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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

or

☐ | 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: 0-20146

EAGLE FINANCIAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

Virginia |  | 54-1601306
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
2 East Main Street | P.O. Box 391 |
Berryville, VA |  | 22611
(Address of principal executive offices) |  | (Zip Code)

(540) 955-2510

(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
None

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 Date 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, 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.

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 ☒

The number of shares of the registrant’s Common Stock ($2.50 par value) outstanding as of November 8, 2024 was 3,549,581.

PART I - FINANCIAL INFORMATION |
Item 1. | Financial Statements: |
| Consolidated Balance Sheets at September 30, 2024 and December 31, 2023 | 1
| Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2024 and 2023 | 2
| Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2024 and 2023 | 3
| Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2024 and 2023 | 4
| Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2024 and 2023 | 5
| Notes to Consolidated Financial Statements | 6
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 37
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 58
Item 4. | Controls and Procedures | 58
PART II - OTHER INFORMATION |
Item 1. | Legal Proceedings | 59
Item 1A. | Risk Factors | 59
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 59
Item 3. | Defaults Upon Senior Securities | 59
Item 4. | Mine Safety Disclosures | 59
Item 5. | Other Information | 59
Item 6. | Exhibits | 60

PART I - FINANCI AL INFORMATION

Item 1. Financi al Statements

EAGLE FINANCIAL SERVICES, INC.

Consolidated B alance Sheets

(dollars in thousands, except per share amounts)

|  | September 30, 2024 |  |  | December 31, 2023 |
|  | (Unaudited) |  |  |  |
Assets |  |  |  |  |  |
Cash and due from banks |  | $ | 15,418 |  |  | $ | 15,417 |
Interest-bearing deposits with other institutions |  |  | 162,187 |  |  |  | 96,649 |
Federal funds sold |  |  | 3,586 |  |  |  | 26,287 |
Total cash and cash equivalents |  | $ | 181,191 |  |  | $ | 138,353 |
Securities available for sale, at fair value, amortized cost of $148,327 and $160,251, respectively |  |  | 130,051 |  |  |  | 137,443 |
Restricted investments, at cost |  |  | 9,967 |  |  |  | 9,568 |
Loans held for sale |  |  | 3,657 |  |  |  | 1,661 |
Loans |  |  | 1,483,328 |  |  |  | 1,462,686 |
Allowance for credit losses |  |  | (15,303 | ) |  |  | (14,493 | )
Net Loans |  | $ | 1,468,025 |  |  | $ | 1,448,193 |
Bank premises and equipment, net |  |  | 18,101 |  |  |  | 18,108 |
Bank owned life insurance |  |  | 30,361 |  |  |  | 29,575 |
Other assets |  |  | 40,348 |  |  |  | 42,696 |
Total assets |  | $ | 1,881,701 |  |  | $ | 1,825,597 |
Liabilities and Shareholders’ Equity |  |  |  |  |  |
Liabilities |  |  |  |  |  |
Deposits: |  |  |  |  |  |
Noninterest bearing demand deposits |  | $ | 413,615 |  |  | $ | 436,619 |
Savings and interest bearing demand deposits |  |  | 655,601 |  |  |  | 656,439 |
Time deposits |  |  | 476,720 |  |  |  | 413,264 |
Total deposits |  | $ | 1,545,936 |  |  | $ | 1,506,322 |
Federal funds purchased |  |  | 244 |  |  |  | — |
Federal Home Loan Bank advances, short-term |  |  | — |  |  |  | 20,000 |
Federal Home Loan Bank advances, long-term |  |  | 170,000 |  |  |  | 145,000 |
Subordinated debt, net of unamortized issuance costs |  |  | 29,495 |  |  |  | 29,444 |
Other liabilities |  |  | 18,182 |  |  |  | 16,452 |
Total liabilities |  | $ | 1,763,857 |  |  | $ | 1,717,218 |
Commitments and contingencies |  |  |  |  |  |
Shareholders’ Equity |  |  |  |  |  |
Preferred stock, $10 par value; 500,000 shares authorized and unissued |  | $ | — |  |  | $ | — |
Common stock, $2.50 par value; authorized 10,000,000 shares; issued and outstanding 2024, 3,549,580 including 64,043 shares of unvested restricted stock; issued and outstanding 2023, 3,520,894 including 56,914 shares of unvested restricted stock |  |  | 8,714 |  |  |  | 8,660 |
Surplus |  |  | 14,633 |  |  |  | 14,280 |
Retained earnings |  |  | 108,927 |  |  |  | 103,445 |
Accumulated other comprehensive loss |  |  | (14,430 | ) |  |  | (18,006 | )
Total shareholders’ equity |  | $ | 117,844 |  |  | $ | 108,379 |
Total liabilities and shareholders’ equity |  | $ | 1,881,701 |  |  | $ | 1,825,597 |

See Notes to Consolidated Financial Statements

TABLE OF CONTENTS

EAGLE FINANCIAL SERVICES, INC.

Consolidated Statements of Income (Unaudited)

(dollars in thousands, except per share amounts)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Interest and Dividend Income |  |  |  |  |  |  |  |  |  |  |  |
Interest and fees on loans |  | $ | 21,143 |  |  | $ | 20,179 |  |  | $ | 60,631 |  |  | $ | 56,100 |
Interest and dividends on securities available for sale: |  |  |  |  |  |  |  |  |  |  |  |
Taxable interest income |  |  | 712 |  |  |  | 781 |  |  |  | 2,209 |  |  |  | 2,370 |
Interest income exempt from federal income taxes |  |  | 4 |  |  |  | 3 |  |  |  | 12 |  |  |  | 12 |
Dividends |  |  | 157 |  |  |  | 147 |  |  |  | 468 |  |  |  | 366 |
Interest on deposits in banks |  |  | 1,659 |  |  |  | 1,021 |  |  |  | 3,889 |  |  |  | 2,151 |
Interest on federal funds sold |  |  | 11 |  |  |  | 51 |  |  |  | 118 |  |  |  | 89 |
Total interest and dividend income |  | $ | 23,686 |  |  | $ | 22,182 |  |  | $ | 67,327 |  |  | $ | 61,088 |
Interest Expense |  |  |  |  |  |  |  |  |  |  |  |
Interest on deposits |  | $ | 8,419 |  |  | $ | 6,978 |  |  | $ | 23,358 |  |  | $ | 15,972 |
Interest on federal funds purchased |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 70 |
Interest on Federal Home Loan Bank advances |  |  | 1,756 |  |  |  | 1,943 |  |  |  | 5,178 |  |  |  | 6,006 |
Interest on subordinated debt |  |  | 354 |  |  |  | 354 |  |  |  | 1,063 |  |  |  | 1,063 |
Total interest expense |  | $ | 10,529 |  |  | $ | 9,275 |  |  | $ | 29,599 |  |  | $ | 23,111 |
Net interest income |  | $ | 13,157 |  |  | $ | 12,907 |  |  | $ | 37,728 |  |  | $ | 37,977 |
Provision for Credit Losses |  |  | 1,544 |  |  |  | 216 |  |  |  | 2,200 |  |  |  | 1,283 |
Net interest income after provision for credit losses |  | $ | 11,613 |  |  | $ | 12,691 |  |  | $ | 35,528 |  |  | $ | 36,694 |
Noninterest Income |  |  |  |  |  |  |  |  |  |  |  |
Wealth management fees |  | $ | 1,515 |  |  | $ | 1,190 |  |  | $ | 4,244 |  |  | $ | 3,611 |
Service charges on deposit accounts |  |  | 518 |  |  |  | 460 |  |  |  | 1,428 |  |  |  | 1,343 |
Other service charges and fees |  |  | 1,117 |  |  |  | 1,252 |  |  |  | 3,250 |  |  |  | 3,434 |
Gain on the sale of marine finance assets |  |  | — |  |  |  | 463 |  |  |  | — |  |  |  | 463 |
Gain (loss) on the sale of bank premises and equipment |  |  | — |  |  |  | 7 |  |  |  | (11 | ) |  |  | 14 |
Gain on sale of loans |  |  | 627 |  |  |  | 265 |  |  |  | 1,280 |  |  |  | 913 |
Small business investment company income |  |  | 496 |  |  |  | 151 |  |  |  | 882 |  |  |  | 350 |
Bank owned life insurance income |  |  | 930 |  |  |  | 184 |  |  |  | 1,721 |  |  |  | 542 |
Other operating income |  |  | 48 |  |  |  | 246 |  |  |  | 242 |  |  |  | 447 |
Total noninterest income |  | $ | 5,251 |  |  | $ | 4,218 |  |  | $ | 13,036 |  |  | $ | 11,117 |
Noninterest Expenses |  |  |  |  |  |  |  |  |  |  |  |
Salaries and employee benefits |  | $ | 7,548 |  |  | $ | 7,598 |  |  | $ | 22,086 |  |  | $ | 22,457 |
Occupancy expenses |  |  | 530 |  |  |  | 570 |  |  |  | 1,569 |  |  |  | 1,621 |
Equipment expenses |  |  | 427 |  |  |  | 341 |  |  |  | 1,201 |  |  |  | 979 |
Advertising and marketing expenses |  |  | 247 |  |  |  | 228 |  |  |  | 729 |  |  |  | 866 |
Stationery and supplies |  |  | 35 |  |  |  | 69 |  |  |  | 91 |  |  |  | 147 |
ATM network fees |  |  | 406 |  |  |  | 426 |  |  |  | 1,159 |  |  |  | 1,142 |
Other real estate owned expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 5 |
(Gain) on other real estate owned |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (7 | )
Loss on sale of repossessed assets |  |  | 204 |  |  |  | — |  |  |  | 204 |  |  |  | — |
FDIC assessment |  |  | 343 |  |  |  | 495 |  |  |  | 1,103 |  |  |  | 1,107 |
Computer software expense |  |  | 226 |  |  |  | 396 |  |  |  | 680 |  |  |  | 987 |
Bank franchise tax |  |  | 342 |  |  |  | 340 |  |  |  | 1,011 |  |  |  | 916 |
Professional fees |  |  | 408 |  |  |  | 497 |  |  |  | 1,425 |  |  |  | 1,963 |
Data processing fees |  |  | 679 |  |  |  | 542 |  |  |  | 1,802 |  |  |  | 1,422 |
Other operating expenses |  |  | 1,495 |  |  |  | 2,631 |  |  |  | 4,717 |  |  |  | 5,869 |
Total noninterest expenses |  | $ | 12,890 |  |  | $ | 14,133 |  |  | $ | 37,777 |  |  | $ | 39,474 |
Income before income taxes |  | $ | 3,974 |  |  | $ | 2,776 |  |  | $ | 10,787 |  |  | $ | 8,337 |
Income Tax Expense |  |  | 550 |  |  |  | 457 |  |  |  | 1,630 |  |  |  | 1,375 |
Net income |  | $ | 3,424 |  |  | $ | 2,319 |  |  | $ | 9,157 |  |  | $ | 6,962 |
Earnings Per Share |  |  |  |  |  |  |  |  |  |  |  |
Net income per common share, basic |  | $ | 0.97 |  |  | $ | 0.66 |  |  | $ | 2.58 |  |  | $ | 1.98 |
Net income per common share, diluted |  | $ | 0.97 |  |  | $ | 0.66 |  |  | $ | 2.58 |  |  | $ | 1.98 |

See Notes to Consolidated Financial Statements

2

TABLE OF CONTENTS

EAGLE FINANCIAL SERVICES, INC.

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

(dollars in thousands)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Net income |  | $ | 3,424 |  |  | $ | 2,319 |  |  | $ | 9,157 |  |  | $ | 6,962 |
Other comprehensive income (loss): |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gain (loss) on available for sale securities, net of deferred income tax of $1,152 and $(1,100) for the three months ended, and $952 and $(825) for the nine months ended, respectively |  |  | 4,333 |  |  |  | (4,137 | ) |  |  | 3,580 |  |  |  | (3,102 | )
Changes in benefit obligations and plan assets for post retirement benefit plans, net of reclassification adjustments, net of deferred income tax of $0 for the three months ended, and $1 and $(3) for the nine months ended, respectively |  |  | — |  |  |  | — |  |  |  | (4 | ) |  |  | (5 | )
Total other comprehensive income (loss) |  |  | 4,333 |  |  |  | (4,137 | ) |  |  | 3,576 |  |  |  | (3,107 | )
Total comprehensive income (loss) |  | $ | 7,757 |  |  | $ | (1,818 | ) |  | $ | 12,733 |  |  | $ | 3,855 |

See Notes to Consolidated Financial Statements

3

TABLE OF CONTENTS

EAGLE FINANCIAL SERVICES, INC.

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

(dollars in thousands, except per share amounts)

|  | Common Stock |  |  | Surplus |  |  | Retained Earnings |  |  | Accumulated Other Comprehensive (Loss) |  |  | Total |
December 31, 2022 |  | $ | 8,629 |  |  | $ | 13,268 |  |  | $ | 100,278 |  |  | $ | (20,446 | ) |  |  | 101,729 |
Cumulative effect adjustment for CECL |  |  | — |  |  |  | — |  |  |  | (1,961 | ) |  |  | — |  |  |  | (1,961 | )
Net income |  |  | — |  |  |  | — |  |  |  | 2,585 |  |  |  | — |  |  |  | 2,585 |
Other comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,975 |  |  |  | 2,975 |
Vesting of restricted stock awards, stock incentive plan (12,749 shares) |  |  | 31 |  |  |  | (31 | ) |  |  | — |  |  |  | — |  |  |  | — |
Stock-based compensation expense |  |  | — |  |  |  | 317 |  |  |  | — |  |  |  | — |  |  |  | 317 |
Repurchase and retirement of common stock (3,590 shares) |  |  | (9 | ) |  |  | (119 | ) |  |  | — |  |  |  | — |  |  |  | (128 | )
Dividends declared ($0.30 per share) |  |  | — |  |  |  | — |  |  |  | (1,057 | ) |  |  | — |  |  |  | (1,057 | )
March 31, 2023 |  | $ | 8,651 |  |  | $ | 13,435 |  |  | $ | 99,845 |  |  | $ | (17,471 | ) |  | $ | 104,460 |
Net income |  |  | — |  |  |  | — |  |  |  | 2,058 |  |  |  | — |  |  |  | 2,058 |
Other comprehensive (loss) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,945 | ) |  |  | (1,945 | )
Stock-based compensation expense |  |  | — |  |  |  | 323 |  |  |  | — |  |  |  | — |  |  |  | 323 |
Issuance of common stock, employee benefit plan (3,803 shares) |  |  | 10 |  |  |  | 123 |  |  |  | — |  |  |  | — |  |  |  | 133 |
Dividends declared ($0.30 per share) |  |  | — |  |  |  | — |  |  |  | (1,059 | ) |  |  | — |  |  |  | (1,059 | )
June 30, 2023 |  | $ | 8,661 |  |  | $ | 13,881 |  |  | $ | 100,844 |  |  | $ | (19,416 | ) |  | $ | 103,970 |
Net income |  |  | — |  |  |  | — |  |  |  | 2,319 |  |  |  | — |  |  |  | 2,319 |
Other comprehensive (loss) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (4,137 | ) |  |  | (4,137 | )
Stock-based compensation expense |  |  | — |  |  |  | 263 |  |  |  | — |  |  |  | — |  |  |  | 263 |
Vesting of restricted stock awards, stock incentive plan (4,553 shares) |  |  | 11 |  |  |  | (11 | ) |  |  | — |  |  |  | — |  |  |  | — |
Repurchase and retirement of common stock (4,941 shares) |  |  | (12 | ) |  |  | (163 | ) |  |  | — |  |  |  | — |  |  |  | (175 | )
Dividends declared ($0.30 per share) |  |  | — |  |  |  | — |  |  |  | (1,057 | ) |  |  | — |  |  |  | (1,057 | )
September 30, 2023 |  | $ | 8,660 |  |  | $ | 13,970 |  |  | $ | 102,106 |  |  | $ | (23,553 | ) |  | $ | 101,183 |
December 31, 2023 |  | $ | 8,660 |  |  | $ | 14,280 |  |  | $ | 103,445 |  |  | $ | (18,006 | ) |  | $ | 108,379 |
Cumulative effect adjustment for adopton of ASU 2023-02 |  |  | — |  |  |  | — |  |  |  | (477 | ) |  |  | — |  |  |  | (477 | )
Net income |  |  | — |  |  |  | — |  |  |  | 2,548 |  |  |  | — |  |  |  | 2,548 |
Other comprehensive (loss) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,811 | ) |  |  | (1,811 | )
Vesting of restricted stock awards, stock incentive plan (23,557 shares) |  |  | 59 |  |  |  | (59 | ) |  |  | — |  |  |  | — |  |  |  | — |
Stock-based compensation expense |  |  | — |  |  |  | 302 |  |  |  | — |  |  |  | — |  |  |  | 302 |
Repurchase and retirement of common stock (5,605 shares) |  |  | (14 | ) |  |  | (155 | ) |  |  | — |  |  |  | — |  |  |  | (169 | )
Dividends declared ($0.30 per share) |  |  | — |  |  |  | — |  |  |  | (1,067 | ) |  |  | — |  |  |  | (1,067 | )
March 31, 2024 |  | $ | 8,705 |  |  | $ | 14,368 |  |  | $ | 104,449 |  |  | $ | (19,817 | ) |  | $ | 107,705 |
Net income |  |  | — |  |  |  | — |  |  |  | 3,185 |  |  |  | — |  |  |  | 3,185 |
Other comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,054 |  |  |  | 1,054 |
Vesting of restricted stock awards, stock incentive plan (1,081 shares) |  |  | 3 |  |  |  | (3 | ) |  |  | — |  |  |  | — |  |  |  | — |
Stock-based compensation expense |  |  | — |  |  |  | 249 |  |  |  | — |  |  |  | — |  |  |  | 249 |
Repurchase and retirement of common stock (385 shares) |  |  | (1 | ) |  |  | (10 | ) |  |  | — |  |  |  | — |  |  |  | (11 | )
Dividends declared ($0.30 per share) |  |  | — |  |  |  | — |  |  |  | (1,067 | ) |  |  | — |  |  |  | (1,067 | )
June 30, 2024 |  | $ | 8,707 |  |  | $ | 14,604 |  |  | $ | 106,567 |  |  | $ | (18,763 | ) |  | $ | 111,115 |
Net income |  |  | — |  |  |  | — |  |  |  | 3,424 |  |  |  | — |  |  |  | 3,424 |
Other comprehensive income |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 4,333 |  |  |  | 4,333 |
Stock-based compensation expense |  |  | — |  |  |  | 93 |  |  |  | — |  |  |  | — |  |  |  | 93 |
Vesting of restricted stock awards, stock incentive plan (4,788 shares) |  |  | 12 |  |  |  | (12 | ) |  |  | — |  |  |  | — |  |  |  | — |
Repurchase and retirement of common stock (1,878 shares) |  |  | (5 | ) |  |  | (52 | ) |  |  | — |  |  |  | — |  |  |  | (57 | )
Dividends declared ($0.30 per share) |  |  | — |  |  |  | — |  |  |  | (1,064 | ) |  |  | — |  |  |  | (1,064 | )
September 30, 2024 |  | $ | 8,714 |  |  | $ | 14,633 |  |  | $ | 108,927 |  |  | $ | (14,430 | ) |  | $ | 117,844 |

See Notes to Consolidated Financial Statements

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EAGLE FINANCIAL SERVICES, INC.

Consolidated Statements o f Cash Flows (Unaudited)

(dollars in thousands)

|  | Nine Months Ended |
|  | September 30, |
|  | 2024 |  |  | 2023 |
Cash Flows from Operating Activities |  |  |  |  |  |
Net income |  | $ | 9,157 |  |  | $ | 6,962 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |
Depreciation |  |  | 742 |  |  |  | 745 |
Amortization of other assets |  |  | 418 |  |  |  | 613 |
Origination of loans held for sale |  |  | (49,256 | ) |  |  | (27,627 | )
Proceeds from sale of loans held for sale |  |  | 48,540 |  |  |  | 24,805 |
Net (gain) on sales of loans |  |  | (1,280 | ) |  |  | (913 | )
Provision for credit losses |  |  | 2,200 |  |  |  | 1,283 |
(Gain) on other real estate owned |  |  | — |  |  |  | (7 | )
(Gain) on the sale of marine finance assets |  |  | — |  |  |  | (463 | )
Loss (gain) on the sale and disposal of premises and equipment |  |  | 11 |  |  |  | (14 | )
Loss on the sale of repossessed assets |  |  | 204 |  |  |  | — |
Amortization of subordinated debt issuance costs |  |  | 51 |  |  |  | 51 |
Stock-based compensation expense |  |  | 644 |  |  |  | 903 |
Premium amortization on securities, net |  |  | 208 |  |  |  | 266 |
Bank-owned life insurance income |  |  | (814 | ) |  |  | (542 | )
(Gain) on bank-owned life insurance settlement |  |  | (907 | ) |  |  | — |
Changes in assets and liabilities: |  |  |  |  |  |
Decrease (increase) in other assets |  |  | 278 |  |  |  | (5,472 | )
Increase in other liabilities |  |  | 2,251 |  |  |  | 12,297 |
Net cash provided by operating activities |  | $ | 12,447 |  |  | $ | 12,887 |
Cash Flows from Investing Activities |  |  |  |  |  |
Proceeds from maturities, calls, and principal payments of securities available for sale |  | $ | 11,716 |  |  | $ | 10,987 |
Proceeds from the sale of restricted investments |  |  | 1,425 |  |  |  | 4,975 |
Purchases of restricted investments |  |  | (1,824 | ) |  |  | (4,326 | )
Proceeds of bank-owned life insurance settlement |  |  | 935 |  |  |  | — |
Purchases of bank premises and equipment |  |  | (746 | ) |  |  | (1,127 | )
Proceeds from the sale of bank premises and equipment |  |  | — |  |  |  | 39 |
Proceeds from the sale of other real estate owned |  |  | — |  |  |  | 115 |
Proceeds from the sale of repossessed assets |  |  | 112 |  |  |  | — |
Proceeds from sale of marine finance business |  |  | — |  |  |  | 53,537 |
Proceeds from sales of loans |  |  | — |  |  |  | 49,325 |
Origination of loans net of principal collected |  |  | (21,986 | ) |  |  | (218,755 | )
Funding of capital commitments related to other investments |  |  | (664 | ) |  |  | (495 | )
Net cash (used in) investing activities |  | $ | (11,032 | ) |  | $ | (105,725 | )
Cash Flows from Financing Activities |  |  |  |  |  |
Net (decrease) in noninterest bearing demand deposits, savings, and interest bearing demand deposits |  | $ | (23,842 | ) |  | $ | (19,160 | )
Net increase in time deposits |  |  | 63,456 |  |  |  | 253,465 |
Net increase (decrease) in federal funds purchased |  |  | 244 |  |  |  | (32,980 | )
Net (decrease) in short-term Federal Home Loan Bank advances |  |  | (20,000 | ) |  |  | (175,000 | )
Advances of long-term Federal Home Loan Bank advances |  |  | 25,000 |  |  |  | 145,000 |
Issuance of common stock, employee benefit plan |  |  | — |  |  |  | 133 |
Repurchase and retirement of common stock |  |  | (237 | ) |  |  | (303 | )
Cash dividends paid |  |  | (3,198 | ) |  |  | (3,173 | )
Net cash provided by financing activities |  | $ | 41,423 |  |  | $ | 167,982 |
Increase in cash and cash equivalents |  | $ | 42,838 |  |  | $ | 75,144 |
Cash and Cash Equivalents |  |  |  |  |  |
Beginning |  |  | 138,353 |  |  |  | 66,894 |
Ending |  | $ | 181,191 |  |  | $ | 142,038 |
Supplemental Disclosures of Cash Flow Information |  |  |  |  |  |
Cash payments for: |  |  |  |  |  |
Interest |  | $ | 29,695 |  |  | $ | 22,016 |
Income taxes |  | $ | 80 |  |  | $ | 1,706 |
Supplemental Schedule of Noncash Investing and Financing Activities: |  |  |  |  |  |
Unrealized gain (loss) on securities available for sale |  | $ | 4,532 |  |  | $ | (3,927 | )
Minimum postretirement liability adjustment |  | $ | (5 | ) |  | $ | (8 | )
Repossessed assets acquired in settlement of loans |  | $ | 111 |  |  | $ | 304 |

See Notes to Consolidated Financial Statements

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EAGLE FINANCIAL SERVICES, INC.

Notes to Consolidated Finan cial Statements (Unaudited)

September 30, 2024

NOTE 1. General

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP.

In the opinion of management, the accompanying financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at September 30, 2024 and December 31, 2023, the results of operations and the changes in shareholders' equity for the three and nine months ended September 30, 2024 and 2023, and cash flows for the nine months ended September 30, 2024 and 2023. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the Consolidated Financial Statements and related Notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).

Eagle Financial Services, Inc. (the "Company") owns 100% of Bank of Clarke (the “Bank”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts and t ransactions between the Company and the Bank have been eliminated.

Certain amounts in the consolidated financial statements have been reclassified to conform to current year presentations. None of the reclassifications were of a material nature and they had no effect on prior year net income or shareholders' equity.

On January 1, 2024, the Company adopted Accounting Standards Update ("ASU") 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method," ("ASC 323"). 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 adoption resulted in an adjustment of $477 thousand, which reduced the investment balance and shareholders' equity. Th e Company invests in qualified affordable housing projects. The general purpose of these investments is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, provide tax credits and other tax benefits to investors, and to pre serve and protect project assets.

NOTE 2. Stock-Based Compensation Plan

On May 16, 2023, the Company’s shareholders approved the 2023 Stock Incentive Plan which allows key employees and directors to increase their personal financial interest in the Company. The 2023 plan permits the issuance of incentive stock options and non-qualified stock options and the award of common stock, restricted stock, and stock units. The plan authorizes the issuance of up to 250,000 shares of common stock. The 2023 Stock Incentive Plan replaced the 2014 Stock Incentive Plan.

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The Company periodically grants restricted stock to its directors, executive officers and certain non-executive officers. Restricted stock provides grantees with rights to shares of common stock upon completion of a service period or achievement of Company performance measures. During the restricted period, all shares are considered outstanding and dividends are paid to the grantee. Outside directors are periodically granted restricted shares which vest over a period of one year. Executive officers have been granted restricted shares which vest over a three year service period and restricted shares which vest based on meeting annual performance measures over a two year period. Certain non-executive officers also have been granted restricted shares which vest over a three year service period. The Company recognizes compensation expense over the restricted period based on the fair value of the Company's stock on the grant date. The Company's policy is to recognize forfeitures as they occur. As of September 30, 2024, there w as $851 thousand of unrecognized compensation cost related to nonvested restricted stock, with a weighted average remaining term of 1.91 years.

The following table presents restricted stock activity for the nine months ended September 30, 2024 and 2023:

|  | Nine Months Ended |
|  | September 30, |
|  | 2024 |  |  | 2023 |
|  | Shares |  |  | Weighted Average Grant Date Fair Value |  |  | Shares |  |  | Weighted Average Grant Date Fair Value |
Nonvested, beginning of period |  |  | 56,914 |  |  | $ | 35.06 |  |  |  | 38,780 |  |  | $ | 33.47 |
Granted |  |  | 41,940 |  |  |  | 30.00 |  |  |  | 37,941 |  |  |  | 36.60 |
Vested |  |  | (29,426 | ) |  |  | 34.40 |  |  |  | (17,302 | ) |  |  | 33.29 |
Forfeited |  |  | (5,385 | ) |  |  | 35.38 |  |  |  | (2,405 | ) |  |  | 36.80 |
Nonvested, end of period |  |  | 64,043 |  |  | $ | 32.02 |  |  |  | 57,014 |  |  | $ | 35.57 |

NOTE 3. Earnings Per Common Share

Basic earnings per share represents income available to common shareholders divided by the weighted average number of common shares outstanding during the period. Nonvested restricted shares are included in the weighted average number of common shares used to compute basic earnings per share because of dividend participation and voting rights. Diluted earnings per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. The number of potential common shares is determined using the treasury method.

The following table shows the weighted average number of shares used in computing earnings per share for the three and nine months ended September 30, 2024 and 2023. During 2024 and 2023, there were no potentially dilutive securities outstanding.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Average number of common shares outstanding used to calculate basic and diluted earnings per share |  |  | 3,552,026 |  |  |  | 3,526,943 |  |  |  | 3,555,376 |  |  |  | 3,524,441 |

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NOTE 4. Securities

Amortized costs and fair values of securities available for sale at September 30, 2024 and December 31, 2023 were as follows:

|  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized (Losses) |  |  | Fair Value |
|  | September 30, 2024 |
|  | (in thousands) |
Obligations of U.S. government corporations and agencies |  | $ | 8,199 |  |  | $ | — |  |  | $ | (347 | ) |  | $ | 7,852 |
Mortgage-backed securities |  |  | 130,457 |  |  |  | — |  |  |  | (16,918 | ) |  |  | 113,539 |
Obligations of states and political subdivisions |  |  | 4,921 |  |  |  | — |  |  |  | (200 | ) |  |  | 4,721 |
Subordinated debt |  |  | 4,750 |  |  |  | — |  |  |  | (811 | ) |  |  | 3,939 |
|  | $ | 148,327 |  |  | $ | — |  |  | $ | (18,276 | ) |  | $ | 130,051 |

|  | December 31, 2023 |
|  | (in thousands) |
Obligations of U.S. government corporations and agencies |  | $ | 9,258 |  |  | $ | — |  |  | $ | (667 | ) |  | $ | 8,591 |
Mortgage-backed securities |  |  | 140,052 |  |  |  | — |  |  |  | (21,230 | ) |  |  | 118,822 |
Obligations of states and political subdivisions |  |  | 6,191 |  |  |  | 1 |  |  |  | (261 | ) |  |  | 5,931 |
Subordinated debt |  |  | 4,750 |  |  |  | — |  |  |  | (651 | ) |  |  | 4,099 |
|  | $ | 160,251 |  |  | $ | 1 |  |  | $ | (22,809 | ) |  | $ | 137,443 |

The Company has elected to exclude accrued interest receivable, totaling $356 thousand at September 30, 2024, from the amortized cost basis of securities. The deferred tax asset on the securities portfolio at September 30, 2024 and December 31, 2023 was $3.8 million and $4.8 million, respectively, and is included in Other Assets in the Consolidated Balance Sheets. The amortized cost and estimated fair value of securities at September 30, 2024, by the earlier of contractual maturity or expected maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without call or prepayment penalties.

|  | Amortized Cost |  |  | Fair Value |
|  | (in thousands) |
Due in one year or less |  | $ | — |  |  | $ | — |
Due after one year through five years |  |  | 10,692 |  |  |  | 10,374 |
Due after five years through ten years |  |  | 12,804 |  |  |  | 11,379 |
Due after ten years |  |  | 124,831 |  |  |  | 108,298 |
|  | $ | 148,327 |  |  | $ | 130,051 |

There were no sales of available for sale securities during the nine months ended September 30, 2024 or 2023.

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The fair value and gross unrealized losses for securities available for sale, totaled by the length of time that individual securities have been in a continuous gross unrealized loss position, at September 30, 2024 and December 31, 2023 were as follows:

|  | Less than 12 months |  |  | 12 months or more |  |  | Total |
|  | Fair Value |  |  | Gross Unrealized Losses |  |  | Fair Value |  |  | Gross Unrealized Losses |  |  | Fair Value |  |  | Gross Unrealized Losses |
|  | September 30, 2024 |
|  | (in thousands) |
Obligations of U.S. government corporations and agencies |  | $ | — |  |  | $ | — |  |  | $ | 7,852 |  |  | $ | 347 |  |  | $ | 7,852 |  |  | $ | 347 |
Mortgage-backed securities |  |  | — |  |  |  | — |  |  |  | 113,539 |  |  |  | 16,918 |  |  |  | 113,539 |  |  |  | 16,918 |
Obligations of states and political subdivisions |  |  | 500 |  |  |  | — |  |  |  | 4,221 |  |  |  | 200 |  |  |  | 4,721 |  |  |  | 200 |
Subordinated debt |  |  | — |  |  |  | — |  |  |  | 3,439 |  |  |  | 811 |  |  |  | 3,439 |  |  |  | 811 |
|  | $ | 500 |  |  | $ | — |  |  | $ | 129,051 |  |  | $ | 18,276 |  |  | $ | 129,551 |  |  | $ | 18,276 |

|  | Less than 12 months |  |  | 12 months or more |  |  | Total |
|  | Fair Value |  |  | Gross Unrealized Losses |  |  | Fair Value |  |  | Gross Unrealized Losses |  |  | Fair Value |  |  | Gross Unrealized Losses |
|  | December 31, 2023 |
|  | (in thousands) |
Obligations of U.S. government corporations and agencies |  | $ | — |  |  | $ | — |  |  | $ | 8,591 |  |  | $ | 667 |  |  | $ | 8,591 |  |  | $ | 667 |
Mortgage-backed securities |  |  | — |  |  |  | — |  |  |  | 118,822 |  |  |  | 21,230 |  |  |  | 118,822 |  |  |  | 21,230 |
Obligations of states and political subdivisions |  |  | — |  |  |  | — |  |  |  | 5,430 |  |  |  | 261 |  |  |  | 5,430 |  |  |  | 261 |
Subordinated debt |  |  | 221 |  |  |  | 29 |  |  |  | 3,378 |  |  |  | 622 |  |  |  | 3,599 |  |  |  | 651 |
|  | $ | 221 |  |  | $ | 29 |  |  | $ | 136,221 |  |  | $ | 22,780 |  |  | $ | 136,442 |  |  | $ | 22,809 |

The reference point for determining when securities are in an unrealized loss position is month end. As such, it is possible that a security's market value exceeded its amortized cost on other days during the past twelve-month period.

There were 101 debt securities with a fair value below the amortized cost basis, totaling $129.6 million of aggregate fair value as of September 30, 2024. The Company concluded that a credit loss does not exist in its securities portfolio at September 30, 2024 based on the fact that (1) changes in fair value were caused by non-credit-related factors, primarily fluctuations in interest rates, (2) securities with unrealized losses had generally high credit quality, (3) the Company intends to hold these investments in debt securities to maturity and it is more-likely-than-not that the Company will not be required to sell these investments before a recovery of its investment, and (4) issuers have continued to make timely payments of principal and interest. Additionally, the Company’s mortgage-backed securities and obligations of U.S. government corporations and agencies are entirely issued by either U.S. government agencies or U.S. government-sponsored enterprises. Collectively, these entities provide a guarantee, which is either explicitly or implicitly supported by the full faith and credit of the U.S. government, that investors in such mortgage-backed securities will receive timely principal and interest payments.

Securities having carrying v alues of $8.3 mi llion and $110.2 million at September 30, 2024 were pledged as security for trust accounts and for borrowing capacity at the Federal Reserve Bank discount window, respectively.

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The composition of restricted investments at September 30, 2024 and December 31, 2023 was as follows:

|  | September 30, 2024 |  |  | December 31, 2023 |
|  | (in thousands) |
Federal Reserve Bank Stock |  | $ | 344 |  |  | $ | 344 |
Federal Home Loan Bank Stock |  |  | 9,483 |  |  |  | 9,084 |
Community Bankers’ Bank Stock |  |  | 140 |  |  |  | 140 |
|  | $ | 9,967 |  |  | $ | 9,568 |

NOTE 5. Loans and Allowance for Credit Losses on Loans

The composition of loans at September 30, 2024 and December 31, 2023 was as follows:

|  | September 30, |  |  | December 31, |
|  | 2024 |  |  | 2023 |
|  | (in thousands) |
Mortgage real estate loans: |  |  |  |  |  |
Construction & Secured by Farmland |  | $ | 97,170 |  |  | $ | 84,145 |
HELOCs |  |  | 50,452 |  |  |  | 47,674 |
Residential First Lien - Investor |  |  | 106,323 |  |  |  | 117,431 |
Residential First Lien - Owner Occupied |  |  | 198,570 |  |  |  | 178,180 |
Residential Junior Liens |  |  | 11,956 |  |  |  | 12,831 |
Commercial - Owner Occupied |  |  | 273,249 |  |  |  | 251,456 |
Commercial - Non-Owner Occupied & Multifamily |  |  | 357,351 |  |  |  | 348,879 |
Commercial and industrial loans: |  |  |  |  |  |
SBA PPP loans |  |  | 34 |  |  |  | 51 |
Other commercial and industrial loans |  |  | 111,130 |  |  |  | 107,777 |
Marine loans |  |  | 225,902 |  |  |  | 251,168 |
Consumer loans |  |  | 32,063 |  |  |  | 42,419 |
Overdrafts |  |  | 215 |  |  |  | 253 |
Other loans |  |  | 11,932 |  |  |  | 12,895 |
Total loans |  | $ | 1,476,347 |  |  | $ | 1,455,159 |
Net deferred loan costs and premiums |  |  | 6,981 |  |  |  | 7,527 |
Allowance for credit losses |  |  | (15,303 | ) |  |  | (14,493 | )
|  | $ | 1,468,025 |  |  | $ | 1,448,193 |

At September 30, 2024, the Company was servicing $13.9 million of loans for other financial institutions which are not included in the table above. Also excluded from the table above are net servicing assets of $239 thousand at September 30, 2024, which are recorded in other assets in the Consolidated Balance Sheets. When loans are sold with servicing retained, servicing assets are recorded which represent the Company's right to service loans that were sold. Servicing assets are initially recorded by the Company at fair value and are subsequently amortized in proportion to, and over the period of, estimated net servicing income.

Changes in the allowance for credit losses on loans for the three and nine months ended September 30, 2024 and 2023 were as follows:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
|  | (in thousands) |
Balance, beginning |  | $ | 15,014 |  |  | $ | 14,511 |  |  | $ | 14,493 |  |  | $ | 11,218 |
Cumulative effect adjustment for adoption of ASC 326 |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,077 |
Provision for credit losses |  |  | 1,526 |  |  |  | 218 |  |  |  | 2,315 |  |  |  | 1,337 |
Recoveries added to the allowance |  |  | 145 |  |  |  | 31 |  |  |  | 754 |  |  |  | 255 |
Credit losses charged to the allowance |  |  | (1,382 | ) |  |  | (187 | ) |  |  | (2,259 | ) |  |  | (314 | )
Balance, ending |  | $ | 15,303 |  |  | $ | 14,573 |  |  | $ | 15,303 |  |  | $ | 14,573 |

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Past due loans by class at September 30, 2024 and December 31, 2023 were as follows:

|  | September 30, 2024 |
|  | (in thousands) |
|  | 30 - 59 Days Past Due |  |  | 60 - 89 Days Past Due |  |  | 90 or More Days Past Due |  |  | Total Past Due |  |  | Current |  |  | Total Loans |  |  | 90 or More Days Past Due Still Accruing |
Mortgage real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction & Secured by Farmland |  | $ | 6,781 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,781 |  |  | $ | 90,389 |  |  | $ | 97,170 |  |  | $ | — |
HELOCs |  |  | 17 |  |  |  | — |  |  |  | — |  |  |  | 17 |  |  |  | 50,435 |  |  |  | 50,452 |  |  |  | — |
Residential First Lien - Investor |  |  | — |  |  |  | — |  |  |  | 472 |  |  |  | 472 |  |  |  | 105,851 |  |  |  | 106,323 |  |  |  | — |
Residential First Lien - Owner Occupied |  |  | — |  |  |  | 141 |  |  |  | 278 |  |  |  | 419 |  |  |  | 198,151 |  |  |  | 198,570 |  |  |  | 247 |
Residential Junior Liens |  |  | 15 |  |  |  | — |  |  |  | — |  |  |  | 15 |  |  |  | 11,941 |  |  |  | 11,956 |  |  |  | — |
Commercial - Owner Occupied |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 273,249 |  |  |  | 273,249 |  |  |  | — |
Commercial - Non-Owner Occupied & Multifamily |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 357,351 |  |  |  | 357,351 |  |  |  | — |
Commercial and industrial loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
SBA PPP loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 34 |  |  |  | 34 |  |  |  | — |
Other commercial and industrial loans |  |  | 299 |  |  |  | — |  |  |  | — |  |  |  | 299 |  |  |  | 110,831 |  |  |  | 111,130 |  |  |  | — |
Marine loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 225,902 |  |  |  | 225,902 |  |  |  | — |
Consumer loans |  |  | 45 |  |  |  | — |  |  |  | 169 |  |  |  | 214 |  |  |  | 31,849 |  |  |  | 32,063 |  |  |  | 87 |
Overdrafts |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 215 |  |  |  | 215 |  |  |  | — |
Other loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11,932 |  |  |  | 11,932 |  |  |  | — |
Total |  | $ | 7,157 |  |  | $ | 141 |  |  | $ | 919 |  |  | $ | 8,217 |  |  | $ | 1,468,130 |  |  | $ | 1,476,347 |  |  | $ | 334 |

|  | December 31, 2023 |
|  | (in thousands) |
|  | 30 - 59 Days Past Due |  |  | 60 - 89 Days Past Due |  |  | 90 or More Days Past Due |  |  | Total Past Due |  |  | Current |  |  | Total Loans |  |  | 90 or More Past Due Still Accruing |
Mortgage real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction & Secured by Farmland |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 84,145 |  |  | $ | 84,145 |  |  | $ | — |
HELOCs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 47,674 |  |  |  | 47,674 |  |  |  | — |
Residential First Lien - Investor |  |  | 844 |  |  |  | 253 |  |  |  | — |  |  |  | 1,097 |  |  |  | 116,334 |  |  |  | 117,431 |  |  |  | — |
Residential First Lien - Owner Occupied |  |  | — |  |  |  | 78 |  |  |  | 149 |  |  |  | 227 |  |  |  | 177,953 |  |  |  | 178,180 |  |  |  | — |
Residential Junior Liens |  |  | — |  |  |  | — |  |  |  | 9 |  |  |  | 9 |  |  |  | 12,822 |  |  |  | 12,831 |  |  |  | — |
Commercial - Owner Occupied |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 251,456 |  |  |  | 251,456 |  |  |  | — |
Commercial - Non-Owner Occupied & Multifamily |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 348,879 |  |  |  | 348,879 |  |  |  | — |
Commercial and industrial loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
SBA PPP loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 51 |  |  |  | 51 |  |  |  | — |
Other commercial and industrial loans |  |  | 9 |  |  |  | — |  |  |  | 26 |  |  |  | 35 |  |  |  | 107,742 |  |  |  | 107,777 |  |  |  | 14 |
Marine loans |  |  | — |  |  |  | — |  |  |  | 552 |  |  |  | 552 |  |  |  | 250,616 |  |  |  | 251,168 |  |  |  | — |
Consumer loans |  |  | 173 |  |  |  | — |  |  |  | 167 |  |  |  | 340 |  |  |  | 42,079 |  |  |  | 42,419 |  |  |  | 167 |
Overdrafts |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 253 |  |  |  | 253 |  |  |  | — |
Other loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 12,895 |  |  |  | 12,895 |  |  |  | — |
Total |  | $ | 1,026 |  |  | $ | 331 |  |  | $ | 903 |  |  | $ | 2,260 |  |  | $ | 1,452,899 |  |  | $ | 1,455,159 |  |  | $ | 181 |

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Nonaccrual loans by class at September 30, 2024 and December 31, 2023 were as follows:

|  | September 30, 2024 |  |  | December 31, 2023 |
|  | (in thousands) |  |  | (in thousands) |
|  | Nonaccruals with No Allowance for Credit Losses |  |  | Nonaccrual with an Allowance for Credit Losses |  |  | Nonaccrual Loans |  |  | Nonaccruals with No Allowance for Credit Losses |  |  | Nonaccrual with an Allowance for Credit Losses |  |  | Nonaccrual Loans |
Mortgage real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction & Secured by Farmland |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 95 |  |  | $ | — |  |  | $ | 95 |
HELOCs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 15 |  |  |  | — |  |  |  | 15 |
Residential First Lien - Investor |  |  | 472 |  |  |  | — |  |  |  | 472 |  |  |  | 1,085 |  |  |  | — |  |  |  | 1,085 |
Residential First Lien - Owner Occupied |  |  | 104 |  |  |  | — |  |  |  | 104 |  |  |  | 228 |  |  |  | — |  |  |  | 228 |
Residential Junior Liens |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11 |  |  |  | — |  |  |  | 11 |
Commercial - Owner Occupied |  |  | 749 |  |  |  | — |  |  |  | 749 |  |  |  | 22 |  |  |  | — |  |  |  | 22 |
Commercial - Non-Owner Occupied & Multifamily |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,625 |  |  |  | — |  |  |  | 3,625 |
Commercial and industrial loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
SBA PPP loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Other commercial and industrial loans |  |  | 46 |  |  |  | 891 |  |  |  | 937 |  |  |  | 12 |  |  |  | — |  |  |  | 12 |
Marine loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 552 |  |  |  | — |  |  |  | 552 |
Consumer loans |  |  | 82 |  |  |  | — |  |  |  | 82 |  |  |  | — |  |  |  | — |  |  |  | — |
Overdrafts |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Other loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | $ | 1,453 |  |  | $ | 891 |  |  | $ | 2,344 |  |  | $ | 5,645 |  |  | $ | — |  |  | $ | 5,645 |

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The allowance for credit losses on loans by segment at September 30, 2024 and December 31, 2023 was as follows:

|  | As of and For the Nine Months Ended |
|  | September 30, 2024 |
|  | (in thousands) |
|  | Construction and Farmland |  |  | Residential Real Estate |  |  | Commercial Real Estate & MultiFamily |  |  | Commercial |  |  | Marine |  |  | Consumer |  |  | All Other Loans |  |  | Unallocated |  |  | Total |
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 772 |  |  | $ | 4,725 |  |  | $ | 6,224 |  |  | $ | 1,027 |  |  | $ | 1,153 |  |  | $ | 198 |  |  | $ | 394 |  |  | $ | — |  |  | $ | 14,493 |
Charge-Offs |  |  | (94 | ) |  |  | (127 | ) |  |  | (7 | ) |  |  | (83 | ) |  |  | (1,457 | ) |  |  | (376 | ) |  |  | (115 | ) |  |  | — |  |  |  | (2,259 | )
Recoveries |  |  | 100 |  |  |  | 304 |  |  |  | 162 |  |  |  | 44 |  |  |  | — |  |  |  | 132 |  |  |  | 12 |  |  |  | — |  |  |  | 754 |
Provision |  |  | 300 |  |  |  | (112 | ) |  |  | (502 | ) |  |  | 377 |  |  |  | 1,995 |  |  |  | 245 |  |  |  | 12 |  |  |  | — |  |  |  | 2,315 |
Ending balance |  | $ | 1,078 |  |  | $ | 4,790 |  |  | $ | 5,877 |  |  | $ | 1,365 |  |  | $ | 1,691 |  |  | $ | 199 |  |  | $ | 303 |  |  | $ | — |  |  | $ | 15,303 |
Ending balance: Individually evaluated for impairment |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 268 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 268 |
Ending balance: Collectively evaluated for impairment |  | $ | 1,078 |  |  | $ | 4,790 |  |  | $ | 5,877 |  |  | $ | 1,097 |  |  | $ | 1,691 |  |  | $ | 199 |  |  | $ | 303 |  |  | $ | — |  |  | $ | 15,035 |
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 97,170 |  |  | $ | 367,301 |  |  | $ | 630,600 |  |  | $ | 111,164 |  |  | $ | 225,902 |  |  | $ | 32,063 |  |  | $ | 12,147 |  |  | $ | — |  |  | $ | 1,476,347 |
Ending balance: Individually evaluated for impairment |  | $ | — |  |  | $ | 545 |  |  | $ | 749 |  |  | $ | 891 |  |  | $ | — |  |  | $ | 82 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,267 |
Ending balance: Collectively evaluated for impairment |  | $ | 97,170 |  |  | $ | 366,756 |  |  | $ | 629,851 |  |  | $ | 110,273 |  |  | $ | 225,902 |  |  | $ | 31,981 |  |  | $ | 12,147 |  |  | $ | — |  |  | $ | 1,474,080 |

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|  | As of and For the Year Ended |
|  | December 31, 2023 |
|  | (in thousands) |
|  | Construction and Farmland |  |  | Residential Real Estate |  |  | Commercial Real Estate & MultiFamily |  |  | Commercial |  |  | Marine |  |  | Consumer |  |  | All Other Loans |  |  | Unallocated |  |  | Total |
Allowance for credit losses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Beginning Balance |  | $ | 2,714 |  |  | $ | 1,735 |  |  | $ | 2,221 |  |  | $ | 2,222 |  |  | $ | 1,555 |  |  | $ | 299 |  |  | $ | 472 |  |  | $ | — |  |  | $ | 11,218 |
Cumulative effect adjustment for adoption of ASC 326 |  |  | (1,840 | ) |  |  | 1,933 |  |  |  | 3,584 |  |  |  | (1,102 | ) |  |  | (285 | ) |  |  | (123 | ) |  |  | (90 | ) |  |  | — |  |  |  | 2,077 |
Charge-Offs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (312 | ) |  |  | (126 | ) |  |  | (121 | ) |  |  | (182 | ) |  |  | — |  |  |  | (741 | )
Recoveries |  |  | 8 |  |  |  | 18 |  |  |  | — |  |  |  | 43 |  |  |  | — |  |  |  | 48 |  |  |  | 181 |  |  |  | — |  |  |  | 298 |
Provision |  |  | (110 | ) |  |  | 1,039 |  |  |  | 419 |  |  |  | 176 |  |  |  | 9 |  |  |  | 95 |  |  |  | 13 |  |  |  | — |  |  |  | 1,641 |
Ending balance |  | $ | 772 |  |  | $ | 4,725 |  |  | $ | 6,224 |  |  | $ | 1,027 |  |  | $ | 1,153 |  |  | $ | 198 |  |  | $ | 394 |  |  | $ | — |  |  | $ | 14,493 |
Ending balance: Individually evaluated for impairment |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Ending balance: Collectively evaluated for impairment |  | $ | 772 |  |  | $ | 4,725 |  |  | $ | 6,224 |  |  | $ | 1,027 |  |  | $ | 1,153 |  |  | $ | 198 |  |  | $ | 394 |  |  | $ | — |  |  | $ | 14,493 |
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Ending balance |  | $ | 84,145 |  |  | $ | 356,116 |  |  | $ | 600,335 |  |  | $ | 107,828 |  |  | $ | 251,168 |  |  | $ | 42,419 |  |  | $ | 13,148 |  |  | $ | — |  |  | $ | 1,455,159 |
Ending balance: Individually evaluated for impairment |  | $ | 95 |  |  | $ | 1,288 |  |  | $ | 3,639 |  |  | $ | — |  |  | $ | 552 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 5,574 |
Ending balance: Collectively evaluated for impairment |  | $ | 84,050 |  |  | $ | 354,828 |  |  | $ | 596,696 |  |  | $ | 107,828 |  |  | $ | 250,616 |  |  | $ | 42,419 |  |  | $ | 13,148 |  |  | $ | — |  |  | $ | 1,449,585 |

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The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment:

|  | September 30, 2024 |  |  | December 31, 2023 |
|  | (in thousands) |  |  | (in thousands) |
(in thousands) |  | Real Estate Collateral |  |  | Other Collateral |  |  | Total |  |  | Real Estate Collateral |  |  | Other Collateral |  |  | Total |
Mortgage real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction & Secured by Farmland |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 95 |  |  | $ | — |  |  | $ | 95 |
HELOCs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Residential First Lien - Investor |  |  | 472 |  |  |  | — |  |  |  | 472 |  |  |  | 1,086 |  |  |  | — |  |  |  | 1,086 |
Residential First Lien - Owner Occupied |  |  | 73 |  |  |  | — |  |  |  | 73 |  |  |  | 194 |  |  |  | — |  |  |  | 194 |
Residential Junior Liens |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 8 |  |  |  | — |  |  |  | 8 |
Commercial - Owner Occupied |  |  | 749 |  |  |  | — |  |  |  | 749 |  |  |  | 14 |  |  |  | — |  |  |  | 14 |
Commercial - Non-Owner Occupied & Multifamily |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3,625 |  |  |  | — |  |  |  | 3,625 |
Commercial and industrial loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
SBA PPP loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Other commercial and industrial loans |  |  | — |  |  |  | 891 |  |  |  | 891 |  |  |  | — |  |  |  | — |  |  |  | — |
Marine loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 552 |  |  |  | 552 |
Consumer loans |  |  | — |  |  |  | 82 |  |  |  | 82 |  |  |  | — |  |  |  | — |  |  |  | — |
Overdrafts |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Other loans |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
|  | $ | 1,294 |  |  | $ | 973 |  |  | $ | 2,267 |  |  | $ | 5,022 |  |  | $ | 552 |  |  | $ | 5,574 |

The Company did not identify any significant changes in the extent to which collateral secures its collateral dependent loans, whether in the form of general deterioration or from other factors during the period ended September 30, 2024.

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, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk. This analysis is performed on a quarterly basis. The following table presents risk ratings by loan portfolio segment and origination year. Description of these ratings are as follows:

Pass |  | Pass loans exhibit acceptable history of profits, cash flow ability and liquidity. Sufficient cash flow exists to service the loan. All obligations have been paid by the borrower in an as agreed manner.
Special Mention |  | Special mention loans exhibit negative trends and potential weakness that, if left uncorrected, may negatively affect the borrower’s ability to repay its obligations. Loan relationships with stale financial statements at their annual review will also cause a downgrade to special mention until current financials are received and upgrade is approved. The risk of default is not imminent and the borrower still demonstrates sufficient financial strength to service debt.
Classified |  | Classified loans include loans rated Substandard, Doubtful and Loss.
|  | • Substandard loans exhibit well defined weaknesses resulting in a higher probability of default. The borrowers exhibit adverse financial trends and a diminishing ability or willingness to service debt.
|  | • Doubtful loans exhibit all of the characteristics inherent in substandard loans; however given the severity of weaknesses, the collection of 100% of the principal is unlikely under current conditions.
|  | • Loss loans are considered uncollectible over a reasonable period of time and of such little value that its continuance as a bankable asset is not warranted.

Credit quality information by class at September 30, 2024 was as follows:

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|  | Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |  |  |  |  |  |
(in thousands) |  | 2024 |  |  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | Prior |  |  | Revolving Loans Amortized Cost Basis |  |  | Revolving Loans Converted to Term |  |  | Total |  |
Mortgage real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction & Secured by Farmland |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 31,094 |  |  | $ | 25,570 |  |  | $ | 15,675 |  |  | $ | 3,886 |  |  | $ | 3,359 |  |  | $ | 5,173 |  |  | $ | 2,800 |  |  | $ | — |  |  | $ | 87,557 |  |
Special Mention |  |  | — |  |  |  | 6,968 |  |  |  | 1,156 |  |  |  | — |  |  |  | 1,456 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 9,580 |  |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 33 |  |  |  | — |  |  |  | — |  |  |  | 33 |  |
Total |  | $ | 31,094 |  |  | $ | 32,538 |  |  | $ | 16,831 |  |  | $ | 3,886 |  |  | $ | 4,815 |  |  | $ | 5,206 |  |  | $ | 2,800 |  |  | $ | — |  |  | $ | 97,170 |  |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 94 |  |  | $ | — |  |  | $ | — |  |  | $ | 94 |  |
HELOCs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 50,409 |  |  | $ | — |  |  | $ | 50,409 |  |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 43 |  |  |  | — |  |  |  | 43 |  |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |
Total |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 50,452 |  |  | $ | — |  |  | $ | 50,452 |  |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 14 |  |  | $ | — |  |  | $ | 14 |  |
Residential First Lien - Investor |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 5,793 |  |  | $ | 15,500 |  |  | $ | 18,963 |  |  | $ | 28,090 |  |  | $ | 10,382 |  |  | $ | 22,782 |  |  | $ | — |  |  | $ | 1,116 |  |  | $ | 102,626 |  |
Special Mention |  |  | — |  |  |  | 699 |  |  |  | 1,076 |  |  |  | 1,151 |  |  |  | — |  |  |  | 299 |  |  |  | — |  |  |  | — |  |  |  | 3,225 |  |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 472 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 472 |  |
Total |  | $ | 5,793 |  |  | $ | 16,199 |  |  | $ | 20,039 |  |  | $ | 29,713 |  |  | $ | 10,382 |  |  | $ | 23,081 |  |  | $ | — |  |  | $ | 1,116 |  |  | $ | 106,323 |  |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |
Residential First Lien - Owner Occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 25,714 |  |  | $ | 59,419 |  |  | $ | 33,569 |  |  | $ | 22,887 |  |  | $ | 34,115 |  |  | $ | 20,356 |  |  | $ | — |  |  | $ | 487 |  |  | $ | 196,547 |  |
Special Mention |  |  | 46 |  |  |  | 624 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 983 |  |  |  | — |  |  |  | — |  |  |  | 1,653 |  |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 370 |  |  |  | — |  |  |  | — |  |  |  | 370 |  |
Total |  | $ | 25,760 |  |  | $ | 60,043 |  |  | $ | 33,569 |  |  | $ | 22,887 |  |  | $ | 34,115 |  |  | $ | 21,709 |  |  | $ | — |  |  | $ | 487 |  |  | $ | 198,570 |  |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 103 |  |  | $ | — |  |  | $ | — |  |  | $ | 103 |  |
Residential Junior Liens |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 553 |  |  | $ | 2,359 |  |  | $ | 2,662 |  |  | $ | 3,042 |  |  | $ | 1,265 |  |  | $ | 1,811 |  |  | $ | — |  |  | $ | 179 |  |  | $ | 11,871 |  |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 71 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 71 |  |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 14 |  |  |  | 14 |  |
Total |  | $ | 553 |  |  | $ | 2,359 |  |  | $ | 2,662 |  |  | $ | 3,042 |  |  | $ | 1,336 |  |  | $ | 1,811 |  |  | $ | — |  |  | $ | 193 |  |  | $ | 11,956 |  |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 10 |  |  | $ | — |  |  | $ | — |  |  | $ | 10 |  |
Commercial - Owner Occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 23,795 |  |  | $ | 37,505 |  |  | $ | 71,072 |  |  | $ | 32,937 |  |  | $ | 23,461 |  |  | $ | 47,038 |  |  | $ | 1,262 |  |  | $ | 4,092 |  |  | $ | 241,162 |  |
Special Mention |  |  | — |  |  |  | 367 |  |  |  | 8,870 |  |  |  | 6,069 |  |  |  | 345 |  |  |  | 15,687 |  |  |  | — |  |  |  | — |  |  |  | 31,338 |  |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 749 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 749 |  |
Total |  | $ | 23,795 |  |  | $ | 37,872 |  |  | $ | 79,942 |  |  | $ | 39,755 |  |  | $ | 23,806 |  |  | $ | 62,725 |  |  | $ | 1,262 |  |  | $ | 4,092 |  |  | $ | 273,249 |  |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 7 |  |  | $ | — |  |  | $ | — |  |  | $ | 7 |  |

16

TABLE OF CONTENTS

|  | Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |  |  |  |  |  |
(in thousands) |  | 2024 |  |  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | Prior |  |  | Revolving Loans Amortized Cost Basis |  |  | Revolving Loans Converted to Term |  |  | Total |  |
Commercial - Non-Owner Occupied & Multifamily |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 15,088 |  |  | $ | 57,059 |  |  | $ | 83,489 |  |  | $ | 56,549 |  |  | $ | 66,248 |  |  | $ | 45,400 |  |  | $ | 6,572 |  |  | $ | 5,375 |  |  | $ | 335,780 |  |
Special Mention |  |  | — |  |  |  | — |  |  |  | 11,676 |  |  |  | 7,631 |  |  |  | 1,463 |  |  |  | 801 |  |  |  | — |  |  |  | — |  |  |  | 21,571 |  |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |
Total |  | $ | 15,088 |  |  | $ | 57,059 |  |  | $ | 95,165 |  |  | $ | 64,180 |  |  | $ | 67,711 |  |  | $ | 46,201 |  |  | $ | 6,572 |  |  | $ | 5,375 |  |  | $ | 357,351 |  |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |
Commercial and industrial loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
SBA PPP loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 34 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 34 |  |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |
Total |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 34 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 34 |  |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |
Other commercial and industrial loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 21,320 |  |  | $ | 9,149 |  |  | $ | 21,289 |  |  | $ | 4,933 |  |  | $ | 3,611 |  |  | $ | 3,872 |  |  | $ | 37,854 |  |  | $ | 2,054 |  |  | $ | 104,082 |  |
Special Mention |  |  | 340 |  |  |  | 1,191 |  |  |  | — |  |  |  | 2,187 |  |  |  | — |  |  |  | 4 |  |  |  | 1,873 |  |  |  | 357 |  |  |  | 5,952 |  |
Classified |  |  | — |  |  |  | 891 |  |  |  | — |  |  |  | — |  |  |  | 159 |  |  |  | — |  |  |  | — |  |  |  | 46 |  |  |  | 1,096 |  |
Total |  | $ | 21,660 |  |  | $ | 11,231 |  |  | $ | 21,289 |  |  | $ | 7,120 |  |  | $ | 3,770 |  |  | $ | 3,876 |  |  | $ | 39,727 |  |  | $ | 2,457 |  |  | $ | 111,130 |  |
Current period gross charge-offs |  | $ | — |  |  | $ | 11 |  |  | $ | 9 |  |  | $ | — |  |  | $ | 63 |  |  | $ | — |  |  | $ | 108 |  |  | $ | — |  |  | $ | 191 |  |
Marine loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | — |  |  | $ | 74,588 |  |  | $ | 118,605 |  |  | $ | 32,062 |  |  | $ | 647 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 225,902 |  |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |
Total |  | $ | — |  |  | $ | 74,588 |  |  | $ | 118,605 |  |  | $ | 32,062 |  |  | $ | 647 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 225,902 |  |
Current period gross charge-offs |  | $ | — |  |  | $ | 1,370 |  |  | $ | 87 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,457 |  |
Consumer loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 2,382 |  |  | $ | 2,289 |  |  | $ | 11,248 |  |  | $ | 5,558 |  |  | $ | 7,578 |  |  | $ | 1,145 |  |  | $ | 1,746 |  |  | $ | 35 |  |  | $ | 31,981 |  |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |
Classified |  |  | — |  |  |  | — |  |  |  | 82 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 82 |  |
Total |  | $ | 2,382 |  |  | $ | 2,289 |  |  | $ | 11,330 |  |  | $ | 5,558 |  |  | $ | 7,578 |  |  | $ | 1,145 |  |  | $ | 1,746 |  |  | $ | 35 |  |  | $ | 32,063 |  |
Current period gross charge-offs |  | $ | — |  |  | $ | 12 |  |  | $ | — |  |  | $ | 25 |  |  | $ | 167 |  |  | $ | — |  |  | $ | 64 |  |  | $ | — |  |  | $ | 268 |  |
Overdrafts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |
Classified |  |  | 215 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 215 |  |
Total |  | $ | 215 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 215 |  |
Current period gross charge-offs |  | $ | 115 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 115 |  |
Other loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | — |  |  | $ | 59 |  |  | $ | 9,492 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,299 |  |  | $ | 80 |  |  | $ | 2 |  |  | $ | 11,932 |  |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |

17

TABLE OF CONTENTS

|  | Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |  |  |  |  |  |
(in thousands) |  | 2024 |  |  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | Prior |  |  | Revolving Loans Amortized Cost Basis |  |  | Revolving Loans Converted to Term |  |  | Total |  |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |
Total |  | $ | — |  |  | $ | 59 |  |  | $ | 9,492 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,299 |  |  | $ | 80 |  |  | $ | 2 |  |  | $ | 11,932 |  |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |
Total by Risk Category |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 125,739 |  |  | $ | 283,497 |  |  | $ | 386,064 |  |  | $ | 189,978 |  |  | $ | 150,666 |  |  | $ | 149,876 |  |  | $ | 100,723 |  |  | $ | 13,340 |  |  | $ | 1,399,883 |  |
Special Mention |  |  | 386 |  |  |  | 9,849 |  |  |  | 22,778 |  |  |  | 17,038 |  |  |  | 3,335 |  |  |  | 17,774 |  |  |  | 1,916 |  |  |  | 357 |  |  |  | 73,433 |  |
Classified |  |  | 215 |  |  |  | 891 |  |  |  | 82 |  |  |  | 1,221 |  |  |  | 159 |  |  |  | 403 |  |  |  | — |  |  |  | 60 |  |  |  | 3,031 |  |
Total |  | $ | 126,340 |  |  | $ | 294,237 |  |  | $ | 408,924 |  |  | $ | 208,237 |  |  | $ | 154,160 |  |  | $ | 168,053 |  |  | $ | 102,639 |  |  | $ | 13,757 |  |  | $ | 1,476,347 |  |
Total current period gross charge-offs |  | $ | 115 |  |  | $ | 1,393 |  |  | $ | 96 |  |  | $ | 25 |  |  | $ | 230 |  |  | $ | 214 |  |  | $ | 186 |  |  | $ | — |  |  | $ | 2,259 |  |

Credit quality information by class at December 31, 2023 was as follows:

18

TABLE OF CONTENTS

|  | Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |  |  |  |  |
(in thousands) |  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | Prior |  |  | Revolving Loans Amortized Cost Basis |  |  | Revolving Loans Converted to Term |  |  | Total |
Mortgage real estate loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Construction & Secured by Farmland |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 34,617 |  |  | $ | 21,460 |  |  | $ | 7,584 |  |  | $ | 4,851 |  |  | $ | 2,389 |  |  | $ | 2,829 |  |  | $ | 7,052 |  |  | $ | 57 |  |  | $ | 80,839 |
Special Mention |  |  | — |  |  |  | 1,173 |  |  |  | — |  |  |  | — |  |  |  | 1,040 |  |  |  | 815 |  |  |  | — |  |  |  | — |  |  |  | 3,028 |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 145 |  |  |  | — |  |  |  | 133 |  |  |  | — |  |  |  | — |  |  |  | 278 |
Total |  | $ | 34,617 |  |  | $ | 22,633 |  |  | $ | 7,584 |  |  | $ | 4,996 |  |  | $ | 3,429 |  |  | $ | 3,777 |  |  | $ | 7,052 |  |  | $ | 57 |  |  | $ | 84,145 |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
HELOCs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 47,610 |  |  | $ | — |  |  | $ | 47,610 |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 49 |  |  |  | — |  |  |  | 49 |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 15 |  |  |  | — |  |  |  | 15 |
Total |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 47,674 |  |  | $ | — |  |  | $ | 47,674 |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Residential First Lien - Investor |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 19,394 |  |  | $ | 23,205 |  |  | $ | 31,371 |  |  | $ | 10,667 |  |  | $ | 4,054 |  |  | $ | 22,265 |  |  | $ | — |  |  | $ | 367 |  |  | $ | 111,323 |
Special Mention |  |  | — |  |  |  | 1,273 |  |  |  | — |  |  |  | 1,180 |  |  |  | 626 |  |  |  | 1,944 |  |  |  | — |  |  |  | — |  |  |  | 5,023 |
Classified |  |  | — |  |  |  | — |  |  |  | 1,085 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,085 |
Total |  | $ | 19,394 |  |  | $ | 24,478 |  |  | $ | 32,456 |  |  | $ | 11,847 |  |  | $ | 4,680 |  |  | $ | 24,209 |  |  | $ | — |  |  | $ | 367 |  |  | $ | 117,431 |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Residential First Lien - Owner Occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 59,007 |  |  | $ | 33,793 |  |  | $ | 23,749 |  |  | $ | 35,783 |  |  | $ | 3,932 |  |  | $ | 20,413 |  |  | $ | — |  |  | $ | 589 |  |  | $ | 177,266 |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 258 |  |  |  | — |  |  |  | — |  |  |  | 258 |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 656 |  |  |  | — |  |  |  | — |  |  |  | 656 |
Total |  | $ | 59,007 |  |  | $ | 33,793 |  |  | $ | 23,749 |  |  | $ | 35,783 |  |  | $ | 3,932 |  |  | $ | 21,327 |  |  | $ | — |  |  | $ | 589 |  |  | $ | 178,180 |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Residential Junior Liens |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 2,562 |  |  | $ | 2,902 |  |  | $ | 3,429 |  |  | $ | 1,486 |  |  | $ | 606 |  |  | $ | 1,613 |  |  | $ | — |  |  | $ | 189 |  |  | $ | 12,787 |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 27 |  |  |  | — |  |  |  | 17 |  |  |  | 44 |
Total |  | $ | 2,562 |  |  | $ | 2,902 |  |  | $ | 3,429 |  |  | $ | 1,486 |  |  | $ | 606 |  |  | $ | 1,640 |  |  | $ | — |  |  | $ | 206 |  |  | $ | 12,831 |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |

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|  | Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |  |  |  |  |
(in thousands) |  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | Prior |  |  | Revolving Loans Amortized Cost Basis |  |  | Revolving Loans Converted to Term |  |  | Total |
Commercial - Owner Occupied |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 36,736 |  |  | $ | 68,868 |  |  | $ | 40,707 |  |  | $ | 22,871 |  |  | $ | 13,971 |  |  | $ | 50,059 |  |  | $ | 3,088 |  |  | $ | 4,364 |  |  | $ | 240,664 |
Special Mention |  |  | — |  |  |  | 3,817 |  |  |  | 64 |  |  |  | 2,145 |  |  |  | 1,877 |  |  |  | 1,402 |  |  |  | — |  |  |  | — |  |  |  | 9,305 |
Classified |  |  | — |  |  |  | — |  |  |  | 967 |  |  |  | 498 |  |  |  | — |  |  |  | 8 |  |  |  | — |  |  |  | 14 |  |  |  | 1,487 |
Total |  | $ | 36,736 |  |  | $ | 72,685 |  |  | $ | 41,738 |  |  | $ | 25,514 |  |  | $ | 15,848 |  |  | $ | 51,469 |  |  | $ | 3,088 |  |  | $ | 4,378 |  |  | $ | 251,456 |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commercial - Non-Owner Occupied & Multifamily |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 56,510 |  |  | $ | 88,518 |  |  | $ | 64,005 |  |  | $ | 65,075 |  |  | $ | 15,563 |  |  | $ | 34,619 |  |  | $ | 1,196 |  |  | $ | 5,651 |  |  | $ | 331,137 |
Special Mention |  |  | 624 |  |  |  | 4,748 |  |  |  | 3,685 |  |  |  | 5,060 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 14,117 |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,355 |  |  |  | — |  |  |  | 1,270 |  |  |  | — |  |  |  | — |  |  |  | 3,625 |
Total |  | $ | 57,134 |  |  | $ | 93,266 |  |  | $ | 67,690 |  |  | $ | 72,490 |  |  | $ | 15,563 |  |  | $ | 35,889 |  |  | $ | 1,196 |  |  | $ | 5,651 |  |  | $ | 348,879 |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Commercial and industrial loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
SBA PPP loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | — |  |  | $ | — |  |  | $ | 51 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 51 |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | $ | — |  |  | $ | — |  |  | $ | 51 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 51 |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Other commercial and industrial loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 15,052 |  |  | $ | 26,798 |  |  | $ | 8,659 |  |  | $ | 4,824 |  |  | $ | 2,629 |  |  | $ | 3,898 |  |  | $ | 43,188 |  |  | $ | 1,005 |  |  | $ | 106,053 |
Special Mention |  |  | 1,125 |  |  |  | — |  |  |  | — |  |  |  | 13 |  |  |  | 1 |  |  |  | 9 |  |  |  | 220 |  |  |  | 344 |  |  |  | 1,712 |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 3 |  |  |  | — |  |  |  | — |  |  |  | 9 |  |  |  | — |  |  |  | 12 |
Total |  | $ | 16,177 |  |  | $ | 26,798 |  |  | $ | 8,659 |  |  | $ | 4,840 |  |  | $ | 2,630 |  |  | $ | 3,907 |  |  | $ | 43,417 |  |  | $ | 1,349 |  |  | $ | 107,777 |
Current period gross charge-offs |  | $ | 231 |  |  | $ | 81 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 312 |
Marine loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 86,001 |  |  | $ | 128,456 |  |  | $ | 35,492 |  |  | $ | 667 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 250,616 |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Classified |  |  | 367 |  |  |  | 185 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 552 |
Total |  | $ | 86,368 |  |  | $ | 128,641 |  |  | $ | 35,492 |  |  | $ | 667 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 251,168 |
Current period gross charge-offs |  | $ | — |  |  | $ | 126 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 126 |

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|  | Term Loans Amortized Cost Basis by Origination Year |  |  |  |  |  |  |  |  |  |
(in thousands) |  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2019 |  |  | Prior |  |  | Revolving Loans Amortized Cost Basis |  |  | Revolving Loans Converted to Term |  |  | Total |
Consumer loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 3,427 |  |  | $ | 13,950 |  |  | $ | 6,205 |  |  | $ | 8,687 |  |  | $ | 1,747 |  |  | $ | 21 |  |  | $ | 8,354 |  |  | $ | 28 |  |  | $ | 42,419 |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | $ | 3,427 |  |  | $ | 13,950 |  |  | $ | 6,205 |  |  | $ | 8,687 |  |  | $ | 1,747 |  |  | $ | 21 |  |  | $ | 8,354 |  |  | $ | 28 |  |  | $ | 42,419 |
Current period gross charge-offs |  | $ | — |  |  | $ | 3 |  |  | $ | — |  |  | $ | 66 |  |  | $ | — |  |  | $ | — |  |  | $ | 52 |  |  | $ | — |  |  | $ | 121 |
Overdrafts |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Classified |  |  | 253 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 253 |
Total |  | $ | 253 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 253 |
Current period gross charge-offs |  | $ | 182 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 182 |
Other loans |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 69 |  |  | $ | 10,176 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 2,587 |  |  | $ | 55 |  |  | $ | 8 |  |  | $ | 12,895 |
Special Mention |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Classified |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Total |  | $ | 69 |  |  | $ | 10,176 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 2,587 |  |  | $ | 55 |  |  | $ | 8 |  |  | $ | 12,895 |
Current period gross charge-offs |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Total by Risk Category |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Pass |  | $ | 313,375 |  |  | $ | 418,126 |  |  | $ | 221,252 |  |  | $ | 154,911 |  |  | $ | 44,891 |  |  | $ | 138,304 |  |  | $ | 110,543 |  |  | $ | 12,258 |  |  | $ | 1,413,660 |
Special Mention |  |  | 1,749 |  |  |  | 11,011 |  |  |  | 3,749 |  |  |  | 8,398 |  |  |  | 3,544 |  |  |  | 4,428 |  |  |  | 269 |  |  |  | 344 |  |  |  | 33,492 |
Classified |  |  | 620 |  |  |  | 185 |  |  |  | 2,052 |  |  |  | 3,001 |  |  |  | — |  |  |  | 2,094 |  |  |  | 24 |  |  |  | 31 |  |  |  | 8,007 |
Total |  | $ | 315,744 |  |  | $ | 429,322 |  |  | $ | 227,053 |  |  | $ | 166,310 |  |  | $ | 48,435 |  |  | $ | 144,826 |  |  | $ | 110,836 |  |  | $ | 12,633 |  |  | $ | 1,455,159 |
Total current period gross charge-offs |  | $ | 413 |  |  | $ | 210 |  |  | $ | — |  |  | $ | 66 |  |  | $ | — |  |  | $ | — |  |  | $ | 52 |  |  | $ | — |  |  | $ | 741 |

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Unfunded Commitments: The Company maintains a separate reserve for credit losses on unfunded commitments, which is included in Other Liabilities on the Consolidated Balance Sheet. The reserve for credit losses on off-balance-sheet credit exposures is adjusted as a provision for credit losses in the consolidated income statement. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded, utilizing the same models and approaches for the Company's other loan portfolio segments, as these unfunded commitments share similar risk characteristics as its loan portfolio segments. The Company has identified the unfunded portion of certain lines of credit as unconditionally cancellable credit exposures, meaning the Company can cancel the unfunded commitment at any time. No credit loss estimate is reported for off-balance-sheet credit exposures that are unconditionally cancellable by the Company or for undrawn amounts under such arrangements that maybe drawn prior to the cancellation of the arrangement.

During the three months ended September 30, 2024, the unfunded commitment reserve increased by $19 thousand through a charge to the provision for credit losses in the consolidated income statement. For the nine months ended September 30, 2024, there was a reduction to the unfunded commitment reserve of $115 thousand recorded as a credit to the provision for credit losses in the consolidated income statement. On January 1, 2023, the Company recorded an adjustment for unfunded commitments of $406 thousand for the adoption of ASC 326. For the nine months ended September 30, 2023, a reduction to the unfunded commitment reserve of $54 thousand was recorded as a credit to the provision for credit losses in the consolidated income statement, and there was no adjustment during the three months ended September 30, 2023. The reserve for unfunded commitments at September 30, 2024 and 2023 and December 31, 2023 was $364 thousand, $417 thousand, and $479 thousand, respectively.

NOTE 6. Restructurings for Borrowers Experiencing Financial Difficulty

There were no loans modified during the three and nine months ended September 30, 2024, or the three months ended September 30, 2023. The following table presents the amortized cost of two loans that were modified during the nine months ended September 30, 2023 by loan portfolio segment:

|  | For the Nine Months Ended September 30, |
|  | 2023 |
|  | (Dollars in thousands) |
|  | Term Extension |  |  | Total |  |  | % of Total Class of Loans |
Mortgage real estate loans: |  |  |  |  |  |  |  |  |
Residential First Lien - Owner Occupied |  | $ | 355 |  |  | $ | 355 |  |  |  | 0.22 | %
Total |  | $ | 355 |  |  | $ | 355 |  |  |  |

None of the loans that were modified during the nine months ended September 30, 2023 had defaulted and the loans remain current with contractual payments as of September 30, 2024. Management defines default as over 30 days contractually past due under the modified terms, the foreclosure and/or repossession of the collateral, or the charge-off of the loan during the twelve-month period subsequent to the modification. The financial effects of the term extensions during the prior-year period added a weighted average of 1.0 years to the life of loans which reduced the payment amounts for the borrowers.

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N OTE 7. Deposits

The composition of deposits at September 30, 2024 and December 31, 2023 was as follows:

|  | September 30, 2024 |  |  | December 31, 2023 |
|  | (in thousands) |
Noninterest bearing demand deposits |  | $ | 413,615 |  |  | $ | 436,619 |
Savings and interest bearing demand deposits: |  |  |  |  |  |
NOW accounts |  | $ | 258,135 |  |  | $ | 253,353 |
Money market accounts |  |  | 265,703 |  |  |  | 263,633 |
Regular savings accounts |  |  | 131,763 |  |  |  | 139,453 |
|  | $ | 655,601 |  |  | $ | 656,439 |
Time deposits: |  |  |  |  |  |
Balances of less than $250,000 |  | $ | 291,311 |  |  | $ | 257,418 |
Balances of $250,000 and more |  |  | 185,409 |  |  |  | 155,846 |
|  | $ | 476,720 |  |  | $ | 413,264 |
|  | $ | 1,545,936 |  |  | $ | 1,506,322 |

NOTE 8. Leases

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor. Right-of-use assets and lease liabilities are included in Other Assets and Other Liabilities, respectively, in the Consolidated Balance Sheets.

The Company’s four long-term lease agreements are classified as operating leases. These leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liability to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for a residual value guarantee and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

The following tables present information about the Company’s leases:

(dollars in thousands) |  |  |  |  |  |  |  |  |  |  |
|  | September 30, 2024 |  |  | December 31, 2023 |  |  |  |  |  |  |
Lease liabilities |  | $ | 4,400 |  |  | $ | 4,653 |  |  |  |  |  |  |
Right-of-use assets |  | $ | 4,097 |  |  | $ | 4,387 |  |  |  |  |  |  |
Weighted average remaining lease term |  | 13 years |  |  | 14 years |  |  |  |  |  |  |
Weighted average discount rate |  |  | 3.14 | % |  |  | 3.09 | % |  |  |  |  |  |
|  | Three Months Ended |  |  | Nine Months Ended |
Lease Cost |  | September 30, 2024 |  |  | September 30, 2023 |  |  | September 30, 2024 |  |  | September 30, 2023 |
Operating lease cost |  | $ | 132 |  |  | $ | 132 |  |  | $ | 396 |  |  | $ | 396 |
Short-term lease cost |  |  | 4 |  |  |  | 4 |  |  |  | 11 |  |  |  | 11 |
Total lease cost |  | $ | 136 |  |  | $ | 136 |  |  | $ | 407 |  |  | $ | 407 |
Cash paid for amounts included in the measurement of lease liabilities |  | $ | 120 |  |  | $ | 118 |  |  | $ | 359 |  |  | $ | 354 |

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A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liabilities is as follows:

(dollars in thousands) |  | As of |
Lease payments due |  | September 30, 2024 |
Twelve months ending September 30, 2025 |  | $ | 497 |
Twelve months ending September 30, 2026 |  |  | 428 |
Twelve months ending September 30, 2027 |  |  | 390 |
Twelve months ending September 30, 2028 |  |  | 394 |
Twelve months ending September 30, 2029 |  |  | 399 |
Thereafter |  |  | 3,454 |
Total undiscounted cash flows |  | $ | 5,562 |
Discount |  |  | (1,162 | )
Lease liabilities |  | $ | 4,400 |

NOTE 9. Fair Value Measurements

GAAP requires the Company to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of assets and liabilities is an exit price, representing the amount 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 on the measurement date.

“Fair Value Measurements” defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows:

• |  | Level 1 |  | Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
• |  | Level 2 |  | Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
• |  | Level 3 |  | Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following section provides a description of the valuation methodologies used for instruments measured at fair value on a recurring basis, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Securities Available for Sale: Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds, mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flow. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions and certain corporate, asset backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

Derivative instruments are recorded at fair value on a recurring basis. The Company utilizes derivative instruments as part of the management of interest rate risk to modify the re-pricing characteristics of certain portions of the Company’s interest-bearing assets and liabilities. The Company has contracted with a third-party vendor to provide valuations for derivatives using standard valuation techniques and therefore classifies such valuations as Level 2. The Company has considered counterparty credit risk in the valuation of its derivative assets and has considered its own credit risk in the valuation of its derivative liabilities.

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The following table presents balances of financial assets and liabilities measured at fair value on a recurring basis at September 30, 2024 and December 31, 2023:

|  |  |  |  | Fair Value Measurements at |
|  |  |  |  | September 30, 2024 |
|  |  |  |  | Using |
|  | Balance as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |
|  | September 30, 2024 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
|  | (in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. government corporations and agencies |  | $ | 7,852 |  |  | $ | — |  |  | $ | 7,852 |  |  | $ | — |
Mortgage-backed securities |  |  | 113,539 |  |  |  | — |  |  |  | 113,539 |  |  |  | — |
Obligations of states and political subdivisions |  |  | 4,721 |  |  |  | — |  |  |  | 4,721 |  |  |  | — |
Subordinated debt |  |  | 3,939 |  |  |  | — |  |  |  | 3,939 |  |  |  | — |
Derivative: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  |  | 1,207 |  |  |  | — |  |  |  | 1,207 |  |  |  | — |
Total assets at fair value |  | $ | 131,258 |  |  | $ | — |  |  | $ | 131,258 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 1,207 |  |  | $ | — |  |  | $ | 1,207 |  |  | $ | — |
Fair value swap |  |  | 272 |  |  |  | — |  |  |  | 272 |  |  |  | — |
Total liabilities at fair value |  | $ | 1,479 |  |  | $ | — |  |  | $ | 1,479 |  |  | $ | — |
|  |  |  |  | Fair Value Measurements at |
|  |  |  |  | December 31, 2023 |
|  |  |  |  | Using |
|  | Balance as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |
|  | December 31, 2023 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
|  | (in thousands) |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Securities available for sale |  |  |  |  |  |  |  |  |  |  |  |
Obligations of U.S. government corporations and agencies |  | $ | 8,591 |  |  | $ | — |  |  | $ | 8,591 |  |  | $ | — |
Mortgage-backed securities |  |  | 118,822 |  |  |  | — |  |  |  | 118,822 |  |  |  | — |
Obligations of states and political subdivisions |  |  | 5,931 |  |  |  | — |  |  |  | 5,931 |  |  |  | — |
Subordinated debt |  |  | 4,099 |  |  |  | — |  |  |  | 4,099 |  |  |  | — |
Derivative: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  |  | 1,465 |  |  |  | — |  |  |  | 1,465 |  |  |  | — |
Total assets at fair value |  | $ | 138,908 |  |  | $ | — |  |  | $ | 138,908 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swap |  |  | 1,465 |  |  |  | — |  |  |  | 1,465 |  |  |  | — |
Total liabilities at fair value |  | $ | 1,465 |  |  | $ | — |  |  | $ | 1,465 |  |  | $ | — |

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.

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

Loans Held for Sale: Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). The Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during nine months ended September 30, 2024 and the year ended December 31, 2023.

Individually Evaluated Collateral-Dependent Loans: The estimated fair value of individually evaluated collateral-dependent loans is based on the value of the underlying collateral or the value of the underlying collateral, less estimated cost to sell, as appropriate. Collateral is generally real estate; however, collateral may include vehicles, equipment, inventory, accounts receivable, and/or other business assets. The value of real estate collateral is determined using a market valuation approach based on an appraisal conducted by an independent, licensed appraiser. The value of other assets may also be based on an appraisal, market quotations, aging schedules or other sources. Collateral-dependent individually evaluated loans are classified within Level 3 of the fair value hierarchy. Any fair value adjustments are recorded in the period incurred as a provision for credit losses on the Consolidated Statements of Income. At September 30, 2024 there was one collateral-dependent relationship totaling $891 thousand, which was individually evaluated and being carried at fair value of $623 thousand. This relationship consists of three commercial business loans collateralized by equipment. There were no individually evaluated collateral dependent loans recorded at fair value at December 31, 2023.

Other Real Estate Owned: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the property, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. Costs of significant property improvements are capitalized, whereas costs relating to holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of a property to fair value less cost to sell. The fair value measurement of real estate held in other real estate owned is assessed in the same manner as collateral-dependent loans described above. We believe that the fair value follows the provisions of GAAP. The Company held no other real estate owned at September 30, 2024 or December 31, 2023.

Repossessed Assets: Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the fair value of the asset, less estimated selling costs, establishing a new costs basis. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit losses. Costs of significant improvements are capitalized, whereas costs relating to holding assets are expensed. Valuations are periodically obtained by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying value of an asset to fair value less cost to sell. The fair value measurement of repossessed assets is assessed in the same manner as collateral dependent loans described above. We believe that the fair value follows the provisions of GAAP. The Company held $99 thousand and $304 thousand at September 30, 2024 and December 31, 2023. Repossessed assets are included in other assets in the Consolidated Balance Sheets.

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The following table summarizes the Company's nonfinancial assets that were measured at fair value on a nonrecurring basis at September 30, 2024 and December 31, 2023.

|  |  |  |  | Carrying value at |
|  |  |  |  | September 30, 2024 |
|  | Balance as of |  |  | Identical Assets |  |  | Observable Inputs |  |  | Unobservable Inputs |
|  | September 30, 2024 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
|  | (in thousands) |
Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |
Collateral-dependent loans |  | $ | 623 |  |  | $ | — |  |  | $ | — |  |  | $ | 623 |
Nonfinancial Assets: |  |  |  |  |  |  |  |  |  |  |  |
Repossessed assets |  |  | 99 |  |  |  | — |  |  |  | — |  |  |  | 99 |
|  |  |  |  | Carrying value at |
|  |  |  |  | December 31, 2023 |
|  | Balance as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |
|  | December 31, 2023 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |
|  | (in thousands) |
Nonfinancial Assets: |  |  |  |  |  |  |  |  |  |  |  |
Repossessed assets |  | $ | 304 |  |  | $ | — |  |  | $ | — |  |  | $ | 304 |

The following table displays quantitative information about Level 3 Fair Value Measurements for certain financial assets measured at fair value on a nonrecurring basis for September 30, 2024 and December 31, 2023.

|  | Quantitative information about Level 3 Fair Value Measurements
|  | September 30, 2024
|  | Valuation Technique(s) |  | Unobservable Input |  | Range |  | Weighted Average (1)
Assets: |  |  |  |  |  |  |  |
Collateral-dependent loans |  | Discounted value |  | Selling cost and appraisal discount |  | 16 % |  | 16 %
Repossessed assets |  | Discounted appraised value |  | Selling cost |  | 10 % |  | 10 %
|  | Quantitative information about Level 3 Fair Value Measurements
|  | December 31, 2023
|  | Valuation Technique(s) |  | Unobservable Input |  | Range |  | Weighted Average (1)
Assets: |  |  |  |  |  |  |  |
Repossessed assets |  | Discounted appraised value |  | Selling cost |  | 10 % |  | 10 %

(1) Weighted based on the relative fair value of the specific items measured at fair value.

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The carrying value and fair value of the Company’s financial instruments at September 30, 2024 and December 31, 2023 were as follows:

|  | Fair Value Measurements at |
|  | September 30, 2024 |
|  | Using |
|  | Carrying Value as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |  |  | Fair Value as of |
|  | September 30, 2024 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | September 30, 2024 |
|  | (in thousands) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and short-term investments |  | $ | 181,191 |  |  | $ | 181,191 |  |  | $ | — |  |  | $ | — |  |  | $ | 181,191 |
Securities |  |  | 130,051 |  |  |  | — |  |  |  | 130,051 |  |  |  | — |  |  |  | 130,051 |
Restricted investments |  |  | 9,967 |  |  |  | — |  |  |  | 9,967 |  |  |  | — |  |  |  | 9,967 |
Loans held for sale |  |  | 3,657 |  |  |  |  |  |  | 3,657 |  |  |  | — |  |  |  | 3,657 |
Loans, net |  |  | 1,468,025 |  |  |  | — |  |  |  | — |  |  |  | 1,381,764 |  |  |  | 1,381,764 |
Bank owned life insurance |  |  | 30,361 |  |  |  | — |  |  |  | 30,361 |  |  |  | — |  |  |  | 30,361 |
Accrued interest receivable |  |  | 5,331 |  |  |  | — |  |  |  | 5,331 |  |  |  | — |  |  |  | 5,331 |
Derivative assets |  |  | 1,207 |  |  |  | — |  |  |  | 1,207 |  |  |  | — |  |  |  | 1,207 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,545,936 |  |  | $ | — |  |  | $ | 1,545,719 |  |  | $ | — |  |  | $ | 1,545,719 |
Federal funds purchased |  |  | 244 |  |  |  | 244 |  |  |  | — |  |  |  | — |  |  |  | 244 |
Federal Home Loan Bank advances, long-term |  |  | 170,000 |  |  |  | — |  |  |  | 169,558 |  |  |  | — |  |  |  | 169,558 |
Subordinated debt, net of unamortized issuance costs |  |  | 29,495 |  |  |  | — |  |  |  | 25,150 |  |  |  | — |  |  |  | 25,150 |
Accrued interest payable |  |  | 2,217 |  |  |  | — |  |  |  | 2,217 |  |  |  | — |  |  |  | 2,217 |
Derivative liabilities |  |  | 1,479 |  |  |  | — |  |  |  | 1,479 |  |  |  | — |  |  |  | 1,479 |

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|  | Fair Value Measurements at |
|  | December 31, 2023 |
|  | Using |
|  | Carrying Value as of |  |  | Quoted Prices in Active Markets for Identical Assets |  |  | Significant Other Observable Inputs |  |  | Significant Unobservable Inputs |  |  | Fair Value as of |
|  | December 31, 2023 |  |  | (Level 1) |  |  | (Level 2) |  |  | (Level 3) |  |  | December 31, 2023 |
|  | (in thousands) |
Financial assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and short-term investments |  | $ | 138,353 |  |  | $ | 138,353 |  |  | $ | — |  |  | $ | — |  |  | $ | 138,353 |
Securities |  |  | 137,443 |  |  |  | — |  |  |  | 137,443 |  |  |  | — |  |  |  | 137,443 |
Restricted Investments |  |  | 9,568 |  |  |  | — |  |  |  | 9,568 |  |  |  | — |  |  |  | 9,568 |
Loans held for sale |  |  | 1,661 |  |  |  |  |  |  | 1,661 |  |  |  | — |  |  |  | 1,661 |
Loans, net |  |  | 1,448,193 |  |  |  | — |  |  |  | — |  |  |  | 1,377,017 |  |  |  | 1,377,017 |
Bank owned life insurance |  |  | 29,575 |  |  |  | — |  |  |  | 29,575 |  |  |  | — |  |  |  | 29,575 |
Accrued interest receivable |  |  | 5,008 |  |  |  | — |  |  |  | 5,008 |  |  |  | — |  |  |  | 5,008 |
Interest rate swap |  |  | 1,465 |  |  |  | — |  |  |  | 1,465 |  |  |  | — |  |  |  | 1,465 |
Financial liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Deposits |  | $ | 1,506,322 |  |  | $ | — |  |  | $ | 1,506,147 |  |  | $ | — |  |  | $ | 1,506,147 |
Federal Home Loan Bank advances, short-term |  |  | 20,000 |  |  |  | — |  |  |  | 19,954 |  |  |  | — |  |  |  | 19,954 |
Federal Home Loan Bank advances, long-term |  |  | 145,000 |  |  |  | — |  |  |  | 145,141 |  |  |  | — |  |  |  | 145,141 |
Subordinated debt, net of unamortized issuance costs |  |  | 29,444 |  |  |  | — |  |  |  | 25,581 |  |  |  | — |  |  |  | 25,581 |
Accrued interest payable |  |  | 2,364 |  |  |  | — |  |  |  | 2,364 |  |  |  | — |  |  |  | 2,364 |
Interest rate swap |  |  | 1,465 |  |  |  | — |  |  |  | 1,465 |  |  |  | — |  |  |  | 1,465 |

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NOTE 10. Change in Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss includes unrealized gains and losses on available for sale securities and changes in benefit obligations and plan assets for the post retirement benefit plan. Changes to accumulated other comprehensive loss are presented net of their tax effect as a component of equity. Reclassifications out of accumulated other comprehensive loss are recorded in the Consolidated Statements of Income either as a gain or loss.

Changes to accumulated other comprehensive loss by component are shown in the following table for the periods indicated:

|  | Three Months Ended |
|  | September 30, |
|  | 2024 |  |  | 2023 |
|  | Unrealized Gains and Losses on Available for Sale Securities |  |  | Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan |  |  | Total |  |  | Unrealized Gains and Losses on Available for Sale Securities |  |  | Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan |  |  | Total |
|  | (dollars in thousands) |  |  | (dollars in thousands) |
June 30 |  | $ | (18,773 | ) |  | $ | 10 |  |  | $ | (18,763 | ) |  | $ | (19,430 | ) |  | $ | 14 |  |  | $ | (19,416 | )
Other comprehensive income (loss) before reclassifications |  |  | 5,485 |  |  |  | — |  |  |  | 5,485 |  |  |  | (5,237 | ) |  |  | — |  |  |  | (5,237 | )
Tax effect of current period changes |  |  | (1,152 | ) |  |  | — |  |  |  | (1,152 | ) |  |  | 1,100 |  |  |  | — |  |  |  | 1,100 |
Current period changes net of taxes |  |  | 4,333 |  |  |  | — |  |  |  | 4,333 |  |  |  | (4,137 | ) |  |  | — |  |  |  | (4,137 | )
September 30 |  | $ | (14,440 | ) |  | $ | 10 |  |  | $ | (14,430 | ) |  | $ | (23,567 | ) |  | $ | 14 |  |  | $ | (23,553 | )

|  | Nine Months Ended |
|  | September 30, |
|  | 2024 |  |  | 2023 |
|  | Unrealized Gains and Losses on Available for Sale Securities |  |  | Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan |  |  | Total |  |  | Unrealized Gains and Losses on Available for Sale Securities |  |  | Change in Benefit Obligations and Plan Assets for the Post Retirement Benefit Plan |  |  | Total |
|  | (dollars in thousands) |  |  | (dollars in thousands) |
January 1 |  | $ | (18,020 | ) |  | $ | 14 |  |  | $ | (18,006 | ) |  | $ | (20,465 | ) |  | $ | 19 |  |  | $ | (20,446 | )
Other comprehensive income (loss) before reclassifications |  |  | 4,532 |  |  |  | (5 | ) |  |  | 4,527 |  |  |  | (3,927 | ) |  |  | (8 | ) |  |  | (3,935 | )
Tax effect of current period changes |  |  | (952 | ) |  |  | 1 |  |  |  | (951 | ) |  |  | 825 |  |  |  | 3 |  |  |  | 828 |
Current period changes net of taxes |  |  | 3,580 |  |  |  | (4 | ) |  |  | 3,576 |  |  |  | (3,102 | ) |  |  | (5 | ) |  |  | (3,107 | )
September 30 |  | $ | (14,440 | ) |  | $ | 10 |  |  | $ | (14,430 | ) |  | $ | (23,567 | ) |  | $ | 14 |  |  | $ | (23,553 | )

For the three and nine months ended September 30, 2024 and 2023, there were no reclassifications out of accumulated other comprehensive loss.

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NOTE 11. Other Real Estate Owned

The following table is a summary of other real estate owned (“OREO”) activity for the nine months ended September 30, 2024 and 2023 and the year ended December 31, 2023:

|  | Nine Months Ended |  |  | Year Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | December 31, |  |  | September 30, |
|  | 2024 |  |  | 2023 |  |  | 2023 |
|  | (in thousands) |
Balance, beginning |  | $ | — |  |  | $ | 108 |  |  | $ | 108 |
Transfer from loans |  |  | — |  |  |  | — |  |  |  | — |
Gain on foreclosures |  |  | — |  |  |  | — |  |  |  | — |
Sales |  |  | — |  |  |  | (108 | ) |  |  | (108 | )
Valuation adjustments |  |  | — |  |  |  | — |  |  |  | — |
Balance, ending |  | $ | — |  |  | $ | — |  |  | $ | — |

There were no loans collateralized by residential real estate in the process of foreclosure at September 30, 2024 and December 31, 2023.

NOTE 12. Qualified Affordable Housing Project Investments

The Company invests in qualified affordable housing projects. The general purpose of these investments is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, provide tax credits and other tax benefits to investors, and to preserve and protect project assets.

On January 1, 2024, the Company adopted ASU 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." The adoption resulted in an adjustment of $477 thousand, which reduced the investment and shareholders' equity balances.

At September 30, 2024 and December 31, 2023, the balance of the investment for qualified affordable housing projects was $1.3 million and $2.0 million, respectively. These balances are reflected in Other assets on the Consolidated Balance Sheets. Total unfunded commitments related to the investments in qualified affordable housing projects totaled zero at both September 30, 2024 and December 31, 2023.

During each of the three months ended September 30, 2024 and September 30, 2023, the Company recognized amortization expense of $74 thousand and $54 thousand, respectively. Amortization expense for the nine months ended September 30, 2024 and 2023 was $221 thousand and $211 thousand, respectively.

Beginning in 2024, upon adoption of ASU 2023-02, the amortization expense was included in income tax expense, while in 2023 and prior it was included in Other operating expenses on the Consolidated Statements of Income.

Total estimated credits to be received during 2024 are $303 thousand based on the most recent quarterly estimates received from the funds. Total tax credits and other tax benefits recognized during the nine months ended September 30, 2024 and 2023, were $228 thousand and $268 thousand, respectively.

NOTE 13. Recent Accounting Pronouncements and Other Authoritative Guidance

In November 2024, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement

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Expenses.” ASU 2024-03 requires public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses at each interim and annual reporting period. This includes disclosing amounts related to employee compensation, depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Implementation of ASU 2024-03 may be applied prospectively or retrospectively. The Company does not expect the adoption of ASU 2024-03 to have a material impact on its consolidated financial statements.

NOTE 14. Borrowings

On March 31, 2022, the Company entered into Subordinated Note Purchase Agreements with certain purchasers pursuant to which the Company issued and sold $30.0 million in aggregate principal amount of its 4.50% Fixed-to-Floating Rate Subordinated Notes due April 1, 2032 (the “Notes”).

The Company uses the net proceeds of the Notes offering for general corporate purposes, organic growth and to support the Bank’s regulatory capital ratios. The Notes were structured to qualify as Tier 2 capital for regulatory capital purposes at the holding company and bear an initial interest rate of 4.50% until April 1, 2027, with interest during this period payable semi-annually in arrears. From and including April 1, 2027, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to three-month SOFR, plus 2.35%, with interest during this period paya ble quarterly in arrears. The Notes are redeemable by the Company at its option, in whole or in part, on or after April 1, 2027. Initial debt issuance costs were $673 thousand. The debt balance of $30.0 million is presented net of unamortized issuance costs of $505 thousand at September 30, 2024.

The Company had $170.0 million in total borrowings with the Federal Home Loan Bank of Atlanta ("FHLB") at September 30, 2024, with no short-term borrowings outstanding and $170.0 million being long-term borrowings. The interest rates on the long-term borrowings with the FHLB ranged from 3.45% to 4.83%, with a weighted average rate of 4.47%. Of the long-term FHLB borrowings, $50.0 million is due in 2024, $55.0 million is due in 2025 and $65.0 million is due in 2026. At December 31, 2023, the Company had $145.0 million in long-term and $20.0 million in short-term outstanding borrowings with the FHLB. The Company had $80.7 million in irrevocable letters of credit at September 30, 2024 with the FHLB to secure public deposits.

NOTE 15. Derivatives

The Company uses derivative financial instruments primarily to manage risks to the Company associated with changing interest rates, and to assist customers with their risk management objectives. Derivative contracts that are not designated in a qualifying hedging relationships include customer accommodation loan swaps.

On August 15, 2024, the Company executed a 2-year, 3.862% pay-fixed portfolio layer method fair value swap, designated as a hedging instrument, with a total notional amount of $35.0 million. This swap will terminate on August 15, 2026. The Company designated the fair value swap under the portfolio layer method ("PLM"). Under this method, the hedged item is designated as a hedged layer of a closed portfolio of financial loans that is anticipated to remain outstanding for the designated hedged period. Adjustments will be made to record the swap at fair value as either an other asset or other liability on the Consolidated Balance Sheets, with changes in fair value recognized in net loans. The carrying value of the fair value swap on the Consolidated Balance Sheets will also be adjusted through loan interest income, based on changes in the fair value attributable to changes in the hedged risk.

The following table represents the carrying value of the portfolio layer method hedged asset and the cumulative fair value hedging adjustment included in the carrying value of the hedged asset as of September 30, 2024.

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|  | September 30, 2024 |
|  | Carrying Amount of Hedged Asset |  |  | Cumulative Amount of Fair Value Adjustment |
|  | (in thousands) |
Loans receivable (1) |  | $ | 35,279 |  |  | $ | 279 |

(1) These amounts include the amortized cost basis of closed portfolios of fixed rate loans used to designate hedging relationships in which the hedged item is the stated amount of assets in the closed portfolio anticipated to be outstanding for the hedged period. As of September 30, 2024, the amortized cost basis of the closed portfolio used in this hedging relationship was $536.6 million and the cumulative basis adjustment associated with this hedging relationship was $272 thousand. At September 30, 2024, the amount of the designated hedged item was $35.0 million.

The following table summarizes the effect of the fair value hedging relationship recognized in the consolidated statements of income for the three and nine months ended September 30, 2024.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2024 |  |  | 2024 |
|  | (in thousands) |
Hedged asset |  | $ | 61 |  |  | $ | 61 |
Fair value derivative designated as hedging instrument |  |  | 7 |  |  |  | 7 |
Total gain recognized in the consolidated statement of income within interest and fees on loans |  | $ | 68 |  |  | $ | 68 |

The Company enters into interest rate swaps with certain qualifying commercial loan customers to meet their interest rate risk management needs. The Bank simultaneously enters into interest rate swaps with dealer counterparties, with identical notional amounts and offsetting terms. The net result of these interest rate swaps is that the customer pays a fixed rate of interest and the Company receives a floating rate. These back-to-back loan swaps are derivative financial instruments and are reported at fair value in “other assets” and “other liabilities” in the Consolidated Balance Sheets. Changes in the fair value of loan swaps are recorded in other noninterest income and sum to zero because of the offsetting terms of the swaps with borrowers and the swaps with dealer counterparties.

The following tables summarize key elements of the Company's derivative instruments at September 30, 2024 and December 31, 2023.

|  | September 30, 2024 |
|  | Notional Amount |  |  | Assets |  |  | Liabilities |
|  | (in thousands) |
Derivatives designated as hedging instruments: |  |  |  |  |  |  |  |  |
Fair value swap |  | $ | 35,000 |  |  | $ | — |  |  | $ | 272 |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |
Customer-related interest rate swap contracts: |  |  |  |  |  |  |  |  |
Matched interest rate swaps with borrower |  | $ | 40,347 |  |  | $ | 701 |  |  | $ | 506 |
Matched interest rate swaps with counterparty |  |  | 40,347 |  |  |  | 506 |  |  |  | 701 |
|  | December 31, 2023 |
|  | Notional Amount |  |  | Assets |  |  | Liabilities |
|  | (in thousands) |
Derivatives not designated as hedging instruments: |  |  |  |  |  |  |  |  |
Customer-related interest rate swap contracts: |  |  |  |  |  |  |  |  |
Matched interest rate swaps with borrower |  | $ | 41,051 |  |  | $ | 844 |  |  | $ | 621 |
Matched interest rate swaps with counterparty |  |  | 41,051 |  |  |  | 621 |  |  |  | 844 |

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NOTE 16. Business Segments

The Company has three reportable operating segments: community banking, marine lending and wealth management. Revenue from community banking operations consist primarily of net interest income related to investments in loan and securities and outstanding deposits and borrowings, fees earned on deposit accounts and debit card interchange activity. Revenue from marine lending operations consist primarily of net interest income related to commercial and consumer marine loans. The wealth management division's net revenues are comprised primarily of income from offering wealth management services and insurance products through third-party service providers.

On August 23, 2023, the Company completed a sale of specific assets from its marine lending segment. As part of the sale, the Company sold its interest in marine vessel floor plan loans totaling $52.8 million, its rights to service loans that had been sold to secondary market investors prior to the date of sale (valued at $595 thousand on balance sheet prior to sale), and other assets that were not individually significant. The Company received total consideration, net of selling expenses, of $53.5 million and recognized a gain of $435 thousand. The assets sold as well as their related revenues and contribution to earnings did not constitute a significant portion of the Company's assets or operating results for the year ended December 31, 2023. Subsequent to the sale of these assets, the Company retained ownership of its marine vessel retail loans which continue to constitute a significant portion of the Company's assets, revenues, and earnings. The Company expects to cease accepting new marine lending business and hold the retained outstanding loans until they are ultimately repaid.

Financial information of the parent company is included in the "All Other" category. The parent company's revenue and expenses are comprised primarily of interest expense associated with subordinated debt.

The following tables provide income and asset information as of September 30, 2024 and December 31, 2023 and for three and nine months ended September 30, 2024 and 2023, which are included within the Consolidated Balance Sheets and Consolidated Statements of Income. The results by business segment are based on management’s accounting process, which assigns income statement items and assets to each operating segment. Given the Company's reportable segments are contained within the Bank, management must make certain allocations of expenses, which may not be representative of the costs expected to be incurred if the specific business segments operated as stand-alone entities. The Company expects it will continue to evaluate its business segments and internal reporting structure, including the production of discrete financial information to the chief operating decision-maker.

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|  | Three Months Ended |
|  | September 30, 2024 |
|  | Community Banking |  |  | Marine Lending |  |  | Wealth Management |  |  | All Other |  |  | Eliminations |  |  | Consolidated |
|  | (in thousands) |
Interest Income |  | $ | 20,626 |  |  | $ | 3,060 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 23,686 |
Interest Expense |  |  | 8,730 |  |  |  | 1,445 |  |  |  | — |  |  |  | 354 |  |  |  | — |  |  |  | 10,529 |
Net Interest Income (Expense) |  |  | 11,896 |  |  |  | 1,615 |  |  |  | — |  |  |  | (354 | ) |  |  | — |  |  |  | 13,157 |
Gain on sales of loans |  |  | 627 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 627 |
Other noninterest income |  |  | 3,108 |  |  |  | — |  |  |  | 1,516 |  |  |  | — |  |  |  | — |  |  |  | 4,624 |
Net Revenue (Expense) |  |  | 15,631 |  |  |  | 1,615 |  |  |  | 1,516 |  |  |  | (354 | ) |  |  | — |  |  |  | 18,408 |
Provision for (recovery of) credit losses |  |  | 1,609 |  |  |  | (65 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,544 |
Noninterest expense |  |  | 11,957 |  |  |  | 114 |  |  |  | 727 |  |  |  | 92 |  |  |  | — |  |  |  | 12,890 |
Income (loss) before taxes |  |  | 2,065 |  |  |  | 1,566 |  |  |  | 789 |  |  |  | (446 | ) |  |  | — |  |  |  | 3,974 |
Income tax expense (benefit) |  |  | 145 |  |  |  | 328 |  |  |  | 166 |  |  |  | (89 | ) |  |  | — |  |  |  | 550 |
Net Income (Loss) |  | $ | 1,920 |  |  | $ | 1,238 |  |  | $ | 623 |  |  | $ | (357 | ) |  | $ | — |  |  | $ | 3,424 |
Other data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Capital expenditures |  | $ | 231 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 231 |
Depreciation and amortization |  |  | 431 |  |  |  | — |  |  |  | 32 |  |  |  | 17 |  |  |  | — |  |  |  | 480 |
|  | Three Months Ended |
|  | September 30, 2023 |
|  | Community Banking |  |  | Marine Lending |  |  | Wealth Management |  |  | All Other |  |  | Eliminations |  |  | Consolidated |
|  | (in thousands) |
Interest Income |  | $ | 17,770 |  |  | $ | 4,412 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 22,182 |
Interest Expense |  |  | 7,563 |  |  |  | 1,358 |  |  |  | — |  |  |  | 354 |  |  |  | — |  |  |  | 9,275 |
Net Interest Income (Expense) |  |  | 10,207 |  |  |  | 3,054 |  |  |  | — |  |  |  | (354 | ) |  |  | — |  |  |  | 12,907 |
Gain on sales of loans |  |  | 253 |  |  |  | 12 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 265 |
Other noninterest income |  |  | 1,750 |  |  |  | 1,013 |  |  |  | 1,190 |  |  |  | — |  |  |  | — |  |  |  | 3,953 |
Net Revenue (Expense) |  |  | 12,210 |  |  |  | 4,079 |  |  |  | 1,190 |  |  |  | (354 | ) |  |  | — |  |  |  | 17,125 |
Provision for (recovery of) credit losses |  |  | 453 |  |  |  | (237 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 216 |
Noninterest expense |  |  | 11,131 |  |  |  | 2,285 |  |  |  | 629 |  |  |  | 88 |  |  |  | — |  |  |  | 14,133 |
Income (loss) before taxes |  |  | 626 |  |  |  | 2,031 |  |  |  | 561 |  |  |  | (442 | ) |  |  | — |  |  |  | 2,776 |
Income tax expense (benefit) |  |  | 3 |  |  |  | 427 |  |  |  | 117 |  |  |  | (90 | ) |  |  | — |  |  |  | 457 |
Net Income (Loss) |  | $ | 623 |  |  | $ | 1,604 |  |  | $ | 444 |  |  | $ | (352 | ) |  | $ | — |  |  | $ | 2,319 |
Other data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Capital expenditures |  | $ | 1,120 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,120 |
Depreciation and amortization |  |  | 715 |  |  |  | 32 |  |  |  | 31 |  |  |  | 17 |  |  |  | — |  |  |  | 795 |

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|  | Nine Months Ended |
|  | September 30, 2024 |
|  | Community Banking |  |  | Marine Lending |  |  | Wealth Management |  |  | All Other |  |  | Eliminations |  |  | Consolidated |
|  | (in thousands) |
Interest Income |  | $ | 57,625 |  |  | $ | 9,702 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 67,327 |
Interest Expense |  |  | 24,239 |  |  |  | 4,297 |  |  |  | — |  |  |  | 1,063 |  |  |  | — |  |  |  | 29,599 |
Net Interest Income (Expense) |  |  | 33,386 |  |  |  | 5,405 |  |  |  | — |  |  |  | (1,063 | ) |  |  | — |  |  |  | 37,728 |
Gain on sales of loans |  |  | 1,280 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,280 |
Other noninterest income |  |  | 7,512 |  |  |  | — |  |  |  | 4,244 |  |  |  | — |  |  |  | — |  |  |  | 11,756 |
Net Revenue (Expense) |  |  | 42,178 |  |  |  | 5,405 |  |  |  | 4,244 |  |  |  | (1,063 | ) |  |  | — |  |  |  | 50,764 |
Provision for credit losses |  |  | 1,902 |  |  |  | 298 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,200 |
Noninterest expense |  |  | 34,936 |  |  |  | 467 |  |  |  | 2,074 |  |  |  | 300 |  |  |  | — |  |  |  | 37,777 |
Income (loss) before taxes |  |  | 5,340 |  |  |  | 4,640 |  |  |  | 2,170 |  |  |  | (1,363 | ) |  |  | — |  |  |  | 10,787 |
Income tax expense (benefit) |  |  | 466 |  |  |  | 974 |  |  |  | 456 |  |  |  | (266 | ) |  |  | — |  |  |  | 1,630 |
Net Income (Loss) |  | $ | 4,874 |  |  | $ | 3,666 |  |  | $ | 1,714 |  |  | $ | (1,097 | ) |  | $ | — |  |  | $ | 9,157 |
Other data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Capital expenditures |  | $ | 743 |  |  | $ | — |  |  | $ | 3 |  |  | $ | — |  |  | $ | — |  |  | $ | 746 |
Depreciation and amortization |  |  | 1,014 |  |  |  | — |  |  |  | 95 |  |  |  | 51 |  |  |  | — |  |  |  | 1,160 |
|  | Nine Months Ended |
|  | September 30, 2023 |
|  | Community Banking |  |  | Marine Lending |  |  | Wealth Management |  |  | All Other |  |  | Eliminations |  |  | Consolidated |
|  | (in thousands) |
Interest Income |  | $ | 49,454 |  |  | $ | 11,634 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 61,088 |
Interest Expense |  |  | 18,015 |  |  |  | 4,033 |  |  |  | — |  |  |  | 1,063 |  |  |  | — |  |  |  | 23,111 |
Net Interest Income (Expense) |  |  | 31,439 |  |  |  | 7,601 |  |  |  | — |  |  |  | (1,063 | ) |  |  | — |  |  |  | 37,977 |
Gain on sales of loans |  |  | 589 |  |  |  | 324 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 913 |
Other noninterest income |  |  | 5,487 |  |  |  | 1,106 |  |  |  | 3,611 |  |  |  | — |  |  |  | — |  |  |  | 10,204 |
Net Revenue (Expense) |  |  | 37,515 |  |  |  | 9,031 |  |  |  | 3,611 |  |  |  | (1,063 | ) |  |  | — |  |  |  | 49,094 |
Provision for (recovery of) credit losses |  |  | 1,405 |  |  |  | (122 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,283 |
Noninterest expense |  |  | 32,247 |  |  |  | 4,925 |  |  |  | 1,902 |  |  |  | 400 |  |  |  | — |  |  |  | 39,474 |
Income (loss) before taxes |  |  | 3,863 |  |  |  | 4,228 |  |  |  | 1,709 |  |  |  | (1,463 | ) |  |  | — |  |  |  | 8,337 |
Income tax expense (benefit) |  |  | 443 |  |  |  | 888 |  |  |  | 359 |  |  |  | (315 | ) |  |  | — |  |  |  | 1,375 |
Net Income (Loss) |  | $ | 3,420 |  |  | $ | 3,340 |  |  | $ | 1,350 |  |  | $ | (1,148 | ) |  | $ | — |  |  | $ | 6,962 |
Other data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Capital expenditures |  | $ | 1,091 |  |  | $ | 36 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 1,127 |
Depreciation and amortization |  |  | 989 |  |  |  | 224 |  |  |  | 94 |  |  |  | 51 |  |  |  | — |  |  |  | 1,358 |

|  | Community Banking |  |  | Marine Lending |  |  | Wealth Management |  |  | All Other |  |  | Eliminations |  |  | Consolidated |
Total assets at September 30, 2024 |  | $ | 1,646,503 |  |  | $ | 233,065 |  |  | $ | 987 |  |  | $ | 1,146 |  |  | $ | — |  |  | $ | 1,881,701 |
Total assets at December 31, 2023 |  | $ | 1,562,600 |  |  | $ | 261,011 |  |  | $ | 1,080 |  |  | $ | 906 |  |  | $ | — |  |  | $ | 1,825,597 |

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

The purpose of this discussion is to focus on important factors affecting the Company’s financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with the Company’s Consolidated Financial Statements and the Notes to the Consolidated Financial Statements presented in Part I, Item 1, Financial Statements, of this Form 10-Q and Part II, Item 8, Financial Statements and Supplementary Data, of the 2023 Form 10-K.

GENERAL

Eagle Financial Services, Inc. is a bank holding company which owns 100% of the stock of Bank of Clarke (the “Bank” and, collectively with Eagle Financial Services, Inc., the “Company”, “we”, “us” or “our”). Accordingly, the results of operations for the Company are dependent upon the operations of the Bank. The Bank conducts a commercial banking business which consists of attracting deposits from the general public and investing those funds in commercial, consumer and real estate loans and municipal and U.S. government agency securities. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law. At September 30, 2024, the Company had total assets of $1.88 billion, net loans of $1.47 billion, total deposits of $1.55 billion, and shareholders’ equity of $117.8 million. The Company’s net income was $9.2 million for the nine months ended September 30, 2024.

MANAGEMENT’S STRATEGY

The Company strives to be an outstanding financial institution in its market by building solid sustainable relationships with: (1) its customers, by providing highly personalized customer service, a network of conveniently placed branches and ATMs, a competitive variety of products/services and courteous, professional employees, (2) its employees, by providing generous benefits, a positive work environment, advancement opportunities and incentives to exceed expectations, (3) its communities, by participating in local concerns, providing monetary support, supporting employee volunteerism and providing employment opportunities, and (4) its shareholders, by providing sound profits and returns, sustainable growth, regular dividends and committing to its local, independent status.

OPERATING STRATEGY

The Company is a locally owned and managed financial institution. This allows the Bank to be flexible and responsive in the products and services it offers. The Bank grows primarily by lending funds to local residents and businesses at a competitive price that reflects the inherent risk of lending. The Bank attempts to fund these loans through deposits gathered from local residents and businesses. The Bank prices its deposits by comparing alternative sources of funds and selecting the lowest cost available. When deposits are not adequate to fund asset growth, the Bank relies on borrowings, both short and long term. The Bank’s primary source of borrowed funds is the Federal Home Loan Bank of Atlanta which offers numerous terms and rate structures to the Bank.

As interest rates change, the Bank attempts to maintain its net interest margin by changing the price, terms, and mix of its financial assets and liabilities. The Bank also earns fees on services provided through its trust department, secondary market mortgage activities, BOLI, and deposit operations. The Bank also incurs noninterest expenses such as compensating employees, maintaining and acquiring fixed assets, and purchasing goods and services necessary to support its daily operations.

The Bank has a marketing department which seeks to develop new business. This is accomplished through an ongoing calling program whereby account officers visit with existing and potential customers to discuss the products and services offered. The Bank also utilizes traditional advertising such as television commercials, radio ads, newspaper ads, and billboards.

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LENDING POLICIES

Administration and supervision over the lending process is provided by the Bank’s Credit Administration Department. The principal risk associated with the Bank’s loan portfolio is the creditworthiness of its borrowers. In an effort to manage this risk, the Bank’s policy gives loan amount approval limits to individual loan officers based on their position and level of experience. Credit risk is increased or decreased, depending on the type of loan and prevailing economic conditions. In consideration of the different types of loans in the portfolio, the risk associated with real estate mortgage loans, commercial loans and consumer loans varies based on employment levels, consumer confidence, fluctuations in the value of real estate and other conditions that affect the ability of borrowers to repay debt.

The Company has written policies and procedures to help manage credit risk. The Company utilizes a loan review process that includes formulation of portfolio management strategy, guidelines for underwriting standards and risk assessment, procedures for ongoing identification and management of credit deterioration, and regular portfolio reviews to establish loss exposure and to ascertain compliance with the Company’s policies.

The Bank uses a tiered approach to approve credit requests consisting of individual lending authorities, joint approval of Co-Approval officers (Executive, Regional Credit Officer, Small Business Credit Officer), and a director loan committee. Lending limits for individuals are set by the Board of Directors and are determined by loan purpose, collateral type, and internal risk rating of the borrower. The highest individual authority (Executive) is assigned to the Bank’s President/ Chief Executive Officer, Chief Banking Officer and Chief Credit Officer (approval authority only). Two Executive officers may combine their authority to approve loan requests to borrowers with credit exposure up to $10.0 million on a secured basis and $6.0 million unsecured. Three Executive officers may combine to approve loan requests to borrowers with credit exposure up to $15.0 million on a secured basis and $9.0 million unsecured. Consumer Central Lenders are individual lenders who have been assigned to an Approval Category (A through F) based upon their level of experience and job function. Consumer Central Lenders can co-approve consumer, home equity lines of credit and home equity loan requests up to their stated authorities. Officers in Categories A through F have lesser authorities and with approval of an Executive officer may extend loans to borrowers with exposure of $5.0 million on a secured basis and $3.0 million unsecured. Officers in Categories A through F can also utilize the co-approval of the Regional and Small Business Credit Officers to extend loans with exposures up to $2.5 million and $1.5 million respectively on a secured basis, and up to $1 million and $750 thousand respectively on an unsecured basis. Loans exceeding $15.0 million and up to the Bank’s legal lending limit can be approved by the Risk Committee consisting of four directors (three directors constituting a quorum). The Director’s Loan Committee also reviews and approves changes to the Bank’s Loan Policy as presented by management.

The following sections discuss the major loan categories within the total loan portfolio:

One-to-Four-Family Residential Real Estate Lending

Residential lending activity may be generated by the Bank’s loan officer solicitations, referrals by real estate professionals, and existing or new bank customers. Loan applications are taken by a Bank loan officer. As part of the application process, information is gathered concerning income, employment and credit history of the applicant. The valuation of residential collateral is provided by independent fee appraisers who have been approved by the Bank’s Directors Loan Committee. In connection with residential real estate loans, the Bank requires title insurance, hazard insurance and, if applicable, flood insurance. In addition to traditional residential mortgage loans secured by a first or junior lien on the property, the Bank offers home equity lines of credit.

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Commercial Real Estate Lending

Commercial real estate loans are secured by various types of commercial real estate in the Bank’s market area, including multi-family residential buildings, commercial buildings and offices, small shopping centers and churches. Commercial real estate loan originations are obtained through broker referrals, direct solicitation of developers and continued business from customers. In its underwriting of commercial real estate, the Bank’s loan to original appraised value ratio is generally 80% or less. Commercial real estate lending entails significant additional risk as compared with residential mortgage lending. Commercial real estate loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the repayment of loans secured by income producing properties is typically dependent on the successful operation of a business or a real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or the economy, in general. The Bank’s commercial real estate loan underwriting criteria require an examination of debt service coverage ratios, the borrower’s creditworthiness, prior credit history and reputation, and the Bank typically requires personal guarantees or endorsements of the borrowers’ principal owners.

Construction and Land Development Lending

The Bank makes local construction loans, primarily residential, and land acquisition and development loans. The construction loans are secured by residential houses under construction and the underlying land for which the loan was obtained. The average life of most construction loans is less than one year and the Bank offers both fixed and variable rate interest structures. The interest rate structure offered to customers depends on the total amount of these loans outstanding and the impact of the interest rate structure on the Bank’s overall interest rate risk. There are two characteristics of construction lending which impact its overall risk as compared to residential mortgage lending. First, there is more concentration risk due to the extension of a large loan balance through several lines of credit to a single developer or contractor. Second, there is more collateral risk due to the fact that loan funds are provided to the borrower based upon the estimated value of the collateral after completion. This could cause an inaccurate estimate of the amount needed to complete construction or an excessive loan-to-value ratio. To mitigate the risks associated with construction lending, the Bank generally limits loan amounts to 80% of the estimated appraised value of the finished construction project. The Bank also obtains a first lien on the property as security for its construction loans and typically requires personal guarantees from the borrower’s principal owners. Finally, the Bank performs inspections of the construction projects to ensure that the percentage of construction completed correlates with the amount of draws on the construction line of credit.

Commercial and Industrial Lending

Commercial business loans generally have more risk than residential mortgage loans, but have higher yields. To manage these risks, the Bank generally obtains appropriate collateral and personal guarantees from the borrower’s principal owners and monitors the financial condition of its business borrowers. Residential mortgage loans generally are made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be readily ascertainable. In contrast, commercial business loans typically are made on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as commercial real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for commercial business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.

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Consumer Lending

The Bank offers various secured and unsecured consumer loans, which include personal installment loans, personal lines of credit, automobile loans, and credit card loans. The Bank originates its consumer loans within its geographic market area and these loans are generally made to customers with whom the Bank has an existing relationship. Consumer loans generally entail greater risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral on a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

The underwriting standards employed by the Bank for consumer loans include a determination of the applicant’s payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and from any verifiable secondary income. Although creditworthiness of the applicant is the primary consideration, the underwriting process also includes an analysis of the value of the security in relation to the proposed loan amount.

Marine Lending

The Bank’s marine loan portfolio is comprised of originated retail loans. In August 2023, the Company completed a sale of specific assets from its marine lending segment and reduced its workforce associated with the marine lending division, as it expects to cease accepting new marine lending business. As part of the sale, the Company sold its interest in marine vessel floor plan loans, its rights to service loans that had been sold to secondary market investors prior to the date of sale, and other assets that were not individually significant. Subsequent to the sale the Company retained ownership of its portfolio of marine vessel retail loans, which continue to constitute a significant portion of the Company's assets, revenues, and earnings. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid. Retail loans were generally limited to premium manufacturers with established relationships with the Company which have a vested interest in the secondary market pricing of their respective brand due to the limited inventory available for resale. Consequently, while not contractually committed, manufacturers will often support secondary resale values which can have the effect of reducing losses from non-performing retail marine loans. Retail borrowers generally have very high credit scores, substantial down payments, substantial net worth, personal liquidity, and excess cash flow.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The financial information contained within these statements is, to a significant extent, based on measurements of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the transactions would be the same, the timing of events that would impact the transactions could change.

Allowance for Credit Losses on Loans

The Company establishes the allowance for credit losses through charges to earnings in the form of a provision for credit losses. Loan losses are charged against the allowance for credit losses for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance represents management’s current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. The measurement of the allowance for credit losses is based in part on forecasts of unemployment, inflation, as well as the consumer price index, and may also consider other factors, which we believe to be indicative of risk factors related to collectability. Management also assesses the risk of credit losses arising from changes in economic conditions; the nature and volume of the loan portfolio; the volume and severity of delinquencies and adversely classified loan balances; lending policy and procedures; credit administration and lending staff; loan review; concentrations of credit and the value of underlying collateral in determining the recorded balance of the allowance for credit losses. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. In evaluating the level of the allowance, we consider a range of possible assumptions and outcomes related to the various factors identified above. Refer to the 2023 Form 10-K for additional detail concerning the determination of the allowance for credit losses on loans.

NON-GAAP FINANCIAL MEASURES

This report refers to certain financial measures that are computed under a basis other than GAAP ("non-GAAP"). The Company uses certain non-GAAP financial measures, including tax-equivalent net interest income and efficiency ratio, to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP.

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FORWARD LOOKING STATEMENTS

The Company makes forward looking statements in this report that are subject to risks and uncertainties. These forward looking statements include statements regarding our expectations, intentions or objectives concerning our profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals. The words “believes,” “expects,” “may,” “will,” “should,” "could," “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward looking statements. These forward looking statements are subject to significant uncertainties because they are based upon or are affected by factors including:

•
difficult market conditions in our industry;
•
the ability to successfully manage growth or implement growth strategies if the Bank is unable to identify attractive markets, locations or opportunities to expand in the future or if the Bank is unable to successfully integrate new branches, business lines or other growth opportunities into its existing operations;
•
competition with other banks and financial institutions, and companies outside of the banking industry, including those companies that have substantially greater access to capital and other resources;
•
the successful management of interest rate risk;
•
risks inherent in making loans such as repayment risks and fluctuating collateral values;
•
changes in general economic and business conditions in the Bank’s market area;
•
reliance on the Bank’s management team, including the ability to attract and retain key personnel;
•
changes in interest rates and interest rate policies;
•
maintaining capital levels adequate to support growth;
•
maintaining cost controls and asset qualities as new branches are opened or acquired;
•
demand, development and acceptance of new products and services;
•
deposit flows;
•
the Bank's ability to manage liquidity;
•
the cost and availability of secondary funding sources;
•
effects of soundness of other financial institutions
•
problems with technology utilized by the Bank;
•
changing trends in customer profiles and behavior;
•
geopolitical conditions, including acts or threats of terrorism, international hostilities, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad;
•
the Company's potential exposure to fraud, negligence, computer theft, and cyber-crime;
•
potential impact on us of existing and future legislation and regulations;
•
changes in accounting policies and banking and other law and regulations; and
•
other factors described in Item 1A., "Risk Factors," in the Company's 2023 Form 10-K.

Because of these uncertainties, actual future results may be materially different from the results indicated by these forward looking statements. In addition, past results of operations do not necessarily indicate future results.

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RESULTS OF OPERATIONS

Net Income

Net income for the nine months ended September 30, 2024 was $9.2 million, an increase of 31.53%, or $2.2 million, when compared to the same period in 2023. For the three months ended September 30, 2024, net income was $3.4 million, an increase of $1.1 million, or 47.65%, compared to the three months ended September 30, 2023. Earnings per share, basic and diluted, were $2.58 and $1.98 for the nine months ended September 30, 2024 and 2023, respectively. Earnings per share, basic and diluted, were $0.97 and $0.66 for the three months ended September 30, 2024 and 2023, respectively.

Return on average assets ("ROA") measures how efficiently the Company uses its assets to produce net income. Some issues reflected within this efficiency include the Company’s asset mix, funding sources, pricing, fee generation, and cost control. The ROA of the Company, on an annualized basis, for the nine months ended September 30, 2024 and 2023 was 0.69% and 0.54%, respectively. For the three months ended September 30, 2024 and 2023 the Company's annualized ROA was 0.75% and 0.51%, respectively.

Return on average equity ("ROE") measures the utilization of shareholders’ equity in generating net income. This measurement is affected by the same factors as ROA with consideration to how much of the Company’s assets are funded by shareholders. The ROE of the Company, on an annualized basis, for the nine months ended September 30, 2024 and 2023 was 11.16% and 8.96%, respectively. For the three months ended September 30, 2024 and 2023 the Company's annualized ROE was 11.99% and 8.87%, respectively.

Net Interest Income

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 level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates. Net interest income was $37.7 million and $38.0 million for the nine months ended September 30, 2024 and 2023, respectively, which represents a decrease of $249 thousand, or 0.66%. Net interest income was $13.2 million and $12.9 million for the three months ended September 30, 2024 and 2023, respectively, which represents an increase of $250 thousand, or 1.94%. The increase in the average rate paid on interest-bearing liabilities has continued to outpace the increase in the average rate earned on interest-earning assets during the three and nine months ended September 30, 2024, compared to the same periods in 2023. For the nine months ended September 30, 2024, net interest income decreased from the 2023 period primarily due to a 70 basis point increase in the average rate paid on interest-bearing deposits reflecting efforts to retain and attract account balances by offering promotional rates. For the three months ended September 30, 2024, the average rate paid on interest-bearing deposits increased 37 basis points compared to the average rate paid for the three months ended September 30, 2023, and the average balance of interest-bearing deposits grew by $61.8 million.

The Company's net interest spread and net interest margin decreased 31 basis points and 19 basis points, respectively, for the nine months ended September 30, 2024 compared to nine months ended September 30, 2023. For the three months ended September 30, 2024, the Company's net interest spread and net interest margin decreased 13 basis points and 5 basis points, respectively, compared to the same period in 2023.

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Total interest and dividend income was $67.3 million and $61.1 million for the nine months ended September 30, 2024 and 2023, respectively, which represents an increase of $6.2 million, or 10.21%. Total interest and dividend income was $23.7 million and $22.2 million for the three months ended September 30, 2024 and 2023, respectively, which represents an increase of $1.5 million, or 6.78%. The increase in interest income was driven by an increase in the average balance of the loan portfolio along with the rise in interest rates. Average interest-earning assets increased $96.7 million, or 5.80%, when comparing the nine months ended September 30, 2023 to the nine months ended September 30, 2024, while the average yield on earning-assets increased by 20 basis points over the same period. For the three months ended September 30, 2024, the increase in interest income on loans was primarily due to the higher yields earned as the average balances were level with the prior year period.

Total interest expense was $29.6 million and $23.1 million for the nine months ended September 30, 2024 and 2023, respectively, which represents an increase of $6.5 million, or 28.07%. Total interest expense was $10.5 million and $9.3 million for the three months ended September 30, 2024 and 2023, respectively, which represents an increase of $1.2 million, or 13.52%. The interest rate environment, coupled with the growth of higher-paying deposit accounts, have been the main drivers for the increase in interest expense during both the three and nine months ended September 30, 2024. Interest expense on deposit accounts increased $7.4 million, or 46.24%, during the nine months ended September 30, 2024, of which $5.3 million was attributable to time deposits. During the nine months ended September 30, 2024 and 2023 the average balance of interest-bearing deposits was $1.07 billion and $961.1 million, respectively. The $7.4 million increase in deposit interest expense was slightly offset by a decrease in interest expense on FHLB advances. The average balance of FHLB advances was $146.6 million and $168.2 million with an average rate of 4.72% and 4.77% during the nine months ended September 30, 2024 and 2023, respectively. The increase in interest expense during the three months ended September 30, 2024 compared to the three months ended September 30, 2023 was primarily due to time deposits, while FHLB borrowings experienced a decrease in expense reflecting a lower level of utilization during the three month period ending September 30, 2024.

The net interest margin was 2.86% and 3.05% for the nine months ended September 30, 2024 and 2023, respectively, and 2.88% and 2.93% for the three months ended September 30, 2024 and 2023, respectively. The net interest margin is calculated on a tax-equivalent basis. Tax-equivalent net interest income is calculated by adding the tax benefit on certain securities and loans, whose interest is tax-exempt, to total interest income then subtracting total interest expense. The tax rate used to calculate the tax benefit was 21% for 2024 and 2023.

Net interest margin has primarily declined due to deposit pricing pressure as interest rates increased throughout 2023 and and as competition for new deposits continues. If these factors persist, net interest margin may experience further downward pressure and may also result in the Company having to borrow additional wholesale funding to fund asset growth, which is more expensive than deposits.

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The following table shows interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the three months ended September 30, 2024 and 2023 (dollars in thousands):

|  | September 30, 2024 |  |  | September 30, 2023 |
|  |  |  |  | Interest |  |  | Average |  |  |  |  |  | Interest |  |  | Average |
|  | Average |  |  | Income/ |  |  | Yield/ |  |  | Average |  |  | Income/ |  |  | Yield/ |
Assets: |  | Balance |  |  | Expense |  |  | Rate (2) |  |  | Balance |  |  | Expense |  |  | Rate (2) |
Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  | $ | 137,183 |  |  | $ | 869 |  |  |  | 2.52 | % |  | $ | 148,549 |  |  | $ | 928 |  |  |  | 2.48 | %
Tax-Exempt (1) |  |  | 493 |  |  |  | 5 |  |  |  | 4.03 | % |  |  | 490 |  |  |  | 4 |  |  |  | 4.10 | %
Total Securities |  | $ | 137,676 |  |  | $ | 874 |  |  |  | 2.53 | % |  | $ | 149,039 |  |  | $ | 932 |  |  |  | 2.48 | %
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  |  | 1,461,660 |  |  |  | 21,041 |  |  |  | 5.73 | % |  |  | 1,458,347 |  |  |  | 20,077 |  |  |  | 5.46 | %
Non-accrual |  |  | 2,553 |  |  |  | — |  |  |  | — | % |  |  | 3,639 |  |  |  | — |  |  |  | — | %
Tax-Exempt (1) |  |  | 10,162 |  |  |  | 129 |  |  |  | 5.04 | % |  |  | 10,403 |  |  |  | 129 |  |  |  | 4.94 | %
Total Loans |  | $ | 1,474,375 |  |  | $ | 21,170 |  |  |  | 5.71 | % |  | $ | 1,472,389 |  |  | $ | 20,206 |  |  |  | 5.44 | %
Federal funds sold and interest-bearing deposits in other banks |  |  | 211,888 |  |  |  | 1,670 |  |  |  | 3.14 | % |  |  | 132,432 |  |  |  | 1,072 |  |  |  | 3.21 | %
Total earning assets |  | $ | 1,823,939 |  |  | $ | 23,714 |  |  |  | 5.17 | % |  | $ | 1,753,860 |  |  | $ | 22,210 |  |  |  | 5.02 | %
Allowance for credit losses |  |  | (14,729 | ) |  |  |  |  |  |  |  |  | (14,642 | ) |  |  |  |  |  |
Total non-earning assets |  |  | 14,268 |  |  |  |  |  |  |  |  |  | 52,307 |  |  |  |  |  |  |
Total assets |  | $ | 1,823,478 |  |  |  |  |  |  |  |  | $ | 1,791,525 |  |  |  |  |  |  |
Liabilities and Shareholders' Equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
NOW accounts |  | $ | 254,996 |  |  | $ | 1,535 |  |  |  | 2.39 | % |  | $ | 241,033 |  |  | $ | 1,354 |  |  |  | 2.23 | %
Money market accounts |  |  | 261,653 |  |  |  | 1,555 |  |  |  | 2.36 | % |  |  | 260,692 |  |  |  | 1,260 |  |  |  | 1.92 | %
Savings accounts |  |  | 132,983 |  |  |  | 38 |  |  |  | 0.11 | % |  |  | 145,673 |  |  |  | 44 |  |  |  | 0.12 | %
Time deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$250,000 and more |  |  | 159,761 |  |  |  | 1,932 |  |  |  | 4.81 | % |  |  | 137,487 |  |  |  | 1,543 |  |  |  | 4.45 | %
Less than $250,000 |  |  | 294,579 |  |  |  | 3,359 |  |  |  | 4.54 | % |  |  | 257,257 |  |  |  | 2,777 |  |  |  | 4.28 | %
Total interest-bearing deposits |  | $ | 1,103,972 |  |  | $ | 8,419 |  |  |  | 3.03 | % |  | $ | 1,042,142 |  |  | $ | 6,978 |  |  |  | 2.66 | %
Federal funds purchased |  |  | 12 |  |  |  | — |  |  | NM |  |  |  | — |  |  |  | — |  |  |  | — | %
Federal Home Loan Bank advances |  |  | 148,804 |  |  |  | 1,756 |  |  |  | 4.69 | % |  |  | 162,935 |  |  |  | 1,943 |  |  |  | 4.73 | %
Subordinated debt |  |  | 29,484 |  |  |  | 354 |  |  |  | 4.78 | % |  |  | 29,416 |  |  |  | 354 |  |  |  | 4.78 | %
Total interest-bearing liabilities |  | $ | 1,282,272 |  |  | $ | 10,529 |  |  |  | 3.27 | % |  | $ | 1,234,493 |  |  | $ | 9,275 |  |  |  | 2.98 | %
Noninterest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand deposits |  |  | 409,753 |  |  |  |  |  |  |  |  |  | 434,807 |  |  |  |  |  |  |
Other Liabilities |  |  | 17,838 |  |  |  |  |  |  |  |  |  | 18,505 |  |  |  |  |  |  |
Total liabilities |  | $ | 1,709,863 |  |  |  |  |  |  |  |  | $ | 1,687,805 |  |  |  |  |  |  |
Shareholders' equity |  |  | 113,615 |  |  |  |  |  |  |  |  |  | 103,720 |  |  |  |  |  |  |
Total liabilities and shareholders' equity |  | $ | 1,823,478 |  |  |  |  |  |  |  |  | $ | 1,791,525 |  |  |  |  |  |  |
Net interest income |  |  |  |  | $ | 13,185 |  |  |  |  |  |  |  |  | $ | 12,935 |  |  |  |
Net interest spread |  |  |  |  |  |  |  |  | 1.91 | % |  |  |  |  |  |  |  |  | 2.04 | %
Interest expense as a percent of average earning assets |  |  |  |  |  |  |  |  | 2.30 | % |  |  |  |  |  |  |  |  | 2.10 | %
Net interest margin |  |  |  |  |  |  |  |  | 2.88 | % |  |  |  |  |  |  |  |  | 2.93 | %

(1)
Income and yields are reported on a tax-equivalent basis using a federal tax rate of 21%.
(2)
Annualized.

NM - Not Meaningful

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The following table shows interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the nine months ended September 30, 2024 and 2023 (dollars in thousands):

|  | September 30, 2024 |  |  | September 30, 2023 |
|  |  |  |  | Interest |  |  | Average |  |  |  |  |  | Interest |  |  | Average |
|  | Average |  |  | Income/ |  |  | Yield/ |  |  | Average |  |  | Income/ |  |  | Yield/ |
Assets: |  | Balance |  |  | Expense |  |  | Rate (2) |  |  | Balance |  |  | Expense |  |  | Rate (2) |
Securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  | $ | 139,150 |  |  | $ | 2,677 |  |  |  | 2.57 | % |  | $ | 153,627 |  |  | $ | 2,736 |  |  |  | 2.38 | %
Tax-Exempt (1) |  |  | 495 |  |  |  | 15 |  |  |  | 4.10 | % |  |  | 515 |  |  |  | 15 |  |  |  | 4.13 | %
Total Securities |  | $ | 139,645 |  |  | $ | 2,692 |  |  |  | 2.58 | % |  | $ | 154,142 |  |  | $ | 2,751 |  |  |  | 2.39 | %
Loans: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Taxable |  |  | 1,440,024 |  |  |  | 60,320 |  |  |  | 5.60 | % |  |  | 1,413,520 |  |  |  | 55,812 |  |  |  | 5.28 | %
Non-accrual |  |  | 4,251 |  |  |  | — |  |  |  | — | % |  |  | 2,786 |  |  |  | — |  |  |  | — | %
Tax-Exempt (1) |  |  | 10,489 |  |  |  | 394 |  |  |  | 5.02 | % |  |  | 9,938 |  |  |  | 364 |  |  |  | 4.90 | %
Total Loans |  | $ | 1,454,764 |  |  | $ | 60,714 |  |  |  | 5.57 | % |  | $ | 1,426,244 |  |  | $ | 56,176 |  |  |  | 5.27 | %
Federal funds sold and Interest-bearing deposits in other banks |  |  | 170,137 |  |  |  | 4,007 |  |  |  | 3.15 | % |  |  | 87,470 |  |  |  | 2,240 |  |  |  | 3.42 | %
Total earning assets |  | $ | 1,764,546 |  |  | $ | 67,413 |  |  |  | 5.10 | % |  | $ | 1,667,856 |  |  | $ | 61,167 |  |  |  | 4.90 | %
Allowance for credit losses |  |  | (14,623 | ) |  |  |  |  |  |  |  |  | (14,094 | ) |  |  |  |  |  |
Total non-earning assets |  |  | 33,483 |  |  |  |  |  |  |  |  |  | 74,464 |  |  |  |  |  |  |
Total assets |  | $ | 1,783,406 |  |  |  |  |  |  |  |  | $ | 1,728,226 |  |  |  |  |  |  |
Liabilities and Shareholders' Equity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest-bearing deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
NOW accounts |  | $ | 256,741 |  |  | $ | 4,570 |  |  |  | 2.38 | % |  | $ | 239,232 |  |  | $ | 3,656 |  |  |  | 2.04 | %
Money market accounts |  |  | 262,319 |  |  |  | 4,431 |  |  |  | 2.26 | % |  |  | 257,645 |  |  |  | 3,193 |  |  |  | 1.66 | %
Savings accounts |  |  | 136,019 |  |  |  | 118 |  |  |  | 0.12 | % |  |  | 155,301 |  |  |  | 143 |  |  |  | 0.12 | %
Time deposits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
$250,000 and more |  |  | 147,241 |  |  |  | 5,284 |  |  |  | 4.79 | % |  |  | 105,275 |  |  |  | 2,998 |  |  |  | 3.81 | %
Less than $250,000 |  |  | 267,502 |  |  |  | 8,955 |  |  |  | 4.77 | % |  |  | 203,611 |  |  |  | 5,982 |  |  |  | 3.93 | %
Total interest-bearing deposits |  | $ | 1,069,822 |  |  | $ | 23,358 |  |  |  | 2.92 | % |  | $ | 961,064 |  |  | $ | 15,972 |  |  |  | 2.22 | %
Federal funds purchased |  |  | 13 |  |  |  | — |  |  | NM |  |  |  | 3,745 |  |  |  | 70 |  |  |  | 2.50 | %
Federal Home Loan Bank advances |  |  | 146,606 |  |  |  | 5,178 |  |  |  | 4.72 | % |  |  | 168,242 |  |  |  | 6,006 |  |  |  | 4.77 | %
Subordinated debt |  |  | 29,467 |  |  |  | 1,063 |  |  |  | 4.82 | % |  |  | 29,400 |  |  |  | 1,063 |  |  |  | 4.83 | %
Total interest-bearing liabilities |  | $ | 1,245,908 |  |  | $ | 29,599 |  |  |  | 3.17 | % |  | $ | 1,162,451 |  |  | $ | 23,111 |  |  |  | 2.66 | %
Noninterest-bearing liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Demand deposits |  |  | 410,679 |  |  |  |  |  |  |  |  |  | 445,833 |  |  |  |  |  |  |
Other Liabilities |  |  | 17,201 |  |  |  |  |  |  |  |  |  | 16,108 |  |  |  |  |  |  |
Total liabilities |  | $ | 1,673,788 |  |  |  |  |  |  |  |  | $ | 1,624,392 |  |  |  |  |  |  |
Shareholders' equity |  |  | 109,618 |  |  |  |  |  |  |  |  |  | 103,834 |  |  |  |  |  |  |
Total liabilities and shareholders' equity |  | $ | 1,783,406 |  |  |  |  |  |  |  |  | $ | 1,728,226 |  |  |  |  |  |  |
Net interest income |  |  |  |  | $ | 37,814 |  |  |  |  |  |  |  |  | $ | 38,056 |  |  |  |
Net interest spread |  |  |  |  |  |  |  |  | 1.93 | % |  |  |  |  |  |  |  |  | 2.24 | %
Interest expense as a percent of average earning assets |  |  |  |  |  |  |  |  | 2.24 | % |  |  |  |  |  |  |  |  | 1.85 | %
Net interest margin |  |  |  |  |  |  |  |  | 2.86 | % |  |  |  |  |  |  |  |  | 3.05 | %

(1)
Income and yields are reported on a tax-equivalent basis using a federal tax rate of 21%.
(2)
Annualized.

NM - Not Meaningful

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The following table reconciles tax-equivalent net interest income, which is not a measurement under GAAP, to net interest income.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
|  | (in thousands) |  |  | (in thousands) |
GAAP Financial Measurements: |  |  |  |  |  |  |  |  |  |  |  |
Interest Income - Loans |  | $ | 21,143 |  |  | $ | 20,179 |  |  | $ | 60,631 |  |  | $ | 56,100 |
Interest Income - Securities and Other Interest-Earnings Assets |  |  | 2,543 |  |  |  | 2,003 |  |  |  | 6,696 |  |  |  | 4,988 |
Interest Expense - Deposits |  |  | 8,419 |  |  |  | 6,978 |  |  |  | 23,358 |  |  |  | 15,972 |
Interest Expense - Other Borrowings |  |  | 2,110 |  |  |  | 2,297 |  |  |  | 6,241 |  |  |  | 7,139 |
Total Net Interest Income |  | $ | 13,157 |  |  | $ | 12,907 |  |  | $ | 37,728 |  |  | $ | 37,977 |
Non-GAAP Financial Measurements: |  |  |  |  |  |  |  |  |  |  |  |
Add: Tax Benefit on Tax-Exempt Interest Income - Loans (1) |  | $ | 27 |  |  | $ | 27 |  |  | $ | 83 |  |  | $ | 76 |
Add: Tax Benefit on Tax-Exempt Interest Income - Securities (1) |  |  | 1 |  |  |  | 1 |  |  |  | 3 |  |  |  | 3 |
Total Tax Benefit on Tax-Exempt Interest Income |  | $ | 28 |  |  | $ | 28 |  |  | $ | 86 |  |  | $ | 79 |
Tax-Equivalent Net Interest Income |  | $ | 13,185 |  |  | $ | 12,935 |  |  | $ | 37,814 |  |  | $ | 38,056 |

(1)
Tax benefit was calculated using the federal statutory tax rate of 21%.

The tax-equivalent yield on earning assets was 5.10% for the nine months ended September 30, 2024 compared to 4.90% for the nine months ended September 30, 2023, an increase of 20 basis points during the current year period. The tax-equivalent yield on securities increased 19 basis points for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The tax equivalent yield on loans increased 30 basis points from 5.27% for the nine months ended September 30, 2023 to 5.57% for the same time period in 2024. For the three months ended September 30, 2024 and 2023, the tax-equivalent yield on earning assets was 5.17% and 5.02%, respectively, an increase of 15 basis points in the current year period. The tax-equivalent yields on securities and loans also increased during the three month period in 2024 compared to 2023 by 5 basis points and 27 basis points, respectively.

The increase in the tax-equivalent yield on earning assets for the three and nine months ended September 30, 2024 resulted mostly from the increase in the tax-equivalent yield on loans. The increase in the yield on loans as compared to the corresponding periods in 2023 was primarily due to the sustained elevated interest rate environment,

The average rate on interest-bearing liabilities increased 51 basis points to 3.17% from 2.66% for the nine months ended September 30, 2024 compared to the 2023 period, and increased 29 basis points for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The average rate on interest-bearing deposits increased 37 basis points and 70 basis points during the three and nine months ended September 30, 2024, respectively, compared to the same 2023 periods, driven by increases in time deposits. The interest rate environment, marketplace competition and growth of higher-cost deposit accounts have been the main drivers for the increases in the average rate and total expense paid on interest-bearing deposits.

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Provision for Credit Losses

The provision for credit losses is based upon management’s estimate of the amount required to maintain an adequate allowance for credit losses. The Company's calculation of the provision for credit losses consists of changes in the allowance for credit losses on loans and the reserve for unfunded loan commitments. The allowance for credit losses on loans represents management’s current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. The amount of provision for credit losses on loans is affected by several factors including the growth rate of loans, net charge-offs (recoveries), and the estimated amount of expected losses within the loan portfolio.

The provision for credit losses for the nine months ended September 30, 2024 and 2023 was $2.2 million and $1.3 million, respectively. The provision for credit losses for the three months ended September 30, 2024 and 2023 was $1.5 million and $216 thousand, respectively. The provision for credit losses for the nine months ended September 30, 2024 resulted largely from a $2.0 million provision against the marine portfolio due to charge-offs of $1.5 million, a specific reserve on an individually evaluated relationship of $268 thousand, and growth in the portfolio balance as compared to the prior measurement period. Marine loan charge-offs during the nine months ended September 30, 2024 reflect a clean-up within the portfolio and not a systemic performance issue.

Noninterest Income

Total noninterest income was $5.3 million and $4.2 million for the three months ended September 30, 2024 and 2023, respectively and for the nine months ended September 30, 2024 and 2023 was $13.0 million and $11.1 million, respectively. Management reviews the activities which generate noninterest income on an ongoing basis. The following table provides the components of noninterest income for the three and nine months ended September 30, 2024 and 2023, which are included within the respective Consolidated Statements of Income headings. Variances that the Company believes require explanation are discussed below the table.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
(dollars in thousands) |  | 2024 |  |  | 2023 |  |  | $ Change |  |  | % Change |  |  | 2024 |  |  | 2023 |  |  | $ Change |  |  | % Change |
Wealth management fees |  | $ | 1,515 |  |  | $ | 1,190 |  |  | $ | 325 |  |  |  | 27 | % |  | $ | 4,244 |  |  | $ | 3,611 |  |  | $ | 633 |  |  |  | 18 | %
Service charges on deposit accounts |  |  | 518 |  |  |  | 460 |  |  |  | 58 |  |  |  | 13 | % |  |  | 1,428 |  |  |  | 1,343 |  |  |  | 85 |  |  |  | 6 | %
Other service charges and fees |  |  | 1,117 |  |  |  | 1,252 |  |  |  | (135 | ) |  |  | (11 | )% |  |  | 3,250 |  |  |  | 3,434 |  |  |  | (184 | ) |  |  | (5 | )%
Gain on the sale of marine finance assets |  |  | — |  |  |  | 463 |  |  |  | (463 | ) |  | NM |  |  |  | — |  |  |  | 463 |  |  |  | (463 | ) |  | NM |
Gain (loss) on disposal of bank premises and equipment |  |  | — |  |  |  | 7 |  |  |  | (7 | ) |  | NM |  |  |  | (11 | ) |  |  | 14 |  |  |  | (25 | ) |  |  | (179 | )%
Gain on sale of loans |  |  | 627 |  |  |  | 265 |  |  |  | 362 |  |  |  | 137 | % |  |  | 1,280 |  |  |  | 913 |  |  |  | 367 |  |  |  | 40 | %
Small business investment company income |  |  | 496 |  |  |  | 151 |  |  |  | 345 |  |  |  | 228 | % |  |  | 882 |  |  |  | 350 |  |  |  | 532 |  |  |  | 152 | %
Bank owned life insurance income |  |  | 930 |  |  |  | 184 |  |  |  | 746 |  |  |  | 405 | % |  |  | 1,721 |  |  |  | 542 |  |  |  | 1,179 |  |  |  | 218 | %
Other operating income |  |  | 48 |  |  |  | 246 |  |  |  | (198 | ) |  |  | (80 | )% |  |  | 242 |  |  |  | 447 |  |  |  | (205 | ) |  |  | (46 | )%
Total noninterest income |  | $ | 5,251 |  |  | $ | 4,218 |  |  | $ | 1,033 |  |  |  | 24 | % |  | $ | 13,036 |  |  | $ | 11,117 |  |  | $ | 1,919 |  |  |  | 17 | %

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Wealth management fee income increased from 2023 to 2024. Wealth management fee income is comprised of income from fiduciary activities as well as commissions from the sale of non-deposit investment products. The amount of income from fiduciary activities is determined by the number of active accounts and total assets under management. Higher interest rates and more favorable conditions in the stock market have resulted in an expansion of total assets under management. One-time fees for estates and other services have also contributed to the year over year increase in revenue. Investment sales have also increased as favorable market activity has made the use of brokerage and advisory investments more attractive.

Gain on the sale of marine finance assets was $463 thousand for the three and nine months ended September 30, 2023 as the result of the Company's sale of certain marine finance division assets on August 23, 2023. Refer to additional discussion under the heading "Marine Lending" in Item 2 and Note 16 of the Notes to Consolidated Financial Statements.

Gain on sale of loans increased during the three and nine months ended September 30, 2024 when compared to the same period in 2023. The Company sold $40.4 million in mortgage loans on the secondary market and $6.9 million SBA commercial loans during the nine months ended September 30, 2024. This compares to loan sales consisting of $21.1 million in mortgage loans, $3.1 million in SBA commercial loans, and $49.1 million of marine loans during the nine months ended September 30, 2023. Loan sales resulted in gains of $1.3 million and $913 thousand during the nine months ended September 30, 2024 and 2023, respectively. Gain on loan sales recorded during the three months ended September 30, 2024 and 2023 was $627 thousand and $265 thousand, respectively, and resulted from mortgage loan sales of $14.9 million and $4.2 million in SBA commercial loans during the third quarter of 2024 compared to mortgage loan sales of $15.9 million, marine loan sales of $10.5 million, and SBA commercial loans sales of $275 thousand during the third quarter of 2023.

Bank owned life insurance ("BOLI") fee income increased during the three and nine months ended September 30, 2024 when compared to the same periods in 2023 as a result of an investment of $5 million into BOLI by the Company during the fourth quarter of 2023. Additionally, during the three and nine months ended September 30, 2024, the Company received BOLI settlements resulting in gains of $653 thousand and $907 thousand, respectively.

Income from holdings in small business investment companies increased $345 thousand and $532 thousand for the three and nine months ended September 30, 2024, respectively when compared to the same periods in 2023. The increases during the current year periods can be mainly attributed to higher cash distributions received, based on the results of their performance.

Other operating income decreased during the three and nine months ended September 30, 2024 when compared to the same periods in 2023 primarily due to loan swap fee income. No loan swap fee income has been recognized during the three and nine months ended September 30, 2024, compared to $225 thousand and $229 thousand recognized during the three and nine months ended September 30, 2023, respectively. During the 2023 period, loan swap transactions executed with borrowers reflected original notional balances of $18.6 million.

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Noninterest Expenses

Total noninterest expenses decreased $1.2 million, or 8.80% for the three months ended September 30, 2024 and $1.7 million, or 4.30%, for the nine months ended September 30, 2024 compared to the same periods in 2023. The following table presents the components of noninterest expense for the three and nine months ended September 30, 2024 and 2023, which are included within the respective Consolidated Statements of Income headings. Variances that the Company believes require explanation are discussed below the table.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
(dollars in thousands) |  | 2024 |  |  | 2023 |  |  | $ Change |  |  | % Change |  |  | 2024 |  |  | 2023 |  |  | $ Change |  |  | % Change |
Salaries and employee benefits |  | $ | 7,548 |  |  | $ | 7,598 |  |  | $ | (50 | ) |  |  | (1 | )% |  | $ | 22,086 |  |  | $ | 22,457 |  |  | $ | (371 | ) |  |  | (2 | )%
Occupancy expenses |  |  | 530 |  |  |  | 570 |  |  |  | (40 | ) |  |  | (7 | )% |  |  | 1,569 |  |  |  | 1,621 |  |  |  | (52 | ) |  |  | (3 | )%
Equipment expenses |  |  | 427 |  |  |  | 341 |  |  |  | 86 |  |  |  | 25 | % |  |  | 1,201 |  |  |  | 979 |  |  |  | 222 |  |  |  | 23 | %
Advertising and marketing expenses |  |  | 247 |  |  |  | 228 |  |  |  | 19 |  |  |  | 8 | % |  |  | 729 |  |  |  | 866 |  |  |  | (137 | ) |  |  | (16 | )%
Stationary and supplies |  |  | 35 |  |  |  | 69 |  |  |  | (34 | ) |  |  | (49 | )% |  |  | 91 |  |  |  | 147 |  |  |  | (56 | ) |  |  | (38 | )%
ATM network fees |  |  | 406 |  |  |  | 426 |  |  |  | (20 | ) |  |  | (5 | )% |  |  | 1,159 |  |  |  | 1,142 |  |  |  | 17 |  |  |  | 1 | %
Other real estate owned expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — | % |  |  | — |  |  |  | 5 |  |  |  | (5 | ) |  | NM |
(Gain) on other real estate owned |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — | % |  |  | — |  |  |  | (7 | ) |  |  | 7 |  |  | NM |
Loss on sale of repossessed assets |  |  | 204 |  |  |  | — |  |  |  | 204 |  |  | NM |  |  |  | 204 |  |  |  | — |  |  |  | 204 |  |  | NM |
FDIC assessment |  |  | 343 |  |  |  | 495 |  |  |  | (152 | ) |  |  | (31 | )% |  |  | 1,103 |  |  |  | 1,107 |  |  |  | (4 | ) |  |  | (0 | )%
Computer software expense |  |  | 226 |  |  |  | 396 |  |  |  | (170 | ) |  |  | (43 | )% |  |  | 680 |  |  |  | 987 |  |  |  | (307 | ) |  |  | (31 | )%
Bank franchise tax |  |  | 342 |  |  |  | 340 |  |  |  | 2 |  |  |  | 1 | % |  |  | 1,011 |  |  |  | 916 |  |  |  | 95 |  |  |  | 10 | %
Professional fees |  |  | 408 |  |  |  | 497 |  |  |  | (89 | ) |  |  | (18 | )% |  |  | 1,425 |  |  |  | 1,963 |  |  |  | (538 | ) |  |  | (27 | )%
Data processing fees |  |  | 679 |  |  |  | 542 |  |  |  | 137 |  |  |  | 25 | % |  |  | 1,802 |  |  |  | 1,422 |  |  |  | 380 |  |  |  | 27 | %
Other operating expenses |  |  | 1,495 |  |  |  | 2,631 |  |  |  | (1,136 | ) |  |  | (43 | )% |  |  | 4,717 |  |  |  | 5,869 |  |  |  | (1,152 | ) |  |  | (20 | )%
Total noninterest expenses |  | $ | 12,890 |  |  | $ | 14,133 |  |  | $ | (1,243 | ) |  |  | (9 | )% |  | $ | 37,777 |  |  | $ | 39,474 |  |  | $ | (1,697 | ) |  |  | (4 | )%

NM - Not Meaningful

On August 23, 2023, the Company completed a sale of specific assets from its marine lending segment. As part of the sale, the Company sold its interest in marine vessel floor plan loans totaling $52.8 million, its rights to service loans that had been sold to secondary market investors prior to the date of sale (valued at $595 thousand on balance sheet prior to sale), and other assets that were not individually significant. The Company received total consideration, net of selling expenses, of $53.5 million and recognized a gain of $435 thousand. The assets sold as well as their related revenues and contribution to earnings did not constitute a significant portion of the Company's assets or operating results for the year ended December 31, 2023. As part of the sale, the Company reduced its workforce associated with the marine lending division, and ceased accepting new marine lending business. Subsequent to the sale of these assets, the Company retained ownership of approximately $260.5 million of marine vessel retail loans which continue to constitute a significant portion of the Company's assets, revenues, and earnings. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid. Subsequent to the sale, non-interest expenses related to marine lending have been significantly reduced or eliminated as discussed in variance explanation paragraphs below.

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Salaries and employee benefits decreased during the three and nine months ended September 30, 2024 over 2023, largely reflecting decreases in salaries and stock based compensation expenses while experiencing increases in employee benefits and annual incentive plan expenses. The Company's number of full-time equivalent employees ("FTE's") has decreased from 245 at September 30, 2023 to 233 at September 30, 2024. In addition to normal staffing fluctuation, the decrease in the number of FTE's was due to the sale of the marine finance assets during the third quarter of 2023. The Company reduced its workforce associated with the marine lending division and ceased accepting new marine lending business. Stock based compensation expense decreased due to a higher level of share forfeitures recognized during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. Mostly offsetting these decreases were annual pay increases, an increase in the annual incentive accrual, increasing insurance costs and enhanced employee benefit plans.

Equipment expenses have increased during the three and nine months ended September 30, 2024 compared to the same periods in 2023. A new loan origination system implemented during the fourth quarter of 2023 was a significant driver of the year-over-year increase.

Advertising and marketing expenses and computer software expenses decreased during the nine months ended September 30, 2024 compared to the same period in 2023. This decrease during nine months ended September 30, 2024 was primarily due to the discontinuation of new marine lending business subsequent to August 2023, including costs for business development, as well as corporate rebranding expenses incurred during the 2023 periods.

A repossessed marine vessel was sold during the three months ended September 30, 2024, resulting in the recognition of a $204 thousand loss. There were no sales of repossessed assets during the three and nine months ended September 30, 2023.

FDIC assessment expense, which is based in part on asset size and capital levels, decreased during the three and nine months ended September 30, 2024 over 2023. The decrease in FDIC assessment for the three months ended September 30, 2024 reflects an improvement in the financial ratios portion of the assessment rate, largely due to the decline in the one-year asset growth factor. The assessment rate also includes a two basis point charge by the FDIC, which was applied to all financial institutions beginning in June 2023.

Professional fees decreased between the three and nine months ended September 30, 2024 and the same periods in 2023. During the 2023 period there were legal expenses for the marine lending business, legal costs related to the ESOP termination, and strategic planning expenses that were not incurred during the 2024 periods.

Data processing fee expenses increased during three and nine months ended September 30, 2024 over the same period in 2023, reflecting increased costs for core systems, including fees that are volume based.

Other operating expenses decreased during the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023. The largest driver of the decrease was due to the workforce reduction described above, which included a change in control agreement and sales and travel expenses. Additional year-over-year decreases reflect the Company's focus on expense control measures, as well as the impact of the adoption of ASU 2023-02 to account for its investments in low-income residential rental properties under the proportional amortization method effective January 1, 2024. Upon adoption of this accounting method, amortization expense is no longer recorded in other operating expenses, rather as an adjustment to income tax expense. These decreases were partially offset by increases in loan and collections expenses.

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The efficiency ratio of the Company was 71.34% and 84.71% for the three months ended September 30, 2024 and 2023, respectively. The efficiency ratio of the Company was 75.22% and 81.08% for the nine months ended September 30, 2024 and 2023. The improvement in the efficiency ratio during 2024 reflects an increase in noninterest income, coupled with lower noninterest expenses. Noninterest expenses during the three and nine months ended September 30, 2023 included one-time expenses of $1.0 million related to the sale of the marine finance assets during the third quarter of 2023. Excluding these expenses, the efficiency ratio for three and nine months ended September 30, 2023 would have been 78.71% and 79.02%, respectively. The efficiency ratio is not a measurement under GAAP. It is calculated by dividing noninterest expense by the sum of tax equivalent net interest income and noninterest income. The Company adjusts for non-recurring items such as gains and losses on the investment portfolio and other gains/losses from OREO, repossessed assets, disposals of bank premises and equipment, etc. The tax rate utilized is 21%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency.

The calculation of the efficiency ratio for the three and nine months ended September 30, 2024 and 2023 was as follows:

|  | Three Months Ended |  |  | Nine Months Ended |
|  | September 30, |  |  | September 30, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
|  | (in thousands) |  |  | (in thousands) |
Summary of Operating Results: |  |  |  |  |  |  |  |  |  |  |  |
Noninterest expenses (GAAP) |  | $ | 12,890 |  |  | $ | 14,133 |  |  | $ | 37,777 |  |  | $ | 39,474 |
Less: (Gain) on other real estate owned |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (7 | )
Less: Loss on sale of repossessed assets |  |  | 204 |  |  |  | — |  |  |  | 204 |  |  |  | — |
Adjusted noninterest expenses (non-GAAP) |  | $ | 12,686 |  |  | $ | 14,133 |  |  | $ | 37,573 |  |  | $ | 39,481 |
Net interest income |  |  | 13,157 |  |  |  | 12,907 |  |  |  | 37,728 |  |  |  | 37,977 |
Noninterest income (GAAP) |  |  | 5,251 |  |  |  | 4,218 |  |  |  | 13,036 |  |  |  | 11,117 |
Less: Gain on the sale of marine finance assets |  |  | — |  |  |  | 463 |  |  |  | — |  |  |  | 463 |
Less: Gain (loss) on the sale and disposal of premises and equipment |  |  | — |  |  |  | 7 |  |  |  | (11 | ) |  |  | 14 |
Less: Income from life insurance proceeds (1) |  |  | 653 |  |  |  | — |  |  |  | 907 |  |  |  | — |
Adjusted noninterest income (non-GAAP) |  | $ | 4,598 |  |  | $ | 3,748 |  |  | $ | 12,140 |  |  | $ | 10,640 |
Tax equivalent adjustment (2) |  |  | 28 |  |  |  | 28 |  |  |  | 86 |  |  |  | 79 |
Total net interest income and noninterest income, adjusted (non-GAAP) |  | $ | 17,783 |  |  | $ | 16,683 |  |  | $ | 49,954 |  |  | $ | 48,696 |
Efficiency ratio |  |  | 71.34 | % |  |  | 84.71 | % |  |  | 75.22 | % |  |  | 81.08 | %

(1)
Included in the consolidated statements of income under the heading bank owned life insurance income.
(2)
Includes tax-equivalent adjustments on loans and securities using the federal statutory tax rate of 21%.

Income Taxes

Income tax expense was $550 thousand and $457 thousand during the three months ended September 30, 2024 and 2023, respectively and $1.6 million and $1.4 million during the nine months ended September 30, 2024 and 2023, respectively. The effective tax rate was 13.84% and 16.46% for the three months ended September 30, 2024 and 2023, respectively. The effective tax rate was 15.11% and 16.49% for the nine months ended September 30, 2024 and 2023, respectively. The effective tax rate is below the statutory rate of 21% due to tax-exempt income on investment securities and loans, BOLI, income tax credits on qualified affordable housing project investments, and qualified rehabilitation credits. During the three and nine months ended September 30, 2024, BOLI included income from life insurance proceeds of $653 thousand and $907 thousand, respectively. There was no income from life insurance proceeds in the comparative three and nine month periods. Qualified affordable housing project investments are discussed in Note 12 to the Consolidated Financial Statements.

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FINANCIAL CONDITION

Securities

Total securities available for sale were $130.1 million at September 30, 2024, compared to $137.4 million at December 31, 2023. This represents a decrease of $7.3 million, or 5.38%. The Company purchased no securities during the nine months ended September 30, 2024. The Company had total maturities, calls, and principal repayments of $11.7 million during the nine months ended September 30, 2024. Note 4 to the Consolidated Financial Statements provides additional details about the Company’s securities portfolio at September 30, 2024 and December 31, 2023. The Company had a net unrealized loss on available for sale securities of $18.3 million at September 30, 2024 as compared to a net unrealized loss of $22.8 million at December 31, 2023. Unrealized gains or losses on available for sale securities are reported within shareholders’ equity, net of the related deferred tax effect, as accumulated other comprehensive income (loss). The primary cause of the unrealized losses at September 30, 2024 and December 31, 2023 was changes in market interest rates and other market conditions and not credit concerns of the issuers. Since the losses can be primarily attributed to changes in market interest rates and conditions and not expected cash flows or an issuer’s financial condition and management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, the Company concluded a credit loss did not exist.

Loan Portfolio

The Company’s primary use of funds is supporting lending activities from which it derives the greatest amount of interest income. Gross loans were $1.48 billion and $1.46 billion at September 30, 2024 and December 31, 2023, respectively. This represents an increase of $20.6 million, or 1.41%, during the nine months ended September 30, 2024. The ratio of gross loans to deposits decreased during the nine months ended September 30, 2024 from 97.10% at December 31, 2023 to 95.95% at September 30, 2024.

The loan portfolio consists primarily of loans for owner-occupied single-family dwellings and loans secured by commercial real estate. Note 5 to the Consolidated Financial Statements provides the composition of the loan portfolio at September 30, 2024 and December 31, 2023. During the nine months ended September 30, 2024, through the normal course of business, $47.3 million in loans were sold, consisting primarily of mortgage loans. These loan sales resulted in net gains of $1.3 million. The balance of gross loans experienced solid growth, primarily in loans secured by real estate, which more than offset decreases in the marine and consumer loan portfolios due to paydowns and a large consumer loan payoff during 2024.

Residential real estate loans, consisting of first liens, junior liens and home equity loans, were $367.3 million, or 24.76%, and $356.1 million, or 24.35%, of total loans at September 30, 2024 and December 31, 2023, respectively. The increase of $11.2 million, or 3.14%, is primarily due to originations of residential adjustable-rate jumbo loans held in portfolio.

Commercial real estate loans (including multifamily loans) were $630.6 million, or 42.51%, and $600.3 million, or 41.04%, of total loans at September 30, 2024 and December 31, 2023, respectively, representing an increase of $30.3 million, or 5.04%, during the nine months ended September 30, 2024. Owner occupied commercial real estate loans experienced a $21.8 million increase during the nine months ended September 30, 2024, and non-owner occupied and multifamily commercial real estate loans increased $8.5 million during the same period.

Construction and secured by farmland loans totaled $97.2 million at September 30, 2024 compared to $84.1 million at December 31, 2023. This increase of $13.1 million, or 15.48%, primarily reflects a $17.2 million construction loan in the current quarter with an existing commercial borrower.

Marine loans were $225.9 million, or 15.23%, and $251.2 million, or 17.17%, of total loans at September 30, 2024 and December 31, 2023, respectively, representing a decrease of $25.3 million, or 10.06%. The decline in marine loans reflects paydowns, payoffs and charge-offs only and no new originations. On August 23, 2023, the Company completed a sale of specific assets from its marine lending segment. As part of the sale, the Company sold its interest in marine vessel floor plan loans totaling

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$52.8 million and reduced its workforce associated with the marine lending division as it expects to cease accepting new marine lending business. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid.

Allowance for Credit Losses on Loans

The purpose of, and the methods for, measuring the allowance for credit losses on loans are discussed in the Critical Accounting Policies section in the 2023 Form 10-K. Note 5 to the Consolidated Financial Statements shows the activity within the allowance for credit losses on loans during the three and nine months ended September 30, 2024 and 2023 and the year ended December 31, 2023. Charged-off loans were $2.3 million and $314 thousand for the nine months ended September 30, 2024 and 2023, respectively. Of the total charge-offs during the nine months ended September 30, 2024, $1.5 million, or 64.50%, were marine loans reflecting clean-up within the portfolio and not a systemic performance issue. Recoveries were $754 thousand and $255 thousand for the nine months ended September 30, 2024 and 2023, respectively. This resulted in net charge-offs (recoveries) of $1.5 million and $59 thousand for the nine months ended September 30, 2024 and 2023, respectively. The annualized ratio of net charge-offs (recoveries) to average loans was 0.42% and 0.02% for the nine months ended September 30, 2024 and 2023, respectively. The allowance for credit losses on loans as a percentage of loans was 1.03% at September 30, 2024 and 0.99% at December 31, 2023. The increase as compared to December 31, 2023 was mainly attributable to net loan charge-offs and a specific reserve on a collateral-dependent commercial business loan relationship.

Management believes that the allowance for credit losses on loans is currently adequate to absorb the current expected losses in the loan portfolio.

Credit Risk, Nonperforming Assets and Other Assets

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, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk on a quarterly basis. Loans risk rated as special mention, which exhibit negative trends and potential weaknesses, totaled $73.4 million at September 30, 2024 compared to $33.5 million at December 31, 2023. Loans risk rated as classified, include substandard, doubtful, and loss loans, totaled $3.0 million and $8.0 million at September 30, 2024 and December 31, 2023, respectively. All other loans were classified as pass, exhibiting acceptable history of profits, cash flow ability and liquidity. The increase in special mention loans of $39.9 million was primarily in the owner-occupied commercial real estate portfolio as loans were downgraded from pass as the result of not having current financial statement information available at their annual review. Upon receipt of current financial information, the loans will be evaluated and returned to a pass classification if appropriate.

Nonperforming assets consist of nonaccrual loans, repossessed assets, OREO (foreclosed properties), and loans past due 90 days or more and still accruing as detailed in the table below.

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|  | September 30, 2024 |  |  | December 31, 2023 |
Nonaccrual loans |  | $ | 2,344 |  |  | $ | 5,645 |
Loans past due 90 days or more and accruing interest |  |  | 334 |  |  |  | 181 |
Other real estate owned and repossessed assets |  |  | 99 |  |  |  | 304 |
Total nonperforming assets |  | $ | 2,777 |  |  | $ | 6,130 |
Allowance for credit losses on loans |  | $ | 15,303 |  |  | $ | 14,493 |
Gross loans |  | $ | 1,483,328 |  |  | $ | 1,462,686 |
Allowance for credit losses on loans to nonperforming assets |  |  | 551 | % |  |  | 236 | %
Allowance for credit losses on loans to total loans |  |  | 1.03 | % |  |  | 0.99 | %
Allowance for credit losses on loans to nonaccrual loans |  |  | 653 | % |  |  | 257 | %
Nonaccrual loans to total loans |  |  | 0.16 | % |  |  | 0.40 | %
Non-performing assets to period end loans, other real estate owned and repossessed assets |  |  | 0.19 | % |  |  | 0.42 | %

Nonperforming assets decreased by $3.4 million during the nine months ended September 30, 2024. Nonaccrual loans were $2.3 million and $5.6 million at September 30, 2024 and December 31, 2023, respectively. There was $99 thousand in OREO and repossessed assets at September 30, 2024 and $304 thousand at December 31, 2023. There were $251 thousand in loans past due 90 days or more and still accruing at September 30, 2024 and $181 thousand in loans past due 90 days or more and still accruing at December 31, 2023. The percentage of nonperforming assets to loans, OREO and repossessed assets was 0.18% at September 30, 2024 and 0.42% at December 31, 2023.

Total past due loans, as disclosed in Note 5 to the Consolidated Financial Statements, increased to $8.2 million at September 30, 2024 compared to $2.3 million at December 31, 2023. The $5.9 million increase in past due loans was primarily due to one relationship, consisting of two real estate secured loans totaling $6.8 million, for which the loans have matured and a 90-day extension has been approved. Total past due loans as of September 30, 2024 consist of loans secured by real estate totaling $7.7 million, and consumer and commercial business loans totaling $513 thousand.

During the nine months ended September 30, 2024, nonaccrual loans decreased by $3.3 million and totaled $2.3 million at September 30, 2024 compared to $5.6 million at December 31, 2023. The decrease primarily reflects $4.2 million in payoffs of two commercial real estate loans and three residential investor real estate loans and loan charge-offs totaling $651 thousand. These decreases were partially offset by two commercial business loan relationships totaling $937 thousand and a $748 thousand owner-occupied commercial real estate loan added to nonaccrual loans during the nine months ended September 30, 2024. Management evaluates the financial condition of borrowers and the value of any collateral on nonaccrual loans. The results of these evaluations are used to estimate the amount of losses which may be realized on the disposition of these nonaccrual loans and are reflected in the allowance for credit losses on loans. At September 30, 2024 there was a $268 thousand allowance for credit losses required on the commercial business loan relationship due to a potential deficiency in collateral value. There was no allowance for credit losses required on nonaccrual loans at December 31, 2023.

Loans are placed on nonaccrual status when collection of principal and interest is doubtful, generally when a loan becomes 90 days past due. There are three negative implications for earnings when a loan is placed on non-accrual status. First, all interest accrued but unpaid at the date that the loan is placed on non-accrual status is either deducted from interest income or written off as a loss. Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Finally, there may be actual losses to principal that require additional provisions for credit losses to be charged against earnings.

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For real estate loans, upon foreclosure, the balance of the loan is transferred to OREO and carried at the fair value of the property based on current appraisals and other current market trends, less estimated selling costs. If a write down of the OREO property is necessary at the time of foreclosure, the amount is charged-off to the allowance for credit losses. A review of the recorded property value is performed in conjunction with normal quarterly reviews, and if market conditions indicate that the recorded value exceeds the fair value, additional write downs of the property value are charged directly to operations.

Deposits

Total deposits were $1.55 billion and $1.51 billion at September 30, 2024 and December 31, 2023, respectively. This represents an increase of $39.6 million or 2.63% during the nine months ended September 30, 2024. Note 7 to the Consolidated Financial Statements provides the composition of total deposits at September 30, 2024 and December 31, 2023. The total increase in deposits was in both core accounts, which increased $15.9 million and non-core accounts, which increased $23.7 million. During the first three quarters of 2024, noninterest demand deposits experienced a decline of $23.0 million, while savings and interest bearing demand deposits declined $838 thousand. Total time deposits increased $63.5 million during the nine months ended September 30, 2024 reflecting increases of $33.9 million and $29.6 million for time deposits with balances less than $250,000 and time deposits with balances $250,000 and more, respectively. Marketing efforts, including rate specials, have been utilized to maintain maturing accounts and to acquire new time deposit accounts. Core deposits, consisting of checking accounts, NOW accounts, money market accounts, regular savings accounts and time deposits less than $250,000, totaled $1.29 billion, or 83.53% of total deposits at September 30, 2024 compared to $1.28 billion, or 84.67%, of total deposits at December 31, 2023. At September 30, 2024, over 75% of deposits were fully FDIC insured.

CAPITAL RESOURCES

The Bank continues to be a well capitalized financial institution. Total shareholders’ equity at September 30, 2024 was $117.8 million, reflecting a percentage of total assets of 6.26%, as compared to $108.4 million and 5.94% at December 31, 2023. The $9.4 million increase in shareholders’ equity was primarily due to net income of $9.2 million earned during the nine months ended September 30, 2024 and a decrease in unrealized losses on the securities available for sale portfolio of $4.5 million or $3.6 million, net of tax. These increases in shareholders' equity were partially offset by dividends declared of $3.2 million. During each of the nine months ended September 30, 2024 and 2023, the Company declared dividends of $0.90. The Company has a Dividend Investment Plan that allows shareholders to reinvest dividends in Company stock.

At September 30, 2024, the Bank met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions. The Bank monitors these ratios on a quarterly basis and has several strategies, including without limitation the issuance of common stock, to ensure that these ratios remain above regulatory minimums. The Bank's capital amounts and ratios are presented using the Federal Reserve's risk-based capital framework.

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Effective January 1, 2015, the Federal Reserve issued final risk-based capital rules to align with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. The final rules require the Bank to comply with the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (iii) a total capital ratio of 8.0% of risk-weighted assets; and (iv) a leverage ratio of 4.0% of total assets. In addition, a capital conservation buffer requirement of 2.5% was effective January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with any ratio (excluding the leverage ratio) above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The capital conservation buffer rule requires the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.

At September 30, 2024 and December 31, 2023, the Bank's capital ratios were as follows: Common equity Tier 1 capital was 10.57% and 10.27%, respectively, Tier 1 risk-based capital was 10.57% and 10.27%, respectively, Total risk-based capital was 11.53% and 11.16%, respectively, and Tier 1 leverage was 8.70% and 8.48%, respectively.

Pursuant to the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, are not subject to consolidated regulatory capital requirements.

On March 31, 2022, the Company entered into Subordinated Note Purchase Agreements with certain purchasers pursuant to which the Company issued and sold $30.0 million in aggregate principal amount of its 4.50% Fixed-to-Floating Rate Subordinated Notes due April 1, 2032. See Note 14 to the Consolidated Financial Statements included in this Form 10-Q, for discussion of subordinated debt.

LIQUIDITY

Liquidity management involves meeting the present and future financial obligations of the Company with the sale or maturity of assets or with the occurrence of additional liabilities. Liquidity needs are met with cash on hand, deposits in banks, federal funds sold, unpledged securities classified as available for sale and loans maturing within one year. At September 30, 2024, liquid assets totaled $310.7 million as compared to $367.7 million at December 31, 2023. These amounts represented 17.61% and 21.41% of total liabilities at September 30, 2024 and December 31, 2023, respectively. In the third quarter of 2024, the Company pledged available for sale mortgage-backed securities totaling $110.2 million with the Federal Reserve Bank discount window, which reduced its liquid assets and reinforced its ability to obtain liquidity from the Federal Reserve Bank discount window. The Company generally attempts to minimize liquidity demand by primarily utilizing core deposits to fund asset growth. Securities provide a constant source of liquidity through paydowns and maturities. Also, the Company maintains short-term borrowing arrangements, namely federal funds lines of credit, with larger financial institutions as an additional source of liquidity. The Bank’s membership with the Federal Home Loan Bank of Atlanta provides a source of borrowings with numerous rate and term structures. The Company’s senior management monitors the liquidity position regularly and attempts to maintain a position which utilizes available funds most efficiently.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

There have been no material changes in off-balance sheet arrangements and contractual obligations as reported in the 2023 Form 10-K.

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Item 3. Quantitative and Qualitati ve Disclosures about Market Risk

There have been no material changes in Quantitative and Qualitative Disclosures about Market Risk as reported in the 2023 Form 10-K.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

The Company, under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2024 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

Management is also responsible for establishing and maintaining adequate internal control over the Company’s financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended). The Company is currently using the 2013 COSO Framework.

There were no changes in the Company’s internal control over financial reporting during the Company’s three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHE R INFORMATION

Item 1. Legal Proceedings

There are no material pending legal proceedings to which the Company is a party or of which the property of the Company is subject.

Item 1A. Ri sk Factors

There were no material changes to the Company’s risk factors as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2023.

Item 2. Unregistered Sales of Equi ty Securities and Use of Proceeds

The following table details the Company's purchases of its common stock during the third quarter of 2024 pursuant to its Stock Repurchase Program ("the Program"). On September 18, 2024, the Company re-authorized the purchase of up to 150,000 shares for repurchase under the Program, during its September 18, 2024 Board of Directors meeting. The Program expires on June 30, 2025.

|  | Issuer Purchases of Equity Securities |
|  | Total Number of Shares Purchased |  |  | Average Price Paid Per Share |  |  | Total Number of Shares Purchased as Part of Publicly Announced Plan |  |  | Maximum Number of Shares that may Yet Be Purchased Under the Plan |
|  |  |  |  |  |  |  |  |  |  |  | 150,000 |
July 1 - July 31, 2024 |  |  | 1,878 |  |  | $ | 30.52 |  |  |  | 1,878 |  |  |  | 148,122 |
August 1 - August 31, 2024 |  |  | — |  |  |  | — |  |  |  | 1,878 |  |  |  | 148,122 |
September 1 - September 30, 2024 |  |  | — |  |  |  | — |  |  |  | 1,878 |  |  |  | 148,122 |
|  |  | 1,878 |  |  | $ | 30.52 |  |  |  | 1,878 |  |  |  | 148,122 |

Item 3. Defaults Upo n Senior Securities

None.

Item 4. Mine Saf ety Disclosures

None.

Item 5. Other Information

During the fiscal quarter ended September 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408(a) of Regulation S-K).

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Item 6. E xhibits

The following exhibits are filed with this Form 10-Q or incorporated by reference to previous filings. This list includes the exhibit index:

31.1 |  | Certification by Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 |  | Certification by Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 |  | Certification by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 |  | The following materials from the Eagle Financial Services, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 formatted in Inline Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income (Loss) (iv) Consolidated Statements of Changes in Shareholders' Equity, (v) Consolidated Statements of Cash Flows and (vi) notes to Consolidated Financial Statements.
104 |  | The cover page from the Eagle Financial Services, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2024 formatted in Inline XBRL (included with Exhibit 101).

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SIGNAT URES

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, this 14th day of November, 2024.

Eagle Financial Services, Inc.

By: |  |  | /S/ BRANDON C. LOREY
|  |  | Brandon C. Lorey President and Chief Executive Officer
By: |  |  | /S/ KATHLEEN J. CHAPPELL
|  |  | Kathleen J. Chappell Executive Vice President, Chief Financial Officer

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