-back loan swap fee income. Service charges on deposit accounts and other fee income totaled $697 thousand for the six months ended June 30, 2023, compared to $736 thousand for the same period in 2022. Income from BOLI increased $202 thousand to $694 thousand for the six months ended June 30, 2023, compared to $492 thousand for the same period of 2022, as we purchased additional BOLI totaling $15 million during the second quarter of 2022.

Non-interest Expense

The following table reflects the components of non-interest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

Non-Interest Expense

For The Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(Dollars in thousands)


																			For the Three Months Ended June 30,																For the Six Months Ended June 30,
		For the Three Months Ended September 30,				Change from Prior Year				For the Nine Months Ended September 30,				Change from Prior Year					2023				2022				Change from Prior Year								2023			2022		Change from Prior Year
		2022		2021		Amount		Percent		2022		2021		Amount		Percent									Amount				Percent								Amount			Percent
Salaries and employee benefits	Salaries and employee benefits	$	5,202	$	4,717	$	485	10.3	%	$	15,094	$	13,723	$	1,371	10.0	%	Salaries and employee benefits			$	5,092			$	4,914			$	178			3.6	%				$	10,107	$	9,891	$	216		2.2	%
Occupancy and equipment expense		676		810		(134)		(16.5)	%	2,328		2,437		(109)		(4.5)	%
Occupancy expense																		Occupancy expense	610				553				57				10.3	%			1,238			1,153		85		7.3		%
Internet banking and software expense																		Internet banking and software expense	583				416				167				40.1	%			1,144			799		345		43.2		%
Data processing and network administration	Data processing and network administration	595		520		75		14.4	%	1,688		1,633		55		3.4	%	Data processing and network administration	611				550				61				11.1	%			1,233			1,092		141		12.9		%
State franchise taxes	State franchise taxes	509		496		13		2.6	%	1,527		1,487		40		2.7	%	State franchise taxes	584				509				75				14.8	%			1,169			1,018		151		14.8		%
Audit, legal and consulting fees	Audit, legal and consulting fees	235		356		(121)		(34.0)	%	884		1,213		(329)		(27.1)	%	Audit, legal and consulting fees	247				288				(41)				(14.2)	%			431			649		(218)		(33.5)		%
Merger and acquisition expense	Merger and acquisition expense	—		1,107		(1,107)		(100.0)	%	125		1,107		(982)		(88.7)	%	Merger and acquisition expense	—				—				—				—	%			—			125		(125)		(100.0)		%
Loan related expenses	Loan related expenses	242		417		(175)		(42.0)	%	230		830		(600)		(72.3)	%	Loan related expenses	116				(59)				175				296.6	%			388			(12)		400		3333.3		%
FDIC insurance	FDIC insurance	155		160		(5)		(3.1)	%	515		590		(75)		(12.7)	%	FDIC insurance	357				180				177				98.3	%			537			360		177		49.2		%
Marketing, business development and advertising	Marketing, business development and advertising	93		55		38		69.1	%	270		160		110		68.8	%	Marketing, business development and advertising	206				89				117				131.5	%			360			177		183		103.4		%
Director fees	Director fees	168		180		(12)		(6.7)	%	503		471		32		6.8	%	Director fees	180				155				25				16.1	%			360			335		25		7.5		%
Postage, courier and telephone	Postage, courier and telephone	33		46		(13)		(28.3)	%	124		141		(17)		(12.1)	%	Postage, courier and telephone	47				40				7				17.5	%			96			91		5		5.5		%
Internet banking		173		132		41		31.1	%	474		406		68		16.7	%
Dues, memberships & publications		41		36		5		13.9	%	137		116		21		18.1	%
Bank insurance		111		107		4		3.7	%	334		300		34		11.3	%
Printing and supplies		29		28		1		3.6	%	115		82		33		40.2	%
Bank charges		21		8		13		162.5	%	69		88		(19)		(21.6)	%
State assessments		50		31		19		61.3	%	112		137		(25)		(18.2)	%
Core deposit intangible amortization	Core deposit intangible amortization	97		75		22		29.3	%	298		233		65		27.9	%	Core deposit intangible amortization	52				131				(79)				(60.3)	%			107			138		(31)		(22.5)		%

Tax credit amortization																		Tax credit amortization	32				—				32				100.0	%			63			63		—		—		%
Other operating expenses	Other operating expenses	169		145		24		16.6	%	431		381		50		13.1	%	Other operating expenses	486				450				36				8.0	%			980			778		202		26.0		%
Total non‑interest expense	Total non‑interest expense	$	8,599	$	9,426	$	(827)	(8.8)	%	$	25,258	$	25,535	$	(277)	(1.1)	%	Total non‑interest expense	$	9,203			$	8,216			$	987			12.0	%			$	18,213		$	16,657	$	1,556	9.3		%

Non-interest expense includes, among other things, salaries and benefits, occupancy and equipment costs, professional fees, data processing, insurance and miscellaneous expenses. Non-interest expense was ~~$8.6~~$9.2 million and ~~$9.4~~$8.2 million for the three month periods ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Salaries and benefits expense ~~increased $485 thousand to $5.2~~was $5.1 million and $4.9 million for the ~~three month period ended September 30,~~second quarters of 2023 and 2022 ~~compared to $4.7 million for the same period in 2021. This~~respectively, an increase ~~was primarily related to~~of $178 thousand, or 4%, a result of business development staff expansion in addition to market rate adjustments to employee compensation. Loan related expenses decreased $175 thousand for the third quarter of 2022 when compared to the year ago quarter, primarily as a result of reduced workout expenses. There were no merger-related expenses for the three months ended September 30, 2022 as compared to the same period of 2021, a result of the decision to mutually terminate the proposed merger-of-equals transaction with Blue Ridge Bankshares, Inc. in January 2022.

For the nine months ended September 30, 2022 and 2021, non-interest expense was $25.3 million and $25.5 million, respectively, a decrease of $277 thousand. Salaries and benefits expense increased $1.4 million to $15.1 million for the nine months ended September 30, 2022 compared to $13.7 million for the same period in 2021, which was primarily related to the aforementioned additions to business development staff and market rate adjustments to employee compensation ~~during 2022. Loan related expenses decreased $600~~that has occurred for the last 12 months. Internet banking and software expense increased $167 thousand compared to the quarter ended June 30, 2022, primarily as a result of enhanced customer software solutions. Federal Deposit Insurance Corporate ("FDIC") insurance premium expense increased $177 thousand for the ~~first nine~~three months ~~of 2022 when~~ended June 30, 2023 compared to the same period of ~~2021, as we recovered loan related legal expenses from past nonperforming loans. Audit,~~2022, a result of the FDIC increasing the assessment rate to replenish its deposit insurance fund. Marketing

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~~legal and consulting fees decreased $329~~expenses increased $117 thousand to $206 thousand for the ~~nine~~three months ~~September~~ended June 30, ~~2022 as~~2023 compared to the same period of ~~2021, as these expenses were primarily~~2022, related to ~~our membership interest purchase in ACM~~lower cost deposit gathering and branding efforts. Lastly, loan related expenses increased $175 thousand during ~~2021. Merger-related expenses for~~ the ~~nine months~~quarter ended ~~September~~June 30, ~~2022 decreased $600 thousand as~~2023 compared to the same period of ~~2021,~~2022 as expenses related to loan workouts increased $100 thousand.

Non-interest expense was $18.2 million and $16.7 million for the six months ended June 30, 2023 and 2022, respectively, an increase of $1.6 million. Salaries and benefits expense was $10.1 million and $9.9 million for the six months ended June 30, 2023 and 2022 respectively, an increase of $216 thousand, or 2%. During the first quarter of 2023, we had staffing changes that are expected to result in annualized savings of approximately $1.0 million. Internet banking and software expense increased $345 thousand compared to the six months ended June 30, 2022, primarily as a result of enhanced customer software solutions. FDIC insurance premium expense increased $177 thousand for the six months ended June 30, 2023 compared to the same period of 2022, a result of the ~~aforementioned merger termination in January 2022.~~FDIC increasing the assessment rate to replenish its deposit insurance fund. Marketing expenses increased $183 thousand to $360 thousand for the six months ended June 30, 2023 compared to the same period of 2022, related to lower cost deposit gathering and branding efforts. Lastly, loan related expenses increased $400 thousand during the six months ended June 30, 2023 compared to the same period of 2022 as expenses related to loan workouts increased. We expect to recover these loan legal expenses later during 2023.

Income Taxes

We recorded a provision for income ~~tax expense~~taxes of ~~$2.1~~$1.2 million for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$1.4~~$1.6 million for the same period in 2022. The effective tax rate for each of the three months ended ~~September~~June 30, ~~2021. Our effective tax rate for~~2023 and 2022 was 22.4% and 20.0%, respectively. For the ~~three~~six months ended ~~September~~June 30, 2023 and 2022, provision for income taxes was ~~22.9%, compared to 23.4% for the same period of 2021.~~$739 thousand and $2.9 million, respectively. The effective tax rate for the ~~third quarter~~six months ended June 30, 2023 was 13.2% and for the comparable six month period of ~~2021~~2022 was ~~more~~18.1%. The effective tax rates for these year-to-date periods are less than ~~our~~the Company's combined federal and state statutory rate of 22.5% primarily because of ~~nondeductible merger-related expenses recognized during the third quarter of 2021.~~

For the nine months ended September 30, 2022 and 2021, provision for income tax expense was $5.0 million and $4.3 million, respectively. Our effective tax rate for the nine months ended September 30, 2022 was 19.8%, compared to 21.8% for the same period of 2021. The effective tax rates for the year-to-date period of 2022 is less than our combined federal and state statutory rate of 22.5% primarily becau~~se of~~ discrete tax benefits recorded as a result of ~~exercises~~exercised of nonqualified stock options during ~~2022. In addition, during~~ the first quarter of 2022, the Company recorded a favorable adjustment of $197 thousand to income tax expense as merger-related expenses that were previously capitalized for tax purposes are now deductible.aforementioned periods.

Discussion and Analysis of Financial Condition

Overview

~~For each of September~~Total assets were $2.34 billion at June 30, ~~2022~~2023 and December 31, ~~2021, total assets~~2022, respectively. Investment securities were ~~$2.20 billion.~~$231.5 million at June 30, 2023, a decrease of $46.9 million, from $278.3 million at December 31, 2022, primarily as a result of the aforementioned sale of available-for-sale investment securities that occurred during the first quarter of 2023. Total ~~loans receivable, net of deferred fees and costs, was $1.71 billion at September 30, 2022, an increase of $210.6~~deposits increased $257.9 million, or 14%, to $2.09 billion at June 30, 2023 compared to ~~$1.50~~$1.83 billion at December 31, ~~2021. Total investment securities decreased $75.6 million, or 21%, compared to $357.8 million at~~2022. At June 30, 2023 and December 31, 2021, which is primarily related to the decrease in the market value of the portfolio due to the current rising rate environment. Total deposits increased $5.5 million, or 0.3%, to $1.89 billion at September 30, 2022, ~~compared to $1.88 billion at December 31, 2021. From time to time,~~ we ~~may utilize other borrowed funds such as~~had federal funds purchased totaling $0.0 and ~~FHLB advances as an additional funding source for the Bank. At September 30, 2022, we~~$30.0 million, respectively. The Bank had FHLB advances ~~totaling $75.0~~of $0.0 million ~~compared to $25.0~~and $235.0 million ~~in FHLB advances~~ at June 30, 2023 and December 31, ~~2021. At September 30,~~ 2022, ~~we had subordinated~~respectively. Subordinated debt, ~~totaling~~net of unamortized issuance costs, totaled $19.6 million ~~compared to $19.5 million~~ at each of June 30, 2023 and December 31, ~~2021.~~2022.

Loans Receivable, Net

~~Total loans receivable, net of deferred fees and costs, were $1.71 billion at September 30, 2022, compared to $1.50 billion at December 31, 2021.~~ Loans receivable, net of deferred fees, ~~and excluding PPP loans, totaled $1.71~~were $1.90 billion at ~~September~~June 30, ~~2022~~2023 and ~~$1.48~~$1.84 billion at December 31, ~~2021,~~2022, an increase of ~~$235.6~~$63.4 million, or ~~16%~~3%. ~~At September 30, 2022,~~During the second quarter of 2023, new commercial loan originations totaled $89.7 million with a weighted average rate of 7.59% and repayments of loans ~~outstanding under the warehouse lending facility to ACM~~and lines of credit totaled $47.8 million, a decrease of $24.2 million, or 34%, from $72.0 million at December 31, 2021. This decrease in warehouse line volume is consistent with residential mortgage loan demand in our market area.

PPP loans net of fees totaled $3.1 million at September 30, 2022, a decrease from $28.1 million at December 31, 2021. Loans forgiven during the first nine months of 2022 totaled $25.5 million, or 89% of PPP loans outstanding at December 31, 2021. Net deferred fees associated with PPP loans totaled $71 thousand at September 30, 2022, and are being recognized in interest income over the remaining lives of the PPP loans, or sooner upon PPP loan forgiveness or repayment.$41.5 million.

Commercial real estate loans totaled ~~$1.0~~$1.11 billion at ~~September~~June 30, ~~2022, compared to $906.1 million~~2023 and $1.10 billion at December 31, ~~2021, an increase~~2022. As of ~~$124.2 million, or 14%.~~ June 30, 2023, commercial real estate loans represented 59% of the Company's total gross loans receivable. Owner-occupied commercial real estate loans were ~~$196.9~~ $212.7 million at ~~September~~June 30, ~~2022~~2023 compared to ~~$191.8~~$206.8 million at December 31, ~~2021.~~2022. Nonowner-occupied commercial real estate loans were ~~$833.4~~$899.3 million at ~~September~~June 30, ~~2022~~2023 compared to ~~$714.3~~$893.2 million at December 31, ~~2021.~~ ~~Construction~~2022. Commercial construction loans totaled ~~$151.5~~$158.7 million at ~~September~~June 30, ~~2022, a decrease~~2023, an increase of ~~$36.1~~$10.8 million, or ~~19%~~7%, from ~~$187.6~~$147.9 million at December 31, ~~2021~~,2022, and comprised 9%8% of total gross loans receivable. Of the ~~$151.5~~$158.7 million in construction loans at ~~September~~June 30, ~~2022, $43.3~~2023, $40.2 million are collateralized by land and only ~~$4.9~~$3.0 million are lot acquisition and development loans (which have a higher degree of credit risk than the remaining portion of the construction portfolio). Our regulatory commercial real estate concentration (which includes nonowner-occupied real estate and construction loans) was 403% of our total risk based capital at June 30, 2023.

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~~credit risk than the remaining portion of the construction portfolio). Our commercial real estate portfolio, including construction loans, is diversified by asset typ~~e and geographic concentration. We manage this portion of our portfolio in a disciplined manner. We have comprehensive policies to monitor, measure, and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring and administrative practices.

The following table presents the composition of our loans receivable portfolio at ~~September~~June 30, ~~2022~~2023 and at December 31, ~~2021.~~2022.

Loans Receivable

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022

(Dollars in thousands)


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Commercial real estate	Commercial real estate	$	1,030,326	$	906,112	Commercial real estate	1,114,075		1,100,261
Commercial and industrial	Commercial and industrial	208,191		174,051		Commercial and industrial	253,889		245,220
Paycheck protection program		3,205		28,699
Commercial construction	Commercial construction	151,497		187,615		Commercial construction	159,365		147,939
Consumer real estate	Consumer real estate	313,078		200,604		Consumer real estate	370,161		339,591
Consumer nonresidential	Consumer nonresidential	9,154		10,304		Consumer nonresidential	5,624		7,685

Gross loans	Gross loans	1,715,451		1,507,385		Gross loans	1,903,114		1,840,696

Less:	Less:					Less:
Allowance for loan losses		15,313		13,829
Unearned income and (unamortized premiums)		978		3,536
Allowance for credit losses on loans						Allowance for credit losses on loans	19,442		16,040
Unearned income and (unamortized premiums), net						Unearned income and (unamortized premiums), net	(700)		262

Loans receivable, net	Loans receivable, net	$	1,699,160	$	1,490,020	Loans receivable, net	$	1,884,372	$	1,824,394

Asset Quality

Nonperforming loans, defined as nonaccrual loans and loans contractually past due 90 days or more as to principal or interest and still accruing, were ~~$3.7~~$1.4 million and ~~$3.5~~$4.5 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021, respectively. Our ratio~~2022, respectively, a decrease of nonperforming loans to total assets was 0.17% at September 30, 2022 compared to 0.16% at December 31, 2021. We had one loan classified as a troubled debt restructuring ("TDR") at September 30, 2022 and December 31, 2021, which totaled $89 thousand and $92 thousand, respectively.

~~Nonperforming loans, which are primarily commercial real estate and commercial and industrial loans, were $3.7~~$3.1 million, ~~at September 30, 2022.~~or 68%. Loans that we have classified as nonperforming are a result of customer specific deterioration, mostly financial in nature, that are not a result of economic, industry, or environmental causes that we might see as a pattern for possible future losses within our loan portfolio. For each of our criticized assets, we conduct an impairment analysis to determine the level of additional or specific reserves required for any portion of the loan that may result in a loss. As a result of the analysis completed, we had specific reserves totaling ~~$164~~$42 thousand and ~~$186~~$86 thousand at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. ~~Because these loans are individually evaluated for impairment,~~Our ratio of nonperforming loans ~~are excluded from~~to total assets was 0.06% and 0.19% at June 30, 2023 and December 31, 2022, respectively. We had no other real estate owned and there were $7.2 million in loan modifications for borrowers who were experiencing financial difficulty for the ~~general reserve allocation.~~quarter ended June 30, 2023.

We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, collateral adequacy, credit documentation, and current economic trends, among other factors. We analyze loans individually by classifying the loans as to credit risk. This analysis includes larger, non-homogeneous loans such as commercial real estate and commercial and industrial loans. This analysis is performed on an ongoing basis as new information is obtained. At ~~September~~June 30, ~~2022,~~2023, we had $7.6 million in loans identified as special mention, ~~an increase~~a decrease from ~~$3.0~~$10.4 million from ~~December~~December 31, ~~2021.~~2022. Special mention rated loans are loans that have a potential weakness that deserves ~~management’s~~our close attention; however, the borrower continues to pay in accordance with their contract. The ~~increase~~decrease from December 31, ~~2021~~2022 was p~~rimarily~~primarily related to ~~one loan~~two relationships comprising of three loans paying off totaling ~~$2.5~~$9.6 million ~~and~~offset by two relationships comprising of three loans being downgraded totaling ~~$7.1~~$6.8 million. Loans rated as special mention do not have a specific reserve and are considered well-secured.

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At ~~September~~June 30, ~~2022,~~2023, we had ~~$16.2~~ $2.3 million in loans identified as substandard, a ~~decrea~~sedecrease of ~~$3.0~~ $1.8 million from December 31, ~~2021.~~2022. Substandard rated loans are loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. For each of these substandard loans, a liquidation ~~analysis~~analysis is completed. The decrease from December 31, 2022 was primarily related to two relationships comprising of three loans paying off totaling $2.7 million offset by two relationships comprising of two loans being downgraded totaling $1.2 million. At ~~September~~June 30, ~~2022, specific~~2023, individual reserves on ~~originated and acquired~~ loans totaling ~~$164~~$42 thousand has been allocated within the allowance for ~~loan~~credit losses to supplement any shortfall of collateral.

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We recorded annualized net charge-offs (recoveries) to average loans receivable of 0.04% for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~annualized net charge-offs to average loans receivable of~~ 0.05% for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The following tables provide additional information on our asset quality for the periods presented.

Nonperforming Assets

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022

(Dollars in thousands)


		September 30, 2022			December 31, 2021				June 30, 2023			December 31, 2022
Nonperforming assets:	Nonperforming assets:							Nonperforming assets:
Nonaccrual loans	Nonaccrual loans	$	3,381		$	3,485		Nonaccrual loans	$	1,407		$	3,150
Loans contractually past‑due 90 days or more and still accruing	Loans contractually past‑due 90 days or more and still accruing	285			23			Loans contractually past‑due 90 days or more and still accruing	36			1,343

Total nonperforming loans (NPLs)	Total nonperforming loans (NPLs)	$	3,666		$	3,508		Total nonperforming loans (NPLs)	$	1,443		$	4,493
Other real estate owned		—			—

Total nonperforming assets (NPAs)	Total nonperforming assets (NPAs)	$	3,666		$	3,508		Total nonperforming assets (NPAs)	$	1,443		$	4,493
Performing troubled debt restructurings		$	89		$	92

NPLs/Total Assets	NPLs/Total Assets	0.17		%	0.16		%	NPLs/Total Assets	0.06		%	0.19		%
NPAs/Total Assets	NPAs/Total Assets	0.17		%	0.16		%	NPAs/Total Assets	0.06		%	0.19		%
NPAs and Performing TDRs/Total Assets		0.17		%	0.16		%
Allowance for loan losses/NPLs		417.70		%	394.21		%
Allowance for credit losses on loans/NPLs								Allowance for credit losses on loans/NPLs	1,347.33		%	357.00		%
Combined allowance for credit losses/NPLs								Combined allowance for credit losses/NPLs	1,402.87		%	357.00		%

We are closely and proactively monitoring the effects of recent market activity. Our commercial real estate loan portfolio totaled $1.11 billion, or 59% of total, at June 30, 2023 and $1.10 billion, or 58% of total loans, at December 31, 2022. The commercial real estate portfolio, including construction loans, is diversified by asset type and geographic concentration. We manage this portion of the portfolio in a disciplined manner, and have comprehensive policies to monitor, measure and mitigate our loan concentrations within this portfolio segment, including rigorous credit approval, monitoring and administrative practices. Included in commercial real estate are loans secured by office buildings totaling $98.9 million, or 5% of total loans, and retail shopping centers totaling $269.7 million, or 14% of total loans, at June 30, 2023. Multi-family commercial properties totaled $191.2 million, or 10% of total loans, at June 30, 2023. The following table provides further stratification of these asset classes as of June 30, 2023 (dollars in thousands).

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Owner Occupied Commercial Real Estate				Non-Owner Occupied Commercial Real Estate				Construction		Total CRE
Asset Class	Average Loan-to-Value (1)	Number of Total Loans	Bank Owned Principal (2)	Average Loan-to-Value (1)	Number of Total Loans	Bank Owned Principal (2)	Top 3 Geographic Concentration	Number of Total Loans	Bank Owned Principal (2)	Total Bank Owned Principal (2)	% of Total Loans
Office, Class A	70%	6	$7,601	48%	4	$3,833	Counties of Fairfax and Loudoun, Virginia and Montgomery County, Maryland	1	$2,836	$14,270
Office, Class B	48%	38	16,237	48%	31	62,074		—	—	78,311
Office, Class C	44%	8	3,528	42%	8	1,989		1	797	6,314
Subtotal		52	$27,366		43	$67,896		2	$3,633	$98,895	5.19%

Retail- Neighborhood/Community Shop		—	$—	43%	32	$87,271	Prince George's County, Maryland, Fairfax County, Virginia and Washington, D.C.	2	$9,563	$96,834
Retail- Restaurant	58%	9	8,307	46%	17	30,971		—	—	39,278
Retail- Single Tenant	60%	5	2,033	42%	22	38,084		—	—	40,117
Retail- Anchored,Other	71%	1	2,073	53%	11	39,273		1	1,559	42,905
Retail- Grocery-anchored		—	—	46%	8	49,907		1	639	50,546
Subtotal		15	$12,413		90	$245,506		4	$11,761	$269,680	14.17%

Multi-family, Class A (Market)		—	$—	—%	1	$—	Washington, D.C., Baltimore City, Maryland and Arlington County, Virginia	1	$733	$733
Multi-family, Class B (Market)		—	—	63%	21	78,742		—	—	78,742
Multi-family, Class C (Market)		—	—	58%	58	75,288		2	5,581	80,869
Multi-Family-Affordable Housing		—	—	53%	20	26,742		1	4,116	30,858
Subtotal		—	$—		100	$180,772		4	$10,430	$191,202	10.04%
Total Owner Occupied			$39,779	Total Non-Owner Occupied		$494,174		Total Construction	$25,824	$559,777	29.40%

1) Loan-to-value is determined at origination date against current bank owned principal.
2) Bank owned principal not adjusted for deferred fees or costs.
3) Debt service coverage policy is 1.20x or greater required at origination date.

The loans shown in the above table exhibit strong credit quality and included no classified loans at June 30, 2023. During our assessment of the allowance for credit losses on loans, we addressed the credit risks associated with these portfolio segments and believe that as a result of our conservative underwriting discipline at loan origination, we have appropriately reserved for expected credit concerns in the event of a downturn in economic activity.

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, there were no performing loans considered potential problem loans. Potential problem loans are defined as loans that are not included in the 90 days or more past due, nonaccrual or restructured categories, but for which known information about possible credit problems causes ~~management~~us to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms which may in the future result in disclosure in the past due, nonaccrual or restructured loan categories. We take a conservative approach with respect to risk rating loans in our portfolio. Based upon the status as a potential problem loan, these loans receive heightened scrutiny and ongoing intensive risk management. Additionally, our ~~loan loss allowance methodology incorporates increased reserve factors for certain loans that are adversely rated but not impaired as compared to the general portfolio.~~

We are closely and proactively monitoring the effects of the COVID-19 pandemic on our loan and deposit customers and are focused on assessing risks within the loan portfolio and working with customers to minimize losses. We consider pandemic impacted loans to include commercial real estate loans made to hotels, churches, and certain retail and special purpose asset classes. During our assessment of the allowance for ~~loan~~credit losses ~~we addressed~~on loans estimation methodology adjusts expected losses to calibrate the ~~credit risks associated with these pandemic impacted segments and those loans that have requested payment deferrals.~~

~~We believe that as~~likelihood of a ~~result~~default event to occur through the use of our conservative underwriting discipline at loan origination coupled with active dialogue we have with our borrowers, we have the ability and necessary flexibility to assist our customers through this pandemic.

~~We had no OREO property at each of September 30, 2022 and December 31, 2021.~~risk ratings.

Unexpected changes in economic growth could adversely affect our loan portfolio, including causing increases in delinquencies and default rates, which would adversely impact our charge-offs, allowance for credit losses, and provision for ~~loan~~credit losses. Deterioration in real estate values, employment data and household incomes may also result in higher credit losses for us. Also, in the ordinary course of business, we may be subject to a concentration of credit risk to a particular industry, counterparty, borrower or issuer. ~~At September 30, 2022, our commercial real estate portfolio (including construction lending) was~~

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~~68.9%~~ ~~of our total loan portfolio.~~ A deterioration in the financial condition or prospects of a particular industry or a failure or downgrade of, or default by, any particular entity or group of entities could negatively impact our business, perhaps materially, and the systems by which we set limits and monitor the level of our credit exposure to individual entities and industries, may not function as we have anticipated.

See “Critical Accounting Policies” above for more information on our allowance for ~~loan~~credit losses methodology.

The following tables present additional information pertaining to the activity in and allocation of the allowance for ~~loan~~credit losses on loans by loan type and the percentage of the loan type to the total loan portfolio. The allocation of the

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allowance for ~~loan~~credit losses on loans to a category of loans is not necessarily indicative of future losses or charge-offs, and does not restrict the use of the allowance to any specific category of loans.

Allowance for ~~Loan~~Credit Losses on Loans

For the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022

(Dollars in thousands)


		For the Three Months Ended September 30,									For the Three Months Ended June 30,
		2022				2021					2023					2022
		Net (charge-offs) recoveries		Percentage of net charge-offs (annualized) to average loans outstanding during the year		Net (charge-offs) recoveries		Percentage of net charge-offs (annualized) to average loans outstanding during the year			Net (charge-offs) recoveries			Percentage of net charge-offs (annualized) to average loans outstanding during the year		Net (charge-offs) recoveries			Percentage of net charge-offs (annualized) to average loans outstanding during the year
Commercial real estate	Commercial real estate	$	—	—	%	$	(24)	(0.01)	%	Commercial real estate	$	—		—	%	$	—		—	%
Commercial and industrial	Commercial and industrial	—		—	%	—		—	%	Commercial and industrial	(348)		1	(0.08)	%	—			—	%
Consumer residential	Consumer residential	—		—	%	31		0.01	%	Consumer residential	—			—	%	(1)			—	%
Consumer nonresidential	Consumer nonresidential	(9)		—	%	(3)		—	%	Consumer nonresidential	(8)			—	%	9			—	%
Total	Total	$	(9)	—	%	$	4	—	%	Total	$	(356)		(0.08)	%	$	8		—	%
Average loans outstanding during the period	Average loans outstanding during the period	$	1,667,521			$	1,466,155			Average loans outstanding during the period	$	1,867,813				$	1,581,131

											For the Six Months Ended June 30,
											2023					2022
											Net (charge-offs) recoveries			Percentage of net charge-offs (annualized) to average loans outstanding during the year		Net (charge-offs) recoveries			Percentage of net charge-offs (annualized) to average loans outstanding during the year
Commercial real estate										Commercial real estate	$	—		—	%	$	—		—	%
Commercial and industrial										Commercial and industrial	(347)			(0.04)	%	(396)			(0.05)	%
Consumer residential										Consumer residential	1			—	%	(1)			—	%
Consumer nonresidential										Consumer nonresidential	13			—	%	(10)			—	%
Total										Total	$	(333)		(0.04)	%	$	(407)		(0.05)	%
Average loans outstanding during the period										Average loans outstanding during the period	$	1,849,493				$	1,528,030

																June 30,
																2023			2022
Allowance for credit losses to loans receivable, net of fees										Allowance for credit losses to loans receivable, net of fees						1.02		%	0.90	%
Combined allowance for credit losses to loans receivable, net of fees										Combined allowance for credit losses to loans receivable, net of fees						1.06		%	0.90	%

For the Nine Months Ended September 30,
2022 2021
Net (charge-offs) recoveries Percentage of net charge-offs (annualized) to average loans outstanding during the year Net (charge-offs) recoveries Percentage of net charge-offs (annualized) to average loans outstanding during the year
Commercial real estate $ — — % $ (452) (0.04) %
Commercial and industrial (396) (0.03) % (117) (0.01) %
Consumer residential 1 — % 35 0.01 %
Consumer nonresidential (21) (0.01) % (61) (0.01) %
Total $ (416) (0.04) % $ (595) (0.05) %
Average loans outstanding during the period $ 1,575,038 $ 1,455,705
September 30,
2022 2021
Allowance for loan losses to loans receivable, net of fees 0.89 % 0.98 %
Allowance for loan losses to loans receivable, net of fees, excluding PPP 0.89 % 1.02 %

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Allocation of the Allowance for ~~Loan~~Credit Losses on Loans

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022

(Dollars in thousands)


		September 30,				December 31,					June 30,				December 31,
		2022				2021					2023				2022
		Allocation		% of Total*		Allocation		% of Total*			Allocation		% of Total*		Allocation		% of Total*
Commercial real estate	Commercial real estate	$	10,429	60.06	%	$	8,995	60.11	%	Commercial real estate	$	11,122	58.54	%	$	10,777	59.77	%
Commercial and industrial	Commercial and industrial	2,132		12.14	%	1,827		11.55	%	Commercial and industrial	2,865		13.34	%	2,623		13.21	%
Paycheck protection program		—		0.19	%	—		1.90	%
Commercial construction	Commercial construction	1,600		8.83	%	2,009		12.45	%	Commercial construction	1,702		8.37	%	1,499		8.04	%
Consumer real estate	Consumer real estate	1,038		18.25	%	781		13.31	%	Consumer real estate	3,683		19.45	%	1,044		18.45	%
Consumer nonresidential	Consumer nonresidential	114		0.53	%	217		0.68	%	Consumer nonresidential	70		0.30	%	97		0.42	%

Total allowance for loan losses		$	15,313	100.00	%	$	13,829	100.00	%
Total allowance for credit losses										Total allowance for credit losses	$	19,442	100.00	%	$	16,040	99.89	%

*Percentage of loan type to the total loan portfolio.

Investment Securities

Our investment securities portfolio is used as a source of income and liquidity. The investment portfolio consists of investment securities available-for-sale and investment securities ~~held-to-maturity and certificates of deposit.~~held-to-maturity. Investment securities available-for-sale are those securities that we intend to hold for an indefinite period of time, but not necessarily until maturity. These securities are carried at fair value and may be sold as part of an asset/liability strategy, liquidity management or regulatory capital management. Investment securities held-to-maturity for each of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 totaled $264 thousand, and are those securities that we have the intent and ability to hold to maturity and are carried at amortized cost. The fair value of our investment securities available-for-sale was ~~$282.2~~$231.2 million at ~~September~~June 30, ~~2022,~~2023, a decrease of ~~$75.6~~$46.9 million, or ~~21%~~17%, from ~~$357.8~~$278.1 million at December 31, ~~2021,~~2022, primarily ~~due to~~as a result of the $40.3 million of available-for-sale securities sold in February 2023, and principal paydowns of ~~$30.4~~$11.1 million, ~~and the decrease~~offset by an improvement in the ~~market value~~portfolio's unrealized losses of the portfolio of $52.4 million during 2022. The decrease in market value is due to the bond market pricing at the time we purchased fixed income mortgage-backed securities which occurred during the last half of 2021, a historically low rate purchase period. These purchases were primarily funded through our increase in deposits and PPP loan forgiveness to deploy excess liquidity and optimize net interest margin.$4.6 million.

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the majority of the investment securities portfolio consisted of securities rated AAA by a leading rating agency. Investment securities which carry a AAA rating are judged to be of the best quality and carry the smallest degree of investment risk. All of our mortgage-backed securities are guaranteed by either the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, or the Government National Mortgage Association. The effective duration of the investment securities portfolio continues to be slightly over five years, which is within the industry average. Investment securities that were pledged to secure public deposits totaled ~~$110.5~~$124.7 million and ~~$85.6~~$108.7 million at June 30, 2023~~September 30, 2022~~ and December 31, ~~2021,~~2022, respectively.

WeIn accordance with ASC 326, we complete ~~reviews for other-than-temporary impairment~~periodic assessments on at least ~~quarterly. Investment~~a quarterly basis to determine if credit deterioration exists within our investment securities portfolio and if an allowance for credit losses would be required as of a valuation date. For additional details related to management's assessment process, see the “Critical Accounting Policies” section above. As a result of the assessment performed as of June 30, 2023, the investment securities with unrealized losses are a result of pricing changes due to recent rising interest rate conditions in the current market environment and not as a result of ~~permanent~~ credit ~~impairment.~~deterioration. Contractual cash flows for ~~the agency mortgage-backed securities~~agency-backed portfolios are guaranteed ~~and/or~~and funded by the U.S. government. Municipal securities have third party protective elements and there are no negative indications that the contractual cash flows will not be received when due. We do not intend to sell nor do we believe we will be required to sell any of our ~~temporarily impaired~~investment securities portfolio prior to the recovery of the amortized ~~cost.~~

~~No other-than-temporary~~cost as of the valuation date. As such, no impairment ~~has been~~was recognized ~~for the securities~~ in our investment securities portfolio as of ~~September~~June 30, ~~2022 and December 31, 2021.~~2023.

We hold restricted investments in equities of the Federal Reserve Bank of Richmond ("FRB") and FHLB. At ~~September~~June 30, ~~2022,~~2023, we owned ~~$3.9~~$3.6 million in ~~FHLB~~FRB stock and ~~$5.0~~$1.2 million in ~~FRB~~FHLB stock. At December 31, ~~2021,~~2022, we owned ~~$1.8 million in FHLB stock and~~ $4.4 million in FRB stock and $11.1 million in FHLB stock. The decrease in FHLB restricted stock is a direct result of repaying all of our FHLB advances by June 30, 2023.

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The following table presents the weighted average yields of our investment portfolio for each of the maturity ranges at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

Investment Securities by Stated Yields

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~

~~(Dollars in thousands)~~2022


		At September 30, 2022													At June 30, 2023
		Within One Year		One to Five Years			Five to Ten Years		Over Ten Years			Total			Within One Year		One to Five Years			Five to Ten Years		Over Ten Years			Total
			Weighted Average Yield		Weighted Average Yield		Weighted Average Yield			Weighted Average Yield		Weighted Average Yield				Weighted Average Yield		Weighted Average Yield		Weighted Average Yield			Weighted Average Yield		Weighted Average Yield
Held‑to‑maturity	Held‑to‑maturity													Held‑to‑maturity
Securities of state and local municipalities tax exempt	Securities of state and local municipalities tax exempt		—		2.32	%	—			—		2.32	%	Securities of state and local municipalities tax exempt		—		2.32	%	—			—		2.32	%
Total held‑to‑maturity securities	Total held‑to‑maturity securities		—		2.32	%	—			—		2.32	%	Total held‑to‑maturity securities		—		2.32	%	—			—		2.32	%
Available‑for‑sale	Available‑for‑sale													Available‑for‑sale
Securities of U.S. government and federal agencies	Securities of U.S. government and federal agencies		—		—		1.49	%		—		1.49	%	Securities of U.S. government and federal agencies		—		—		1.49	%		—		1.49	%
Securities of state and local municipalities	Securities of state and local municipalities		—		2.25	%	—			2.92	%	2.43	%	Securities of state and local municipalities		—		2.25	%	—			2.92	%	2.47	%
Corporate bonds	Corporate bonds		—		4.75	%	4.09	%		—		4.15	%	Corporate bonds		—		9.86	%	4.09	%		—		4.37	%
Mortgaged‑backed securities	Mortgaged‑backed securities		—		2.00	%	2.39	%		1.56	%	1.61	%	Mortgaged‑backed securities		—		2.11	%	3.15	%		1.58	%	1.59	%
Total available‑for‑sale securities	Total available‑for‑sale securities		—		3.57	%	2.81	%		1.56	%	1.77	%	Total available‑for‑sale securities		—		5.80	%	3.02	%		1.58	%	1.79	%
Total investment securities	Total investment securities		—		3.49	%	2.81	%		1.56	%	1.77	%	Total investment securities		—		5.42	%	2.81	%		1.56	%	1.79	%


		At December 31, 2021													At December 31, 2022
		Within One Year		One to Five Years			Five to Ten Years		Over Ten Years			Total			Within One Year		One to Five Years			Five to Ten Years		Over Ten Years			Total
			Weighted Average Yield		Weighted Average Yield		Weighted Average Yield			Weighted Average Yield		Weighted Average Yield				Weighted Average Yield		Weighted Average Yield		Weighted Average Yield			Weighted Average Yield		Weighted Average Yield
Held‑to‑maturity	Held‑to‑maturity													Held‑to‑maturity
Securities of state and local municipalities tax exempt	Securities of state and local municipalities tax exempt		—		—		2.32	%		—		2.32	%	Securities of state and local municipalities tax exempt		—		2.32	%	—			—		2.32	%
Total held‑to‑maturity securities	Total held‑to‑maturity securities		—		—		2.32	%		—		2.32	%	Total held‑to‑maturity securities		—		2.32	%	—			—		2.32	%
Available‑for‑sale	Available‑for‑sale													Available‑for‑sale
Securities of U.S. government and federal agencies	Securities of U.S. government and federal agencies		—		—		1.49	%		—		1.49	%	Securities of U.S. government and federal agencies		—		—		1.49	%		—		1.49	%
Securities of state and local municipalities	Securities of state and local municipalities		—		2.25	%	—			2.92	%	2.45	%	Securities of state and local municipalities		—		2.25	%	—			2.92	%	2.43	%
Corporate bonds	Corporate bonds		—		3.98	%	4.15	%		—		4.12	%	Corporate bonds		—		6.02	%	4.09	%		—		4.27	%
Mortgaged‑backed securities	Mortgaged‑backed securities		—		—		2.21	%		1.53	%	1.57	%	Mortgaged‑backed securities		—		2.09	%	2.48	%		1.57	%	1.62	%
Total available‑for‑sale securities	Total available‑for‑sale securities		—		3.27	%	2.51	%		1.53	%	1.68	%	Total available‑for‑sale securities		—		3.73	%	2.84	%		1.57	%	1.79	%
Total investment securities	Total investment securities		—		3.27	%	2.51	%		1.53	%	1.68	%	Total investment securities		—		3.65	%	2.51	%		1.57	%	1.79	%

Deposits and Other Borrowed Funds

The following table sets forth the average balances of deposits and the percentage of each category to total average deposits for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021.~~2022.

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Average Deposits Balance
For the Nine Months Ended September 30, 2022 and 2021
(Dollars in thousands)
September 30, 2022 September 30, 2021
Noninterest bearing demand $ 514,238 28.46 % $ 518,478 31.24 %
Interest-bearing deposits
Interest checking 743,193 41.14 % 568,742 34.26 %
Savings and money markets 319,871 17.70 % 294,730 17.76 %
Certificates of deposits, $100,000 to $249,999 48,584 2.69 % 60,341 3.64 %
Certificates of deposits, $250,000 or more 143,515 7.94 % 178,991 10.78 %
Other time deposits 37,344 2.07 % 38,553 2.32 %
Total $ 1,806,745 100.00 % $ 1,659,835 100.00 %


Average Deposits Balance
For the Six Months Ended June 30, 2023 and 2022
(Dollars in thousands)

	June 30, 2023				June 30, 2022
Noninterest bearing demand	$	437,161	23.08	%	$	518,070	28.74	%
Interest-bearing deposits
Interest checking	525,637		27.76	%	745,880		41.37	%
Savings and money markets	268,867		14.19	%	322,802		17.91	%
Certificates of deposits, $100,000 to $249,999	81,470		4.30	%	137,327		7.62	%
Certificates of deposits, $250,000 or more	266,502		14.07	%	43,718		2.43	%
Other time deposits	314,706		16.61	%	35,000		1.94	%
Total	$	1,894,343	100.00	%	$	1,802,797	100.01	%

Total deposits ~~were $1.89~~increased $257.9 million, or 14.1%, to $2.09 billion at ~~September~~June 30, ~~2022, an increase of $5.5 million, or 0.3%,~~2023 from ~~$1.88~~$1.83 billion at December 31, ~~2021.~~2022. Noninterest-bearing deposits ~~totaled $513.7~~were $437.0 million at ~~September~~June 30, ~~2022, comprising 27%~~2023, or 21% of total deposits. At June 30, 2023, core deposits, which exclude wholesale deposits, increased $103.7 million from December 31, 2022, or 7%, and ~~decreased $67.6~~increased $77.7 million, or ~~12%~~5%, ~~compared~~from the previous quarter end. Time deposits (which exclude wholesale deposits) increased $104.8 million, or 40%, to $365.2 million at June 30, 2023 from December 31, ~~2021.~~2022, and were 22% of core deposits, representing new and existing customer deposits as customers were looking to fix interest rates on their deposit balances.

Wholesale deposits were ~~$75.0~~$413.3 million at ~~September~~June 30, ~~2022~~2023 compared to ~~$35.0~~$248.0 million at December 31, ~~2021.~~2022, an increase of $165.3 million, or 67%. Wholesale deposits were used to pay off FHLB advances at maturity freeing up collateral for future use as needed. Wholesale deposits are partially fixed at a weighted average rate of 3.83% as we have executed $250 million in pay-fixed/receive-floating interest rate swaps to reduce funding costs. In addition, we are a member of the IntraFi Network (“IntraFi”), which gives us the ability to offer Certificates of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) products to our customers who seek to maximize ~~Federal Deposit Insurance Corporation (“FDIC”)~~FDIC insurance protection. When a customer places a large deposit with us for IntraFi, funds are placed into certificates of deposit or other deposit products with other banks in the CDARS and ICS networks in increments of less than $250 thousand so that principal and interest are eligible for FDIC insurance protection. These deposits are part of our core deposit base. At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we had ~~$167.9~~$212.0 million and ~~$186.0~~$117.6 million, respectively, in either CDARS reciprocal or ICS reciprocal products.

As of ~~September~~June 30, ~~2022,~~2023, the estimated amount of total uninsured deposits ~~was $876.8 million.~~was $577.1 million, or 27.6% of total deposits. The estimate of uninsured deposits generally represents the portion of deposit accounts that exceed the FDIC insurance limit of $250,000 and is calculated based on the same methodologies and assumptions used for purposes of the Bank's regulatory reporting requirements.

The following table reports maturities of the estimated amount of uninsured certificates of deposit at ~~September~~June 30, ~~2022.~~2023.

Certificates of Deposit Greater than $250,000

At ~~September~~June 30, ~~2022~~2023

(Dollars in thousands)


	~~September~~June 30, ~~2022~~2023
Three months or less	$	~~50,449~~27,671
Over three months through six months	~~27,409~~61,912
Over six months through twelve months	~~54,802~~58,419
Over twelve months	~~6,470~~51,985
	$	~~139,130~~199,987

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Other borrowed funds, which include federal funds purchased, FHLB advances, and our subordinated notes, were ~~$94.6~~$19.6 million at ~~September~~June 30, ~~2022~~2023 compared to ~~$44.5~~$284.6 million at December 31, ~~2021.~~2022. Subordinated debt was $19.6 million at ~~September~~both June 30, 2023 and December 31, 2022. At June 30, 2023 and December 31, 2022, federal funds purchased was $0 and ~~$19.5~~$30.0 million, respectively. For June 30, 2023 and December 31, 2022, FHLB advances totaled $0 and $235.0 million, respectively.

Total wholesale funding (which includes wholesale deposits and FHLB advances) decreased $89.0 million, or 17%, during the second quarter of 2023 to $413.3 million at June 30, 2023 from $513.0 million at December 31, 2021. At September 30, 2022 and December 31, 2021, we had zero federal funds purchased. For September 30, 2022 and December 31, 2021, FHLB advances totaled $75.0 million and $25.0 million, respectively.

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2022.

Capital Resources

Capital adequacy is an important measure of financial stability and performance. Our objectives are to maintain a level of capitalization that is sufficient to sustain asset growth and promote depositor and investor confidence.

Regulatory agencies measure capital adequacy utilizing a formula that takes into account the individual risk profile of the financial institution. The minimum capital requirements for the Bank are: (i) a common equity Tier 1 (“CET1”), capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6%; (iii) a total risk based capital ratio of 8%; and (iv) a Tier 1 leverage ratio of 4%. Additionally, a capital conservation buffer requirement of 2.5% of risk-weighted assets is designed to absorb losses during periods of economic stress and is applicable to the Bank’s CET1 capital, Tier 1 capital and total capital ratios. Including the conservation buffer, we currently consider the Bank’s minimum capital ratios to be as follows: 7.00% for CET1; 8.50% for Tier 1 capital; and 10.50% for Total capital. Banking institutions with a ratio of common equity Tier 1 to risk-weighted assets above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation.

On January 1, 2020, the federal banking agencies adopted a “Community Bank Leverage Ratio” ("CBLR"), which is calculated by dividing tangible equity capital by average consolidated total assets. If a “qualified community bank,” generally a depository institution or depository institution holding company with consolidated assets of less than $10 billion, opts into the CBLR framework and has a leverage ratio that exceeds the CBLR threshold, which was initially set at 9%, then such bank will be considered to have met all generally applicable leverage and risk based capital requirements under Basel III, the capital ratio requirements for “well capitalized” status under Section 38 of the Federal Deposit Insurance Act, and any other leverage or capital requirements to which it is subject. A bank or holding company may be excluded from qualifying community bank status based on its risk profile, including consideration of its off-balance sheet exposures; trading assets and liabilities; total notional derivatives exposures; and such other facts as the appropriate federal banking agencies determine to be appropriate.

At January 1, 2020, we qualified and adopted this simplified capital structure. Effective September 30, 2022, we opted out of the CBLR ~~framework and will be subject to the generally applicable capital rule by completing the associated reporting requirements on our Call Reports for the Bank.~~framework. A banking organization that opts out of the CBLR framework can subsequently opt back into the CBLR framework if it meets the criteria listed above. Under capital adequacy guidelines, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. We believe that the Bank met all capital adequacy requirements to which it was subject as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021.~~2022.

Shareholders’ equity at ~~September~~June 30, ~~2022~~2023 was ~~$194.6~~$211.1 million, ~~a decrease~~an increase of ~~$15.2~~$8.7 million, or 4%, compared to ~~$209.8~~$202.4 million at December 31, ~~2021. The decrease in shareholders’ equity was~~2022. During the first quarter of 2023, retained earnings decreased $2.8 million primarily ~~attributable to~~as a ~~decrease~~result of ~~$37.5 million in other comprehensive income (loss), primarily related to~~ the ~~decrease in the market value~~adoption of ~~our available-for-sale investment securities portfolio, offset by net income recorded year-to-date 2022 totaling $20.1 million.~~CECL on January 1, 2023.

Total shareholders’ equity to total assets for ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~8.83%~~9.0% and ~~9.52%~~8.6%, respectively. Tangible book value per share (a non-GAAP financial measure which is defined in the table below) at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~$13.35~~$11.44 and ~~$14.70,~~$11.58, respectively. The Bank’s CBLR at September 30, 2022 and December 31, 2021 was 11.12% and 10.53%, respectively. Accordingly, we were considered “well capitalized” for regulatory purposes at September 30, 2022 and December 31, 2021.

As noted above, regulatory capital levels for the Bank meet those established for “well capitalized” institutions. While we are currently considered “well capitalized,” we may from time to time find it necessary to access the capital markets to meet our growth objectives or capitalize on specific business opportunities.

As the Company is a bank holding company with less than $3 billion in assets, and which does not (i) conduct significant off balance sheet activities, (ii) engage in significant non-banking activities, or (iii) have a material amount of securities registered under the Securities Exchange Act of 1934 (the “Exchange Act”), it is not currently subject to risk-based capital requirements adopted by the Federal Reserve, pursuant to the small bank holding company policy statement. The Federal Reserve has not historically deemed a bank holding company ineligible for application of the small bank

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holding company policy statement solely because its common stock is registered under the Exchange Act. There can be no assurance that the Federal Reserve will continue this practice.

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The following tables show the minimum capital requirements and ~~our~~the Bank's capital position at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021 for the Bank.~~2022.

Bank Capital Components

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022

(Dollars in thousands)

Actual Minimum Capital Requirement Minimum to be Well Capitalized Under Prompt Corrective Action
Amount Ratio Amount
Ratio
Amount
Ratio
At September 30, 2022
Total risk-based capital $ 251,806 13.55 % $ 195,099 > 10.50 % $ 185,808 > 10.00 %
Tier 1 risk-based capital 236,493 12.73 % 157,937 > 8.50 % 148,647 > 8.00 %
Common equity tier 1 capital 236,493 12.73 % 130,066 > 7.00 % 120,775 > 6.50 %
Leverage capital ratio 236,493 11.12 % 85,476 > 4.00 % 106,845 > 5.00 %
At December 31, 2021
Total risk-based capital $ 222,871 13.54 % $ 177,069 > 10.50 % $ 168,638 > 10.00 %
Tier 1 risk-based capital 214,442 12.72 % 143,342 > 8.50 % 134,910 > 8.00 %
Common equity tier 1 capital 214,442 12.72 % 118,046 > 7.00 % 109,614 > 6.50 %
Leverage capital ratio 214,442 10.55 % 81,712 > 4.00 % 102,140 > 5.00 %


	Actual				Minimum Capital Requirement (1)					Minimum to be Well Capitalized Under Prompt Corrective Action
	Amount		Ratio		Amount			Ratio		Amount			Ratio
At June 30, 2023
Total risk-based capital	$	263,697	13.28	%	$	208,444	>	10.50	%	$	198,518	>	10.00	%
Tier 1 risk-based capital	243,454		12.26	%	168,740		>	8.50	%	158,815		>	8.00	%
Common equity tier 1 capital	243,454		12.26	%	138,963		>	7.00	%	129,037		>	6.50	%
Leverage capital ratio	243,454		10.41	%	92,140		>	4.00	%	115,175		>	5.00	%
At December 31, 2022
Total risk-based capital	$	256,898	13.28	%	$	203,113	>	10.50	%	$	193,441	>	10.00	%
Tier 1 risk-based capital	240,858		12.45	%	164,425		>	8.50	%	154,753		>	8.00	%
Common equity tier 1 capital	240,858		12.45	%	135,409		>	7.00	%	125,737		>	6.50	%
Leverage capital ratio	240,858		10.75	%	87,894		>	4.00	%	109,867		>	5.00	%
(1) Includes capital conservation buffer.

Tangible Book Value

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022

(Dollars in thousands, except per share data)


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Total stockholders’ equity (GAAP)	Total stockholders’ equity (GAAP)	$	194,635	$	209,796	Total stockholders’ equity (GAAP)	$	211,051	$	202,382
Less: goodwill and intangibles, net	Less: goodwill and intangibles, net	(7,849)		(8,052)		Less: goodwill and intangibles, net	(7,682)		(7,790)
Tangible Common Equity (non-GAAP)	Tangible Common Equity (non-GAAP)	$	186,786	$	201,744	Tangible Common Equity (non-GAAP)	$	203,368	$	194,592

Book value per common share (GAAP)	Book value per common share (GAAP)	$	13.91	$	15.28	Book value per common share (GAAP)	$	11.87	$	11.58
Less: intangible book value per common share	Less: intangible book value per common share	(0.56)		(0.58)		Less: intangible book value per common share	(0.43)		(0.44)
Tangible book value per common share (non-GAAP)	Tangible book value per common share (non-GAAP)	$	13.35	$	14.70	Tangible book value per common share (non-GAAP)	$	11.44	$	11.14

Liquidity

Liquidity in the banking industry is defined as the ability to meet the demand for funds of both depositors and borrowers. We must be able to meet these needs by obtaining funding from depositors or other lenders or by converting non-cash items into cash. The objective of our liquidity management program is to ensure that we always have sufficient resources to meet the demands of our depositors and borrowers. Stable core deposits and a strong capital position provide the base for our liquidity position. We believe we have demonstrated our ability to attract deposits because of our convenient branch locations, personal service, technology and pricing.

~~Table~~ As of ~~Contents~~

June 30, 2023, estimated uninsured deposits for the Bank improved to 27.6% of total deposits from 39.7% at December 31, 2022.

In addition to deposits, we have access to the ~~different~~various wholesale funding markets. These markets include the brokered certificate of deposit market and the federal funds market. We are a member of the IntraFi Network, which allows banking customers to access FDIC insurance protection on deposits through our Bank which exceed FDIC insurance limits. ~~We also~~As part of our membership with the IntraFi Network, we have one-way authority ~~with IntraFi~~ for both their CDARs and ICS products which provides the Bank the ability to access additional wholesale funding as needed. We also maintain secured lines of

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credit with the FRB and the FHLB for which we can borrow up to the allowable amount for the collateral pledged. Having diverse funding alternatives reduces our reliance on any one source for funding.

Cash flow from amortizing assets or maturing assets also provides funding to meet the needs of depositors and borrowers.

We have established a formal liquidity contingency plan which establishes a liquidity management team and provides guidelines for liquidity management. For our liquidity management program, we first determine our current liquidity position and then forecast liquidity based on anticipated changes in the balance sheet. In this forecast, we expect to maintain a liquidity cushion. We also stress test our liquidity position under several different stress scenarios, from moderate to severe. Guidelines for the forecasted liquidity cushion and for liquidity cushions for each stress scenario have been established. We believe that we have sufficient resources to meet our liquidity needs.

Our primary and secondary sources of liquidity remain strong. Liquid assets, which include cash and due from banks, federal funds sold and investment securities available for sale, totaled $~~350.6~~306.2 million at ~~September~~June 30, ~~2022,~~2023, or ~~16%~~13% of total assets, a decrease from ~~$598.7~~$359.6 million, or ~~27%~~15%, at December 31, ~~2021.~~2022. As of June 30, 2023 and December 31, 2022, $124.7 million and $108.7 million, respectively, in investment securities available for sale were pledged as collateral for municipal deposits. We held investments that are classified as held-to-maturity in the amount of $264 thousand at ~~September~~June 30, ~~2022.~~2023. To maintain ready access to the Bank’s secured lines of credit, the Bank has pledged a portion of its commercial real estate and residential real estate loan portfolios to the FHLB and FRB. Additional borrowing capacity at the FHLB at ~~September~~June 30, ~~2022~~2023 was ~~approximately $327.4~~approximately $465.4 million. Borrowing capacity with the FRB was approximately $97.6 million at June 30, 2023. We have the ability to access the Federal Reserve's new Bank Term Funding Program ("BTFP"), but have not accessed this facility during the first half of 2023. ~~$83.4 million~~ ~~at September 30, 2022.~~ These facilities are subject to the FHLB and the FRB approving disbursement to us. We also have unsecured ~~federal~~federal funds purchased lines of ~~$265.0~~$250.0 million available to us, of which none were used at ~~September~~June 30, ~~2022.~~2023. We anticipate maintaining liquidity at a level sufficient to protect depositors, provide for reasonable growth and fully comply with all regulatory requirements. As of June 30, 2023, our liquidity position was significantly in excess of its estimated uninsured deposits at 172%.

Liquidity is essential to our business. Our liquidity could be impaired by an inability to access the capital markets or by unforeseen outflows of cash, including deposits. This situation may arise due to circumstances that we may be unable to control, such as general market disruption, negative views about the financial services industry generally, or an operational problem that affects a third party or us. Our ability to borrow from other financial institutions on favorable terms or at all could be adversely affected by disruptions in the capital markets or other events. While we believe we have a healthy liquidity position and do not anticipate the loss of deposits of any of the significant deposit customers, any of the factors discussed above could materially impact our liquidity position in the future.

Financial Instruments with Off-Balance-Sheet Risk and Credit Risk

We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our 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 Bank’s maximum 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 and conditional obligations as it does for on-balance-sheet instruments. We evaluate each customer’s credit worthiness on a case-by-case basis and require collateral to support financial instruments when deemed necessary. The amount of collateral obtained upon extension of credit is based on ~~management’s~~our evaluation of the counterparty. Collateral held varies but may include deposits held by us, marketable securities, accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates up to one year or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. These instruments represent obligations to extend credit or guarantee borrowings and are not recorded on the consolidated statements of financial condition. The rates and terms of these instruments are competitive with others in the market in which we do business.

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Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. Those lines of credit may not be drawn upon to the total extent to which we have committed.

Standby letters of credit are conditional commitments we issued to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing, and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. We hold certificates of deposit, deposit accounts, and real estate as collateral supporting those commitments for which collateral is deemed necessary.

With the exception of these off-balance sheet arrangements, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, results of operations, changes in financial condition, revenue, expenses, capital expenditures, or capital resources, that is material to ~~the business of the Company.~~our business.

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, unused commitments to fund loans and lines of credit totaled ~~$250.4~~$242.9 million and ~~$183.1~~$235.6 million, ~~respectively. Commitments to grant loans totaled $218.8 million and $90.6 million at September 30, 2022 and December 31, 2021,~~ respectively. Commercial and standby letters of credit totaled ~~$9.4~~$6.2 million ~~and $8.9 million at September~~for the quarters ended June 30, ~~2022~~2023 and December 31, ~~2021, respectively.~~2022.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 4. Controls and Procedures

The Company maintains disclosure controls and procedures (as defined in Rule 13a —- 15(e) under the Exchange Act). As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures was carried out under the supervision and with the participation of the Company’s management, including its chief executive officer and chief financial officer. Based on and as of the date of such evaluation, these officers concluded that the Company’s disclosure controls and procedures were effective.

The Company also maintains a system of internal accounting controls that is designed to provide assurance that assets are safeguarded and that transactions are executed in accordance with management’s authorization and are properly recorded. This system is continually reviewed and is augmented by written policies and procedures, the careful selection and training of qualified personnel, and an internal audit program to monitor its effectiveness. There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that materially affected, or are likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of our operations, we become party to various legal proceedings. Currently, we are not party to any material legal proceedings, and no such proceedings are, to management’s knowledge, threatened against us.

Item 1A. Risk Factors

There have been no material changes in the risk factors from those disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)None.

(b)Not applicable.

(c)On March ~~17, 2022,~~16, 2023, we publicly announced that the Board of Directors had renewed the share repurchase program (the "Repurchase Program") that was initiated in ~~2020 and extended in 2021.~~2020. Under the renewed Repurchase Program, we may purchase up to ~~1,080,860~~1,300,000 shares of our common stock, or approximately 8% of our outstanding shares of common stock at December 31, ~~2021.~~2022, post split effective January 31, 2023. The Repurchase Program will expire on March 31, ~~2023,~~2024, subject to earlier termination of the program by the Board of Directors. During the second quarter of 2023, the Company acquired 24,798 shares at an average price of $9.16 (including commissions) in accordance with the approved share repurchase program.

~~No shares were purchased during the three and nine months ended September 30, 2022.~~


Period	(a) Total Number of Shares Purchased	(b) Average Price Paid per Share ($)	(c) Total Number of Shares Purchased as Part of Publicly Announced Program	(d) Maximum Number of Shares that May Yet Be Purchased Under the Program
April 1, 2023 - April 30, 2023	—	—	—	1,313,621
May 1, 2023 - May 31, 2023	24,798	9.16	24,798	1,288,823
June 1, 2023 - June 30, 2023	—	—	—	1,288,823
Total	24,798	9.16	24,798	1,288,823

Item 3. Defaults Upon Senior Securities

(a)None.

(b)None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

(a)None.

(b)None.

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Item 6. Exhibits

~~Table of~~ ~~Contents~~


31.1			Rule 13a-14(a) Certification of Principal Executive Officer
31.2			Rule 13a-14(a) Certification of Principal Financial Officer
32.1			Statement of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350
32.2			Statement of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350
101			The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2022,~~2023, formatted in Extensible Business Reporting Language (XBRL), include: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes.
104			The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2022,~~2023, formatted in Inline Extensible Business Reporting Language (included with Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


			FVCBankcorp, Inc.
			(Registrant)

Date: ~~November 9, 2022~~August 11, 2023			/s/ David W. Pijor
			David W. Pijor
			Chairman and Chief Executive Officer
			(Principal Executive Officer)

Date: ~~November 9, 2022~~August 11, 2023			/s/ Jennifer L. Deacon
			Jennifer L. Deacon
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer and Principal Accounting Officer)

6874


	Actual				Minimum Capital Requirement					Minimum to be Well Capitalized Under Prompt Corrective Action
	Amount		Ratio		Amount			Ratio		Amount			Ratio
At September 30, 2022
Total risk-based capital	$	251,806	13.55	%	$	195,099	>	10.50	%	$	185,808	>	10.00	%
Tier 1 risk-based capital	236,493		12.73	%	157,937		>	8.50	%	148,647		>	8.00	%
Common equity tier 1 capital	236,493		12.73	%	130,066		>	7.00	%	120,775		>	6.50	%
Leverage capital ratio	236,493		11.12	%	85,476		>	4.00	%	106,845		>	5.00	%
At December 31, 2021
Total risk-based capital	$	222,871	13.54	%	$	177,069	>	10.50	%	$	168,638	>	10.00	%
Tier 1 risk-based capital	214,442		12.72	%	143,342		>	8.50	%	134,910		>	8.00	%
Common equity tier 1 capital	214,442		12.72	%	118,046		>	7.00	%	109,614		>	6.50	%
Leverage capital ratio	214,442		10.55	%	81,712		>	4.00	%	102,140		>	5.00	%