MetroCity Bankshares Inc

Previous wording

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of MetroCity Bancshares, Inc. and our wholly owned subsidiary, Metro City Bank, from December 31, 2023 through March 31, 2024 and on our results of operations for the three months ended March 31, 2024 and 2023. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2023 included in our Annual Report on Form 10-K, and information presented elsewhere in this Quarterly Report on Form 10-Q, particularly the unaudited consolidated financial statements and related notes appearing in Item 1.

Current wording

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of MetroCity Bancshares, Inc. and our wholly owned subsidiary, Metro City Bank, from December 31, 2023 through June 30, 2024 and on our results of operations for the three and six months ended June 30, 2024 and 2023. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2023 included in our Annual Report on Form 10-K, and information presented elsewhere in this Quarterly Report on Form 10-Q, particularly the unaudited consolidated financial statements and related notes appearing in Item 1.

Previous wording

On January 1, 2023, the Company adopted ASC Topic 326 which replaces the incurred loss approach for measuring credit losses with an expected loss model, referred to the current expected credit loss ("CECL") model. CECL applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. The adoption of this guidance resulted in an increase of the allowance for credit losses of $5.1 million, the creation of an allowance for unfunded commitments of $239,000 and a reduction of retained earnings of $3.8 million, net of the increase in deferred tax assets of $1.5 million.

Current wording

On January 1, 2023, the Company adopted ASC Topic 326 which replaces the incurred loss approach for measuring credit losses with an expected loss model, referred to the current expected credit loss ("CECL") model. CECL applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. The adoption of this guidance resulted in an increase of the allowance for credit losses of $5.1 million, the creation of an

Previous wording

The impact of utilizing the CECL approach to calculate the allowance for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the provision for credit losses, and therefore, greater volatility to our reported earnings. See Note 1 and Note 3 of our consolidated financial

Current wording

The impact of utilizing the CECL approach to calculate the allowance for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the provision for credit losses, and therefore, greater volatility to our reported earnings. See Note 1 and Note 3 of our consolidated financial statements as of June 30, 2024, included elsewhere in this Form 10-Q, for additional information on theallowance for credit losses and the allowance for unfunded commitments.

Previous wording

Management’s evaluation of the appropriateness of the reserve for credit losses is often the most critical of accounting estimates for a financial institution. Our determination of the amount of the reserve for credit losses is a critical accounting estimate as it requires significant reliance on the credit risk rating we assign to individual borrowers, the use of estimates and significant judgment as to the amount and timing of expected future cash flows, reliance on historical loss rates on homogenous portfolios, consideration of our quantitative and qualitative evaluation of economic factors, and the reliance on our reasonable and supportable forecasts. The reserve for credit losses attributable to each portfolio segment also includes an amount for inherent risks not reflected in the historical analyses. Relevant factors include, but are not limited

Current wording

Management’s evaluation of the appropriateness of the reserve for credit losses is often the most critical of accounting estimates for a financial institution. Our determination of the amount of the reserve for credit losses is a critical accounting estimate as it requires significant reliance on the credit risk rating we assign to individual borrowers, the use of estimates and significant judgment as to the amount and timing of expected future cash flows, reliance on historical loss rates on homogenous portfolios, consideration of our quantitative and qualitative evaluation of economic factors, and the reliance on our reasonable and supportable forecasts. The reserve for credit losses attributable to each portfolio segment also includes an amount for inherent risks not reflected in the historical analyses. Relevant factors include, but are not limited to, concentrations of credit risk (geographic, large borrower, and industry), changes in underwriting standards, changes in collateral values, experience and depth of lending staff, trends in delinquencies, and the volume and terms of loans.

Previous wording

MetroCity Bankshares, Inc. is a bank holding company headquartered in the Atlanta metropolitan area. We operate through our wholly-owned banking subsidiary, Metro City Bank, a Georgia state-chartered commercial bank that was founded in 2006. We currently operate 20 full-service branch locations in multi-ethnic communities in Alabama, Florida, Georgia, New York, New Jersey, Texas and Virginia. As of March 31, 2024, we had total assets of $3.65 billion, total loans, including loans held for sale, of $3.19 billion, total deposits of $2.81 billion and total shareholders’ equity of $396.6 million.

Current wording

MetroCity Bankshares, Inc. is a bank holding company headquartered in the Atlanta metropolitan area. We operate through our wholly-owned banking subsidiary, Metro City Bank, a Georgia state-chartered commercial bank that was founded in 2006. We currently operate 20 full-service branch locations in multi-ethnic communities in Alabama, Florida, Georgia, New York, New Jersey, Texas and Virginia. As of June 30, 2024, we had total assets of $3.62 billion, total loans of $3.09 billion, total deposits of $2.75 billion and total shareholders’ equity of $407.2 million.

Previous wording

The following table sets forth unaudited selected financial data for the most recent five quarters. This data should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included in Item 1 and the information contained in this Item 2.

Current wording

The following table sets forth unaudited selected financial data for the most recent five quarters and for the six months ended June 30, 2024 and 2023. This data should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included in Item 1 and the information contained in this Item 2.

Previous wording

During the first half of 2023, the banking industry experienced significant volatility with multiple high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, uninsured deposit concentrations, unrealized securities losses and eroding consumer confidence in the banking system. Despite these negative industry developments, the Company’s liquidity position and balance sheet remains robust. The Company’s total deposits increased by 6.4% from March 31, 2023 to $2.81 billion at March 31, 2024. The Company’s uninsured deposits represented 23.0% of total deposits at March 31, 2024 compared to 26.5% of total deposits at December 31, 2023. The Company also took a number of preemptive actions, which included proactive outreach to clients and actions to maximize its funding sources in response to these developments. Furthermore, the Company’s capital remains strong with common equity Tier 1 and total capital ratios of 16.96% and 17.81%, respectively, as of March 31, 2024.

Current wording

During the first half of 2024, the banking industry is still experiencing volatility and industry wide concerns related to liquidity, deposit outflows, uninsured deposit concentrations, unrealized securities losses and eroding consumer confidence in the banking system. Despite these negative industry developments, the Company’s liquidity position and balance sheet remains robust. The Company’s total deposits increased by 0.5% from December 31, 2023 to $2.75 billion at June 30, 2024. The Company’s uninsured deposits represented 23.4% of total deposits at June 30, 2024 compared to 26.5% of total deposits at December 31, 2023. The Company also took a number of preemptive actions, which included proactive outreach to clients and actions to maximize its funding sources in response to these developments. Furthermore, the Company’s capital remains strong with common equity Tier 1 and total capital ratios of 18.25 % and 19.12%, respectively, as of June 30, 2024.

Previous wording

We recorded net income of $14.6 million for the three months ended March 31, 2024 compared to $15.7 million for the same period in 2023, a decrease of $1.1 million, or 7.0%. This decrease was due to a decrease in noninterest income of $576,000 and an increase in noninterest expense of $1.6 million, offset by an increase in net interest income of $852,000 and a decrease in provision for credit losses of $140,000.

Current wording

We recorded net income of $16.9 million for the three months ended June 30, 2024 compared to $13.1 million for the same period in 2023, an increase of $3.8 million, or 29.2%. This increase was due to an increase in net interest income of $5.7 million and an increase in noninterest income of $868,000, offset by an increase in income tax expense of $925,000, an increase in noninterest expense of $1.6 million and an increase in provision for credit losses of $288,000.

Previous wording

Basic and diluted earnings per common share for the three months ended March 31, 2024 was $0.58 and $0.57 compared to $0.63 and $0.62 for the basic and diluted earnings per common share for the same period in 2023.

Current wording

Basic and diluted earnings per common share for the three months ended June 30, 2024 was $0.67 and $0.66 compared to $0.52 and $0.51 for the basic and diluted earnings per common share for the same period in 2023. For the six months ended June 30, 2024, basic and diluted earnings per common share was $1.25 and $1.24, respectively, compared to $1.15 and $1.13 for the same period in 2023, respectively.

Previous wording

Interest income totaled $52.4 million for the three months ended March 31, 2024, an increase of $6.4 million, or 13.9%, from the three months ended March 31, 2023, primarily due to an increase in average loan balances of $131.5 million coupled with a 49 basis points increase in the loan yield. The increase in average loans is due to an increase of $17.5 million in average commercial and industrial loans, an increase of $43.9 million in average commercial real estate loans and an increase of $87.2 million in average residential mortgage loans, offset by a decrease of $17.1 million in construction and development loans. As compared to the three months ended March 31, 2023, the yield on average interest-earning assets increased by 50 basis points to 6.27% from 5.77% with the yield on average loans increasing by 49 basis points and the yield on average total investments increasing by 60 basis points.

Current wording

Interest income totaled $54.1 million for the three months ended June 30, 2024, an increase of $6.6 million, or 14.0%, from the three months ended June 30, 2023, primarily due to a 51 basis points increase in the loan yield coupled with a $119.9 million increase in average loan balances, as well as a 109 basis points increase in the total investment yield. The increase in average loans is due to an increase of $83.8 million in average commercial real estate loans, an increase of $40.5 million in average residential mortgage loans and an increase of $21.4 million in average commercial and industrial loans, offset by a decrease of $25.9 million in construction and development loans. As compared to the three months ended June 30, 2023, the yield on average interest-earning assets increased by 55 basis points to 6.45% from 5.90% with the yield on average loans increasing by 51 basis points and the yield on average total investments increasing by 109 basis points.

Previous wording

Average borrowings outstanding for the three months ended March 31, 2024 decreased by $59.3 million but had an increase in rate of 134 basis points compared to the three months ended March 31, 2023.

Current wording

deposit balances and a 106 basis points increase in borrowing costs, offset by a 25 basis decrease in deposit costs. The 25 basis points decrease in deposit costs was primarily driven by a 188 basis points decrease in the yield on average money market deposits from the benefit received on our interest rate swaps, offset by a 106 basis increase in time deposit costs. Average time deposits increased by $115.2 million and average money market and savings deposits increased by $44.0 million. Average borrowings outstanding for the three months ended June 30, 2024 decreased by $1.8 million but had an increase in rate of 106 basis points compared to the three months ended June 30, 2023.

Previous wording

The Company currently has interest rate derivative agreements totaling $850.0 million that are designated as cash flow hedges of our deposit accounts indexed to the Federal Funds Effective rate. The weighted average pay rate for these interest rate derivatives is 2.29%. During the three months ended March 31, 2024, we recorded a credit to interest expense of $4.1 million from the benefit received on these interest rate derivatives compared to a credit to interest expense of $166,000 recorded during the three months ended March 31, 2023. Based on the Federal Funds Effective rate as of March 31, 2024 (5.33%), the Company would estimate to record a credit to interest expense of approximately $19.3 million for the remainder of 2024 from the benefit received on these interest rate derivatives. See Note 8 of our consolidated financial

Current wording

The Company currently has interest rate derivative agreements totaling $850.0 million that are designated as cash flow hedges of our deposit accounts indexed to the Federal Funds Effective rate. The weighted average pay rate for these interest rate derivatives is 2.29%. During the three months ended June 30, 2024, we recorded a credit to interest expense of $6.5 million from the benefit received on these interest rate derivatives compared to a credit to interest expense of $857,000 recorded during the three months ended June 30, 2023. Based on the Federal Funds Effective rate as of June 30, 2024 (5.33%), the Company would estimate to record a credit to interest expense of approximately $12.9 million for the remainder of 2024 from the benefit received on these interest rate derivatives. See Note 8 of our consolidated financial statements as of June 30, 2024, included elsewhere in this Form 10-Q, for additional information on these interest rate derivatives.

Previous wording

The net interest margin for the three months ended March 31, 2024 decreased by six basis points to 3.24% from 3.30% for the three months ended March 31, 2023, primarily due to a 64 basis point increase in the cost of average interest-bearing liabilities of $2.58 billion, offset by a 50 basis point increase in the yield on average interest-earning assets of $3.36 billion. Average earning assets for the three months ended March 31, 2024 increased by $129.8 million from the same period in 2023, due to a $131.5 million increase in average loans, offset by a $1.8 million decrease in total average investments. Average interest-bearing liabilities for the three months ended March 31, 2024 increased by $155.8 million from the same period in 2023, driven by an increase in average interest-bearing deposits of $215.2 million, offset by a decrease in average borrowings of $59.3 million.

Current wording

The net interest margin for the three months ended June 30, 2024 increased by 56 basis points to 3.66% from 3.10% for the three months ended June 30, 2023, primarily due to a 55 basis points increase in the yield on average interest-earning assets of $3.37 billion and a six basis point decrease in the cost of average interest-bearing liabilities of $2.55 billion. Average earning assets for the second quarter of 2024 increased by $144.9 million from the second quarter of 2023, due to a $119.9 million increase in average loans and a $24.9 million decrease in average total investments. Average interest-bearing liabilities for the second quarter of 2024 increased by $138.0 million from the second quarter of 2023, driven by an increase in average interest-bearing deposits of $139.8 million, offset by a decrease in average borrowings of $1.8 million.

Previous wording

Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes on both volume and mix and pricing decisions, and external factors include changes in market interest rates, competition and the shape of the interest rate yield curve. The decrease in our net interest margin is primarily the result of our increasing deposit costs.

Current wording

Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes on both volume and mix and pricing decisions, and external factors include changes in market interest rates, competition and the shape of the interest rate yield curve. The increase in our net interest margin is primarily the result of our decreasing deposit costs from the benefit received on our interest rate derivatives, as well as the continued increase to our loan yields.

Previous wording

The following tables present, for the three months ended March 31, 2024 and 2023, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin.

Current wording

The following tables present, for the three and six months ended June 30, 2024 and 2023, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin.

Previous wording

quarter. Our ACL as a percentage of gross loans for the periods ended March 31, 2024, December 31, 2023 and March 31, 2023 was 0.58%, 0.57% and 0.63%, respectively. Our ACL as a percentage of gross loans is relatively lower than our peers due to our high percentage of residential mortgage loans, which tend to have lower allowance for credit loss ratios compared to other commercial or consumer loans due to their low LTVs.

Current wording

We recorded a credit provision of $128,000 and $268,000 during the three and six months ended June 30, 2024 compared to a credit provision of $416,000 recorded for both the three and six months ended June 30, 2023. The credit provision recorded during the first half of 2024 was primarily due the decrease in the general reserves allocated to our residential mortgage loan portfolio as a large amount of residential mortgage loans were sold, as well as $83,000 in recoveries recorded during the period. Our ACL as a percentage of gross loans for the periods ended June 30, 2024, December 31, 2023 and June 30, 2023 was 0.58%, 0.57% and 0.60%, respectively. Our ACL as a percentage of gross loans is relatively lower than our peers due to our high percentage of residential mortgage loans, which tend to have lower allowance for credit loss ratios compared to other commercial or consumer loans due to their low LTVs.

Previous wording

Noninterest income for the three months ended March 31, 2024 was $5.6 million, a decrease of $576,000, or 9.4%, compared to $6.1 million for the three months ended March 31, 2023. The following table sets forth the major components of our noninterest income for the three months ended March 31, 2024 and 2023:

Current wording

The following table sets forth the major components of our noninterest income for the three and six months ended June 30, 2024 and 2023:

Previous wording

Service charges on deposit accounts decreased $2,000, or 0.4%, to $447,000 for the three months ended March 31, 2024 compared to $449,000 for the same three months during 2023. This decrease was primarily attributable to lower analysis charges, offset by higher overdraft fees and wire transfer fees.

Current wording

Service charges on deposit accounts increased $68,000, or 14.7%, to $532,000 for the three months ended June 30, 2024 compared to $464,000 for the same three months during 2023. Service charges on deposit accounts were $979,000 for the six months ended June 30, 2024 compared to $913,000 for the same period in 2023, an increase of $66,000, or 7.2%. These increases were primarily attributable to higher overdraft fees and wire transfer fees, offset by lower analysis charges.

Previous wording

Other service charges, commissions and fees increased $738,000, or 84.4%, to $1.6 million for the three months ended March 31, 2024 compared to $874,000 for the three months ended March 31, 2023. This increase was mainly attributable to higher processing, underwriting and origination fees earned from our origination of residential mortgage loans as mortgage volume increased during the three months ended March 31, 2024 compared to the same period in 2023. Mortgage loan originations totaled $94.0 million during the three months ended March 31, 2024 compared to $43.3 million during the same period in 2023.

Current wording

Other service charges, commissions and fees increased $307,000, or 24.2%, to $1.6 million for the three months ended June 30, 2024 compared to $1.3 million for the three months ended June 30, 2023. Other service charges, commissions and fees increased $1.1 million, or 48.8%, to $3.2 million for the six months ended June 30, 2024 compared to $2.1 million for the six months ended June 30, 2023. These increases were mainly attributable to higher processing, underwriting and origination fees earned from our origination of residential mortgage loans as mortgage volume increased during the three and six months ended June 30, 2024 compared to the same periods in 2023. Mortgage loan originations totaled $94.1 million and $188.1 million during the three and six months ended June 30, 2024 compared to $72.8 million and $116.2 million during the same periods in 2023.

Previous wording

Total gain on sale of loans was $1.3 million for the three months ended March 31, 2024 compared to $2.0 million for the same period of 2023, a decrease of $696,000, or 35.3%.

Current wording

Total gain on sale of loans was $1.2 million for the three months ended June 30, 2024 compared to $1.1 million for the same period of 2023, an increase of $123,000, or 11.7%. Total gain on sale of loans was $2.5 million for the six months ended June 30, 2024 compared to $3.0 million for the same period of 2023, a decrease of $573,000, or 19.0%.

Previous wording

Gain on sale of residential mortgage loans totaled $222,000 for the three months ended March 31, 2024 as we sold $21.9 million in residential mortgage loans during the period with an average premium of 1.06%. We recorded no gain on sale of residential mortgage loans during the three months ended March 31, 2023 as no mortgage loans were sold during the period.

Current wording

Gain on sale of residential mortgage loans totaled $1.2 million and $1.4 million for the three and six months ended June 30, 2024 as we sold $111.4 million and $133.3 million in residential mortgage loans during these periods with an average premium of 1.05%. We recorded no gain on sale of residential mortgage loans during the three and six months ended June 30, 2023 as no mortgage loans were sold during the period.

Previous wording

Gain on sale of SBA loans totaled $1.1 million for the three months ended March 31, 2024 compared to $2.0 million for the same period in 2023. We sold $24.1 million in SBA loans during the three months ended March 31, 2024 with average premiums of 6.72%. We sold $36.5 million in SBA loans during the three months ended March 31, 2023 with average premiums of 6.80%.

Current wording

We recorded no gain on sale of SBA loans during the three months ended June 30, 2024 as no SBA loans were sold during the period. Gain on sale of SBA loans totaled $1.1 million for the three months ended June 30, 2023 as we sold $30.3 million in SBA loans during the period with average premiums of 5.24%. Gain on sale of SBA loans totaled $1.1 million for the six months ended June 30, 2024 compared to $3.0 million for the same period in 2023. We sold $24.1

Previous wording

Mortgage loan servicing income, net of amortization, increased by $325,000, or 338.5%, to $229,000 during the three months ended March 31, 2024 compared to an expense balance of $96,000 for the same period of 2023. The changes in mortgage loan servicing income were primarily due to decreases in mortgage servicing amortization and an increase in capitalized mortgage servicing assets, offset by the decrease in mortgage servicing fees. Included in mortgage loan

Current wording

Mortgage loan servicing income, net of amortization, increased by $1.2 million, or 2270.6%, to $1.1 million during the three months ended June 30, 2024 compared to an expense balance of $51,000 for the same period of 2023. Mortgage loan servicing income increased by $1.5 million, or 1008.8%, to $1.3 million during the six months ended June 30, 2024 compared to an expense balance of $147,000 for the same period of 2023. The changes in mortgage loan servicing income were primarily due to decreases in mortgage servicing amortization and an increase in capitalized mortgage servicing assets, offset by the decrease in mortgage servicing fees. Included in mortgage loan servicing income for the three and six months ended June 30, 2024 was $590,000 and $1.2 million in mortgage servicing fees compared to $640,000 and $1.3 million for the same periods in 2023 and capitalized mortgage servicing assets of $786,000 and $923,000 for the three and six months ended June 30, 2024 compared to $0 for the same periods in 2023. These amounts were offset by mortgage loan servicing asset amortization of $269,000 and $742,000 for the three and six months ended June 30, 2024 compared to $691,000 and $1.5 million during the three and six months ended June 30, 2023. During the three and six months ended June 30, 2024 and 2023, we did not record a fair value impairment on our mortgage servicing assets. Our total residential mortgage loan servicing portfolio was $529.8 million at June 30, 2024 compared to $487.8 million at June 30, 2023.

Previous wording

SBA servicing income decreased by $318,000, or 17.5%, to $1.5 million for the three months ended March 31, 2024 compared to $1.8 million for the three months ended March 31, 2023. Our total SBA and USDA loan servicing portfolio was $516.4 million as of March 31, 2024 compared to $485.7 million as of March 31, 2023. Our SBA servicing rights are carried at fair value and the inputs used to calculate fair value change from period to period. During the three months ended March 31, 2024, we recorded a $361,000 fair value increase to our SBA servicing rights compared to a $708,000 fair value increase to our SBA servicing rights during the three months ended March 31, 2023.

Current wording

SBA servicing income decreased by $828,000, or 59.7%, to $560,000 for the three months ended June 30, 2024 compared to $1.4 million for the three months ended June 30, 2023. SBA servicing income was $2.1 million for the six months ended June 30, 2024 compared to $3.2 million for the same period in 2023, a decrease of $1.1 million, or 35.8%. Our total SBA and USDA loan servicing portfolio was $486.1 million as of June 30, 2024 compared to $493.6 million as of June 30 2023. Included in SBA servicing income for the three and six months ended June 30, 2024 was $1.1 million and $2.2 million in SBA servicing fees compared to $1.1 million and $2.2 million for the same periods in 2023. Our SBA servicing rights are carried at fair value and the inputs used to calculate fair value change from period to period. During the three months ended June 30, 2024, we recorded a $503,000 fair value charge to our SBA servicing rights compared to a $282,000 fair value increase to our SBA servicing rights during the three months ended June 30, 2023. During the six months ended June 30, 2024, we recorded a $143,000 fair value charge to our SBA servicing rights compared to a $980,000 fair value increase during the six months ended June 30, 2023.

Previous wording

Other noninterest income decreased by $623,000, or 54.9%, to $511,000 for the three months ended March 31, 2024 compared to $1.1 million for the three months ended March 31, 2023. The decrease was mainly due to a gain on sale of foreclosed real estate of $547,000 recorded during the three months ended March 31, 2023 compared to no gain on sale being recorded during the three months ended March 31, 2024. The largest component of other noninterest income is the income on bank owned life insurance which totaled $535,000 for the three months ended March 31, 2024 compared to $435,000 for the three months ended March 31, 2023. Also included in other noninterest income are fair value gains/losses on our equity securities, which totaled $47,000 (loss) and $128,000 (gain) for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Other noninterest income increased by $40,000, or 7.0%, to $610,000 for the three months ended June 30, 2024 compared to $570,000 for the three months ended June 30, 2023. The increase was mainly due to the increase in bank owned life insurance income. Other noninterest income was $1.1 million for the six months ended June 30, 2024 compared to $1.7 million for the same period in 2023, a decrease of $583,000, or 34.2%. The decrease was mainly due to a gain on sale of foreclosed real estate of $547,000 recorded during the six months ended June 30, 2023 compared to no gain on sale being recorded during the three months ended June 30, 2024. The largest component of other noninterest income is the income on bank owned life insurance which totaled $569,000 and $1.1 million, respectively, for the three and six months ended June 30, 2024 compared to $445,000 and $880,000, respectively, for the three and six months ended June 30, 2023. Also included in other noninterest income are fair value gains/losses on our equity securities, which totaled $12,000 (loss) and $59,000 (loss) for the three and six months ended June 30, 2024, respectively, compared to $70,000 (loss) and $58,000 (gain) for the same periods in 2023, respectively.

Previous wording

Noninterest expense for the three months ended March 31, 2024 was $12.4 million compared to $10.8 million for the three months ended March 31, 2023, an increase of $1.6 million, or 14.4%. The following table sets forth the major components of our noninterest expense for the three months ended March 31, 2024 and 2023:

Current wording

Noninterest expense for the three months ended June 30, 2024 was $13.0 million compared to $11.5 million for the three months ended June 30, 2023, an increase of $1.6 million, or 13.7%. Noninterest expense for the six months ended June 30, 2024 was $25.4 million compared to $22.3 million for the six months ended June 30, 2023, an increase of $3.1 million, or 14.0%.

Previous wording

Salaries and employee benefits expense for the three months ended March 31, 2024 was $7.4 million compared to $6.4 million for the three months ended March 31, 2023, an increase of $1.0 million, or 15.8%. This increase was partially attributable to higher restricted stock expense, as well as higher commissions paid to our loan officers as loan volume increased during the three months ended March 31, 2024 compared to the same period in 2023.

Current wording

Salaries and employee benefits expense for the three months ended June 30, 2024 was $8.0 million compared to $7.1 million for the three months ended June 30, 2023, an increase of $945,000, or 13.3%. Salaries and employee benefits expense for the six months ended June 30, 2024 was $15.4 million compared to $13.5 million for the six months ended June 30, 2023, an increase of $1.9 million, or 14.5%. These increases were partially attributable to higher restricted stock expense and employee insurance, as well as higher commissions paid to our loan officers as loan volume increased during the three and six months ended June 30, 2024 compared to the same period in 2023.

Previous wording

Occupancy and equipment expense for the three months ended March 31, 2024 was $1.4 million compared to $1.2 million for the three months ended March 31, 2023, an increase of $140,000, or 11.5%. The increase was primarily due to higher maintenance and service expense, rent expense, and depreciation expense.

Current wording

Occupancy and equipment expense for the three months ended June 30, 2024 was $1.3 million compared to $1.0 million for the three months ended June 30, 2023, an increase of $295,000, or 28.4%. Occupancy and equipment expense for the six months ended June 30, 2024 was $2.7 million compared to $2.3 million for the six months ended June 30, 2023, an increase of $435,000, or 19.3%. These increases were primarily due to higher maintenance and service expense, rent expense, and depreciation expense.

Previous wording

Other expenses for the three months ended March 31, 2024 were $3.2 million compared to $2.8 million for the three months ended March 31, 2023, an increase of $365,000, or 13.0%. This increase was partially due to higher FDIC insurance premiums and professional fees, partially offset by lower loan and other real estate owned related expenses. Included in other expenses for the three months ended March 31, 2024 and 2023 were directors’ fees of approximately $163,000 and $137,000, respectively.

Current wording

Other expenses for the three months ended June 30, 2024 were $3.1 million compared to $2.8 million for the three months ended June 30, 2023, an increase of $336,000, or 12.0%. This increase was partially due to higher security expense and loan and other real estate owned related expenses, offset by lower FDIC insurance premiums and professional fees. Other operating expenses for the six months ended June 30, 2024 were $6.3 million compared to $5.6 million for the six months ended June 30, 2023, an increase of $701,000, or 12.5%. This increase was partially due to higher FDIC insurance premiums, audit expense and security expense, partially offset by lower loan related expenses and legal fees. Included in other expenses for the six months ended June 30, 2024 and 2023 were directors’ fees of approximately $324,000 and $287,000, respectively.

Previous wording

Income tax expense for both the three months ended March 31, 2024 and 2023 was $5.8 million. The Company’s effective tax rates were 28.4% and 27.1% for the three months ended March 31, 2024 and 2023, respectively.

Current wording

Income tax expense for the three months ended June 30, 2024 and 2023 was $6.4 million and $5.5 million, respectively. The Company’s effective tax rates were 27.5% and 29.6% for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Total assets increased $144.4 million, or 4.1%, to $3.65 billion at March 31, 2024 as compared to $3.50 billion at December 31, 2023. The increase in total assets was primarily attributable to increases in cash and cash equivalents of $114.0 million, loans held for sale of $50.3 million and interest rate derivatives of $6.9 million, partially offset by decreases in loans held for investment of $26.2 million and other assets of $2.1 million.

Current wording

Total assets increased $112.5 million, or 3.2%, to $3.62 billion at June 30, 2024 as compared to $3.50 billion at December 31, 2023. The increase in total assets was primarily attributable to increases in cash and due from banks of $182.9 million, interest rate derivatives of $4.4 million and Federal Home Loan Bank stock of $2.4 million, partially offset by decreases in loans held for investment of $51.6 million, loans held for sale of $22.3 million and other assets of $3.3 million.

Previous wording

Gross loans held for investment decreased $26.7 million, or 0.8%, to $3.12 billion as of March 31, 2024 as compared to $3.15 billion as of December 31, 2023. Our loan decline during the three months ended March 31, 2024 was comprised of an increase of $4.5 million, or 19.3%, in construction and development loans, an increase of $13.1 million, or 1.8%, in commercial real estate loans, an increase of $2.7 million, or 4.0%, in commercial and industrial loans, a decrease of $46.9 million, or 2.0%, in residential real estate loans and a decrease of $72,000, or 22.6%, in consumer and other loans. Loans held for sale were $72.6 million as of March 31, 2024 compared to $22.3 million as of December 31, 2023.

Current wording

Gross loans held for investment decreased $52.4 million, or 1.7%, to $3.10 billion as of June 30, 2024 as compared to $3.15 billion as of December 31, 2023. Our loan decline during the six months ended June 30, 2024 was comprised of a decrease of $9.7 million, or 41.7%, in construction and development loans, an increase of $22.7 million, or 3.2%, in commercial real estate loans, an increase of $2.4 million, or 3.6%, in commercial and industrial loans, a decrease of $67.7 million, or 2.9%, in residential real estate loans and a decrease of $89,000, or 27.9%, in consumer and other loans. We had no loans held for sale as of June 30, 2024 compared to $22.3 million as of December 31, 2023.

Previous wording

As of March 31, 2024 and December 31, 2023, we serviced $516.4 million and $485.7 million, respectively, in SBA and USDA loans for others. We carried a servicing asset of $7.6 million and $7.3 million at March 31, 2024 and December 31, 2023, respectively. See Note 4 of our consolidated financial statements as of March 31, 2024, included

Current wording

As of June 30, 2024 and December 31, 2023, we serviced $486.1 million and $508.0 million, respectively, in SBA and USDA loans for others. We carried a servicing asset of $7.1 million and $7.3 million at June 30, 2024 and December 31, 2023, respectively. See Note 4 of our consolidated financial statements as of June 30, 2024, included elsewhere in this Form 10-Q, for additional information on the activity for SBA and USDA loan servicing rights for the three and six months ended June 30, 2024 and 2023.

Previous wording

As of March 31, 2024, we serviced $443.9 million in residential mortgage loans for others compared to $443.1 million as of December 31, 2023. We carried a servicing asset, net of amortization, of $937,000 and $1.3 million at March 31, 2024 and December 31, 2023, respectively. Amortization relating to the mortgage loan servicing asset was $473,000 for the three months ended March 31, 2024 compared to $768,000 for the same period in 2023. During the three months ended March 31, 2024 and 2023, we did not record a fair value impairment on our mortgage servicing asset. See Note 5 of our consolidated financial statements as of March 31, 2024, included elsewhere in this Form 10-Q, for additional information on the activity for mortgage loans servicing rights for the three months ended March 31, 2024 and 2023.

Current wording

As of June 30, 2024, we serviced $529.8 million in residential mortgage loans for others compared to $443.1 million as of December 31, 2023. We carried a servicing asset, net of amortization, of $1.5 million and $1.3 million at June 30, 2024 and December 31, 2023, respectively. Amortization relating to the mortgage loan servicing asset was $269,000 and $742,000 for the three and six months ended June 30, 2024, respectively, compared to $691,000 and $1.5 million for the same periods in 2023. During the three and six months ended June 30, 2024 and 2023, we did not record a fair value impairment on our mortgage servicing asset. See Note 5 of our consolidated financial statements as of June 30, 2024, included elsewhere in this Form 10-Q, for additional information on the activity for mortgage loans servicing rights for the three and six months ended June 30, 2024 and 2023.

Previous wording

Asset quality remained relatively strong during the first quarter of 2024 as our nonperforming loans to total loans remained low at 0.92% as of March 31, 2024. Nonperforming loans were $28.8 million at March 31, 2024 compared to $36.9 million at December 31, 2023. The decrease from December 31, 2023 to March 31, 2024 was attributable to a $1.4 million decrease in nonaccrual loans and a $6.7 million decrease in accruing restructured loans. We did not recognize any interest income on nonaccrual loans during the three months ended March 31, 2024 or the year ended December 31, 2023.

Current wording

Asset quality remained relatively strong during the second quarter of 2024 as our nonperforming loans to total loans remained low at 0.83% as of June 30, 2024. Nonperforming loans were $13.0 million at June 30 2024 compared to $14.7 million at December 31, 2023. The decrease from December 31, 2023 to June 30, 2024 was attributable to a $1.7 million decrease in nonaccrual loans. We did not recognize any interest income on nonaccrual loans during the six months ended June 30, 2024 or the year ended December 31, 2023.

Previous wording

The following table sets forth the allocation of our nonperforming assets among our different asset categories as of the dates indicated. Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest, and accruing restructured loans. Nonperforming assets consist of nonperforming loans plus OREO. Nonaccrual loans at March 31, 2024 comprised of $469,000 of commercial real estate loans, $1.3 million of commercial and industrial loans and $11.5 million of residential real estate loans. Nonaccrual loans at December 31, 2023 comprised of $548,000 of construction and development loans, $991,000 of commercial real estate loans, $1.3 million of commercial and industrial loans, and $11.9 million of residential real estate loans.

Current wording

The following table sets forth the allocation of our nonperforming assets among our different asset categories as of the dates indicated. Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing interest. Nonperforming assets consist of nonperforming loans plus OREO. Nonaccrual loans at June 30, 2024 comprised of $1.2 million of commercial real estate loans, $32,000 of commercial and industrial loans and $11.8 million of residential real estate loans. Nonaccrual loans at December 31, 2023 comprised of $548,000 of construction and development loans, $991,000 of commercial real estate loans, $1.3 million of commercial and industrial loans, and $11.9 million of residential real estate loans.

Previous wording

The allowance for credit losses was $18.0 million at March 31, 2024 compared to $18.1 million at December 31, 2023, a decrease of $130,000, or 0.7%. The decrease was primarily due to the decrease in the general reserves allocated to our residential mortgage loan portfolio as a large amount of residential mortgage loans were moved from loans held for investment to loans held for sale during the three months ended March 31, 2024.

Current wording

The allowance for credit losses was $18.0 million at June 30, 2024 compared to $18.1 million at December 31, 2023, a decrease of $152,000, or 0.8%. The decrease was primarily due to the decrease in the general reserves allocated to our residential mortgage loan portfolio as a large amount of residential mortgage loans were sold during the six months ended June 30, 2024.

Previous wording

We maintain a reserve for credit losses that consist of two components, the allowance for credit losses and the allowance for unfunded commitments. The allowance for credit losses provides for the risk of credit losses expected in our loan portfolio and is based on loss estimates derived from a comprehensive quarterly evaluation. The evaluation reflects analyses of individual borrowers for impairment coupled with analysis of historical loss experience in various loan pools that have been grouped based on similar risk characteristics, supplemented as necessary by credit judgment that

Current wording

We maintain a reserve for credit losses that consist of two components, the allowance for credit losses and the allowance for unfunded commitments. The allowance for credit losses provides for the risk of credit losses expected in our loan portfolio and is based on loss estimates derived from a comprehensive quarterly evaluation. The evaluation reflects analyses of individual borrowers for impairment coupled with analysis of historical loss experience in various loan pools that have been grouped based on similar risk characteristics, supplemented as necessary by credit judgment that considers observable trends, conditions, reasonable and supportable forecasts, and other relevant environmental and economic factors. The level of the allowance for credit losses is adjusted by recording an expense or credit through the provision for credit losses. The level of the allowance for unfunded commitments is adjusted by recording an expense or credit in other noninterest expense. The allowance for unfunded commitments was created upon adoption of CECL on January 1, 2023 and had a balance of $287,000 as of June 30, 2024 compared to $241,000 as of June 30, 2023.

Previous wording

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

Current wording

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent loans where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the loan to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the loan exceeds the present value of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the loan exceeds the

Previous wording

Total deposits increased $82.9 million, or 3.0%, to $2.81 billion at March 31, 2024 compared to $2.73 billion at December 31, 2023. The increase was due to a $50.2 million increase in time deposits, a $34.7 million increase in noninterest-bearing demand deposits and a $2.6 million increase in interest-bearing demand deposits, offset by a $2.9 million decrease in money market accounts and a $1.6 million decrease in savings accounts. As of March 31, 2024 and December 31, 2023, 19.4% and 18.7% of total deposits, respectively, were comprised of noninterest-bearing demand accounts and 80.6% and 81.3%, respectively, of interest-bearing deposit accounts.

Current wording

Total deposits increased $14.9 million, or 0.5%, to $2.75 billion at June 30, 2024 compared to $2.73 billion at December 31, 2023. The increase was due to a $52.0 million increase in noninterest-bearing deposits and a $58.0 million increase in time deposits, offset by a $71.1 million decrease in money market accounts and a $24.2 million decrease in interest-bearing demand deposits. As of June 30, 2024 and December 31, 2023, 20.5% and 18.7% of total deposits, respectively, were comprised of noninterest-bearing demand accounts and 79.5% and 81.3%, respectively, of interest-bearing deposit accounts.