FIRST CAPITAL INC

(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

First Capital, Inc. (the “Company”) is the financial holding company of First Harrison Bank (the “Bank”), a wholly-owned subsidiary. The Bank is an Indiana chartered commercial bank which provides a variety of banking services to individuals and business customers through18 locations in Indiana and Kentucky. The Bank’s primary source of revenue is real estate mortgage loans. The Bank originates mortgage loans for sale in the secondary market. First Harrison Investments, Inc. and First Harrison Holdings, Inc. are wholly-owned Nevada corporate subsidiaries of the Bank that jointly own First Harrison, LLC, a Nevada limited liability company that holds and manages an investment securities portfolio. First Harrison REIT, Inc. is a wholly-owned subsidiary of First Harrison Holdings, Inc. which holds a portion of the Bank’s real estate mortgage loan portfolio. Heritage Hill, LLC is a wholly-owned subsidiary of the Bank that is currently inactive. FHB Risk Mitigation Services, Inc. (the “Captive”) was a wholly-owned insurance subsidiary of the Company that provided property and casualty insurance coverage to the Company, the Bank and the Bank’s subsidiaries, and reinsurance tonine otherthird party insurance captives, for which insurance wasnot available or economically feasible in the insurance marketplace. Refer to Note24 –Captive Subsidiary for details regarding the status of the Captive.

Basis of Consolidation and Reclassifications

The consolidated financial statements include the accounts of the Company and its subsidiaries, have been prepared in accordance with generally accepted accounting principles in the United States of America and conform to general practices in the banking industry. Intercompany balances and transactions have been eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications hadno effect on net income or stockholders’ equity.

Statements of Cash Flows

For purposes of the statements of cash flows, the Company has defined cash and cash equivalents as cash on hand, amounts due from banks (including cash items in process of clearing), interest-bearing deposits with other banks with an original maturity of 90 days or less, money market funds and federal funds sold.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the Allowance for Credit Losses (“ACL”) on loans and the valuation of real estate and other assets acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the ACL on loans and the valuation of foreclosed real estate, management obtains independent appraisals for significant properties.

A majority of the Company’s loan portfolio consists of single-family residential and commercial real estate loans in the southern Indiana and Louisville, Kentucky metropolitan area. Accordingly, the ultimate collectability of a substantial portion of the Company’s loan portfolio and the recovery of the carrying amount of foreclosed real estate are susceptible to changes in local market conditions.

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Use of Estimates–** continued**

While management uses available information to recognize losses on loans and foreclosed real estate, further reductions in the carrying amounts of loans and foreclosed real estate* maybe necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the estimated losses on loans and foreclosed real estate. Such agencies mayrequire the Company to recognize additional losses based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the estimated losses on loans and foreclosed real estate may*change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

Debt Securities

Available for Sale Debt Securities: Available for sale debt securities consist primarily of mortgage-backed and other debt securities and are stated at fair value. The Company holds mortgage-backed securities and other debt securities issued by the Government National Mortgage Association (“GNMA”), a U.S. government agency, and the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”), and the Federal Home Loan Bank (“FHLB”), government-sponsored enterprises (collectively referred to as government agencies), as well as collateralized mortgage obligations (“CMOs”) and other mortgage-backed securities. Mortgage-backed securities represent participating interests in pools of long-termfirst mortgage loans originated and serviced by the issuers of the securities. CMOs are complex mortgage-backed securities that restructure the cash flows and risks of the underlying mortgage collateral. The Company also holds debt securities issued by the U.S. Treasury and municipalities and political subdivisions of state and local governments.

Amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the period to maturity, adjusted for anticipated prepayments. Unrealized gains and losses, net of tax, on available for sale debt securities are included in other comprehensive income and the accumulated unrealized holding gains and losses are reported as a separate component of equity until realized. Realized gains and losses on the sale of available for sale debt securities are determined using the specific identification method and are included in other noninterest income and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income.

For available for sale debt securities in an unrealized loss position, the Companyfirst assesses whether it intends to sell, or it is more likely thannot that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available for sale debt securities that donot meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited to the amount that the fair value is less than the amortized cost basis. Any decline in fair value that hasnot been recorded through an ACL is recognized in other comprehensive income, net of applicable taxes.

Changes in the ACL are recorded as a provision for (or recovery of) credit loss expense. Losses are charged against the ACL when management believes that uncollectibility of an available for sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accrued interest receivable on available for sale debt securities totaled $2.4 million at* December 31, 2023,*was reported in accrued interest receivable on the consolidated balance sheet and is excluded from the estimate of credit losses.

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*Held to Maturity Debt Securities:*Debt securities for which the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts that are recognized in interest income using methods approximating the interest method over the period to maturity, adjusted for anticipated prepayments. The Company classifies certain corporate debt obligations as held to maturity.

Management measures expected credit losses on held to maturity debt securities on a collective basis by major security type. Accrued interest receivable on held to maturity debt securities totaled $18,000 at* December 31, 2023,*was reported in accrued interest receivable on the consolidated balance sheet and is excluded from the estimate of credit losses. The held to maturity securities portfolio includes subordinated debt obligations issued by other bank holding companies.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. At the time of adoption and as of* December 31, 2023,*the estimated ACL on held to maturity debt securities was immaterial.

Equity Securities

Equity securities, other than restricted securities such as FHLB stock, are carried at fair value, with changes in fair value included in earnings. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. Dividends received from equity securities, other than restricted securities such as FHLB stock, are included in other noninterest income.

FHLB Stock

The Bank is a member of the FHLB system. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and* may*invest in additional amounts. Investments in non-marketable equity securities such as FHLB stock are carried at cost and are classified as restricted securities and periodically evaluated for impairment based on ultimate recovery of par value. Dividends received from these investments are included in dividend income.

Loans and ACL

Loans Held for Investment

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and deferred loan fees and costs. The Company grants real estate mortgage, commercial business and consumer loans. Loan origination and commitment fees, as well as certain direct costs of underwriting and closing loans, are deferred and amortized as a yield adjustment to interest income over the lives of the related loans using the interest method. Amortization of net deferred loan fees is discontinued when a loan is placed on nonaccrual status. Accrued interest receivable on loans totaled $2.3 million at* December 31, 2023,*was reported in accrued interest receivable on the consolidated balance sheets and is excluded from the estimate of credit losses.

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Nonaccrual Loans

The recognition of income on a loan is discontinued and previously accrued interest is reversed when interest or principal payments become 90 days past due unless, in the opinion of management, the outstanding interest remains collectible. Past due status is determined based on contractual terms. Generally, by applying the cash receipts method, interest income is subsequently recognized only as received until the loan is returned to accrual status. The cash receipts method is used when the likelihood of further loss on the loan is remote. Otherwise, the Company applies the cost recovery method and applies all payments as a reduction of the unpaid principal balance until the loan qualifies for return to accrual status.

The Company follows its nonaccrual policy by reversing contractual interest income in the income statement when the Company places a loan on nonaccrual status. Therefore, management excludes the accrued interest receivable balance from the amortized cost basis in measuring expected credit losses on the portfolio and doesnot record an ACL on accrued interest receivable.

A loan is restored to accrual status when all principal and interest payments are brought current and the borrower has demonstrated the ability to make future payments of principal and interest as scheduled, which generally requires that the borrower demonstrate a period of performance of at leastsix consecutive months.

Impaired and Collateral Dependent Loans

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally arenot classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, past loan modifications, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

Values for collateral dependent loans are generally based on appraisals obtained from independent licensed real estate appraisers, with adjustments applied for estimated costs to sell the property, costs to complete unfinished or repair damaged property and other factors. New appraisals are generally obtained for all significant properties when a loan is individually evaluated for credit losses, and a property is considered significant if the value of the property is estimated to exceed $200,000. Subsequent appraisals are obtained as needed or if management believes there has been a significant change in the market value of the property. In instances where it isnot deemed necessary to obtain a new appraisal, management bases its evaluation and ACL analysis on the original appraisal with adjustments for current conditions based on management’s assessment of market factors and management’s inspection of the property. At* December 31, 2023,*all of the Bank’s loans evaluated on an individual basis were considered collateral dependent.

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Loan Modifications Made to Borrowers Experiencing Financial Difficulty

Effective* January 1, 2023,the Company prospectively adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)2022-02, which eliminated the accounting for troubled debt restructurings (“TDR”) while establishing a new standard for the treatment of modifications made to borrowers experiencing financial difficulties. As such, effective with the adoption of the new standard, the Company willnot* include, prospectively, financial difficulty modifications in its presentation of nonperforming loans, nonperforming assets or classified assets. Prior period data, which included TDRs, hasnot been adjusted.

The Company’s loan modifications for borrowers experiencing financial difficulties will typically includeone or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.No modifications in2023 resulted in the permanent reduction of the recorded investment in the loan.

TDRs Prior to Adoption of ASU2022*-*02

The modification of a loan is considered to be a TDR if the debtor is experiencing financial difficulties and the Company grants a concession to the debtor that it wouldnot otherwise consider. By granting the concession, the Company expects to obtain more cash or other value from the debtor, or to increase the probability of receipt, than would be expected bynot granting the concession. The concession* mayinclude, but isnot* limited to, reduction of the stated interest rate of the loan, reduction of accrued interest, extension of the maturity date or reduction of the face amount of the debt. A concession will be granted when, as a result of the restructuring, the Company doesnot expect to collect all amounts due, including interest at the original stated rate. A concession* mayalso be granted if the debtor isnot* able to access funds elsewhere at a market rate for debt with similar risk characteristics as the restructured debt. The Company’s determination of whether a loan modification is a TDR considers the individual facts and circumstances surrounding each modification.

A TDR can involve a loan remaining on nonaccrual, moving to nonaccrual, or continuing on accrual status, depending on the individual facts and circumstances of the borrower. A TDR on nonaccrual status is restored to accrual status when the borrower has demonstrated the ability to make future payments in accordance with the restructured terms, including consistent and timely payments of at leastsix consecutive months according to the restructured terms.

ACL–* Loans*

The ACL is a valuation account that is deducted from an asset’s amortized cost basis to present the net amount expected to be collected on the asset. Loans are charged off against the ACL when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries donot exceed the aggregate of amounts previously charged off and expected to be charged-off.

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The Company utilizes a combination of the Open Pool/Snapshot and Weighted Average Remaining Maturity (“WARM”) methods in determining expected future credit losses. The Open Pool/Snapshot method takes a snapshot of a loan portfolio at a point in time in history and tracks that loan portfolio’s performance in the subsequent periods until its ultimate disposition. The WARM method uses average annual charge-off rates and the remaining life of the loan to estimate the ACL. For the Company’s loan portfolios, the remaining contractual life for each loan is adjusted by the expected scheduled payments and estimated prepayments. The average annual charge-off rate is applied to the amortization adjusted remaining life of the loan to determine the unadjusted lifetime historical charge-off rate. The Company’s expected loss estimate is anchored in historical credit loss experience, with an emphasis on all available portfolio data. The Company’s historical look-back periods for the loan portfolio range fromone to10 years depending on the WARM of the given portfolio segment, and are updated on a quarterly basis.

The Company estimates the ACL on loans using relevant available information from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts. Historical loss experience provides the basis for the estimation of expected credit losses. Qualitative adjustments to historical loss information are made for losses reflected by peers, changes in underwriting standards, changes in economic conditions, changes in delinquency levels, collateral values and other factors.

Qualitative adjustments reflect management’s overall estimate of the extent to which current expected credit losses on collectively evaluated loans will differ from historical loss experience. The analysis takes into consideration industry and collateral concentrations, acquired loan portfolio characteristics and other credit-related analytics as deemed appropriate.

Management exercises significant judgment in evaluating the relevant historical loss experience and the qualitative factors. Management also monitors the differences between estimated and actual incurred loan losses in order to evaluate the effectiveness of the estimation process and make any changes in the methodology as necessary.

The ACL is measured on a collective (pooled) basis when similar risk characteristics exist. The Company’s pools/segments are largely determined based on loan types as defined by Call Report instructions. The Company has identified and utilizes the following portfolio segments:

1–4 Family Residential Mortgage –1–4 Family Residential Mortgage loans are primarily secured by1-4 family residences that are owner-occupied and serve as the primary residence of the borrower. In addition, the Company typically has a senior (1st lien) position securing the collateral of loans in this portfolio. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by unemployment levels in the market area due to economic conditions. Repayment* may*also be impacted by changes in residential property values.

Home Equity and Second Mortgage – Home Equity and Second Mortgage loans and lines of credit are primarily secured by1-4 family residences that are owner-occupied and serve as the primary residence of the borrower. However, the Company typically has a junior lien position securing the collateral of loans in this portfolio. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by unemployment levels in the market area due to economic conditions. Repayment* mayalso be impacted by changes in residential property values. While secured by collateral similar to that of the1–4* Family Residential Mortgage loans, loans within this segment are considered to carry elevated risk due to the Company’s junior lien position on the underlying collateral property.

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Multi-family Residential – Multi-family Residential loans are primarily secured by properties such as apartment complexes and other multi-tenant properties within the Company’s market area. In some situations, the collateral* mayreside outside of the Company’s typical market area. Repayment of these loans is often dependent on the successful operation and management of the properties and collection of associated rents. Repayment of such loans may*be affected by adverse conditions in the real estate market or the economy.

1–4 Family Residential Construction –1–4 Family Residential Construction loans are generally secured by1-4 family residences that will be owner-occupied upon completion. Risks inherent in construction lending are related to the market value of the property held as collateral, the cost and timing of constructing or improving a property, movements in interest rates and the real estate market during the construction phase, and the ability of the borrower to obtain permanent financing. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by unemployment levels in the market area due to economic conditions. Repayment* may*also be impacted by changes in residential property values.

Other Construction, Development and Land – Other Construction, Development and Land loans include loans secured by multi-family properties, commercial projects, and vacant land. This portfolio includes both owner-occupied and speculative investment properties. Risks inherent in construction lending are related to the market value of the property held as collateral, the cost and timing of constructing or improving a property, the borrower’s ability to use funds generated by a project to service a loan until a project is completed, movements in interest rates and the real estate market during the construction phase, and the ability of the borrower to obtain permanent financing.

Commercial Real Estate – Commercial Real Estate loans are comprised of loans secured by various types of collateral including warehouses, retail space, and mixed-use buildings, among others, located in the Company’s primary lending area. Risks related to commercial real estate lending are related to the market value of the property taken as collateral, the underlying cash flows, and general economic condition of the local real estate market. Repayment of these loans is generally dependent on the ability of the borrower to attract tenants at lease rates that provide for adequate debt service and can be impacted by local economic conditions which impact vacancy rates. The Company generally obtains loan guarantees from financially capable parties for Commercial Real Estate loans. To a lesser degree, this segment also includes loans secured by farmland. The risks associated with loans secured by farmland are related to the market value of the property taken as collateral and the underlying cash flows from farming operations and general economic conditions.

Commercial Business – Commercial Business loans include lines of credit to businesses, term loans and letters of credit secured by business assets such as equipment, accounts receivable, inventory, or other assets excluding real estate. Loans in this portfolio* may*also be unsecured and are generally made to finance capital expenditures or fund operations. Commercial Business loans contain risks related to the value of the collateral securing the loan and the repayment is primarily dependent upon the financial success and viability of the borrower. As with Commercial Real Estate loans, the Company generally obtains loan guarantees from financially capable parties for Commercial Business loans.

Consumer and Other Loans – Consumer and Other Loans consist mainly of loans secured by new and used automobiles and trucks, recreational vehicles such as boats and RVs, mobile homes and secured and unsecured loans to individuals. The risks associated with these loans are related to local economic conditions including the unemployment level. To a lesser degree, this segment also includes loans secured by lawn and farm equipment, well as farm output and loans secured by marketable securities. The risks associated with these loans are related to local economic conditions including the unemployment level, general economic conditions impacting crop prices, the supply chain and the fair value of the security collateral.

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Loans that donot share risk characteristics are evaluated on an individual basis. In addition, loans evaluated individually arenot included in the collective evaluation. When management determines that foreclosure is probable or the borrower is experiencing financial difficulty at the reporting date and repayment is expected to be provided substantially through the operation or sale of the collateral, expected credit losses are based on the fair value of the collateral at the reporting date adjusted for selling costs.

ACL–* Off-Balance Sheet Credit Exposures*

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL on off-balance sheet credit exposures is included in other liabilities on the consolidated balance sheets and is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. Expected utilization rates based on Regulatory Credit Conversion Factors are compared to the current funded portion of the total commitment amount as a practical expedient for funded exposure at default.

Loan Charge-Offs

For portfolio segments other than consumer loans, the Company’s practice is to charge-off any loan or portion of a loan when the loan is determined by management to be uncollectible due to the borrower’s failure to meet repayment terms, the borrower’s deteriorating or deteriorated financial condition, the depreciation of the underlying collateral, the loan’s classification as a loss by regulatory examiners, or for other reasons. A partial charge-off is recorded on a loan when the uncollectibility of a portion of the loan has been confirmed, such as when a loan is discharged in bankruptcy, the collateral is liquidated, a loan is restructured at a reduced principal balance, or other identifiable events that lead management to determine the full principal balance of the loan willnot be repaid. A specific reserve is recognized as a component of the ACL on loans individually evaluated for credit losses. Partial charge-offs are included in the Company’s historical loss experience used to estimate the collective (pooled) component of the ACL on loans. Specific reserves arenot considered charge-offs in management’s analysis of the ACL on loans because they are estimates and the outcome of the loan relationship is undetermined.

Consumer loansnot secured by real estate are typically charged off at 90 days past due, or earlier if deemed uncollectible, unless the loans are in the process of collection. Overdrafts are charged off after 45 days past due. Charge-offs are typically recorded on loans secured by real estate when the property is foreclosed upon.

Loans Held for Sale

Mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or market value. Aggregate market value is determined based on the quoted prices under a “best efforts” sales agreement with athird party. Net unrealized losses are recognized through a valuation allowance by charges to income. Realized gains on sales of mortgage loans are determined using the specific identification method and are included in noninterest income. Mortgage loans are sold with servicing released.

Commitments to originate mortgage loans held for sale are considered derivative financial instruments to be accounted for at fair value. The Bank’s mortgage loan commitments subject to derivative accounting are fixed-rate mortgage loan commitments at market rates when initiated. At* December 31, 2023,the Bank hadno* commitments required to be accounted for at fair value as all mortgage loan commitments were best efforts commitments where specific loans were committed to be delivered if and when the loan closed. Fair value is estimated based on fees that would be charged on commitments with similar terms.

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Transfers of Financial Assets

The Company accounts for transfers and servicing of financial assets in accordance with FASB Accounting Standards Codification (“ASC”) Topic860, Transfers and Servicing. Transfers of financial assets are accounted for as sales only when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free from conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company doesnot maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Transfers of a portion of a loan must meet the criteria of a participating interest. If it doesnot meet the criteria of a participating interest, the transfer must be accounted for as a secured borrowing. In order to meet the criteria for a participating interest, all cash flows from the loan must be divided proportionately, the rights of each loan holder must have the same priority, and the loan holders must haveno recourse to the transferor other than standard representations and warranties andno loan holder has the right to pledge or exchange the entire loan.

The Company sells financial assets in the normal course of business, the majority of which are related to residential mortgage loan sales through established programs and commercial loan sales through participation agreements. In accordance with accounting guidance for asset transfers, the Company considers any ongoing involvement with transferred assets in determining whether the assets can be derecognized from the balance sheet. With the exception of servicing and certain performance-based guarantees, the Company's continuing involvement with financial assets sold is minimal and generally limited to market customary representation and warranty clauses.

Foreclosed Real Estate

Foreclosed real estate includes formally foreclosed property and property obtained via a deed in lieu of foreclosure that is currently held for sale. At the time of acquisition, foreclosed real estate is recorded at fair value less estimated costs to sell, which becomes the property’s new basis. Any write-downs based on the property’s fair value at the date of acquisition are charged to the ACL on loans. After acquisition, valuations are periodically performed by management and property held for sale is carried at the lower of the new cost basis or fair value less cost to sell. Costs incurred in maintaining foreclosed real estate and subsequent impairment adjustments to the carrying amount of a property, if any, are included in net loss on foreclosed real estate.

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation. The Company uses the straight line method of computing depreciation at rates adequate to amortize the cost of the applicable assets over their estimated useful lives. Maintenance and repairs are expensed as incurred. The cost and related accumulated depreciation of assets sold, or otherwise disposed of, are removed from the related accounts and any gain or loss is included in earnings.

Cash Value of Life Insurance

The Bank has purchased life insurance policies on certain directors, officers and key employees to offset costs associated with the Bank’s compensation and benefit programs. The Bank is the owner and is a joint or sole beneficiary of the policies. Bank-owned life insurance is recorded at the amount that can be realized under the insurance contracts at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Income from the increase in cash surrender value of the policies and income from the realization of death benefits is reported in noninterest income.

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Goodwill and Other Intangibles

Goodwill recognized in a business combination represents the excess of the cost of the acquired entity over the net of the amounts assigned to assets acquired and liabilities assumed. Goodwill is evaluated for possible impairment at least annually or more frequently upon the occurrence of an event or change in circumstances that would more likely thannot reduce the fair value of the reporting unit below its carrying amount. Such circumstances could include, but arenot limited to: (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. If the carrying amount of the goodwill exceeds the fair value of the reporting unit, an impairment loss is recognized in earnings equal to that excess amount. The loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting basis.

Other intangible assets consist of acquired core deposit intangibles. Core deposit intangibles are amortized over the estimated economic lives of the acquired core deposits. The carrying amount of core deposit intangibles and the remaining estimated economic life are evaluated annually or whenever events or circumstances indicate the carrying amount* may**not* be recoverable or the remaining period of amortization requires revision. After an impairment loss is recognized, the adjusted carrying amount of the intangible asset is its new accounting basis.

Stock-Based Compensation

The Company has adopted the fair value based method of accounting for stock-based compensation prescribed in FASB ASC Topic718 for its stock compensation plans.

Advertising Costs

Advertising costs are charged to operations when incurred.

Income Taxes

When income tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while other positions are subject to some degree of uncertainty regarding the merits of the position taken or the amount of the position that would be sustained. The Company recognizes the benefits of a tax position in the consolidated financial statements of the period during which, based on all available evidence, management believes it is more-likely-than-not (more than50 percent probable) that the tax position would be sustained upon examination. Income tax positions that meet the more-likely-than-not threshold are measured as the largest amount of income tax benefit that is more than50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with the income tax positions claimed on income tax returns that exceeds the amount measured as described above is reflected as a liability for unrecognized income tax benefits in the consolidated balance sheets, along with any associated interest and penalties that would be payable to the taxing authorities, if there were an examination. Interest and penalties associated with unrecognized income tax benefits are classified as additional income taxes in the consolidated statements of income.

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Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus deferred income taxes. Income tax reporting and financial statement reporting rules differ in many respects. As a result, there will often be a difference between the carrying amount of an asset or liability as presented in the accompanying consolidated balance sheets and the amount that would be recognized as the tax basis of the same asset or liability computed based on the effects of tax positions recognized, as described in the preceding paragraph. These differences are referred to as temporary differences because they are expected to reverse in future years. Deferred income tax assets are recognized for temporary differences where their future reversal will result in future tax benefits. Deferred income tax assets are also recognized for the future tax benefits expected to be realized from net operating loss or tax credit carryforwards. Deferred income tax liabilities are recognized for temporary differences where their future reversal will result in the payment of future income taxes. Deferred income tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely thannot that some portion or all of the deferred income tax assets willnot be realized. Deferred tax assets and liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

Comprehensive Income

Comprehensive income consists of reported net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains and losses that are recorded as an element of stockholders’ equity but are excluded from reported net income. Other comprehensive income includes changes in the unrealized gains and losses on securities available for sale.

Amounts reclassified out of unrealized gains or losses on securities available for sale included in accumulated other comprehensive income or loss (“AOCI”) are included in the net gain (loss) on sale of available for sale securities line item in the consolidated statements of income.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Concentration of Credit Risk

The Company and its subsidiaries maintain cash balances at various financial institutions. At times, these cash balances* may*be in excess of federally insured limits.

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Recent Accounting Pronouncements

The following are summaries of recently issued or adopted accounting pronouncements that impact the accounting and reporting practices of the Company:

Recently Adopted Accounting Guidance

In* June 2016,the FASB issued ASUNo.* 2016-13, Financial Instruments–* Credit Losses (Topic326)*. The update, commonly referred to as the current expected credit loss methodology (“CECL”), replaces the incurred loss methodology for recognizing credit losses under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Under the new guidance, an entity will measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The expected loss model will apply to loans and leases, unfunded lending commitments, held-to-maturity debt securities and other debt instruments measured at amortized cost. The impairment model for available-for-sale debt securities will require the recognition of credit losses through a valuation allowance when fair value is less than amortized cost, regardless of whether the impairment is considered to be other-than-temporary.

In* November 2019,the FASB issued ASUNo.* 2019-10 which delayed the effective date of ASU2016-13 for smaller reporting companies (as defined by the SEC) and other non-SEC reporting entities to fiscal years beginning after* December 15, 2022,including interim periods within those fiscal periods. The Company met the definition of a smaller reporting company as of that date and wasnot* required to adopt the standard until* January 1, 2023.*

Effective* January 1, 2023,the Company adopted ASU2016*-13, as amended, under the modified retrospective method. The adoption replaced the allowance for loan losses with the ACL on loans on the consolidated balance sheets and replaced the related provision for loan losses with the provision for credit losses on loans on the consolidated statements of income. Upon adoption, the Company recorded an increase in the beginning ACL on loans of $561,000. In addition, the Company established an ACL related to unfunded loan commitments of $131,000 upon adoption of CECL. The use of the modified retrospective method of adoption resulted in the Company recording a $529,000 reduction (net of tax) in retained earnings as of* January 1, 2023.Results for reporting periods after January 1, 2023are presented under ASC326* while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The Company expanded the loan portfolio segments used to determine the ACL on loans intoeight loan segments as opposed toseven loan segments under the incurred loss methodology. The following table illustrates the impact of the segment expansion as of* January 1, 2023.*

F-19

In* March 2023,the FASB issued ASUNo.* 2023-02, Investments–* Equity Method and Joint Ventures (Topic323): Accounting for Investments in Tax Credit Structures using the Proportional Amortization Method*. The ASU allows 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. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received, and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense. This also aligns the treatment of other tax equity investments with that allowed for low income housing tax credit (“LIHTC”) investments. For public business entities, the ASU is effective for fiscal years beginning after* December 15, 2023,including interim periods within those fiscal years. Early adoption is permitted in any interim period. The Company already utilized the proportional amortization method for its LIHTC investment and early adopted ASU2023*-02 in conjunction with its initial investment in an investment tax credit producing solar property described in more detail in Note23 –Renewable Energy Tax Credit Investment. The adoption of the ASU didnot have a material impact on the Company’s consolidated financial position or results of operations.

Recently Issued butNot* Adopted Accounting Guidance*

In* June 2022,the FASB issued ASUNo.* 2022-03, Fair Value Measurements (Topic820*), Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions*. The ASU clarifies that a contractual restriction on the sale of an equity security isnot considered part of the unit of account of the equity security and, therefore, isnot considered in measuring fair value. It also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. For public business entities, the ASU is effective for fiscal years beginning after* December 15, 2023,and interim periods within those fiscal years. Early adoption is permitted and the amendments in the ASU should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. The adoption of the ASU isnot* expected to have a material impact on the Company’s financial position or results of operations.

In* December 2023,the FASB issued ASU2023*-09, Income Taxes (Topic740*): Improvements to Income Tax Disclosures*. Among other things, the ASU requires that public business entities on an annual basis (1) disclose specific categories in the income tax rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater thanfive percent of the amount computed by multiplying pretax income (or loss) by the applicable statutory income tax rate). In addition, the ASU requires information pertaining to taxes paid (net of refunds received) to be disaggregated for federal, state, and foreign taxes and further disaggregated for specific jurisdictions to the extent the related amounts are equal to or greater thanfive percent of total income taxes paid (net of refunds received). For public business entities, the ASU is effective for annual periods beginning after* December 15, 2024.Early adoption is permitted. The adoption of the ASU isnot* expected to have a material impact on the Company’s financial position or results of operations.

The Company has determined that all other recently issued accounting pronouncements willnot have a material impact on the Company’s consolidated financial statements or donot apply to its operations.

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(2)RESTRICTION ON CASH AND DUE FROM BANKS

Previously, the Bank was required to maintain reserve balances on hand and with the Federal Reserve Bank (“FRB”). However, the FRB Board set the reserve requirement to0% effective* March 26, 2020.*

(3)INVESTMENT SECURITIES

Investment securities have been classified in the consolidated balance sheets according to management’s intent. Investment securities at* December 31, 2023and2022* are summarized as follows:

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The amortized cost and fair value of debt securities as of* December 31, 2023,by contractual maturity, are shown below. Expected maturities of mortgage-backed securities and CMO maydiffer from contractual maturities because the mortgages underlying the obligations may*be prepaid without penalty.

At* December 31, 2023,*certain securities available for sale with an amortized cost of $147.5 million and fair value of $139.6 million were pledged to secure public fund deposits, a blanket collateral agreement with the FHLB and borrowing under the FRB’s BTFP.

At* December 31, 2023and2022,* there wereno holdings of securities of anyone issuer, other than the U.S. Government and its agencies, with an aggregate book value greater that10% of stockholders’ equity.

Information pertaining to investment securities with gross unrealized losses at* December 31, 2023and2022,* aggregated by investment category and the length of time that individual investment securities have been in a continuous loss position, follows.

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The Company hasnot identified any specific available for sale securities in a loss position that it intends to sell in the near term and doesnot believe that it will be required to sell any such securities. The Company reviews its securities on a quarterly basis to assess declines in fair value for credit losses. Consideration is given to such factors as the credit rating of the borrower, market conditions such as current interest rates, any adverse conditions specific to the security, and delinquency status on contractual payments. At* December 31, 2023,*management concluded that in all instances, securities with fair values less than carrying value were due to market and other factors; thus,no credit loss provision was required.

In addition, management assesses held to maturity securities for credit losses on a quarterly basis. The assessment includes review of performance metrics, identification of delinquency and evaluation of market factors. Based on this analysis, management concludes the decline in fair value is due to changes in interest rates and other market factors. Accordingly, no credit loss provision was recorded in earnings for the year ended* December 31, 2023.*

At* December 31, 2023,the municipal obligations and U.S. government agency debt securities, including agency mortgage-backed securities, Treasury notes and bonds, and agency notes and bonds, in a loss position had depreciated approximately 7.7% from the amortized cost basis. All of the U.S. government agency securities and municipal securities are issued by U.S. government agencies, government-sponsored enterprises, or municipal governments, and are secured byfirst* mortgage loans or municipal project revenues. At* December 31, 2023,*the corporate notes classified as held to maturity in a loss position had depreciated approximately 36.5% from the amortized cost basis. These unrealized losses related principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government, its agencies or other governments, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As the Company has the ability to hold all debt securities in an unrealized loss position until maturity, or the foreseeable future if classified as available for sale,no credit loss is deemed to exist.

On* January 1, 2023,the Company adopted ASU2016*-13, which replaced the legacy GAAP other-than-temporary impairment (“OTTI”) model with a credit loss model. ASU2016-13 requires an allowance on lifetime expected credit losses on held to maturity debt securities. As of* January 1, 2023and December 31, 2023,*the Company estimated the expected credit losses to be immaterial based on the composition of the held to maturity securities portfolio.

While management doesnot anticipate any credit losses at* December 31, 2023,additional deterioration in market and economic conditions may*have an adverse impact on credit quality in the future.

During the year ended* December 31, 2023,the Company realized gross gains of $79,000 and gross losses of $193,000 on the sale of available for sale securities. During the year ended December 31, 2021,the Company realized gross gains of $12,000 and gross losses of $5,000 on the sale of available for sale securities. During the year ended December 31, 2022,*the Company soldno available for sale securities.

Equity Securities

In* September 2018,the Company acquired 90,000 shares of common stock in another bank holding company, representing approximately 5% of the outstanding common stock of the entity, for a total investment of $1.9 million. During the years ended December 31, 2023,2022 and2021, the Company recognized an unrealized loss of $207,000, an unrealized loss of $414,000 and an unrealized gain of $328,000, respectively, on this equity investment. At December 31, 2023and2022,* the equity investment had a fair value of $1.3 million and $1.5 million, respectively, and is included in other assets on the consolidated balance sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -** CONTINUED**

In* October 2021the Company entered into an agreement to invest in a bank technology fund through a limited partnership. At December 31, 2023and2022,* the Company’s investment in the limited partnership was $1.0 million and is reflected in other assets on the consolidated balance sheets. The unfunded commitment related to the limited partnership investment at* December 31, 2023and2022* was $530,000 and $780,000, respectively, and is reflected in other liabilities on the consolidated balance sheets. The Company expects to fulfill the commitment as capital calls are made through2026. The investment is accounted for as an equity security without a readily determinable fair value, and has been recorded at cost, less any impairment, and adjustments resulting from observable price changes. There wereno impairments or adjustments on equity securities without readily determinable fair values during the years ended* December 31, 2023,*2022 or2021.

In* December 2015,the Company acquired Peoples Bancorp, Inc. of Bullitt County and its wholly-owned bank subsidiary, Peoples Bank of Bullitt County (“Peoples”), headquartered in Shepherdsville, Kentucky. Peoples owned Class B shares of VISA that were carried at an amortized costs basis ofzero and were subsequently transferred to the Company. During the year ended December 31, 2023,the Company sold all the VISA Class B shares owned for a gross gain of $157,000. There wereno* such sales during the years ended* December 31, 2022or2021.*

(4)LOANS AND ALLOWANCE FOR CREDIT LOSSES

Loans at* December 31, 2023and2022* consisted of the following:

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At* December 31, 2023and2022,* residential mortgage loans secured by residential properties without private mortgage insurance or government guarantee and with loan-to-value ratios exceeding90% amounted to approximately $785,000 and $1.0 million, respectively.

The Bank has entered into loan transactions with certain directors, officers and their affiliates (i.e., related parties). In the opinion of management, such indebtedness was incurred in the ordinary course of business on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with unrelated persons and doesnot involve more than normal risk of collectability or present other unfavorable features.

The following table represents the aggregate activity for related party loans during the years ended* December 31, 2023and2022.* Adjustments are made to reflect new directors and officers added during the year, as well as directors and officers that left the Company during the year.

Off-balance-sheet commitments (including commitments to make loans, unused lines of credit and letters of credit) to related parties at* December 31, 2023and2022* were $2.6 million and $2.7 million, respectively.

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The following table provides the components of the Company’s amortized cost basis in loans at* December 31, 2023:*

The following table presents the activity in the ACL on loans by class of loan for the year ended* December 31, 2023:*

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Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. There have beenno significant changes to the types of collateral securing the Company’s collateral dependent loans. The following table presents the amortized cost basis of, and ACL allocation to, individually evaluated collateral-dependent loans by class of loans as of* December 31, 2023:*

Nonperforming loans consists of nonaccrual loans and loans past due and still accruing interest. The following table presents the amortized cost basis of loans on nonaccrual status and loans90 days or more past due still accruing as of* December 31, 2023:*

No interest income was recognized on nonaccrual loans during the year ended* December 31, 2023.*

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The following table presents the aging of the amortized cost basis in loans at* December 31, 2023:*

Occasionally, the Company modifies loans to borrowers in financial distress. During the year ended* December 31, 2023,no material loans to borrowers experiencing financial distress were modified. There wereno* loans to borrowers experiencing financial distress that were modified during the previous12 months and which subsequently defaulted during the year ended* December 31, 2023.There wereno unfunded commitments associated with loans modified for borrowers experiencing financial distress as of December 31, 2023.*

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Credit Quality Indicators

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, public information, historical payment experience, credit documentation, and current economic trends, among other factors. The Company classifies loans based on credit risk at least quarterly. The Company uses the following regulatory definitions for risk ratings:

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

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies arenot corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss: Loans classified as loss are considered uncollectible and of such little value that their continuance on the institution’s books as an asset isnot warranted.

Loansnot meeting the criteria above that are analyzed individually as part of the described process are considered to be pass rated loans.

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Based on the most recent analysis performed, the risk category of loans by class of loans as of* December 31, 2023*and gross write-offs for the year then ended are as follows:

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Allowance for Loan Losses

Prior to the adoption of ASC326 on* January 1, 2023,*the Company calculated the allowance for loan losses using the incurred loss methodology. The following tables are disclosures related to the allowance for loan losses in prior periods.

The following table provides the components of the Company’s recorded investment in loans at* December 31, 2022:*

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An analysis of the allowance for loan losses and recorded investment in loans as of and for the year ended* December 31, 2022*is as follows:

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An analysis of the allowance for loan losses for the year ended* December 31, 2021*is as follows:

F-36

The following table summarizes the Company’s impaired loans as of and for the year ended* December 31, 2022.The Company didnot* recognize any interest income on impaired loans using the cash receipts method of accounting for the year ended* December 31, 2022.*

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The following table summarizes the Company’s impaired loans for the year ended* December 31, 2021.The Company didnot* recognize any interest income on impaired loans using the cash receipts method of accounting for the year ended* December 31, 2021.*

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Nonperforming loans consists of nonaccrual loans and loans over90 days past due and still accruing interest. The following table presents the recorded investment in nonperforming loans at* December 31, 2022:*

The following table presents the aging of the recorded investment in loans at* December 31, 2022:*

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The following table presents the recorded investment in loans by risk category at* December 31, 2022:*

Troubled Debt Restructurings

The following table summarizes the Company’s TDRs by accrual status as of* December 31, 2022:*

At* December 31, 2022,*there wereno commitments to lend additional funds to debtors whose loan terms had been modified in a TDR.

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There wereno TDRs that were restructured during the years ended* December 31, 2022and2021.* There wereno principal charge-offs recorded as a result of TDRs during the years ended* December 31, 2022and2021.*

The Company hadno payment defaults (defined as the loan becoming more than90 days past due, being moved to nonaccrual status, or the collateral being foreclosed upon) for TDRs modified within the previous12 months during the year ended* December 31, 2022.During the year ended December 31, 2021,there wasone second mortgage loan TDR modified within the previous12* months with a balance of $290,000 that was moved to nonaccrual status. In the event that a TDR subsequently defaults, the Company evaluates the restructuring for possible impairment. As a result, the related allowance* maybe increased or charge-offs maybe taken to reduce the carrying amount of the loan. As a result of the payment default described above, a specific reserve of $7,000 was established during the year ended December 31, 2021.The current amortized cost of thesecond* mortgage described above is $264,000 and there isno specific reserve related to the loan at* December 31, 2023.The Company didnot* recognize any provisions for loan losses or net charge-offs as a result of defaulted TDRs for the year ended* December 31, 2022.*

Purchased Credit Deteriorated (“PCD”) Loans

The Company has purchased groups of loans, some of which have experienced more than insignificant credit deterioration since origination. An ACL for PCD loans is determined using the same methodology as other loans held for investment. Upon adoption of ASC326, the Company elected to maintain pools of loans that were previously accounted for as purchased credit impairment (“PCI”) loans under ASC310-30 and will continue to account for these pools as a unit of account. Loans are only removed from the existing pools if they are written off, paid off or sold. Upon adoption of ASC326, the ACL was determined for each pool and added to the pool’s carrying amount to establish a new amortized cost basis. The difference between the unpaid principal balance of the pool and the new amortized cost basis will be amortized into interest income over the remaining life of the pool. Changes to the ACL after adoption are recorded through the provision for credit losses. The carrying amount of PCD loans at* December 31, 2023and2022* was $234,000 and $244,000, respectively. There wasno ACL related to PCD loans at* December 31, 2023and2022.*

ACL on Off-Balance-Sheet Credit Exposures

The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The Company recorded an ACL for unfunded commitments of $131,000 in conjunction with the Company’s adoption of ASU2016-13 on* January 1, 2023.The ACL for off-balance-sheet credit exposures is presented in accrued expenses and other liabilities on the consolidated balance sheets. Changes in the ACL for off-balance-sheet credit exposures are reflected in the provision for credit losses on the consolidated statements of income. There wereno changes to the ACL for off-balance-sheet credit exposures during the year ended December 31, 2023.*

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(5)PREMISES AND EQUIPMENT

Premises and equipment as of* December 31, 2023and2022* consisted of the following:

Depreciation expense was $882,000, $924,000 and $996,000 for the years ended* December 31, 2023,*2022 and2021, respectively.

(6)FORECLOSED REAL ESTATE

Foreclosed real estate activity was as follows for the years ended* December 31, 2023,*2022 and2021:

At* December 31, 2023and2022,* foreclosed real estate didnot include any residential real estate properties where physical possession has been obtained. At* December 31, 2023and2022,* the amortized cost of consumer mortgage loans secured by residential real estate properties where formal foreclosure procedures are in process was $1,000 and $104,000, respectively.

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(7)GOODWILL AND OTHER INTANGIBLES

The Company acquired goodwill of $1.1 million in the acquisition of Peoples Bancorp, Inc. of Bullitt County and Peoples during2015 in addition to acquiring goodwill of $5.4 million in the acquisition of Hometown Bancshares, Inc. (“Hometown”) during2003. Goodwill is evaluated for impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the carrying amount is greater than its fair value. No impairment of goodwill was recognized during2023, 2022 or2021.

The Company acquired a core deposit intangible of $1.4 million in the acquisition of Peoples. All of the Company’s previously acquired core deposit intangibles had been fully amortized prior to2015. Core deposit intangible amortization expense totaled $147,000 each year for2023, 2022, and2021.

Core deposit intangibles subject to amortization as of* December 31, 2023and2022* consisted of the following:

Estimated amortization expense for the core deposit intangible for each of the ensuingfive years (as applicable) and in the aggregate is as follows:

(8)DEPOSITS

Deposits at* December 31, 2023and2022* consisted of the following:

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(8 - continued)

The aggregate amount of time deposit accounts with balances that met or exceeded the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of*$250,000* was approximately $32.4 million and $5.3 million at* December 31, 2023and2022,* respectively.

At* December 31, 2023,*scheduled maturities of time deposits were as follows:

The Bank held deposits of approximately $10.1 million and $12.5 million for related parties at* December 31, 2023and2022,* respectively.

(9)LINES OF CREDIT

The Bank has an unsecured federal funds purchased line of credit through Independent Correspondent Bankers’ Bank (formerly The Bankers’ Bank of Kentucky) with a maximum borrowing amount of $5.0 million. At* December 31, 2023and2022,* the Bank hadno outstanding federal funds purchased under the line of credit.

The Bank also has a $2.0 million revolving line of credit with Stock Yards Bank & Trust Company. At* December 31, 2023and2022,* the Bank hadno outstanding borrowings under the line of credit.

(10)BORROWED FUNDS

At* December 31, 2023,the Company had $21.5 million in borrowings outstanding under the FRB’s BTFP andno outstanding advances from the FHLB. The Company hadno outstanding borrowings at December 31, 2022.The Company hadno borrowings outstanding during the years ended December 31, 2022or2021.*

On* March 12, 2023,the Federal Reserve created the BTFP to make additional funding available to eligible depository institutions. The BTFP offers loans of up toone* year in length to banks, savings associations, credit unions and other depository institutions which pledge collateral, such as U.S. Treasuries, U.S. agency notes and bonds and U.S. agency mortgage-backed securities. The collateral is valued at par, and advances under this program donot include any fees or prepayment penalties. With the introduction of the BTFP, the Company pledged as collateral U.S. agency notes and bonds and borrowed $13.0 million from the BTFP at a fixed rate of 4.99% for aone-year period on* May 19, 2023.Upon receipt of this funding from the BTFP, the Company repaid all outstanding advances from the FHLB. In addition, on December 14, 2023the Company repaid all outstanding borrowings under the BTFP and advances from the FHLB and then borrowed $21.5 million under the BTFP at a fixed rate of 4.89% for aone-year period. At December 31, 2023,*the pledged securities had a par value of $48.9 million and a carrying value of $45.9 million.

During the year ended* December 31, 2023,the Company utilized a series of short-term fixed-rate bullet and variable rate advances from the FHLB in order to meet daily liquidity requirements and to fund growth in earning assets. The fixed-rate bullet advances had an average term ofseven* days.

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(10 - continued)

The following table sets forth information on the short-term FHLB advances and BTFP borrowings during the year ended* December 31, 2023:*

FHLB advances are secured under a blanket collateral agreement. At* December 31, 2023,*the carrying value of U.S. Treasury notes and mortgage loans pledged as security for FHLB advances was $35.0 million and $43.1 million, respectively.

(11)LEASES

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified premises and equipment for a period of time in exchange for consideration. The Company is a lessee in certain leasing agreements, such as for branch office space. During2020, the Bank extended a noncancelable lease agreement for branch office space which expires in* March 2025with annual lease payments of $19,000. The Bank’s subsidiary companies headquartered in Nevada lease office space under sublease agreements that automatically renew forone* year periods each* October.*

The Company has adopted FASB ASC842 and all subsequent updates. With the adoption of FASB ASC842, operating lease agreements are required to be recognized on the consolidated balance sheet as a right-of-use (“ROU”) asset and a corresponding lease liability. All of the Company’s leases are classified as operating leases. The Company has elected all applicable practical expedients permitted under the standard, including the option to expense short-term leases with a term ofone year or less.

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(11 - continued)

The Company’s right to use an asset over the life of a lease is recorded as an ROU asset included in other assets on the consolidated balance sheets and was $23,000 and $42,000 at* December 31, 2023and2022,* respectively. Certain adjustments to the ROU asset* maybe required for items such as initial direct costs paid or incentives received. The Company recorded a lease liability in other liabilities on the consolidated balance sheets, which had a balance of $23,000 and $42,000 at December 31, 2023and2022,* respectively.

The calculated amount of the ROU assets and lease liabilities are impacted by the length of the lease term and the discount rate used to calculate the present value of minimum lease payments. Regarding the discount rate, FASB ASC842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As this rate is rarely determinable, the Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term.

Leases with an initial term of12 months or less arenot recorded on the balance sheet and the Company recognizes lease expense for these leases on a straight-line basis over the term of the lease. Certain leases* mayincludeone* or more options to renew, with renewal terms that can extend the lease term fromone to 20 years or more. The exercise of renewal options on operating leases is at the Company’s sole discretion, and certain leases* mayinclude options to purchase the leased property. If at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the ROU asset and lease liability. The Company doesnot* enter into lease agreements which contain material residual value guarantees or material restrictive covenants. At* December 31, 2023,the Company hadnot* entered into any leases that had yet to commence that conveyed the right to control the use of the property to the Company.

Lease expense for the years ended* December 31, 2023,2022 and2021 was $34,000, $32,000 and $31,000, respectively. The components of lease expense for the years ended December 31, 2023,*2022 and2021 were as follows:

Future minimum commitments due under operating lease agreements as of* December 31, 2023*are as follows, including renewal options that are reasonably certain to be exercised:

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(11 - continued)

The lease term and discount rate at* December 31, 2023and2022* were as follows:

Supplemental cash flow information for the years ended* December 31, 2023,*2022 and2021 related to leases was as follows:

The Company also leases space to tenants under various operating leases. Lease income recorded under tenant leases was $47,000, $53,000 and $39,000 for the years ended* December 31, 2023,2022 and2021, respectively. Future minimum lease payments to be received under tenant leases with initial or remaining terms in excess ofone year total $38,000, $20,000 and $7,000 for the years ended December 31, 2024,*2025, and2026, respectively.

(12)INCOME TAXES

The Company and its corporate subsidiaries file consolidated tax returns. The components of consolidated income tax expense for the years ended* December 31, 2023,*2022 and2021 were as follows:

The reconciliation of income tax expense with the amount which would have been provided at the federal statutory rate of21% for the years ended* December 31, 2023,*2022, and2021 follows:

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(12 - continued)

Significant components of the deferred tax assets and liabilities as of* December 31, 2023and2022* were as follows:

At* December 31, 2023,the Company had state tax credit carryforwards of $381,000 that maybe carried forwardnine* years.

At* December 31, 2023and2022,* the Company hadno liability for unrecognized income tax benefits related to uncertain tax positions and doesnot anticipate any increase in the liability for unrecognized tax benefits during the nexttwelve months. The Company believes that its income tax positions would be sustained upon examination and doesnot anticipate any adjustments that would result in a material change to its financial position or results of operations. The Company files consolidated U.S. federal income tax returns and Indiana and Kentucky state income tax returns. Returns filed in these jurisdictions for tax years ended on or after* December 31, 2020*are subject to examination by the relevant taxing authorities. Each entity included in the consolidated federal, Indiana and Kentucky state income tax returns filed by the Company are charged or given credit for the applicable tax as though separate returns were filed.

Retained earnings of the Bank at* December 31, 2023and2022* include approximately $909,000 for whichno deferred federal income tax liability has been recognized. This amount represents an allocation of income to bad debt deductions as of* December 31, 1987for tax purposes only. Reduction of such allocated amounts for purposes other than tax bad debt losses, including redemption of bank stock, excess dividends or loss of “bank” status, would create income for tax purposes only, subject to the then-current corporate income tax rate. The unrecorded deferred liability on these amounts was approximately $191,000 at December 31, 2023and2022.*

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(13)EMPLOYEE BENEFIT PLANS

Defined Contribution Plan:

The Bank has a qualified contributory defined contribution plan available to all eligible employees. The plan allows participating employees to make tax-deferred contributions under Internal Revenue Code Section401(k). The Bank contributed $683,000, $643,000, and $652,000 to the plan for the years ended* December 31, 2023,*2022 and2021, respectively.

Employee Stock Ownership Plan:

On* December 31, 1998,the Bank established a leveraged employee stock ownership plan (“ESOP”) covering substantially all employees. The Bank accounts for the ESOP in accordance with FASB ASC718*-40, Employee Stock Ownership Plans. The ESOP trust acquired 61,501 shares of Company common stock financed by a loan with the Company with aten year term. The employer loan and the related interest income arenot recognized in the consolidated financial statements as the debt is serviced from Bank contributions. Dividends payable on allocated shares are charged to retained earnings and are satisfied by the allocation of cash dividends to participant accounts. Dividends payable on unallocated shares arenot considered dividends for financial reporting purposes. Shares held by the ESOP trust are allocated to participant accounts based on the ratio of the current year principal and interest payments to the total of the current year and future year’s principal and interest to be paid on the employer loan. The employer loan was fully paid in2008 and all shares of the Company common stock have been allocated to participant accounts.

Compensation expense is recognized based on the average fair value of shares released for allocation to participant accounts during the year with a corresponding credit to stockholders’ equity. No compensation expense was recognized for the years ended* December 31, 2023,*2022 and2021 as all shares were allocated during2008.

At* December 31, 2023and2022,* the ESOP trust held 48,435 and 49,995 shares of Company stock, respectively, including shares acquired on the open market, all of which had been allocated to participant accounts. The aggregate fair value of shares allocated to ESOP participants was $1.4 million and $1.2 million at* December 31, 2023and2022,* respectively.

(14)DEFERRED COMPENSATION PLANS

The Bank has a deferred compensation plan whereby certain officers will be provided specific amounts of income for a period offifteen years following normal retirement. The benefits under the agreements are fully vested and were paid in varying amounts through2022. As part of the acquisition of Peoples in* December 2015,the Bank assumed a non-qualified deferred compensation plan forthree key employees of Peoples, which provides for specific amounts of income for a period often years following retirement. The benefits under the Peoples plan are fully vested and, assuming normal retirement, will be paid in varying amounts through2026.* The Bank is the owner and beneficiary of insurance policies on the lives of these officers which* mayprovide funds for a portion of the required payments. The agreements also provide for payment of benefits in the event of disability, early retirement and termination of employment or death. The Bank accrues the present value of the benefits under these plans so the amounts required will be provided at the normal retirement dates and thereafter. The balance of the accrued benefit for the plans was $104,000 and $140,000 at December 31, 2023and2022,* respectively. Deferred compensation expense for the Bank’s deferred compensation plans for employees was $5,000, $7,000 and $10,000 for the years ended* December 31, 2023,*2022 and2021, respectively.

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The Bank also has a directors' deferred compensation plan whereby a director defers into a retirement account a portion of his/her monthly director fees for a specified period to provide a specified amount of income for a period offifteen years following normal retirement. Assuming normal retirement, the benefits under the plan will be paid in varying amounts through2041. The agreements also provide for payment of benefits in the event of disability, early retirement and termination of service or death. The Bank accrues the interest cost on the deferred obligation so the amounts required will be provided at the normal retirement dates and thereafter. The balance of the accrued benefit for the director plan was $127,000 and $129,000 at* December 31, 2023and2022,* respectively. Deferred compensation expense for the director plan was $15,000, $16,000 and $16,000 for the years ended* December 31, 2022,*2021 and2020, respectively.

(15)STOCK-BASED COMPENSATION PLANS

On* May 20, 2009,the Company adopted the2009* Equity Incentive Plan (the*“2009* Plan”) which terminated as of* May 20, 2019.The2009* Plan provided for the award of stock options, restricted stock, performance shares and stock appreciation rights. The aggregate number of shares of the Company’s common stock available for issuance under the2009 Plan couldnot exceed 223,000 shares and 176,150 shares were still available for issuance under the2009 Plan at its termination.

On* May 22, 2019,the Company adopted the2019* Equity Incentive Plan (the*“2019* Plan”). The2019 Plan provides for the award of stock options, restricted stock, performance shares and stock appreciation rights. The aggregate number of shares of the Company’s common stock available for issuance under the2019 Plan* may**not* exceed 176,150 shares. If an award under the2009 Plan is canceled, terminates, expires, is forfeited or lapses for any reason, any issued shares subject to the award shallnot be available for issuance pursuant to awards subsequently granted under the2019 Plan. Further,no additional participants, as that term is defined in the2009 Plan, are eligible for grants of awards under the2009 Plan. The Company generally issues new shares under the2019 Plan from its authorized but unissued shares.

At* December 31, 2023,162,800 shares of the Company’s common stock were available for issuance under the2019* Plan. The Company* maygrant both non-statutory and statutory stock options which maynot* have a term exceedingten years. In the case of incentive stock options, the aggregate fair value of the stock (determined at the time the incentive stock option is granted) for which any optionee* maybe granted incentive options which arefirst* exercisable during any calendar year shallnot exceed $100,000. Option prices* maynot* be less than the fair market value of the underlying stock at the date of the grant. An award of a performance share is a grant of a right to receive shares of the Company’s common stock which is contingent upon the achievement of specific performance criteria or other objectives set at the grant date. Stock appreciation rights are equity or cash settled share-based compensation arrangements whereby the number of shares that will ultimately be issued or the cash payment is based upon the appreciation of the Company’s common stock. Awards granted under the2019 Plan* maybe granted either alone, in addition to, or in tandem with, any other award granted under the2019* Plan. The terms of the2019 Plan also include provisions whereby all unearned options and restricted shares become immediately exercisable and fully vested upon a change in control.

The fair market value of stock options granted is estimated at the date of grant using an option pricing model. Expected volatilities are based on historical volatility of the Company's stock. The expected term of options granted represents the period of time that options are expected to be outstanding and is based on historical trends. The risk free rate for the expected life of the options is based on the U.S. Treasury yield curve in effect at the time of grant. As of* December 31, 2023,*no stock options had been granted under the Plans.

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No restricted stock shares were granted during2023, 2022 or2021. Compensation expense is measured based on the fair market value of the restricted stock at the grant date and is recognized ratably over the period during which the shares are earned (the vesting period). The Company accounts for any forfeitures when they occur, and any previously recognized compensation cost for an award is reversed in the period the award is forfeited. Compensation expense related to restricted stock recognized for the years ended* December 31, 2023,2022 and2021 was $252,000, $436,000 and $487,000, respectively. The income tax benefit related to stock-based compensation was $30,000, $55,000 and $97,000 for the years ended December 31, 2023,2022 and2021, respectively. A summary of the Company’s nonvested restricted shares activity as of December 31, 2023*and changes during the year then ended is as follows:

There were 6,100,8,950 and 10,300 restricted shares vested during the years ended* December 31, 2023,2022 and2021, respectively. The total fair value of restricted shares that vested during the years ended December 31, 2023,2022 and2021 was $188,000, $260,000 and $448,000, respectively. At December 31, 2023,*unrecognized compensation expense related to nonvested restricted shares was $249,000. The compensation expense is expected to be recognized over a weighted average period of 1.4 years.

(16)COMMITMENTS AND CONTINGENCIES

In the normal course of business, there are outstanding commitments, contingent liabilities and other financial instruments that arenot reflected in the consolidated financial statements. These include commitments to extend credit and standby letters of credit, which are some of the instruments used by the Company to meet the financing needs of its customers. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheet.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

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The following is a summary of the commitments to extend credit at* December 31, 2023and2022:*

Commitments to extend credit are agreements to lend to a customer as long as there isno violation of any condition established in the contract. Certain commitments have fixed expiration dates, or other termination clauses, and* mayrequire payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts donot* necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral or other security obtained, if deemed necessary by the Company upon extension of credit, varies and is based on management’s credit evaluation. Collateral held varies but* may*include deposits held in financial institutions; U.S. Treasury securities; other marketable securities; accounts receivable; inventory; property and equipment; personal residences; income-producing commercial properties and land under development. Personal guarantees are also obtained to provide added security for certain commitments.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to athird party. Those guarantees are primarily issued to guarantee the installation of real property improvements and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds collateral and obtains personal guarantees supporting those commitments for which collateral or other security is deemed necessary.

The Company hasnot been obligated to perform on any financial guarantees and has incurredno losses on its commitments in2023 or2022.

(17)DIVIDEND RESTRICTION

As an Indiana corporation, the Company is subject to Indiana law with respect to the payment of dividends. Under Indiana law, the Company* may*pay dividends so long as it is able to pay its debts as they become due in the usual course of business and its assets exceed the sum of its total liabilities, plus the amount that would be needed if the Company were to be dissolved at the time of the dividend to satisfy any rights that are preferential to the rights of the persons receiving the dividend. The ability of the Company to pay dividends depends primarily on the ability of the Bank to pay dividends to the Company.

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The payment of dividends by the Bank is subject to banking regulations and applicable Indiana state law. The amount of dividends that the Bank* maypay to the Company in any calendar year without prior approval from banking regulators cannot exceed net income for that year to date plus retained net income (as defined) for the precedingtwo* calendar years. The Bank* may**not* declare or pay a cash dividend or repurchase any of its capital stock if the effect thereof would cause the regulatory capital of the Bank to be reduced below regulatory capital requirements imposed by the banking regulators or below the amount of the liquidation account established upon completion of the conversion of the Bank’s former mutual holding company (First Capital, Inc., MHC) from mutual to stock form on* December 31, 1998.*

(18)REGULATORY MATTERS

The Bank is subject to various regulatory capital requirements administered by the banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank and the consolidated financial statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total, Tier1 and common equity Tier1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier1 capital (as defined) to average assets (as defined). The final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (“Basel III rules”) became effective for the Bank on* January 1, 2015,with all of the requirements being phased in as of January 1, 2019.Under the Basel III rules, the Bank must hold a conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer was phased in from 0.0% for2015* to 2.5% for2019. The capital conservation buffer was 2.5% for2023 and2022.

Beginning in2020, qualifying community banks with assets of less than*$10* billion are eligible to opt in to the Community Bank Leverage Ratio (“CBLR”) framework. The CBLR is the ratio of a bank’s tangible equity capital to average total consolidated assets. A qualifying community bank that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under prompt corrective action statutes. The federal banking agencies* mayconsider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new CBLR atnot* less than8% andnot more than10%, and had originally set the minimum ratio at9%. However, pursuant to the CARES Act and related interim final rules, the minimum CBLR was8% for calendar year2020, 8.5% for calendar year2021, and9% thereafter. A financial institution that falls below the minimum CBLR generally has atwo quarter grace period to get back into compliance as long as it maintains a minimum CBLR of7% for2020, 7.5% for2021 and8% for2022 and thereafter. A financial institution can elect to be subject to or opt out of the CBLR framework at any time. As a qualified community bank, the Bank has opted into the CBLR framework as of* December 31, 2023and2022.* Management believes that the Bank met all capital adequacy requirements to which it was subject as of* December 31, 2023and2022.*

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As of* December 31, 2023,the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There areno* conditions or events since that notification that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios are presented in the following table.No amounts were deducted from capital for interest-rate risk in either year.

(19)FAIR VALUE MEASUREMENTS

FASB ASC Topic820**, Fair Value Measurements, provides the framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level1 measurements) and the lowest priority to unobservable inputs (Level3 measurements). Thethree levels of the fair value hierarchy under FASB ASC Topic820 are described as follows:

Fair value is based upon quoted market prices, where available. If quoted market prices arenot available, fair value is based on internally developed models or obtained from independentthird parties that primarily use, as inputs, observable market-based parameters or a matrix pricing model that employs the Bond Market Association’s standard calculations for cash flow and price/yield analysis and observable market-based parameters. Valuation adjustments* maybe made to ensure that financial instruments are recorded at fair value, or the lower of cost or fair value. These adjustments mayinclude unobservable parameters. Any such valuation adjustments have been applied consistently over time. The Company’s valuation methodologies mayproduce a fair value calculation that may**not* be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

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The table below presents the balances of assets measured at fair value on a recurring and nonrecurring basis as of* December 31, 2023and2022.* The Company hadno liabilities measured at fair value as of* December 31, 2023or2022.*

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Securities Available for Sale and Equity Securities*.Securities classified as available for sale and equity securities are reported at fair value on a recurring basis. These securities are classified as Level1* of the valuation hierarchy where quoted market prices from reputablethird-party brokers are available in an active market. If quoted market prices arenot available, the Company obtains fair value measurements from an independent pricing service. These securities are reported using Level2 inputs and the fair value measurements consider observable data that* mayinclude dealer quotes, market spreads, cash flows, U.S. government and agency yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and the security’s terms and conditions, among other factors. For securities where quoted market prices, market prices of similar securities or prices from an independentthird* party pricing service arenot available, fair values are calculated using discounted cash flows or other market indicators and are classified within Level3 of the fair value hierarchy. Changes in fair value of securities available for sale are recorded in other comprehensive income, net of income tax effect. Changes in fair value of equity securities are recorded in noninterest income on the consolidated statements of income.

Collateral Dependent Loans. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. In accordance with accounting standards, only collateral dependent loans for which a specific ACL has been established require classification in the fair value hierarchy. The fair value of collateral dependent loans is classified as Level3 in the fair value hierarchy.

Collateral dependent loans with specific allocations of ACL are measured at the fair value of the collateral less estimated costs to sell. Collateral* may*be real estate and/or business assets, including equipment, inventory and/or accounts receivable. The fair value of the collateral is generally determined based on real estate appraisals or other independent evaluations by qualified professionals, which are then discounted to reflect management’s estimate of the fair value of the collateral given the current market conditions and the condition of the collateral.

At* December 31, 2023,the significant unobservable inputs used in the fair value measurement of collateral dependent loans included a discount from appraised value for estimates of changes in market conditions, the condition of the collateral, and estimated costs to sell the collateral ranging from 23% to 30%, with a weighted average discount of 27%. There wereno* collateral dependent loans with a specific allocation of the ACL on loans at* December 31, 2022.*

The Company recognized provisions for loan losses of $97,000, $148,000 and $12,000 for the years ended* December 31, 2023,*2022 and2021, respectively, for collateral dependent loans.

Loans Held for Sale. Loans held for sale are carried at the lower of cost or market value. The portfolio is comprised of residential real estate loans and fair value is estimated based on specific prices of underlying contracts for sales to investors. These measurements are carried at Level2 in the fair value hierarchy. At* December 31, 2023and2022,* the Company didnot have any loans held for sale measured at fair value on a nonrecurring basis.

Foreclosed Real Estate. Foreclosed real estate is reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly. The fair value of foreclosed real estate is classified as Level3 in the fair value hierarchy.

Foreclosed real estate is reported at fair value less estimated costs to dispose of the property. The fair values are determined by real estate appraisals which are then discounted to reflect management’s estimate of the fair value of the property given current market conditions and the condition of the property.

At* December 31, 2023and2022,* the Company heldno foreclosed real estate.

The Company recognized charges of $5,000 to write down foreclosed real estate to fair value for the year ended* December 31, 2021.There wereno* charges to write down foreclosed real estate recognized in income for the years ended* December 31, 2023and2022.*

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There have beenno changes in the valuation techniques and related inputs used for assets measured at fair value on a recurring and nonrecurring basis during the years ended* December 31, 2023and2022.* There wereno transfers in or out of the Company’s Level3 financial assets for the years ended* December 31, 2023and2022.*

(20)DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table summarizes the carrying value and estimated fair value of financial instruments and the level within the fair value hierarchy (see Note19) in which the fair value measurements fall at* December 31, 2023and2022:*

The carrying amounts in the preceding table are included in the consolidated balance sheets under the applicable captions. The contractual or notional amounts of financial instruments with off-balance-sheet risk are disclosed in Note16, and the fair value of these instruments is considered immaterial.

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The methods and assumptions used to estimate fair value are described as follows:

Carrying amount is the estimated fair value for cash and cash equivalents, accrued interest receivable and payable, demand deposits and other transactions accounts. The fair value of securities and interest-bearing time deposits in other financial institutions is based on quoted market prices (where available) or values obtained from an independent pricing service. The fair value of loans, excluding loans held for sale, fixed-maturity certificates of deposit and borrowed funds is based on discounted cash flows using current market rates applied to the estimated life and credit risk of the instrument. The fair value of loans held for sale is based on specific prices of underlying contracts for sales to investors. It isnot practicable to determine the fair value of FHLB and other restricted stock due to restrictions placed on its transferability. The methods utilized to measure the fair value of financial instruments at* December 31, 2023and2022* represent an approximation of exit price, but an actual exit price* may*differ.

(21)REVENUE FROM CONTRACTS WITH CUSTOMERS

Substantially all of the Company’s revenue from contracts with customers in the scope of FASB ASC606 is recognized within noninterest income. The following table presents the Company’s sources of noninterest income and other income within the scope of FASB ASC606 for the years ended* December 31, 2023,*2022 and2021:

A description of the Company’s revenue streams accounted for under FASB ASC606 follows:

Service Charges on Deposit Accounts: The Company earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as stop payment charges and statement rendering, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs.

ATM and Debit Card Fees: The Company earns ATM usage fees and interchange fees from debit cardholder transactions conducted through a payment network. ATM fees are recognized at the point in time the transaction occurs. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

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Investment Advisory Income: The Company earns trust, insurance commissions, brokerage commissions and annuities income from its contracts with customers to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as the Company provides the contracted services and are generally assessed based on the market value of assets under management. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed. Other related fees, which are based on a fixed fee schedule, are recognized when the services are rendered.

Other Income: Other income from contracts with customers includes safe deposit box fees and ACH origination fees. This revenue is recognized at the time the transaction is executed or over the period the Company satisfies the performance obligation.

(22)QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENT

On* January 19, 2018,the Bank entered into an agreement to invest in qualified affordable housing projects through a limited liability company. At December 31, 2023and2022,* the balance of the Bank’s investment was $1.9 million and $2.2 million, respectively, and is reflected in other assets on the consolidated balance sheets. The unfunded commitment related to the qualified affordable housing project investment at* December 31, 2023and2022* was $168,000 and $216,000, respectively, and is reflected in other liabilities on the consolidated balance sheets. The Bank expects to fulfill the commitment as capital calls are made through2029.

The investment is accounted for using the proportional amortization method. During2023, 2022 and2021, the Bank recognized amortization expense of $307,000, $355,000 and $355,000, respectively, which was included in income tax expense on the consolidated statements of income. Additionally, during2023, 2022 and2021, the Bank recognized tax credits and other tax benefits from its qualified affordable housing project investment of $403,000, $421,000 and $423,000, respectively, which was included in income tax expense on the consolidated statements of income.

(23)RENEWABLE ENERGRY TAX CREDIT INVESTMENT

On* April 21, 2023,the Bank entered into an agreement to invest in investment tax credits generated by a solar energy producing facility through a limited liability company. At December 31, 2023,the balance of the Bank’s investment was $306,000, and is reflected in other assets on the consolidated balance sheets. The Bank had fully funded its commitment in the solar energy tax credit investment at December 31, 2023.In addition, in order to facilitate the loan to be obtained by the entity constructing the qualified solar energy producing facility, the Bank has obtained a $2.0 million standby letter of credit through the FHLB for the Bank’s total committed investment. The letter of credit was issued June 2, 2023and expires April 30, 2024.*

The investment is accounted for using the proportional amortization method. During2023, the Bank recognized amortization expense of $1.7 million, which was included in income tax expense on the consolidated statements of income. Additionally, during2023, the Bank recognized tax credits and other tax benefits from its solar energy tax credit investment of $1.8 million, which was included in income tax expense on the consolidated statements of income.

(24)CAPTIVE SUBSIDIARY

As described in Note1, the Company had a wholly-owned insurance subsidiary providing property and casualty insurance coverage to the Company, the Bank and the Bank’s subsidiaries, and reinsurance tonine otherthird party insurance captives for which insurance* may**not* be currently available or economically feasible in the insurance marketplace. On* April 10, 2023,the IRS issued IR-2023-74 and proposed regulations that mayresult in the Captive being considered a listed transaction. The proposed regulations include the possibility of material tax expense to the consolidated group if finalized in their current form. However, the final regulations havenot* been published and as such management cannot reasonably estimate or determine the potential tax liability as of* December 31, 2023.The Captive was formally dissolved with all remaining assets transferred to the Company on December 31, 2023.*

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(25)PARENT COMPANY CONDENSED FINANCIAL INFORMATION

Condensed financial information for the Company (parent company only) follows:

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(26)SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

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(27)SUPPLEMENTAL DISCLOSURE FOR EARNINGS PER SHARE

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding during the periods presented. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under stock options, restricted stock and other potentially dilutive securities outstanding. Earnings and dividends per share are restated for stock splits and dividends through the date of issuance of the financial statements. Earnings per share information is presented below for the years ended* December 31, 2023,*2022 and2021.

Nonvested restricted stock shares arenot considered as outstanding for purposes of computing weighted average common shares outstanding. Restricted shares totaling 5,600 and 12,550 were excluded from the calculation of diluted net income per share because their effect would be anti-dilutive for the years ended* December 31, 2023and2022,* respectively. No shares were excluded from the calculation of diluted net income per common share because their effect would be anti-dilutive for the year ended* December 31, 2021.*

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(28)SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

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**SIGNATURES