Texas Community Bancshares Inc

Previous wording

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding Texas Community Bancshares, Inc.’s (the “Company”) consolidated financial condition at June 30, 2024 and consolidated results of operations for the three and six months ended June 30, 2024 and 2023. It should be read in conjunction with the unaudited consolidated financial statements and the related notes appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Current wording

Management’s discussion and analysis of financial condition and results of operations is intended to assist in understanding Texas Community Bancshares, Inc.’s (the “Company”) consolidated financial condition at September 30, 2024 and consolidated results of operations for the three and nine months ended September 30, 2024 and 2023. It should be read in conjunction with the unaudited consolidated financial statements and the related notes appearing in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Previous wording

The Company assesses held to maturity (HTM) securities for credit losses and due to the HTM securities primarily being issued by government-sponsored entities or being highly rated municipals, management concluded that no credit loss should be recognized for these securities for the six months ended June 30, 2024.

Current wording

The Company assesses held to maturity (HTM) securities for credit losses and due to the HTM securities primarily being issued by government-sponsored entities or being highly rated municipals, management concluded that no credit loss should be recognized for these securities for the nine months ended September 30, 2024.

Previous wording

Total Assets. Total assets were $451.6 million at June 30, 2024, a decrease of $449,000, or 0.1%, from $452.0 million at December 31, 2023. The decrease was due primarily to a decrease in net loans and leases of $11.2 million, or 4.0%, to $268.7 million at June 30, 2024 from $279.9 million at December 31, 2023 and a decrease in securities of $5.9 million, or 4.9%, to $113.4 million at June 30, 2024 from $119.3 million at December 31, 2023 partially offset by increases in cash, fed funds sold and interest bearing deposits in banks of $14.6 million, or 57.5%, to $40.0 million at June 30, 2024 from $25.4 million at December 31, 2023. The decrease in loans was primarily due to the sale of 122 performing residential mortgage loans totaling $27.1 million at a loss of $3.8 million, net of mortgage servicing rights retained, as part of a portfolio repositioning strategy to take advantage of repricing opportunities with the goal of increasing yield, shortening weighted average life and diversifying the loan portfolio by reducing the concentration in residential mortgage loans.

Current wording

Total Assets. Total assets were $446.0 million at September 30, 2024, a decrease of $6.0 million, or 1.3%, from $452.0 million at December 31, 2023. The decrease was due primarily to a decrease in securities of $15.7 million, or 13.2%, to $103.6 million at September 30, 2024 from $119.3 million at December 31, 2023 and a decrease in interest bearing deposits in banks of $9.1 million, or 74.0%, to $3.2 million at September 30, 2024 from $12.3 million at December 31, 2023 partially offset by an increase in net loans and leases of $13.1 million, or 4.7%, to $293.0 million at September 30, 2024 from $279.9 million at December 31, 2023 and an increase in cash and cash equivalents of $4.7 million, or 35.9%, to $17.8 million at September 30, 2024 from $13.1 million at December 31, 2023. The increase in loans was net of the sale of 122 performing residential mortgage loans totaling $27.1 million at a loss of $3.8 million, net of mortgage servicing rights retained, as part of a portfolio repositioning strategy to take advantage of repricing opportunities with the goal of increasing yield, shortening weighted average life and diversifying the loan portfolio by reducing the concentration in residential mortgage loans.

Previous wording

Cash and Cash Equivalents. Cash and cash equivalents increased $19.2 million, or 146.6%, to $32.3 million (which includes fed funds sold of $25.5 million) at June 30, 2024 from $13.1 million (which includes fed funds sold of $7.6 million) at December 31, 2023. This increase was primarily the result of a decrease in net loans and leases of $11.2, million, or 4.0%, resulting primarily from the strategic sale of loans totaling $27.1 million, an increase in deposits of $7.4 million, or, 2.3%, a decrease in securities of $5.9 million, and a decrease in interest bearing deposits in banks of $4.5 million partially offset primarily by dividends paid of $255,000, stock repurchases of $584,000, and a decrease in FHLB advances of $5.7 million.

Current wording

Cash and Cash Equivalents. Cash and cash equivalents increased $4.7 million, or 35.9%, to $17.8 million (which includes fed funds sold of $12.6 million) at September 30, 2024 from $13.1 million (which includes fed funds sold of $7.6 million) at December 31, 2023. This increase was primarily the result of an increase in deposits of $9.1 million, or 2.9%, a decrease in securities of $15.7 million and a decrease in interest bearing deposits in banks of $9.1 million partially offset primarily by an increase in loans of $13.1 million, dividends paid of $380,000, stock repurchases of $1.0 million, and a decrease in FHLB advances of $13.7 million.

Previous wording

Interest Bearing Deposits in Banks. Interest bearing deposits in banks decreased $4.5 million, or 36.6%, to $7.8 million at June 30, 2024, compared to $12.3 million at December 31, 2023. The decrease was primarily the result of net purchases of $4.2 million in Qwickrate Certificates of Deposit (CDs) offset by $9.0 million being moved to cash primarily to be used for the payoff of $5.0 million in FHLB advances. The Bank utilizes the Qwickrate listing service, which is a resource where banks can purchase and sell Certificates of Deposit (CDs) with other banks to invest excess funds in CDs at a competitive rate. At June 30, 2024, there was $7.5 million in short-term (3-6 months) Qwickrate CDs with other banks.

Current wording

Interest Bearing Deposits in Banks. Interest bearing deposits in banks decreased $9.1 million, or 74.0%, to $3.2 million at September 30, 2024, compared to $12.3 million at December 31, 2023. The decrease was primarily the result of a reduction of $3.2 million in Qwickrate Certificates of Deposit (CDs) and $6.0 million in money market funds with correspondent banks being moved to cash primarily to be used for the payoff of $12.7 million in FHLB advances. The Bank utilizes the Qwickrate listing service, which is a resource where banks can purchase and sell Certificates of Deposit (CDs) with other banks to invest excess funds in CDs at a competitive rate. At September 30, 2024, there were no Qwickrate CDs with other banks.

Previous wording

Securities Available for Sale. Securities available for sale decreased by $3.7 million, or 4.0%, to $89.6 million at June 30, 2024 from $93.3 million at December 31, 2023. During the six months ended June 30, 2024, we had purchases of securities of $3.5 million, received paydowns of $5.7 million and had one security of $2.0 million called. Net unrealized losses on the available for sale portfolio, including derivatives, decreased by $723,000, or 12.9%, to $4.9 million, net of tax, from $5.6 million, net of tax, due primarily to decreases in market interest rates. Gross unrealized losses on the AFS portfolio consisting of 84 securities decreased from $7.2 million, or 7.2% of the portfolio’s amortized cost of $100.5 million at December 31, 2023, to $6.8 million, or 7.1% of the amortized cost of $96.4 million at June 30, 2024. These unrealized losses are due to increases in market interest rates.

Current wording

Securities Available for Sale. Securities available for sale decreased by $12.6 million, or 13.5%, to $80.7 million at September 30, 2024 from $93.3 million at December 31, 2023. During the nine months ended September 30, 2024, we had purchases of securities of $3.5 million, received paydowns of $9.4 million and securities of $3.4 million being called. During the nine months ended September 30, 2024, we sold two floating rate securities totaling $5.5 million to be reinvested at a fixed rate. Net unrealized losses on the available for sale portfolio, including derivatives, decreased by $1.5 million, or 26.8%, to $4.1 million, net of tax, from $5.6 million, net of tax, due primarily to decreases in market interest rates. Gross unrealized losses on the AFS portfolio consisting of 81 securities decreased from $7.2 million, or 7.2% of the portfolio’s amortized cost of $100.5 million at December 31, 2023, to $5.1 million, or 6.0% of the amortized cost of $85.8 million at September 30, 2024. These unrealized losses are due to increases in market interest rates.

Previous wording

Securities Held to Maturity. Securities held to maturity decreased by $2.2 million, or 8.5%, to $23.8 million at June 30, 2024 from $26.0 million at December 31, 2023. This decrease is due primarily to one security of $395,000 being called and paydowns of $1.7 million. The HTM portfolio had 69 securities with gross unrealized losses of $2.6 million, or 10.9%, of the amortized cost of $23.8 million at June 30, 2024 compared to $2.6 million, or 10.0%, of the amortized cost of $26.0 million at December 31, 2023. These unrealized losses are due to increases in market interest rates.

Current wording

Securities Held to Maturity. Securities held to maturity decreased by $3.1 million, or 11.9%, to $22.9 million at September 30, 2024 from $26.0 million at December 31, 2023. This decrease is due primarily to one security of $395,000 being called and paydowns of $2.6 million. The HTM portfolio had 69 securities with gross unrealized losses of $2.0 million, or 8.8%, of the amortized cost of $22.9 million at September 30, 2024 compared to $2.6 million, or 10.0%, of the amortized cost of $26.0 million at December 31, 2023. These unrealized losses are due to increases in market interest rates.

Previous wording

Loans and Leases Receivable, Net. Net loans and leases receivable decreased $11.2 million, or 4.0%, to $268.7 million at June 30, 2024 from $279.9 million at December 31, 2023. The decrease in loans was primarily due to the sale of 122 performing residential mortgage loans totaling $27.1 million being sold at a loss of $3.8 million, net of mortgage servicing rights retained of $239,000. The sales are part of a portfolio repositioning strategy to take advantage of repricing opportunities with the goal of increasing yield, shortening weighted average life and diversifying the loan portfolio by reducing concentration risk in residential mortgage loans. In addition to the loan sale, there was $42.1 million in loan originations partially offset by $24.3 million in payoffs and $6.7 million in normal monthly loan paydowns.

Current wording

Loans and Leases Receivable, Net. Net loans and leases receivable increased $13.0 million, or 4.7%, to $293.0 million at September 30, 2024 from $279.9 million at December 31, 2023. The increase in loans was primarily due to an increase in commercial real estate loans after reinvesting the funds from the sale of 122 performing residential mortgage loans totaling $27.1 million being sold at a loss of $3.8 million, net of mortgage servicing rights retained of $239,000. The sales were part of a portfolio repositioning strategy to take advantage of repricing opportunities with the goal of increasing yield, shortening weighted average life and diversifying the loan portfolio by reducing concentration risk in residential mortgage loans. In addition to the loan sale, there was $77.8 million in loan originations partially offset by $37.2 million in payoffs and $9.9 million in contractual repayments.

Previous wording

The loan and lease portfolio totaled $271.7 million and is comprised of $249.2 million, or 91.7%, real estate loans, $7.0 million, or 2.6%, commercial and industrial loans, $6.7 million, or 2.5%, consumer loans and $8.7 million, or 3.2%, municipal and other loans. Real estate loans include $145.3 million, or 53.5%, 1-4 family residential loans, $10.5 million, or 3.9%, multi-family loans, $42.7 million, or 15.7%, commercial real estate (CRE), $20.5 million, or 7.5%, in 1-4 family construction loans, $22.8 million, or 8.4%, in other construction and development loans and $7.5 million, or 2.7%, in farmland loans. Total loans include interim construction loans of $34.4 million, or 69.7%, of the completed project balance of $49.3 million which includes $20.3 million in single-family residence loans, including $5.2 million in speculative loans to builders, $2.0 million in subdivision construction, $16.8 million in muti-family construction and $10.2 million in CRE. The total construction loan portfolio consisted of 69 loans with outstanding balances of $49.3 million at June 30, 2024 compared to 82 loans at December 31, 2023 with outstanding balances of $54.3 million.

Current wording

The loan and lease portfolio totaled $296.1 million and is comprised of $273.6 million, or 92.4%, real estate loans, $7.1 million, or 2.4%, commercial and industrial loans, $6.1 million, or 2.1%, consumer loans and other loans, and $9.3 million, or 3.1%, municipal loans. Real estate loans include $143.1 million, or 48.3%, 1-4 family residential loans, $10.5 million, or 3.6%, multi-family loans, $55.5 million, or 18.8%, commercial real estate (CRE) loans, $22.1 million, or 7.4%, in 1-4 family construction loans, $33.1 million, or 11.2%, in other construction and development loans and $9.3 million, or 3.2%, in farmland loans. Total loans include interim construction loans of $37.9 million, or 76.9%, of the completed project balance of $49.3 million which includes $21.3 million in single-family residence loans, including $7.9 million in speculative construction loans to builders, $2.4 million in subdivision construction, $16.8 million in muti-family construction loans and $8.8 million in CRE loans. The total construction loan portfolio consisted of 65 loans with outstanding balances of $49.3 million at September 30, 2024 compared to 82 loans with outstanding balances of $54.3 million at December 31, 2023.

Previous wording

Deposits. Deposits increased $7.4 million, or 2.3%, to $324.6 million at June 30, 2024 from $317.2 million at December 31, 2023. Core deposits (defined as all deposits other than certificates of deposit) increased $6.4 million, or 3.2%, to $204.9 million at June 30, 2024 from $198.5 million at December 31, 2023. Retail certificates of deposit increased $1.3 million, or 1.2%, to $107.8 million at June 30, 2024 from $106.5 million at December 31, 2023. At June 30, 2024, there was $12.0 million in brokered deposits. The average cost of deposits increased 48 basis points, or 23.1%, to 2.56% at June 30, 2024 compared to 2.08% at December 31, 2023. At June 30, 2024, there were 187 accounts with balances in excess of the $250,000 FDIC insurance limit with an aggregate balance of $93.7 million, or 28.9% of deposits. The amount that was over the FDIC insurance limit was $47.0 million, or 14.5%, that was potentially uninsured, including certificates of deposit of $9.4 million, money market accounts of $10.8 million and $26.8 million in checking and savings accounts.

Current wording

Deposits. Deposits increased $9.1 million, or 2.9%, to $326.3 million at September 30, 2024 from $317.2 million at December 31, 2023. Core deposits (defined as all deposits other than certificates of deposit) increased $6.4 million, or 3.2%, to $204.9 million at September 30, 2024 from $198.5 million at December 31, 2023. Retail certificates of deposit increased $3.0 million, or 2.8%, to $109.5 million at September 30, 2024 from $106.5 million at December 31, 2023. At September 30, 2024, there were $12.0 million in brokered deposits. The year-to-date average cost of interest-bearing deposits increased 50 basis points, or 24.1%, to 2.58% at September 30, 2024 compared to 2.08% at December 31, 2023. Due to a strategic effort to increase noninterest bearing deposits, cost of total deposits increased 11 basis points, or 5.3%, from 2.09% at December 31, 2023 to 2.20% at September 30, 2024. At September 30, 2024, there were 198 accounts with balances in excess of the $250,000 FDIC insurance limit with an aggregate balance of $99.5 million, or 30.5% of deposits. The amount that was over the FDIC insurance limit was $50.0 million, or 15.3%, that was potentially uninsured, including certificates of deposit of $9.7 million, money market accounts of $12.3 million and $28.0 million in checking and savings accounts.

Previous wording

Advances from Federal Home Loan Bank. Advances from Federal Home Loan Bank decreased by $5.7 million, or 7.4%, to $71.2 million at June 30, 2024 from $76.9 million at December 31, 2023 due to the payoff of an advance of $5.0 million and to normal payments on amortizing advances of $684,000. There are five advances totaling $10.7 million that will mature in 2024. There are no current plans to renew these advances.

Current wording

Advances from Federal Home Loan Bank. Advances from Federal Home Loan Bank decreased by $13.7 million, or 17.8%, to $63.2 million at September 30, 2024 from $76.9 million at December 31, 2023 due to the payoff of five advances totaling $12.7 million and to normal principal payments on amortizing advances of $1.0 million. There is one additional $3.0 million advance that will mature in 2024. There are no current plans to renew the advance.

Previous wording

ended June 30, 2024 of $2.3 million resulting primarily from the pre-tax loss of $3.8 million, net of mortgage servicing rights retained, on the sale of residential mortgage loans. The Company also repurchased 40,600 shares of its common stock for a decrease of $584,000 and paid quarterly dividends totaling $255,000, partially offset by an increase in equity of $446,000 from vesting of the 2022 Equity Plan and an increase of $93,000 with the accrual of ESOP commitments for the six months ended June 30, 2024. There was a decrease in the accumulated other comprehensive loss, net of tax, due to decreases in market interest rates that added $723,000 to shareholder’s equity at June 30, 2024.

Current wording

Total Shareholders’ Equity. Total shareholders’ equity decreased $1.0 million, or 1.9%, to $52.7 million at September 30, 2024 from $53.7 million at December 31, 2023. This decrease was primarily due to a net loss for the nine months ended September 30, 2024 of $1.8 million resulting primarily from the pre-tax loss of $3.8 million, net of mortgage servicing rights retained, on the sale of residential mortgage loans. The Company also repurchased 69,931 shares of its common stock for a decrease of $1.0 million and paid quarterly dividends totaling $380,000, partially offset by an increase in equity of $623,000 from vesting of the 2022 Equity Plan and an increase of $139,000 with the accrual of ESOP commitments for the nine months ended September 30, 2024. There was a decrease in the accumulated other comprehensive loss, net of tax, due to decreases in market interest rates that added $1.5 million to shareholder’s equity at September 30, 2024.

Previous wording

At June 30, 2024, Broadstreet Bank opted to use the community bank leverage ratio framework (Tier 1 capital to average assets) for regulatory capital purposes. A community bank leverage ratio of at least 9.0% is required to be considered “well capitalized” under regulatory requirements. At June 30, 2024, Broadstreet Bank was well capitalized and had a ratio of 10.14%.

Current wording

At September 30, 2024, Broadstreet Bank opted to use the community bank leverage ratio framework (Tier 1 capital to average assets) for regulatory capital purposes. A community bank leverage ratio of at least 9.0% is required to be considered “well capitalized” under regulatory requirements. At September 30, 2024, Broadstreet Bank was well capitalized and had a ratio of 10.59%.

Previous wording

The following table sets forth average balances, average yields and costs, and certain other information at and for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Nonaccrual loans are only included in the computation of average balances. Average yields for loans include loan fees of $115,000 and $143,000 for the three months ended June 30, 2024 and 2023, respectively. We have not recorded deferred loan fees, as we have determined them to be immaterial.

Current wording

The following table sets forth average balances, average yields and costs, and certain other information at and for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Nonaccrual loans are only included in the computation of average balances. Average yields for loans include loan fees of $175,000 and $242,000 for the three months ended September 30, 2024 and 2023, respectively. We have not recorded deferred loan fees, as we have determined them to be immaterial.

Previous wording

Net Income. The Company had net income of $348,000 for the three months ended June 30, 2024, compared to net income of $160,000 for the three months ended June 30, 2023, an increase of $188,000, or 117.5%. The increase was primarily due to a $531,000, or 20.0%, increase in net interest income partially offset by a $31,000, or 33.3%, increase in the provision for credit losses, a $118,000, or 23.1% decrease in noninterest income, a $175,000, or 6.1% increase in noninterest expense and a $19,000 increase in income tax expense.

Current wording

Net Income. The Company had net income of $515,000 for the three months ended September 30, 2024, compared to net income of $456,000 for the three months ended September 30, 2023, an increase of $59,000, or 12.9%. The increase was primarily due to a $369,000, or 13.0%, increase in net interest income and a $29,000 decrease in income tax expense partially offset by a $234,000 increase in the provision for credit losses, a $62,000, or 10.5%, decrease in noninterest income, and a $43,000, or 1.5%, increase in noninterest expense.

Previous wording

Interest Income. Interest income increased $1.2 million, or 26.7%, to $5.7 million for the three months ended June 30, 2024 from $4.5 million for the three months ended June 30, 2023. This was primarily the result of increased interest income on loans due to increased yields and an increase in the average balance of loans. Average interest earning assets increased by $24.5 million, or 6.1%, from $403.4 million for the three months ended June 30, 2023 to $427.9 million for the three months ended June 30, 2024, and interest earning assets increased 81 basis points, or 18.0%, from 4.50% for the three months ended June 30, 2023 to 5.31% for the three months ended June 30, 2024.

Current wording

Interest Income. Interest income increased $726,000, or 14.6%, to $5.7 million for the three months ended September 30, 2024 from $5.0 million for the three months ended September 30, 2023. This was primarily the result of increased interest income on loans due to increased yields and an increase in the average balance of loans. Average interest earning assets increased by $10.2 million, or 2.5%, from $405.7 million for the three months ended September 30, 2023 to $415.9 million for the three months ended September 30, 2024 and the yield on average interest earning assets increased 57 basis points, or 11.6%, from 4.91% for the three months ended September 30, 2023 to 5.48% for the three months ended September 30, 2024.

Previous wording

Interest income on loans increased $702,000, or 22.7%, to $3.8 million for the three months ended June 30, 2024 from $3.1 million for the three months ended June 30, 2023. This increase resulted primarily from an increase in average loans of $9.6 million, or 3.6%, from $266.5 million for the three months ended June 30, 2023 to $276.1 million for the three months ended June 30, 2024, with an increase in loan yield of 86 basis points, or 18.4%, to 5.51% for the three months ended June 30, 2024 from 4.65% for the three months ended June 30, 2023. The increase in loan yield was due primarily to increased market interest rates.

Current wording

Interest income on loans increased $633,000, or 18.6%, to $4.0 million for the three months ended September 30, 2024 from $3.4 million for the three months ended September 30, 2023. This increase resulted primarily from an increase in average loans of $6.8 million, or 2.5%, from $272.2 million for the three months ended September 30, 2023 to $279.0 million for the three months ended September 30, 2024 and an increase in loan yield of 79 basis points, or 15.7%, to 5.80% for the three months ended September 30, 2024 from 5.01% for the three months ended September 30, 2023. The increase in loan yield was due primarily to increased market interest rates and diversification of the loan portfolio to include higher yielding commercial real estate loans.

Previous wording

Interest income on restricted investments, which includes primarily Federal Home Loan Bank (FHLB) and TIB Bank stock dividends, increased $18,000, or 50.0%, from $36,000 for the three months ended June 30, 2023 to $54,000 for the three months ended June 30, 2024. This increase resulted from an increase in the average balance of these investments of $557,000 or 18.6%, from $3.0 million for the three months ended June 30, 2023 to $3.6 million for the three months ended June 30, 2024 in addition to an increase of 127 basis points, or 26.5%, in average yield from 4.80% for the three months ended June 30, 2023 to 6.07% for the three months ended June 30, 2024. The increase in yield was due primarily to increases in dividends paid by the banks and the increase in investments is due to additional required purchases of FHLB stock resulting from an increase in FHLB advances.

Current wording

Interest income on restricted investments, which includes primarily Federal Home Loan Bank (FHLB) and TIB Bank stock dividends, increased $11,000, or 25.0%, from $44,000 for the three months ended September 30, 2023 to $55,000 for the three months ended September 30, 2024. This increase resulted from an increase in the average balance of these investments of $344,000 or 10.5%, from $3.3 million for the three months ended September 30, 2023 to $3.6 million for the three months ended September 30, 2024 in addition to an increase of 70 basis points, or 13.0%, in average yield from 5.39% for the three months ended September 30, 2023 to 6.09% for the three months ended September 30, 2024. The increase in yield was due primarily to increases in dividends paid by the banks and the increase in investments is due to additional required purchases of FHLB stock resulting from an increase in FHLB advances.

Previous wording

Interest income on interest bearing deposits in banks increased $143,000, or 181.0%, from $79,000 for the three months ended June 30, 2023 to $222,000 for the three months ended June 30, 2024. This increase resulted primarily from an increase in average interest-bearing deposits of $8.7 million, or 116.0% from $7.5 million for the three months ended June 30, 2023 to $16.2 million for the three months ended June 30, 2024 and an increase in average yield of 128 basis points, or 30.5%, from 4.21% for the three months ended June 30, 2023 to 5.49% for the three months ended June 30, 2024. There was also an increase of $208,000 in fed funds interest income for the three months ended June 30, 2024 primarily from an increase of 26 basis points, or 5.2%, in average yield on fed funds sold from 5.07% for the three months ended June 30, 2023 to 5.33% for the three months ended June 30, 2024 and a $15.5 million, or 645.8%, increase in average fed funds sold from $2.4 million for the three months ended June 30, 2023 to $17.9 million for the three months ended June 30, 2024. The increase in yields on deposits in banks and fed funds is reflective of the increase in market interest rates. During the three months ended June 30, 2024, the Company maintained higher account balances in interest bearing deposits in banks and fed funds sold, due to receipt of cash from the loan sale and generally maintaining higher levels of liquidity.

Current wording

Interest income on interest bearing deposits in banks increased $51,000, or 68.9%, from $74,000 for the three months ended September 30, 2023 to $125,000 for the three months ended September 30, 2024. This increase resulted primarily from an increase in average interest-bearing deposits of $2.7 million, or 48.2%, from $5.6 million for the three months ended September 30, 2023 to $8.3 million for the three months ended September 30, 2024 and an increase in average yield of 76 basis points, or 14.3%, from 5.28% for the three months ended September 30, 2023 to 6.04% for the three months ended September 30, 2024. There was also an increase of $214,000, or 356.7%, in fed funds interest income for the three months ended September 30, 2024 from $60,000 for the three months ended September 30, 2023 to $274,000 for the three months ended September 30, 2024, primarily from an increase of 43 basis points, or 8.2%, in average yield on fed funds sold from 5.22% for the three months ended September 30, 2023 to 5.65% for the three months ended September 30, 2024 and a $14.8 million, or 321.7%, increase in average fed funds sold from $4.6 million for the three months ended September 30, 2023 to $19.4 million for the three months ended September 30, 2024. The increase in yields on deposits in banks and fed funds is reflective of the increase in market interest rates. During the

Previous wording

Interest income from the fair value hedge was $125,000 for the three months ended June 30, 2024 compared to $33,000 for the three months ended June 30, 2023. The Company entered into an interest rate swap agreement in May 2023 to convert a portion of its interest rate exposure from fixed rates to floating rates to help manage the interest rate risk position. Refer to additional detail regarding the fair value hedge in Note 10 – Derivatives of the accompanying unaudited consolidated financial statements.

Current wording

Interest income from the fair value hedge was $135,000 for the three months ended September 30, 2024 compared to $112,000 for the three months ended September 30, 2023. The Company entered into an interest rate swap agreement in May 2023 to convert a portion of its interest rate exposure from fixed rates to floating rates to help manage the interest rate risk position. Refer to additional detail regarding the fair value hedge in Note 10 – Derivatives of the accompanying unaudited consolidated financial statements.

Previous wording

Interest Expense. Total interest expense increased $612,000, or 32.3%, to $2.5 million for the three months ended June 30, 2024 from $1.9 million for the three months ended June 30, 2023 primarily due to an increase in average interest-bearing liabilities of $35.6 million, or 11.0%, to $360.1 million for the three months ended June 30, 2024 from $324.5 million for the three months ended June 30, 2023 and an increase in the average cost of interest-bearing liabilities of 45 basis points, or 19.3%, from 2.32% for the three months ended June 30, 2023 to 2.77% for the three months ended June 30, 2024, primarily due to increases in higher cost deposit accounts. Interest expense on deposit accounts increased $566,000, or 45.4%, to $1.8 million for the three months ended June 30, 2024 from $1.2 million for the three months ended June 30, 2023, due to an increase in the average deposit cost of 58 basis points, or 29.6%, from 1.97% for the three months ended June 30, 2023 to 2.55% for the three months ended June 30, 2024 and an increase in average interest-bearing deposits of $31.0 million, or 12.2% from $253.8 million for the three months ended June 30, 2023 to $284.8 million for the three months ended June 30, 2024, with the largest increases being in higher cost certificates of deposit and money market accounts.

Current wording

Interest Expense. Total interest expense increased $357,000, or 16.7%, to $2.5 million for the three months ended September 30, 2024 from $2.1 million for the three months ended September 30, 2023 primarily due to an increase in average interest-bearing liabilities of $17.8 million, or 5.4%, to $348.5 million for the three months ended September 30, 2024 from $330.7 million for the three months ended September 30, 2023 and an increase in the average cost of interest-bearing liabilities of 28 basis points, or 10.8%, from 2.58% for the three months ended September 30, 2023 to 2.86% for the three months ended September 30, 2024, primarily due to increases in higher cost deposit accounts. Interest expense on deposit accounts increased $400,000, or 27.7%, to $1.8 million for the three months ended September 30, 2024 from $1.4 million for the three months ended September 30, 2023, due to an increase in the average deposit cost of 35 basis points, or 15.4%, from 2.28% for the three months ended September 30, 2023 to 2.63% for the three months ended September 30, 2024 and an increase in average interest-bearing deposits of $27.1 million, or 10.7% from $253.6 million for the three months ended September 30, 2023 to $280.7 million for the three months ended September 30, 2024, with increases being in certificates of deposit, money market accounts and demand deposits.

Previous wording

Interest expense on Federal Home Loan Bank advances increased $47,000, or 7.4%, to $683,000 for the three months ended June 30, 2024 from $636,000 for the three months ended June 30, 2023. This increase was due primarily to the increase in the average balance of Federal Home Loan Bank advances of $4.4 million, or 6.3%, to $74.6 million for the three months ended June 30, 2024 from $70.2 million for the three months ended June 30, 2023 and an increase in average yield of three basis points, or 0.8%, from 3.63% for the three months ended June 30, 2023 to 3.66% for the three months ended June 30, 2024. The increase in average advances was primarily to fund loan growth while maintaining a higher level of liquidity.

Current wording

Interest expense on Federal Home Loan Bank advances decreased $44,000, or 6.4%, to $643,000 for the three months ended September 30, 2024 from $687,000 for the three months ended September 30, 2023. This decrease was due primarily to the decrease in the average balance of Federal Home Loan Bank advances of $9.4 million, or 12.3%, to $67.0 million for the three months ended September 30, 2024 from $76.4 million for the three months ended September 30, 2023. The average yield on advances increased 24 basis points, or 6.8%, from 3.60% for the three months ended September 30, 2023 to 3.84% for the three months ended September 30, 2024 due to paying off $7.7 million in advances from 2019 with significantly lower rates than the weighted average cost of all FHLB borrowings. The decrease in average advances was primarily due to paying off $7.7 million in maturing advances in the three months ended September 30, 2024 compared to purchasing $8.0 million in the three months ended September 30, 2023 to maintain a higher level of liquidity in 2023 due to market uncertainty.

Previous wording

Net Interest Income. Net interest income increased $531,000, or 20.0%, to $3.2 million for the three months ended June 30, 2024 from $2.7 million for the three months ended June 30, 2023 due primarily to an increase in net interest margin of 35 basis points, or 13.2%, to 2.98% for the three months ended June 30, 2024 from 2.63% for the three months ended June 30, 2023 partially offset by a decrease in average net interest-earning assets of $11.1 million, or 14.1%, to $67.8 million at June 30, 2024 from $78.9 million at June 30, 2023. The increase in net interest margin was primarily due to balance sheet restructurings, which included the loan sale in 2024, allowing us to place the funds in higher yielding assets and increase the rate of repricing interest-earning assets to better align with the rate of repricing interest-bearing liabilities. The average yield on interest-earning assets increased by 81 basis points, or 18.0%, compared to the average increase on interest bearing liabilities increasing by 45 basis points, or 19.3%.

Current wording

Net Interest Income. Net interest income increased $369,000, or 13.0%, to $3.2 million for the three months ended September 30, 2024 from $2.8 million for the three months ended September 30, 2023 due primarily to an increase in net interest margin of 29 basis points, or 10.2%, to 3.09% for the three months ended September 30, 2024 from 2.80% for the three months ended September 30, 2023 partially offset by a decrease in average net interest-earning assets of $7.5 million, or 10.0%, to $67.5 million at September 30, 2024 from $75.0 million at September 30, 2023. The increase in net interest margin was primarily due to balance sheet restructurings, which included the loan sale in 2024, allowing us to place the funds in higher yielding assets and increase the rate of repricing interest-earning assets to better align with the rate of repricing interest-bearing liabilities in addition to a more disciplined approach to deposit pricing. The average yield on interest-earning assets increased by 57 basis points, or 11.6%, compared to the average increase on interest bearing liabilities increasing by 28 basis points, or 10.8%.

Previous wording

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, the provision for credit losses increased $31,000, or 33.3%, to $124,000 for the three months ended June 30, 2024 from a provision for credit losses of $93,000 for the three months ended June 30, 2023, primarily due to an adjustment to the allowance related to the loan sale and an increase in average loans and leases of $9.6 million from $266.5 million for the three months ended June 30, 2023 to $276.1 million for the three months ended June 30, 2024. The provision increase was primarily due to loan volume. The allowance for credit losses was 1.10% of total loans at June 30, 2024.

Current wording

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, the provision for credit losses increased $234,000, or 806.9%, to $263,000 for the three months ended September 30, 2024 from a provision for credit losses of $29,000 for the three months ended September 30, 2023, primarily due to a previous decrease in the allowance related to the sale of residential loans being reversed as new loans are originated and added to the portfolio. Many of the loans added are in the commercial portfolio that carry a higher allowance requirement as well. An increase in average loans and leases of $6.8 million from $272.2 million for the three months ended September 30, 2023 to $279.0 million for the three months ended September 30, 2024 and charge-offs of $9,000 that weren’t already specifically reserved for also added to the provision required. The allowance for credit losses was 1.07% of total loans at September 30, 2024.

Previous wording

income of $8,000 primarily due to an off-book loan that paid off in 2023 and a decrease in net appreciation of bank-owned life insurance of $13,000 due to a one-time fee for changing carriers to increase yield and future earnings, were partially offset by an increase in other service charges and fees of $54,000 primarily due to receiving $10,000 in new fee income from the servicing retained in the 2024 loan sale and an increase of $42,000 in fee income on wholesale loans sold from $43,000 for the three months ended June 30, 2023 to $85,000 for the three months ended June 30, 2024.

Current wording

Noninterest Income. Noninterest income decreased $62,000, or 10.5%, to $530,000 for the three months ended September 30, 2024 from $592,000 for the three months ended September 30, 2023, primarily due to a decrease of $42,000 in loan fee income from the wholesale lending program, a decrease of $10,000 in deposit service charges, and nonrecurring income of $36,000 related to write up of foreclosed property in 2023 partially offset by a $15,000 increase in net appreciation of bank-owned life insurance due to a change in carriers to increase yield.

Previous wording

Noninterest Expense. Noninterest expense increased $175,000, or 6.1%, to $3.1 million for the three months ended June 30, 2024 from $2.9 million for the three months ended June 30, 2023 primarily due to increases in occupancy and equipment expenses related to new branches, data processing, technology and other expenses.

Current wording

Noninterest Expense. Noninterest expense increased $43,000, or 1.5%, to $2.9 million for the three months ended September 30, 2024 from $2.8 million for the three months ended September 30, 2023 primarily due to increases in occupancy and equipment expenses related to new branches and other expenses partially offset by decreases in salary and employee benefit expenses, data processing, technology expenses and director fees.

Previous wording

Occupancy and equipment expenses increased $68,000, or 33.2%, from $205,000 for the three months ended June 30, 2023 to $273,000 for the three months ended June 30, 2024 primarily due to expenses related to putting two new branches into operation. Data processing increased $12,000, or 5.4%, due primarily to normal cost increases from providers and technology expenses increased $74,000, or 64.3%, primarily due to an increase in card processing fees associated with a “tap” debit card implementation project. We expect to receive a credit in a future period to cover the cost of implementation. Other expenses increased $73,000, or 14.9%, primarily due to increased auditing expenses of $46,000, or 70.8%, due primarily to additional internal audits and overall price increases, an increase in FDIC assessment expenses of $11,000 primarily due to an overall increase in the FDIC assessment rate, a $5,000 increase in marketing expenses, a $14,000 increase in training expenses and a nonrecurring fee of $37,000 related to a board member departure were partially offset by a decrease of $53,000 in other operating expenses due to a nonrecurring $56,000 fee in 2023 for executive recruiting. Salary and employee benefit expenses decreased by $39,000, or 2.3%, to $1.6 million for the three months ended June 30, 2024 from $1.7 million for the three months ended June 30, 2023, due primarily to reduced benefit costs from terminating a deferred compensation plan at December 31, 2023, CEO transition in 2023 and decreased director fees of $21,000 due to a reduction in the number of directors in the quarter ended June 30, 2024.

Current wording

Occupancy and equipment expenses increased $68,000, or 35.2%, from $193,000 for the three months ended September 30, 2023 to $261,000 for the three months ended September 30, 2024 primarily due to expenses related to opening two new branches. Data processing decreased $11,000, or 4.5%, due primarily to a contract negotiation and technology expenses decreased $61,000, or 49.6%, due to receipt of a credit associated with the provider reimbursing the cost of tap debit card implementation. Other expenses increased $128,000, or 30.3%, primarily due to increased auditing expenses of $28,000 due primarily to additional internal audits and overall price increases, an increase in FDIC assessment expenses of $15,000 primarily due to an overall increase in the FDIC assessment rate, a $19,000 increase in marketing expenses, a $13,000 increase in insurance expenses, and a $23,000 increase in training expenses. Salary and employee benefit expenses decreased by $50,000, or 3.0%, to $1.6 million for the three months ended September 30, 2024 from $1.7 million for the three months ended September 30, 2023, due primarily to reduced benefit costs from terminating a deferred compensation plan at December 31, 2023, CEO transition in 2023 and decreased director fees of $31,000 due to a reduction in the number of directors in 2024.

Previous wording

Income Tax Expense. Income tax expense increased by $19,000, or 61.3%, to $50,000 for the three months ended June 30, 2024 from $31,000 for the three months ended June 30, 2023, due to an increase in net income before taxes of $207,000 from $191,000 for the three months ended June 30, 2023 to $398,000 for the three months ended June 30, 2024. The effective tax rate was 12.5% and 16.2% for the three months ended June 30, 2024 and 2023, respectively. The decrease in effective tax rate was primarily due to nontaxable income increasing at a faster rate than taxable income.

Current wording

Income Tax Expense. Income tax expense decreased by $29,000, or 24.8%, to $88,000 for the three months ended September 30, 2024 from $117,000 for the three months ended September 30, 2023, although there was an increase in net income before taxes of $30,000 from $573,000 for the three months ended September 30, 2023 to $603,000 for the three months ended September 30, 2024. The effective tax rate was 14.6% and 20.4% for the three months ended September 30, 2024 and 2023, respectively. The decrease in taxes and effective tax rate was primarily due to nontaxable income increasing at a faster rate than taxable income.

Previous wording

The following table sets forth average balances, average yields and costs, and certain other information at and for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Nonaccrual loans are only included in the computation of average balances. Average yields for loans include loan fees of $200,000 and $214,000 for the six months ended June 30, 2024 and 2023, respectively. We have not recorded deferred loan fees, as we have determined them to be immaterial.

Current wording

The following table sets forth average balances, average yields and costs, and certain other information at and for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Nonaccrual loans are only included in the computation of average balances. Average yields for loans include loan fees of $375,000 and $456,000 for the nine months ended September 30, 2024 and 2023, respectively. We have not recorded deferred loan fees, as we have determined them to be immaterial.

Previous wording

Comparison of the Operating Results for the Six months ended June 30, 2024 and June 30, 2023

Current wording

Comparison of the Operating Results for the Nine Months Ended September 30, 2024 and September 30, 2023

Previous wording

Net Income. The Company had a net loss of $2.3 million for the six months ended June 30, 2024, compared to a net loss of $857,000 for the six months ended June 30, 2023, a decrease of $1.4 million, or 155.6%. The net loss was primarily due to a $2.5 million, or 357.1%, decrease in noninterest income resulting primarily from the sale of 122 performing residential mortgage loans as part of a balance sheet repositioning strategy at a pre-tax loss of $3.8 million, net of mortgage servicing rights retained. Additionally, there was a $608,000, or 10.9%, increase in noninterest expenses, partially offset by an increase in net interest income of $862,000, or 16.3%, to $6.1 million for the six months ended June 30, 2024 from $5.3 million for the six months ended June 30, 2023 and a $336,000, or 183.6%, decrease in the provision for credit losses and a $403,000, or 158.0%, decrease in income tax expense.

Current wording

Net Income. The Company had a net loss of $1.8 million for the nine months ended September 30, 2024, compared to a net loss of $401,000 for the nine months ended September 30, 2023, a decrease of $1.4 million, or 350.0%. The net loss was primarily due to a $2.5 million, or 2,500%, decrease in noninterest income resulting primarily from the sale of 122 performing residential mortgage loans as part of a balance sheet repositioning strategy at a pre-tax loss of $3.8 million, net of mortgage servicing rights retained. Additionally, there was a $651,000, or 7.8%, increase in noninterest expenses, partially offset by an increase in net interest income of $1.3 million, or 16.0%, to $9.4 million for the nine months ended September 30, 2024 from $8.1 million for the nine months ended September 30, 2023 and a $102,000, or 48.1%, decrease in the provision for credit losses and a $432,000, or 313.0%, decrease in income tax expense.

Previous wording

Interest Income. Interest income increased $2.4 million, or 27.6%, to $11.1 million for the six months ended June 30, 2024 from $8.7 million for the six months ended June 30, 2023. This was primarily the result of increased interest income on loans and interest-bearing deposits in banks due to increased yields and an increase in the average balances. Average interest earning assets increased by $28.1 million, or 7.1%, from $398.3 million for the six months ended June 30, 2023 to $426.4 million at June 30, 2024, and an increase in the yield on interest earning assets of 85 basis points, or 19.5%, from 4.36% for the six months ended June 30, 2023 to 5.21% for the six months ended June 30, 2024.

Current wording

Interest Income. Interest income increased $3.1 million, or 22.6%, to $16.8 million for the nine months ended September 30, 2024 from $13.7 million for the nine months ended September 30, 2023. This was primarily the result of increased interest income on loans, interest-bearing deposits in banks, and federal funds sold due to increased yields and an increase in the average balances. Average interest earning assets increased by $22.1 million, or 5.5%, from $400.8 million for the nine months ended September 30, 2023 to $422.9 million at September 30, 2024, and an increase in the yield on interest earning assets of 76 basis points, or 16.8%, from 4.54% for the nine months ended September 30, 2023 to 5.30% for the nine months ended September 30, 2024.

Previous wording

Interest income on loans increased $1.6 million, or 27.1%, to $7.5 million for the six months ended June 30, 2024 from $5.9 million for the six months ended June 30, 2023. This increase resulted primarily from an increase in average loans of $17.0 million, or 6.5%, from $261.7 million for the six months ended June 30, 2023 to $278.7 million for the six months ended June 30, 2024, with an increase in loan yield of 90 basis points, or 19.9%, to 5.39% for the six months ended June 30, 2024 from 4.49% for the six months ended June 30, 2023. The increase in loan yield was due primarily to increased market interest rates. Additionally, the Company recognized $76,000 during the six months ended June 30, 2024 in interest income on a loan payoff from a loan that had been on nonaccrual status.

Current wording

Interest income on loans increased $2.3 million, or 24.7%, to $11.6 million for the nine months ended September 30, 2024 from $9.3 million for the nine months ended September 30, 2023. This increase resulted primarily from an increase in average loans of $13.6 million, or 5.1%, from $265.2 million for the nine months ended September 30, 2023 to $278.8 million for the nine months ended September 30, 2024, with an increase in loan yield of 85 basis points, or 18.3%, to 5.52% for the nine months ended September 30, 2024 from 4.67% for the nine months ended September 30, 2023. The increase in loan yield was due primarily to increased market interest rates and originating more commercial based loans at higher rates to replace the $27.1 million residential loans that were sold. Additionally, the Company recognized $76,000 during the nine months ended September 30, 2024 in interest income on a loan payoff from a loan that had been on nonaccrual status.

Previous wording

Interest income on interest bearing deposits in banks increased $350,000, or 273.4%, from $128,000 for the six months ended June 30, 2023 to $478,000 for the six months ended June 30, 2024. This increase resulted primarily from an increase in average interest-bearing deposits of $11.4 million, or 186.9% from $6.1 million for the six months ended June 30, 2023 to $17.5 million for the six months ended June 30, 2024 and an increase in average yield of 127 basis points, or 30.3%, from 4.19% for the six months ended June 30, 2023 to 5.46% for the six months ended June 30, 2024. There was also an increase of $236,000 in fed funds interest income for the six months ended June 30, 2024 primarily from an increase of 54 basis points, or 11.4%, in average yield on fed funds sold from 4.79% for the six months ended June 30, 2023 to 5.33% for the six months ended June 30, 2024 and a $8.6 million, or 296.6%, increase in average fed funds sold from $2.9 million for the six months ended June 30, 2023 to $11.5 million for the six months ended June 30, 2024. The increase in yields on deposits in banks and fed funds is reflective of the increase in market interest rates.

Current wording

Interest income on interest bearing deposits in banks increased $401,000, or 198.5%, from $202,000 for the nine months ended September 30, 2023 to $603,000 for the nine months ended September 30, 2024. This increase resulted primarily from an increase in average interest-bearing deposits of $8.5 million, or 144.1% from $5.9 million for the nine months ended September 30, 2023 to $14.4 million for the nine months ended September 30, 2024 and an increase in average yield of 105 basis points, or 23.1%, from 4.53% for the nine months ended September 30, 2023 to 5.58% for the nine months ended September 30, 2024. There was also an increase of $450,000 in fed funds interest income for the nine months ended September 30, 2024 primarily from an increase of 50 basis points, or 10.1%, in average yield on fed funds sold from 4.97% for the nine months ended September 30, 2023 to 5.47% for the nine months ended September 30, 2024 and a $10.6 million, or 302.9%, increase in average fed funds sold from $3.5 million for the nine months ended September 30, 2023 to $14.1 million for the nine months ended September 30, 2024. The increase in yields on deposits in banks and fed funds is reflective of the increase in market interest rates. The increase in balances resulted from increases in deposits and holding funds in interest bearing accounts with a competitive rate while originating loans to replace the loans sold.

Previous wording

Dividends from restricted investments increased $48,000, or 78.7%, from $61,000 for the six months ended June 30, 2023 to $109,000 for the six months ended June 30, 2024. This increase primarily resulted from a $46,000, or 78.0%, increase in dividends from FHLB stock from $59,000 for the six months ended June 30, 2023 to $105,000 for the six months ended June 30, 2024.

Current wording

Dividends from restricted investments increased $59,000, or 56.2%, from $105,000 for the nine months ended September 30, 2023 to $164,000 for the nine months ended September 30, 2024. This increase primarily resulted from a $56,000, or 54.9%, increase in dividends from FHLB stock from $102,000 for the nine months ended September 30, 2023 to $158,000 for the nine months ended September 30, 2024 due primarily to an increase in the amount of FHLB stock owned.

Previous wording

agreement in May 2023 to convert a portion of its interest rate exposure from fixed rates to floating rates to help manage the interest rate risk position. Refer to additional detail regarding the fair value hedge in Note 10 – Derivatives of the accompanying unaudited consolidated financial statements.

Current wording

Interest income on the fair value hedge increased $230,000, or 158.6%, from $145,000 for the nine months ended September 30, 2023 to $375,000 for the nine months ended September 30, 2024. The Company entered into an interest rate swap agreement in May 2023 to convert a portion of its interest rate exposure from fixed rates to floating rates to help manage the interest rate risk position. Refer to additional detail regarding the fair value hedge in Note 10 – Derivatives of the accompanying unaudited consolidated financial statements.

Previous wording

Interest Expense. Total interest expense increased $1.6 million, or 47.1%, to $5.0 million for the six months ended June 30, 2024 from $3.4 million for the six months ended June 30, 2023 primarily due to an increase in average interest bearing liabilities of $36.9 million, or 11.6%, to $355.7 million for the six months ended June 30, 2024 from $318.8 million for the six months ended June 30, 2023 and an increase in the average cost of interest-bearing liabilities of 65 basis points, or 30.6%, from 2.13% for the six months ended June 30, 2023 to 2.78% for the six months ended June 30, 2024, primarily due to an increase in deposit and funding costs. Interest expense on deposit accounts increased $1.4 million, or 63.7%, to $3.6 million for the six months ended June 30, 2024 from $2.2 million for the six months ended June 30, 2023, due to an increase in the average deposit cost of 80 basis points, or 45.5%, from 1.76% for the six months ended June 30, 2023 to 2.56% for the sixmonths ended June 30, 2024 and an increase in average interest-bearing deposits of $26.2 million, or 10.3% from $253.2 million for the six months ended June 30, 2023 to $279.4 million for the six months ended June 30, 2024, with the increase being in higher yielding certificates of deposit, money market deposits and interest-bearing demand deposits, offset by a decrease in lower cost savings accounts. Part of the migration to higher yielding accounts resulted from a deposit retention strategy of offering a special higher interest rate CD and higher money market rates implemented during 2023.

Current wording

Interest Expense. Total interest expense increased $1.9 million, or 34.5%, to $7.4 million for the nine months ended September 30, 2024 from $5.5 million for the nine months ended September 30, 2023 primarily due to an increase in average interest bearing liabilities of $30.5 million, or 9.4%, to $353.3 million for the nine months ended September 30, 2024 from $322.8 million for the nine months ended September 30, 2023 and an increase in the average cost of interest-bearing liabilities of 53 basis points, or 23.3%, from 2.28% for the nine months ended September 30, 2023 to 2.81% for the nine months ended September 30, 2024, primarily due to an increase in deposit and funding costs. Interest expense on deposit accounts increased $1.7 million, or 47.3%, to $5.4 million for the nine months ended September 30, 2024 from $3.7 million for the nine months ended September 30, 2023, due to an increase in the average interest-bearing deposit cost of 65 basis points, or 33.7%, from 1.93% for the nine months ended September 30, 2023 to 2.58% for the nine months ended September 30, 2024 and an increase in average interest-bearing deposits of $26.6 million, or 10.5% from $253.3 million for the nine months ended September 30, 2023 to $279.9 million for the nine months ended September 30, 2024, with the increase being in higher yielding certificates of deposit, money market deposits and interest-bearing demand deposits, offset by a decrease in lower cost savings accounts. Part of the migration to higher yielding accounts resulted from a deposit retention strategy initiated in 2023 offering a special higher interest rate CD and higher money market rates during a competitive rate environment.

Previous wording

Interest expense on Federal Home Loan Bank advances increased $217,000, or 18.7%, to $1.4 million for the six months ended June 30, 2024 from $1.2 million for the six months ended June 30, 2023. This increase was due primarily to the increase in the average balance of Federal Home Loan Bank advances of $10.5 million, or 16.1%, to $75.6 million for the six months ended June 30, 2024 from $65.1 million for the six months ended June 30, 2023 and an increase in average yield of 8 basis points, or 2.2%, from 3.57% for the six months ended June 30, 2023 to 3.65% for the sixmonths ended June 30, 2024. The increase in average advances was primarily to fund loan growth.

Current wording

Interest expense on Federal Home Loan Bank advances increased $173,000, or 9.4%, to $2.0 million for the nine months ended September 30, 2024 from $1.8 million for the nine months ended September 30, 2023. This increase was due primarily to the increase in the average balance of Federal Home Loan Bank advances of $3.8 million, or 5.5%, to $72.7 million for the nine months ended September 30, 2024 from $68.9 million for the nine months ended September 30, 2023 and an increase in average cost of 13 basis points, or 3.6%, from 3.58% for the nine months ended September 30, 2023 to 3.71% for the nine months ended September 30, 2024. The increase in average advances was primarily to fund loan growth and maintain higher levels of liquidity.

Previous wording

Net Interest Income. Net interest income increased $862,000, or 16.3%, to $6.1 million for the six months ended June 30, 2024 from $5.3 million for the six months ended June 30, 2023 due primarily to an increase in interest-earning assets of $28.1 million, or 7.1%, to $426.4 million for the six months ended June 30, 2024 from $398.3 million for the six months ended June 30, 2023. Net interest margin had a 23 basis point, or 8.6%, increase to 2.88% for the six months ended June 30, 2024 from 2.65% for the six months ended June 30, 2023. The increase in net interest margin was primarily due to balance sheet restructurings, which included the loan sale in 2024, allowing us to place the funds in higher yielding assets and increase the rate of repricing interest earning assets to better align with the rate of repricing interest bearing liabilities. The average yield on interest earning assets increased by 85 basis points, or 19.5%, compared to the average increase on interest bearing liabilities increasing by 65 basis points, or 30.6%.

Current wording

Net Interest Income. Net interest income increased $1.3 million, or 16.0%, to $9.4 million for the nine months ended September 30, 2024 from $8.1 million for the nine months ended September 30, 2023 due primarily to an increase in interest-earning assets of $22.1 million, or 5.5%, to $422.9 million for the nine months ended September 30, 2024 from $400.8 million for the nine months ended September 30, 2023. Net interest margin had a 25 basis point, or 9.1%, increase to 2.95% for the nine months ended September 30, 2024 from 2.70% for the nine months ended September 30, 2023. The increase in net interest margin was primarily due to balance sheet restructurings, which included the loan sale in 2024, allowing us to place the funds in higher yielding assets and increase the rate of repricing interest earning assets to better align with the rate of repricing interest-bearing liabilities. The average yield on interest earning assets increased by 76 basis points, or 16.8%, compared to the average increase on interest bearing liabilities increasing by 53 basis points, or 23.3%.

Previous wording

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, a reversal of provision for credit losses was $153,000 for the six months ended June 30, 2024, compared to a provision for credit losses of $183,000 for the six months ended June 30, 2023, resulted in a decrease of $336,000, or 183.6%, to the provision expense primarily due to a decrease of $11.2 million in net loans and leases receivable to $268.7 million at June 30, 2024 from $279.9 million at December 31, 2023. The sale of $27.1 million in loans during the six months ended June 30, 2024 accounted for a $244,000 decrease in the provision for credit losses.

Current wording

Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, a provision for credit losses of $110,000 for the nine months ended September 30, 2024, compared to a provision for credit losses of $212,000 for the nine months ended September 30, 2023, resulted in a decrease of $102,000, or 48.1%, to the provision expense primarily due to the sale of $27.1 million in loans during the nine months ended September 30, 2024 which accounted for a $244,000 decrease in the provision for credit losses when the loans were sold or transferred to held for sale.