FIRST US BANCSHARES INC

Previous wording

First US Bancshares, Inc., a Delaware corporation (“Bancshares” and, together with its subsidiary, the “Company”), is a bank holding company formed in 1983 registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Bancshares operates one wholly owned banking subsidiary, First US Bank, an Alabama banking corporation (the “Bank”). Bancshares and the Bank are headquartered in Birmingham, Alabama. Previously, the Bank operated two wholly owned subsidiaries, Acceptance Loan Company and FUSB Reinsurance, Inc., both of which were legally dissolved in 2023, and all remaining assets and liabilities of these entities were transferred to the Bank prior to December 31, 2023.

Current wording

First US Bancshares, Inc., a Delaware corporation (“Bancshares” and, together with its subsidiary, the “Company”), is a bank holding company formed in 1983 registered under the Bank Holding Company Act of 1956, as amended (the “BHCA”). Bancshares operates one wholly owned banking subsidiary, First US Bank, an Alabama banking corporation (the “Bank”). Bancshares and the Bank are headquartered in Birmingham, Alabama. Previously, the Bank operated two additional wholly owned subsidiaries, Acceptance Loan Company and FUSB Reinsurance, Inc., both of which were legally dissolved in 2023, and all remaining assets and liabilities of these entities were transferred to the Bank prior to December 31, 2023.

Previous wording

Delivery of the best possible financial services to customers remains an overall operational focus of the Company. The Company recognizes that attention to detail and responsiveness to customers’ desires are critical to customer satisfaction. The Company continues to upgrade technology, both in its financial services and in the training of its 154 full-time equivalent employees (as of March 31, 2024), to ensure customer satisfaction and convenience.

Current wording

Delivery of the best possible financial services to customers remains an overall operational focus of the Company. The Company recognizes that attention to detail and responsiveness to customers’ desires are critical to customer satisfaction. The Company continues to upgrade technology, both in its financial services and in the training of its 155 full-time equivalent employees (as of June 30, 2024), to ensure customer satisfaction and convenience.

Previous wording

The emphasis of this discussion is a comparison of assets, liabilities and shareholders’ equity as of March 31, 2024 to December 31, 2023, while comparing income and expense for the three months ended March 31, 2024 and 2023. All yields and ratios presented and discussed herein are recorded and presented on the accrual basis and not on the tax-equivalent basis, unless otherwise indicated.

Current wording

The emphasis of this discussion is a comparison of assets, liabilities and shareholders’ equity as of June 30, 2024 to December 31, 2023, while comparing income and expense for the six months ended June 30, 2024 and 2023. All yields and ratios presented and discussed herein are recorded and presented on the accrual basis and not on the tax-equivalent basis, unless otherwise indicated.

Previous wording

During the three months ended March 31, 2024, the banking industry continued to be impacted by economic volatility that has persisted since early 2023. Following a reduction in January 2024, the U.S. inflation rate increased in the latter two months of the quarter and remained elevated over the Federal Reserve Bank’s (“FRB”) long run target of 2%. Throughout the first quarter of 2024, the FRB maintained the target federal funds rate in a range from 5.25% to 5.50% where it has remained since July 2023. Recent economic indicators suggested that economic activity in the U.S. continued to expand at a solid pace during the first quarter of 2024 and job gains remained strong. In assessing monetary policy, FRB officials continued to indicate a commitment to maintaining the federal funds target range until greater confidence is gained that inflation is moving sustainably toward 2%.

Current wording

During the six months ended June 30, 2024, the banking industry continued to be impacted by economic volatility and the higher interest rate environment that has persisted since 2022. Following a reduction in January 2024, the U.S. inflation rate increased in the latter two months of the first quarter, but decreased during the second quarter. As of June 30, 2024, inflation remained elevated above the Federal Reserve Bank’s (“FRB”) longer run target of 2%; however, it had eased considerably since the highs reached in late 2022. Throughout the first six months of 2024, the FRB maintained the target federal funds rate in a range from 5.25% to 5.50% where it has remained since July 2023. Recent economic indicators suggested that economic activity in the U.S. continued to expand in the second quarter of 2024. In addition, the unemployment rate increased slightly during the second quarter of 2024; however, it remained at a relatively low level (approximately 4.0%) as the quarter came to a close. In assessing monetary policy, FRB officials continued to indicate a commitment to maintaining the federal funds target range until greater confidence is gained that inflation is moving sustainably toward 2%.

Previous wording

U.S. Treasury rates increased notably during the first quarter of 2024 due to changing sentiment in interest rate expectations, and as of March 31, 2024, the U.S. Treasury curve remained inverted. Competitive pressures in the banking industry also remained elevated due to the higher interest rate environment, particularly with respect to deposit pricing. The elevated interest rate environment, combined with higher inflation levels sustained for a longer period of time, could put additional strain on borrowers, as well as the Company’s own costs of goods and services, including the cost of salaries and benefits. These uncertainties, combined with ongoing geopolitical uncertainty, provide a difficult operating environment throughout the banking industry. Management continues to carefully navigate the Company’s course through these challenges, and believes the Company is well positioned to respond effectively in multiple operating environments. However, additional inflationary pressure, higher interest rates, and a fiercely competitive environment could put downward pressure on the Company’s positioning and results of operations.

Current wording

U.S. Treasury rates increased modestly during the second quarter of 2024 compared to the first quarter of 2024 due to changing sentiment in interest rate expectations, and as of June 30, 2024, the U.S. Treasury curve remained inverted. Competitive pressures in the banking industry remained elevated due to the higher interest rate environment, particularly with respect to deposit pricing. The elevated interest rate environment, combined with higher inflation levels sustained for a longer period of time, could put additional strain on borrowers, as well as the Company’s own costs of goods and services, including the cost of salaries and benefits. These uncertainties, combined with ongoing geopolitical uncertainty, provide a difficult operating environment throughout the banking industry. Management continues to carefully navigate the Company’s course through these challenges, and believes the Company is well positioned to respond effectively in multiple operating environments. However, additional inflationary pressure, higher interest rates, and a fiercely competitive environment could put downward pressure on the Company’s positioning and results of operations.

Previous wording

The Company earned net income of $2.1 million, or $0.34 per diluted common share, during the three months ended March 31, 2024, compared to $2.1 million, or $0.33 per diluted common share, for the three months ended March 31, 2023.

Current wording

The Company earned net income of $2.1 million, or $0.34 per diluted common share, during the three months ended June 30, 2024, compared to $2.0 million, or $0.31 per diluted common share, for the three months ended June 30, 2023. For the six months ended June 30, 2024, net income totaled $4.2 million, or $0.68 per diluted common share, compared to $4.1 million, or $0.64 per diluted common share, for the six months ended June 30, 2023.

Previous wording

Summarized condensed consolidated statements of operations are included below for the three months ended March 31, 2024 and 2023.

Current wording

Summarized condensed consolidated statements of operations are included below for the three and six months ended June 30, 2024 and 2023.

Previous wording

The discussion that follows summarizes the most significant activity that drove changes in the Company’s operating results during the three months ended March 31, 2024, as compared to the three months ended March 31, 2023.

Current wording

The discussion that follows summarizes the most significant activity that drove changes in the Company’s operating results during the six months ended June 30, 2024, as compared to the six months ended June 30, 2023.

Previous wording

No net provision for credit losses was recorded during the three months ended March 31, 2024, compared to $0.3 million during the three months ended March 31, 2023. The Company’s determination that no net credit loss provisioning was required during the first quarter of 2024 was due to modest overall loan growth during the quarter, combined with a decrease in both unfunded lending commitments and indirect loan fundings. The indirect portfolio generally requires higher allowances for credit losses than most other loan categories in the Company’s portfolio. As of March 31, 2024, the Company’s allowance for credit losses on loans and leases as a percentage of total loans was 1.27%, compared to 1.28% as of December 31, 2023.

Current wording

No provision for credit losses was recorded during the six months ended June 30, 2024, compared to $0.6 million during the six months ended June 30, 2023. The Company’s determination that no provisioning was required during the first six months of 2024 was due to loan portfolio balance reductions (in particular, consumer balances which generally contain higher loss ratios) combined with a decrease in unfunded lending commitments. As of June 30, 2024, the Company’s allowance for credit losses on loans and leases as a percentage of total loans was 1.25%, compared to 1.28% as of December 31, 2023.

Previous wording

Non-interest income remained relatively consistent, totaling $0.9 million and $0.8 million for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Non-interest income remained relatively consistent, totaling $1.7 million and $1.6 million for the six months ended June 30, 2024 and 2023, respectively.

Previous wording

As of March 31, 2024, the Company’s assets totaled $1,070.5 million, compared to $1,072.9 million as of December 31, 2023, a decrease of 0.2%.

Current wording

As of June 30, 2024, the Company’s assets totaled $1,083.3 million, compared to $1,072.9 million as of December 31, 2023, an increase of 1.0%.

Previous wording

Nonperforming assets, including loans in non-accrual status and OREO, totaled $3.0 million as of both March 31, 2024 and December 31, 2023. As a percentage of total assets, nonperforming assets totaled 0.28% as of both March 31, 2024 and December 31, 2023. Annualized net charge-offs as a percentage of average loans during the first quarter of 2024 totaled 0.09%, compared to 0.11% during the corresponding period of 2023.

Current wording

Nonperforming assets, including loans in non-accrual status and OREO, totaled $2.9 million as of June 30, 2024, compared to $3.0 million as of December 31, 2023. As a percentage of total assets, nonperforming assets totaled 0.27% as of June 30, 2024, compared to 0.28% as of December 31, 2023. Annualized net charge-offs as a percentage of average loans during the six months ended June 30, 2024 totaled 0.10%, compared to 0.14% during the corresponding period of 2023.

Previous wording

Deposits totaled $943.3 million as of March 31, 2024, compared to $950.2 million as of December 31, 2023. The decrease was due primarily to reductions in non-interest bearing and interest-bearing direct deposit accounts, partially offset by increases in interest-bearing time deposits. The shift to interest-bearing time deposits is consistent with deposit holders seeking to maximize interest earnings, a condition that has persisted in the current interest rate environment. The increase in interest-bearing time deposits was partially offset by a reduction in wholesale brokered time deposits of $5.5 million during the three months ended March 31, 2024. Core deposits, which exclude time deposits of $250 thousand or more and all wholesale brokered deposits, totaled $807.3 million, or 85.6% of total deposits, as of March 31, 2024, compared to $819.5 million, or 86.2% of total deposits, as of December 31, 2023.

Current wording

Deposits totaled $954.5 million as of June 30, 2024, compared to $950.2 million as of December 31, 2023. The increase since December 31, 2023 was due primarily to increased interest-bearing time deposits, partially offset by decreased non-interest bearing and interest-bearing direct deposit accounts. The shift to interest-bearing time deposits is consistent with deposit holders seeking to maximize interest earnings, a condition that has persisted in the current interest rate environment. The increase in interest-bearing time deposits was partially offset by a reduction in wholesale brokered time deposits of $10.3 million during the six months ended June 30, 2024. Core deposits, which exclude time deposits of $250 thousand or more and all wholesale brokered deposits, totaled $813.4 million, or 85.2% of total deposits, as of June 30, 2024, compared to $819.5 million, or 86.2% of total deposits, as of December 31, 2023.

Previous wording

As of March 31, 2024, the Company held cash and federal funds sold balances totaling $65.8 million, or 6.1% of total assets, compared to $59.8 million, or 5.6% of total assets, as of December 31, 2023. Investment securities, including both the available-for-sale and held-to-maturity portfolios, totaled $126.4 million as of March 31, 2024, compared to $136.7 million as of December 31, 2023. The decrease in investment securities resulted from the maturity of U.S. treasury bonds that occurred late in the first quarter. Subsequent to March 31, 2024, these funds were reinvested in higher yielding securities. As of March 31, 2024, the expected average life of securities in the investment portfolio was 4.2 years, compared to 3.9 years as of December 31, 2023. In the current elevated interest rate environment, management continues to seek opportunities to reconfigure the investment portfolio with higher yielding assets as cash flows become available.

Current wording

As of June 30, 2024, the Company held cash and federal funds sold balances totaling $63.7 million, or 5.9% of total assets, compared to $59.8 million, or 5.6% of total assets, as of December 31, 2023. Investment securities, including both the available-for-sale and held-to-maturity portfolios, totaled $144.9 million as of June 30, 2024, compared to $136.7 million as of December 31, 2023. During the six months ended June 30, 2024, $27.5 million was invested in taxable U.S. agency-sponsored bonds, resulting in improved yields in the investment portfolio. As of June 30, 2024, the expected average life of securities in the investment portfolio was 4.3 years, compared to 3.9 years as of December 31, 2023. In the current higher interest rate environment, management continues to seek opportunities to reconfigure the investment portfolio with higher yielding assets as cash flows become available.

Previous wording

The Company declared cash dividends totaling $0.05 per share on its common stock during both the three months ended March 31, 2024 and 2023.

Current wording

The Company declared cash dividends totaling $0.10 per share on its common stock during both the six months ended June 30, 2024 and 2023.

Previous wording

During the three months ended March 31, 2024, the Bank continued to maintain capital ratios at higher levels than required to be considered a “well-capitalized” institution under applicable banking regulations. As of March 31, 2024, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 11.11%. Its total capital ratio was 12.32%, and its Tier 1 leverage ratio was 9.37%.

Current wording

During the six months ended June 30, 2024, the Bank continued to maintain capital ratios at higher levels than required to be considered a “well-capitalized” institution under applicable banking regulations. As of June 30, 2024, the Bank’s common equity Tier 1 capital and Tier 1 risk-based capital ratios were each 11.28%. Its total capital ratio was 12.47%, and its Tier 1 leverage ratio was 9.46%.

Previous wording

During the three months ended March 31, 2024, the Company purchased $50 million notional in interest rate floors to assist in mitigating a portion of the Company’s risk in down rate scenarios.

Current wording

During the first quarter of 2024, the Company purchased a notional amount of $50 million in interest rate floors to assist in mitigating a portion of the Company’s risk in down rate scenarios. The Company did not purchase any additional derivative contracts during the second quarter of 2024.

Previous wording

As part of the Company’s overall growth strategy, progress was made during the three months ended March 31, 2024 toward the anticipated opening of a new banking center in the Bearden area of Knoxville, Tennessee that will replace the Bank’s existing Knoxville-Bearden location. It is anticipated that the new location, which is expected to open during the second quarter of 2024, will provide more favorable exposure to potential customers, while at the same time improving access to most of the Bank’s existing customers in the area. In addition, during the three months ended March 31, 2024, the Company purchased a banking center office in Daphne, Alabama from another financial institution. This location is expected to serve as the Bank’s initial deposit gathering facility in the Daphne/Mobile area. It is anticipated that the location will open to the public in the fourth quarter of 2024. As of March 31, 2024, both the anticipated Knoxville and Daphne banking centers had received all necessary regulatory approvals.

Current wording

As part of the Company’s overall growth strategy, during the second quarter of 2024, the Company opened a new banking center in the Bearden area of Knoxville, Tennessee that replaced the Bank’s previously existing Knoxville-Bearden location. It is anticipated that the new location will provide more favorable exposure to potential customers, while at the same time improving access to most of the Bank’s existing customers in the area. In addition, during the second quarter of 2024, the Company commenced renovation of a banking center office in Daphne, Alabama that was purchased from another financial institution during the first quarter of 2024. This location is expected to serve as the Bank’s initial deposit gathering facility in the Daphne/Mobile area, and it is anticipated that the location will open to the public in early 2025.

Previous wording

The following tables show the average balances of each principal category of assets, liabilities and shareholders’ equity for the three months ended March 31, 2024 and 2023. Additionally, the tables provide an analysis of interest revenue or expense associated with each category, along with the accompanying yield or rate percentage. Net interest margin is calculated for each period presented as net interest income divided by average total interest-earning assets.

Current wording

The following tables show the average balances of each principal category of assets, liabilities and shareholders’ equity for the three and six months ended June 30, 2024 and 2023. Additionally, the tables provide an analysis of interest revenue or expense associated with each category, along with the accompanying yield or rate percentage. Net interest margin is calculated for each period presented as net interest income divided by average total interest-earning assets.

Previous wording

Interest income increased by $2.3 million, comparing the three months ended March 31, 2024 to the three months ended March 31, 2023. Of the increase, $1.4 million was attributable to higher average yields on interest-earning assets, while $0.9 million was attributable to growth in interest-earning assets comparing the two periods. The increase in average yield was attributable to the rise in market interest rates that began in 2022, continued in 2023 and held relatively consistent in 2024.

Current wording

Interest income increased by $3.9 million, comparing the six months ended June 30, 2024 to the six months ended June 30, 2023. Of the increase, $2.5 million was attributable to higher average yields on interest-earning assets, while $1.3 million was attributable to growth in interest-earning assets comparing the two periods. The increase in average yield was attributable to the rise in market interest rates that began in 2022, continued in 2023 and held relatively consistent in 2024.

Previous wording

The increase in interest income was offset by an increase in interest expense of $2.7 million, comparing the three months ended March 31, 2024 to the three months ended March 31, 2023. Of the increase, $2.4 million was attributable to the rise in market interest rates, while $0.3 million was attributable to growth in interest-bearing liabilities, primarily savings and time deposits.

Current wording

The increase in interest income was offset by an increase in interest expense of $4.4 million, comparing the six months ended June 30, 2024 to the six months ended June 30, 2023. Of the increase, $3.8 million was attributable to the rise in market interest rates, while $0.6 million was attributable to growth in interest-bearing liabilities, primarily savings and time deposits.

Previous wording

The rising market interest rate environment has had, and continues to have, a significant impact on the Company and the banking industry in general. Beginning in March 2022 and through July 2023, the FRB raised the federal funds rate by a total of 525 basis points. Statements by FRB officials have indicated that the FRB remains committed to maintaining the federal funds rate at this level until greater confidence is gained that inflation is moving sustainably toward the FRB’s long-run goal of 2%. Due to the pace of interest rate increases that occurred in the period from March 2022 to July 2023, the Company’s net interest margin declined in 2023 as the cost of interest-bearing liabilities increased at a faster pace than interest-earning assets. While net interest margin continued to decline during the three months ended March 31, 2024, the pace of decline slowed to two basis points comparing the first quarter of 2024 to the fourth quarter of 2023. While this slowing of margin compression is notable, the sustained higher interest rate environment has continued to intensify competition for deposits within the Company’s service territories during the first three months of 2024. This increased competition, coupled with continued economic volatility, adds uncertainty into the market. Should market interest rates continue to increase or decrease at significant levels, the Company’s net interest income could be negatively impacted.

Current wording

The rising market interest rate environment has had, and continues to have, a significant impact on the Company and the banking industry in general. Beginning in March 2022 and through July 2023, the FRB raised the federal funds rate by a total of 525 basis points. Since July 2023, the FRB has maintained the federal funds rate in a range of 5.25% to 5.50%. Statements by FRB officials have indicated that the FRB remains committed to maintaining the federal funds rate at this level until greater confidence is gained that inflation is moving sustainably toward the FRB’s long-run goal of 2%. Due to the pace of interest rate increases that occurred in the period from March 2022 to July 2023, the Company’s net interest margin declined in 2023 as the cost of interest-bearing liabilities increased at a faster pace than interest-earning assets. In the wake of the rising interest rate environment that began in 2022, the Company’s net interest margin compressed for five consecutive quarters through the first quarter of 2024, before expanding by 4 basis points in the second quarter of 2024. The expansion of margin in the second quarter of 2024 compared to the first quarter of 2024 was attributable to increases in both average investment securities and yields on investment securities that enabled interest-earning assets to reprice at a faster pace than interest-bearing liabilities during the quarter. Net interest margin was 3.69% in the second quarter of 2024, compared to 3.65% in the first quarter of 2024. While this increase in net interest margin is notable, the sustained higher interest rate environment has continued to intensify competition for deposits within the Company’s service territories during the first six months of 2024. This increased competition, coupled with continued economic volatility, adds uncertainty into the market. Should market interest rates continue to increase or decrease at significant levels, the Company’s net interest income could be negatively impacted.

Previous wording

No provision for credit losses was recorded during the three months ended March 31, 2024, compared to a provision $0.3 million during the three months ended March 31, 2023. The calculation of the provision for credit losses included a recovery of previously recorded credit losses on unfunded lending commitments that was fully offset by provisioning for credit losses on loans and leases. The Company’s determination that no net credit loss provisioning was required during the three months ended March 31, 2024 was due to modest overall loan growth during the quarter, combined with a decrease in both unfunded lending commitments and indirect loan fundings. The indirect portfolio generally requires higher allowances for credit losses than most other loan categories in the Company’s portfolio. As of March 31, 2024, the Company’s allowance for credit losses on loans and leases as a percentage of total loans was 1.27%, compared to 1.28% as of December 31, 2023.

Current wording

No provision for credit losses was recorded during the six months ended June 30, 2024, compared to a provision of $0.6 million during the six months ended June 30, 2023. The Company’s determination that no provisioning was required during the first six months of 2024 was due to loan portfolio balance reductions (in particular, consumer balances which generally contain higher loss ratios) combined with a decrease in unfunded lending commitments. As of June 30, 2024, the Company’s allowance for credit losses on loans and leases as a percentage of total loans was 1.25%, compared to 1.28% as of December 31, 2023.

Previous wording

Net charge-offs were relatively consistent, totaling $0.2 million for both the three months ended March 31, 2024 and 2023. However, the ongoing timing of charge-offs, economic developments, and other factors that could impact the provision for credit losses cannot be fully predicted with certainty. Sustained levels of high inflation, combined with the recent rapid rise in market interest rates, could negatively impact the Company’s borrowers, which could lead to increased provisions for credit losses in the future.

Current wording

Net charge-offs were relatively consistent, totaling $0.4 million for the six months ended June 30, 2024, compared to $0.5 million for the six months ended June 30, 2023. However, the ongoing timing of charge-offs, economic developments, and other factors that could impact the provision for credit losses cannot be fully predicted with certainty. Sustained levels of high inflation, combined with the recent rapid rise in market interest rates, could negatively impact the Company’s borrowers, which could lead to increased provisions for credit losses in the future.

Previous wording

The Company’s non-interest income increased by $36 thousand comparing the three months ended March 31, 2024 to the three months ended March 31, 2023.

Current wording

The Company’s non-interest income increased by $72 thousand comparing the six months ended June 30, 2024 to the six months ended June 30, 2023.

Previous wording

The provision for income taxes was $0.7 million for both the three months ended March 31, 2024 and 2023, respectively, and the Company’s effective tax rate was 23.6% and 23.9%, respectively, for the same periods.

Current wording

The provision for income taxes was $1.3 million for both the six months ended June 30, 2024 and 2023, and the Company’s effective tax rate was 23.0% and 24.1%, respectively, for the same periods.

Previous wording

The investment securities portfolio is used by management to provide liquidity, to generate interest income and for use as collateral for public deposits and wholesale funding. Risk and return can be adjusted by altering the duration, composition and/or balance of the portfolio. The expected average life of securities in the investment portfolio was 4.2 years and 3.9 years as of March 31, 2024 and December 31, 2023, respectively.

Current wording

The investment securities portfolio is used by management to provide liquidity, to generate interest income and for use as collateral for public deposits and wholesale funding. Risk and return can be adjusted by altering the duration, composition and/or balance of the portfolio. The expected average life of securities in the investment portfolio was 4.3 years and 3.9 years as of June 30, 2024 and December 31, 2023, respectively.

Previous wording

Available-for-sale securities are recorded at estimated fair value, with unrealized gains or losses recognized, net of taxes, in accumulated other comprehensive loss, a separate component of shareholders’ equity. As of March 31, 2024, available-for-sale securities totaled $125.4 million, or 99.2% of the total investment portfolio, compared to $135.6 million, or 99.2% of the total investment portfolio, as of December 31, 2023. Available-for-sale securities consisted of residential and commercial mortgage-backed securities, U.S. Treasury securities, corporate bonds, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.

Current wording

Available-for-sale securities are recorded at estimated fair value, with unrealized gains or losses recognized, net of taxes, in accumulated other comprehensive loss, a separate component of shareholders’ equity. As of June 30, 2024, available-for-sale securities totaled $144.0 million, or 99.4% of the total investment portfolio, compared to $135.6 million, or 99.2% of the total investment portfolio, as of December 31, 2023. Available-for-sale securities consisted of residential and commercial mortgage-backed securities, U.S. Treasury securities, corporate bonds, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.

Previous wording

Held-to-maturity securities are recorded at amortized cost and represent securities that the Company both intends and has the ability to hold to maturity. As of March 31, 2024, held-to-maturity securities totaled $1.0 million, or 0.8% of the total investment portfolio, compared to $1.1 million, or 0.8% of the total investment portfolio, as of December 31, 2023. Held-to-maturity securities consisted of commercial mortgage-backed securities, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.

Current wording

Held-to-maturity securities are recorded at amortized cost and represent securities that the Company both intends and has the ability to hold to maturity. As of June 30, 2024, held-to-maturity securities totaled $0.9 million, or 0.6% of the total investment portfolio, compared to $1.1 million, or 0.8% of the total investment portfolio, as of December 31, 2023. Held-to-maturity securities consisted of commercial mortgage-backed securities, obligations of U.S. government-sponsored agencies, and obligations of state and political subdivisions.

Previous wording

Despite the elevated interest rate environment, during the three months ended March 31, 2024, gross unrealized losses decreased modestly due primarily to the maturity of $15.9 million in the available-for-sale category. Gross unrealized losses in the available-for-sale portfolio totaled $10.0 million as of March 31, 2024, compared to $10.1 million as of December 31, 2023. Unrealized losses within the available-for-sale portfolio were recognized, net of tax, in accumulated other comprehensive loss.

Current wording

Despite the elevated interest rate environment, during the six months ended June 30, 2024, gross unrealized losses decreased by $0.6 million primarily due to the decreasing duration of the Company's U.S. Treasury portfolio as of June 30, 2024, compared to the duration as of December 31, 2023. Gross unrealized losses in the available-for-sale portfolio totaled $9.5 million as of June 30, 2024, compared to $10.1 million as of December 31, 2023. Unrealized losses, net, within the available-for-sale portfolio were recognized, net of tax, in accumulated other comprehensive loss.

Previous wording

The Company’s total loan portfolio increased by $1.2 million, or 0.1%, as of March 31, 2024, compared to December 31, 2023. The tables below summarize loan balances by portfolio category, as well as the allowance for credit losses, as of the end of each of the most recent five quarters as of March 31, 2024:

Current wording

The Company’s total loan portfolio decreased by $2.7 million, or 0.3%, as of June 30, 2024, compared to December 31, 2023. The tables below summarize loan balances by portfolio category, as well as the allowance for credit losses, as of the end of each of the most recent five quarters as of June 30, 2024:

Previous wording

Total deposits decreased to $943.3 million as of March 31, 2024, from $950.2 million as of December 31, 2023, a decrease of 0.7%. Core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, provide a relatively stable funding source that supports earning assets. Core deposits totaled $807.3 million, or 85.6% of total deposits, as of March 31, 2024, compared to $819.5 million, or 86.2% of total deposits, as of December 31, 2023.

Current wording

Total deposits increased to $954.5 million as of June 30, 2024, from $950.2 million as of December 31, 2023, an increase of 0.4%. Core deposits, which exclude time deposits of $250 thousand or more and all brokered deposits, provide a relatively stable funding source that supports earning assets. Core deposits totaled $813.4 million, or 85.2% of total deposits, as of June 30, 2024, compared to $819.5 million, or 86.2% of total deposits, as of December 31, 2023.

Previous wording

Other interest-bearing liabilities consist of federal funds purchased, securities sold under agreements to repurchase, FHLB advances, and subordinated debt that are used by the Company as an alternative source of funds. As of March 31, 2024, other interest-bearing liabilities totaled 3.1% of total interest-bearing liabilities, compared to 2.5% as of December 31, 2023.

Current wording

Other interest-bearing liabilities that are used by the Company as an alternative source of funds consist of federal funds purchased, securities sold under agreements to repurchase, FHLB advances, and subordinated debt. As of June 30, 2024, other interest-bearing liabilities totaled 3.1% of total interest-bearing liabilities, compared to 2.5% as of December 31, 2023.

Previous wording

As of March 31, 2024, shareholders’ equity totaled $92.3 million, or 8.6% of total assets, compared to $90.6 million, or 8.4% of total assets, as of December 31, 2023. The increase in shareholders’ equity during the three months ended March 31, 2024 resulted primarily from earnings, net of dividends paid. In addition, the rising interest rate environment during the first quarter of 2024 led to a further decrease in valuations of available-for-sale investment securities and drove an overall increase in accumulated other comprehensive loss that partially offset the increase in shareholders’ equity.

Current wording

As of June 30, 2024, shareholders’ equity totaled $93.8 million, or 8.7% of total assets, compared to $90.6 million, or 8.4% of total assets, as of December 31, 2023. The increase in shareholders’ equity during the six months ended June 30, 2024 resulted primarily from earnings, net of dividends paid and repurchases of shares of the Company's common stock.

Previous wording

During the both the three months ended March 31, 2024 and 2023, the Company declared dividends totaling $0.05 per common share, or approximately $0.3 million in aggregate amount. Bancshares’ Board of Directors evaluates dividend payments based on the Company’s level of earnings and the desire to maintain a strong capital base, as well as regulatory requirements relating to the payment of dividends.

Current wording

During the both the six months ended June 30, 2024 and 2023, the Company declared dividends totaling $0.10 per common share, or approximately $0.6 million in aggregate amount. Bancshares’ Board of Directors evaluates dividend payments based on the Company’s level of earnings and the desire to maintain a strong capital base, as well as regulatory requirements relating to the payment of dividends.

Previous wording

The asset portion of the balance sheet provides liquidity primarily from the following sources: (1) excess cash and interest-bearing deposits in banks, (2) federal funds sold, (3) principal payments and maturities of loans and (4) principal payments and maturities from the investment portfolio. Loans maturing or repricing in one year or less amounted to $266.1 million as of March 31, 2024 and $241.2 million as of December 31, 2023. Investment securities forecasted to mature or reprice in one year or less were estimated to be $9.0 million and $12.9 million of the investment portfolio as of March 31, 2024 and December 31, 2023, respectively.

Current wording

The asset portion of the balance sheet provides liquidity primarily from the following sources: (1) excess cash and interest-bearing deposits in banks, (2) federal funds sold, (3) principal payments and maturities of loans and (4) principal payments and maturities from the investment portfolio. Loans maturing or repricing in one year or less amounted to $248.8 million as of June 30, 2024 and $241.2 million as of December 31, 2023. Investment securities forecasted to mature or reprice in one year or less were estimated to be $18.7 million and $12.9 million of the investment portfolio as of June 30, 2024 and December 31, 2023, respectively.

Previous wording

Although some securities in the investment portfolio have legal final maturities exceeding 10 years, a substantial percentage of the portfolio provides monthly principal and interest payments and consists of securities that are readily marketable and easily convertible into cash on short notice. The investment securities portfolio had an estimated average life of 4.2 years and 3.9 years as of March 31, 2024 and December 31, 2023, respectively. However, management does not rely solely upon the investment portfolio to generate cash flows to fund loans, capital expenditures, dividends, debt repayment and other cash requirements. These activities are also funded by cash flows from loan payments, as well as increases in deposits and short-term borrowings.

Current wording

Although some securities in the investment portfolio have legal final maturities exceeding 10 years, a substantial percentage of the portfolio provides monthly principal and interest payments and consists of securities that are readily marketable and easily convertible into cash on short notice. The investment securities portfolio had an estimated average life of 4.3 years and 3.9 years as of June 30, 2024 and December 31, 2023, respectively. However, management does not rely solely upon the investment portfolio to generate cash flows to fund loans, capital expenditures, dividends, debt repayment and other cash requirements. These activities are also funded by cash flows from loan payments, as well as increases in deposits and short-term borrowings.

Previous wording

The Company had up to $276.8 million and $279.4 million in remaining unused credit from the FHLB (subject to available collateral, which may include eligible investment securities and loans) as of March 31, 2024 and December 31, 2023, respectively. In addition, the Company had $48.0 million in unused established federal funds lines as of both March 31, 2024 and December 31, 2023.

Current wording

The Company had up to $276.1 million and $279.4 million in remaining unused credit from the FHLB (subject to available collateral, which may include eligible investment securities and loans) as of June 30, 2024 and December 31, 2023, respectively. In addition, the Company had $48.0 million in unused established federal funds lines as of both June 30, 2024 and December 31, 2023.

Previous wording

The Company also has access to the FRB’s discount window. The discount window allows borrowing on pledged collateral that includes eligible investment securities and loans. In response to heightened liquidity concerns in the banking industry, during 2023 management undertook measures designed to enhance the Company’s liquidity position. These procedures included holding higher levels of on-balance sheet cash, as well as enhancing the availability of off-balance sheet borrowing capacity. As part of these efforts, during the third quarter of 2023, the Company completed the establishment of additional borrowing capacity through the FRB's discount window, primarily via the pledging of the majority of the Company’s indirect loan portfolio as collateral. Including the pledging of these loans, along with selected securities, the Company had $158.8 and $161.7 million in borrowing capacity with the FRB’s discount window as of March 31, 2024 and December 31, 2023, respectively.

Current wording

The Company also has access to the FRB’s discount window. The discount window allows borrowing on pledged collateral that includes eligible investment securities and loans. In response to heightened liquidity concerns in the banking industry, during 2023 management undertook measures designed to enhance the Company’s liquidity position. These procedures included holding higher levels of on-balance sheet cash, as well as enhancing the availability of off-balance sheet borrowing capacity. As part of these efforts, during the third quarter of 2023, the Company completed the establishment of additional borrowing capacity through the FRB's discount window, primarily via the pledging of the majority of the Company’s indirect loan portfolio as collateral. Including the pledging of these loans, along with selected securities, the Company had $158.3 and $161.7 million in borrowing capacity with the FRB’s discount window as of June 30, 2024 and December 31, 2023, respectively.

Previous wording

The unused lendable collateral value at the FHLB presented in the table represents only the amount immediately available to the Company from loans already pledged by the Company to the FHLB as of each consolidated balance sheet date presented. As of March 31, 2024 and December 31, 2023, the Company's total remaining credit availability with the FHLB was $276.8 million and $279.4 million, respectively, subject to the pledging of additional collateral which may include eligible investment securities and loans. In addition, the Company has access to additional sources of liquidity that generally could be obtained over a period of time. For example, the Company has access to unsecured brokered deposits through the wholesale funding markets. Management believes the Company’s on-balance sheet and other readily available liquidity provide strong indicators of the Company’s ability to fund obligations in a stressed liquidity environment.

Current wording

The unused lendable collateral value at the FHLB presented in the table represents only the amount immediately available to the Company from loans already pledged by the Company to the FHLB as of each consolidated balance sheet date presented. As of June 30, 2024 and December 31, 2023, the Company's total remaining credit availability with the FHLB was $276.1 million and $279.4 million, respectively, subject to the pledging of additional collateral which may include eligible investment securities and loans. In addition, the Company has access to additional sources of liquidity that generally could be obtained over a period of time. For example, the Company has access to unsecured brokered deposits through the wholesale funding markets. Management believes the Company’s on-balance sheet and other readily available liquidity provide strong indicators of the Company’s ability to fund obligations in a stressed liquidity environment.