First Bancorp, Inc /ME/ [FNLC] Filings

10-Q 1 fnlc-20240331.htm 10-Q fnlc-20240331

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934

For the quarterly period ended March 31, 2024

Commission File Number 0-26589

THE FIRST BANCORP, INC.

(Exact name of Registrant as specified in its charter)


Maine			01-0404322
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


223 Main Street	Damariscotta	Maine	04543
(Address of principal executive offices)			(Zip code)

(207) 563-3195

Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	FNLC	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer, a smaller

reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended

transition period for complying with any new or revised financial accounting standards provided pursuant to

Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes ☐ No ☒

Indicate the number of shares outstanding of each of the registrant's classes of common stock as of May 1, 2024

Common Stock: 11,136,483 shares

Table of Contents


Part I. Financial Information			1
Selected Financial Data (Unaudited)			1
Item 1 – Financial Statements			2
Report of Independent Registered Public Accounting Firm			2
Consolidated Balance Sheets (Unaudited)			3
Consolidated Statements of Income and Comprehensive Income (Unaudited)			4
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)			5
Consolidated Statements of Cash Flows (Unaudited)			6
Notes to Consolidated Financial Statements			7
Note 1 – Basis of Presentation			7
Note 2 –Investment Securities			8
Note 3 – Loans			13
Note 4 – Allowance for Credit Losses			20
Note 5 – Stock-Based Compensation			33
Note 6 – Preferred and Common Stock			33
Note 7 – Earnings Per Share			33
Note 8 – Employee Benefit Plans			33
Note 9 – Other Comprehensive Income (Loss)			35
Note 10 – Financial Derivative Instruments			35
Note 11 – Mortgage Servicing Rights			37
Note 12 – Income Taxes			37
Note 13 – Certificates of Deposit			38
Note 14 – Reclassifications			38
Note 15 – Fair Value Disclosures			38
Note 16 – Impact of Recently Issued Accounting Standards			46
Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations			47
Forward-Looking Statements			47
Critical Accounting Policies			47
Use of Non-GAAP Financial Measures			49
Executive Summary			50
Net Interest Income			51
Average Daily Balance Sheets			53
Non-Interest Income			53
Non-Interest Expense			54
Income Taxes			54
Investments			54
Debt Securities-Unrealized Loss Position			56
Federal Home Loan Bank Stock			58
Loans and Loans Held for Sale			58
Credit Risk Management and Allowance for Credit Losses			59
Non-Performing Loans and Loan Modifications			63
Past Due Loans			65
Potential Problem Loans and Loans in Process of Foreclosure			65
Other Real Estate Owned			66
Liquidity			66
Deposits			66
Borrowed Funds			67
Capital Resources			67


Off-Balance-Sheet Financial Instruments and Contractual Obligations			68
Item 3 – Quantitative and Qualitative Disclosures About Market Risk			70
Market-Risk Management			70
Asset/Liability Management			70
Interest Rate Risk Management			71
Item 4 - Controls and Procedures			72
Part II. Other Information			73
Item 1 – Legal Proceedings			73
Item 1a – Risk Factors			73
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			73
Item 3 – Default Upon Senior Securities			73
Item 4 – Mine Safety Disclosures			73
Item 5 – Other Information			73
Item 6 – Exhibits			74
Signatures			75

Part I. Financial Information

Selected Financial Data (Unaudited)

The First Bancorp, Inc. and Subsidiary


Dollars in thousands,	As of and for the three months ended March 31,
except for per share amounts	2024			2023
Summary of Operations
Interest Income	$	34,988		$	28,914
Interest Expense	20,108			11,439
Net Interest Income	14,880			17,475
Provision (reduction) for Credit Losses	(513)			550
Non-Interest Income	3,640			3,569
Non-Interest Expense	11,761			10,850
Net Income	6,021			7,971
Per Common Share Data
Basic Earnings per Share	$	0.55		$	0.73
Diluted Earnings per Share	0.54			0.72
Cash Dividends Declared	0.35			0.34
Book Value per Common Share	21.80			20.63
Tangible Book Value per Common Share2	19.03			17.84
Market Value	24.64			25.89
Financial Ratios
Return on Average Equity1	9.92		%	13.61		%
Return on Average Tangible Common Equity1,2	11.36		%	15.64		%
Return on Average Assets1	0.82		%	1.16		%
Average Equity to Average Assets	8.26		%	8.56		%
Average Tangible Equity to Average Assets2	7.22		%	7.45		%
Net Interest Margin Tax-Equivalent1,2	2.22		%	2.78		%
Dividend Payout Ratio	63.64		%	46.58		%
Allowance for Credit Losses/Total Loans	1.11		%	1.18		%
Non-Performing Loans to Total Loans	0.12		%	0.09		%
Non-Performing Assets to Total Assets	0.09		%	0.06		%
Efficiency Ratio2	61.15		%	49.98		%
At Period End
Total Assets	$	2,978,170		$	2,811,820
Total Loans	2,173,746			1,982,847
Total Investment Securities	659,837			683,961
Total Deposits	2,548,988			2,466,701
Total Shareholders' Equity	242,624			228,461

1Annualized using a 366-day basis in 2024 and a 365-day basis in 2023.

2These ratios use non-GAAP financial measures. See Management's Discussion and Analysis of Financial Condition and Results of Operations for additional disclosures and information.

Item 1 – Financial Statements

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

The First Bancorp, Inc.

Results of Review of Interim Financial Information

We have reviewed the accompanying interim consolidated financial information of The First Bancorp, Inc. and Subsidiary as of March 31, 2024 and 2023 and for the three-month periods then ended, and the related notes (collectively referred to as the "interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for them to be in conformity with accounting principles generally accepted in the United States of America.

Basis for Review Results

This consolidated interim financial information is the responsibility of the Company's management. We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ Berry Dunn McNeil & Parker, LLC

Portland, Maine

May 7, 2024

Consolidated Balance Sheets (Unaudited)

The First Bancorp, Inc. and Subsidiary


	March 31, 2024		December 31, 2023		March 31, 2023
Assets
Cash and cash equivalents	$	23,875,000	$	31,942,000	$	27,458,000
Interest bearing deposits in other banks	2,911,000		3,488,000		2,773,000
Securities available for sale	274,451,000		282,053,000		288,242,000
Securities held-to-maturity (net of ACL), fair value of $327,816,000 at March 31, 2024, $338,570,000 at December 31, 2023 and $344,053,000 at March 31, 2023)	379,453,000		385,235,000		391,845,000
Restricted equity securities, at cost	5,933,000		3,385,000		3,874,000

Loans	2,173,746,000		2,129,454,000		1,982,847,000
Less allowance for credit losses	24,207,000		24,030,000		23,458,000
Net loans	2,149,539,000		2,105,424,000		1,959,389,000
Accrued interest receivable	15,970,000		11,894,000		12,142,000
Premises and equipment, net	28,435,000		28,684,000		28,286,000

Goodwill	30,646,000		30,646,000		30,646,000
Other assets	66,957,000		63,947,000		67,165,000
Total assets	$	2,978,170,000	$	2,946,698,000	$	2,811,820,000
Liabilities
Demand deposits	$	262,652,000	$	289,104,000	$	293,123,000
NOW deposits	618,554,000		634,543,000		623,523,000
Money market deposits	321,822,000		305,931,000		194,183,000
Savings deposits	280,533,000		299,837,000		346,205,000
Certificates of deposit	1,065,427,000		1,070,247,000		1,009,667,000
Total deposits	2,548,988,000		2,599,662,000		2,466,701,000
Borrowed funds – short term	84,779,000		69,652,000		83,800,000
Borrowed funds – long term	70,000,000		—		81,000
Other liabilities	31,779,000		34,305,000		32,777,000
Total liabilities	2,735,546,000		2,703,619,000		2,583,359,000
Shareholders' equity

Common stock, one cent par value per share	111,000		111,000		111,000
Additional paid-in capital	70,506,000		70,071,000		68,830,000
Retained earnings	213,839,000		211,925,000		202,036,000
Accumulated other comprehensive income (loss)
Net unrealized loss on securities available-for-sale	(42,816,000)		(39,575,000)		(40,537,000)
Net unrealized loss on securities transferred from available-for-sale to held-to-maturity	(54,000)		(56,000)		(60,000)
Net unrealized gain (loss) on cash flow hedging derivative instruments	735,000		300,000		(2,192,000)
Net unrealized gain on postretirement costs	303,000		303,000		273,000
Total shareholders' equity	242,624,000		243,079,000		228,461,000
Total liabilities & shareholders' equity	$	2,978,170,000	$	2,946,698,000	$	2,811,820,000
Common Stock
Number of shares authorized	18,000,000		18,000,000		18,000,000
Number of shares issued and outstanding	11,130,933		11,098,057		11,074,182
Book value per common share	$	21.80	$	21.90	$	20.63
Tangible book value per common share	$	19.03	$	19.12	$	17.84

See Report of Independent Registered Public Accounting Firm. The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Income and Comprehensive Income (Unaudited)

The First Bancorp, Inc. and Subsidiary


	For the three months ended March 31,
	2024		2023
Interest income
Interest and fees on loans (includes YTD tax-exempt income of $521,000 for March 31, 2024 and $329,000 for March 31, 2023)	$	30,204,000	$	24,125,000
Interest on deposits with other banks	78,000		40,000
Interest and dividends on investments (includes YTD tax-exempt income of $1,995,000 for March 31, 2024 and $2,002,000 for March 31, 2023)	4,706,000		4,749,000
Total interest income	34,988,000		28,914,000
Interest expense
Interest on deposits	19,177,000		10,917,000
Interest on borrowed funds	931,000		522,000
Total interest expense	20,108,000		11,439,000
Net interest income	14,880,000		17,475,000
Provision for credit losses - loans	99,000		550,000
Provision (reduction) for credit losses - debt securities HTM	(252,000)		—
Provision (reduction) for credit losses - off-balance sheet credit exposures	(360,000)		—
Total provision (reduction) for credit losses	(513,000)		550,000
Net interest income after provision for credit losses	15,393,000		16,925,000
Non-interest income
Investment management and fiduciary income	1,188,000		1,146,000
Service charges on deposit accounts	499,000		437,000

Mortgage origination and servicing income, net of amortization	130,000		192,000
Debit card income	1,186,000		1,185,000
Other operating income	637,000		609,000
Total non-interest income	3,640,000		3,569,000
Non-interest expense
Salaries and employee benefits	6,057,000		5,720,000
Occupancy expense	866,000		868,000
Furniture and equipment expense	1,389,000		1,303,000
FDIC insurance premiums	564,000		344,000
Amortization of identified intangibles	7,000		7,000
Other operating expense	2,878,000		2,608,000
Total non-interest expense	11,761,000		10,850,000
Income before income taxes	7,272,000		9,644,000
Income tax expense	1,251,000		1,673,000
NET INCOME	$	6,021,000	$	7,971,000
Basic earnings per common share	$	0.55	$	0.73
Diluted earnings per common share	$	0.54	$	0.72
Other comprehensive income (loss) net of tax
Net unrealized (loss) gain on securities available for sale, net of taxes	$	(3,241,000)	$	4,181,000
Net unrealized gain on transferred securities, net of taxes	2,000		4,000
Net unrealized gain (loss) on hedging derivative instruments	435,000		(2,736,000)

Other comprehensive (loss) gain	(2,804,000)		1,449,000
Comprehensive income	$	3,217,000	$	9,420,000

See Report of Independent Registered Public Accounting Firm. The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Changes in Shareholders' Equity (Unaudited)

The First Bancorp, Inc. and Subsidiary


Three Month Period Ended March 31, 2024 and 2023
	Common stock and additional paid-in capital			Retained earnings		Accumulated other comprehensive income (loss)		Total shareholders' equity
	Shares	Amount
Balance at December 31, 2022	11,045,186	$	68,545,000	$	204,343,000	$	(43,965,000)	$	228,923,000
Net income	—	—		7,971,000		—		7,971,000
Net unrealized gain on securities available for sale, net of tax	—	—		—		4,181,000		4,181,000
Net unrealized gain on securities transferred from available for sale to held to maturity, net of tax	—	—		—		4,000		4,000
Net unrealized loss on hedging derivative instruments, net of tax	—	—		—		(2,736,000)		(2,736,000)

Comprehensive income	—	—		7,971,000		1,449,000		9,420,000

Cash dividends declared ($0.34 per share)	—	—		(3,764,000)		—		(3,764,000)
Equity compensation expense	—	184,000		—		—		184,000

Payment to repurchase common stock	(11,824)	—		(237,000)		—		(237,000)

Issuance of restricted stock	33,610	—		—		—		—
Proceeds from sale of common stock	7,210	212,000		—		—		212,000
Adoption of ASU No. 2016-13				(6,277,000)				(6,277,000)
Balance at March 31, 2023	11,074,182	$	68,941,000	$	202,036,000	$	(42,516,000)	$	228,461,000

Balance at December 31, 2023	11,098,057	$	70,182,000	$	211,925,000	$	(39,028,000)	$	243,079,000
Net income	—	—		6,021,000		—		6,021,000
Net unrealized loss on securities available for sale, net of tax	—	—		—		(3,241,000)		(3,241,000)
Net unrealized gain on securities transferred from available for sale to held to maturity, net of tax	—	—		—		2,000		2,000
Net unrealized gain on hedging derivative instruments, net of tax	—	—		—		435,000		435,000

Comprehensive income (loss)	—	—		6,021,000		(2,804,000)		3,217,000

Cash dividends declared ($0.35 per share)	—	—		(3,896,000)		—		(3,896,000)
Equity compensation expense	—	231,000		—		—		231,000


Payment to repurchase common stock	(8,031)	—		(211,000)		—		(211,000)

Issuance of restricted stock	32,859	—		—		—		—
Proceeds from sale of common stock	8,048	204,000		—		—		204,000
Balance at March 31, 2024	11,130,933	$	70,617,000	$	213,839,000	$	(41,832,000)	$	242,624,000

See Report of Independent Registered Public Accounting Firm. The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statements of Cash Flows (Unaudited)

The First Bancorp, Inc. and Subsidiary


	For the three months ended March 31,
	2024		2023
Cash flows from operating activities
Net income	$	6,021,000	$	7,971,000
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation	544,000		495,000
Change in deferred taxes	319,000		(1,453,000)
Provision (reduction) for credit losses	(513,000)		550,000
Loans originated for resale	(363,000)		(705,000)
Proceeds from sales and transfers of loans	373,000		996,000
Net gain on sales of loans	(10,000)		(16,000)

Net amortization of premiums on investments	135,000		122,000


Equity compensation expense	231,000		184,000

Net increase in other assets and accrued interest	(5,982,000)		(7,296,000)
Net (decrease) increase in other liabilities	(2,385,000)		4,115,000
Net loss on disposal of premises and equipment	9,000		1,000
Amortization of investment in limited partnership	117,000		76,000
Net acquisition amortization	7,000		7,000
Net cash (used) provided by operating activities	(1,497,000)		5,047,000
Cash flows from investing activities
Increase in interest-bearing deposits in other banks	577,000		920,000

Proceeds from maturities, payments and calls of securities available for sale	5,359,000		4,956,000
Proceeds from maturities, payments, calls and sales of securities to be held to maturity	6,011,000		1,594,000

Purchases of securities available for sale	(1,968,000)		(3,496,000)


Change in restricted equity securities	(2,548,000)		9,000


Net increase in loans	(44,214,000)		(68,198,000)
Capital expenditures	(326,000)		(526,000)

Net cash used by investing activities	(37,109,000)		(64,741,000)
Cash flows from financing activities
Net decrease in demand, savings, and money market accounts	(45,854,000)		(54,172,000)
Net (decrease) increase in certificates of deposit	(4,820,000)		141,996,000
Net increase (decrease) in short-term borrowings	15,127,000		(19,599,000)
Advances on long-term borrowings	70,000,000		—
Repayment on long-term borrowings	—		(3,000)

Payment to repurchase common stock	(211,000)		(237,000)
Proceeds from sale of common stock	204,000		212,000
Dividends paid	(3,907,000)		(3,773,000)
Net cash provided by financing activities	30,539,000		64,424,000
Net (decrease) increase in cash and cash equivalents	(8,067,000)		4,730,000
Cash and cash equivalents at beginning of period	31,942,000		22,728,000
Cash and cash equivalents at end of period	$	23,875,000	$	27,458,000



Interest paid	$	19,521,000	$	11,460,000

Non-cash transactions


Change in net unrealized loss on available for sale securities, net of tax	$	3,241,000	$	(4,181,000)

See Report of Independent Registered Public Accounting Firm. The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements

The First Bancorp, Inc. and Subsidiary

Note 1 – Basis of Presentation

The Company is a financial holding company that owns all of the common stock of the Bank. The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of Management, all adjustments (consisting of normally recurring accruals) considered necessary for a fair presentation have been included. All significant intercompany transactions and balances are eliminated in consolidation. The income reported for the 2024 period is not necessarily indicative of the results that may be expected for the year ending December 31, 2024. For further information, refer to the consolidated financial statements and notes included in the Company's annual report on Form 10-K for the year ended December 31, 2023.

The abbreviations and definitions identified below are used throughout this Form 10-Q, including Item 1 - Financial Statements and Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. The following is provided to aid the reader and provide a reference page when reviewing these sections of the Form 10-Q.


Abbreviation	Description	Abbreviation	Description
ACL	Allowance for credit losses	GDP	Gross domestic product
AFS	Available-for-sale	GNMA	Government National Mortgage Association
ALCO	Asset/Liability Committee	HTM	Held-to-maturity
AOCI	Accumulated other comprehensive income (loss)	IAL	Individually Analyzed Loans
ASC	Accounting Standards Codification	IRS	Internal Revenue Service
ASU	Accounting Standards Update	MPF	Mortgage Partnership Finance Program
BTFP	Bank Term Funding Program	OAEM	Other assets especially mentioned
C&I	Commercial and Industrial	OCC	Office of the Comptroller of the Currency
CDs	Certificates of deposit	OCI	Other comprehensive income (loss)
CECL	Current Expected Credit Loss	OIS	Overnight Indexed Swap
CLLD	Construction, land, and land development	OREO	Other real estate owned
EPS	Earnings per share	POR	Period of Redemption
FASB	Financial Accounting Standards Board	PSA	Public Securities Association
FDIC	Federal Deposit Insurance Corporation	SEC	Securities and Exchange Commission
FHLB	Federal Home Loan Bank	SOFR	Secured Overnight Financing Rate
FHLBB	Federal Home Loan Bank of Boston	TDR	Troubled debt restructuring
FHLMC	Federal Home Loan Mortgage Corporation	The 2020 Plan	The 2020 Equity Incentive Plan
FNMA	Federal National Mortgage Association	The Bank	First National Bank
FOMC	Federal Open Market Committee	The Company	The First Bancorp, Inc.
FRB	Federal Reserve Board	U.S.	United States of America
FRBB	Federal Reserve Bank of Boston	USD	U.S. Dollar
GAAP	Accounting principles generally accepted in the U.S.

Risks and Uncertainties

Ongoing conflicts between Russia and Ukraine, and Israel and Hamas, continue to contribute to economic uncertainty and geopolitical instability. Concern about the national commercial real estate market and the impact a downturn in this sector could have on the banking industry continues to be expressed, as does concern about a re-kindling of inflation after higher than expected CPI prints to begin 2024. Any or all could have negative downstream effects on the Company's operating results, the extent of which is indeterminable at this time.

Subsequent Events

Events occurring subsequent to March 31, 2024, have been evaluated as to their potential impact to the financial statements.

Note 2 – Investment Securities

The following table summarizes the amortized cost and estimated fair value of investment securities at March 31, 2024:


	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value (Estimated)
Securities available for sale
U.S. Treasury & Agency securities	$	26,036,000	$	—	$	(6,343,000)	$	19,693,000
Mortgage-backed securities	259,538,000		99,000		(41,635,000)		218,002,000
State and political subdivisions	40,288,000		—		(6,338,000)		33,950,000
Asset-backed securities	2,786,000		20,000		—		2,806,000

	$	328,648,000	$	119,000	$	(54,316,000)	$	274,451,000
Securities to be held to maturity
U.S. Treasury & Agency securities	$	38,100,000	$	—	$	(9,851,000)	$	28,249,000
Mortgage-backed securities	55,483,000		15,000		(11,258,000)		44,240,000
State and political subdivisions	254,302,000		175,000		(27,879,000)		226,598,000

Corporate securities	31,750,000		—		(3,021,000)		28,729,000
	$	379,635,000	$	190,000	$	(52,009,000)	$	327,816,000
Less allowance for credit losses	(182,000)		—		—		—
Net securities to be held to maturity	$	379,453,000	$	190,000	$	(52,009,000)	$	327,816,000
Restricted equity securities
Federal Home Loan Bank Stock	$	4,896,000	$	—	$	—	$	4,896,000
Federal Reserve Bank Stock	1,037,000		—		—		1,037,000
	$	5,933,000	$	—	$	—	$	5,933,000

The following table summarizes the amortized cost and estimated fair value of investment securities at December 31, 2023:


	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value (Estimated)
Securities available for sale
U.S. Treasury & Agency securities	$	26,033,000	$	—	$	(6,203,000)	$	19,830,000
Mortgage-backed securities	262,823,000		265,000		(38,491,000)		224,597,000
State and political subdivisions	40,306,000		41,000		(5,702,000)		34,645,000
Asset-backed securities	2,986,000		4,000		(9,000)		2,981,000

	$	332,148,000	$	310,000	$	(50,405,000)	$	282,053,000
Securities to be held to maturity
U.S. Treasury & Agency securities	$	40,100,000	$	—	$	(9,601,000)	$	30,499,000
Mortgage-backed securities	56,401,000		70,000		(10,398,000)		46,073,000
State and political subdivisions	254,418,000		313,000		(24,213,000)		230,518,000

Corporate securities	34,750,000		—		(3,270,000)		31,480,000
	$	385,669,000	$	383,000	$	(47,482,000)	$	338,570,000
Less allowance for credit losses	(434,000)		—		—		—
Net securities to be held to maturity	$	385,235,000	$	383,000	$	(47,482,000)	$	338,570,000
Restricted equity securities
Federal Home Loan Bank Stock	$	2,348,000	$	—	$	—	$	2,348,000
Federal Reserve Bank Stock	1,037,000		—		—		1,037,000
	$	3,385,000	$	—	$	—	$	3,385,000

The following table summarizes the amortized cost and estimated fair value of investment securities at March 31, 2023:


	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value (Estimated)
Securities available for sale
U.S. Treasury & Agency securities	$	26,027,000	$	—	$	(6,509,000)	$	19,518,000
Mortgage-backed securities	269,730,000		72,000		(38,711,000)		231,091,000
State and political subdivisions	40,451,000		12,000		(6,114,000)		34,349,000
Asset-backed securities	3,347,000		—		(63,000)		3,284,000

	$	339,555,000	$	84,000	$	(51,397,000)	$	288,242,000
Securities to be held to maturity
U.S. Treasury & Agency securities	$	40,100,000	$	—	$	(10,099,000)	$	30,001,000
Mortgage-backed securities	59,523,000		75,000		(10,443,000)		49,155,000
State and political subdivisions	257,910,000		365,000		(25,357,000)		232,918,000
Corporate securities	34,750,000		—		(2,771,000)		31,979,000
	$	392,283,000	$	440,000	$	(48,670,000)	$	344,053,000
Less allowance for credit losses	(438,000)		—		—		—
Net securities to be held to maturity	$	391,845,000	$	440,000	$	(48,670,000)	$	344,053,000
Restricted equity securities
Federal Home Loan Bank Stock	$	2,837,000	$	—	$	—	$	2,837,000
Federal Reserve Bank Stock	1,037,000		—		—		1,037,000
	$	3,874,000	$	—	$	—	$	3,874,000

Allowance for Credit Losses:

AFS securities, as shown in the above tables, consist of securities issued by U.S. Government Agencies, U.S. Government Sponsored Entities, State or Local Municipal Governments, or are backed by collateral that is guaranteed by the U.S. Government. We monitor the credit quality of these investments through credit ratings issued by major rating providers and through substantial price changes not consistent with general market movements. Each of the AFS securities is deemed to be investment grade, and no ACL has been established for AFS securities.

Similarly, the agency and mortgage-backed securities in the HTM portfolio have been determined to all be investment grade with no ACL required. Municipal securities within HTM include two private activity bonds issued by well-known customers of the Bank with total balances of $19,441,000 as of March 31, 2024. Corporate securities in HTM consist of 13 individual companies in the banking industry. Management reviewed the collectability of these securities taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, and other performance factors. Aggregate credit risk of the private activity bonds and corporate securities is considered very low and an immaterial ACL has been established. As of March 31, 2024 and 2023, and December 31, 2023, the total ACL for HTM securities was $182,000, $438,000 and $434,000, respectively.

Changes in the ACL are recorded as credit loss expense, or reversal. Losses would be charged against the allowance when management believes collection of the full contractual amount due on a security is unlikely.

The following table summarizes the contractual maturities of investment securities at March 31, 2024:


	Securities available for sale				Securities to be held to maturity
	Amortized Cost		Fair Value (Estimated)		Amortized Cost		Fair Value (Estimated)
Due in 1 year or less	$	1,496,000	$	1,453,000	$	1,673,000	$	1,670,000
Due in 1 to 5 years	1,966,000		1,901,000		17,009,000		16,294,000
Due in 5 to 10 years	28,781,000		24,960,000		99,113,000		92,330,000
Due after 10 years	296,405,000		246,137,000		261,840,000		217,522,000

	$	328,648,000	$	274,451,000	$	379,635,000	$	327,816,000

The following table summarizes the contractual maturities of investment securities at December 31, 2023:


	Securities available for sale				Securities to be held to maturity
	Amortized Cost		Fair Value (Estimated)		Amortized Cost		Fair Value (Estimated)
Due in 1 year or less	$	—	$	—	$	1,674,000	$	1,672,000
Due in 1 to 5 years	3,489,000		3,373,000		16,387,000		15,814,000
Due in 5 to 10 years	28,551,000		25,089,000		99,942,000		93,894,000
Due after 10 years	300,108,000		253,591,000		267,666,000		227,190,000

	$	332,148,000	$	282,053,000	$	385,669,000	$	338,570,000

The following table summarizes the contractual maturities of investment securities at March 31, 2023:


	Securities available for sale				Securities to be held to maturity
	Amortized Cost		Fair Value (Estimated)		Amortized Cost		Fair Value (Estimated)
Due in 1 year or less	$	—	$	—	$	1,789,000	$	1,788,000
Due in 1 to 5 years	3,578,000		3,420,000		15,029,000		14,595,000
Due in 5 to 10 years	19,142,000		15,995,000		90,479,000		85,444,000
Due after 10 years	316,835,000		268,827,000		284,986,000		242,226,000

	$	339,555,000	$	288,242,000	$	392,283,000	$	344,053,000

At March 31, 2024, securities with a carrying value of $314,208,000 were pledged to secure public deposits, repurchase agreements, and for other purposes as required by law. This compares to securities with a carrying value of $340,623,000 as of December 31, 2023 and $324,716,000 at March 31, 2023, pledged for the same purposes.

Gains and losses on the sale of securities are computed by subtracting the amortized cost at the time of sale from the security's selling price, net of accrued interest to be received. There were no gains or losses on the sale of securities for the three months ended March 31, 2024 and 2023.

As of March 31, 2024, there were 236 AFS securities with unrealized losses held in the Company's portfolio. The Company has the ability and intent to hold its securities which are in an unrealized loss position until a recovery of their amortized cost, which may be at maturity.

The following table summarizes AFS debt securities in an unrealized loss position for which an ACL has not been recorded at March 31, 2024, aggregated by major security type and length of time in a continuous unrealized loss position:


	Less than 12 months				12 months or more				Total
	Fair Value (Estimated)		Unrealized Losses		Fair Value (Estimated)		Unrealized Losses		Fair Value (Estimated)		Unrealized Losses
U.S. Treasury & Agency securities	$	—	$	—	$	19,693,000	$	(6,343,000)	$	19,693,000	$	(6,343,000)
Mortgage-backed securities	4,593,000		(16,000)		202,736,000		(41,619,000)		207,329,000		(41,635,000)
State and political subdivisions	4,520,000		(30,000)		29,161,000		(6,308,000)		33,681,000		(6,338,000)


	$	9,113,000	$	(46,000)	$	251,590,000	$	(54,270,000)	$	260,703,000	$	(54,316,000)

As of December 31, 2023, there were 226 AFS securities with unrealized losses held in the Company's portfolio. The Company has the ability and intent to hold its securities which are in an unrealized loss position until a recovery of their amortized cost, which may be at maturity.

The following table summarizes AFS debt securities in an unrealized loss position for which an ACL has not been recorded at December 31, 2023 aggregated by major security type and length of time in a continuous unrealized loss position:


	Less than 12 months				12 months or more				Total
	Fair Value (Estimated)		Unrealized Losses		Fair Value (Estimated)		Unrealized Losses		Fair Value (Estimated)		Unrealized Losses
U.S. Treasury & Agency securities	$	—	$	—	$	19,830,000	$	(6,203,000)	$	19,830,000	$	(6,203,000)
Mortgage-backed securities	1,712,000		(14,000)		208,717,000		(38,477,000)		210,429,000		(38,491,000)
State and political subdivisions	2,082,000		(49,000)		27,700,000		(5,653,000)		29,782,000		(5,702,000)
Asset-backed securities	—		—		1,464,000		(9,000)		1,464,000		(9,000)

	$	3,794,000	$	(63,000)	$	257,711,000	$	(50,342,000)	$	261,505,000	$	(50,405,000)

As of March 31, 2023, there were 232 AFS securities with unrealized losses held in the Company's portfolio. The Company has the ability and intent to hold its securities which are in an unrealized loss position until a recovery of their amortized cost, which may be at maturity.

The following table summarizes AFS debt securities in an unrealized loss position for which an ACL has not been recorded at March 31, 2023 aggregated by major security type and length of time in a continuous unrealized loss position:


	Less than 12 months				12 months or more				Total
	Fair Value (Estimated)		Unrealized Losses		Fair Value (Estimated)		Unrealized Losses		Fair Value (Estimated)		Unrealized Losses
U.S. Treasury & Agency securities	$	—	$	—	$	19,518,000	$	(6,509,000)	$	19,518,000	$	(6,509,000)
Mortgage-backed securities	29,453,000		(1,075,000)		199,483,000		(37,636,000)		228,936,000		(38,711,000)
State and political subdivisions	8,540,000		(130,000)		23,076,000		(5,984,000)		31,616,000		(6,114,000)
Asset-backed securities	—		—		3,284,000		(63,000)		3,284,000		(63,000)

	$	37,993,000	$	(1,205,000)	$	245,361,000	$	(50,192,000)	$	283,354,000	$	(51,397,000)

Credit Quality Indicators: Agency-backed and government-sponsored enterprise securities have a long history with no credit losses, including during times of severe stress. The principal and interest payments on agency-guaranteed debt is backed by the U.S. Government. Government-sponsored enterprises similarly guarantee principal and interest payments and carry an implicit guarantee from the U.S. Department of the Treasury. Additionally, government-sponsored enterprise securities are exceptionally liquid, readily marketable, and provide a substantial amount of price transparency and price parity, indicating a perception of zero credit losses. HTM municipal debt holdings are comprised primarily of high credit quality (rated A- or higher) state and municipal obligations. High credit quality state and municipal obligations have a history of zero to near-zero credit loss. All of the Mortgage-backed securities owned were issued either by a U.S. Government Agency (GNMA) or a Government Sponsored Enterprise (FNMA or FHLMC). HTM municipal debt holdings also include two unrated private activity bonds issued by well known customers of the Bank. These securities are regularly monitored as part of an overall credit relationship with the issuers; both issuers were in good standing as of March 31, 2024. HTM corporate debt holdings consist of 13 individual companies in the banking industry. Management conducts periodic reviews of the collectability of these securities taking into consideration such factors as the financial condition of the issuers; each were in good standing as of March 31, 2024.

The following table presents the activity in the ACL for HTM debt securities by major security type for the three months ended March 31, 2024:


	State and Political Subdivisions		Corporate Securities		Total
Allowance for credit losses:
Beginning balance	$	222,000	$	212,000	$	434,000
Credit loss expense (reduction)	(109,000)		(143,000)		(252,000)
Securities charged-off	—		—		—
Recoveries	—		—		—
Total ending allowance balance	$	113,000	$	69,000	$	182,000

There was no ACL on U.S. Government-sponsored enterprise, agency securities, or mortgage-backed securities as of March 31, 2024.

A security is considered to be past due once it is 30 days contractually past due under the terms of the agreement. As of March 31, 2024, none of the Company’s HTM debt securities were past due or on non-accrual status.

During the third quarter of 2014, the Company transferred securities with a total amortized cost of $89,780,000 with a corresponding fair value of $89,757,000 from available for sale to held to maturity. The net unrealized loss, net of taxes, on these securities at the date of the transfer was $15,000. The net unrealized holding loss at the time of transfer continues to be reported in AOCI, net of tax and is amortized over the remaining lives of the securities as an adjustment of the yield. The amortization of the net unrealized loss reported in AOCI will offset the effect on interest income of the discount for the transferred securities. The remaining unamortized balance of the net unrealized losses for the securities transferred from available for sale to held to maturity was $54,000, net of taxes, at March 31, 2024. This compares to $56,000 and $60,000, net of taxes, at December 31, 2023 and March 31, 2023, respectively. These securities were transferred as a part of the Company's overall investment and balance sheet strategies.

The Bank is a member of the FHLBB, a cooperatively owned wholesale bank for housing and finance in the six New England States. As a requirement of membership in the FHLBB, the Bank must own a minimum required amount of FHLBB stock, calculated periodically based primarily on its level of borrowings from the FHLBB. The Bank uses the FHLBB for a portion of its wholesale funding needs. As of March 31, 2024 and 2023, and December 31, 2023, the Bank's investment in FHLBB stock totaled $4,896,000, $2,837,000 and $2,348,000, respectively. FHLBB stock is a non-marketable equity security and therefore is reported at cost, which equals par value.

The Bank is also a member of the FRBB. As a requirement for membership in the FRBB, the Bank must own a minimum required amount of FRBB stock. The Bank uses FRBB for certain correspondent banking services and maintains borrowing capacity at its discount window. The Bank's investment in FRBB stock totaled $1,037,000 at March 31, 2024 and 2023, and December 31, 2023.

The Company periodically evaluates its investment in FHLBB and FRBB stock for impairment based on, among other factors, the capital adequacy of the Banks and their overall financial condition. No impairment losses have been recorded through March 31, 2024. The Bank will continue to monitor its investment in these restricted equity securities.

Note 3 – Loans

The Company periodically reviews and updates the segmentation of its loan portfolio. Updates performed in conjunction with adoption of ASC 326 in 2023 consisted of reporting what had been a single class, commercial real estate loans, as three classes - commercial real estate owner occupied, commercial real estate non-owner occupied, and commercial multi-family. In addition home equity installment loans which had previously been included in the residential term class were included in the home equity revolving and term class. In the current reporting period, a new segment has been established for Agriculture loans; certain prior period information of these loans continues to be included the C&I and CRE non-owner occupied segments.

Loan Portfolio by Class: The following table shows the composition of the Company's loan portfolio by class of financing receivable as of March 31, 2024 and 2023 and at December 31, 2023:


	March 31, 2024				December 31, 2023				March 31, 2023
Commercial
Real estate owner occupied	$	327,496,000	15.1	%	$	314,819,000	14.8	%	$	285,224,000	14.4	%
Real estate non-owner occupied	399,658,000		18.4	%	390,167,000		18.3	%	380,922,000		19.2	%
Construction	85,817,000		3.9	%	88,673,000		4.2	%	72,705,000		3.7	%
C&I	321,855,000		14.8	%	315,026,000		14.8	%	294,885,000		14.9	%
Multifamily	101,344,000		4.7	%	93,476,000		4.4	%	81,089,000		4.1	%
Agriculture	45,064,000		2.1	%	45,230,000		2.1	%	48,338,000		2.4	%
Municipal	54,746,000		2.5	%	51,423,000		2.4	%	47,166,000		2.4	%
Residential
Term	678,093,000		31.1	%	674,855,000		31.7	%	606,849,000		30.5	%
Construction	34,824,000		1.6	%	32,358,000		1.5	%	52,712,000		2.7	%
Home Equity
Revolving and term	105,814,000		4.9	%	104,026,000		4.9	%	93,522,000		4.7	%
Consumer	19,035,000		0.9	%	19,401,000		0.9	%	19,435,000		1.0	%
Total	$	2,173,746,000	100.0	%	$	2,129,454,000	100.0	%	$	1,982,847,000	100.0	%

Loan balances include net deferred loan costs of $11,745,000 as of March 31, 2024, $11,479,000 as of December 31, 2023, and $10,315,000 as of March 31, 2023. Net deferred loan costs have increased from a year ago and year-to-date based upon loan origination unit volume over the periods, prepayments, and normal repayment activity. Loan balances in the Residential Term segment also include a valuation adjustment for fair value swaps hedged by certain loans in the portfolio. This adjustment added $313,000 to the loan balances as of March 31, 2024 and $2,149,000 as of December 31, 2023; there was no such adjustment as of March 31, 2023.

Pursuant to collateral agreements, qualifying first mortgage loans and commercial real estate loans, which totaled $565,047,000 at March 31, 2024, were used to collateralize borrowings from the FHLBB. This compares to qualifying loans which totaled $561,574,000 at December 31, 2023, and $527,949,000 at March 31, 2023. In addition, commercial, residential construction and home equity loans totaling $322,124,000 at March 31, 2024, $320,083,000 at December 31, 2023, and $373,791,000 at March 31, 2023, were used to collateralize a standby line of credit at the FRBB.

Past Due Loans: For all loan classes, loans over 30 days past due are considered delinquent. Information on the past-due status of loans by class of financing receivable as of March 31, 2024, is presented in the following table:


	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		All Past Due		Current		Total		90+ Days & Accruing
Commercial
Real estate owner occupied	$	283,000	$	164,000	$	—	$	447,000	$	327,049,000	$	327,496,000	$	—
Real estate non-owner occupied	—		—		—		—		399,658,000		399,658,000		—
Construction	—		—		—		—		85,817,000		85,817,000		—
C&I	58,000		14,000		15,000		87,000		321,768,000		321,855,000		—
Multifamily	—		—		—		—		101,344,000		101,344,000		—
Agriculture	119,000		—		—		119,000		44,945,000		45,064,000		—
Municipal	—		—		—		—		54,746,000		54,746,000		—
Residential
Term	36,000		47,000		746,000		829,000		677,264,000		678,093,000		48,000
Construction	—		—		—		—		34,824,000		34,824,000		—
Home equity
Revolving and term	363,000		—		33,000		396,000		105,418,000		105,814,000		—
Consumer	158,000		10,000		2,000		170,000		18,865,000		19,035,000		2,000
Total	$	1,017,000	$	235,000	$	796,000	$	2,048,000	$	2,171,698,000	$	2,173,746,000	$	50,000

Information on the past-due status of loans by class of financing receivable as of December 31, 2023, is presented in the following table:


	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		All Past Due		Current		Total		90+ Days & Accruing
Commercial
Real estate owner occupied	$	—	$	—	$	—	$	—	$	314,819,000	$	314,819,000	$	—
Real estate non-owner occupied	—		—		—		—		393,636,000		393,636,000		—
Construction	—		9,000		8,000		17,000		88,656,000		88,673,000		—
C&I	714,000		35,000		120,000		869,000		355,918,000		356,787,000		10,000
Multifamily	—		—		—		—		93,476,000		93,476,000		—
Municipal	31,000		—		—		31,000		51,392,000		51,423,000		—
Residential
Term	254,000		818,000		728,000		1,800,000		673,055,000		674,855,000		360,000
Construction	—		—		—		—		32,358,000		32,358,000		—
Home equity
Revolving and term	495,000		95,000		26,000		616,000		103,410,000		104,026,000		—
Consumer	475,000		22,000		58,000		555,000		18,846,000		19,401,000		59,000
Total	$	1,969,000	$	979,000	$	940,000	$	3,888,000	$	2,125,566,000	$	2,129,454,000	$	429,000

Information on the past-due status of loans by class of financing receivable as of March 31, 2023, is presented in the following table:


	30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due		All Past Due		Current		Total		90+ Days & Accruing
Commercial
Real estate owner occupied	$	—	$	1,000	$	151,000	$	152,000	$	285,072,000	$	285,224,000	$	—
Real estate non-owner occupied	—		—		—		—		384,457,000		384,457,000		—
Construction	—		—		—		—		72,705,000		72,705,000		—
C&I	106,000		12,000		182,000		300,000		339,388,000		339,688,000		34,000
Multifamily	—		—		—		—		81,089,000		81,089,000		—
Municipal	—		—		—		—		47,166,000		47,166,000		—
Residential
Term	260,000		207,000		339,000		806,000		606,043,000		606,849,000		173,000
Construction	—		—		—		—		52,712,000		52,712,000		—
Home equity
Revolving and term	498,000		6,000		64,000		568,000		92,954,000		93,522,000		—
Consumer	104,000		15,000		1,000		120,000		19,315,000		19,435,000		1,000
Total	$	968,000	$	241,000	$	737,000	$	1,946,000	$	1,980,901,000	$	1,982,847,000	$	208,000

Non-Accrual Loans: For all classes, loans are placed on non-accrual status when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement or when principal and interest is 90 days or more past due unless the loan is both well secured and in the process of collection (in which case the loan may continue to accrue interest in spite of its past due status). A loan is "well secured" if it is secured (1) by collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt (including accrued interest) in full, or (2) by the guarantee of a financially responsible party. A loan is "in the process of collection" if collection of the loan is proceeding in due course either (1) through legal action, including judgment enforcement procedures, or, (2) in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status in the near future.

Cash payments received on non-accrual loans are applied to reduce the loan's principal balance until the remaining principal balance is deemed collectible, after which interest is recognized when collected. As a general rule, a loan may be restored to accrual status when payments are current for a substantial period of time, generally six months, and repayment of the remaining contractual amounts is expected, or when it otherwise becomes well secured and in the process of collection.

The following table presents the amortized costs basis of loans on nonaccrual status as of March 31, 2024, December 31, 2023 and March 31, 2023:


	March 31, 2024						December 31, 2023						March 31, 2023
Dollars in thousands	Nonaccrual with Allowance for Credit Loss		Nonaccrual with no Allowance for Credit Loss		Total Nonaccrual		Nonaccrual with Allowance for Credit Loss		Nonaccrual with no Allowance for Credit Loss		Total Nonaccrual		Nonaccrual with Allowance for Credit Loss		Nonaccrual with no Allowance for Credit Loss		Total Nonaccrual
Commercial
Real estate owner occupied	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	152,000	$	152,000
Real estate non-owner occupied	—		—		—		—		—		—		—		—		—
Construction	—		20,000		20,000		—		29,000		29,000		—		23,000		23,000
C&I	346,000		48,000		394,000		354,000		184,000		538,000		530,000		118,000		648,000
Multifamily	—		—		—		—		—		—		—		—		—
Agriculture	—		33,000		33,000		—		—		—		—		—		—
Municipal	—		—		—		—		—		—		—		—		—
Residential													—		—		—
Term	—		1,959,000		1,959,000		304,000		1,011,000		1,315,000		—		443,000		443,000
Construction	—		—		—		—		—		—		—		—		—
Home equity													—		—		—
Revolving and term	—		304,000		304,000		—		296,000		296,000		—		534,000		534,000
Consumer	—		—		—		—		—		—		—		—		—
Total	$	346,000	$	2,364,000	$	2,710,000	$	658,000	$	1,520,000	$	2,178,000	$	530,000	$	1,270,000	$	1,800,000

Individually Analyzed Loans: IAL include loans placed on non-accrual and loans reported as TDR prior to adoption of ASU 2022-02 with balances of $250,000 or more. These loans are measured at the present value of expected future cash flows discounted at the loan's effective interest rate or at the fair value of the collateral if the loan is collateral dependent. If the measure of an IAL loan is lower than the recorded investment in the loan and estimated selling costs, a specific reserve is established for the difference, or, in certain situations, if the measure of an IAL loan is lower than the recorded investment in the loan and estimated selling costs, the difference is written off.

The following table presents the amortized cost basis of collateral-dependent loans as of March 31, 2024 by collateral type:


	Collateral Type
	Residential Real Estate		Total
Commercial
Real estate owner occupied	$	—	$	—
Real estate non-owner occupied	—		—
Construction	—		—
C&I	—		—
Multifamily	—		—
Agriculture	—		—
Municipal	—		—
Residential
Term	950,000		950,000
Construction	—		—
Home Equity
Revolving and term	—		—
Consumer	—		—
Total	$	950,000	$	950,000

Collateral-dependent loans are loans for which the repayment is expected to be provided substantially by the underlying collateral and there are no other available and reliable sources of repayment.

The following table presents the amortized cost basis of collateral-dependent loans as of December 31, 2023 by collateral type:


	Collateral Type
	Residential Real Estate		Total
Commercial
Real estate owner occupied	$	—	$	—
Real estate non-owner occupied	—		—
Construction	—		—
C&I	—		—
Multifamily	—		—

Municipal	—		—
Residential
Term	685,000		685,000
Construction	—		—
Home Equity
Revolving and term	—		—
Consumer	—		—
Total	$	685,000	$	685,000

For the period ended March 31, 2023, IAL include all loans that had been reported as TDR loans prior to adoption of ASU 2022-02 and loans placed on non-accrual. The following table presents the amortized cost basis of collateral-dependent loans as of March 31, 2023 by collateral type:


	Collateral Type
	Commercial Real Estate		Residential Real Estate		Equipment1		Total
Commercial
Real estate owner occupied	$	198,000	$	—	$	—	$	198,000
Real estate non-owner occupied	844,000		—		—		844,000
Construction	23,000		—		—		23,000
C&I	79,000		—		192,000		271,000
Multifamily	—		—		—		—

Municipal	—		—		—		—
Residential
Term	—		1,438,000		—		1,438,000
Construction	—		—		—		—
Home Equity
Revolving and term	—		534,000		—		534,000
Consumer	—		—		—		—
Total	$	1,144,000	$	1,972,000	$	192,000	$	3,308,000

1Collateral may consist of a boat, vehicle or other equipment.

Loan Modifications to Borrowers Experiencing Financial Difficulty: Loan modifications to borrowers experiencing financial difficulty may include interest rate reduction, term extension, payment deferral, principle forgiveness or a combination thereof. It is the intent to minimize future losses while providing borrowers with financial relief.

The following tables represent loan modifications made to borrowers experiencing financial difficulty by modification type and class of financing receivable, during the three months ended March 31, 2024:








	Payment Deferral
	Amortized Cost Basis at March 31, 2024	% of Total Class of Financing Receivable
Commercial
Construction	$69,000	0.08%
C&I	61,000	0.02%
Multifamily	1,932,000	1.91%
Residential
Term	1,023,000	0.15%
Total	$3,085,000


	Payment Deferral & Term Extension
	Amortized Cost Basis at March 31, 2024	% of Total Class of Financing Receivable
Home Equity
Revolving and Term	$69,000	0.07%
Total	$69,000

The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty for the three months ended March 31, 2024:






			Payment Deferral
			Financial Effect
Commercial
Construction			Temporary payment accommodation, payments deferred to end of loan.
C&I			Temporary payment accommodation, payments deferred to end of loan.
Multifamily			Temporary payment accommodation, payments deferred to end of loan.
Residential
Term			Temporary payment accommodation, payments deferred to end of loan.


			Payment Deferral & Term Extension
			Financial Effect
Home Equity
Revolving and Term			Temporary payment accommodation, extended term 60 days.


	Term Extension
	Amortized Cost Basis at March 31, 2023	% of Total Class of Financing Receivable
C&I	$23,000	0.01%
Total	$23,000


	Payment Deferral
	Amortized Cost Basis at March 31, 2023	% of Total Class of Financing Receivable
C&I	$227,000	0.07%
Total	$227,000

The following tables describe the financial effect of the modifications made to borrowers experiencing financial difficulty for the three months ended March 31, 2023:


Term Extension
			Financial Effect
C&I			Extended Term 12 months


Payment Deferral
			Financial Effect
C&I			Temporary payment accommodation, payments deferred to end of loan.

The Company monitors the performance of the loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified during the previous 12 months:


	Payment Status (Amortized Cost Basis)
	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due
Commercial
Real estate owner occupied	$	786,000	$	—	$	—	$	—
Construction	69,000		—		—		—
C&I	96,000		—		—		—
Multifamily	1,932,000		—		—		—

Residential
Term	1,023,000		—		—		—
Home Equity
Revolving and term	70,000		—		—		—
Consumer	34,000		—		—		—
Total	$	4,010,000	$	—	$	—	$	—

The following table depicts the performance of loans that have been modified during the three months ended March 31, 2023:


	Payment Status (Amortized Cost Basis)
	Current		30-59 Days Past Due		60-89 Days Past Due		90+ Days Past Due
Commercial


C&I	$	227,000	$	—	$	—	$	23,000






Total	$	227,000	$	—	$	—	$	23,000

Residential Mortgage Loans in Process of Foreclosure

As of March 31, 2024, there were four mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $510,000. This compares to five mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $400,000 as of December 31, 2023 and two mortgage loans collateralized by residential real estate in the process of foreclosure with a total balance of $166,000 March 31, 2023.

Note 4. Allowance for Credit Losses

The ACL is a valuation amount that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. The ACL consists of three elements: (1) specific reserves for loans individually analyzed; (2) general reserves for each portfolio segment; and, (3) qualitative reserves. All outstanding loans are considered in evaluating the appropriateness of the allowance. Loans are segmented by common risk characteristics as delineated in the paragraph below. The Company provides for loan losses through the ACL which represents an estimated reserve for losses in the loan portfolio. To determine an appropriate level for general reserves, a discounted cash flow approach is applied to each portfolio segment implementing a probability of default and loss given default estimate based upon a number of factors including historical losses over an economic cycle, economic forecasts, loan prepayment speeds and curtailment rates. To determine an appropriate level for qualitative reserves, various factors are considered including underwriting policies, credit administration practices, experience, ability and depth of lending management, and economic factors not captured in the general reserve calculation.

Loan Portfolio Composition & Risk Characteristics: The loan portfolio is segmented into eleven classes and credit risk is evaluated separately in each class. Major risk characteristics relevant to each portfolio segment are as follows:

Commercial Real Estate Owner Occupied - commercial real estate owner occupied loans consist of mortgage loans to finance investments in real property such as retail space, offices, industrial buildings, hotels, educational facilities, and other specific or mixed use properties. Loans are typically written with amortizing payment structures. Collateral values are determined based on appraisals and evaluations in accordance with established policy and regulatory guidelines. Loans typically have a loan-to-value ratio of up to 80% based upon current valuation information at the time the loan is made, and are primarily paid by the cash flow generated from the real property, typically the operating entity of owner occupant. Risk factors typically include competitive market forces, net operating incomes of the operating entity, and overall economic demand. Loans in the recreational and tourism sector can be affected by weather conditions, such as unseasonably low winter snowfalls. Commercial real estate lending also carries a higher degree of environmental risk than other types of lending.

Commercial Real Estate Non-Owner Occupied - commercial real estate loans non-owner occupied share many of the purpose, loan structure and risk characteristics of owner-occupied commercial real estate. Repayment is generally reliant upon cash flow generated from tenants with risk factors also influenced by vacancy rates, cap rates, lease renewals, and underlying financial health of lessees.

Commercial Construction - commercial construction loans consist of loans to finance construction in a mix of owner- and non-owner occupied commercial real estate properties. Loans typically have construction periods of less than two years, and payment structures during the construction period are typically on an interest only basis, although principal payments may be established depending on the type of construction project being financed. During the construction phase, commercial construction loans are primarily paid by cash flow generated from the construction project or other operating cash flows from the borrower or guarantors, if applicable. Commercial construction loans will typically convert to permanent financing from the Company, or loan repayment may come from a third party source in the event that the Company will not be providing permanent term financing. Collateral valuation and loan-to-value guidelines follow those for commercial real estate loans. Commercial construction loans are impacted by factors similar to those for commercial real estate loans in addition to risks related to contractor financial capacity and ability to complete a project within acceptable time frames and within budget.

Commercial and Industry- C&I loans consist of revolving and term loan obligations extended to business and corporate enterprises for the purpose of financing working capital and or capital investment. C&I loans may be secured or unsecured; when secured, collateral generally consists of pledges of business assets including, but not limited to, accounts receivable, inventory, equipment, and/or other tangible and intangible assets. C&I loans are primarily paid by the operating cash flow of the borrower. A weakened economy, soft consumer spending, and the rising cost of labor or raw materials are examples of issues that can impact the credit quality in this segment.

Commercial Multifamily - multifamily loans share structure and risk characteristics with non-owner occupied commercial real estate; underlying collateral is residential in nature rather than commercial, consisting of properties with five or more units.

Municipal Loans - municipal loans are comprised of loans to municipalities in Maine for capitalized expenditures, construction projects, or tax anticipation notes. All municipal loans are considered either general obligations of the municipality collateralized by the taxing ability of the municipality for repayment of debt or have a pledge of specific revenues. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Agriculture - agriculture loans consist mostly of amortizing term loans and revolving lines of credit made to borrowers in agriculture related industries. For the Company, this includes loans made to land based agricultural production and to participants in the fishing industry. Collateral values are determined based on appraisals and evaluations in accordance with established policy and regulatory guidelines. Loans are primarily paid by the cash flow generated from the agricultural property or operation of equipment. Risk factors typically include competitive market forces, overall economic demand for the product, and may be further influenced by weather conditions which impact growing and/or harvesting, or other factors such as changes in government regulation(s).

Residential Real Estate Term - residential term loans consist of residential real estate loans held in the Company's loan portfolio made to borrowers who demonstrate the ability to make scheduled payments with full consideration to underwriting factors. Borrower qualifications include favorable credit history combined with supportive income requirements and loan-to-value ratios within established policy and regulatory guidelines. Collateral values are determined based on appraisals and evaluations in accordance with established policy and regulatory guidelines. Residential loans typically have a loan-to-value ratio of up to 80% based on appraisal information at the time the loan is made. Collateral consists of mortgage liens on one-to four-family residential properties. Loans are offered with fixed or adjustable rates with amortization terms of up to thirty years. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Residential Real Estate Construction - residential construction loans typically consist of loans for the purpose of constructing single family residences to be owned and occupied by the borrower. Borrower qualifications include favorable credit history combined with supportive income requirements and loan-to-value ratios within established policy and regulatory guidelines. Residential construction loans normally have construction terms of one year or less and payment during the construction term is typically on an interest only basis from sources including interest reserves, borrower liquidity, and/or income. Residential construction loans will typically convert to permanent financing from the Company or have another financing commitment in place from an acceptable mortgage lender. Collateral valuation and loan-to-value guidelines are consistent with those for residential term loans. Residential construction loans are impacted by factors similar to those for residential real estate term loans in addition to risks related to contractor financial capacity and ability to complete a project within acceptable time frames and within budget.

Home Equity Revolving and Term - home equity revolving and term loans are made to qualified individuals and are secured by senior or junior mortgage liens on owner occupied one- to four-family homes, condominiums, or vacation homes. The home equity line of credit typically has a variable interest rate and is billed as interest-only payments during the draw period. At the end of the draw period, the home equity line of credit is billed as a percentage of the principal balance plus all accrued interest. Loan maturities are normally 300 months. Borrower qualifications include favorable credit history combined with supportive income requirements and combined loan-to-value ratios usually not exceeding 80% inclusive of priority liens. Collateral valuation guidelines follow those for residential real estate loans. The overall health of the economy, including unemployment rates and housing prices, has an impact on the credit quality of this segment.

Consumer - consumer loans include personal lines of credit and amortizing loans made to qualified individuals for various purposes such as autos, recreational vehicles, debt consolidation, personal expenses, or overdraft protection. Borrower qualifications include favorable credit history combined with supportive income and collateral requirements within established policy guidelines. Consumer loans may be secured or unsecured. The overall health of the economy, including unemployment rates, has an impact on the credit quality of this segment.

Construction, land, and land development: CLLD loans, both commercial and residential, represented 43.4% of total Bank capital as of March 31, 2024 and remain below the regulatory guidance of 100.0% of total Bank capital. Construction loans and non-owner-occupied commercial real estate loans represented 223.7% of total Bank capital at March 31, 2024, below the regulatory guidance of 300.0% of total Bank capital.

Composition of the ACL: A breakdown of the ACL as of March 31, 2024, by class of financing receivable and allowance element, is presented in the following table:


As of March 31, 2024	Specific Reserves on Loans Evaluated Individually		General Reserves on Loans Based on Historical Loss Experience		Reserves for Qualitative Factors		Total Reserves
Commercial
Real estate owner occupied	$	—	$	4,177,000	$	1,003,000	$	5,180,000
Real estate non-owner occupied	—		3,730,000		535,000		4,265,000
Construction	—		910,000		(90,000)		820,000
C&I	221,000		4,001,000		861,000		5,083,000
Multifamily	—		1,348,000		159,000		1,507,000
Agriculture	—		358,000		34,000		392,000
Municipal	—		38,000		156,000		194,000
Residential
Term	22,000		4,587,000		745,000		5,354,000
Construction	—		648,000		(86,000)		562,000
Home Equity
Revolving and term	—		554,000		123,000		677,000
Consumer	—		158,000		15,000		173,000

	$	243,000	$	20,509,000	$	3,455,000	$	24,207,000

A breakdown of the ACL as of December 31, 2023, by class of financing receivable and allowance element, is presented in the following table:


As of December 31, 2023	Specific Reserves on Loans Evaluated Individually		General Reserves on Loans Based on Historical Loss Experience		Reserves for Qualitative Factors		Total Reserves
Commercial
Real estate owner occupied	$	—	$	3,891,000	$	742,000	$	4,633,000
Real estate non-owner occupied	—		3,759,000		526,000		4,285,000
Construction	—		1,849,000		129,000		1,978,000
C&I	223,000		4,238,000		540,000		5,001,000
Multifamily	—		1,237,000		81,000		1,318,000
Municipal	—		307,000		27,000		334,000
Residential
Term	41,000		4,224,000		726,000		4,991,000
Construction	—		642,000		(24,000)		618,000
Home Equity
Revolving and term	—		469,000		157,000		626,000
Consumer	—		217,000		29,000		246,000
	$	264,000	$	20,833,000	$	2,933,000	$	24,030,000

A breakdown of the ACL as of March 31, 2023, by class of financing receivable and allowance element, is presented in the following table:


As of March 31, 2023	Specific Reserves on Loans Evaluated Individually		General Reserves on Loans Based on Historical Loss Experience		Reserves for Qualitative Factors		Total Reserves
Commercial
Real estate owner occupied	$	—	$	3,792,000	$	678,000	$	4,470,000
Real estate non-owner occupied	—		3,914,000		508,000		4,422,000
Construction	—		1,729,000		55,000		1,784,000
C&I	291,000		3,937,000		610,000		4,838,000
Multifamily	—		1,146,000		60,000		1,206,000
Municipal	—		272,000		35,000		307,000
Residential
Term	94,000		3,786,000		728,000		4,608,000
Construction	—		939,000		10,000		949,000
Home Equity
Revolving and term	3,000		457,000		143,000		603,000
Consumer	—		244,000		27,000		271,000
	$	388,000	$	20,216,000	$	2,854,000	$	23,458,000

The ACL as a percent of total loans stood at 1.11% as of March 31, 2024, 1.13% at December 31, 2023 and 1.18% as of March 31, 2023.

Off-Balance Sheet Credit Exposures: In the ordinary course of business, the Company enters into commitments to extend credit, including construction lines of credit, revolving lines of credit, written commitments to provide financing, commercial letters of credit and standby letters of credit. Such financial instruments are recorded as loans when they are funded.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures: The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The ACL on off-balance sheet credit exposures is adjusted through credit loss expense and any adjustment is recognized in net income. To appropriately measure expected credit losses, management disaggregates the loan portfolio into similar risk characteristics, identical to those determined for the loan portfolio. An estimated funding rate is then applied to the qualifying unfunded loan commitments and letters of credit using the Company’s own historical experience to estimate the expected funded amount for each loan segment as of the reporting date. Once the expected funded amount for each loan segment is determined, the loss rate, which is the calculated expected loan loss as a percent of the amortized cost basis for each loan segment, is applied to calculate the ACL on off-balance sheet credit exposures as of the reporting date. The Company’s ACL on unfunded commitments is recognized as a liability, included within other liabilities on the consolidated balance sheet.

The following table presents the activity in the ACL for off-balance sheet credit exposures for the three months ended March 31, 2024:


Allowance for credit losses:
Beginning balance	$	1,255,000
Credit loss reduction	(360,000)
Total ending allowance balance	$	895,000

Credit Quality Indicators: To monitor the credit quality of its loan portfolio, management applies an internal risk rating system to categorize commercial loan segments. Approximately 60% of commercial loan outstanding balances are subject to review and validation annually by an independent consulting firm. Additionally, commercial loan relationships with exposure greater than or equal to $750,000 are subject to review annually by the Company's internal credit review function.

The risk rating system has eight levels, defined as follows:

1 Strong

Credits rated "1" are characterized by borrowers fully responsible for the credit with excellent capacity to pay principal and interest. Loans rated "1" may be secured with acceptable forms of liquid collateral.

2 Above Average

Credits rated "2" are characterized by borrowers that have better than average liquidity, capitalization, earnings, and/or cash flow with a consistent record of solid financial performance.

3 Satisfactory

Credits rated "3" are characterized by borrowers with favorable liquidity, profitability, and financial condition with adequate cash flow to pay debt service.

4 Average

Credits rated "4" are characterized by borrowers that present risk more than 1, 2 and 3 rated loans and merit an ordinary level of ongoing monitoring. Financial condition is on par or somewhat below industry averages while cash flow is generally adequate to meet debt service requirements.

5 Watch

Credits rated "5" are characterized by borrowers that warrant greater monitoring due to financial condition or unresolved and identified risk factors.

6 Other Assets Especially Mentioned

Loans in this category are currently protected but are potentially weak and constitute an undue and unwarranted credit risk, but not to the point of justifying a classification of substandard. OAEM have potential weaknesses which may, if not checked or corrected, weaken the asset or inadequately protect the Company's credit position at some future date.

7 Substandard

Loans in this category are inadequately protected by the paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. Substandard loans are characterized by the distinct possibility that the Company may sustain some loss if the deficiencies are not corrected.

8 Doubtful

Loans classified "Doubtful" have the same weaknesses as those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, based on currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined.

Most residential real estate, home equity, and consumer loans are not assigned ratings; therefore they are categorized as performing and non-performing loans. Performing loans include loans that are current and loans that are past due less than 90 days. Loans that are past due more than 90 days are considered non-performing.

The following table summarizes the credit quality for the Company's portfolio by risk category of loans and by class by vintage as of March 31, 2024:


	Term Loans Amortized Cost Basis by Origination Year
Dollars in thousands	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of March 31, 2024
Commercial
Real estate owner occupied
Pass (risk rating 1-5)	$	10,565	$	66,273	$	75,952	$	40,501	$	28,584	$	85,709	$	10,728	$	—	$	318,312
Special Mention (risk rating 6)	—		1,903		—		—		—		6,428		50		—		8,381
Substandard (risk rating 7)	—		283		—		—		—		520		—		—		803
Doubtful (risk rating 8)	—		—		—		—		—		—		—		—		—
Total Real Estate Owner Occupied	10,565		68,459		75,952		40,501		28,584		92,657		10,778		—		327,496
Current period gross write-offs	—		—		—		—		—		—		—		—		—
Real estate non-owner occupied
Pass (risk rating 1-5)	2,669		34,878		76,822		124,788		47,560		107,295		5,646		—		399,658
Special Mention (risk rating 6)	—		—		—		—		—		—		—		—		—
Substandard (risk rating 7)	—		—		—		—		—		—		—		—		—
Doubtful (risk rating 8)	—		—		—		—		—		—		—		—		—
Total Real Estate Non-Owner Occupied	2,669		34,878		76,822		124,788		47,560		107,295		5,646		—		399,658
Current period gross write-offs	—		—		—		—		—		—		—		—		—
Construction
Pass (risk rating 1-5)	4,032		30,768		37,898		8,592		1,529		2,929		—		—		85,748
Special Mention (risk rating 6)	—		—		—		69		—		—		—		—		69
Substandard (risk rating 7)	—		—		—		—		—		—		—		—		—
Doubtful (risk rating 8)	—		—		—		—		—		—		—		—		—
Total Construction	4,032		30,768		37,898		8,661		1,529		2,929		—		—		85,817
Current period gross write-offs	—		—		—		—		—		—		—		—		—
C&I
Pass (risk rating 1-5)	14,720		41,357		52,070		45,491		17,868		28,896		89,309		859		290,570
Special Mention (risk rating 6)	—		23,905		146		296		390		3,166		2,805		—		30,708
Substandard (risk rating 7)	—		—		361		54		—		34		128		—		577
Doubtful (risk rating 8)	—		—		—		—		—		—		—		—		—
Total C&I	14,720		65,262		52,577		45,841		18,258		32,096		92,242		859		321,855
Current period gross write-offs	—		—		—		—		—		—		—		—		—
Multifamily
Pass (risk rating 1-5)	4,517		12,360		34,562		17,855		14,913		13,319		530		—		98,056
Special Mention (risk rating 6)	—		—		1,020		—		912		—		—		—		1,932
Substandard (risk rating 7)	—		—		—		1,356		—		—		—		—		1,356
Doubtful (risk rating 8)	—		—		—		—		—		—		—		—		—
Total Multifamily	4,517		12,360		35,582		19,211		15,825		13,319		530		—		101,344
Current period gross write-offs	—		—		—		—		—		—		—		—		—
Agriculture
Pass (risk rating 1-5)	4,330		3,738		7,534		4,325		15,357		7,974		670		234		44,162
Special Mention (risk rating 6)	21		—		—		—		—		—		600		—		621
Substandard (risk rating 7)	—		87		—		33		—		161		—		—		281
Doubtful (risk rating 8)	—		—		—		—		—		—		—		—		—
Total Agriculture	4,351		3,825		7,534		4,358		15,357		8,135		1,270		234		45,064
Current period gross write-offs	—		—		—		—		—		—		—		—		—



	Term Loans Amortized Cost Basis by Origination Year
Dollars in thousands	2024		2023		2022		2021		2020		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of March 31, 2024
Municipal
Pass (risk rating 1-5)	2,420		21,146		4,714		4,335		9,770		12,361		—		—		54,746
Special Mention (risk rating 6)	—		—		—		—		—		—		—		—		—
Substandard (risk rating 7)	—		—		—		—		—		—		—		—		—
Doubtful (risk rating 8)	—		—		—		—		—		—		—		—		—
Total Municipal	2,420		21,146		4,714		4,335		9,770		12,361		—		—		54,746
Current period gross write-offs	—		—		—		—		—		—		—		—		—
Residential
Term
Performing	10,439		64,948		157,400		138,399		91,824		209,986		3,011		127		676,134
Non-performing	—		—		299		269		404		987		—		—		1,959
Total Term	10,439		64,948		157,699		138,668		92,228		210,973		3,011		127		678,093
Current period gross write-offs	—		—		—		—		—		—		—		—		—
Construction
Performing	1,329		29,910		2,246		—		1,339		—		—		—		34,824
Non-performing	—		—		—		—		—		—		—		—		—
Total Construction	1,329		29,910		2,246		—		1,339		—		—		—		34,824
Current period gross write-offs	—		—		—		—		—		—		—		—		—
Home Equity Revolving and Term
Performing	3,594		10,114		9,134		2,007		1,175		2,166		66,901		10,419		105,510
Non-performing	—		—		—		—		—		104		18		182		304
Total Home Equity Revolving and Term	3,594		10,114		9,134		2,007		1,175		2,270		66,919		10,601		105,814
Current period gross write-offs	—		—		—		—		—		—		—		—		—
Consumer
Performing	775		3,347		1,806		1,055		1,625		4,724		5,703		—		19,035
Non-performing	—		—		—		—		—		—		—		—		—
Total Consumer	775		3,347		1,806		1,055		1,625		4,724		5,703		—		19,035
Current period gross write-offs	—		(11)		(41)		(21)		(5)		(18)		—		—		(96)
Total loans	$	59,411	$	345,017	$	461,964	$	389,425	$	233,250	$	486,759	$	186,099	$	11,821	$	2,173,746

The following table summarizes the credit quality for the Company's portfolio by risk category of loans and by class by vintage as of December 31, 2023:


	Term Loans Amortized Cost Basis by Origination Year
Dollars in thousands	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2023
Commercial
Real estate owner occupied
Pass (risk rating 1-5)	$	64,693	$	73,920	$	40,782	$	28,716	$	29,856	$	59,236	$	8,993	$	—	$	306,196
Special Mention (risk rating 6)	1,903		—		—		—		5,605		313		—		—		7,821
Substandard (risk rating 7)	283		—		—		—		503		16		—		—		802
Doubtful (risk rating 8)	—		—		—		—		—		—		—		—		—
Total Real Estate Owner Occupied	66,879		73,920		40,782		28,716		35,964		59,565		8,993		—		314,819
Current period gross write-offs	—		—		—		—		—		40		—		—		40
Real estate non-owner occupied
Pass (risk rating 1-5)	30,666		70,442		129,299		47,959		27,159		83,820		4,230		—		393,575
Special Mention (risk rating 6)	—		—		—		—		—		—		—		—		—
Substandard (risk rating 7)	—		—		—		—		—		61		—		—		61
Doubtful (risk rating 8)	—		—		—		—		—		—		—		—		—
Total Real Estate Non-Owner Occupied	30,666		70,442		129,299		47,959		27,159		83,881		4,230		—		393,636
Current period gross write-offs	—		—		—		—		—		—		—		—		—
Construction
Pass (risk rating 1-5)	29,781		45,130		8,705		1,581		1,034		2,373		—		—		88,604
Special Mention (risk rating 6)	—		—		69		—		—		—		—		—		69
Substandard (risk rating 7)	—		—		—		—		—		—		—		—		—
Doubtful (risk rating 8)	—		—		—		—		—		—		—		—		—
Total Construction	29,781		45,130		8,774		1,581		1,034		2,373		—		—		88,673
Current period gross write-offs	—		—		—		—		—		—		—		—		—
C&I
Pass (risk rating 1-5)	49,147		61,628		51,848		33,955		6,103		32,032		87,949		973		323,635
Special Mention (risk rating 6)	23,970		3,414		267		546		—		3,373		330		—		31,900
Substandard (risk rating 7)	126		354		35		—		180		455		102		—		1,252
Doubtful (risk rating 8)	—		—		—		—		—		—		—		—		—
Total C&I	73,243		65,396		52,150		34,501		6,283		35,860		88,381		973		356,787
Current period gross write-offs	—		114		—		—		16		23		—		—		153
Multifamily
Pass (risk rating 1-5)	12,046		30,565		18,053		15,033		5,540		8,527		416		—		90,180
Special Mention (risk rating 6)	—		1,020		—		912		—		—		—		—		1,932
Substandard (risk rating 7)	—		—		1,364		—		—		—		—		—		1,364
Doubtful (risk rating 8)	—		—		—		—		—		—		—		—		—
Total Multifamily	12,046		31,585		19,417		15,945		5,540		8,527		416		—		93,476
Current period gross write-offs	—		—		—		—		—		—		—		—		—
Municipal
Pass (risk rating 1-5)	20,210		4,741		3,982		9,775		5,156		7,559		—		—		51,423
Special Mention (risk rating 6)	—		—		—		—		—		—		—		—		—
Substandard (risk rating 7)	—		—		—		—		—		—		—		—		—
Doubtful (risk rating 8)	—		—		—		—		—		—		—		—		—
Total Municipal	20,210		4,741		3,982		9,775		5,156		7,559		—		—		51,423
Current period gross write-offs	—		—		—		—		—		—		—		—		—


	Term Loans Amortized Cost Basis by Origination Year
Dollars in thousands	2023		2022		2021		2020		2019		Prior		Revolving Loans Amortized Cost Basis		Revolving Loans Converted to Term		Total
As of December 31, 2023
Residential
Term
Performing	65,605		156,495		140,254		93,774		39,896		174,341		3,046		129		673,540
Non-performing	—		304		—		40		300		671		—		—		1,315
Total Term	65,605		156,799		140,254		93,814		40,196		175,012		3,046		129		674,855
Current period gross write-offs	—		—		—		—		—		—		—		—		—
Construction
Performing	25,007		6,012		—		1,339		—		—		—		—		32,358
Non-performing	—		—		—		—		—		—		—		—		—
Total Construction	25,007		6,012		—		1,339		—		—		—		—		32,358
Current period gross write-offs	—		—		—		—		—		—		—		—		—
Home Equity Revolving and Term
Performing	10,519		9,319		2,031		1,197		584		1,655		68,006		10,419		103,730
Non-performing	—		—		—		—		—		112		19		165		296
Total Home Equity Revolving and Term	10,519		9,319		2,031		1,197		584		1,767		68,025		10,584		104,026
Current period gross write-offs	—		50		—		—		—		—		—		—		50
Consumer
Performing	3,664		2,042		1,175		1,794		455		4,564		5,707		—		19,401
Non-performing	—		—		—		—		—		—		—		—		—
Total Consumer	3,664		2,042		1,175		1,794		455		4,564		5,707		—		19,401
Current period gross write-offs	5		46		31		30		7		75		—		—		194
Total loans	$	337,620	$	465,386	$	397,864	$	236,621	$	122,371	$	379,108	$	178,798	$	11,686	$	2,129,454

The following table summarizes the credit quality for the Company's portfolio by risk category of loans and by class by vintage as of March 31, 2023:


	Term Loans Amortized Cost Basis by Origination Year
Dollars in thousands	2023		2022		2021		2020		2019		Prior		Total
As of March 31, 2023
Commercial
Real estate owner occupied
Pass (risk rating 1-5)	$	15,632	$	77,722	$	43,127	$	30,277	$	39,979	$	78,184	$	284,921
Special Mention (risk rating 6)	25		—		—		—		—		—		25
Substandard (risk rating 7)	—		—		—		—		—		278		278
Doubtful (risk rating 8)	—		—		—		—		—		—		—
Total Real Estate Owner Occupied	15,657		77,722		43,127		30,277		39,979		78,462		285,224
Current period gross write-offs	—		—		—		—		—		39		39
Real estate non-owner occupied
Pass (risk rating 1-5)	12,167		72,434		132,514		49,921		28,367		88,991		384,394
Special Mention (risk rating 6)	—		—		—		—		—		—		—
Substandard (risk rating 7)	—		—		—		—		—		63		63
Doubtful (risk rating 8)	—		—		—		—		—		—		—
Total Real Estate Non-Owner Occupied	12,167		72,434		132,514		49,921		28,367		89,054		384,457
Current period gross write-offs	—		—		—		—		—		—		—
Construction
Pass (risk rating 1-5)	3,205		46,630		7,796		421		234		834		59,120
Special Mention (risk rating 6)	—		—		—		—		—		—		—
Substandard (risk rating 7)	—		—		—		—		—		—		—
Doubtful (risk rating 8)	—		—		—		—		—		—		—
Total Construction	3,205		46,630		7,796		421		234		834		59,120
Current period gross write-offs	—		—		—		—		—		—		—
C&I
Pass (risk rating 1-5)	25,052		112,238		78,357		59,431		9,229		47,179		331,486
Special Mention (risk rating 6)	—		41		268		400		—		12		721
Substandard (risk rating 7)	—		378		35		13		218		684		1,328
Doubtful (risk rating 8)	—		—		—		—		—		—		—
Total C&I	25,052		112,657		78,660		59,844		9,447		47,875		333,535
Current period gross write-offs	—		—		—		—		—		—		—
Multifamily
Pass (risk rating 1-5)	3,496		21,254		22,160		16,333		5,972		11,874		90,180
Special Mention (risk rating 6)	—		—		—		—		—		—		1,932
Substandard (risk rating 7)	—		—		—		—		—		—		1,364
Doubtful (risk rating 8)	—		—		—		—		—		—		—
Total Multifamily	3,496		21,254		22,160		16,333		5,972		11,874		93,476
Current period gross write-offs	—		—		—		—		—		—		—
Municipal
Pass (risk rating 1-5)	6,785		7,186		6,518		11,063		5,732		9,882		47,166
Special Mention (risk rating 6)	—		—		—		—		—		—		—
Substandard (risk rating 7)	—		—		—		—		—		—		—
Doubtful (risk rating 8)	—		—		—		—		—		—		—
Total Municipal	6,785		7,186		6,518		11,063		5,732		9,882		47,166
Current period gross write-offs	—		—		—		—		—		—		—


	Term Loans Amortized Cost Basis by Origination Year
Dollars in thousands	2023		2022		2021		2020		2019		Prior		Total
As of March 31, 2023
Residential
Term
Pass (risk rating 1-5)	6,640		51,206		34,748		16,901		6,777		18,211		134,483
Special Mention (risk rating 6)	—		—		—		—		—		—		—
Substandard (risk rating 7)	—		—		—		—		—		59		59
Doubtful (risk rating 8)	—		—		—		—		—		—		—
Total Term	6,640		51,206		34,748		16,901		6,777		18,270		134,542
Current period gross write-offs	—		—		—		—		—		—		—
Construction
Pass (risk rating 1-5)	1,310		5,915		3,219		1,046		—		—		11,490
Special Mention (risk rating 6)	—		—		—		—		—		—		—
Substandard (risk rating 7)	—		—		—		—		—		—		—
Doubtful (risk rating 8)	—		—		—		—		—		—		—
Total Construction	1,310		5,915		3,219		1,046		—		—		11,490
Current period gross write-offs	—		—		—		—		—		—		—
Home Equity Revolving and Term
Pass (risk rating 1-5)	1,472		10,440		2,194		1,453		445		1,735		17,739
Special Mention (risk rating 6)	—		—		—		—		—		—		—
Substandard (risk rating 7)	—		—		—		—		—		185		185
Doubtful (risk rating 8)	—		—		—		—		—		—		—
Total Home Equity Revolving and Term	1,472		10,440		2,194		1,453		445		1,920		17,924
Current period gross write-offs	—		—		—		—		—		—		—
Consumer
Pass (risk rating 1-5)	190		—		—		—		—		1		191
Special Mention (risk rating 6)	—		—		—		—		—		—		—
Substandard (risk rating 7)	—		—		—		—		—		—		—
Doubtful (risk rating 8)	—		—		—		—		—		—		—
Total Consumer	190		—		—		—		—		1		191
Current period gross write-offs	—		6		7		11		2		11		37
Total loans	$	75,974	$	405,444	$	330,936	$	187,259	$	96,953	$	258,172	$	1,354,738

Loss Recognition: Commercial loans are generally charged off when all or a portion of the principal amount is determined to be uncollectible. This determination is based on circumstances specific to a borrower including repayment ability, analysis of collateral, and other factors as applicable. Consumer loans greater than 120 days past due are generally charged off. Residential loans 90 days or more past due are placed on non-accrual status unless the loans are both well secured and in the process of collection. One- to four-family residential real estate loans and home equity loans are written down or charged-off no later than 180 days past due, or for residential real estate secured loans having a borrower in bankruptcy, within 60 days of receipt of notification of filing from the bankruptcy court, whichever is sooner. This is subject to completion of a current assessment of the value of the collateral with any outstanding loan balance in excess of the fair value of the property, less costs to sell, written down or charged-off.

The following table presents ACL activity by class for the three months ended March 31, 2024:


Dollars in thousands	Commercial												Municipal		Residential				Home Equity		Consumer		Total
	Real Estate Owner Occupied		Real Estate Non-Owner Occupied		Construction		C&I		Multifamily		Agriculture				Term		Construction		Revolving and term
For the three months ended March 31, 2024
Beginning balance	$	4,633	$	4,285	$	1,978	$	5,001	$	1,318	$	—	$	334	$	4,991	$	618	$	626	$	246	$	24,030
Charge offs	—		—		—		—		—		—		—		—		—		—		(96)		(96)
Recoveries	100		—		—		23		—		—		—		25		—		3		23		174
Provision (credit)	447		(20)		(1,158)		59		189		392		(140)		338		(56)		48		—		99

Ending balance	$	5,180	$	4,265	$	820	$	5,083	$	1,507	$	392	$	194	$	5,354	$	562	$	677	$	173	$	24,207

The following table presents ACL activity by class for the year ended December 31, 2023:


Dollars in thousands	Commercial										Municipal		Residential				Home Equity		Consumer		Unallocated		Total
	Real Estate Owner Occupied		Real Estate Non-Owner Occupied		Construction		C&I		Multifamily				Term		Construction		Revolving and term
For the year ended December 31, 2023
Beginning balance prior to adoption of ASC 326	$	6,116	$	—	$	821	$	3,097	$	—	$	162	$	2,559	$	199	$	1,029	$	1,062	$	1,678	$	16,723
Charge offs	(40)		—		—		(153)		—		—		—		—		(50)		(194)		—		(437)
Recoveries	2		75		—		3		—		—		14		—		13		97		—		204
Provision (credit)	241		(105)		214		409		134		40		540		(316)		90		83		—		1,330
Impact of adopting ASC 326	(1,686)		4,315		943		1,645		1,184		132		1,878		735		(456)		(802)		(1,678)		6,210
Ending balance	$	4,633	$	4,285	$	1,978	$	5,001	$	1,318	$	334	$	4,991	$	618	$	626	$	246	$	—	$	24,030

The following table presents ACL activity by class for the three months ended March 31, 2023:


Dollars in thousands	Commercial										Municipal		Residential				Home Equity		Consumer		Unallocated		Total
	Real Estate Owner Occupied		Real Estate Non-Owner Occupied		Construction		C&I		Multifamily				Term		Construction		Revolving and term
For the three months ended March 31, 2023
Beginning balance prior to adoption of ASC 326	$	6,116	$	—	$	821	$	3,097	$	—	$	162	$	2,559	$	199	$	1,029	$	1,062	$	1,678	$	16,723
Charge offs	(39)		—		—		—		—		—		—		—		—		(37)		—		(76)
Recoveries	—		—		—		2		—		—		2		—		4		43		—		51
Provision	79		107		20		94		22		13		169		15		26		5		—		550
Impact of adopting ASC 326	(1,686)		4,315		943		1,645		1,184		132		1,878		735		(456)		(802)		(1,678)		6,210
Ending balance	$	4,470	$	4,422	$	1,784	$	4,838	$	1,206	$	307	$	4,608	$	949	$	603	$	271	$	—	$	23,458

As of March 31, 2024, the significant model inputs and assumptions used within the discounted cash flow model for purposes of estimating the ACL on loans were:

Macroeconomic loss drivers: The following loss drivers for each loan segment were used to calculate the expected probability of default over the forecast and reversion period:

•Commercial Real Estate Owner Occupied: FOMC median forecasts of national unemployment and change in national real GDP

•Commercial Real Estate Non-Owner Occupied: FOMC median forecasts of national unemployment and change in national real GDP

•Commercial Construction: FOMC median forecasts of national unemployment and change in national real GDP

•Commercial & Industrial: FOMC median forecasts of national unemployment and change in national real GDP

•Commercial Multifamily: FOMC median forecast of national unemployment

•Commercial Agriculture: FOMC median forecasts of national unemployment and change in national real GDP

•Municipal: Probability of default is measured based upon an index supplied by a nationally recognized ratings agency

•Residential Real Estate Term: FOMC median forecasts of national unemployment and change in national real GDP

•Residential Real Estate Construction: FOMC median forecast of national unemployment and change in national real GDP

•Home Equity Revolving & Term: FOMC median forecasts of national unemployment and change in national real GDP

•Consumer: FOMC median forecasts of national unemployment and change in national real GDP

Reasonable and supportable forecast period: The ACL on loans estimate used a reasonable and supportable forecast period of one year.

Reversion period: The ACL on loans estimate used a reversion period of one year.

Prepayment speeds: The estimate of prepayment speed for each loan segment was derived using internally sourced prepayment data.

Qualitative factors: The ACL on loans estimate incorporated various qualitative factors into the calculation such as changes in lending policies, changes in the nature and volume and terms of loans, changes in the experience, depth and ability of lending management, and economic factors not captured in the quantitative model.

Note 5 – Stock-Based Compensation

At the 2020 Annual Meeting, shareholders approved the 2020 Equity Incentive Plan. The 2020 Plan reserves 400,000 shares of common stock for issuance in connection with stock options, restricted stock awards, and other equity based awards to attract and retain the best available personnel, provide additional incentive to officers, employees, and non-employee Directors, and promote the success of the Company. Such grants and awards will be structured in a manner that does not encourage the recipients to expose the Company to undue or inappropriate risk. Options issued under the 2020 Plan qualify for treatment as incentive stock options for purposes of Section 422 of the Internal Revenue Code. Other compensation under the 2020 Plan qualifies as performance-based for purposes of Section 162(m) of the Internal Revenue Code, and satisfies NASDAQ guidelines relating to equity compensation.

As of March 31, 2024, 131,419 shares of restricted stock had been granted under the 2020 Plan, of which 88,268 shares remain restricted as of March 31, 2024 as detailed in the following table:


Year Granted	Vesting Term (In Years)	Shares	Remaining Term (In Years)
2022	3.0	23,654	0.8
2022	2.5	1,250	0.8
2023	3.0	27,559	1.8
2023	2.0	2,946	0.8
2024	3.0	28,337	2.8
2024	2.0	2,119	1.8
2024	1.0	2,403	0.8
		88,268	1.8

The compensation cost related to these non-vested restricted stock grants is $2,569,000 and is recognized over the vesting terms of each grant. In the three months ended March 31, 2024, $231,000 of expense was recognized for these restricted shares, leaving $1,486,000 in unrecognized expense as of March 31, 2024. In the three months ended March 31, 2023, $184,000 of expense was recognized for restricted shares, leaving $1,501,000 in unrecognized expense as of March 31, 2023.

Note 6 – Common Stock

Proceeds from sale of common stock totaled $204,000 and $212,000 for the three months ended March 31, 2024 and 2023, respectively.

Note 7 – Earnings Per Share

The following table sets forth the computation of basic and diluted EPS for the three months ended March 31, 2024 and 2023:


	Income (Numerator)		Shares (Denominator)	Per-Share Amount
For the three months ended March 31, 2024
Net income as reported	$	6,021,000

Basic EPS: Income available to common shareholders	6,021,000		11,033,857	$	0.55
Effect of dilutive securities: restricted stock			85,964
Diluted EPS: Income available to common shareholders plus assumed conversions	$	6,021,000	11,119,821	$	0.54
For the three months ended March 31, 2023
Net income as reported	$	7,971,000

Basic EPS: Income available to common shareholders	7,971,000		10,948,513	$	0.73
Effect of dilutive securities: restricted stock			117,734
Diluted EPS: Income available to common shareholders plus assumed conversions	$	7,971,000	11,066,247	$	0.72

Note 8 – Employee Benefit Plans

401(k) Plan

The Bank has a defined contribution plan available to substantially all employees who have completed three months of service. Employees may contribute up to IRS determined limits and the Bank may match employee contributions not to exceed 3.0% of compensation depending on contribution level. The Plan is a safe harbor plan whereby the Bank also contributes a minimum 3.0% of annual compensation to the plan for all eligible employees. The expense related to the 401(k) plan was $315,000 and $326,000 for the three months ended March 31, 2024 and 2023, respectively.

Deferred Compensation and Supplemental Retirement Benefits

The Bank also provides unfunded supplemental retirement benefits for certain officers, payable in installments over 20 years upon retirement or death. The agreements consist of individual contracts with differing characteristics that, when taken together, do not constitute a postretirement plan. There are no active officers eligible for these benefits. The costs for these benefits are recognized over the service periods of the participating officers in accordance with FASB ASC Topic 712 "Compensation – Nonretirement Postemployment Benefits". The expense of these supplemental retirement benefits was $37,000 and $41,000 for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024, the associated accrued liability included in other liabilities in the balance sheet was $2,629,000 compared to $2,664,000 and $2,862,000 at December 31, 2023 and March 31, 2023, respectively.

Postretirement Benefit Plans

The Bank sponsors two postretirement benefit plans. One plan currently provides a subsidy for health insurance premiums to certain retired employees; these subsidies are based on years of service and range between $40 and $1,200 per month per person. The other plan provides life insurance coverage to certain retired employees and health insurance for retired directors. None of these plans are prefunded. The Company utilizes FASB ASC Topic 712 to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its balance sheet and to recognize changes in the funded status in the year in which the changes occur through comprehensive income (loss).

The following table sets forth the accumulated postretirement benefit obligation and funded status:


	At or for the three months ended March 31,
	2024		2023
Change in benefit obligation
Benefit obligation at beginning of year	$	1,091,000	$	1,050,000

Interest cost	—		5,000
Benefits paid	(21,000)		(22,000)

Benefit obligation at end of period	$	1,070,000	$	1,033,000
Funded status
Benefit obligation at end of period	$	(1,070,000)	$	(1,033,000)
Unamortized gain	(384,000)		(345,000)
Accrued benefit cost at end of period	$	(1,454,000)	$	(1,378,000)

The following table sets forth the net periodic pension cost:


	For the three months ended March 31,
	2024		2023
Components of net periodic benefit cost

Interest cost	$	—	$	5,000


Net periodic benefit cost	$	—	$	5,000

Amounts not yet reflected in net periodic benefit cost and included in AOCI are as follows:


	March 31, 2024		December 31, 2023		March 31, 2023
Unamortized net actuarial gain	$	384,000	$	384,000	$	345,000


Deferred tax expense	(81,000)		(81,000)		(72,000)
Net unrecognized postretirement benefits included in AOCI	$	303,000	$	303,000	$	273,000

A weighted average discount rate of 4.67% was used in determining the accumulated benefit obligation and the net periodic benefit cost. The assumed health care cost trend rate is 7.00%. The measurement date for benefit obligations was as of year-end for prior years presented. The expected benefit payments for all of 2024 are $84,000. Plan expense for 2024 is estimated to be $0. A 1.00% change in trend assumptions would create an approximate change in the same direction of $100,000 in the accumulated benefit obligation, $7,000 in the interest cost, and $1,000 in the service cost.

Note 9 - Other Comprehensive Income (Loss)

The following table summarizes activity in the unrealized gain or loss on available for sale securities included in OCI for the three months ended March 31, 2024 and 2023.


	For the three months ended March 31,
	2024		2023
Balance at beginning of period	$	(39,575,000)	$	(44,718,000)
Unrealized (losses) gains arising during the period	(4,102,000)		5,292,000

Related deferred taxes	861,000		(1,111,000)
Net change	(3,241,000)		4,181,000
Balance at end of period	$	(42,816,000)	$	(40,537,000)

The reclassification of realized gains is included in the net securities gains line of the consolidated statements of income and comprehensive income and the tax effect is included in the income tax expense line of the same statement.

The following table summarizes activity in the unrealized loss on securities transferred from available for sale to held to maturity included in OCI for the three months ended March 31, 2024 and 2023.


	For the three months ended March 31,
	2024		2023
Balance at beginning of period	$	(56,000)	$	(64,000)

Amortization of net unrealized gains	3,000		5,000
Related deferred taxes	(1,000)		(1,000)
Net change	2,000		4,000
Balance at end of period	$	(54,000)	$	(60,000)

The following table presents the effect of the Company's derivative financial instruments included in OCI for the three months ended March 31, 2024 and 2023.


	For the three months ended March 31,
	2024		2023
Balance at beginning of period	$	300,000	$	544,000
Unrealized gains (losses) on cash flow hedging derivatives arising during the period	551,000		(3,463,000)

Related deferred taxes	(116,000)		727,000
Net change	435,000		(2,736,000)
Balance at end of period	$	735,000	$	(2,192,000)

There was no activity in the unrealized gain or loss on postretirement benefits included in OCI for the three months ended March 31, 2024 and 2023.

Note 10 - Financial Derivative Instruments

The Bank uses derivative financial instruments for risk management purposes and not for trading or speculative purposes. As part of its overall asset and liability management strategy, the Bank periodically uses derivative instruments to minimize

significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Bank’s interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets or liabilities so that changes in interest rates do not have a significant effect on net interest income.

The Bank recognizes its derivative instruments in the consolidated balance sheets at fair value. On the date the derivative instrument is entered into, the Bank designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). The Bank formally documents relationships between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking hedge transactions. The Bank also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of hedged items. Changes in fair value of derivative instruments that are highly effective and qualify as cash flow hedges are recorded in OCI. Any ineffective portion is recorded in earnings. The Bank discontinues hedge accounting when it is determined that the derivative is no longer highly effective in offsetting changes of the hedged risk on the hedged item, or management determines that the designation of the derivative as a hedging instrument is no longer appropriate.

The details of the Bank's swap agreements are as follows:


					March 31, 2024				December 31, 2023				March 31, 2023
Effective Date	Maturity Date	Variable Index Received	Fixed Rate Paid	Presentation on Consolidated Balance Sheets	Notional Amount		Fair Value		Notional Amount		Fair Value		Notional Amount		Fair Value
Cash Flow Hedges
04/27/2022	10/27/2023	USD-SOFR-COMPOUND	2.498%	Other Assets	$	—	$	—	$	—	$	—	$	10,000,000	$	133,000
04/27/2022	01/27/2024	USD-SOFR-COMPOUND	2.576%	Other Assets	—		—		10,000,000		22,000		10,000,000		176,000
04/27/2022	04/27/2024	USD-SOFR-COMPOUND	2.619%	Other Assets	10,000,000		21,000		10,000,000		86,000		10,000,000		209,000
01/10/2023	01/01/2026	USD-SOFR-OIS COMPOUND	3.836%	Other (Liabilities) Assets	75,000,000		910,000		75,000,000		272,000		75,000,000		(196,000)
					$	85,000,000	$	931,000	$	95,000,000	$	380,000	$	105,000,000	$	322,000
Fair Value Hedges
03/08/2023	03/01/2026	USD-SOFR-OIS COMPOUND	4.712%	Other Liabilities	$	40,000,000	$	(126,000)	$	40,000,000	$	(581,000)	$	40,000,000	$	(1,062,000)
03/08/2023	03/01/2027	USD-SOFR-OIS COMPOUND	4.402%	Other Liabilities	30,000,000		(132,000)		30,000,000		(598,000)		30,000,000		(958,000)
03/08/2023	03/01/2028	USD-SOFR-OIS COMPOUND	4.189%	Other Liabilities	30,000,000		(127,000)		30,000,000		(678,000)		30,000,000		(1,076,000)
07/12/2023	08/01/2025	USD-SOFR-OIS COMPOUND	4.703%	Other Assets	50,000,000		72,000		50,000,000		(292,000)		—		—
					$	150,000,000	$	(313,000)	$	150,000,000	$	(2,149,000)	$	100,000,000	$	(3,096,000)
Total swap agreements					$	235,000,000	$	618,000	$	245,000,000	$	(1,769,000)	$	205,000,000	$	(2,774,000)

The Company would reclassify unrealized gains or losses accounted for within AOCI into earnings if the interest rate swaps were to become ineffective or the swaps were to terminate for cash flow hedges, or would amortize the gain or loss over the remaining life of the hedged instrument for fair value hedges. Amounts paid or received under the swaps are reported in interest income or interest expense in the consolidated statements of income, and reflected in net income in the consolidated statements of cash flows.

Customer loan derivatives

The Bank will enter into interest rate swaps with qualified commercial customers. Through these arrangements, the Bank is able to provide a means for a loan customer to obtain a long-term fixed rate, while it simultaneously contracts with an approved, highly-rated, third-party financial institution as counterparty to swap the fixed rate for a variable rate. Such loan level arrangements are not designated as hedges for accounting purposes, and are recorded at fair value in the Company’s consolidated balance sheets.

At March 31, 2024 and December 31, 2023, there were seven customer loan swap arrangements in place. This compares to six customer loan swap arrangements in place at March 31, 2023. The details of the Bank's customer loan swap arrangements are detailed below:


		March 31, 2024					December 31, 2023					March 31, 2023
	Presentation on Consolidated Balance Sheet	Number of Positions	Notional Amount		Fair Value		Number of Positions	Notional Amount		Fair Value		Number of Positions	Notional Amount		Fair Value
Pay Fixed, Receive Variable	Other Assets	7	$	40,593,000	$	4,778,000	6	$	36,286,000	$	4,259,000	6	$	37,129,000	$	4,098,000
Pay Fixed, Receive Variable	Other Liabilities	—	—		—		1	5,048,000		(89,000)		—	—		—
		7	40,593,000		4,778,000		7	41,334,000		4,170,000		6	37,129,000		4,098,000
Receive Fixed, Pay Variable	Other Assets	—	—		—		1	5,048,000		89,000		—	—		—
Receive Fixed, Pay Variable	Other Liabilities	7	40,593,000		(4,778,000)		6	36,286,000		(4,259,000)		6	37,129,000		(4,098,000)
		7	40,593,000		(4,778,000)		7	41,334,000		(4,170,000)		6	37,129,000		(4,098,000)
Total		14	$	81,186,000	$	—	14	$	82,668,000	$	—	12	$	74,258,000	$	—

Derivative collateral

The Bank has entered into a master netting arrangement with its counterparty and settles payments with the counterparty as necessary. The Bank's arrangement with its institutional counterparty requires it to post cash or other assets as collateral for its various loan swap contracts in a net liability position based on their fair values and the Bank's credit rating or receive cash collateral for contracts in a net asset position as requested. At March 31, 2024, there was no collateral posted on its swap contracts or required amount to be pledged.

Note 11 – Mortgage Servicing Rights

FASB ASC Topic 860 "Transfers and Servicing", requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, if practicable. The Company's servicing assets and servicing liabilities are reported using the amortization method and carried at the lower of amortized cost or fair value by strata. In evaluating the carrying values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, type, and term of the underlying loans. The model utilizes several assumptions, the most significant of which is loan prepayments, calculated using a three-months moving average of weekly prepayment data published by the PSA and modeled against the serviced loan portfolio, and the discount rate to discount future cash flows. As of March 31, 2024, the prepayment assumption using the PSA model was 101, which translates into an anticipated prepayment rate of 4.85%. The discount rate is 9.75%. Other assumptions include delinquency rates, foreclosure rates, servicing cost inflation, and annual unit loan cost. All assumptions are adjusted periodically to reflect current circumstances. Amortization of mortgage servicing rights, as well as write-offs due to prepayments of the related mortgage loans, are recorded as a charge against mortgage servicing fee income.

For the three months ended March 31, 2024 and 2023, servicing rights capitalized totaled $4,000 and $7,000, respectively. Servicing rights amortized for the three-month periods ended March 31, 2024 and 2023 were $84,000 and $98,000, respectively. The fair value of servicing rights was $3,423,000, $3,583,000, and $3,505,000 at March 31, 2024, December 31, 2023 and March 31, 2023, respectively. The Bank serviced loans for others totaling $315,414,000, $321,178,000, and $337,585,000 at March 31, 2024, December 31, 2023, and March 31, 2023, respectively.

Mortgage servicing rights are included in other assets and detailed in the following table:


	March 31, 2024		December 31, 2023		March 31, 2023
Mortgage servicing rights	$	8,705,000	$	8,702,000	$	8,661,000
Accumulated amortization	(6,609,000)		(6,525,000)		(6,259,000)


Carrying value	$	2,096,000	$	2,177,000	$	2,402,000

Note 12 – Income Taxes

FASB ASC Topic 740 "Income Taxes" defines the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company's financial statements. Topic 740 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. The Company is currently open to audit under the statute of limitations by the IRS for the years ended December 31, 2020 through 2023.

Note 13 - Certificates of Deposit

The following table represents the breakdown of certificates of deposit at March 31, 2024 and 2023, and at December 31, 2023:


	March 31, 2024		December 31, 2023		March 31, 2023
Certificates of deposit < $100,000	$	655,576,000	$	646,818,000	$	592,052,000
Certificates $100,000 to $250,000	244,148,000		251,192,000		278,151,000
Certificates $250,000 and over	165,703,000		172,237,000		139,464,000
	$	1,065,427,000	$	1,070,247,000	$	1,009,667,000

Note 14 – Reclassifications

Certain items from the prior year were reclassified in the consolidated financial statements to conform with the current year presentation. These do not have a material impact on the consolidated balance sheet or statement of income and comprehensive income presentations.

Note 15 – Fair Value

Certain assets and liabilities are recorded at fair value to provide additional insight into the Company's quality of earnings. Some of these assets and liabilities are measured on a recurring basis while others are measured on a nonrecurring basis, with the determination based upon applicable existing accounting pronouncements. For example, securities available for sale are recorded at fair value on a recurring basis. Other assets, such as other real estate owned and IAL, are recorded at fair value on a nonrecurring basis using the lower of cost or market methodology to determine impairment of individual assets. The Company groups assets and liabilities, which are recorded at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. A financial instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (with level 1 considered highest and level 3 considered lowest). A brief description of each level follows:

Level 1 - Valuation is based upon quoted prices for identical instruments in active markets.

Level 2 - Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3 - Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates that market participants would use in pricing the asset or liability. Valuation includes use of discounted cash flow models and similar techniques.

The fair value methods and assumptions for the Company's financial instruments and other assets measured at fair value are set forth below.

Investment Securities

The fair values of investment securities are estimated by independent providers using a market approach with observable inputs, including matrix pricing and recent transactions. In obtaining such valuation information from third parties, the Company has evaluated their valuation methodologies used to develop the fair values in order to determine whether the valuations are representative of an exit price in the Company's principal markets. The Company's principal markets for its securities portfolios are the secondary institutional markets, with an exit price that is predominantly reflective of bid level pricing in those markets. Fair values are calculated based on the value of one unit without regard to any premium or discount that may result from concentrations of ownership of a financial instrument, possible tax ramifications, or estimated transaction costs. If these considerations had been incorporated into the fair value estimates, the aggregate fair value could have been changed. The carrying values of restricted equity securities approximate fair values. As such, the Company classifies investment securities as Level 2.

Loans

Fair values are estimated for portfolios of loans are based on an exit pricing notion. The fair values of performing loans are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest risk inherent in the loan. The estimates of maturity are based on the Company's historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions, and the effects of estimated prepayments. Assumptions regarding credit risk, cash flows, and discount rates are judgmentally determined using available market information and specific borrower information. Management has made estimates of fair value using discount rates that it believes to be reasonable. However, because there is no market for many of these financial instruments, Management has no basis to determine whether the fair value presented above would be indicative of the value negotiated in an actual sale. As such, the Company classifies loans as Level 3, except for certain IAL. Fair values of IAL are based on estimated cash flows and are discounted using a rate commensurate with the risk associated with the estimated cash flows, or if collateral dependent, discounted to the appraised value of the collateral as determined by reference to sale prices of similar properties, less costs to sell. As such, the Company classifies IAL for which a specific reserve results in a fair value measure as Level 2. All other IAL are classified as Level 3.

Other Real Estate Owned

Real estate acquired through foreclosure is initially recorded at fair value. The fair value of other real estate owned is based on property appraisals and an analysis of similar properties currently available. As such, the Company records other real estate owned as nonrecurring Level 2.

Mortgage Servicing Rights

Mortgage servicing rights represent the value associated with servicing residential mortgage loans. Servicing assets and servicing liabilities are reported using the amortization method and compared to fair value for impairment. In evaluating the fair values of mortgage servicing rights, the Company obtains third party valuations based on loan level data including note rate, type, and term of the underlying loans. As such, the Company classifies mortgage servicing rights as Level 2.

Time Deposits

The fair value of maturity deposits is based on the discounted value of contractual cash flows using a replacement cost of funds approach. The discount rate is estimated using the cost of funds borrowing rate in the market. As such, the Company classifies time deposits as Level 2.

Borrowed Funds

The fair value of borrowed funds is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently available for borrowings of similar remaining maturities. As such, the Company classifies borrowed funds as Level 2.

Derivatives

The fair value of interest rate swaps is determined using inputs that are observable in the market place obtained from third parties including yield curves, publicly available volatilities, and floating indexes and, accordingly, are classified as Level 2 inputs. The credit value adjustments associated with derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. As of March 31, 2024 and 2023, and December 31, 2023, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives due to collateral postings.

Customer Loan Derivatives

The valuation of the Company’s customer loan derivatives is obtained from a third-party pricing service and is determined using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis is based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of master netting arrangements and any applicable credit enhancements, such as collateral postings.

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These values do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on Management's judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial instruments include the deferred tax asset, premises and equipment, and other real estate owned. In addition, tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The following tables present the balances of assets and liabilities that were measured at fair value on a recurring basis as of March 31, 2024, December 31, 2023 and March 31, 2023.


	At March 31, 2024
	Level 1		Level 2		Level 3		Total
Securities available for sale
U.S. Government-sponsored agencies	$	—	$	19,693,000	$	—	$	19,693,000
Mortgage-backed securities	—		218,002,000		—		218,002,000
State and political subdivisions	—		33,950,000		—		33,950,000
Asset-backed securities	—		2,806,000		—		2,806,000

Total securities available for sale	—		274,451,000		—		274,451,000
Interest rate swap agreements	—		1,003,000		—		1,003,000
Customer loan interest swap agreements	—		4,778,000		—		4,778,000
Total interest rate swap agreements	—		5,781,000		—		5,781,000
Total assets	$	—	$	280,232,000	$	—	$	280,232,000


	At March 31, 2024
	Level 1		Level 2		Level 3		Total
Interest rate swap agreements	$	—	$	385,000	$	—	$	385,000
Customer loan interest swap agreements	—		4,778,000		—		4,778,000
Total liabilities	$	—	$	5,163,000	$	—	$	5,163,000


	At December 31, 2023
	Level 1		Level 2		Level 3		Total
Securities available for sale
U.S. Government-sponsored agencies	$	—	$	19,830,000	$	—	$	19,830,000
Mortgage-backed securities	—		224,597,000		—		224,597,000
State and political subdivisions	—		34,645,000		—		34,645,000
Asset-backed securities	—		2,981,000		—		2,981,000

Total securities available for sale	—		282,053,000		—		282,053,000
Interest rate swap agreements	—		380,000		—		380,000
Customer loan interest swap agreements	—		4,348,000		—		4,348,000
Total interest rate swap agreements	—		4,728,000		—		4,728,000
Total assets	$	—	$	286,781,000	$	—	$	286,781,000


	At December 31, 2023
	Level 1		Level 2		Level 3		Total
Interest rate swap agreements	$	—	$	2,149,000	$	—	$	2,149,000
Customer loan interest swap agreements	$	—	$	4,348,000	$	—	$	4,348,000
Total liabilities	$	—	$	6,497,000	$	—	$	6,497,000


	At March 31, 2023
	Level 1		Level 2		Level 3		Total
Securities available for sale
U.S. Government-sponsored agencies	$	—	$	19,518,000	$	—	$	19,518,000
Mortgage-backed securities	—		231,091,000		—		231,091,000
State and political subdivisions	—		34,349,000		—		34,349,000
Asset-backed securities	—		3,284,000		—		3,284,000

Total securities available for sale	—		288,242,000		—		288,242,000
Interest rate swap agreements	—		518,000		—		518,000
Customer loan interest swap agreements	—		4,098,000		—		4,098,000
Total interest swap agreements	—		4,616,000		—		4,616,000
Total assets	$	—	$	292,858,000	$	—	$	292,858,000


	At March 31, 2023
	Level 1		Level 2		Level 3		Total
Interest rate swap agreements	$	—	$	3,293,000	$	—	$	3,293,000
Customer loan interest swap agreements	$	—	$	4,098,000	$	—	$	4,098,000
Total liabilities	$	—	$	7,391,000	$	—	$	7,391,000

Assets Recorded at Fair Value on a Non-Recurring Basis

The following tables include assets measured at fair value on a nonrecurring basis that have had a fair value adjustment since their initial recognition. Mortgage servicing rights are presented at fair value with no impairment reserve for each of the periods presented. Only collateral-dependent IAL with a related specific ACL or a partial charge off are included in IAL for purposes of fair value disclosures. There were no collateral-dependent IAL with a related specific ACL or a partial charge off at March 31, 2024.

IAL below are presented net of specific allowances of $19,000 and $132,000 at December 31, 2023, and March 31, 2023, respectively.


	At March 31, 2024
	Level 1		Level 2		Level 3		Total
Mortgage servicing rights	$	—	$	3,423,000	$	—	$	3,423,000



Total assets	$	—	$	3,423,000	$	—	$	3,423,000


	At December 31, 2023
	Level 1		Level 2		Level 3		Total
Mortgage servicing rights	$	—	$	3,583,000	$	—	$	3,583,000

Individually analyzed loans	—		285,000		—		285,000
Total assets	$	—	$	3,868,000	$	—	$	3,868,000


	At March 31, 2023
	Level 1		Level 2		Level 3		Total
Mortgage servicing rights	$	—	$	3,505,000	$	—	$	3,505,000


Individually analyzed loans	—		20,000		—		20,000
Total assets	$	—	$	3,525,000	$	—	$	3,525,000

Fair Value of Financial Instruments

FASB ASC Topic 825 "Financial Instruments" requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet if the fair values can be reasonably determined. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques using observable inputs when available. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. Topic 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

This summary excludes financial assets and liabilities for which carrying value approximates fair values and financial instruments that are recorded at fair value on a recurring basis. Financial instruments for which carrying values approximate fair value include cash equivalents, interest-bearing deposits in other banks, demand, NOW, savings, and money market deposits. The estimated fair value of demand, NOW, savings, and money market deposits is the amount payable on demand at the reporting date. Carrying value is used because the accounts have no stated maturity and the customer has the ability to withdraw funds immediately.

The carrying amount and estimated fair values for financial instruments as of March 31, 2024 were as follows:


	Carrying value		Estimated fair value		Level 1		Level 2		Level 3
Financial assets



Securities to be held to maturity (net of allowance for credit losses)	$	379,453,000	$	327,816,000	$	—	$	327,816,000	$	—


Loans (net of allowance for credit losses)
Commercial
Real estate	717,709,000		679,690,000		—		—		679,690,000
Construction	84,997,000		80,494,000		—		—		80,494,000
Other	461,281,000		446,607,000		—		—		446,607,000
Municipal	54,552,000		51,889,000		—		—		51,889,000
Residential
Term	672,739,000		602,025,000		—		—		602,025,000
Construction	34,262,000		33,801,000		—		—		33,801,000
Home equity line of credit	105,137,000		104,938,000		—		—		104,938,000
Consumer	18,862,000		16,676,000		—		—		16,676,000
Total loans	2,149,539,000		2,016,120,000		—		—		2,016,120,000
Mortgage servicing rights	2,096,000		3,423,000		—		3,423,000		—


Financial liabilities




Local certificates of deposit	$	370,364,000	$	351,799,000	$	—	$	351,799,000	$	—
National certificates of deposit	695,063,000		704,387,000		—		704,387,000		—
Total certificates of deposit	1,065,427,000		1,056,186,000		—		1,056,186,000		—
Repurchase agreements	47,845,000		47,734,000		—		47,734,000		—
Federal Home Loan Bank advances	106,934,000		81,863,000		—		81,863,000		—
Total borrowed funds	154,779,000		129,597,000		—		129,597,000		—

The carrying amounts and estimated fair values for financial instruments as of December 31, 2023 were as follows:


	Carrying value		Estimated fair value		Level 1		Level 2		Level 3
Financial assets



Securities to be held to maturity (net of allowance for credit losses)	$	385,235,000	$	338,570,000	$	—	$	338,570,000	$	—


Loans (net of allowance for credit losses)
Commercial
Real estate	699,537,000		658,732,000		—		—		658,732,000
Construction	86,695,000		81,638,000		—		—		81,638,000
Other	443,944,000		431,067,000		—		—		431,067,000
Municipal	51,089,000		46,806,000		—		—		46,806,000
Residential
Term	669,864,000		595,033,000		—		285,000		594,748,000
Construction	31,740,000		31,131,000		—		—		31,131,000
Home equity line of credit	103,400,000		102,858,000		—		—		102,858,000
Consumer	19,155,000		16,963,000		—		—		16,963,000
Total loans	2,105,424,000		1,964,228,000		—		285,000		1,963,943,000
Mortgage servicing rights	2,177,000		3,583,000		—		3,583,000		—


Financial liabilities




Local certificates of deposit	$	293,466,000	$	362,555,000	$	—	$	362,555,000	$	—
National certificates of deposit	776,781,000		699,919,000		—		699,919,000		—
Total certificates of deposit	1,070,247,000		1,062,474,000		—		1,062,474,000		—
Repurchase agreements	49,576,000		49,462,000		—		49,462,000		—
Federal Home Loan Bank advances	20,076,000		20,074,000		—		20,074,000		—
Total borrowed funds	69,652,000		69,536,000		—		69,536,000		—

The carrying amount and estimated fair values for financial instruments as of March 31, 2023 were as follows:


	Carrying value		Estimated fair value		Level 1		Level 2		Level 3
Financial assets



Securities to be held to maturity (net of allowance for credit losses)	$	391,845,000	$	344,053,000	$	—	$	344,053,000	$	—


Loans (net of allowance for credit losses)
Commercial
Real estate	660,789,000		630,944,000		—		—		630,944,000
Construction	70,921,000		67,440,000		—		—		67,440,000
Other	414,733,000		399,552,000		—		20,000		399,532,000
Municipal	46,859,000		44,635,000		—		—		44,635,000
Residential
Term	602,241,000		549,823,000		—		—		549,823,000
Construction	51,763,000		44,686,000		—		—		44,686,000
Home equity line of credit	92,919,000		94,010,000		—		—		94,010,000
Consumer	19,164,000		17,360,000		—		—		17,360,000
Total loans	1,959,389,000		1,848,450,000		—		20,000		1,848,430,000
Mortgage servicing rights	2,402,000		3,505,000		—		3,505,000		—


Financial liabilities




Local certificates of deposit	$	336,449,000	$	308,631,000	$	—	$	308,631,000	$	—
National certificates of deposit	673,218,000		681,961,000		—		681,961,000		—
Total certificates of deposit	1,009,667,000		990,592,000		—		990,592,000		—
Repurchase agreements	51,500,000		51,392,000		—		51,392,000		—
Federal Home Loan Bank advances	32,381,000		32,376,000		—		32,376,000		—
Total borrowed funds	83,881,000		83,768,000		—		83,768,000		—

Note 16 – Impact of Recently Issued Accounting Standards

In March 2023, the FASB issued ASU No. 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. This ASU expands the use of proportional amortization method of accounting — currently allowed only for investments in low-income housing tax credit (LIHTC) structures — to equity investments in other tax credit structures that meet certain criteria. The proportional amortization method results in (1) the tax credit investment being amortized in proportion to the allocation of tax credits and other tax benefits in each period and (2) net presentation within the income tax line item. The ASU is effective beginning in 2024 for calendar year-end public business entities. Adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures.

This ASU requires public business entities, such as the Company, to provide enhanced disclosures on the amount of income taxes paid disaggregated by type and jurisdiction. Adoption is required for annual periods beginning after December 15, 2024 and is not expected to have a material impact on the Company's consolidated financial statements.

Item 2 – Management's Discussion and Analysis of Financial Condition
and Results of Operations

The First Bancorp, Inc. and Subsidiary

Forward-Looking Statements

This report contains statements that are "forward-looking statements." We may also make written or oral forward-looking statements in other documents we file with the SEC, in our annual reports to shareholders, in press releases and other written materials, and in oral statements made by our officers, directors or employees. You can identify forward-looking statements by the use of the words "believe," "expect," "anticipate," "intend," "estimate," "assume," "outlook," "will," "should," and other expressions that predict or indicate future events and trends and which do not relate to historical matters. You should not rely on forward-looking statements, because they involve known and unknown risks, uncertainties and other factors, some of which are beyond the control of the Company. These risks, uncertainties and other factors may cause the actual results, performance or achievements of the Company to be materially different from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

Some of the factors that might cause these differences include the following: changes in general national, regional or international economic conditions or conditions affecting the banking or financial services industries or financial capital markets, volatility and disruption in national and international financial markets, government intervention in the U.S. financial system, reductions in net interest income resulting from interest rate volatility as well as changes in the balance and mix of loans and deposits, reductions in the market value of wealth management assets under administration, changes in the value of securities and other assets, reductions in loan demand, changes in loan collectability, default and charge-off rates, changes in the size and nature of the Company's competition, changes in legislation or regulation and accounting principles, policies and guidelines, and changes in the assumptions used in making such forward-looking statements. In addition, the factors described under "Risk Factors" in Item 1A of this Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the SEC, may result in these differences, as well as the "Risk Factors" in Part II, Item 1A listed below. You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences. These forward-looking statements were based on information, plans and estimates at the date of this quarterly report, and we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, actual results may differ materially from the results discussed in these forward-looking statements. Readers are also urged to carefully review and consider the various disclosures made by the Company, which attempt to advise interested parties of the factors that affect the Company's business.

Critical Accounting Policies

Management's discussion and analysis of the Company's financial condition and results of operations is based on the consolidated financial statements which are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such financial statements requires Management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, Management evaluates its estimates, including those related to the ACL, fair value of securities, goodwill, the valuation of mortgage servicing rights, derivative financial instruments, and credit losses on securities. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets that are not readily apparent from other sources. Actual results could differ from the amounts derived from Management's estimates and assumptions under different assumptions or conditions

Allowance for Credit Losses. Management believes the ACL requires the most significant estimates and assumptions used in the preparation of the consolidated financial statements. The ACL is based on Management's evaluation of the level of the allowance required in relation to the estimated loss exposure in the loan portfolio, off-balance sheet commitments, and investment portfolio.

Management regularly evaluates the allowance, typically monthly, to determine the appropriate level by taking into consideration factors such as the size and growth trajectory of the portfolio, quality trends as measured by key indicators, prior loan loss experience in major portfolio segments, local and national business conditions, economic forecasts, the results of any stress testing undertaken during the period, and Management's estimation of potential losses. Period-to-period changes to any or all of these of these factors could change the level of ACL required, in turn impacting our level of provision expense and ultimately our net income. Similarly, the use of different estimates or assumptions could produce different provisions for credit losses which would likely result in changes to the Company's net income.

In the current period the ACL-Loans increased by $177,000, the ACL-Off-Balance Commitments decreased by $360,000 and the ACL-HTM Securities decreased by $252,000. Further discussion of the ACL may be found in Note 2, "Investment Securities", Note 3, "Loans", and Note 4, "Allowance for Credit Losses", to the consolidated financial statements contained in Item 1 of the Form 10-Q.

Goodwill. Management utilizes numerous techniques to estimate the value of various assets held by the Company, including methods to determine the appropriate carrying value of goodwill as required under FASB ASC Topic 350 "Intangibles – Goodwill and Other." In addition, goodwill from a purchase acquisition is subject to ongoing periodic impairment tests, which include an evaluation of the ongoing assets, liabilities and revenues from the acquisition and an estimation of the impact of business conditions.

Fair Value of Securities. Determining a market price for securities carried at fair value is a critical accounting estimate in the Company's financial statements. Pricing of individual securities is subject to a number of factors including changes in market interest rates, changes in prepayment speeds and assumptions, changes in market tolerance for risk, and any changes in the risk profile of the security. The Company subscribes to a widely recognized, independent pricing service and updates carrying values no less frequently than monthly. It also validates the values provided by the pricing service no less frequently than quarterly by measuring against security prices provided by a secondary source. Results of the validation are reported to the ALCO each quarter and any variances between the two sources above defined thresholds are investigated by management. A finding that the Company's methodology for valuation of its investment securities is materially incorrect could result in changes to the carrying value of securities on its balance sheet and corresponding changes in shareholders equity position. As of March 31, 2024 the fair value of AFS securities decreased by $7.6 million and the fair value of HTM securities decreased by $10.8 million from that of December 31, 2023. These decreases are due to a combination of higher interest rates leading to lower market prices for the underlying securities and incoming cash flow from these investments being re-deployed to other segments of the balance sheet. Further discussion of the fair value of securities may be found in Note 2, "Investment Securities", to the consolidated financial statements contained in Item 1 of the Form 10-Q.

Credit Loss Recognition on Securities. Another significant estimate related to investment securities is the evaluation of potential credit losses on investment securities. The evaluation of securities for potential credit losses is a quantitative and qualitative process, which is subject to risks and uncertainties and is intended to determine whether declines in the fair value of investments should be recognized as a charge to the ACL. The risks and uncertainties include changes in general economic conditions, the issuer's financial condition and/or future prospects, the effects of changes in interest rates or credit spreads and the expected recovery period of unrealized losses. Securities that are in an unrealized loss position are reviewed at least quarterly to determine if recognition of a loss is required. The primary factors considered in this evaluation (a) the length of time and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security, (b) the financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, (d) the volatility of the securities' market price, (e) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery, which may be at maturity and (f) any other information and observable data considered relevant, including the expectation of receipt of all principal and interest when due. The Bank invests only in investment grade securities and no credit losses have been recognized on securities currently held. Further discussion of credit loss recognition on securities may be found in Note 2, "Investment Securities", to the consolidated financial statements contained in Item 1 of the Form 10-Q.

Derivative Financial Instruments Designated as Hedges. The Company recognizes all derivatives in the consolidated balance sheets at fair value. On the date a derivative contract is entered into, the derivative is designated as a hedge of either a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), or a held for trading instrument (“trading instrument”). The relationships between hedging instruments and hedged items is formally documented, as is the risk management objectives and strategy for undertaking various hedge transactions. Both at the hedge’s inception and on an ongoing basis, determination is made as to whether the derivatives that are used in hedging transactions are effective in offsetting changes in cash flows or fair values of hedged items. Changes in fair value of a derivative that is effective and that qualifies as a cash flow hedge are recorded in OCI and are reclassified into earnings when the forecasted transaction or related cash flows affect earnings. Changes in fair value of a derivative that qualifies as a fair value hedge and the change in fair value of the hedged item are both recorded in earnings and offset each other when the transaction is effective. Those derivatives that are classified as trading instruments, including customer loan swaps, are recorded at fair value with changes in fair value recorded in earnings. Hedge accounting is discontinued when it is determined that the derivative is no longer effective in offsetting changes in the cash flows of the hedged item, that it is unlikely that the forecasted transaction will occur, or that the designation of the derivative as a hedging instrument is no longer appropriate. Among the factors that may influence the fair value of a derivative instrument are changes in market interest rates, changes in the time remaining to maturity of the instrument, or credit quality of the counter-party. Further information, including period-to-period changes in the fair value of derivatives, may be found in Note 10, "Financial Derivative Instruments", to the consolidated financial statements contained in Item 1 of the Form 10-Q.

Risks and Uncertainties. The nation's economy continues to demonstrate areas of strength and areas of weakness. The high inflation experienced post-pandemic has moderated, yet continues to run above the FOMC's 2% target, and the pace of progress has slowed as evidenced by higher than expected readings of the Consumer Price Index in the first quarter of 2024. The labor market remains very tight with very low rates of unemployment and strong job creation, each contributing to inflationary pressure. To address the inflation problem, FOMC aggressively increased short-term interest rates throughout 2022 and into 2023, and has been on hold since the summer of 2023. The FOMC has signaled rate reductions beginning later this year, however recent discussion has pushed the timing of cuts out further and at less depth than initial guidance suggested. If the FOMC does not increase rates enough or cuts rates too early, it risks an ongoing inflation problem; an overshoot on maintaining elevated interest rates risks entering the economy into a recession. Concern continues to be expressed nationally on the commercial real estate market given high vacancy numbers in some locations. The ongoing conflicts between Russia and Ukraine, and Israel and Hamas, continue to contribute to geopolitical instability and add to economic uncertainty particularly in the energy sector. The recent near-failure and subsequent recapitalization of a large regional bank rekindled concerns that followed the failures in 2023 of several regional banks, which roiled markets and introduced new sources of uncertainty.

Any or all of these factors could have negative downstream effects on the Company's operating results, the extent of which is indeterminable at this time.

Use of Non-GAAP Financial Measures

Certain information in this release contains financial information determined by methods other than in accordance with GAAP. Management uses these “non-GAAP” measures in its analysis of the Company's performance (including for purposes of determining the compensation of certain executive officers and other Company employees) and believes that these non-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods and with other financial institutions, as well as demonstrating the effects of significant gains and charges in the current period, in light of the disclosure practices employed by many other publicly-traded financial institutions. The Company believes that a meaningful analysis of its financial performance requires an understanding of the factors underlying that performance. Management believes that investors may use these non-GAAP financial measures to analyze financial performance without the impact of unusual items that may obscure trends in the Company's underlying performance. These disclosures should not be viewed as a substitute for operating results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

In several places net interest income is calculated on a fully tax-equivalent basis. Specifically included in interest income was tax-exempt interest income from certain investment securities and loans. An amount equal to the tax benefit derived from this tax-exempt income has been added back to the interest income total which, as adjusted, increased net interest income accordingly. Management believes the disclosure of tax-equivalent net interest income information improves the clarity of financial analysis, and is particularly useful to investors in understanding and evaluating the changes and trends in the Company's results of operations. Other financial institutions commonly present net interest income on a tax-equivalent basis. This adjustment is considered helpful in the comparison of one financial institution's net interest income to that of another institution, as each will have a different proportion of tax-exempt interest from its earning assets. Moreover, net interest income is a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average earning assets. For purposes of this measure as well, other financial institutions generally use tax-equivalent net interest income to provide a better basis of comparison from institution to institution. The Company follows these practices.

The following table provides a reconciliation of tax-equivalent financial information to the Company's consolidated financial statements prepared in accordance with GAAP. A Federal Income Tax rate of 21.0% was used in 2024 and 2023.


	For the three months ended March 31,
Dollars in thousands	2024		2023
Net interest income as presented	$	14,880	$	17,475
Effect of tax-exempt income	669		620
Net interest income, tax equivalent	$	15,549	$	18,095

The Company presents its efficiency ratio using non-GAAP information which is most commonly used by financial institutions. The GAAP-based efficiency ratio is non-interest expenses divided by net interest income plus non-interest income from the Consolidated Statements of Income. The non-GAAP efficiency ratio excludes any losses on sales of securities from non-interest expenses, excludes any gains on sales of securities from non-interest income, and adds the tax-equivalent adjustment to net interest income.

The following table provides a reconciliation between the GAAP and non-GAAP efficiency ratio:


	For the three months ended March 31,
Dollars in thousands	2024			2023
Non-interest expense, as presented	$	11,761		$	10,850
Net interest income, as presented	14,880			17,475
Effect of tax-exempt interest income	669			620
Non-interest income, as presented	3,640			3,569
Effect of non-interest tax-exempt income	45			44

Adjusted net interest income plus non-interest income	$	19,234		$	21,708
Non-GAAP efficiency ratio	61.15		%	49.98		%
GAAP efficiency ratio	63.50		%	51.56		%

The Company presents certain information based upon tangible common equity instead of total shareholders' equity. The difference between these two measures is the Company's intangible assets, specifically goodwill from prior acquisitions. Management, banking regulators and many stock analysts use the tangible common equity ratio and the tangible book value per common share in conjunction with more traditional bank capital ratios to compare the capital adequacy of banking organizations with significant amounts of goodwill or other intangible assets, typically stemming from the use of the purchase accounting method in accounting for mergers and acquisitions.

The following table provides a reconciliation of average tangible common equity to the Company's consolidated financial statements, which have been prepared in accordance with GAAP:


	For the three months ended March 31,
Dollars in thousands	2024		2023
Average shareholders' equity as presented	$	244,083	$	237,518

Less average intangible assets	(30,827)		(30,853)
Average tangible shareholders' common equity	$	213,256	$	206,665

To provide period-to-period comparison of operating results prior to consideration of credit loss provision and income taxes, the non-GAAP measure of Pre-Tax, Pre-Provision Net Income is presented. The following table provides a reconciliation to Net Income:


	For the three months ended March 31,
Dollars in thousands	2024		2023
Net Income, as presented	$	6,021	$	7,971
Add: provision (reduction) for credit losses	(513)		550
Add: income taxes expense	1,251		1,673
Pre-tax, pre-provision net income	$	6,759	$	10,194

Executive Summary

Net income for the three months ended March 31, 2024 was $6.0 million, down $2.0 million or 24.5% from the same period in 2023 due primarily to a decrease in net interest income resulting from higher funding costs. Earnings per common share on a fully diluted basis were $0.54 for the three months ended March 31, 2024, down $0.18 or 25.0% from the $0.72 posted for the same period in 2023. Dividends totaling $0.35 per share have been declared year-to-date, representing a payout to our shareholders of 63.64% of basic earnings per share for the period.

Net interest income on a tax-equivalent basis was down $2.5 million or 14.1% in the three months ended March 31, 2024 compared to the same period in 2023. The tax equivalent net interest margin for the three months ended March 31, 2024, was 2.22%, down from 2.78% for the same period in 2023. The period to period change in net interest income and net interest margin is primarily attributable to increased funding costs.

Non-interest income for the three months ended March 31, 2024 was $3.6 million, up $71,000 or 2.0%, from the three months ended March 31, 2023. As compared to the prior year period, mortgage banking revenue decreased $62,000 or 32.3% on lower volume of mortgage sales and negative marks taken against mortgage servicing rights valuation. Service charges on deposit accounts were up $62,000, or 14.2%, while debit card revenue was even with the three months ended March 31, 2024. Revenue at First National Wealth Management increased $42,000 or 3.7% over the same period.

Non-interest expense for the three months ended March 31, 2024 was $11.8 million, up $911,000 or 8.4% from the three months ended March 31, 2023. FDIC insurance premiums increased $220,000 from the same period in 2023, salaries and employee benefits increased 5.9% and other operating expense increased 10.4% over the same period.

Asset quality continues to be strong and stable. Non-performing assets stood at 0.09% of total assets as of March 31, 2024, up slightly from 0.07% of total assets as of December 31, 2023 and 0.06% of total assets as of March 31, 2023. Total past-due loans remain low and were 0.09% of total loans as of March 31, 2024, down from 0.18% and 0.10% of total loans as of December 31, 2023 and March 31, 2023, respectively.

The provision for credit losses on loans for the first three months of 2024 was $99,000, down from the $550,000 provisioned in the same period in 2023. The effects of improved economic projections and strong asset quality offset the effects of loan growth and other factors in the first quarter model, resulting in lower provision expense for the current period as compared to the prior period. Recoveries in the first quarter of prior period loan charge-offs outpaced current period charge-offs, resulting in a net addition to the allowance for credit losses on loans. Net recoveries for the three months ended March 31, 2024 was $78,000 or 0.015% of average loans on an annualized basis, compared to net charge-offs of $25,000 or 0.010% of three months ended March 31, 2023. The ACL for loans increased $177,000 between December 31, 2023 and March 31, 2024, and now stands at 1.11% of loans outstanding as of March 31, 2024, down from 1.13% at December 31, 2023 and 1.18% at March 31, 2023.

The Company's balance sheet continued to expand in the first three months of 2024 as total assets increased $31.5 million or 1.1% year-to-date. The loan portfolio increased $44.3 million or 2.1% in the three months ended March 31, 2024 and $190.9 million or 9.6% from a year ago. Loan growth in the first three months of 2024 was centered in the commercial and residential portfolios. Commercial loans increased by $34.0 million during the period, led by increases in owner-occupied commercial real estate of $12.7 million, non-owner occupied commercial real estate of $9.5 million, commercial & industrial loans of $6.8 million and multifamily of $7.9 million; commercial construction balances decreased by $2.9 million as a number of projects converted to permanent financing. Residential term loans increased by $3.2 million in the first three months of 2024 and residential construction loans increased by $2.5 million during the same period. The investment portfolio decreased $10.8 million year-to-date and decreased $24.1 million from a year ago based upon cash flow of amortizing securities, limited reinvestment or new purchases, and changes in the carrying value of AFS securities.

On the liability side of the balance sheet, total deposits decreased $50.7 million, or 1.9%, year-to-date to $2.55 billion. Low-cost deposits decreased $61.7 million, in line with seasonal deposit patterns. Money market balances increased $15.9 million and local CDs decreased $10.2 million. To balance the seasonal changes and to support earning asset growth, wholesale CDs increased $5.4 year-to-date and borrowings increased by $85.1 million.

Remaining well capitalized is a top priority for The Company. The Company's total risk-based capital ratio was 13.54% as of March 31, 2024, solidly above the well-capitalized threshold of 10.0% set by the FDIC, the FRBB, and the OCC.

Among the Company's operating ratios, the return on average assets was 0.82% and return on average tangible common equity of 11.36% for the three months ended March 31, 2024 compared to 1.16% and 15.64%, respectively, for the same period in 2023. Our non-GAAP efficiency ratio continues to be an important component in the Company's overall performance and stood at 61.15% for the three months ended March 31, 2024 compared to 49.98% for the same period in 2023.

Net Interest Income

Total interest income of $35.0 million for the three months ended March 31, 2024 was an increase of $6.1 million or 21.0% compared to total interest income of $28.9 million for the same period of 2023. Growth in earning assets coupled with higher interest rates resulted in the period-to-period increase. Higher market interest rates resulting from FOMC actions coupled with changing customer product preferences to higher cost money market and CD products led to total interest expense of $20.1 million for the three months ended March 31, 2024, an increase of $8.7 million or 75.8% compared to total interest expense for the three months ended March 31, 2023. As a result, net interest income of $14.9 million for the three months ended March 31, 2024 was a decrease of $2.6 million or 14.8% compared to net interest income of $17.5 million for the same period ended March 31, 2023. The Company's net interest margin on a tax-equivalent basis for the three months ended March 31, 2024 was 2.22%, down from 2.78% for the first three months of 2023. Tax-exempt interest income amounted to $2.5 million for the three months ended March 31, 2024 compared to $2.3 million for the three months ended March 31, 2023.

The following table presents the amount of interest earned or paid, as well as the average yield or rate on an annualized basis, for each major category of assets or liabilities for the three months ended March 31, 2024 and 2023. Tax-exempt income is calculated on a tax-equivalent basis, using a 21.0% Federal Income Tax rate.


	For the three months ended
	March 31, 2024				March 31, 2023
Dollars in thousands	Amount of interest		Average Yield/Rate		Amount of interest		Average Yield/Rate
Interest on earning assets
Interest-bearing deposits	$	78	5.50	%	$	40	4.83	%
Investments	5,236		3.17	%	5,281		3.12	%
Loans held for sale	—		0.00	%	—		0.00	%
Loans	30,343		5.68	%	24,213		5.04	%
Total interest income	35,657		5.09	%	29,534		4.54	%
Interest expense
Deposits	19,177		3.37	%	10,917		2.10	%
Other borrowings	931		2.93	%	522		1.94	%
Total interest expense	20,108		3.35	%	11,439		2.09	%
Net interest income	$	15,549			$	18,095
Interest rate spread			1.74	%			2.45	%
Net interest margin			2.22	%			2.78	%

The following table presents changes in interest income and expense attributable to changes in interest rates and volume for interest-earning assets and liabilities for the three months ended March 31, 2024 compared to 2023. Tax-exempt income is calculated on a tax-equivalent basis, using a 21% Federal Income Tax rate.


For the three months ended March 31, 2024 compared to 2023
Dollars in thousands	Volume		Rate		Rate/Volume1		Total
Interest on earning assets
Interest-bearing deposits	$	28	$	6	$	4	$	38
Investment securities	(166)		125		(4)		(45)
Loans held for sale	—		—		—		—
Loans	2,510		3,280		340		6,130
Change in interest income	2,372		3,411		340		6,123
Interest expense
Deposits	933		6,749		578		8,260
Other borrowings	88		275		46		409
Change in interest expense	1,021		7,024		624		8,669
Change in net interest income	$	1,351	$	(3,613)	$	(284)	$	(2,546)

1 Represents the change attributable to a combination of change in rate and change in volume.

Average Daily Balance Sheets

The following table shows the Company's average daily balance sheets for the three months ended March 31, 2024 and 2023:


	For the three months ended
Dollars in thousands	March 31, 2024		March 31, 2023
Assets
Cash and cash equivalents	$	23,520	$	23,122
Interest-bearing deposits in other banks	5,704		3,360
Securities available for sale (includes tax exempt securities of $36,490 and $36,636 at March 31, 2024 and 2023, respectively)	275,897		287,984
Securities to be held to maturity, net of ACL (included tax exempt securities of $253,412 and $257,279 at March 31, 2024 and 2023, respectively)	382,899		393,001
Restricted equity securities, at cost	5,084		4,451
Loans held for sale	16		28
Loans	2,150,359		1,948,353
Allowance for credit losses	(24,186)		(17,026)
Net loans	2,126,173		1,931,327
Accrued interest receivable	13,954		11,812
Premises and equipment	28,690		28,204

Goodwill	30,646		30,646
Other assets	62,479		61,844
Total Assets	$	2,955,062	$	2,775,779
Liabilities & Shareholders' Equity
Demand deposits	$	269,671	$	300,948
NOW deposits	624,781		606,145
Money market deposits	316,140		194,030
Savings deposits	288,025		359,361
Certificates of deposit	1,057,526		946,834
Total deposits	2,556,143		2,407,318
Borrowed funds – short term	57,621		109,209
Borrowed funds – long term	70,000		81
Dividends payable	903		876
Other liabilities	26,312		20,777
Total Liabilities	2,710,979		2,538,261
Shareholders' Equity:

Common stock	111		111
Additional paid-in capital	70,216		68,573
Retained earnings	215,529		209,543
Net unrealized loss on securities available for sale	(42,476)		(41,716)
Net unrealized loss on securities transferred from available for sale to held to maturity	(55)		(62)
Net unrealized gain on cash flow hedging derivative instruments	455		796
Net unrealized gain on postretirement benefit costs	303		273
Total Shareholders' Equity	244,083		237,518
Total Liabilities & Shareholders' Equity	$	2,955,062	$	2,775,779

Non-Interest Income

Non-interest income of $3.6 million for the three months ended March 31, 2024 is an increase of $71,000 compared to the same period in 2023. Mortgage banking revenue was down $62,000, or 32.3%; the decrease is attributable to a year-to-year decrease in mortgage origination activity and marks against mortgage servicing rights. Service charges on deposit accounts were up $62,000, or 14.2%, while debit card revenue was even with the three months ended March 31, 2024. Revenue at First National Wealth Management increased $42,000 or 3.7% over the same period.

Non-Interest Expense

Non-interest expense of $11.8 million for the three months ended March 31, 2024 is an increase of 8.4% or $911,000 compared to non-interest expense of $10.9 million for the same period in 2023. Salaries and employee benefits increased $337,000 or 5.9%, and other operating expense increased $270,000 or 10.4%. FDIC insurance premiums increased by $220,000 due to a base rate increase impacting all banks.

Income Taxes

Income taxes on operating earnings were $1.3 million for the three months ended March 31, 2024, down $422,000 from the same period in 2023.

Investments

The carrying value of the Company's investment portfolio decreased by $10.8 million between December 31, 2023 and March 31, 2024 from $670.7 million to $659.8 million. The change in value of the portfolio is attributable to a combination of incoming cash flow from amortizing investments, limited re-investment or new purchases, the effects of interest rate movement on the fair value of AFS holdings, and the impact of the ACL for HTM securities. As of March 31, 2024, mortgage-backed securities had a carrying value of $273.5 million and a fair value of $262.2 million. Of this total, securities with a fair value of $74.8 million or 28.7% of the mortgage-backed portfolio were issued by GNMA and securities with a fair value of $185.7 million or 71.3% of the mortgage-backed portfolio were issued by FHLMC and FNMA.

The Company's investment securities are classified into two categories: securities available for sale and securities to be held to maturity. Securities available for sale consist primarily of debt securities which Management intends to hold for indefinite periods of time. They may be used as part of the Company's funds management strategy, and may be sold in response to changes in interest rates, prepayment risk and liquidity needs, to increase capital ratios, or for other similar reasons. Securities to be held to maturity consist primarily of debt securities that the Company has acquired solely for long-term investment purposes, rather than potential future sale. For securities to be categorized as HTM, Management must have the intent and the Company must have the ability to hold such investments until their respective maturity dates. The Company does not hold trading account securities.

All investment securities are managed in accordance with a written investment policy adopted by the Board of Directors. It is the Company's general policy that investments for either portfolio be limited to government debt obligations, time deposits, and corporate bonds or commercial paper with one of the three highest ratings given by a nationally recognized rating agency. The portfolio is currently invested primarily in U.S. Government agency securities, mortgage-backed securities and tax-exempt obligations of states and political subdivisions. The individual securities have been selected to enhance the portfolio's overall yield while not materially adding to the Company's level of interest rate risk.

During the third quarter of 2014, the Company transferred securities with a total amortized cost of $89,780,000 and a corresponding fair value of $89,757,000 from AFS to HTM. The net unrealized loss, net of taxes, on these securities at the date of the transfer was $15,000. The net unrealized holding loss at the time of transfer continues to be reported in AOCI, net of tax and is amortized over the remaining lives of the securities as an adjustment of the yield. The amortization of the net unrealized loss reported in AOCI will offset the effect on interest income of the discount for the transferred securities. The remaining unamortized balance of the net unrealized losses for the securities transferred from AFS to HTM was $54,000 at March 31, 2024. This compares to $56,000 and $60,000, net of taxes, at December 31, 2023 and March 31, 2023, respectively. These securities were transferred as a part of the Company's overall investment and balance sheet strategies.

The following table sets forth the Company's investment securities at their carrying amounts as of March 31, 2024 and 2023 and December 31, 2023.


Dollars in thousands	March 31, 2024		December 31, 2023		March 31, 2023
Securities available for sale
U.S. Treasury & Agency securities	$	19,693	$	19,830	$	19,518
Mortgage-backed securities	218,002		224,597		231,091
State and political subdivisions	33,950		34,645		34,349
Asset-backed securities	2,806		2,981		3,284
	$	274,451	$	282,053	$	288,242
Securities to be held to maturity
U.S. Treasury & Agency securities	$	38,100	$	40,100	$	40,100
Mortgage-backed securities	55,483		56,401		59,523
State and political subdivisions	254,302		254,418		257,910

Corporate securities	31,750		34,750		34,750
	$	379,635	$	385,669	$	392,283
Less allowance for credit losses	(182)		(434)		(438)
Net securities to be held to maturity	$	379,453	$	385,235	$	391,845
Restricted equity securities
Federal Home Loan Bank Stock	$	4,896	$	2,348	$	2,837
Federal Reserve Bank Stock	1,037		1,037		1,037
	$	5,933	$	3,385	$	3,874
Total securities	$	659,837	$	670,673	$	683,961

The Company adopted ASC 326, the CECL standard in 2023. In conjunction with adoption, holdings of AFS Securities and HTM securities were evaluated to determine the need to establish an ACL, if any. The total ACL for HTM securities was $182,000 as of March 31, 2024, $434,000 as of December 31, 2023 and $438,000 March 31, 2023. Further details are included in Note 2 of the accompanying financial statements.

The following table sets forth yields and contractual maturities of the Company's investment securities as of March 31, 2024. Yields on tax-exempt securities have been computed on a tax-equivalent basis using a tax rate of 21%. Mortgage-backed securities are presented according to their final contractual maturity date, while the calculated yield takes into effect the intermediate cash flows from repayment of principal which results in a much shorter average life.


	Available For Sale				Held to Maturity
Dollars in thousands	Fair Value		Yield to maturity		Amortized Cost		Yield to maturity
U.S. Treasury & Agency Securities
Due in 1 year or less	$	1,453	1.80	%	$	—	0.00	%
Due in 1 to 5 years	1,434		1.86	%	—		0.00	%
Due in 5 to 10 years	8,012		1.17	%	11,500		1.05	%
Due after 10 years	8,794		2.00	%	26,600		1.58	%
Total	19,693		1.64	%	38,100		1.42	%
Mortgage-Backed Securities
Due in 1 year or less	—		0.00	%	—		0.00	%
Due in 1 to 5 years	197		3.25	%	7		7.08	%
Due in 5 to 10 years	9,876		3.59	%	3,966		4.59	%
Due after 10 years	207,929		2.39	%	51,510		1.52	%
Total	218,002		2.44	%	55,483		1.74	%
State & Political Subdivisions
Due in 1 year or less	—		0.00	%	923		3.71	%
Due in 1 to 5 years	270		5.06	%	11,002		3.90	%
Due in 5 to 10 years	7,072		2.51	%	58,647		3.40	%
Due after 10 years	26,608		3.34	%	183,730		2.48	%
Total	33,950		3.18	%	254,302		2.76	%
Asset-Backed Securities
Due in 1 year or less	—		0.00	%	—		0.00	%
Due in 1 to 5 years	—		0.00	%	—		0.00	%
Due in 5 to 10 years	—		0.00	%	—		0.00	%
Due after 10 years	2,806		6.51	%	—		0.00	%
Total	2,806		6.51	%	—		0.00	%
Corporate Securities
Due in 1 year or less	—		0.00	%	750		1.50	%
Due in 1 to 5 years	—		0.00	%	6,000		4.88	%
Due in 5 to 10 years	—		0.00	%	25,000		4.69	%
Due after 10 years	—		0.00	%	—		0.00	%
Total	—		0.00	%	31,750		4.65	%

	$	274,451	2.52	%	$	379,635	2.64	%

AFS Debt Securities in an Unrealized Loss Position

The securities portfolio contains certain AFS securities where the amortized cost of which exceeds fair value, which at March 31, 2024 amounted to $54.3 million, or 16.35% of the amortized cost of the total securities portfolio. At December 31, 2023, this amount was $50.4 million, or 15.18% of the amortized cost of total securities portfolio.

The Company's evaluation of securities for impairment is a quantitative and qualitative process intended to determine whether declines in the fair value of investment securities should be recognized as a charge against the ACL. The primary factors considered in evaluating whether a loss should be recognized include: (a) the length of time and extent to which the fair value has been less than cost or amortized cost and the expected recovery period of the security, (b) the financial condition, credit rating and future prospects of the issuer, (c) whether the debtor is current on contractually obligated interest and principal payments, (d) the volatility of the securities market price, (e) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery, which may be at maturity, and (f) any other information and observable data considered relevant in determining whether full collection of amounts contractually due will be realized.

The Company's best estimate of cash flows uses severe economic recession assumptions due to market uncertainty. The Company's assumptions include but are not limited to delinquencies, foreclosure levels and constant default rates on the underlying collateral, loss severity ratios, and constant prepayment rates. If the Company does not expect to receive 100% of future contractual principal and interest, a charge against the ACL is recognized. Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral.

As of March 31, 2024, the Company had AFS debt securities in an unrealized loss position with a fair value of $260.7 million and unrealized losses of $54.3 million, as identified in the table below. AFS Securities in a continuous unrealized loss position more than twelve months amounted to a fair value of $251.6 million as of March 31, 2024, compared with $257.7 million at December 31, 2023. The Company has concluded that these securities are fully collectible and that no charge against the allowance is required. This conclusion was based on the issuer's continued satisfaction of the securities obligations in accordance with their contractual terms and the expectation that the issuer will continue to do so, Management's intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value which may be at maturity, the expectation that the Company will receive 100% of future contractual cash flows, as well as the evaluation of the fundamentals of the issuer's financial condition and other objective evidence. The following table summarizes AFS debt securities in an unrealized loss position for which an ACL has not been recorded at March 31, 2024:


	Less than 12 months				12 months or more				Total
Dollars in thousands	Fair Value (Estimated)		Unrealized Losses		Fair Value (Estimated)		Unrealized Losses		Fair Value (Estimated)		Unrealized Losses
U.S. Treasury & Agency securities	$	—	$	—	$	19,693	$	(6,343)	$	19,693	$	(6,343)
Mortgage-backed securities	4,593		(16)		202,736		(41,619)		207,329		(41,635)
State and political subdivisions	4,520		(30)		29,161		(6,308)		33,681		(6,338)


	$	9,113	$	(46)	$	251,590	$	(54,270)	$	260,703	$	(54,316)

For AFS securities with unrealized losses, the following information was considered in determining that no charge against the allowance for decline in fair value was required in the current reporting period:

AFS Securities issued by the U.S. Treasury and U.S. Government-sponsored agencies & enterprises. As of March 31, 2024, there were $6.3 million of unrealized losses on these securities compared to $6.2 million at December 31, 2023. All of these securities were credit rated "AAA" or "AA+" by the major credit rating agencies. Management believes that securities issued by the U.S. Treasury and U.S. Government-sponsored agencies and enterprises carry zero or near-zero credit risk, and that 100% of the amounts contractually due will be collected.

AFS Mortgage-backed securities issued by U.S. Government agencies and U.S. Government-sponsored enterprises. As of March 31, 2024, there were $41.6 million of unrealized losses on these securities compared with $38.5 million at December 31, 2023. All of these securities were credit rated "AAA" or "AA+" by the major credit rating agencies. Management believes that securities issued by U.S. Government agencies bear no credit risk because they are backed by the full faith and credit of the United States and that securities issued by U.S. Government-sponsored enterprises have minimal credit risk, as these agencies and enterprises play a vital role in the nation's financial markets. Management believes that the unrealized losses at March 31, 2024 were attributable to changes in current market yields and spreads since the date the underlying securities were purchased, and that 100% of the amounts contractually due will be realized. The Company also has the ability and intent to hold these securities until a recovery of their amortized cost, which may be at maturity.

AFS Obligations of state and political subdivisions. As of March 31, 2024, there were $6.3 million of unrealized losses on these securities compared to $5.7 million at December 31, 2023. Municipal securities are supported by the general taxing authority of the municipality or a dedicated revenue stream, and, in the case of school districts, are generally supported by state aid. At March 31, 2024, all municipal bond issuers were current on contractually obligated interest and principal payments. The Company attributes the unrealized losses at March 31, 2024 to changes in prevailing market yields and pricing spreads since the date the underlying securities were purchased, combined with current market liquidity conditions and disruption in the financial markets in general. The Company has the ability and intent to hold these securities until a recovery of their amortized cost, which may be at maturity, and believes that 100% of the amounts contractually due will be realized.

AFS Asset-backed securities. As of March 31, 2024, there were no unrealized losses on these securities compared to $9,000 at December 31, 2023. These securities consist of U.S. Government backed student loans along with other credit enhancements. Management believes that the unrealized losses at March 31, 2024 were attributable to changes in current market yields and spreads since the date the underlying securities were purchased, and that 100% of the amounts contractually due will be realized.

FHLBB and FRBB Stock

The Bank is a member of the FHLBB, a cooperatively owned wholesale bank for housing and finance in the six New England States. As a requirement of membership in the FHLBB, the Bank must own a minimum required amount of FHLBB stock, calculated periodically based primarily on its level of borrowings from the FHLBB. The Bank uses the FHLBB for a portion of its wholesale funding needs. As of March 31, 2024, the Bank's investment in FHLBB stock totaled $4.9 million. This compares to $2.3 million as of December 31, 2023 and $2.8 million as of March 31, 2023. FHLBB stock is a non-marketable equity security and therefore is reported at cost, subject to adjustments for any observable market transactions on the same or similar instruments of the investee. No impairment losses have been recorded through March 31, 2024.

The Bank is also a member of the FRBB. As a requirement for membership in the FRBB, the Bank must own a minimum required amount of FRBB stock. The Bank uses FRBB for certain correspondent banking services and maintains borrowing capacity at its discount window. The Bank's investment in FRBB stock totaled $1.0 million at March 31, 2024 and 2023, and December 31, 2023.

Loans Held for Sale

Loans held for sale are carried at the lower of cost or market value. There were no loans held for sale as of March 31, 2024 and 2023 and December 31, 2023.

Loans

The Company provides loans to customers within our market area, the State of Maine, with very limited exposures outside of Maine. Loans are originated primarily via our network of branch offices, along with an online channel for residential mortgage loans.

The loan portfolio increased during the first three months of 2024, with total loans at $2.17 billion at March 31, 2024, up $44.3 million or 2.1% from total loans of $2.13 billion at December 31, 2023. Commercial loans increased $34.0 million or 2.8% between December 31, 2023 and March 31, 2024, municipal loans increased $3.3 million or 6.5%, residential term loans increased $3.2 million, residential construction increased $2.5 million, and home equity lines of credit increased $1.8 million.

The loan portfolio is segmented into eleven classes. Commercial loans comprise six of the classes: commercial real estate owner occupied, commercial real estate non-owner occupied, commercial construction, C&I, multifamily and agriculture. Residential mortgage loans comprise two of the classes: residential real estate term and residential real estate construction. The remaining classes are municipal loans, home equity loans, and consumer loans. Further descriptions of each class, and the risk factors associated with each, are included in Note 4 of the accompanying financial statements.

The following table summarizes the loan portfolio, by class, at March 31, 2024 and 2023 and December 31, 2023.


Dollars in thousands	March 31, 2024				December 31, 2023				March 31, 2023
Commercial
Real estate owner occupied	$	327,496	15.1	%	$	314,819	14.8	%	$	285,224	14.4	%
Real estate non-owner occupied	399,658		18.4	%	390,167		18.3	%	380,922		19.2	%
Construction	85,817		3.9	%	88,673		4.2	%	72,705		3.7	%
C&I	321,855		14.8	%	315,026		14.8	%	294,885		14.9	%
Multifamily	101,344		4.7	%	93,476		4.4	%	81,089		4.1	%
Agriculture	45,064		2.1	%	45,230		2.1	%	48,338		2.4	%
Municipal	54,746		2.5	%	51,423		2.4	%	47,166		2.4	%
Residential
Term	678,093		31.1	%	674,855		31.7	%	606,849		30.5	%
Construction	34,824		1.6	%	32,358		1.5	%	52,712		2.7	%
Home Equity
Revolving and term	105,814		4.9	%	104,026		4.9	%	93,522		4.7	%
Consumer	19,035		0.9	%	19,401		0.9	%	19,435		1.0	%
Total loans	$	2,173,746	100.0	%	$	2,129,454	100.0	%	$	1,982,847	100.0	%

The following table sets forth certain information regarding the contractual maturities of the Bank's loan portfolio as of March 31, 2024.


Dollars in thousands	< 1 Year		1 - 5 Years		5 - 10 Years		> 10 Years		Total
Commercial
Real estate owner occupied	$	180	$	28,885	$	32,058	$	266,373	$	327,496
Real estate non-owner occupied	688		23,748		65,044		310,178		399,658
Construction	1,520		4,417		9,293		70,587		85,817
C&I	1,172		179,477		60,753		80,453		321,855
Multifamily	—		4,721		208		96,415		101,344
Agriculture	8		7,858		12,994		24,204		45,064
Municipal	—		15,113		12,113		27,520		54,746
Residential
Term	—		8,594		35,290		634,209		678,093
Construction	—		1,266		—		33,558		34,824
Home Equity
Revolving and term	1,017		5,102		6,026		93,669		105,814
Consumer	5,210		7,438		2,556		3,831		19,035
Total loans	$	9,795	$	286,619	$	236,335	$	1,640,997	$	2,173,746

The following table provides a listing of loans by class, between variable and fixed rates as of March 31, 2024.


	Fixed-Rate				Adjustable-Rate				Total
Dollars in thousands	Amount		% of total		Amount		% of total		Amount		% of total
Commercial
Real estate owner occupied	$	29,553	1.4	%	$	297,943	13.7	%	$	327,496	15.1	%
Real estate non-owner occupied	100,455		4.6	%	299,203		13.8	%	399,658		18.4	%
Construction	21,675		1.0	%	64,142		2.9	%	85,817		3.9	%
C&I	121,053		5.6	%	200,802		9.2	%	321,855		14.8	%
Multifamily	4,326		0.2	%	97,018		4.5	%	101,344		4.7	%
Agriculture	8,118		0.4	%	36,946		1.7	%	45,064		2.1	%
Municipal	54,513		2.5	%	233		0.0	%	54,746		2.5	%
Residential
Term	458,056		21.0	%	220,037		10.1	%	678,093		31.1	%
Construction	11,314		0.5	%	23,510		1.1	%	34,824		1.6	%
Home Equity
Revolving and Term	15,383		0.7	%	90,431		4.2	%	105,814		4.9	%
Consumer	13,411		0.6	%	5,624		0.3	%	19,035		0.9	%
Total loans	$	837,857	38.5	%	$	1,335,889	61.5	%	$	2,173,746	100.0	%

Loan Concentrations

As of March 31, 2024, the Bank had two concentration of loans in two particular industries that exceeded 10% of its total loan portfolio: (1) loans to hotels (except Casino hotels) and motels, totaling $231.5 million, or 10.65% of total loans; and (2) loans to lessors of residential buildings and dwellings, totaling $229.5 million, or 10.56% of total loans. This compares to one concentration of loans in one particular industry that exceeded 10% of its total loan portfolio, hotels (except Casino hotels) and motels, totaling $223.5 million, or 11.27% of total loans, as of March 31, 2023.

Credit Risk Management and Allowance for Credit Losses on Loans

Upon adoption of the CECL standard, in 2023, the Company replaced the incurred loss model that recognized loan losses when it became probable that a credit loss would be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The ACL is a valuation amount that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. The ACL consists of three elements: (1) specific reserves for loans individually analyzed; (2) general reserves for each portfolio segment; and, (3) qualitative reserves. All outstanding loans are considered in evaluating the appropriateness of the allowance with similar risk characteristics in the portfolio. Prior to adoption of ASC 326, under the incurred loss methodology, the Company evaluated portfolio risk characteristics largely on loan purpose.

The Company provides for loan losses through the ACL which represents an estimated reserve for losses in the loan portfolio. To determine an appropriate level for general reserves, a discounted cash flow approach is applied to each portfolio segment implementing a probability of default and loss given default estimate based upon a number of factors including historical losses over an economic cycle, economic forecasts, loan prepayment speeds and curtailment rates. To determine an appropriate level for qualitative reserves various factors are considered including underwriting policies, credit administration practices, experience, ability and depth of lending management, and economic factors not captured in the general reserve calculation.

The ACL is increased by provisions charged against current earnings. Loan losses are charged against the allowance when Management believes that the collectibility of the loan principal is unlikely. Recoveries on loans previously charged off are credited to the allowance. The adequacy of the ACL is overseen by the ACL Committee whose membership includes senior level personnel from the Executive, Lending, Credit Administration, and Finance functions of the Bank. While Management uses available information to assess possible losses on loans, future additions to the allowance may be necessary based on increases in non-performing loans, changes in economic conditions or outlook, growth in loan portfolios, or for other reasons. Any future additions to the allowance would be recognized in the period in which they were determined to be necessary. In addition, various regulatory agencies periodically review the Company's ACL as an integral part of their examination process. Such agencies may require the Company to record additions to the allowance based on judgments different from those of Management.

The ACL includes reserve amounts assigned to IAL. This includes loans placed on non-accrual and loans reported as TDR prior to adoption of ASU 2022-02, with balances of $250,000 or more. A specific reserve is allocated to an individual loan when the amount of a probable loss is estimable on the basis of its collateral value, the present value of anticipated future cash flows, or its net realizable value. At March 31, 2024, IAL with specific reserves totaled $606,000 and the amount of such reserves was $243,000. This compares to IAL with specific reserves of $919,000 at December 31, 2023 and the amount of such reserves was $264,000.

The total ACL on loans at March 31, 2024 is considered by Management to be appropriate to address the potential for credit losses inherent in the loan portfolio at that date. However, determination of the appropriate allowance level is based upon a number of assumptions made about future events, which we believe are reasonable, but which may or may not prove valid. Thus, there can be no assurance charge-offs in future periods will not exceed the ACL or that additional increases in the ACL will not be necessary.

The following table summarizes the allocation of allowance by loan class as of March 31, 2024 and 2023 and December 31, 2023. The percentages are the portion of each loan class to total loans.


Dollars in thousands	March 31, 2024				December 31, 2023				March 31, 2023
Commercial
Real estate owner occupied	$	5,180	15.1	%	$	4,633	14.8	%	$	4,470	14.4	%
Real estate non-owner occupied	4,265		18.4	%	4,285		18.5	%	4,422		19.4	%
Construction	820		3.9	%	1,978		4.2	%	1,784		3.7	%
C&I	5,083		14.8	%	5,001		16.8	%	4,838		17.1	%
Multifamily	1,507		4.7	%	1,318		4.4	%	1,206		4.1	%
Agriculture	392		2.1	%	—		—	%	—		—	%
Municipal	194		2.5	%	334		2.4	%	307		2.4	%
Residential
Term	5,354		31.1	%	4,991		31.6	%	4,608		30.5	%
Construction	562		1.6	%	618		1.5	%	949		2.7	%
Home Equity
Revolving and term	677		4.9	%	626		4.9	%	603		4.7	%
Consumer	173		0.9	%	246		0.9	%	271		1.0	%
Total	$	24,207	100.0	%	$	24,030	100.0	%	$	23,458	100.0	%

The ACL totaled $24.2 million at March 31, 2024, compared to $24.0 million as of December 31, 2023 and $23.5 million as of March 31, 2023.

A breakdown of the ACL on loans as of March 31, 2024, by loan class and allowance element, is presented in the following table:


Dollars in thousands	Specific Reserves on Loans Evaluated Individually		General Reserves on Loans Based on Historical Loss Experience		Reserves for Qualitative Factors		Total Reserves
Commercial
Real estate owner occupied	$	—	$	4,177	$	1,003	$	5,180
Real estate non-owner occupied	—		3,730		535		4,265
Construction	—		910		(90)		820
C&I	221		4,001		861		5,083
Multifamily	—		1,348		159		1,507
Agriculture	—		358		34		392
Municipal	—		38		156		194
Residential
Term	22		4,587		745		5,354
Construction	—		648		(86)		562
Home Equity
Revolving and term	—		554		123		677
Consumer	—		158		15		173
	$	243	$	20,509	$	3,455	$	24,207

Based upon Management's evaluation, provisions are made to maintain the allowance as a best estimate of expected losses within the portfolio. The provision for credit losses to maintain the allowance was $99,000 for the first three months of 2024 and $550,000 the first three months of 2023. Net recoveries were $78,000 in the first three months of 2024, compared to net charge-offs of $25,000 in the first three months of 2023. The ACL as a percentage of outstanding loans was 1.11% as of March 31, 2024, down from 1.13% as of December 31, 2023, and down from 1.18% as of March 31, 2023.

The following table summarizes the activities in our ACL for the three months ended March 31, 2024 and 2023 and for the year ended December 31, 2023:


Dollars in thousands	March 31, 2024			December 31, 2023			March 31, 2023
Balance at the beginning of period	$	24,030		$	16,723		$	16,723
Loans charged off:
Commercial
Real estate owner occupied	—			40			39
Real estate non-owner occupied	—			—			—
Construction	—			—			—
C&I	—			153			—
Multifamily	—			—			—
Agriculture	—			—			—
Municipal	—			—			—
Residential
Term	—			—			—
Construction	—			—			—
Home Equity
Revolving and term	—			50			—
Consumer	96			194			37
Total	96			437			76
Recoveries on loans previously charged off
Commercial
Real estate owner occupied	100			2			—
Real estate non-owner occupied	—			75			—
Construction	—			—			—
C&I	23			3			2
Multifamily	—			—			—
Agriculture	—			—			—
Municipal	—			—			—
Residential
Term	25			14			2
Construction	—			—			—
Home Equity
Revolving and term	3			13			4
Consumer	23			97			43
Total	174			204			51
Net loans (recovered) charged off	(78)			233			25
Provision for credit losses	99			1,330			550
Adoption of ASU No. 2016-13	—			6,210			6,210
Balance at end of period	$	24,207		$	24,030		$	23,458
Ratio of net loans (recovered) charged off to average loans outstanding1	(0.015)		%	0.011		%	0.010		%
Ratio of allowance for credit losses to total loans outstanding	1.11		%	1.13		%	1.18		%

1 Annualized using a 366-day basis in 2024 and a 365-day basis in 2023.

ACL for Unfunded Commitments

Our modeling methodology applies the same class level credit loss factors used in the ACL for loans model to applicable classes of unfunded commitments to determine an appropriate ACL level. Utilization assumptions are based upon an independent analysis of the Bank's historical data. The ACL for unfunded commitments is reported on the Company's consolidated balance sheets within other liabilities and totaled $895,000 as of March 31, 2024.

Nonperforming Loans

Nonperforming loans are comprised of loans, for which based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement or when principal and interest is 90 days or more past due unless the loan is both well secured and in the process of collection (in which case the loan may continue to accrue interest in spite of its past due status). A loan is "well secured" if it is secured (1) by collateral in the form of liens on or pledges of real or personal property, including securities, that have a realizable value sufficient to discharge the debt including accrued interest) in full, or (2) by the guarantee of a financially responsible party. A loan is "in the process of collection" if collection of the loan is proceeding in due course either (1) through legal action, including judgment enforcement procedures, or (2) in appropriate circumstances, through collection efforts not involving legal action which are reasonably expected to result in repayment of the debt or in its restoration to a current status in the near future.

Generally, when a loan becomes 90 days past due it is evaluated for collateral dependency based upon the most recent appraisal or other evaluation method. If the collateral value is lower than the outstanding loan balance plus accrued interest and estimated selling costs, the loan is placed on non-accrual status, all accrued interest is reversed from interest income, and a specific reserve is established for the difference between the loan balance and the collateral value less selling costs, or, in certain situations, the difference between the loan balance and the collateral value less selling costs is written off. Concurrently, a new appraisal or valuation may be ordered, depending on collateral type, currency of the most recent valuation, the size of the loan, and other factors appropriate to the loan. Upon receipt and acceptance of the new valuation, the loan may have an additional specific reserve or write down based on the updated collateral value. On an ongoing basis, appraisals or valuations may be done periodically on collateral dependent nonperforming loans and an additional specific reserve or write down will be made, if appropriate, based on the new collateral value.

Once a loan is placed on nonaccrual, it remains in nonaccrual status until the loan is current as to payment of both principal and interest and the borrower demonstrates the ability to pay and remain current. All payments made on nonaccrual loans are applied to the principal balance of the loan.

Nonperforming loans, expressed as a percentage of total loans, totaled 0.12% at March 31, 2024 compared to 0.10% at December 31, 2023 and 0.09% at March 31, 2023. The following table shows the distribution of nonperforming loans by class as of March 31, 2024 and 2023 and December 31, 2023:


Dollars in thousands	March 31, 2024			December 31, 2023			March 31, 2023
Commercial
Real estate owner occupied	$	—		$	—		$	152
Real estate non-owner occupied	—			—			—
Construction	20			29			23
C&I	394			538			648
Multifamily	—			—			—
Agriculture	33			—			—
Municipal	—			—			—
Residential				—
Term	1,959			1,315			443
Construction	—			—			—
Home Equity				—
Revolving and term	304			296			534
Consumer	—			—			—
Total nonperforming loans	$	2,710		$	2,178		$	1,800
Allowance for credit losses on loans as a percentage of nonperforming loans	893.2		%	1103.3		%	1303.2		%

The amounts shown for total nonperforming loans do not include loans 90 or more days past due and still accruing interest. These are loans for which we expect to collect all amounts due, including past-due interest. As of March 31, 2024, loans 90 days or more day past due and still accruing interest totaled $50,000, compared to $429,000 at December 31, 2023 and $208,000 at March 31, 2023.

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

The Company adopted ASU 2022-02 effective January 1, 2023. Reporting of loan modifications subject to ASU 2022-02 may be found in Note 3 of the accompanying financial statements.

Past Due Loans

The Bank's overall loan delinquency ratio was 0.09% at March 31, 2024 compared to 0.18% at December 31, 2023 and 0.10% at March 31, 2023. Loans 90 days delinquent and accruing decreased from $429,000 at December 31, 2023 to $50,000 as of March 31, 2024. The following table sets forth loan delinquencies as of March 31, 2024 and 2023 and December 31, 2023:


Dollars in thousands	March 31, 2024			December 31, 2023			March 31, 2023
Commercial
Real estate owner occupied	$	447		$	—		$	152
Real estate non-owner occupied	—			—			—
Construction	—			17			—
C&I	87			869			300
Multifamily	—			—			—
Agriculture	119			—			—
Municipal	—			31			—
Residential
Term	829			1,800			806
Construction	—			—			—
Home Equity
Revolving and term	396			616			568
Consumer	170			555			120
Total	$	2,048		$	3,888		$	1,946
Loans 30-89 days past due to total loans	0.058		%	0.139		%	0.060		%
Loans 90+ days past due and accruing to total loans	0.002		%	0.020		%	0.010		%
Loans 90+ days past due on non-accrual to total loans	0.034		%	0.024		%	0.030		%
Total past due loans to total loans	0.094		%	0.183		%	0.100		%

Potential Problem Loans and Loans in Process of Foreclosure

Potential problem loans consist of classified, accruing commercial and commercial real estate loans that were between 30 and 89 days past due. Such loans are characterized by weaknesses in the financial condition of borrowers or collateral deficiencies. Based on historical experience, the credit quality of some of these loans may improve due to improvements in the economy as well as changes in collateral values or the financial condition of the borrowers, while the credit quality of other loans may deteriorate, resulting in some amount of loss. At March 31, 2024, there were no potential problem loans reported. This compares to three potential problem loans with a balance of $180,000 or 0.01% of total loans at December 31, 2023.

As of March 31, 2024, there were four residential loans in the process of foreclosure totaling $510,000. The Bank's residential foreclosure process begins when a loan becomes 75 days past due at which time a Demand/Breach Letter is sent to the borrower. If the loan becomes 120 days past due, copies of the promissory note and mortgage deed are forwarded to the Bank's attorney for review and a complaint for foreclosure is then prepared. An authorized Bank officer signs the affidavit certifying the validity of the documents and verification of the past due amount which is then forwarded to the court. Once a Motion for Summary Judgment is granted, a POR begins which gives the customer 90 days to cure the default. A foreclosure auction date is then set 30 days from the POR expiration date if the default is not cured.

As of March 31, 2024, there were no commercial loans in the process of foreclosure. The Bank's commercial foreclosure process begins when a loan becomes 60 days past due, at which time a default letter is issued. At expiration of the period to cure default, which lasts 12 days after the issuing of the default letter, copies of the promissory note and mortgage deed are forwarded to the Bank's attorney for review. A Notice of Statutory Power of Sale is then prepared. This notice must be published for three consecutive weeks in a newspaper located in the county in which the property is located. A notice also must be issued to the mortgagor and all parties of interest 21 days prior to the sale. The foreclosure auction occurs and the Affidavit of Sale is recorded within the appropriate county within 30 days of the sale.

The Bank’s written policies and procedures for foreclosures, along with implementation of same, are subject to annual review by its internal audit provider. The scope of this review includes loans held in portfolio and loans serviced for others. There were no issues requiring management attention in the most recent review. Servicing for others includes loans sold to FHLMC, FNMA, and the FHLBB through its MPF program. The Bank follows the published guidelines of each investor. Loans serviced for FHLMC and FNMA have been sold without recourse, and the Bank has no liability for these loans in the

event of foreclosure. A de minimis volume of loans has been sold to and serviced for MPF to date. The Bank retains a second loss layer credit enhancement obligation; no losses have been recorded on this credit enhancement obligation since the Bank started selling loans to MPF in 2013.

Other Real Estate Owned

OREO and repossessed assets are comprised of properties or other assets acquired through a foreclosure proceeding, or acceptance of a deed or title in lieu of foreclosure. Real estate acquired through foreclosure is carried at the lower of fair value less estimated cost to sell or the cost of the asset and is not included as part of the ACL totals. At March 31, 2024 and 2023, and December 31, 2023, there were no OREO properties and no allowance for losses.

Liquidity

Liquidity is the ability of a financial institution to meet maturing liability obligations, depositor withdrawal requests, and customer loan demand. The Bank's lead source of liquidity is deposits, including brokered deposits, which funded 86.5% of total average assets in the first three months of 2024, down slightly from 86.7% a year ago. Other sources of funding include discretionary use of purchased liabilities (e.g., FHLBB term or overnight advances, and other borrowings), cash flows from the securities portfolio and loan repayments. Securities designated as available for sale may also be sold in response to short-term or long-term liquidity needs, although Management has no intention to do so at this time. While the generally preferred funding strategy is to attract and retain low cost deposits, our ability to do so is affected by competitive interest rates and terms in the marketplace.

The Bank has a detailed liquidity funding policy and a contingency funding plan that provide for prompt and comprehensive responses to unexpected demands for liquidity. Management has developed quantitative models to estimate needs for contingent funding that could result from unexpected outflows of funds in excess of "business as usual" cash flows. In Management's estimation, risks are concentrated amongst several major categories: runoff of in-market deposit balances, an inability to renew wholesale sources of funding, and materially increased utilization of available credit lines by borrowers. Of these, potential runoff of deposit balances would have the most significant impact on contingent liquidity. Our modeling attempts to quantify deposits at risk over selected time horizons. In addition to these outflow risks, several other "business as usual" factors enter into the calculation of the adequacy of contingent liquidity, including payment proceeds from loans and investment securities, maturing debt obligations and maturing time deposits. Stress testing analysis of liquidity resources under various scenarios is conducted no less than quarterly and results are reported to the ALCO. Borrowings supplement deposits as a source of liquidity; our borrowings typically consist of customer repurchase agreements and FHLBB advances. The Bank tests its borrowing capacity with the FRBB, the FHLBB and Fed Funds lines with other correspondents no less than annually; each has been tested within the past five months.

The Company defines its primary sources of contingent liquidity as cash & equivalents, unencumbered U.S. Government or Agency bond collateral, available capacity at FHLBB, and available authorized brokered deposit issuance capacity. As of March 31, 2024, the Bank had primary sources of contingent liquidity of $804.0 million or 27.3% of its total assets. It is Management's opinion that this is an appropriate level. In addition, the Bank has $201.0 million in borrowing capacity at FRBB under the FRBB's Borrower in Custody program as well as securities available as collateral, $76.0 million in credit lines with correspondent banks, and $166.0 million in other unencumbered securities available as collateral for borrowing. These bring the Bank's total sources of liquidity to $1.247 billion or 42.3% of its total assets.

The ALCO establishes guidelines for liquidity in its Asset/Liability policy and monitors internal liquidity measures to manage liquidity exposure. Based on its assessment of the liquidity considerations described above, Management believes the Company's sources of funding will meet anticipated funding needs.

The Company is dependent upon the payment of cash dividends by the Bank to service its commitments. As the sole shareholder of the Bank, the Company is entitled to such dividends when and as declared by the Bank's Board of Directors from legally available funds. For the three-months periods ended March 31, 2024 and 2023 the Bank declared dividends to the Company of $3.9 million and $3.8 million, respectively. The Bank's regulator, the OCC, may limit the amount of dividends declared and paid in a calendar year based upon certain factors. Further discussion may be found in Shareholder's Equity below.

Deposits

During the first three months of 2024, total deposits decreased by $50.7 million or 1.9% from December 31, 2023 levels. Low-cost deposits (demand, NOW, and savings accounts) decreased by $61.7 million or 5.0% in the first three months of 2024. Money market deposits increased $15.9 million or 5.2%, and certificates of deposit decreased $4.8 million or 0.5% as depositors shifted balances to higher cost product types and brokered certificates of deposit were issued to support earning asset growth. The decrease in total deposits for the period was consistent with Management's estimates based upon historical seasonal deposit behaviors.

Between March 31, 2023 and March 31, 2024, total deposits increased by $82.3 million or 3.3%. Low-cost deposits decreased by $101.1 million or 8.0%, money market accounts increased $127.6 million or 65.7%, and certificates of deposit increased $55.8 million or 5.5%.

Estimated uninsured deposits totaled $417.2 million or 16.4% of total deposits as of March 31, 2024, and $407.4 million or 15.7% of total deposits as of December 31, 2023. The company has pledged assets as collateral covering certain deposits; these amounts were $314.2 million and $340.5 million as of March 31, 2024 and December 31, 2023, respectively.

Borrowed Funds

The Company uses funding from the FHLBB, the FRBB and customer repurchase agreements enabling it to grow its balance sheet and its revenues. This funding may also be used to balance seasonal deposit flows or to carry out interest rate risk management strategies, and may be used to replace or supplement other sources of funding, including core deposits and certificates of deposit. During the three months ended March 31, 2024, borrowed funds increased $85.1 million or 122.2% from December 31, 2023. This included a $61.9 million increase in FHLBB advances, and a $25.0 million advance under the FRBB's BTFP, both at rates more favorable than other funding alternatives. Between March 31, 2023 and March 31, 2024, borrowed funds increased by $70.9 million or 84.5%.

Capital Resources

Shareholders' equity as of March 31, 2024 was $242.6 million, compared to $243.1 million as of December 31, 2023 and $228.5 million as of March 31, 2023. The Company's earnings in the first three months of 2024, net of dividends declared, added $2.1 million to shareholders' equity. The net unrealized loss on AFS securities, net of tax, presented in accordance with FASB ASC Topic 320 "Investments – Debt and Equity Securities" stands at $42.8 million as of March 31, 2024 and was $39.6 million as of December 31, 2023. Additional information about the net unrealized loss on AFS securities was provided in Note 2 of the Consolidated Financial Statements and in the AFS Debit Securities section of Management's Discussion and Analysis of Financial Condition and Results of Operations.

A cash dividend of $0.35 per share was declared in the first quarter of 2024. The dividend payout ratio, which is calculated by dividing dividends declared per share by basic earnings per share, was 63.64% for the first three months of 2024 compared to 46.58% for the same period in 2023. In determining future dividend payout levels, the Board of Directors carefully analyzes capital requirements and earnings retention, as set forth in the Company's Dividend Policy. The ability of the Company to pay cash dividends to its shareholders depends on receipt of dividends from its subsidiary, the Bank. The subsidiary may pay dividends to its parent out of so much of its net profits as the Bank's directors deem appropriate, subject to the limitation that the total of all dividends declared by the Bank in any calendar year may not exceed the total of its net profits of that year combined with its retained net profits of the preceding two years. The amount available for dividends in 2024 is this year's net income plus $41.5 million.

Financial institution regulators have established guidelines for minimum capital ratios for banks and bank holding companies. The net unrealized gain or loss on AFS securities is generally not included in computing regulatory capital. During the first quarter of 2015, the Company adopted the new Basel III regulatory capital framework as approved by the federal banking agencies. In order to avoid limitations on capital distributions, including dividend payments, the Company must hold a capital conservation buffer of 2.5% above the adequately capitalized risk-based capital ratios. The Company met each of the well-capitalized ratio guidelines at March 31, 2024.

The following tables indicate the capital ratios for the Bank and the Company at March 31, 2024 and December 31, 2023.


As of March 31, 2024	Leverage		Common Equity Tier 1		Tier 1		Total Risk-Based
Bank	8.52	%	12.27	%	12.27	%	13.49	%
Company	8.67	%	12.31	%	12.31	%	13.54	%
Adequately capitalized ratio	4.00	%	4.50	%	6.00	%	8.00	%
Adequately capitalized ratio plus capital conservation buffer	n/a	%	7.00	%	8.50	%	10.50	%
Well capitalized ratio (Bank only)	5.00	%	6.50	%	8.00	%	10.00	%


As of December 31, 2023	Leverage		Common Equity Tier 1		Tier 1		Total Risk-Based
Bank	8.43	%	12.37	%	12.37	%	13.62	%
Company	8.61	%	12.42	%	12.42	%	13.66	%
Adequately capitalized ratio	4.00	%	4.50	%	6.00	%	8.00	%
Adequately capitalized ratio plus capital conservation buffer	n/a	%	7.00	%	8.50	%	10.50	%
Well capitalized ratio (Bank only)	5.00	%	6.50	%	8.00	%	10.00	%

The Bank maintains and annually updates a capital plan over a five year horizon; the capital plan was last updated in the third quarter of 2023. Based upon reasonable assumptions of growth and operating performance, the base capital plan model projects that the Bank will be well capitalized throughout the five year period. The base model is also stress tested for interest rate risk from increasing and decreasing rates, credit risk in normal, elevated and severe loss scenarios, and combinations of interest rate and credit risk. In each stress scenario, the Bank maintained well capitalized status.

Off-Balance Sheet Financial Credit Exposures and Contractual Obligations

Derivative Financial Instruments Designated as Hedges

As part of its overall asset and liability management strategy, the Bank periodically uses derivative instruments to minimize significant unplanned fluctuations in earnings and cash flows caused by interest rate volatility. The Bank's interest rate risk management strategy involves modifying the re-pricing characteristics of certain assets and/or liabilities to mitigate adverse impacts upon net interest income resulting from interest rate changes. Derivative instruments that Management periodically uses as part of its interest rate risk management strategy may include interest rate swap agreements, interest rate floor agreements, and interest rate cap agreements.

At March 31, 2024, the Bank had two outstanding off-balance sheet, derivative instruments, designated as cash flow hedges and four off-balance sheet, derivative instruments, designated as fair value hedges. These derivative instruments were interest rate swap agreements, with notional principal amounts totaling $85.0 million and $150.0 million, respectively, and an unrealized gain of $488,000, net of taxes. The notional amounts and net unrealized gain (loss) of the financial derivative instruments do not represent exposure to credit loss. The Bank is exposed to credit loss only to the extent the counterparty defaults in its responsibility to pay interest under the terms of the agreements. The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that Management believes to be creditworthy and by limiting the amount of exposure to each counter-party. At March 31, 2024, the Bank's derivative instrument counterparties had a composite credit rating of “A-” based upon the ratings of several major credit rating agencies. The interest rate swap agreements were entered into by the Bank to limit its exposure to rising interest rates.

The Bank also enters into swap arrangements with qualified loan customers as a means to provide these customers with access to long-term fixed interest rates for borrowings, and simultaneously enters into a swap contract with an approved third- party financial institution. The terms of the contracts are designed to offset one another resulting in there being neither a net gain or a loss. The notional amounts of the financial derivative instruments do not represent exposure to credit loss. The Bank is exposed to credit loss only to the extent that either counter-party defaults in its responsibility to pay interest under the terms of the agreements. Credit risk is mitigated by prudent underwriting of the loan customer and financial institution counterparties. As of March 31, 2024, the Bank had seven loan swap agreements in place with a total notional value of $81.2 million.

Contractual Obligations

The following table sets forth the contractual obligations of the Company as of March 31, 2024:


Dollars in thousands	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Borrowed funds	$	154,779	$	84,779	$	70,000	$	—	$	—
Operating leases	740		104		183		57		396
Certificates of deposit	1,065,427		706,738		304,123		54,566		—
Total	$	1,220,946	$	791,621	$	374,306	$	54,623	$	396
Total loan commitments and unused lines of credit	$	309,542	$	309,542	$	—	$	—	$	—

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

Market-Risk Management

Market risk is the risk of loss arising from adverse changes in the fair value of financial instruments due to changes in interest rates. The First Bancorp, Inc.'s market risk is composed primarily of interest rate risk. The Bank's ALCO is responsible for reviewing the interest rate sensitivity position of the Company and establishing policies to monitor and limit exposure to interest rate risk. All guidelines and policies established by the ALCO have been approved by the Board of Directors.

Asset/Liability Management

The primary goal of asset/liability management is to maximize net interest income within the interest rate risk limits set by the ALCO. Interest rate risk is monitored through the use of two complementary measures: static gap analysis and earnings simulation modeling. While each measurement has limitations, taken together they represent a reasonably comprehensive view of the magnitude of interest rate risk in the Company, the level of risk through time, and the amount of exposure to changes in certain interest rate relationships.

Static gap analysis measures the amount of repricing risk embedded in the balance sheet at a point in time. It does so by comparing the differences in the repricing characteristics of assets and liabilities. A gap is defined as the difference between the principal amount of assets and liabilities that reprice within a specified time period. The Company's cumulative one-year gap at March 31, 2024 was (19.87)% of total assets compared to (11.54)% of total assets at December 31, 2023. Core deposits with non-contractual maturities are presented based upon historical patterns of balance attrition and pricing behavior, which are reviewed at least annually.

The gap repricing distributions include principal cash flows from residential mortgage loans and mortgage-backed securities in the time frames in which they are expected to be received. Mortgage prepayments are estimated by applying industry median projections of prepayment speeds to portfolio segments based on coupon range and loan age.

A summary of the Company's static gap, as of March 31, 2024, is presented in the following table:


	0-90			90-365			1-5			5+
Dollars in thousands	Days			Days			Years			Years
Investment securities at amortized cost (HTM) and fair value (AFS)	$	35,992		$	32,908		$	169,408		$	415,596
Restricted stock, at cost	4,896			—			—			1,037
Loans held for sale	—			—			—			—
Loans	513,908			285,334			1,065,429			309,074
Other interest-earning assets	—			26,852			—			—
Non-rate-sensitive assets	12,078			—			—			105,658
Total assets	566,874			345,094			1,234,837			831,365
Interest-bearing deposits	912,810			483,931			436,372			505,030
Borrowed funds	11,860			95,074			—			—
Non-rate-sensitive liabilities and equity	—			—			—			533,093
Total liabilities and equity	924,670			579,005			436,372			1,038,123
Period gap	$	(357,796)		$	(233,911)		$	798,465		$	(206,758)
Percent of total assets	(12.01)		%	(7.85)		%	26.81		%	(6.94)		%
Cumulative gap (current)	$	(357,796)		$	(591,707)		$	206,758		$	—
Percent of total assets	(12.01)		%	(19.87)		%	6.94		%	—		%

The earnings simulation model forecasts capture the impact of changing interest rates on one-year and two-year net interest income. The modeling process calculates changes in interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on the Company's consolidated balance sheet. None of the assets used in the simulation are held for trading purposes. The modeling is done for a variety of scenarios that incorporate changes in the absolute level of interest rates as well as basis risk, as represented by changes in the shape of the yield curve and changes in interest rate relationships. Management evaluates the effects on income of alternative interest rate scenarios against earnings in a stable interest rate environment. This analysis is also most useful in determining the short-run earnings exposures to changes in customer behavior involving loan payments and deposit additions and withdrawals.

The Company's most recent simulation model calculates projected impact on net interest income in scenarios where short-term interest rates gradually decrease by two percentage points, gradually decreases by one percentage point, and where short-

term rates gradually increase by two percentage points. The Company's modeling as of March 31, 2024 projects net interest income would increase by approximately 4.1% if short-term rates affected by FOMC actions fall gradually by two percentage points over the next year, and would increase by approximately 1.9% if short term rates gradually fall by one percentage point over the next year; net interest income would decrease by approximately 7.3% if rates rise gradually by two percentage points over the next year. Each scenario is within the ALCO's policy limit of a decrease in net interest income of no more than 10.0% given a 2.0% move in interest rates, up or down. Management believes this reflects a reasonable interest rate risk position. In year two, and assuming no additional movement in rates, the model forecasts that net interest income would be higher than that earned in the first year of a stable rate environment by 25.3% in the two percentage point falling-rate scenario, and higher by 21.2% in the one percentage point falling rate scenario; net interest income would be lower than that earned in a stable rate environment by 2.0% in a two percentage point rising rate scenario, when compared to the year-one base scenario. Each year two scenario is well within the ALCO's policy limit of a decrease of no more than 20% given a 2.0% move in interest rates, up or down. A summary of the Bank's interest rate risk simulation modeling, as of March 31, 2024 and December 31, 2023 is presented in the following table:


Changes in Net Interest Income	March 31, 2024	December 31, 2023
Year 1
Projected change if rates decrease by 1.0%	1.9%	2.0%
Projected change if rates decrease by 2.0%	4.1%	3.7%
Projected change if rates increase by 2.0%	(7.3)%	(6.0)%
Year 2
Projected change if rates decrease by 1.0%	21.2%	20.8%
Projected change if rates decrease by 2.0%	25.3%	23.8%
Projected change if rates increase by 2.0%	(2.0)%	0.7%

This dynamic simulation model includes assumptions about how the balance sheet is likely to evolve through time and in different interest rate environments. Loans and deposits are projected to maintain stable balances. All maturities, calls and prepayments in the securities portfolio are assumed to be reinvested in similar assets. Mortgage loan prepayment assumptions are developed from industry median estimates of prepayment speeds for portfolios with similar coupon ranges and seasoning. Non-contractual deposit volatility and pricing are assumed to follow historical patterns. The sensitivities of key assumptions are analyzed annually and reviewed by the ALCO.

This sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including, among others, the nature and timing of interest rate levels, yield curve shape, prepayments on loans and securities, pricing decisions on loans and deposits, and reinvestment/ replacement of asset and liability cash flows. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive ability of these assumptions, including how customer preferences or competitor influences might change.

Interest Rate Risk Management

A variety of financial instruments can be used to manage interest rate sensitivity. These may include investment securities, interest rate swaps, and interest rate caps and floors. Frequently called interest rate derivatives, interest rate swaps, caps and floors have characteristics similar to securities but possess the advantages of customization of the risk-reward profile of the instrument, minimization of balance sheet leverage and improvement of liquidity. As of March 31, 2024, the Company was using interest rate swaps for interest rate risk management.

The Company engages an independent consultant to periodically review its interest rate risk position, as well as the effectiveness of simulation modeling and reasonableness of assumptions used. As of March 31, 2024, there were no significant differences between the views of the independent consultant and Management regarding the Company's interest rate risk exposure. Management expects interest rates will increase slightly in the next year and believes that the current level of interest risk is acceptable.

Item 4: Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of March 31, 2024, the end of the quarter covered by this report, the Company carried out an evaluation under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. In designing and evaluating the Company's disclosure controls and procedures, the Company and its management recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Company's management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. There was no change in the Company's internal control over financial reporting that occurred during the quarter ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. The Company reviews its disclosure controls and procedures, which may include its internal controls over financial reporting on an ongoing basis, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that the Company's systems evolve with its business.

Part II – Other Information

Item 1 – Legal Proceedings

The Company was not involved in any legal proceedings requiring disclosure under Item 103 of Regulation S-K during the reporting period.

Item 1A – Risk Factors

There have been no material changes from the risk factors previously disclosed in the Company's Form 10-K for the year

ended December 31, 2023.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

a. None

b. None

c. The Company made the following repurchases of its common stock in the three months ended March 31, 2024:


Month	Shares Purchased	Average Price Per Share		Total shares purchased as part of publicly announced repurchase plans	Maximum number of shares that may be purchased under the plans
January 2024	8,031	$	26.39	—	—
February 2024	—	—		—	—
March 2024	—	—		—	—









	8,031	$	26.39		—

Item 3 – Default Upon Senior Securities

None.

Item 4 – Mine Safety Disclosures

Not applicable.

Item 5 - Other Information

None.

Item 6 – Exhibits

Exhibit 3.2 Amendment to the Registrant's Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed on May 1, 2008).

Exhibit 3.3 Amendment to the Registrant's Articles of Incorporation (incorporated by reference to the Definitive Proxy Statement for the Company's 2008 Annual Meeting filed on March 14, 2008).

Exhibit 3.4 Amendment to the Registrant's Articles of Incorporation authorizing issuance of preferred stock (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed on December 29, 2008).

Exhibit 3.5 Conformed Copy of the Company's Bylaws (incorporated by reference to Exhibit 3.5 to the Company's Form 10-K filed March 10, 2017).

Exhibit 3.6 Amendment to the Company Bylaws (incorporated by reference to Exhibit 3.6 to the Company's Form 8-K filed under item 5.03 on December 20, 2019.

Exhibit 23.1 Consent of Independent Registered Public Accounting Firm (incorporated by reference to Exhibit 2.3 to the Company's Form 10-K filed March 8, 2024).

Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Rule 13A-14(A) of The Securities Exchange Act of 1934, furnished within.

Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Rule 13A-14(A) of The Securities Exchange Act of 1934, furnished within.

Exhibit 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, furnished within.

Exhibit 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, furnished within.

Exhibit 101.INS XBRL Instance Document

Exhibit 101.SCH XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.LAB XBRL Taxonomy Extension Label Linkbase Document

Exhibit 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 101.DEF XBRL Taxonomy Extension Definitions Linkbase

Exhibit 104.Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

THE FIRST BANCORP, INC.

/s/ Tony C. McKim

Tony C. McKim

President & Chief Executive Officer

Date: May 7, 2024

/s/ Richard M. Elder

Richard M. Elder

Executive Vice President & Chief Financial Officer

Date: May 7, 2024