10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2023

OR

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______ to _______

Commission File Number 001-39068

METROCITY BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

Georgia	47-2528408
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

5114 Buford Highway Doraville, Georgia	30340
(Address of principal executive offices)	(Zip Code)

(770) 455-4989

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol(s)	Name of each Exchange on which registered
Common Stock, par value $0.01 per share	MCBS	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 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.

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 Exchange Act). Yes ☐  No ☒

As of November 1, 2023, the registrant had 25,206,085 shares of common stock, par value $0.01 per share, issued and outstanding.

METROCITY BANKSHARES, INC.

Quarterly Report on Form 10-Q

September 30, 2023

TABLE OF CONTENTS

		Page
Part I.	Financial Information
Item l.	Financial Statements:
	Consolidated Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022	3
	Consolidated Statements of Income (unaudited) for the Three and Nine Months Ended September 30, 2023 and 2022	4
	Consolidated Statements of Comprehensive Income (unaudited) for the Three and Nine Months Ended September 30, 2023 and 2022	5
	Consolidated Statements of Shareholders’ Equity (unaudited) for the Three and Nine Months Ended September 30, 2023 and 2022	6
	Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2023 and 2022	7
	Notes to Consolidated Financial Statements (unaudited)	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	60
Item 4.	Controls and Procedures	61
Part II.	Other Information
Item 1.	Legal Proceedings	62
Item 1A.	Risk Factors	62
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	62
Item 3.	Defaults Upon Senior Securities	63
Item 4.	Mine Safety Disclosures	63
Item 5.	Other Information	63
Item 6.	Exhibits	63
	Signatures	64

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

METROCITY BANKSHARES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

	September 30,		December 31,
	2023		2022
	(Unaudited)
Assets:
Cash and due from banks	$	279,106	$	150,964
Federal funds sold		2,951		28,521
Cash and cash equivalents		282,057		179,485
Equity securities		10,113		10,300
Securities available for sale		17,664		19,245
Loans, less allowance for credit losses of $17,660 and $13,888, respectively		3,012,287		3,041,801
Accrued interest receivable		14,612		13,171
Federal Home Loan Bank stock		17,846		17,493
Premises and equipment, net		17,459		14,257
Operating lease right-of-use asset		7,340		8,463
Foreclosed real estate, net		761		4,328
SBA servicing asset		7,107		7,085
Mortgage servicing asset, net		1,823		3,973
Bank owned life insurance		70,462		69,130
Interest rate derivatives		46,502		28,781
Other assets		4,994		9,727
Total assets	$	3,511,027	$	3,427,239
Liabilities:
Deposits:
Non-interest-bearing demand	$	559,540	$	611,991
Interest-bearing		2,159,048		2,054,847
Total deposits		2,718,588		2,666,838
Federal Home Loan Bank advances		325,000		375,000
Other borrowings		—		392
Operating lease liability		7,537		8,885
Accrued interest payable		3,915		2,739
Other liabilities		71,283		23,964
Total liabilities	$	3,126,323	$	3,077,818
Shareholders' Equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding		—		—
Common stock, $0.01 par value, 40,000,000 shares authorized, 25,241,157 and 25,169,709 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively		252		252
Additional paid-in capital		45,580		45,298
Retained earnings		308,589		285,832
Accumulated other comprehensive income		30,283		18,039
Total shareholders' equity		384,704		349,421
Total liabilities and shareholders' equity	$	3,511,027	$	3,427,239

See accompanying notes to unaudited consolidated financial statements.

3

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars in thousands, except per share data)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Interest and dividend income:
Loans, including fees	$	45,695	$	37,263	$	134,516	$	101,032
Other investment income		2,979		1,011		7,500		2,214
Federal funds sold		35		23		140		29
Total interest income		48,709		38,297		142,156		103,275
Interest expense:
Deposits		21,736		6,964		58,916		10,487
FHLB advances and other borrowings		2,819		1,545		7,883		2,127
Total interest expense		24,555		8,509		66,799		12,614
Net interest income		24,154		29,788		75,357		90,661
Provision for credit losses		(381)		(1,703)		(797)		(1,599)
Net interest income after provision for credit losses		24,535		31,491		76,154		92,260
Noninterest income:
Service charges on deposit accounts		490		509		1,403		1,508
Other service charges, commissions and fees		1,478		2,676		3,618		8,482
Gain on sale of residential mortgage loans		—		—		—		2,017
Mortgage servicing income, net		(85)		(358)		(232)		(262)
Gain on sale of SBA loans		244		500		3,267		2,068
SBA servicing income, net		270		1,330		3,472		1,897
Other income		505		444		2,151		1,700
Total noninterest income		2,902		5,101		13,679		17,410
Noninterest expense:
Salaries and employee benefits		6,864		7,756		20,333		22,781
Occupancy and equipment		1,272		1,167		3,525		3,594
Data processing		300		270		928		808
Advertising		143		158		454		434
Other expenses		3,206		3,337		8,758		10,369
Total noninterest expense		11,785		12,688		33,998		37,986
Income before provision for income taxes		15,652		23,904		55,835		71,684
Provision for income taxes		4,224		7,011		15,569		19,262
Net income available to common shareholders	$	11,428	$	16,893	$	40,266	$	52,422
Earnings per share:
Basic	$	0.45	$	0.66	$	1.60	$	2.06
Diluted	$	0.45	$	0.66	$	1.58	$	2.04

See accompanying notes to unaudited consolidated financial statements.

4

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in thousands)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net income	$	11,428	$	16,893	$	40,266	$	52,422
Other comprehensive gain:
Unrealized holding losses on securities available for sale		(803)		(893)		(587)		(3,707)
Net changes in fair value of cash flow hedges		7,249		19,332		18,595		31,113
Tax effect		(1,805)		(4,610)		(5,764)		(6,852)
Other comprehensive gain		4,641		13,829		12,244		20,554
Comprehensive income	$	16,069	$	30,722	$	52,510	$	72,976

See accompanying notes to unaudited consolidated financial statements.

5

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands, except per share data)

								Accumulated
	Common Stock			Additional				Other
	Number of			Paid-in		Retained		Comprehensive
	Shares	Amount		Capital		Earnings		Income (Loss)		Total
Three Months Ended:
Balance, July 1, 2023	25,279,846	$	253	$	45,516	$	301,752	$	25,642	$	373,163
Net income	—		—		—		11,428		—		11,428
Stock based compensation expense	—		—		825		—		—		825
Repurchase of common stock	(38,689)		(1)		(761)		—		—		(762)
Other comprehensive income	—		—		—		—		4,641		4,641
Dividends declared on common stock ($0.18 per share)	—		—		—		(4,591)		—		(4,591)
Balance, September 30, 2023	25,241,157	$	252	$	45,580	$	308,589	$	30,283	$	384,704
Balance, July 1, 2022	25,451,125	$	255	$	49,831	$	266,426	$	6,557	$	323,069
Net income	—		—		—		16,893		—		16,893
Stock based compensation expense	—		—		689		—		—		689
Repurchase of common stock	(80,708)		(1)		(1,606)		—		—		(1,607)
Other comprehensive income	—		—		—		—		13,829		13,829
Dividends declared on common stock ($0.15 per share)	—		—		—		(3,844)		—		(3,844)
Balance, September 30, 2022	25,370,417	$	254	$	48,914	$	279,475	$	20,386	$	349,029
Nine Months Ended:
Balance, January 1, 2023	25,169,709	$	252	$	45,298	$	285,832	$	18,039	$	349,421
Net income	—		—		—		40,266		—		40,266
Stock based compensation expense	—		—		1,596		—		—		1,596
Vesting of restricted stock	136,171		1		(1)		—		—		—
Repurchase of common stock	(64,723)		(1)		(1,313)		—		—		(1,314)
Impact of adoption of new accounting standard, net of tax(1)	—		—		—		(3,801)		—		(3,801)
Other comprehensive income	—		—		—		—		12,244		12,244
Dividends declared on common stock ($0.54 per share)	—		—		—		(13,708)		—		(13,708)
Balance, September 30, 2023	25,241,157	$	252	$	45,580	$	308,589	$	30,283	$	384,704
Balance, January 1, 2022	25,465,236	$	255	$	51,559	$	238,577	$	(168)	$	290,223
Net income	—		—		—		52,422		—		52,422
Stock based compensation expense	—		—		1,242		—		—		1,242
Vesting of restricted stock	101,097		1		(1)		—		—		—
Repurchase of common stock	(195,916)		(2)		(3,886)		—		—		(3,888)
Other comprehensive income	—		—		—		—		20,554		20,554
Dividends declared on common stock ($0.45 per share)	—		—		—		(11,524)		—		(11,524)
Balance, September 30, 2022	25,370,417	$	254	$	48,914	$	279,475	$	20,386	$	349,029

(1) Represents the impact of the adoption of Accounting Standards Update ("ASU") No. 2016-13: CECL.

See accompanying notes to unaudited consolidated financial statements.

6

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

	Nine Months Ended September 30,
	2023		2022
Cash flow from operating activities:
Net income	$	40,266	$	52,422
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		1,960		2,665
Provision for credit losses		(797)		(1,599)
Stock based compensation expense		1,596		1,242
Unrealized losses recognized on equity securities		187		934
(Gain) loss on sale of foreclosed real estate		(547)		15
Writedown of foreclosed real estate		240		—
Proceeds from sales of residential real estate loans		—		96,932
Gain on sale of residential mortgages		—		(2,017)
Origination of SBA loans held for sale		(73,038)		(32,077)
Proceeds from sales of SBA loans held for sale		76,305		34,145
Gain on sale of SBA loans		(3,267)		(2,068)
Increase in cash value of bank owned life insurance		(1,332)		(1,260)
Increase in accrued interest receivable		(1,441)		(680)
(Increase) decrease in SBA servicing rights		(22)		1,910
Decrease in mortgage servicing rights		2,150		2,772
Decrease (increase) in other assets		462		(9,175)
Increase in accrued interest payable		1,176		1,285
Increase (decrease) in other liabilities		46,503		(1,839)
Net cash flow provided by operating activities		90,401		143,607
Cash flow from investing activities:
Proceeds from maturities, calls or paydowns of securities available for sale		943		1,992
(Purchase) redemption of Federal Home Loan Bank stock		(353)		4,082
Decrease (increase) in loans, net		25,077		(569,300)
Purchases of premises and equipment		(3,988)		(1,429)
Proceeds from sales of foreclosed real estate owned		4,109		41
Purchase of bank owned life insurance		—		(8,000)
Net cash flow provided (used) by investing activities		25,788		(572,614)
Cash flow from financing activities:
Dividends paid on common stock		(13,661)		(11,493)
Repurchases of common stock		(1,314)		(3,888)
Increase in deposits, net		51,750		307,833
Decrease in other borrowings, net		(392)		(63)
Proceeds from Federal Home Loan Bank advances		275,000		475,000
Repayments of Federal Home Loan Bank advances		(325,000)		(600,000)
Net cash flow used by financing activities		(13,617)		167,389

Continued to following page.

7

METROCITY BANKSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

	Nine Months Ended September 30,
	2023		2022
Net change in cash and cash equivalents		102,572		(261,618)
Cash and cash equivalents at beginning of period		179,485		441,341
Cash and cash equivalents at end of period	$	282,057	$	179,723
Supplemental schedule of noncash investing and financing activities:
Transfer of residential real estate loans to loans held for sale	$	—	$	94,915
Transfer of loan principal to foreclosed real estate, net of write-downs	$	235	$	766
Initial recognition of operating lease right-of-use assets	$	—	$	1,273
Initial recognition of operating lease liabilities	$	—	$	1,273
Supplemental disclosures of cash flow information - Cash paid during the year for:
Interest	$	65,623	$	11,329
Income taxes	$	13,765	$	23,432

See accompanying notes to unaudited consolidated financial statements.

8

METROCITY BANKSHARES, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements include the accounts of MetroCity Bankshares, Inc. (“Company”) and its wholly-owned subsidiary, Metro City Bank (the “Bank”). The Company owns 100% of the Bank. The “Company” or “our,” as used herein, includes Metro City Bank unless the context indicates that we refer only to MetroCity Bankshares, Inc.

These unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) followed within the financial services industry for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information or notes required for complete financial statements.

The Company principally operates in one business segment, which is community banking.

In the opinion of management, all adjustments, consisting of normal and recurring items, considered necessary for a fair presentation of the consolidated financial statements for the interim periods have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts reported in prior periods have been reclassified to conform to current year presentation. These reclassifications did not have a material effect on previously reported net income, shareholders’ equity or cash flows.

Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2022.

The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements for the year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “Company’s 2022 Form 10-K”). Aside from the adoption of ASU 2016-13 (which is further discussed below), there were no new accounting policies or changes to existing policies adopted during the first nine months of 2023 which had a significant effect on the Company’s results of operations or statement of financial condition. For interim reporting purposes, the Company follows the same basic accounting policies and considers each interim period as an integral part of an annual period.

Contingencies

Due to the nature of their activities, the Company and its subsidiary are at times engaged in various legal proceedings that arise in the course of normal business, some of which were outstanding as of September 30, 2023. Although the ultimate outcome of all claims and lawsuits outstanding as of September 30, 2023 cannot be ascertained at this time, it is the opinion of management that these matters, when resolved, will not have a material adverse effect on the Company’s results of operations or financial condition.

Accounting Standards Adopted in 2023

In January 2023, the Company adopted ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This ASU significantly changed how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaced the incurred loss approach with an expected loss model, referred to as the current expected credit loss (“CECL”) model. The new standard applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. ASU 2016-13 simplifies the accounting for purchased credit-impaired debt

9

securities and loans and expands the disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for credit losses. In addition, under the new standard, entities are required to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 was effective for interim and annual reporting periods beginning after December 15, 2022. With its adoption, ASU 2016-13 provided for a modified retrospective transition by means of a cumulative effect adjustment to equity as of the beginning of the period in which the guidance was effective.

The Company adopted ASU 2016-13 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach. The adoption of this standard resulted in an increase to the allowance for credit losses on loans of $5.1 million and the creation of an allowance for unfunded commitments of $239,000. These one-time cumulative adjustments resulted in a $3.8 million decrease to retained earnings, net of a $1.5 million increase to deferred tax assets.

For available for sale (“AFS”) securities, the new CECL methodology replaced the other-than-temporary impairment model and required the recognition of an allowance for reductions in a security’s fair value attributable to declines in credit quality, instead of a direct write-down of the security, when a valuation decline was determined to be other-than-temporary. There was no financial impact related to this implementation since the credit risk associated with our securities portfolio was minimal. The Company has made a policy election to exclude accrued interest from the amortized cost basis of AFS securities. Accrued interest receivable for AFS securities totaled $78,000 and $114,000 as of September 30, 2023 and December 31, 2022, respectively. This accrued interest receivable is included in the “accrued interest receivable” line item on the Company’s Consolidated Balance Sheets.

In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”, which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty, unless those loans do not share the same risk characteristics with other loans in the portfolio. Provided that is not the case, these modifications are included in their respective cohort and the allowance for credit losses is estimated on a pooled basis consistent with the other loans with similar risk characteristics. See Note 3 below for further details.

The Company has further evaluated other Accounting Standards Updates issued during 2023 to date but does not expect updates other than those summarized above to have a material impact on the consolidated financial statements.

The following new accounting policies were adopted during 2023 to date:

Allowance for Credit Losses – Available for Sale Securities

The impairment model for available for sale (“AFS”) securities differs from the CECL approach utilized by HTM debt securities because AFS debt securities are measured at fair value rather than amortized cost. Although ASU 2016-13 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model. One notable change from the legacy OTTI model is when evaluating whether credit loss exists, an entity may no longer consider the length of time fair value has been less than amortized cost. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criteria is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been

10

recorded through an allowance for credit losses is recognized in other comprehensive income. As of September 30, 2023, the Company determined that the unrealized loss positions in AFS securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded. See Note 2 below for further details.

Allowance for Credit Losses - Loans

Under the CECL model, the allowance for credit losses (“ACL”) on loans is a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

The Company estimates the ACL on loans based on the underlying loans’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL.

Expected credit losses are reflected in the allowance for credit losses through a charge to provision for credit losses. When the Company deems all or a portion of a loan to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. Loans are charged off against the ACL when management believes the collection of the principal is unlikely. Subsequent recoveries of previously charged off amounts, if any, are credited to the ACL when received.

The Company measures expected credit losses of loans on a collective (pool) basis, when the loans share similar risk characteristics. Depending on the nature of the pool of loans with similar risk characteristics, the Company uses the discounted cash flow (“DCF”) method and a qualitative approach as discussed further below.

The Company’s methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for loan-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the loans that are reasonable and supportable, to the identified pools of loans with similar risk characteristics for which the historical loss experience was observed. The Company’s methodologies revert back to historical loss information on a straight-line basis over eight quarters when it can no longer develop reasonable and supportable forecasts.

The Company has identified the following pools of loans with similar risk characteristics for measuring expected credit losses:

Construction and development – Loans in this segment primarily include real estate development loans for which payment is derived from the sale of the property as well as construction projects in which the property will ultimately be used by the borrower. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.

Commercial real estate – Loans in this segment are primarily income-producing properties. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment. Management monitors the cash flows of these loans. This loan segment includes farmland loans.

Commercial and industrial – Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased customer spending, will have an effect on the credit quality in this segment.

Single family residential mortgages – Loans in this segment include loans for residential real estate. Loans in this segment are dependent on credit quality of the individual borrower. The overall health of the economy, including unemployment rates will have an effect on the credit quality of this segment.

11

Consumer and other – Loans in this segment are made to individuals and are secured by personal assets, as well as loans for personal lines of credit and overdraft protection. Loans in this segment are dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates will have an effect on the credit quality in this segment.

Discounted Cash Flow Method

The Company uses the discounted cash flow method to estimate expected credit losses for each of its loan segments. The Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on benchmark peer data.

The Company uses regression analysis of peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, the Company uses national data including gross domestic product, unemployment rates and home price indices (residential mortgage loans only) depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses.

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An ACL is established for the difference between the instrument’s NPV and amortized cost basis.

Qualitative Factors

The Company also considers qualitative adjustments to the quantitative baseline discussed above. For example, the Company considers the impact of current environmental factors at the reporting date that did not exist over the period from which historical experience was used. Relevant factors include, but are not limited to, concentrations of credit risk (geographic, large borrower, and industry), changes in underwriting standards, changes in collateral value, experience and depth of lending staff, trends in delinquencies, and the volume and terms of loans.

Individually Analyzed Loans

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

12

Allowance for Unfunded Commitments

The Company records an allowance for credit losses on unfunded loan commitments, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Company’s Consolidated Statements of Income. The ACL on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur. The allowance for unfunded commitments totaled $294,000 as of September 30, 2023 and is included in Other Liabilities on the Company’s Consolidated Balance Sheets.  

NOTE 2 – INVESTMENT SECURITIES

The amortized costs, gross unrealized gains and losses, and estimated fair values of securities available for sale as of September 30, 2023 and December 31, 2022 are summarized as follows:

	September 30, 2023
	Gross		Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Obligations of U.S. Government entities and agencies	$	4,678	$	—	$	—	$	4,678
States and political subdivisions		8,085		—		(2,022)		6,063
Mortgage-backed GSE residential		8,963		—		(2,040)		6,923
Total	$	21,726	$	—	$	(4,062)	$	17,664

	December 31, 2022
	Gross		Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Obligations of U.S. Government entities and agencies	$	5,059	$	—	$	—	$	5,059
States and political subdivisions		8,121		—		(1,718)		6,403
Mortgage-backed GSE residential		9,540		—		(1,757)		7,783
Total	$	22,720	$	—	$	(3,475)	$	19,245

The amortized costs and estimated fair values of investment securities available for sale at September 30, 2023 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Available for Sale
	Amortized		Estimated
(Dollars in thousands)	Cost		Fair Value
Due in one year or less	$	—	$	—
Due after one year but less than five years		5,919		5,860
Due after five years but less than ten years		—		—
Due in more than ten years		6,844		4,881
Mortgage-backed GSE residential		8,963		6,923
Total	$	21,726	$	17,664

Accrued interest receivable for securities available for sale totaled $78,000 and $114,000 as of September 30, 2023 and December 31, 2022, respectively. This accrued interest receivable is included in the “accrued interest receivable” line item on the Company’s Consolidated Balance Sheets.

As of September 30, 2023, the Company had securities pledged to the Federal Reserve Bank Discount Window with a carrying amount of $13.0 million. There were no securities pledged as of December 31, 2022 to secure borrowing lines, public deposits or repurchase agreements. There were no securities sold during the three or nine months ended September 30, 2023 and 2022.

13

Information pertaining to securities with gross unrealized losses at September 30, 2023 and December 31, 2022 aggregated by investment category and length of time that individual securities have been in a continuous loss position, are summarized in the table below.

	September 30, 2023
	Twelve Months or Less				Over Twelve Months
	Gross		Estimated		Gross		Estimated
	Unrealized		Fair		Unrealized		Fair
(Dollars in thousands)	Losses		Value		Losses		Value
States and political subdivisions	$	—	$	—	$	2,022	$	6,063
Mortgage-backed GSE residential		—		—		2,040		6,923
Total	$	—	$	—	$	4,062	$	12,986

	December 31, 2022
	Twelve Months or Less				Over Twelve Months
	Gross		Estimated		Gross		Estimated
	Unrealized		Fair		Unrealized		Fair
(Dollars in thousands)	Losses		Value		Losses		Value
States and political subdivisions	$	756	$	3,556	$	962	$	2,847
Mortgage-backed GSE residential		48		541		1,709		7,242
Total	$	804	$	4,097	$	2,671	$	10,089

At September 30, 2023, the twenty securities available for sale (11 municipal securities and 9 mortgage-backed securities) with an unrealized loss have depreciated 23.82% from the Company’s amortized cost basis. All of these securities have been in a loss position for greater than twelve months.

The Company does not believe that the securities available for sale that were in an unrealized loss position as of September 30, 2023 represent a credit loss impairment.  As of September 30, 2023, there have been no payment defaults nor do we currently expect any future payment defaults. Furthermore, the Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity.

Equity Securities

As of September 30, 2023 and December 31, 2022, the Company had equity securities with carrying values totaling $10.1 million and $10.3 million, respectively. The equity securities consist of our investment in a market-rate bond mutual fund that invests in high quality fixed income bonds, mainly government agency securities whose proceeds are designed to positively impact community development throughout the United States. The mutual fund focuses exclusively on providing affordable housing to low- and moderate-income borrowers and renters, including those in Majority Minority Census Tracts.

During the three months ended September 30, 2023 and 2022, we recognized unrealized losses of $245,000 and $327,000, respectively, in net income on our equity securities. During the nine months ended September 30, 2023 and 2022, we recognized unrealized losses of $187,000 and $934,000, respectively, in net income on our equity securities. These unrealized gains and losses are recorded in Other Expenses on the Consolidated Statements of Income.

14

NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

Major classifications of loans at September 30, 2023 and December 31, 2022 are summarized as follows:

	September 30,		December 31,
(Dollars in thousands)	2023		2022
Construction and development	$	41,783	$	47,779
Commercial real estate		624,122		657,246
Commercial and industrial		61,332		53,173
Residential real estate		2,310,981		2,306,915
Consumer and other		240		216
Total loans receivable		3,038,458		3,065,329
Unearned income		(8,511)		(9,640)
Allowance for credit losses		(17,660)		(13,888)
Loans, net	$	3,012,287	$	3,041,801

The Company is not committed to lend additional funds to borrowers with nonaccrual or restructured loans.

In the normal course of business, the Company may sell and purchase loan participations to and from other financial institutions and related parties. Loan participations are typically sold to comply with the legal lending limits per borrower as imposed by regulatory authorities. The participations are sold without recourse and the Company imposes no transfer or ownership restrictions on the purchaser.

The Company elected to exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this note. As of September 30, 2023 and December 31, 2022, accrued interest receivable for loans totaled $14.5 million and $13.1 million, respectively, and is included in the “accrued interest receivable” line item on the Company’s Consolidated Balance Sheets.

Allowance for Credit Losses

As previously mentioned in Note 1, the Company’s January 1, 2023 adoption of ASU 2016-13 resulted in a significant change to our methodology for estimating the allowance for credit losses since December 31, 2022. As a result of this adoption, the Company recorded a $5.1 million increase to the allowance for credit losses as a cumulative-effect adjustment on January 1, 2023.

A summary of changes in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2023 and 2022 is as follows:

	Three Months Ended September 30, 2023
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	30	$	6,208	$	653	$	11,199	$	1	$	—	$	18,091
Charge-offs		—		—		—		—		—		—		—
Recoveries		—		1		3		—		—		—		4
Provision expense		(3)		(13)		(22)		(400)		3		—		(435)
Ending balance	$	27	$	6,196	$	634	$	10,799	$	4	$	—	$	17,660

15

	Three Months Ended September 30, 2022
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	140	$	3,539	$	4,219	$	8,678	$	6	$	96	$	16,678
Charge-offs		—		—		—		—		—		—		—
Recoveries		—		1		6		—		—		—		7
Provision expense		24		(510)		(1,970)		845		4		(96)		(1,703)
Ending balance	$	164	$	3,030	$	2,255	$	9,523	$	10	$	—	$	14,982

	Nine Months Ended September 30, 2023
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	124	$	2,811	$	1,326	$	9,626	$	1	$	—	$	13,888
Impact of adopting ASU 2016-13		(79)		3,275		(307)		2,166		—		—		5,055
Charge-offs		—		(231)		(221)		—		—		—		(452)
Recoveries		—		4		18		—		—		—		22
Provision expense		(18)		337		(182)		(993)		3		—		(853)
Ending balance	$	27	$	6,196	$	634	$	10,799	$	4	$	—	$	17,660

	Nine Months Ended September 30, 2022
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	100	$	4,146	$	4,989	$	7,717	$	—	$	—	$	16,952
Charge-offs		—		—		(390)		—		—		—		(390)
Recoveries		—		5		9		—		5		—		19
Provision		64		(1,121)		(2,353)		1,806		5		—		(1,599)
Ending balance	$	164	$	3,030	$	2,255	$	9,523	$	10	$	—	$	14,982

16

Prior to the adoption of ASU 2016-13 on January 1, 2023, the Company calculated the allowance for credit losses under the incurred loss methodology. The following table presents, by portfolio segment, the balance in the allowance for credit losses disaggregated on the basis of the Company’s impairment measurement method and the related unpaid principal balance in loans under the incurred loss methodology as of December 31, 2022.

	December 31, 2022
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Individually evaluated for impairment	$	—	$	249	$	465	$	—	$	—	$	—	$	714
Collectively evaluated for impairment		124		2,562		861		9,626		1		—		13,174
Acquired with deteriorated credit quality		—		—		—		—		—		—		—
Total ending allowance balance	$	124	$	2,811	$	1,326	$	9,626	$	1	$	—	$	13,888
Loans:
Individually evaluated for impairment	$	—	$	23,767	$	1,122	$	5,037	$	—	$	—	$	29,926
Collectively evaluated for impairment		47,567		631,031		51,989		2,294,960		216		—		3,025,763
Acquired with deteriorated credit quality		—		—		—		—		—		—		—
Total ending loans balance	$	47,567	$	654,798	$	53,111	$	2,299,997	$	216	$	—	$	3,055,689

Impaired Loans

Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally were not classified as impaired. Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impaired loans were measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the estimated fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes were included in the allowance for credit losses.

17

Impaired loans as of December 31, 2022, by portfolio segment, are as follows. The recorded investment consists of the unpaid total principal balance plus accrued interest receivable.

	Unpaid		Recorded		Recorded
	Total		Investment		Investment		Total
(Dollars in thousands)	Principal		With No		With		Recorded		Related
December 31, 2022	Balance		Allowance		Allowance		Investment		Allowance
Construction and development	$	—	$	—	$	—	$	—	$	—
Commercial real estate		23,767		23,121		1,415		24,536		249
Commercial and industrial		1,122		155		997		1,152		465
Residential real estate		5,037		5,037		—		5,037		—
Total	$	29,926	$	28,313	$	2,412	$	30,725	$	714

Collateral-Dependent Loans

Collateral-dependent loans are loans for which foreclosure is probable or loans for which the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The estimated credit losses for these loans are based on the collateral’s fair value less selling costs. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less selling costs at the time of foreclosure. As of September 30, 2023, there were $11.6 million, $3.2 million and $95,000 of collateral-dependent loans which were secured by residential real estate, commercial real estate and equipment, respectively. The allowance for credit losses allocated to these loans as of September 30, 2023 was $544,000.

Past Due and Nonaccrual Loans

A primary credit quality indicator for financial institutions is delinquent balances. Delinquencies are updated on a daily basis and are continuously monitored. Loans are placed on nonaccrual status as needed based on repayment status and consideration of accounting and regulatory guidelines. Nonaccrual balances are updated and reported on a daily basis.

The following summarizes the Company’s past due and nonaccrual loans, by portfolio segment, as of September 30, 2023 and December 31, 2022:

							Accruing		Total				Total
(Dollars in thousands)							Greater than		Accruing				Financing
September 30, 2023	Current		30-59 Days		60-89 Days		90 Days		Past Due		Nonaccrual		Receivables
Construction and development	$	41,091	$	—	$	548	$	—	$	548	$	—	$	41,639
Commercial real estate		619,582		—		346		—		346		1,944		621,872
Commercial and industrial		59,420		—		—		—		—		1,612		61,032
Residential real estate		2,289,601		3,992		—		—		3,992		11,571		2,305,164
Consumer and other		240		—		—		—		—		—		240
Total	$	3,009,934	$	3,992	$	894	$	—	$	4,886	$	15,127	$	3,029,947

							Accruing		Total				Total
(Dollars in thousands)							Greater than		Accruing				Financing
December 31, 2022	Current		30-59 Days		60-89 Days		90 Days		Past Due		Nonaccrual		Receivables
Construction and development	$	47,567	$	—	$	—	$	—	$	—	$	—	$	47,567
Commercial real estate		649,552		354		—		—		354		4,892		654,798
Commercial and industrial		52,485		—		310		180		490		136		53,111
Residential real estate		2,282,089		8,882		3,989		—		12,871		5,037		2,299,997
Consumer and other		216		—		—		—		—		—		216
Total	$	3,031,909	$	9,236	$	4,299	$	180	$	13,715	$	10,065	$	3,055,689

18

The following table presents an analysis of nonaccrual loans with and without a related allowance for credit losses as of September 30, 2023:

	Nonaccrual		Nonaccrual
(Dollars in thousands)	Loans With a		Loans Without a		Total
September 30, 2023	Related ACL		Related ACL		Nonaccrual Loans
Commercial real estate	$	1,163	$	781	$	1,944
Commercial and industrial		90		1,522		1,612
Residential real estate		—		11,571		11,571
Total	$	1,253	$	13,874	$	15,127

All payments received while a loan is on nonaccrual status are applied against the principal balance of the loan. The Company does not recognize interest income while loans are on nonaccrual status.

Credit Quality Indicators

The Company utilizes a ten grade loan risk rating system for its loan portfolio as follows:

● Loans rated Pass – Loans in this category have low to average risk. There are six loan risk ratings (grades 1-6) included in loans rated Pass.

● Loans rated Special Mention (grade 7) – Loans do not presently expose the Company to a sufficient degree of risk to warrant adverse classification, but do possess deficiencies deserving close attention.

● Loans rated Substandard (grade 8) – Loans are inadequately protected by the current credit-worthiness and paying capability of the obligor or of the collateral pledged, if any.

● Loans rated Doubtful (grade 9) – Loans which have all the weaknesses inherent in loans classified Substandard, with the added characteristic that the weaknesses make collections or liquidation in full, or on the basis of currently known facts, conditions and values, highly questionable or improbable.

● Loans rated Loss (grade 10) – Loans classified Loss are considered uncollectible and such little value that their continuance as bankable assets is not warranted.

Loan grades are monitored regularly and updated as necessary based upon review of repayment status and consideration of periodic updates regarding the borrower’s financial condition and capacity to meet contractual requirements.

19

The following table presents the loan portfolio's amortized cost by loan type, risk rating and year of origination as of September 30, 2023. There were no loans with a risk rating of Doubtful or Loss at September 30, 2023.

(Dollars in thousands)	Term Loan by Origination Year												Revolving
September 30, 2023	2023		2022		2021		2020		2019		Prior		Loans		Total Loans
Construction and development
Pass	$	4,674	$	12,681	$	22,035	$	1,194	$	267	$	240	$	—	$	41,091
Special Mention		—		—		548		—		—		—		—		548
Substandard		—		—		—		—		—		—		—		—
Total construction and development	$	4,674	$	12,681	$	22,583	$	1,194	$	267	$	240	$	—	$	41,639
Commercial real estate
Pass	$	59,750	$	197,514	$	107,960	$	81,012	$	54,341	$	104,130	$	1,170	$	605,877
Special Mention		—		—		—		1,937		—		—		—		1,937
Substandard		—		595		—		1,163		10,636		1,664		—		14,058
Total commercial real estate	$	59,750	$	198,109	$	107,960	$	84,112	$	64,977	$	105,794	$	1,170	$	621,872
Commercial real estate:
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	231	$	—	$	231
Commercial and industrial
Pass	$	11,082	$	14,037	$	5,019	$	3,261	$	2,870	$	3,571	$	17,530	$	57,370
Special Mention		—		—		—		359		222		1,240		—		1,821
Substandard		—		—		1,282		—		538		21		—		1,841
Total commercial and industrial	$	11,082	$	14,037	$	6,301	$	3,620	$	3,630	$	4,832	$	17,530	$	61,032
Commercial and industrial:
Current period gross write offs	$	—	$	—	$	142	$	—	$	79	$	—	$	—	$	221
Residential real estate
Pass	$	192,955	$	741,169	$	854,366	$	295,145	$	62,583	$	145,687	$	—	$	2,291,905
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		118		1,863		2,173		1,386		7,719		—		13,259
Total residential real estate	$	192,955	$	741,287	$	856,229	$	297,318	$	63,969	$	153,406	$	—	$	2,305,164
Consumer and other
Pass	$	240	$	—	$	—	$	—	$	—	$	—	$	—	$	240
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total consumer and other	$	240	$	—	$	—	$	—	$	—	$	—	$	—	$	240
Total loans	$	268,701	$	966,114	$	993,073	$	386,244	$	132,843	$	264,272	$	18,700	$	3,029,947

During the three and nine months ended Setpember 30, 2023, one construction and development revolving loan totaling $11.6 million was converted to a commercial real estate term loan.

The following table presents the Company’s loan portfolio by risk rating as of December 31, 2022:

	Construction
(Dollars in thousands)	and		Commercial		Commercial		Residential		Consumer
December 31, 2022	Development		Real Estate		and Industrial		Real Estate		and Other		Total
Rating:
Pass	$	47,567	$	628,165	$	48,848	$	2,292,568	$	216	$	3,017,364
Special Mention		—		3,677		3,897		—		—		7,574
Substandard		—		22,956		366		7,429		—		30,751
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	47,567	$	654,798	$	53,111	$	2,299,997	$	216	$	3,055,689

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Loan Modifications to Borrowers Experiencing Financial Difficulty.

In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”, which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty, unless those loans do not share the same risk characteristics with other loans in the portfolio. Provided that is not the case, these modifications are included in their respective cohort and the allowance for credit losses is estimated on a pooled basis consistent with the other loans with similar risk characteristics.

Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, payment deferrals, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023. None of the loan modifications below were past due or on nonaccrual status as as of September 30, 2023.

	Interest				Interest				% of Total
(Dollars in thousands)	Term		Payment		Rate				Financing
Three and Nine Months Ended September 30, 2023	Extension		Delay		Reduction		Total		Receivable
Construction and development	$	—	$	—	$	—	$	—	—	%
Commercial real estate		—		—		12,400		12,400	1.99
Commercial and industrial		—		—		—		—	—
Residential real estate		—		—		—		—	—
Consumer and other		—		—		—		—	—
Total	$	—	$	—	$	12,400	$	12,400	0.41	%

The following table presents the financial effect of the loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023.

	Weighted/Average		Weighted/Average		Weighted/Average
(Dollars in thousands)	Months of		Payment		Interest Rate
Three and Nine Months Ended September 30, 2023	Term Extension		Deferral		Reduction
Construction and development		—	$	—		—	%
Commercial real estate		—		—		3.60
Commercial and industrial		—		—		—
Residential real estate		—		—		—
Consumer and other		—		—		—
Total		—	$	—		3.60	%

No loan modifications made to borrowers experiencing financial difficulty defaulted during the three and nine months ended September 30, 2023. No charge-offs of previously modified loans were recorded during the three and nine months ended September 30, 2023.

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NOTE 4 – SBA AND USDA LOAN SERVICING

The Company sells the guaranteed portion of certain SBA and USDA loans it originates and continues to service the sold portion of the loan. The portion of the loans sold are not included in the financial statements of the Company. As of September 30, 2023 and December 31, 2022, the unpaid principal balances of serviced loans totaled $487.8 million and $465.1 million, respectively.

Activity for SBA loan servicing rights are as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022
Beginning of period	$	8,018	$	8,062	$	7,038	$	10,091
Change in fair value		(911)		73		69		(1,956)
End of period, fair value	$	7,107	$	8,135	$	7,107	$	8,135

Fair value at September 30, 2023 and December 31, 2022 was determined using discount rates ranging from 8.65% to 17.65% and 8.21% to 19.30%, respectively, and prepayment speeds ranging from 13.36% to 19.29% and 13.12% to 17.60%, respectively, depending on the stratification of the specific right. Average default rates are based on the industry average for the applicable NAICS/SIC code.

The aggregate fair market value of the interest only strips included in SBA servicing assets was $0 and $47,000 at September 30, 2023 and December 31, 2022, respectively. Comparable market values and a valuation model that calculates the present value of future cash flows were used to estimate fair value. For purposes of fair value measurement, risk characteristics including product type and interest rate, were used to stratify the originated loan servicing rights.

NOTE 5 – RESIDENTIAL MORTGAGE LOAN SERVICING

Residential mortgage loans serviced for others are not reported as assets. The outstanding principal of these loans at September 30, 2023 and December 31, 2022 was $464.8 million and $526.7 million, respectively.

Activity for mortgage loan servicing rights and the related valuation allowance are as follows:

(Dollars in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Mortgage loan servicing rights:	2023		2022		2023		2022
Beginning of period	$	2,514	$	6,090	$	3,973	$	7,747
Additions		—		—		—		760
Amortization expense		(691)		(1,115)		(2,150)		(3,695)
Valuation allowance		—		—		—		163
End of period, carrying value	$	1,823	$	4,975	$	1,823	$	4,975

(Dollars in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Valuation allowance:	2023		2022		2023		2022
Beginning balance	$	—	$	—	$	—	$	163
Additions expensed		—		—		—		—
Reductions credited to operations		—		—		—		(163)
Direct write-downs		—		—		—		—
Ending balance	$	—	$	—	$	—	$	—

 The fair value of servicing rights was $7.0 million and $7.2 million at September 30, 2023 and December 31, 2022, respectively. Fair value at September 30, 2023 was determined by using a discount rate of 12.55%, prepayment speeds of 16.59%, and a weighted average default rate of 1.31%. Fair value at December 31, 2022 was determined by using a discount rate of 12.56%, prepayment speeds of 18.63%, and a weighted average default rate of 1.29%.

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NOTE 6 – FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS

Advances from the Federal Home Loan Bank (“FHLB”) at September 30, 2023 and December 31, 2022 are summarized as follows:

(Dollars in thousands)	September 30, 2023		December 31, 2022
Convertible advance maturing February 13, 2026; fixed rate of 4.184%	$	50,000	$	—
Convertible advance maturing May 7, 2027; fixed rate of 3.025%		50,000		—
Convertible advance maturing October 26, 2027; fixed rate of 3.530%		25,000		25,000
Convertible advance maturing January 25, 2028; fixed rate of 3.243%		50,000		—
Convertible advance maturing February 14, 2028; fixed rate of 3.625%		25,000		—
Convertible advance maturing May 8, 2028; fixed rate of 2.860%		50,000		—
Convertible advance maturing June 23, 2028; fixed rate of 3.655%		50,000		—
Convertible advance maturing June 16, 2032; fixed rate of 1.905%		—		50,000
Convertible advance maturing June 23, 2032; fixed rate of 1.950%		—		100,000
Convertible advance maturing August 6, 2032; fixed rate of 1.892%		—		100,000
Convertible advance maturing October 26, 2032; fixed rate of 3.025%		25,000		25,000
Convertible advance maturing May 12, 2037; fixed rate of 1.135%		—		75,000
Total FHLB advances	$	325,000	$	375,000

The FHLB advances outstanding at September 30, 2023 all have a conversion feature that allows the FHLB to call the advances after six months ($100.0 million) or one year ($225.0 million). At September 30, 2023 and December 31, 2022, the Company had a line of credit with the FHLB, set as a percentage of total assets, with maximum borrowing capacity of $1.04 billion and $1.01 billion, respectively. The available borrowing amounts are collateralized by the Company’s FHLB stock and pledged residential real estate loans, which totaled $2.30 billion and $2.29 billion at September 30, 2023 and December 31, 2022, respectively.

At September 30, 2023, the Company had unsecured federal funds lines available with correspondent banks of approximately $47.5 million. There were no advances outstanding on these lines at September 30, 2023.

At September 30, 2023, the Company had Federal Reserve Discount Window funds available of approximately $446.2 million. The funds are collateralized by a pool of construction and development, commercial real estate and commercial and industrial loans with carrying balances totaling $510.4 million as of September 30, 2023, as well as all of the Company’s municipal and mortgage backed securities. There were no outstanding borrowings on this line as of September 30, 2023.

The Company sells the guaranteed portion of certain SBA loans it originates and continues to service the sold portion of the loan. The Company sometimes retains an interest only strip or servicing fee that is considered to be more than customary market rates. An interest rate strip can result from a transaction when the market rate of the transaction differs from the stated rate on the portion of the loan sold.

The sold portion of SBA loans that have an interest only strip are considered secured borrowings and are included in other borrowings. Secured borrowings at September 30, 2023 and December 31, 2022 were $0 and $392,000, respectively.

NOTE 7 – OPERATING LEASES

The Company has entered into various operating leases for certain branch locations with terms extending through April 2033. Generally, these leases have initial lease terms of ten years or less. Many of the leases have one or more renewal options which typically are for five years at the then fair market rental rates. We assessed these renewal options using a threshold of reasonably certain. For leases where we were reasonably certain to renew, those option periods were included within the lease term, and therefore, the measurement of the right-of-use (“ROU”) asset and lease liability. None of our leases included options to terminate the lease and none had initial terms of 12 months or less (i.e. short-term leases).

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Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities on the Consolidated Balance Sheets. The Company currently does not have any finance leases.

Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental collateralized borrowing rate provided by the FHLB at the lease commencement date. ROU assets are further adjusted for lease incentives, if any. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in occupancy expense in the Consolidated Statements of Income.

The components of lease cost for the three and nine months ended September 30, 2023 and 2022 were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022
Operating lease cost	$	532	$	480	$	1,441	$	1,496
Variable lease cost		42		43		130		130
Short-term lease cost		—		—		—		—
Sublease income		—		—		—		—
Total net lease cost	$	574	$	523	$	1,571	$	1,626

Future maturities of the Company’s operating lease liabilities are summarized as follows:

(Dollars in thousands)
Twelve Months Ended:	Lease Liability
September 30, 2024	$	1,918
September 30, 2025		1,737
September 30, 2026		1,478
September 30, 2027		1,228
September 30, 2028		906
After September 30, 2028		905
Total lease payments		8,172
Less: interest discount		(635)
Present value of lease liabilities	$	7,537

Supplemental Lease Information	September 30, 2023
Weighted-average remaining lease term (years)	5.4
Weighted-average discount rate	3.19	%

	Nine Months Ended September 30,
(Dollars in thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (cash payments)	$	1,538	$	1,420
Operating cash flows from operating leases (lease liability reduction)	$	1,345	$	1,219
Operating lease right-of-use assets obtained in exchange for leases entered into during the period	$	—	$	1,273

NOTE 8 – INTEREST RATE DERIVATIVES

During 2021 and 2022, the Company entered into fourteen separate interest rate swap agreements with notional amounts totaling $800.0 million. Six of the interest rate swaps are two-year forward three-year term swaps (five-year total term) where cash settlements begin in October 2023, January 2024 or April 2024. Four of the interest rate swaps are two-

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year forward two-year term swaps (four-year total term) where cash settlements begin in November 2023 or April 2024. Two of the interest rate swaps are a one-year forward two-year term swap (three-year total term) and a one-year forward three-year term swap (four-year term total) where cash settlements began in May 2023 or July 2023. The two remaining interest rate swaps are 3-year spot swaps where cash settlements began in June 2022 and December 2022. The swap agreements were designated as cash flow hedges of our deposit accounts that are indexed to the Federal Funds Effective rate. The swaps are determined to be highly effective since inception and therefore no amount of ineffectiveness has been included in net income. The aggregate fair value of the swaps amounted to an unrealized gain of $43.3 million and $26.7 million and an unrealized loss of $0 and $779,000 at September 30, 2023 and December 31, 2022, respectively. These unrealized gains and losses are recorded in Interest Rate Derivatives and Other Liabilities on the Consolidated Balance Sheets. The Company expects the hedges to remain highly effective during the remaining terms of the swaps.

During October 2021, the Company entered into an interest rate cap agreement with a notional amount of $50.0 million and a cap rate of 2.50%. This interest rate cap is a two-year forward three-year term (five-year total term) where cash settlements begin on November 2023. The interest rate cap was designated as a cash flow hedge of our deposit accounts that are indexed to the Federal Funds Effective rate. The rate cap premium paid by the Company at inception will be amortized on a straight line basis to deposit interest expense over the total term of the interest rate cap agreement. The fair value of the interest rate cap amounted to an unrealized gain of $3.2 million and $2.1 million at September 30, 2023 and December 31, 2022, respectively, and are recorded in Interest Rate Derivatives on the Consolidated Balance Sheets.

The Company is exposed to credit related losses in the event of the nonperformance by the counterparties to the interest rate swaps. The Company performs an initial credit evaluation and ongoing monitoring procedures for all counterparties and currently anticipates that all counterparties will be able to fully satisfy their obligation under the contracts. In addition, the Company may require collateral from counterparties in the form of cash deposits in the event that the fair value of the contracts are positive and such fair value for all positions with the counterparty exceeds the credit support thresholds specified by the underlying agreement. Conversely, the Company is required to post cash deposits as collateral in the event the fair value of the contracts are negative and are below the credit support thresholds. At September 30, 2023, there were no cash deposits pledged as collateral by the Company. At September 30, 2023, the Company had $40.0 million of restricted cash obtained from the counterparties as collateral for the significant unrealized gains on our interest rate derivatives.

Summary information for the interest rate swaps designated as cash flow hedges is as follows:

	As of or for the		As of or for the
	Nine Months Ended		Year Ended
(Dollars in thousands)	September 30, 2023		December 31, 2022
Notional Amounts	$	800,000	$	800,000
Weighted-average pay rate		2.28%		2.28%
Weighted-average receive rate		4.93%		1.68%
Weighted-average maturity		4.2 years		4.2 years
Weighted-average remaining maturity		2.6 years		3.4 years
Net interest income (expense)	$	2,384	$	(163)

Summary information for the interest rate caps designated as cash flow hedges is as follows:

	As of or for the		As of or for the
	Nine Months Ended		Year Ended
(Dollars in thousands)	September 30, 2023		December 31, 2022
Notional Amounts	$	50,000	$	50,000
Rate Cap Premiums		381		474
Cap Rate		2.50%		2.50%
Weighted-average maturity		5.0 years		5.0 years
Weighted-average remaining maturity		3.1 years		3.8 years
Net interest expense	$	(93)	$	(124)

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NOTE 9 – LOAN COMMITMENTS AND RELATED FINANCIAL INSTRUMENTS

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Financial instruments where contract amounts represent credit risk as of September 30, 2023 and December 31, 2022 include:

	September 30,		December 31,
(Dollars in thousands)	2023		2022
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	75,142	$	62,334
Standby letters of credit	$	7,028	$	6,303

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments to extend credit includes $75.1 million of unused lines of credit and $7.0 million for standby letters of credit as of September 30, 2023. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the counterparty.

Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.

The Company maintains cash deposits with a financial institution that during the year are in excess of the insured limitation of the Federal Deposit Insurance Corporation. If the financial institution were not to honor its contractual liability, the Company could incur losses. Management is of the opinion that there is not material risk because of the financial strength of the institution.

NOTE 10 – FAIR VALUE

Financial Instruments Measured at Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value

26

measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following presents the assets and liabilities as of September 30, 2023 and December 31, 2022 which are measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall, and the financial instruments carried on the consolidated balance sheet by caption and by level in the fair value hierarchy, for which a nonrecurring change in fair value has been recorded:

	September 30, 2023
									Total Gains
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		(Losses)
Assets
Recurring fair value measurements:
Securities available for sale:
Obligations of U.S. Government entities and agencies	$	4,678	$	—	$	—	$	4,678
States and political subdivisions		6,063		—		6,063		—
Mortgage-backed GSE residential		6,923		—		6,923		—
Total securities available for sale		17,664		—		12,986		4,678
Equity securities		10,113		10,113		—		—
SBA servicing asset		7,107		—		—		7,107
Interest rate derivatives		46,502		—		46,502		—
	$	81,386	$	10,113	$	59,488	$	11,785
Nonrecurring fair value measurements:
Collateral-dependent loans	$	2,456	$	—	$	—	$	2,456	$	(137)

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	December 31, 2022
									Total Gains
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		(Losses)
Assets
Recurring fair value measurements:
Securities available for sale:
Obligations of U.S. Government entities and agencies	$	5,059	$	—	$	—	$	5,059
States and political subdivisions		6,403		—		6,403		—
Mortgage-backed GSE residential		7,783		—		7,783		—
Total securities available for sale		19,245		—		14,186		5,059
Equity securities		10,300		10,300		—		—
SBA servicing asset		7,038		—		—		7,038
Interest only strip		47		—		—		47
Interest rate derivatives		28,781		—		28,781		—
	$	65,411	$	10,300	$	42,967	$	12,144
Nonrecurring fair value measurements:
Impaired loans	$	1,045	$	—	$	—	$	1,045	$	229
Liabilities
Recurring fair value measurements:
Interest rate swaps	$	779	$	—	$	779	$	—

The Company used the following methods and significant assumptions to estimate fair value:

Securities, Available for Sale: The Company carries securities available for sale at fair value. For securities where quoted prices are not available (Level 2), the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The investments in the Company’s portfolio are generally not quoted on an exchange but are actively traded in the secondary institutional markets.

The Company owns certain SBA investments for which the fair value is determined using Level 3 hierarchy inputs and assumptions as the trading market for such securities was determined to be “not active.” This determination was based on the limited number of trades or, in certain cases, the existence of no reported trades. Discounted cash flows are calculated by a third party using interest rate curves that are updated to incorporate current market conditions, including prepayment vectors and credit risk. During time when trading is more liquid, broker quotes are used to validate the model.

Equity Securities: The Company carries equity securities at fair value. Equity securities are measured at fair value using quoted market prices on nationally recognized and foreign securities exchanges (Level 1).

SBA Servicing Assets and Interest Only Strip: The fair values of the Company’s servicing assets are determined using Level 3 inputs. All separately recognized servicing assets and servicing liabilities are initially measured at fair value and at each reporting date and changes in fair value are reported in earnings in the period in which they occur.

The fair values of the Company’s interest-only strips are determined using Level 3 inputs. When the Company sells loans to others, it may hold interest-only strips, which is an interest that continues to be held by the transferor in the securitized receivable. It may also obtain servicing assets or assume servicing liabilities that are initially measured at fair value. Gain or loss on sale of the receivables depends in part on both (a) the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the interests that continue to be held by the transferor based on their relative fair value at the date of transfer, and (b) the proceeds received. To obtain fair values, quoted market prices are used if available. However, quotes are generally not available for interests that continue to be held by the transferor, so the Company generally estimates fair value based on the future expected cash flows estimated using

28

management’s best estimates of the key assumptions — credit losses and discount rates commensurate with the risks involved.

Interest Rate Derivatives: Exchange-traded derivatives are valued using quoted prices and are classified within Level 1 of the valuation hierarchy. However, few classes of derivative contracts are listed on an exchange; thus, the Company’s derivative positions are valued by third parties using their valuation models and confirmed by the Company. Since the model inputs can be observed in a liquid market and the models do not require significant judgement, such derivative contracts are classified within Level 2 of the fair value hierarchy. The Company’s interest rate derivatives contracts (designated as cash flow hedges) are classified within Level 2.

Under certain circumstances we make adjustments to fair value for our assets and liabilities although they are not measured at fair value on an ongoing basis.

Collateral-dependent and impaired loans: Collateral-dependent loans are loans where repayment is expected to be provided solely by the sale of the underlying collateral and there are no other available and reliable sources of repayment. Prior to the adoption of ASU 2016-13, impaired loans were evaluated and valued at the time the loan was identified as impaired, at the lower of cost or fair value. Fair value for both collateral-dependent and impaired loans are measured based on the value of the collateral securing these loans and are classified at a Level 3 in the fair value hierarchy. Collateral may include real estate, or business assets including equipment, inventory and accounts receivable. The value of real estate collateral is determined based on an appraisal by qualified licensed appraisers hired by the Company. The value of business equipment is based on an appraisal by qualified licensed appraisers hired by the Company if significant, or the equipment’s net book value on the business’ financial statements. Inventory and accounts receivable collateral are valued based on independent field examiner review or aging reports. Appraisals may utilize a single valuation approach or a combination or approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. Appraised values are reviewed by management using historical knowledge, market considerations, and knowledge of the client and client’s business.

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Changes in level 3 fair value measurements

The table below presents a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2023 and 2022:

	Obligations of		SBA
(Dollars in thousands)	U.S. Government		Servicing		Interest Only
Three Months Ended:	Entities and Agencies		Asset		Strip		Liabilities
Fair value, July 1, 2023	$	4,790	$	8,018	$	—	$	—
Total losses included in income		—		(911)		—		—
Settlements		—		—		—		—
Prepayments/paydowns		(112)		—		—		—
Transfers in and/or out of level 3		—		—		—		—
Fair value, September 30, 2023	$	4,678	$	7,107	$	—	$	—
Fair value, July 1, 2022	$	5,900	$	8,062	$	154	$	—
Total gains included in income		—		73		35		—
Settlements		—		—		—		—
Prepayments/paydowns		(215)		—		—		—
Transfers in and/or out of level 3		—		—		—		—
Fair value, September 30, 2022	$	5,685	$	8,135	$	189	$	—
Nine Months Ended:
Fair value, January 1, 2023	$	5,059	$	7,038	$	47	$	—
Total gains/(losses) included in income		—		69		(47)		—
Settlements		—		—		—		—
Prepayments/paydowns		(381)		—		—		—
Transfers in and/or out of level 3		—		—		—		—
Fair value, September 30, 2023	$	4,678	$	7,107	$	—	$	—
Fair value, January 1, 2022	$	6,949	$	10,091	$	143	$	—
Total (losses)/gains included in income		—		(1,956)		46		—
Settlements		—		—		—		—
Prepayments/paydowns		(1,264)		—		—		—
Transfers in and/or out of level 3		—		—		—		—
Fair value, September 30, 2022	$	5,685	$	8,135	$	189	$	—

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There were no gains or losses included in earnings for securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the periods presented above. The only activity for these securities were prepayments. There were no purchases, sales, or transfers into and out of Level 3. The following table presents quantitative information about recurring Level 3 fair value measures at September 30, 2023 and December 31, 2022:

	Valuation	Unobservable	General
	Technique	Input	Range
September 30, 2023:
Recurring:
Obligations of U.S. Government entities and agencies	Discounted cash flows	Discount rate	3%-5%
SBA servicing asset and interest only strip	Discounted cash flows	Prepayment speed	13.36%-19.29%
		Discount rate	8.65%-17.65%
Nonrecurring:
Collateral-dependent loans	Appraised value less estimated selling costs	Estimated selling costs	6%
December 31, 2022:
Recurring:
Obligations of U.S. Government entities and agencies	Discounted cash flows	Discount rate	3%-5%
SBA servicing asset and interest only strip	Discounted cash flows	Prepayment speed	13.12%-17.60%
		Discount rate	8.21%-19.30%
Nonrecurring:
Impaired Loans	Appraised value less estimated selling costs	Estimated selling costs	6%

The carrying amounts and estimated fair values of the Company’s financial instruments at September 30, 2023 and December 31, 2022 are as follows:

	Carrying			Estimated Fair Value at September 30, 2023
(Dollars in thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash, due from banks, and federal funds sold	$	282,057	$	—	$	282,057	$	—	$	282,057
Investment securities		27,777		10,113		12,986		4,678		27,777
FHLB stock		17,846		—		—		—		N/A
Loans, net		3,012,287		—		—		2,862,576		2,862,576
Accrued interest receivable		14,612		—		61		14,551		14,612
SBA servicing assets		7,107		—		—		7,107		7,107
Mortgage servicing assets		1,823		—		—		7,020		7,020
Interest rate derivatives		46,502		—		46,502		—		46,502
Financial Liabilities:
Deposits		2,718,588		—		2,713,695		—		2,713,695
Federal Home Loan Bank advances		325,000		—		326,268		—		326,268
Accrued interest payable		3,915		—		3,915		—		3,915

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	Carrying		Estimated Fair Value at December 31, 2022
(Dollars in thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash, due from banks, and federal funds sold	$	179,485	$	—	$	179,485	$	—	$	179,485
Investment securities		29,545		10,300		14,186		5,059		29,545
FHLB stock		17,493		—		—		—		N/A
Loans, net		3,041,801		—		—		2,999,520		2,999,520
Accrued interest receivable		13,171		—		98		13,073		13,171
SBA servicing asset		7,038		—		—		7,038		7,038
Interest only strips		47		—		—		47		47
Mortgage servicing assets		3,973		—		—		7,209		7,209
Interest rate derivatives		28,781		—		28,781		—		28,781
Financial Liabilities:
Deposits		2,666,838		—		2,658,837		—		2,658,837
Federal Home Loan Bank advances		375,000		—		376,575		—		376,575
Other borrowings		392		—		392		—		392
Accrued interest payable		2,739		—		2,739		—		2,739
Interest rate derivatives		779		—		779		—		779

NOTE 11 – REGULATORY MATTERS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Under the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (“Basel III rules”), the Bank must hold a capital conservation buffer of 2.50% above the adequately capitalized risk-based capital ratios. The net unrealized gain or loss on available for sale securities, if any, is not included in computing regulatory capital. Management believes as of September 30, 2023 the Company and Bank meet all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At September 30, 2023 and December 31, 2022, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

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The Company’s actual capital amounts (in thousands) and ratios are also presented in the following table:

								To Be Well Capitalized
					Minimum Capital Required -			Under Prompt Corrective
	Actual				Basel III			Action Provisions:
(Dollars in thousands)	Amount		Ratio		Amount ≥	Ratio ≥		Amount ≥	Ratio ≥
As of September 30, 2023:
Total Capital (to Risk Weighted Assets)
Consolidated	$	365,268	17.91	%	214,160	10.5	%	N/A	N/A
Bank		362,477	17.77	%	214,153	10.5		203,955	10.0	%
Tier I Capital (to Risk Weighted Assets)
Consolidated		347,314	17.03	%	173,368	8.5	%	N/A	N/A
Bank		344,523	16.89	%	173,362	8.5		163,164	8.0	%
Common Tier 1 (CET1)
Consolidated		347,314	17.03	%	142,773	7.0	%	N/A	N/A
Bank		344,523	16.89	%	142,769	7.0		132,571	6.5	%
Tier 1 Capital (to Average Assets)
Consolidated		347,314	10.07	%	137,909	4.0	%	N/A	N/A
Bank		344,523	9.99	%	137,901	4.0		172,376	5.0	%
As of December 31, 2022:
Total Capital (to Risk Weighted Assets)
Consolidated	$	338,185	16.68	%	212,932	10.5	%	N/A	N/A
Bank		336,866	16.61	%	212,915	10.5		202,777	10.0	%
Tier I Capital (to Risk Weighted Assets)
Consolidated		324,297	15.99	%	172,374	8.5	%	N/A	N/A
Bank		322,978	15.93	%	172,360	8.5		162,221	8.0	%
Common Tier 1 (CET1)
Consolidated		324,297	15.99	%	141,955	7.0	%	N/A	N/A
Bank		322,978	15.93	%	141,944	7.0		131,805	6.5	%
Tier 1 Capital (to Average Assets)
Consolidated		324,297	9.57	%	135,485	4.0	%	N/A	N/A
Bank		322,978	9.54	%	135,446	4.0		169,307	5.0	%

NOTE 12 – STOCK BASED COMPENSATION

The Company adopted the MetroCity Bankshares, Inc. 2018 Stock Option Plan (the “Prior Option Plan”) effective as of April 18, 2018, and the Prior Option Plan was approved by the Company’s shareholders on May 30, 2018. The Prior Option Plan provided for awards of stock options to officers, employees and directors of the Company. The Board of Directors of the Company determined that it was in the best interests of the Company and its shareholders to amend and restate the Prior Option Plan to provide for the grant of additional types of awards. Acting pursuant to its authority under the Prior Option Plan, the Board of Directors approved and adopted the MetroCity Bankshares, Inc. 2018 Omnibus Incentive Plan (the “2018 Incentive Plan”), which constitutes the amended and restated version of the Prior Option Plan. The Board of Directors has reserved 2,400,000 shares of Company common stock for issuance pursuant to awards granted under the 2018 Incentive Plan, any or all of which may be granted as nonqualified stock options, incentive stock options, restricted stock, restricted stock units, performance awards and other stock-based awards. In the event all or a portion of a stock award is forfeited, cancelled, expires, or is terminated before becoming vested, paid, exercised, converted, or otherwise settled in full, any unissued or forfeited shares again become available for issuance pursuant to awards granted under the 2018 Incentive Plan and do not count against the maximum number of reserved shares. In addition, shares of common stock deducted or withheld to satisfy tax withholding obligations will be added back to the share reserve and will again be available for issuance pursuant to awards granted under the plan. The 2018 Incentive Plan is administered by the Compensation Committee of our Board of Directors (the “Committee”). The determination of award recipients under the 2018 Incentive Plan, and the terms of those awards, will be made by the Committee. At September 30, 2023, 240,000 stock options had been granted and 774,437 shares of restricted stock had been issued under the 2018 Incentive Plan.

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Stock Options

A summary of stock option activity for the nine months ended September 30, 2023 is presented below:

		Weighted
		Average
	Shares	Exercise Price
Outstanding at January 1, 2023	240,000	$	12.70
Granted	—		—
Exercised	—		—
Forfeited	—		—
Outstanding at September 30, 2023	240,000	$	12.70

The Company recognized no compensation expense for stock options during the three and nine months ended September 30, 2023 and 2022. As of both September 30, 2023 and December 31, 2022, there was $0 of total unrecognized compensation cost related to options granted under the 2018 Incentive Plan. As of September 30, 2023, all of the cost related to the outstanding stock options had been recognized.

Restricted Stock Units

The Company has periodically issued restricted stock units to its directors, executive officers and certain employees under the 2018 Incentive Plan. Compensation expense for restricted stock is based upon the grant date fair value of the shares and is recognized over the vesting period of the units. Shares of restricted stock units issued to officers and employees vest in equal annual installments on the first three anniversaries of the grant date. Shares of restricted stock units issued to directors vest 25% on the grant date and 25% on each of the first three anniversaries of the grant date.

A summary of restricted stock activity for the nine months ended September 30, 2023 is presented below:

		Weighted-
		Average Grant-
Nonvested Shares	Shares	Date Fair Value
Nonvested at January 1, 2023	177,399	$	17.95
Granted	188,993		16.43
Vested	(136,171)		16.25
Forfeited	—		—
Nonvested at September 30, 2023	230,221	$	17.71

During the three months ended September 30, 2023 and 2022, the Company recognized compensation expense for restricted stock of $825,000 and $689,000, respectively. During the nine months ended September 30, 2023 and 2022, the Company recognized compensation expense for restricted stock of $1.6 million and $1.2 million, respectively. As of September 30, 2023 and December 31, 2022, there was $3.8 million and $2.3 million, respectively, of total unrecognized compensation cost related to nonvested shares granted under the 2018 Incentive Plan. As of September 30, 2023, the cost is expected to be recognized over a weighted-average period of 2.3 years.

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NOTE 13 – EARNINGS PER SHARE

The following table presents the calculation of basic and diluted earnings per common share for the periods indicated:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands, except per share data)	2023		2022		2023		2022
Basic earnings per share
Net Income	$	11,428	$	16,893	$	40,266	$	52,422
Weighted average common shares outstanding		25,274,665		25,433,307		25,203,114		25,452,398
Basic earnings per common share	$	0.45	$	0.66	$	1.60	$	2.06
Diluted earnings per share
Net Income	$	11,428	$	16,893	$	40,266	$	52,422
Weighted average common shares outstanding for basic earnings per common share		25,274,665		25,433,307		25,203,114		25,452,398
Add: Dilutive effects of restricted stock and options		317,209		268,716		307,574		279,606
Average shares and dilutive potential common shares		25,591,874		25,702,023		25,510,688		25,732,004
Diluted earnings per common share	$	0.45	$	0.66	$	1.58	$	2.04

There were no stock options or restricted stock excluded from the computation of diluted earnings per common share since they were antidilutive for the three and nine months ended September 30, 2023 and 2022.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The purpose of this discussion and analysis is to focus on significant changes in the financial condition of MetroCity Bancshares, Inc. and our wholly owned subsidiary, Metro City Bank, from December 31, 2022 through September 30, 2023 and on our results of operations for the three and nine months ended September 30, 2023 and 2022. This discussion and analysis should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2022 included in our Annual Report on Form 10-K, and information presented elsewhere in this Quarterly Report on Form 10-Q, particularly the unaudited consolidated financial statements and related notes appearing in Item 1.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “strive,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations,  estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors discussed elsewhere in this quarterly report and the following:

● The impact of current and future economic and market conditions generally (including seasonality) and in the financial services industry, nationally and within our primary market areas, including the effects of inflationary pressures, changes in interest rates, slowdowns in economic growth, and the potential for high unemployment rates, as well as the financial stress on borrowers and changes to customer and client behavior (including the velocity of loan repayment) and credit risk as a result of the foregoing;

● changes in interest rate environment (including changes to the federal funds rate, the level and composition of deposits (as well as the cost of, and competition for, deposits), loan demand, liquidity and the values of loan collateral, securities and market fluctuations, and interest rate sensitive assets and liabilities), and competition in our markets may result in increased funding costs or reduced earning assets yields, thus reducing our margins and net interest income;

● adverse developments in the banking industry highlighted by high-profile bank failures and the impact of such developments on customer confidence, liquidity and regulatory responses to these developments (including increases in the cost of our deposit insurance assessments), our ability to effectively manage our liquidity risk and any growth plans and the availability of capital and funding;

● our ability to comply with applicable capital and liquidity requirements, including our ability to generate liquidity internally or raise capital on favorable terms, including continued access to the debt and equity capital markets;

● the risk that a future economic downturn and contraction, including a recession, could have a material adverse effect on our capital, financial condition, credit quality, results of operations and future growth, including the risk that the strength of the current economic environment could be weakened by the continued impact of rising interest rates and inflation;

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● factors that can impact the performance of our loan portfolio, including real estate values and liquidity in our primary market areas, the financial health of our borrowers and the success of various projects that we finance;

● concentration of our loan portfolio in real estate loans;

● changes in the prices, values and sales volumes of commercial and residential real estate, especially as they relate to the value of collateral supporting the Company’s loans;

● weakness in the real estate market, including the secondary residential mortgage market, which can affect, among other things, the value of collateral securing mortgage loans, mortgage loan originations and delinquencies, profits on sales of mortgage loans, and the value of mortgage servicing rights;

● credit and lending risks associated with our construction and development, commercial real estate, commercial and industrial, residential real estate and SBA loan portfolios;

● negative impact in our mortgage banking services, including declines in our mortgage originations or profitability due to rising interest rates and increased competition and regulation, the Bank’s or third party’s failure to satisfy mortgage servicing obligations, loan modifications, the effects of judicial or regulatory requirements or guidance, and the possibility of the Bank being required to repurchase mortgage loans or indemnify buyers;

● our ability to attract sufficient loans that meet prudent credit standards, including in our construction and development, commercial and industrial  and owner-occupied  commercial real estate loan categories;

● our ability to attract and maintain business banking relationships with well-qualified businesses, real estate developers and investors with proven track records in our market areas;

● our ability to successfully manage our credit risk and the sufficiency of our allowance for credit losses (“ACL”), including the implementation of the Current Expected Credit Losses (“CECL”) model;

● the adequacy of our reserves (including ACL) and the appropriateness of our methodology for calculating such reserves;

● our ability to successfully execute our business strategy to achieve profitable  growth;

● the concentration of our business within our geographic areas of operation and to the general Asian-American population within our primary market areas;

● our focus on small and mid-sized businesses;

● our ability to manage our growth;

● our ability to increase our operating efficiency;

● significant turbulence or a disruption in the capital or financial markets and the effect of a fall in stock market prices on our investment securities;

● risks that our cost of funding could increase, in the event we are unable to continue to attract stable, low-cost deposits and reduce our cost of deposits;

● inability of our risk management framework to effectively mitigate credit risk, interest rate risk, liquidity risk, price risk, compliance risk, operational risk, strategic risk and reputational risk;

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● our ability to maintain expenses in line with current projections;

● the makeup of our asset mix and investments;

● external economic, political and/or market factors, such as changes in monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve, inflation or deflation, changes in the demand for loans, and fluctuations in consumer spending, borrowing and savings habits, which may have an adverse impact on our financial condition;

● uncertainty related to the transition away from the London Inter-bank Offered Rate (“LIBOR”);

● the institution and outcome of litigation and other legal proceeding against us or to which we may become subject to;

● the impact of recent and future legislative and regulatory changes;

● examinations by our regulatory authorities;

● continued or increasing competition from other financial institutions, credit unions, and non-bank financial services companies (including fintech companies), many of which are subject to different regulations than we are;

● challenges arising from unsuccessful attempts  to expand into new geographic markets, products, or services;

● restraints on the ability of the Bank to pay dividends to us, which could limit our liquidity;

● increased capital requirements imposed by banking regulators, which may require us to raise capital at a time when capital is not available on favorable terms or at all;

● a failure in the internal controls we have implemented to address the risks inherent to the business of banking;

● inaccuracies in our assumptions about future events, which could result in material differences between our financial projections and actual financial performance;

● changes in our management personnel or our inability to retain motivate and hire qualified management personnel;

● the dependence of our operating model on our ability to attract and retain experienced and talented bankers in each of our markets, which may be impacted as a result of labor shortages;

● our ability to identify and address cyber-security risks, fraud and systems errors, including the impact on our reputation and the costs and effects required to address such risks;

● disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology systems, and the cost of defending against them and any reputational or other financial risks following such a cybersecurity incident;

● disruptions, security breaches, or other adverse events affecting the third-party vendors who perform several of our critical processing functions;

● an inability to keep pace with the rate of technological advances due to a lack of resources to invest in new technologies;

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● fraudulent and negligent acts by our clients, employees or vendors and our ability to identify and address such acts;

● risks related to potential acquisitions;

● the impact of any claims or legal actions to which we may be subject, including any effect on our reputation;

● compliance with governmental and regulatory requirements, including the Dodd-Frank Act and others relating to banking, consumer protection, securities and tax matters, and our ability to maintain licenses required in connection  with commercial mortgage origination, sale and servicing operations;

● changes in the scope and cost of Federal Deposit Insurance Corporation (“FDIC”) insurance and other coverage;

● changes in our accounting standards;

● changes in tariffs and trade barriers;

● changes in federal tax law or policy;

● the effects of war or other conflicts (including Russia’s military action in Ukraine and the ongoing conflict in Israel and the surrounding region), acts of terrorism, acts of God, natural disasters, health emergencies, epidemics or pandemics, climate changes, or other catastrophic events that may affect general economic conditions;

● risks related to environmental, social and governance ("ESG") strategies and initiatives, the scope and pace of which could alter the Company’s reputation and shareholder, associate, customer and third-party affiliations;

● a deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid exceeding the debt ceiling, and uncertainties surrounding the debt ceiling and the federal budget; and

● other risks and factors identified in our Annual Report on Form 10-K for the year ended December 31, 2022, including those identified under the heading “Risk Factors”, and detailed from time to time in our other filings with the U.S. Securities and Exchange Commission.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Quarterly Report on Form 10-Q. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by the forward looking statements in this Quarterly Report on Form 10-Q. In addition, our past results of operations are not necessarily indicative of our future results. You should not rely on any forward looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.

CECL Adoption

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

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The impact of utilizing the CECL approach to calculate the allowance for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the provision for credit losses, and therefore, greater volatility to our reported earnings. See Note 1 and Note 3 of our consolidated financial statements as of September 30, 2023, included elsewhere in this Form 10-Q, for additional information on the on the allowance for credit losses and the allowance for unfunded commitments.

Critical Accounting Policies and Estimates

Our accounting and reporting estimates conform with U.S. GAAP and general practices within the financial services industry.  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. We consider accounting estimates that can (1) be replaced by other reasonable estimates and/or (2) changes to an estimate from period to period that have a material impact on the presentation of our financial condition, changes in financial condition or results of operations as well as (3) those estimates that require significant and complex assumptions about matters that are highly uncertain to be critical accounting estimates. We consider our critical accounting policies to include the allowance for credit losses, servicing assets, fair value of financial instruments and income taxes.

Critical accounting estimates include a high degree of uncertainty in the underlying assumptions. Management bases its estimates on historical experience, current information and other factors deemed relevant. The development, selection and disclosure of our critical accounting estimates are reviewed with the Audit Committee of the Company's Board of Directors. Actual results could differ from these estimates. For additional information regarding critical accounting policies, refer to “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” and Note 1 of our consolidated financial statements as of December 31, 2022 in the Company’s 2022 Form 10-K. Other than our methodology of estimating allowance for credit losses (discussed below), there have been no significant changes in the Company’s application of critical accounting policies since December 31, 2022.

Reserve for Credit Losses

A consequence of lending activities is that we may incur credit losses. The amount of such losses will vary depending upon the risk characteristics of the loan lease portfolio as affected by economic conditions such as rising interest rates and the financial performance of borrowers.

The reserve for credit losses consists of the allowance for credit losses (“ACL”) and the allowance for unfunded commitments. As a result of our January 1, 2023 adoption of ASU No. 2016-13, and its related amendments, our methodology for estimating the reserve for credit losses changed significantly from December 31, 2022. The standard replaced the “incurred loss” approach with an “expected loss” approach known as the Current Expected Credit Losses (“CECL”). The CECL approach requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). It removes the incurred loss approach’s threshold that delayed the recognition of a credit loss until it was “probable” a loss event was “incurred.”

The estimate of expected credit losses under the CECL approach is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. We then consider whether the historical loss experience should be adjusted for loan-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. Finally, we consider forecasts about future economic conditions that are reasonable and supportable. The allowance for unfunded commitments represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit. This allowance is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur.

Management’s evaluation of the appropriateness of the reserve for credit losses is often the most critical of accounting estimates for a financial institution. Our determination of the amount of the reserve for credit losses is a critical accounting

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

Overview

MetroCity Bankshares, Inc. is a bank holding company headquartered in the Atlanta metropolitan area. We operate through our wholly-owned banking subsidiary, Metro City Bank, a Georgia state-chartered commercial bank that was founded in 2006. We currently operate 20 full-service branch locations in multi-ethnic communities in Alabama, Florida, Georgia, New York, New Jersey, Texas and Virginia. As of September 30, 2023, we had total assets of $3.51 billion, total loans of $3.03 billion, total deposits of $2.72 billion and total shareholders’ equity of $384.7 million.

We are a full-service commercial bank focused on delivering personalized service in an efficient and reliable manner to the small to medium-sized businesses and individuals in our markets, predominantly Asian-American communities in growing metropolitan markets in the Eastern U.S. and Texas. We offer a suite of loan and deposit products  tailored to meet the needs of the businesses and individuals already established in our communities, as well as first generation  immigrants who desire to establish and grow their own businesses, purchase a home, or educate their children in the United States. Through our diverse and experienced management team and talented employees, we are able to speak the language of our customers and provide them with services and products in a culturally competent manner.

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Selected Financial Data

The following table sets forth unaudited selected financial data for the most recent five quarters and for the nine months ended September 30, 2023 and 2022. This data should be read in conjunction with the unaudited consolidated financial statements and accompanying notes included in Item 1 and the information contained in this Item 2.

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	As of or for the Three Months Ended															As of or for the Nine Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			September 30,			September 30,
(Dollars in thousands, except per share data)	2023			2023			2023			2022			2022			2023			2022
Selected income statement data:
Interest income	$	48,709		$	47,482		$	45,965		$	43,945		$	38,297		$	142,156		$	103,275
Interest expense		24,555			22,512			19,732			14,995			8,509			66,799			12,614
Net interest income		24,154			24,970			26,233			28,950			29,788			75,357			90,661
Provision for credit losses		(381)			(416)			—			(1,168)			(1,703)			(797)			(1,599)
Noninterest income		2,902			4,761			6,016			1,794			5,101			13,679			17,410
Noninterest expense		11,785			11,534			10,679			12,379			12,688			33,998			37,986
Income tax expense		4,224			5,505			5,840			9,353			7,011			15,569			19,262
Net income		11,428			13,108			15,730			10,180			16,893			40,266			52,422
Per share data:
Basic income per share	$	0.45		$	0.52		$	0.63		$	0.40		$	0.66		$	1.60		$	2.06
Diluted income per share	$	0.45		$	0.51		$	0.62		$	0.40		$	0.66		$	1.58		$	2.04
Dividends per share	$	0.18		$	0.18		$	0.18		$	0.15		$	0.15		$	0.54		$	0.45
Book value per share (at period end)	$	15.24		$	14.76		$	14.04		$	13.88		$	13.76		$	15.24		$	13.76
Shares of common stock outstanding		25,241,157			25,279,846			25,143,675			25,169,709			25,370,417			25,241,157			25,370,417
Weighted average diluted shares		25,591,874			25,477,143			25,405,855			25,560,138			25,702,023			25,510,689			25,732,004
Performance ratios:
Return on average assets		1.30	%		1.55	%		1.87	%		1.19	%		2.07	%		1.57	%		2.25	%
Return on average equity(1)		12.14			14.87			18.09			11.57			20.56			14.96			22.57
Dividend payout ratio		40.18			34.77			28.98			37.55			22.75			34.04			21.98
Yield on total loans		5.98			5.95			5.85			5.50			5.11			5.93			5.03
Yield on average earning assets		5.92			5.90			5.77			5.43			4.94			5.88			4.65
Cost of average interest bearing liabilities		3.97			3.74			3.30			2.49			1.51			3.67			0.79
Cost of deposits		4.05			3.88			3.48			2.61			1.48			3.81			0.79
Net interest margin		2.94			3.10			3.30			3.58			3.84			3.11			4.08
Efficiency ratio(2)		43.56			38.79			33.11			40.26			36.37			38.18			35.15
Asset quality data (at period end):
Net charge-offs/(recoveries) to average loans held for investment		(0.00)	%		0.06	%		(0.00)	%		(0.01)	%		(0.00)	%		0.02	%		0.02	%

43

Nonperforming assets to gross loans and OREO		1.25			0.78			0.64			0.80			1.09			1.25			1.09
ACL to nonperforming loans		47.61			79.88			101.22			68.88			53.25			47.61			53.25
ACL to loans held for investment		0.58			0.60			0.63			0.45			0.50			0.58			0.50
Balance sheet and capital ratios:
Gross loans held for investment to deposits		111.77	%		112.27	%		114.27	%		114.94	%		116.21	%		111.77	%		116.21	%
Noninterest bearing deposits to deposits		20.58			21.32			21.83			22.95			23.43			20.58			23.43
Investment securities to assets		0.79			0.84			0.87			0.86			0.91			0.79			0.91
Common equity to assets		10.96			10.74			10.32			10.20			10.42			10.96			10.42
Leverage ratio		10.07			10.03			9.72			9.57			9.90			10.07			9.90
Common equity tier 1 ratio		17.03			16.69			16.55			15.99			16.18			17.03			16.18
Tier 1 risk-based capital ratio		17.03			16.69			16.55			15.99			16.18			17.03			16.18
Total risk-based capital ratio		17.91			17.59			17.51			16.68			16.94			17.91			16.94
Mortgage and SBA loan data:
Mortgage loans serviced for others	$	464,823		$	487,787		$	506,012		$	526,719		$	550,587		$	464,823		$	550,587
Mortgage loan production		91,891			72,830			43,335			88,045			255,662			208,056			745,568
Mortgage loan sales		—			—			—			—			—			—			94,915
SBA loans serviced for others		487,827			493,579			485,663			465,120			489,120			487,827			489,120
SBA loan production		13,212			16,110			15,352			42,419			22,193			55,561			94,289
SBA loan sales		5,169			30,298			36,458			—			8,588			71,925			31,486

(1) Excluding average accumulated other comprehensive income, our return on average equity for the three months ended September 30, 2023 and 2022  was 13.04% and 20.99%, respectively, and for the nine months ended September 30, 2023 and 2022 was 15.81% and 22.82%, respectively.

(2) Represents noninterest expense divided by total revenue (net interest income and total noninterest income).

44

Recent Industry Developments

During the first half of 2023, the banking industry experienced significant volatility with multiple high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, uninsured deposit concentrations, unrealized securities losses and eroding consumer confidence in the banking system. Despite these negative industry developments, the Company’s liquidity position and balance sheet remains robust. The Company’s total deposits increased by 1.9% from December 31, 2022 to $2.72 billion at September 30, 2023. The Company’s uninsured deposits represented 27.2% of total deposits at September 30, 2023 compared to 32.5% of total deposits at December 31, 2022. The Company also took a number of preemptive actions, which included proactive outreach to clients and actions to maximize its funding sources in response to these recent developments. Furthermore, the Company’s capital remains strong with common equity Tier 1 and total capital ratios of 17.03% and 17.91 %, respectively, as of September 30, 2023.

Results of Operations

We recorded net income of $11.4 million for the three months ended September 30, 2023 compared to $16.9 million for the same period in 2022, a decrease of $5.5 million, or 32.4%.  This decrease was due to a decrease in net interest income of $5.6 million, a decrease in noninterest income of $2.2 million and a decrease to the credit provision for credit losses of $1.3 million, offset by a decrease in noninterest expense of $903,000 and a decrease in income tax expense of $2.8 million.

For the nine months ended September 30, 2023, we recorded net income of $40.3 million compared to $52.4 million for the nine months ended September 30, 2022, a decrease of $12.1 million, or 23.2%. This decrease was due to a decrease in net interest income of $15.3 million, a decrease in noninterest income of $3.7 million and a decrease to the credit provision for credit losses of $802,000, offset by a decrease in noninterest expense of $4.0 million and a decrease in income tax expense of $3.7 million.

Basic and diluted earnings per common share for the three months ended September 30, 2023 was $0.45 compared to $0.66 for both the basic and diluted earnings per common share for the same period in 2022. For the nine months ended September 30, 2023, basic and diluted earnings per common share was $1.60 and $1.58, respectively, compared to $2.06 and $2.04 for the same period a year ago, respectively.

Interest Income

Interest income totaled $48.7 million for the three months ended September 30, 2023, an increase of $10.4 million, or 27.2%, from the three months ended September 30, 2022, primarily due to an increase in average loan balances of $137.3 million coupled with a 87 basis points increase in the loan yield. The increase in average loans is due to an increase of $11.2 million in average commercial and industrial loans, an increase of $45.9 million in average commercial real estate loans and an increase of $88.2 million in average residential mortgage loans, offset by a decrease of $8.0 million in construction and development loans. As compared to the three months ended September 30, 2022, the yield on average interest-earning assets increased by 98 basis points to 5.92% from 4.94% with the yield on average loans increasing by 87 basis points and the yield on average total investments increasing by 293 basis points.

Interest income was $142.2 million for the nine months ended September 30, 2023 compared to $103.3 million for the same period in 2022, an increase of $38.9 million, or 37.6%, primarily due to the increase in average loan balances of $346.7 million coupled with a 90 basis points increase in the loan yield. The increase in average loans is due to an increase of $2.7 million in average construction and development loans, an increase of $82.0 million in average commercial real estate loans and an increase of $266.5 million in average residential mortgage loans, offset by a decrease of $4.5 million in average commercial and industrial loans. As compared to the nine months ended September 30, 2022, the yield on average interest-earning assets increased by 123 basis points to 5.88% from 4.65% with the yield on average loans increasing by 90 basis points and the yield on average total investments increasing by 405 basis points.

45

Interest Expense

Interest expense for the three months ended September 30, 2023 increased $16.1 million, or 188.6%, to $24.6 million compared to interest expense of $8.5 million for the three months ended September 30, 2022, primarily due to a 257 basis points increase in deposit costs and a 181 basis points increase in borrowing costs coupled with a $262.5 million increase in average interest-bearing deposits. The 257 basis points increase in deposit costs included a 274 basis point increase in the yield on average money market deposits and a 282 basis points increase in the yield on average time deposits. Average time deposits increased by $466.8 million while average money market deposits decreased by $143.0 million. Interest expense totaled $66.8 million for the nine months ended September 30, 2023, an increase of $54.2 million, or 429.6%, compared to the same period in 2022, primarily due to a 302 basis points increase in deposit costs and a 210 basis points increase in borrowing costs coupled with a $287.4 million increase in average interest-bearing deposits.

Average borrowings outstanding for the three months ended September 30, 2023 decreased by $50.4 million but had an increase in rate of 181 basis points compared to the three months ended September 30, 2022. Average borrowings outstanding for the nine months ended September 30, 2023 increased by $3.0 million with an increase in rate of 210 basis points compared to the same period in 2022.

Net Interest Margin

The net interest margin for the three months ended September 30, 2023 decreased by 90 basis points to 2.94% from 3.84% for the three months ended September 30, 2022, primarily due to a 246 basis point increase in the cost of average interest-bearing liabilities of $2.45 billion, offset by a 98 basis point increase in the yield on average interest-earning assets of $3.26 billion. Average earning assets for the three months ended September 30, 2023 increased by $183.7 million from the same period in 2022, primarily due to a $137.3 million increase in average loans and a $49.1 million increase in average interest-earning cash accounts. Average interest-bearing liabilities for the three months ended September 30, 2023 increased by $212.1 million from the same period in 2022, driven by an increase in average interest-bearing deposits of $262.5 million, offset by a decrease in average borrowings of $50.4 million.

The net interest margin for the nine months ended September 30, 2023 decreased by 97 basis points to 3.11% from 4.08% for the nine months ended September 30, 2022, primarily due to a 288 basis point increase in the cost of average interest-bearing liabilities of $2.43 billion, offset by a 123 basis point increase in the yield on average interest-earning assets of $3.23 billion. Average earning assets increased by $263.5 million, primarily due to a $346.7 million increase in average loans, offset by a $79.9 million decrease in average interest-earning cash accounts. Average interest-bearing liabilities increased by $290.4 million, primarily driven by an increase in average interest-bearing deposits of $287.4 million, as well as an increase in average borrowings of $3.0 million.

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

46

Average Balances, Interest and Yields

The following tables present, for the three and nine months ended September 30, 2023 and 2022, information about: (i) weighted average balances, the total dollar amount of interest income from interest-earning assets and the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rates; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin.

	Three Months Ended September 30,
	2023						2022
	Average		Interest and		Yield /		Average		Interest and		Yield /
(Dollars in thousands)	Balance		Fees		Rate		Balance		Fees		Rate
Earning Assets:
Federal funds sold and other investments(1)	$	200,245	$	2,807	5.56	%	$	151,177	$	864	2.27	%
Investment securities		32,172		207	2.55			34,792		170	1.94
Total investments		232,417		3,014	5.14			185,969		1,034	2.21
Construction and development		30,584		442	5.73			38,636		530	5.44
Commercial real estate		647,244		14,435	8.85			601,370		9,905	6.53
Commercial and industrial		61,774		1,488	9.56			50,605		909	7.13
Residential real estate		2,289,428		29,296	5.08			2,201,186		25,885	4.67
Consumer and other		201		34	67.11			137		34	98.46
Gross loans(2)		3,029,231		45,695	5.98			2,891,934		37,263	5.11
Total earning assets		3,261,648		48,709	5.92			3,077,903		38,297	4.94
Noninterest-earning assets		214,834						158,579
Total assets		3,476,482						3,236,482
Interest-bearing liabilities:
NOW and savings deposits		125,078		381	1.21			186,459		338	0.72
Money market deposits		1,036,955		11,709	4.48			1,179,954		5,189	1.74
Time deposits		966,408		9,646	3.96			499,577		1,437	1.14
Total interest-bearing deposits		2,128,441		21,736	4.05			1,865,990		6,964	1.48
Borrowings		325,025		2,819	3.44			375,405		1,545	1.63
Total interest-bearing liabilities		2,453,466		24,555	3.97			2,241,395		8,509	1.51
Noninterest-bearing liabilities:
Noninterest-bearing deposits		555,074						599,902
Other noninterest-bearing liabilities		94,528						69,131
Total noninterest-bearing liabilities		649,602						669,033
Shareholders' equity		373,414						326,054
Total liabilities and shareholders' equity	$	3,476,482					$	3,236,482
Net interest income			$	24,154					$	29,788
Net interest spread					1.95						3.43
Net interest margin					2.94						3.84

(1) Includes income and average balances for term federal funds, interest-earning cash accounts, and other miscellaneous earning assets.

(2) Average loan balances include nonaccrual loans and loans held for sale.

47

	Nine Months Ended September 30,
	2023						2022
	Average		Interest and		Yield /		Average		Interest and		Yield /
(Dollars in thousands)	Balance		Fees		Rate		Balance		Fees		Rate
Earning Assets:
Federal funds sold and other investments(1)	$	167,411	$	7,057	5.64	%	$	247,348	$	1,747	0.94	%
Investment securities		32,547		583	2.39			35,789		496	1.85
Total investments		199,958		7,640	5.11			283,137		2,243	1.06
Construction and development		36,658		1,520	5.54			33,985		1,322	5.20
Commercial real estate		657,700		42,776	8.70			575,664		26,195	6.08
Commercial and industrial		52,292		3,637	9.30			56,772		2,900	6.83
Residential real estate		2,287,788		86,495	5.05			2,021,332		70,504	4.66
Consumer and other		174		88	67.62			203		111	73.11
Gross loans(2)		3,034,612		134,516	5.93			2,687,956		101,032	5.03
Total earning assets		3,234,570		142,156	5.88			2,971,093		103,275	4.65
Noninterest-earning assets		190,616						149,157
Total assets		3,425,186						3,120,250
Interest-bearing liabilities:
NOW and savings deposits		150,849		1,869	1.66			190,390		515	0.36
Money market deposits		991,048		31,738	4.28			1,144,337		7,706	0.90
Time deposits		923,891		25,309	3.66			443,632		2,266	0.68
Total interest-bearing deposits		2,065,788		58,916	3.81			1,778,359		10,487	0.79
Borrowings		366,112		7,883	2.88			363,170		2,127	0.78
Total interest-bearing liabilities		2,431,900		66,799	3.67			2,141,529		12,614	0.79
Noninterest-bearing liabilities:
Noninterest-bearing deposits		564,233						600,045
Other noninterest-bearing liabilities		69,078						68,144
Total noninterest-bearing liabilities		633,311						668,189
Shareholders' equity		359,975						310,532
Total liabilities and shareholders' equity	$	3,425,186					$	3,120,250
Net interest income			$	75,357					$	90,661
Net interest spread					2.21						3.86
Net interest margin					3.11						4.08

(1) Includes income and average balances for term federal funds, interest-earning cash accounts, and other miscellaneous earning assets.

(2) Average loan balances include nonaccrual loans and loans held for sale.

48

Rate/Volume Analysis

Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table sets forth the effects of changing rates and volumes on our net interest income during the period shown. Information is provided with respect to (i) effects on interest income attributable to changes in volume (change in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in rate (changes in rate multiplied by prior volume). Change applicable to both volumes and rate have been allocated to volume.

	Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
	Increase (Decrease) Due to Change in:
(Dollars in thousands)	Volume		Yield/Rate		Total Change
Earning assets:
Federal funds sold and other investments(1)	$	529	$	1,414	$	1,943
Investment securities		(186)		223		37
Total investments		343		1,637		1,980
Construction and development		(114)		26		(88)
Commercial real estate		911		3,619		4,530
Commercial and industrial		229		350		579
Residential real estate		971		2,440		3,411
Consumer and Other		—		—		—
Gross loans(2)		1,997		6,435		8,432
Total earning assets		2,340		8,072		10,412
Interest-bearing liabilities:
NOW and savings deposits		(157)		200		43
Money market deposits		(705)		7,225		6,520
Time deposits		2,532		5,677		8,209
Total interest-bearing deposits		1,670		13,102		14,772
Borrowings		(821)		2,095		1,274
Total interest-bearing liabilities		849		15,197		16,046
Net interest income	$	1,491	$	(7,125)	$	(5,634)

(1) Includes income and average balances for term federal funds, interest-earning cash accounts, and other miscellaneous earning assets.

(2) Average loan balances include nonaccrual loans and loans held for sale.

49

	Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
	Increase (Decrease) Due to Change in:
(Dollars in thousands)	Volume		Yield/Rate		Total Change
Earning assets:
Federal funds sold and other investments(1)	$	(110)	$	5,420	$	5,310
Investment securities		(448)		535		87
Total investments		(558)		5,955		5,397
Construction and development		76		122		198
Commercial real estate		3,986		12,595		16,581
Commercial and industrial		(261)		998		737
Residential real estate		9,798		6,193		15,991
Consumer and Other		(20)		(3)		(23)
Gross loans(2)		13,579		19,905		33,484
Total earning assets		13,021		25,860		38,881
Interest-bearing liabilities:
NOW and savings deposits		(135)		1,489		1,354
Money market deposits		(1,228)		25,260		24,032
Time deposits		6,093		16,950		23,043
Total interest-bearing deposits		4,730		43,699		48,429
Borrowings		23		5,733		5,756
Total interest-bearing liabilities		4,753		49,432		54,185
Net interest income	$	8,268	$	(23,572)	$	(15,304)

(1) Includes income and average balances for term federal funds, interest-earning cash accounts, and other miscellaneous earning assets.

(2) Average loan balances include nonaccrual loans and loans held for sale.

Provision for Credit Losses

The provision for credit losses reflects our internal calculation and judgment of the appropriate amount of the allowance for credit losses. The adoption of ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments” or “CECL” has significantly changed the methodology of how we measure credit losses (see Note 1 to the Consolidated Financial Statements for more information). We maintain the allowance for credit losses at levels we believe are appropriate to cover our estimate of expected credit losses over the life of loans in the portfolio as of the end of the reporting period.  The allowance for credit losses is determined through detailed quarterly analyses of our loan portfolio. The allowance for credit losses is based on our loss experience, changes in the economic environment, reasonable and supportable forecasts, as well as an ongoing assessment of credit quality and environmental factors not reflective in historical loss rates. Additional qualititative factors that are considered in determining the amount of the allowance for credit losses are concentrations of credit risk (geographic, large borrower, and industry), changes in underwriting standards, changes in collateral value, experience and depth of lending staff, trends in delinquencies, and the volume and terms of loans.

We recorded a credit provision of $381,000 and $797,000 during the three and nine months ended September 30, 2023, respectively, compared to a credit provision of $1.7 million and $1.6 million during the same periods in 2022. The credit provision recorded during the first nine months of 2023 was due to the decrease in reserves allocated to individually analyzed loans, as well as a decrease in the general reserves allocated to our residential mortgage loan portfolio as the outlook for the national housing price index improved during the second and third quarter 2023. Our ACL as a percentage of gross loans for the periods ended September 30, 2023 and 2022 was 0.58% and 0.50%, respectively. Our ACL as a percentage of gross loans is relatively lower than our peers due to our high percentage of residential mortgage loans, which tend to have lower allowance for credit loss ratios compared to other commercial or consumer loans due to their low LTVs.

See the section captioned “Allowance for Credit Losses” elsewhere in this document for further analysis of our provision for credit losses.

50

Noninterest Income

Noninterest income for the three months ended September 30, 2023 was $2.9 million, a decrease of $2.2 million, or 43.1%, compared to $5.1 million for the three months ended September 30, 2022. Noninterest income for the nine months ended September 30, 2023 was $13.7 million, a decrease of $3.7 million, or 21.4%, compared to $17.4 million for the nine months ended September 30, 2022.

The following table sets forth the major components of our noninterest income for the three and nine months ended September 30, 2023 and 2022:

	Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		$ Change		% Change		2023		2022		$ Change		% Change
Noninterest income:
Service charges on deposit accounts	$	490	$	509	$	(19)	(3.7)	%	$	1,403	$	1,508	$	(105)	(7.0)	%
Other service charges, commissions and fees		1,478		2,676		(1,198)	(44.8)			3,618		8,482		(4,864)	(57.3)
Gain on sale of residential mortgage loans		—		—		—	(100.0)			—		2,017		(2,017)	(100.0)
Mortgage servicing income, net		(85)		(358)		273	76.3			(232)		(262)		30	11.5
Gain on sale of SBA loans		244		500		(256)	100.0			3,267		2,068		1,199	58.0
SBA servicing income, net		270		1,330		(1,060)	(79.7)			3,472		1,897		1,575	83.0
Other income		505		444		61	13.7			2,151		1,700		451	26.5
Total noninterest income	$	2,902	$	5,101	$	(2,199)	(43.1)	%	$	13,679	$	17,410	$	(3,731)	(21.4)	%

Service charges on deposit accounts decreased $19,000, or 3.7%, to $490,000 for the three months ended September 30, 2023 compared to $509,000 for the same three months during 2022. Service charges on deposit accounts were $1.4 million for the nine months ended September 30, 2023 compared to $1.5 million for the same period in 2022, a decrease of $105,000, or 7.0%. These decreases were primarily attributable to lower analysis charges, overdraft fees and wire transfer fees.

Other service charges, commissions and fees decreased $1.2 million, or 44.8%, to $1.5 million for the three months ended September 30, 2023 compared to $2.7 million for the three months ended September 30, 2022. Other service charges, commissions and fees decreased $4.9 million, or 57.3%, to $3.6 million for the nine months ended September 30, 2023 compared to $8.5 million for the nine months ended September 30, 2022. These decreases were mainly attributable to lower application, processing, underwriting and origination fees earned from our origination of residential mortgage loans as mortgage volume declined during the three and nine months ended September 30, 2023 compared to the same periods in 2022. Mortgage loan originations totaled $91.9 million and $208.1 million during the three and nine months ended September 30, 2023, respectively, compared to $255.7 million and $745.6 million during the same periods in 2022.

We recorded no gain on sale of residential mortgage loans during the three and nine months ended September 30, 2023, as well as the three months eneded September 30, 2022, as no residential mortgage loans were sold during these periods. Gain on sale of residential mortgage loans totaled $2.0 million for the nine months ended September 30, 2022 as we sold $94.9 million in residential mortgage loans during the period with an average premium of 2.13%.  

Gain on sale of SBA loans totaled $244,000 and $3.3 million for the three and nine months ended September 30, 2023 compared to $500,000 and $2.1 million for the same periods in 2022. We sold $5.2 million and $71.9 million in SBA loans during the three and nine months ended September 30, 2023 with average premiums of 6.00% and 6.09%, respectively. We sold $8.6 million and $31.5 million in SBA loans during the three and nine months ended September 30, 2022 with average premiums of 6.96% and 8.45%, respectively.

Mortgage loan servicing income, net of amortization, increased by $273,000, or 76.3%, to an expense balance of $85,000 during the three months ended September 30, 2023 compared to an expense balance of $358,000 for the same

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period of 2022. Mortgage loan servicing income increased by $30,000, or 11.5%, to an expense balance of $232,000 during the nine months ended September 30, 2023 compared to an expense balance balance of $262,000 for the same period of 2022. The changes in mortgage loan servicing income were primarily due to decreases in mortgage servicing fees and capitalized mortgage servicing assets, offset by the decrease in mortgage servicing amortization. Included in mortgage loan servicing income for the three and nine months ended September 30, 2023 were $606,000 and $1.9 million, respectively, in mortgage servicing fees compared to $758,000 and $2.5 million for the same periods in 2022, respectively, and capitalized mortgage servicing assets of $0 for the three and nine months ended September 30, 2023 compared to $0 and $761,000 for the same periods in 2022. These amounts were offset by mortgage loan servicing asset amortization of $691,000 and $2.2 million for the three and nine months ended September 30, 2023, respectively, compared to $1.1 million and $3.7 million during the same periods in 2022. During the three and nine months ended September 30, 2023, as well as the three months ended September 30, 2022, we did not record a fair value impairment on our mortgage servicing assets. During the nine months ended September 30, 2022, we recorded a fair value impairment recovery of $163,000. Our total residential mortgage loan servicing portfolio was $464.8 million at September 30, 2023 compared to $550.6 million at September 30, 2022.

SBA servicing income decreased by $1.1 million, or 79.7%, to $270,000 for the three months ended September 30, 2023 compared to $1.3 million for the three months ended September 30, 2022. SBA servicing income was $3.5 million for the nine months ended September 30, 2023 compared to $1.9 million for the same period in 2022, an increase of $1.6 million, or 83.0%. Our total SBA loan servicing portfolio was $487.8 million as of September 30, 2023 compared to $489.1 million as of September 30, 2022. Our SBA servicing rights are carried at fair value and the inputs used to calculate fair value change from period to period. During the three months ended September 30, 2023, we recorded a $911,000 fair value charge to our SBA servicing rights compared to a $73,000 fair value increase to our SBA servicing rights during the three months ended September 30, 2022. During the nine months ended September 30, 2023, we recorded a $69,000 fair value increase to our SBA servicing rights compared to a $2.0 million fair value charge during the nine months ended September 30, 2022.

Other noninterest income increased by $61,000, or 13.7%, to $505,000 for the three months ended September 30, 2023 compared to $444,000 for the three months ended September 30, 2022. Other noninterest income was $2.2 million for the nine months ended September 30, 2023 compared to $1.7 million for the same period in 2022, an increase of $451,000, or 26.5%. The increase was mainly due to a gain on sale of foreclosed real estate of $547,000 recorded during the nine months ended September 30, 2023 compared to a gain on sale of $70,000 recorded during the same period in 2022. The largest component of other noninterest income is the income on bank owned life insurance which totaled $452,000 and $431,000, respectively, for the three months ended September 30, 2023 and 2022, and $1.3 million for both the nine months ended September 30, 2023 and 2022.

Noninterest Expense

Noninterest expense for the three months ended September 30, 2023 was $11.8 million compared to $12.7 million for the three months ended September 30, 2022, a decrease of $903,000, or 7.1%. Noninterest expense for the nine months

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ended September 30, 2023 was $34.0 million compared to $38.0 million for the nine months ended September 30, 2022, a decrease of $4.0 million, or 10.5%.

The following table sets forth the major components of our noninterest expense for the three and nine months ended September 30, 2023 and 2022:

	Three Months Ended September 30,								Nine Months Ended September 30,
(Dollars in thousands )	2023		2022		$ Change		% Change		2023		2022		$ Change		% Change
Noninterest Expense:
Salaries and employee benefits	$	6,864	$	7,756	$	(892)	(11.5)	%	$	20,333	$	22,781	$	(2,448)	(10.7)	%
Occupancy and equipment		1,272		1,167		105	9.0			3,525		3,594		(69)	(1.9)
Data processing		300		270		30	11.1			928		808		120	14.9
Advertising		143		158		(15)	(9.5)			454		434		20	4.6
Other expenses		3,206		3,337		(131)	(3.9)			8,758		10,369		(1,611)	(15.5)
Total noninterest expense	$	11,785	$	12,688	$	(903)	(7.1)	%	$	33,998	$	37,986	$	(3,988)	(10.5)	%

Salaries and employee benefits expense for the three months ended September 30, 2023 was $6.9 million compared to $7.8 million for the three months ended September 30, 2022, a decrease of $892,000, or 11.5%. Salaries and employee benefits expense for the nine months ended September 30, 2023 was $20.3 million compared to $22.8 million for the nine months ended September 30, 2022, a decrease of $2.5 million, or 10.7%. These decreases were partially attributable to lower commissions paid to our loan officers as loan volume declined during the three and nine months ended September 30, 2023 compared to the same periods in 2022.

Occupancy and equipment expense for the three months ended September 30, 2023 was $1.3 million compared to $1.2 million for the three months ended September 30, 2022, an increase of $105,000, or 9.0%. Occupancy and equipment expense for the nine months ended September 30, 2023 was $3.5 million compared to $3.6 million for the nine months ended September 30, 2022, a slight decrease of $69,000, or 1.9%. The increase for the three months ended September 30, 2023 was primarily due to higher maintenance expense and rent expense.

Data processing expenses for the three and nine months ended September 30, 2023 remained relatively flat compared to the same periods in 2022.

Advertising expenses for the three and nine months ended September 30, 2023 remained relatively flat compared to the same periods in 2022.

Other expenses for the three months ended September 30, 2023 were $3.2 million compared to $3.3 million for the three months ended September 30, 2022, a decrease of $131,000, or 3.9%. Other expenses for the nine months ended September 30, 2023 were $8.8 million compared to $10.4 million for the nine months ended September 30, 2022, a decrease of $1.6 million, or 15.5%. These decreases were primarily due to lower security expense, communications expense and loan related expenses, as well as fair value gains on our equity securities, partially offset by higher FDIC deposit insurance premiums, professional fees and other real estate owned related expenses. Included in other expenses for the nine months ended September 30, 2023 and 2022 were directors’ fees of approximately $452,000 and $426,000, respectively.

Income Tax Expense

Income tax expense for the three months ended September 30, 2023 and 2022 was $4.2 million and $7.0 million, respectively. The Company’s effective tax rates were 27.0% and 29.3% for the three months ended September 30, 2023 and 2022, respectively.

Income tax expense for the nine months ended September 30, 2023 and 2022 was $15.6 million and $19.3 million, respectively. The Company’s effective tax rates were 27.9% and 26.9% for the nine months ended September 30, 2023 and 2022, respectively.

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Financial Condition

Total assets increased $83.8 million, or 2.44%, to $3.51 billion at September 30, 2023 as compared to $3.43 billion at December 31, 2022. The increase in total assets was primarily attributable to increases in cash and cash equivalents of $102.6 million, interest rate derivatives of $17.7 million and premises and equipment of $3.2 million, partially offset by decreases in loans of $25.7 million and other assets of $4.7 million, as well as an increase in the allowance for credit losses of $3.8 million.

Loans

Gross loans decreased $26.9 million, or 0.9%, to $3.04 billion as of September 30, 2023 as compared to $3.07 billion as of December 31, 2022. Our loan decline during the nine months ended September 30, 2023 was comprised of a decrease of $6.0 million, or 12.5%, in construction and development loans, a decrease of $33.1 million, or 5.0%, in commercial real estate loans, an increase of $8.2 million, or 15.3%, in commercial and industrial loans, an increase of $4.1 million, or 0.2%, in residential real estate loans and an increase of $24,000, or 11.1%, in consumer and other loans. There were no loans classified as held for sale as of September 30, 2023 or December 31, 2022.  

The following table presents the ending balance of each major category in our loan portfolio held for investment at the dates indicated.

	September 30, 2023				December 31, 2022
(Dollars in thousands)	Amount		% of Total		Amount		% of Total
Construction and development	$	41,783	1.4	%	$	47,779	1.6	%
Commercial real estate		624,122	20.5	%		657,246	21.4	%
Commercial and industrial		61,332	2.0	%		53,173	1.7	%
Residential real estate		2,310,981	76.1	%		2,306,915	75.3	%
Consumer and other		240	—	%		216	—	%
Gross loans	$	3,038,458	100.0	%	$	3,065,329	100.0	%
Less unearned income		(8,511)				(9,640)
Total loans held for investment	$	3,029,947			$	3,055,689

SBA Loan Servicing

As of September 30, 2023 and December 31, 2022, we serviced $487.8 million and $465.1 million, respectively, in SBA loans for others. We carried a servicing asset of $7.1 million at both September 30, 2023 and December 31, 2022, respectively. See Note 4 of our consolidated financial statements as of September 30, 2023, included elsewhere in this Form 10-Q, for additional information on the activity for SBA loan servicing rights for the three and nine months ended September 30, 2023 and 2022.

Residential Mortgage Loan Servicing

As of September 30, 2023, we serviced $464.8 million in residential mortgage loans for others compared to $526.7 million as of December 31, 2022. We carried a servicing asset, net of amortization, of $1.8 million and $4.0 million at September 30, 2023 and December 31, 2022, respectively. Amortization relating to the mortgage loan servicing asset was $691,000 and $2.2 million for the three and nine months ended September 30, 2023, respectively, compared to $1.1 million and $3.7 million for the same periods in 2022. During the three and nine months ended September 30, 2023, we did not record a fair value impairment on our mortgage servicing asset compared to fair value impairment recoveries of $0 and $163,000 recorded for the same periods in 2022. See Note 5 of our consolidated financial statements as of September 30, 2023, included elsewhere in this Form 10-Q, for additional information on the activity for mortgage loans servicing rights for the three and nine months ended September 30, 2023 and 2022.

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Asset Quality

Nonperforming Loans

Asset quality remained relatively strong during the third quarter of 2023 as our nonperforming loans to total loans remained low at 1.22% as of September 30, 2023. Nonperforming loans were $37.1 million at September 30, 2023 compared to $20.2 million at December 31, 2022. The increase from December 31, 2022 to September 30, 2023 was attributable to a $5.1 million increase in nonaccrual loans and a $12.0 million increase in accruing restructured loans, offset by a $3.6 million decrease in other real estate owned and a $180,000 decrease in loans past due ninety days and still accruing. We did not recognize any interest income on nonaccrual loans during the nine months ended September 30, 2023 or the year ended December 31, 2022.

The following table sets forth the allocation of our nonperforming assets among our different asset categories as of the dates indicated. Nonperforming loans include nonaccrual loans, loans past due 90 days or more and still accruing interest, and accruing restructured loans. Nonaccrual loans at September 30, 2023 comprised of $1.9 million of commercial real estate loans, $1.6 million in commercial and industrial loans and $11.6 million in residential real estate loans. Nonaccrual loans at December 31, 2022 comprised of $4.9 million in commercial real estate loans, $136,000 in commercial and industrial loans, and $5.0 million in residential real estate loans.

(Dollars in thousands)	September 30, 2023			December 31, 2022
Nonaccrual loans	$	15,127		$	10,065
Past due loans 90 days or more and still accruing		—			180
Accruing restructured loans		21,964			9,919
Total nonperforming loans		37,091			20,164
Foreclosed real estate		761			4,328
Total nonperforming assets	$	37,852		$	24,492
Nonperforming loans to gross loans		1.22	%		0.66	%
Nonperforming assets to total assets		1.08	%		0.71	%
Allowance for credit losses to nonperforming loans		47.61	%		68.88	%

Allowance for Credit Losses

The allowance for credit losses was $17.7 million at September 30, 2023 compared to $13.9 million at December 31, 2022, an increase of $3.8 million, or 27.2%. The increase was due to the CECL adoption during the first quarter of 2023, offset by a decrease in reserves allocated to individually analyzed loans and $452,000 in charge-offs recorded during the nine months ended September 30, 2023. The CECL approach requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). It removes the incurred loss approach’s threshold that delayed the recognition of a credit loss until it was probable a loss event was incurred.

We maintain a reserve for credit losses that consist of two components, the allowance for credit losses and the allowance for unfunded commitments, The allowance for credit losses provides for the risk of credit losses expected in our loan portfolio and is based on loss estimates derived from a comprehensive quarterly evaluation.  The evaluation reflects analyses of individual borrowers for impairment coupled with analysis of historical loss experience in various loan pools that have been grouped based on similar risk characteristics, supplemented as necessary by credit judgment that considers observable trends, conditions, reasonable and supportable forecasts, and other relevant environmental and economic factors.  The level of the allowance for credit losses is adjusted by recording an expense or credit through the provision for credit losses.  The level of the allowance for unfunded commitments is adjusted by recording an expense or credit in other noninterest expense. The allowance for unfunded commitments was created upon adoption of CECL on January 1, 2023 and had a balance of $294,000 as of September 30, 2023.

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The impact of utilizing the CECL approach to calculate the allowance for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the provision for credit losses, and therefore, greater volatility to our reported earnings. See Note 1 and Note 3 of our consolidated financial statements as of September 30, 2023, included elsewhere in this Form 10-Q, for additional information on the on the allowance for credit losses and the allowance for unfunded commitments.

The following table provides an analysis of the allowance for credit losses, provision for credit losses and net charge-offs for the periods presented below:

	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands )	2023			2022			2023			2022
Balance, beginning of period	$	18,091		$	16,678		$	13,888		$	16,952
CECL adoption (Day 1) impact		—			—			5,055			—
Charge-offs:
Construction and development		—			—			—			—
Commercial real estate		—			—			231			—
Commercial and industrial		—			—			221			390
Residential real estate		—			—			—			—
Consumer and other		—			—			—			—
Total charge-offs		—			—			452			390
Recoveries:
Construction and development		—			—			—			—
Commercial real estate		1			1			4			5
Commercial and industrial		3			6			18			9
Residential real estate		—			—			—			—
Consumer and other		—			—			—			5
Total recoveries		4			7			22			19
Net (recoveries)/charge-offs		(4)			(7)			430			371
Provision for loan losses		(435)			(1,703)			(853)			(1,599)
Balance, end of period	$	17,660		$	14,982		$	17,660		$	14,982
Total loans at end of period	$	3,038,458		$	2,987,570		$	3,038,458		$	2,987,570
Average loans(1)		3,029,231			2,891,934			3,034,612			2,678,474
Net charge-offs to average loans		(0.00)	%		0.00	%		0.02	%		0.02	%
Allowance for credit losses to total loans		0.58	%		0.50	%		0.58	%		0.50	%

(1) Excludes loans held for sale.

Management believes the allowance for credit losses is adequate to provide for losses inherent in the loan portfolio as of September 30, 2023.

Deposits

Total deposits increased $51.7 million, or 1.9%, to $2.72 billion at September 30, 2023 compared to $2.67 billion at December 31, 2022. The increase was due to a $171.1 million increase in time deposits and a $6.2 million increase in money market accounts, offset by a $67.1 million decrease in interest-bearing demand deposits, a $52.5 million decrease in noninterest-bearing deposits, and a $6.0 million decrease in savings accounts. As of September 30, 2023 and December 31, 2022, 20.6% and 22.9% of total deposits, respectively, were comprised of noninterest-bearing demand accounts and 79.4% and 77.1%, respectively, of interest-bearing deposit accounts.

We had $741.6 million of brokered deposits, or 27.3% of total deposits, at September 30, 2023 compared to $523.7 million, or 19.6% of total deposits, at December 31, 2022. We use brokered deposits, subject to certain limitations and requirements, as a source of funding to support our asset growth and augment the deposits generated from our branch network, which are our principal source of funding. Our level of brokered deposits varies from time to time depending on

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competitive interest rate conditions and other factors and tends to increase as a percentage of total deposits when the brokered deposits are less costly than issuing internet certificates of deposit or borrowing from the Federal Home Loan Bank.

Uninsured deposits were 27.2% of total deposits at September 30, 2023, compared to 32.5% and 29.2% at December 31, 2022 and September 30, 2022, respectively. As of September 30, 2023, we had $1.21 billion of available borrowing capacity at the Federal Home Loan Bank ($712.8 million), Federal Reserve Discount Window ($446.2 million) and various other financial institutions (fed fund lines totaling $47.5 million).

The following table summarizes our average deposit balances and weighted average rates for the three and nine months ended September 30, 2023 and 2022.

	Three Months Ended September 30,
	2023					2022
	Average		Weighted			Average		Weighted
(Dollars in thousands )	Balance		Average Rate			Balance		Average Rate
Noninterest-bearing demand	$	555,074		—	%	$	599,902	—	%
Interest-bearing demand deposits		111,432		1.34			161,447	0.80
Savings and money market deposits		594,664		3.45			718,454	1.60
Brokered money market deposits		455,937		5.68			486,512	1.87
Time deposits		966,408		3.96			499,577	1.14
Total interest-bearing deposits		2,128,441		4.05			1,865,990	1.48
Total deposits	$	2,683,515		3.21		$	2,465,892	1.12

	Nine Months Ended September 30,
	2023					2022
	Average		Weighted			Average		Weighted
(Dollars in thousands )	Balance		Average Rate			Balance		Average Rate
Noninterest-bearing demand	$	564,233		—	%	$	600,045	—	%
Interest-bearing demand deposits		135,576		1.82			161,249	0.39
Savings and money market deposits		567,433		3.35			723,706	0.85
Brokered money market deposits		438,888		5.34			449,772	0.93
Time deposits		923,891		3.66			443,632	0.68
Total interest-bearing deposits		2,065,788		3.81			1,778,359	0.79
Total deposits	$	2,630,021		3.00		$	2,378,404	0.59

Borrowed Funds

Other than deposits, we also utilized FHLB advances as a supplementary funding source to finance our operations. The advances from the FHLB are collateralized by residential real estate loans. At September 30, 2023 and December 31, 2022, we had available borrowing capacity from the FHLB of $712.8 million and $633.6 million, respectively. At September 30, 2023 and December 31, 2022, we had $325.0 million and $375.0 million, respectively, of outstanding advances from the FHLB.

In addition to our advances with the FHLB, we maintain federal funds agreements with our correspondent banks. Our available borrowings under these agreements were $47.5 million at September 30, 2023 and December 31, 2022. We did not have any advances outstanding under these agreements as of September 30, 2023 and December 31, 2022.

Liquidity and Capital Resources

Liquidity

Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs, all at a reasonable cost. We continuously  monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term

57

and long-term cash requirements. We manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our shareholders.

Our liquidity position is supported by management of liquid assets and access to alternative sources of funds. Our liquid assets include cash, interest-bearing deposits in correspondent banks, federal funds sold, and fair value of unpledged investment securities. Other available sources of liquidity include wholesale deposits, and additional borrowings from correspondent banks, FHLB  advances, and the Federal Reserve discount window.

Our short-term and long-term liquidity requirements are primarily met through cash flow from operations, redeployment of prepaying and maturing balances in our loan and investment portfolios, and increases in customer deposits. Other alternative sources of funds will supplement these primary sources to the extent necessary to meet additional liquidity requirements on either a short-term or long-term basis.

As part of our liquidity management strategy, we open federal funds lines with our correspondent banks. As of September 30, 2023 and December 31, 2022, we had $47.5 million of unsecured federal funds lines with no amounts advanced. In addition, the Company had Federal Reserve Discount Window funds available of approximately $446.2 million and $28.0 million at September 30, 2023 and December 31, 2022, respectively. The FRB discount window line is collateralized by a pool of construction and development, commercial real estate and commercial and industrial loans with carrying balances totaling $510.4 million as of September 30, 2023, as well as all of the Company’s municipal and mortgage backed securities. There were no outstanding borrowings on this line as of September 30, 2023 and December 31, 2022.

At September 30, 2023 and December 31, 2022, we had $325.0 million and $375.0 million, respectively, of outstanding advances from the FHLB. Based on the values of loans pledged as collateral, we had $712.8 million and $633.6 million of additional borrowing availability with the FHLB as of September 30, 2023 and December 31, 2022, respectively. We also maintain relationships in the capital markets with brokers to issue certificates of deposit and money market accounts.

Capital Requirements

The Company and the Bank are required under federal law to maintain certain minimum capital levels based on ratios of capital to total assets and capital to risk-weighted assets. The required capital ratios are minimums, and the federal banking agencies may determine that a banking organization, based on its size, complexity or risk profile, must maintain a higher level of capital in order to operate in a safe and sound manner. Risks such as concentration of credit risks and the risk arising from non-traditional activities, as well as the institution’s exposure to a decline in the economic value of its capital due to changes in interest rates, and an institution’s ability to manage those risks are important factors that are to be taken into account by the federal banking agencies in assessing an institution’s overall capital adequacy.

The table below summarizes the capital requirements applicable to the Company and the Bank in order to be considered “well-capitalized” from a regulatory  perspective, as well as the Company’s and the Bank’s capital ratios as of September 30, 2023 and December 31, 2022. The Bank exceeded all regulatory capital requirements and was considered to be “well-capitalized” as of September 30, 2023 and December 31, 2022. As of December 31, 2022, the FDIC categorized the Bank as well-capitalized under the prompt corrective action framework. There have been no conditions or events since December 31, 2022 that management believes would change this classification. While the Company believes that it has sufficient capital to withstand an extended economic recession, its reported and regulatory capital ratios could be adversely impacted in future periods.

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					Regulatory
					Capital Ratio
					Requirements		Minimum
					including		Requirement
					fully phased-		for "Well
					in Capital		Capitalized"
					Conservation		Depository
	September 30, 2023		December 31, 2022		Buffer		Institution
Total capital (to risk-weighted assets)
Consolidated	17.91	%	16.68	%	10.50	%	N/A
Bank	17.77	%	16.61	%	10.50		10.00	%
Tier 1 capital (to risk-weighted assets)
Consolidated	17.03	%	15.99	%	8.50	%	N/A
Bank	16.89	%	15.93	%	8.50		8.00	%
CETI capital (to risk-weighted assets)
Consolidated	17.03	%	15.99	%	7.00	%	N/A
Bank	16.89	%	15.93	%	7.00		6.50	%
Tier 1 capital (to average assets)
Consolidated	10.07	%	9.57	%	4.00	%	N/A
Bank	9.99	%	9.54	%	4.00		5.00	%

Dividends

On October 18, 2023, the Company declared a cash dividend of $0.18 per share, payable on November 10, 2023, to common shareholders of record as of November 1, 2023. Any future determination to pay dividends to holders of our common stock will depend on our results of operations, financial condition, capital requirements, banking regulations, contractual restrictions and any other factors that our board of directors may deem relevant.

Off-Balance Sheet Arrangements

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount  recognized in our consolidated balance sheet. The contractual or notional  amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition  established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if we deem collateral is necessary upon extension of credit, is based on management’s credit evaluation of the counterparty.

Standby letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. They are intended to be disbursed, subject to certain condition, upon request of the borrower.

See Note 9 of our consolidated financial statements as of September 30, 2023, included elsewhere in this Form 10-Q, for more information regarding our off-balance sheet arrangements as of September 30, 2023 and December 31, 2022.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market Risk

Market risk represents the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business through exposures to market interest rates, equity prices, and credit spreads. We have identified interest rate risk as our primary source of market risk.

Interest Rate Risk

Interest rate risk is the risk to earnings and value arising from changes in market interest rates. Interest rate risk arises from timing differences in the repricings and maturities of interest-earning assets and interest-bearing liabilities (repricing risk), changes in the expected maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay home mortgage loans at any time and depositors’ ability to redeem certificates of deposit before maturity  (option risk), changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in spread relationships between different yield curves, such as U.S. Treasuries and Federal funds effective (basis risk).

Our board of directors establishes broad policy limits with respect to interest rate risk. As part of this policy, the asset liability committee, or ALCO, establishes specific operating guidelines within the parameters of the board of directors’ policies. In general, the ALCO focuses on ensuring a stable and steadily increasing flow of net interest income through  managing the size and mix of the balance sheet. The management of interest rate risk is an active process which encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.

An asset sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned on our interest-earning assets would reprice upward more quickly than rates paid on our interest-bearing liabilities, thus expanding our net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin.

Interest rate risk measurement is calculated and reported to the ALCO at least quarterly. The information reported  includes period-end results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and timeline for resolution, mitigation, or assumption of the risk.

Evaluation of Interest Rate Risk

We use income simulations, an analysis of core funding utilization, and economic value of equity (EVE) simulations  as our primary tools in measuring and managing interest rate risk. These tools are utilized to quantify the potential earnings impact of changing interest rates over a two year simulation horizon (income simulations) as well as identify expected earnings trends given longer term rate cycles (long term simulations, core funding utilizations, and EVE simulation). A standard gap report and funding matrix will also be utilized to provide supporting detailed information on the expected timing of cashflow and repricing opportunities.

There are an infinite number of potential interest rate scenarios, each of which can be accompanied by differing economic/political/regulatory climates; can generate multiple differing behavior patterns by markets, borrowers,  depositors,  etc.; and can last for varying degrees of time. Therefore, by definition, interest rate risk sensitivity cannot be predicted with certainty. Accordingly, the Bank’s interest rate risk measurement philosophy focuses on maintaining an appropriate balance between theoretical and practical scenarios; especially given the primary objective of the Bank’s overall asset/liability management process is to facilitate meaningful strategy development and implementation.

60

Therefore, we model a set of interest rate scenarios capturing the financial effects of a range of plausible rate scenarios, the collective impact of which will enable the Bank to clearly understand the nature and extent of its sensitivity to interest rate changes. Doing so necessitates an assessment of rate changes over varying time horizons and of varying/sufficient degrees such that the impact of embedded options within the balance sheet are sufficiently examined.

We use a net interest income simulation model to measure and evaluate potential changes in our net interest income. We run three standard and plausible comparing current or flat rates with a +/- 200 basis point ramp in rates over 12 months. These rate scenarios are considered appropriate as they are neither too modest (e.g. +/- 100 basis points) or too extreme (e.g. +/- 400 basis points) given the economic and rate cycles which have unfolded in the last 25 years. This analysis also provides the foundation for historical tracking of interest rate risk. The impact of interest rate derivatives, such as interest rate swaps and caps, is included in the model.

Potential changes to our net interest income in hypothetical rising and declining rate scenarios calculated as of September 30, 2023 and December 31, 2022 are presented in the following table:

	Net Interest Income Sensitivity
	12 Month Projection				24 Month Projection
(Ramp in basis points)	+200		-200		+200		-200
September 30, 2023	1.70	%	(1.00)	%	12.10	%	7.40	%
December 31, 2022	(1.60)	%	2.50	%	21.60	%	12.90	%

We also model the impact of rate changes on our Economic Value of Equity, or EVE. We base the modeling of EVE based on interest rate shocks as shocks are considered more appropriate for EVE, which accelerates future interest rate risk into current capital via a present value calculation of all future cashflows from the bank’s existing inventory of assets and liabilities. Our simulation  model incorporates interest rate shocks of +/- 100, 200, and 300 basis points. The results of the model are presented in the table below:

	Economic Value of Equity Sensitivity
(Shock in basis points)	+200		+100		-100		-200
September 30, 2023	(13.80)	%	(6.90)	%	7.00	%	15.90	%
December 31, 2022	(11.90)	%	(5.90)	%	6.90	%	13.10	%

Our simulation model incorporates various assumptions, which we believe are reasonable but which may have a significant impact on results such as: (i) the timing of changes in interest rates; (ii) shifts or rotations in the yield curve; (iii) re-pricing characteristics for market-rate-sensitive instruments; (iv) varying loan prepayment speeds for different interest rate scenarios; and (v) the overall growth and mix of assets and liabilities. Because of limitations  inherent in any approach used to measure interest rate risk, simulation results are not intended as a forecast of the actual effect of a change in market interest rates on our results but rather as a means to better plan and execute appropriate asset-liability management strategies and manage our interest rate risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2023. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2023.

61

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2023, there was no change in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company is continually monitoring and assessing changes in processes and activities to determine any potential impact on the design and operating effectiveness of internal controls over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are a party to various legal proceedings such as claims and lawsuits arising in the course of our normal business activities. Although the ultimate outcome of all claims and lawsuits outstanding as of September 30, 2023 cannot be ascertained at this time, it is the opinion of management that these matters, when resolved, will not have a material adverse effect on our business, results of operations or financial condition.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors discussed in “Part I – Item 1A – Risk Factors” of the Company’s 2022 Form 10-K, and as disclosed in “Part II – Item 1A. – Risk Factors” of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, which could materially affect its business, financial position, results of operations, cash flows, or future results. Please be aware that these risks may change over time and other risks may prove to be important in the future. New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our business, financial condition or results of operations, or the trading price of our securities.

There are no material changes during the period covered by this Report to the risk factors previously disclosed in the Company’s 2022 Form 10-K and the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2023.

Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

The following table summarizes the repurchases of our common shares for the three months ended September 30, 2023.

				Total Number of
				Shares Repurchased	Maximum Number of
				as Part of Publicly	Shares That May Yet Be
	Total Number of	Average Price Paid		Announced	Purchased Under
	Shares Repurchased	Per Share		Plans or Programs	the Plans or Programs
July 1, 2023 to July 31, 2023	—	$	—	—	—
August 1, 2023 to August 31, 2023	—		—	—	—
September 1, 2023 to September 30, 2023	38,689		19.69	38,689	961,311
Total	38,689	$	19.69	38,689	961,311

On September 5, 2023, the Company announced that the Board of Directors of the Company approved the adoption of a share repurchase program authorizing the Company to repurchase up to 1,000,000 shares of the Company’s outstanding shares of common stock. The share repurchase program began on September 6, 2023 and will end on September 30, 2024. The repurchases are made in compliance with all Securities and Exchange Commission rules, including Rule 10b-18, and other legal requirements and may be made in part under Rule 10b5-1 plans, which permits stock repurchases when the Company might otherwise be precluded from doing so. Repurchases can be made from time-to-time in the open market or through privately negotiated transactions depending on market and/or other conditions. The repurchase program may be modified, suspended or discontinued at any time.

62

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

During the third quarter of 2023, none of our other executive officers or directors adopted Rule 10b5-1 trading plans and none of our directors or executive officers terminated a Rule 10b5-1 trading plan or adopted or terminated a non-Rule 10b5-1 trading arrangement (as defined in Item 408(c) of Regulation S-K).

Item 6. Exhibits

Exhibit No.	Description of Exhibit
3.1	Restated Articles of Incorporation of MetroCity Bankshares, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 filed September 4, 2019 (File No. 333-233625)
3.2	Amended and Restated Bylaws of MetroCity Bankshares, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1 filed September 4, 2019 (File No. 333-233625)
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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
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
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File - the cover page has been formatted in Inline XBRL and contained within the Inline XBRL Instance Document in Exhibit 101

63

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.

	METROCITY BANKSHARES, INC.
Date: November 7, 2023	By:	/s/ Nack Y. Paek
		Nack Y. Paek
		Chief Executive Officer
Date: November 7, 2023	By:	/s/ Lucas Stewart
		Lucas Stewart
		Chief Financial Officer

64

EX-31.1

Exhibit 31.1

METROCITY BANKSHARES, INC.

CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES

EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Nack Paek, certify that:

1.           I have reviewed this Quarterly Report on Form 10-Q of MetroCity Bankshares, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: November 7, 2023	/s/ Nack Y. Paek
	Nack Y. Paek
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

METROCITY BANKSHARES, INC.

CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE SECURITIES

EXCHANGE ACT OF 1934, AS AMENDED, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Lucas Stewart, certify that:

1.           I have reviewed this Quarterly Report on Form 10-Q of MetroCity Bankshares, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: November 7, 2023	/s/ Lucas Stewart
	Lucas Stewart
	Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES OXLEY ACT OF 2002

In connection with the Quarterly Report of MetroCity Bankshares, Inc. (the “Corporation”) on Form 10-Q for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nack Paek, Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

12
Dated: November 7, 2023	/s/ Nack Y. Paek
	Nack Y. Paek
	Chief Executive Officer
	(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES OXLEY ACT OF 2002

In connection with the Quarterly Report of MetroCity Bankshares, Inc. (the “Corporation”) on Form 10-Q for the period ended September 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lucas Stewart, Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1.           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2.           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

Dated: November 7, 2023	/s/ Lucas Stewart
	Lucas Stewart
	Chief Financial Officer
	(Principal Financial Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2023	Nov. 01, 2023
Cover Abstract
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2023
Document Transition Report	false
Entity File Number	001-39068
Entity Registrant Name	METROCITY BANKSHARES, INC.
Entity Incorporation, State or Country Code	GA
Entity Tax Identification Number	47-2528408
Entity Address, Address Line One	5114 Buford Highway
Entity Address, City or Town	Doraville
Entity Address, State or Province	GA
Entity Address, Postal Zip Code	30340
City Area Code	770
Local Phone Number	455-4989
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	MCBS
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		25,206,085
Entity Central Index Key	0001747068
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Assets:
Cash and due from banks	$ 279,106	$ 150,964
Federal funds sold	2,951	28,521
Cash and cash equivalents	282,057	179,485
Equity securities	10,113	10,300
Securities available for sale	17,664	19,245
Loans, less allowance for credit losses of $17,660 and $13,888, respectively	3,012,287	3,041,801
Accrued interest receivable	14,612	13,171
Federal Home Loan Bank stock	17,846	17,493
Premises and equipment, net	17,459	14,257
Operating lease right-of-use asset	7,340	8,463
Foreclosed real estate, net	761	4,328
SBA servicing asset	7,107	7,085
Mortgage servicing asset, net	1,823	3,973
Bank owned life insurance	70,462	69,130
Interest rate derivatives	46,502	28,781
Other assets	4,994	9,727
Total assets	3,511,027	3,427,239
Deposits:
Non-interest-bearing demand	559,540	611,991
Interest-bearing	2,159,048	2,054,847
Total deposits	2,718,588	2,666,838
Federal Home Loan Bank advances	325,000	375,000
Other borrowings		392
Operating lease liability	7,537	8,885
Accrued interest payable	3,915	2,739
Other liabilities	71,283	23,964
Total liabilities	3,126,323	3,077,818
Shareholders' Equity:
Preferred stock, $0.01 par value, 10,000,000 shares authorized, no shares issued or outstanding
Common stock, $0.01 par value, 40,000,000 shares authorized, 25,241,157 and 25,169,709 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	252	252
Additional paid-in capital	45,580	45,298
Retained earnings	308,589	285,832
Accumulated other comprehensive income	30,283	18,039
Total shareholders' equity	384,704	349,421
Total liabilities and shareholders' equity	$ 3,511,027	$ 3,427,239

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
CONSOLIDATED BALANCE SHEETS
Allowance for credit losses	$ 17,660	$ 13,888
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	40,000,000	40,000,000
Common stock, shares issued	25,241,157	25,169,709
Common stock, shares outstanding	25,241,157	25,169,709

XML

CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Interest and dividend income:
Loans, including fees	$ 45,695	$ 37,263	$ 134,516	$ 101,032
Other investment income	2,979	1,011	7,500	2,214
Federal funds sold	35	23	140	29
Total interest income	48,709	38,297	142,156	103,275
Interest expense:
Deposits	21,736	6,964	58,916	10,487
FHLB advances and other borrowings	2,819	1,545	7,883	2,127
Total interest expense	24,555	8,509	66,799	12,614
Net interest income	24,154	29,788	75,357	90,661
Provision for credit losses	(381)	(1,703)	(797)	(1,599)
Net interest income after provision for credit losses	24,535	31,491	76,154	92,260
Noninterest income:
Gain on sale of residential mortgage loans				2,017
Mortgage servicing income, net	(85)	(358)	(232)	(262)
Gain on sale of SBA loans	244	500	3,267	2,068
SBA servicing income, net	270	1,330	3,472	1,897
Other income	505	444	2,151	1,700
Total noninterest income	2,902	5,101	13,679	17,410
Noninterest expense:
Salaries and employee benefits	6,864	7,756	20,333	22,781
Occupancy and equipment	1,272	1,167	3,525	3,594
Data processing	300	270	928	808
Advertising	143	158	454	434
Other expenses	3,206	3,337	8,758	10,369
Total noninterest expense	11,785	12,688	33,998	37,986
Income before provision for income taxes	15,652	23,904	55,835	71,684
Provision for income taxes	4,224	7,011	15,569	19,262
Net income available to common shareholders	$ 11,428	$ 16,893	$ 40,266	$ 52,422
Earnings per share:
Basic (in dollars per share)	$ 0.45	$ 0.66	$ 1.60	$ 2.06
Diluted (in dollars per share)	$ 0.45	$ 0.66	$ 1.58	$ 2.04
Service charges on deposit account
Noninterest income:
Revenue from contract with customer	$ 490	$ 509	$ 1,403	$ 1,508
Other service charges, commissions and fees
Noninterest income:
Revenue from contract with customer	$ 1,478	$ 2,676	$ 3,618	$ 8,482

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
Net Income (Loss)	$ 11,428	$ 16,893	$ 40,266	$ 52,422
Other comprehensive gain:
Unrealized holding losses on securities available for sale	(803)	(893)	(587)	(3,707)
Net changes in fair value of cash flow hedges	7,249	19,332	18,595	31,113
Tax effect	(1,805)	(4,610)	(5,764)	(6,852)
Other comprehensive gain	4,641	13,829	12,244	20,554
Comprehensive income	$ 16,069	$ 30,722	$ 52,510	$ 72,976

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Adjustment Retained Earnings	Adjustment	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Beginning Balance at Dec. 31, 2021			$ 255	$ 51,559	$ 238,577	$ (168)	$ 290,223
Beginning Balance (in shares) at Dec. 31, 2021			25,465,236
Stockholders' Equity
Net Income (Loss)					52,422		52,422
Stock based compensation expense				1,242			1,242
Vesting of restricted stock			$ 1	(1)
Vesting of restricted stock (in shares)			101,097
Repurchase of common stock			$ (2)	(3,886)			(3,888)
Repurchase of common stock (in shares)			(195,916)
Other comprehensive income						20,554	20,554
Dividends declared on common stock					(11,524)		(11,524)
Ending Balance at Sep. 30, 2022			$ 254	48,914	279,475	20,386	349,029
Ending Balance (in shares) at Sep. 30, 2022			25,370,417
Beginning Balance at Jun. 30, 2022			$ 255	49,831	266,426	6,557	323,069
Beginning Balance (in shares) at Jun. 30, 2022			25,451,125
Stockholders' Equity
Net Income (Loss)					16,893		16,893
Stock based compensation expense				689			689
Repurchase of common stock			$ (1)	(1,606)			(1,607)
Repurchase of common stock (in shares)			(80,708)
Other comprehensive income						13,829	13,829
Dividends declared on common stock					(3,844)		(3,844)
Ending Balance at Sep. 30, 2022			$ 254	48,914	279,475	20,386	349,029
Ending Balance (in shares) at Sep. 30, 2022			25,370,417
Beginning Balance (2016-13) at Dec. 31, 2022	$ (3,801)	$ (3,801)
Beginning Balance at Dec. 31, 2022			$ 252	45,298	285,832	18,039	349,421
Beginning Balance (in shares) at Dec. 31, 2022			25,169,709
Stockholders' Equity
Net Income (Loss)					40,266		40,266
Stock based compensation expense				1,596			1,596
Vesting of restricted stock			$ 1	(1)
Vesting of restricted stock (in shares)			136,171
Repurchase of common stock			$ (1)	(1,313)			(1,314)
Repurchase of common stock (in shares)			(64,723)
Other comprehensive income						12,244	12,244
Dividends declared on common stock					(13,708)		(13,708)
Ending Balance at Sep. 30, 2023			$ 252	45,580	308,589	30,283	384,704
Ending Balance (in shares) at Sep. 30, 2023			25,241,157
Beginning Balance at Jun. 30, 2023			$ 253	45,516	301,752	25,642	373,163
Beginning Balance (in shares) at Jun. 30, 2023			25,279,846
Stockholders' Equity
Net Income (Loss)					11,428		11,428
Stock based compensation expense				825			825
Repurchase of common stock			$ (1)	(761)			(762)
Repurchase of common stock (in shares)			(38,689)
Other comprehensive income						4,641	4,641
Dividends declared on common stock					(4,591)		(4,591)
Ending Balance at Sep. 30, 2023			$ 252	$ 45,580	$ 308,589	$ 30,283	$ 384,704
Ending Balance (in shares) at Sep. 30, 2023			25,241,157

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (Parenthetical) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (Parenthetical)
Dividend on common stock declared (in dollars per share)	$ 0.18	$ 0.15	$ 0.54	$ 0.45

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
Cash flow from operating activities:
Net income	$ 40,266	$ 52,422
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion	1,960	2,665
Provision for credit losses	(797)	(1,599)
Stock based compensation expense	1,596	1,242
Unrealized losses recognized on equity securities	187	934
(Gain) loss on sale of foreclosed real estate	(547)	15
Writedown of foreclosed real estate	240
Proceeds from sales of residential real estate loans		96,932
Gain on sale of residential mortgages		(2,017)
Origination of SBA loans held for sale	(73,038)	(32,077)
Proceeds from sales of SBA loans held for sale	76,305	34,145
Gain on sale of SBA loans	(3,267)	(2,068)
Increase in cash value of bank owned life insurance	(1,332)	(1,260)
Increase in accrued interest receivable	(1,441)	(680)
(Increase) decrease in SBA servicing rights	(22)	1,910
Decrease in mortgage servicing rights	2,150	2,772
Decrease (increase) in other assets	462	(9,175)
Increase in accrued interest payable	1,176	1,285
Increase (decrease) in other liabilities	46,503	(1,839)
Net cash flow provided by operating activities	90,401	143,607
Cash flow from investing activities:
Proceeds from maturities, calls or paydowns of securities available for sale	943	1,992
(Purchase) redemption of Federal Home Loan Bank stock	(353)	4,082
Decrease (increase) in loans, net	25,077	(569,300)
Purchases of premises and equipment	(3,988)	(1,429)
Proceeds from sales of foreclosed real estate owned	4,109	41
Purchase of bank owned life insurance		(8,000)
Net cash flow provided (used) by investing activities	25,788	(572,614)
Cash flow from financing activities:
Dividends paid on common stock	(13,661)	(11,493)
Repurchases of common stock	(1,314)	(3,888)
Increase in deposits, net	51,750	307,833
Decrease in other borrowings, net	(392)	(63)
Proceeds from Federal Home Loan Bank advances	275,000	475,000
Repayments of Federal Home Loan Bank advances	(325,000)	(600,000)
Net cash flow used by financing activities	(13,617)	167,389
Net change in cash and cash equivalents	102,572	(261,618)
Cash and cash equivalents at beginning of period	179,485	441,341
Cash and cash equivalents at end of period	282,057	179,723
Supplemental schedule of noncash investing and financing activities:
Transfer of residential real estate loans to loans held for sale		94,915
Transfer of loan principal to foreclosed real estate, net of write-downs	235	766
Initial recognition of operating lease right-of-use assets		1,273
Initial recognition of operating lease liabilities		1,273
Supplemental disclosures of cash flow information - Cash paid during the year for:
Interest	65,623	11,329
Income taxes	$ 13,765	$ 23,432

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements include the accounts of MetroCity Bankshares, Inc. (“Company”) and its wholly-owned subsidiary, Metro City Bank (the “Bank”). The Company owns 100% of the Bank. The “Company” or “our,” as used herein, includes Metro City Bank unless the context indicates that we refer only to MetroCity Bankshares, Inc.

These unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) followed within the financial services industry for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information or notes required for complete financial statements.

The Company principally operates in one business segment, which is community banking.

In the opinion of management, all adjustments, consisting of normal and recurring items, considered necessary for a fair presentation of the consolidated financial statements for the interim periods have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts reported in prior periods have been reclassified to conform to current year presentation. These reclassifications did not have a material effect on previously reported net income, shareholders’ equity or cash flows.

Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2022.

The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements for the year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “Company’s 2022 Form 10-K”). Aside from the adoption of ASU 2016-13 (which is further discussed below), there were no new accounting policies or changes to existing policies adopted during the first nine months of 2023 which had a significant effect on the Company’s results of operations or statement of financial condition. For interim reporting purposes, the Company follows the same basic accounting policies and considers each interim period as an integral part of an annual period.

Contingencies

Due to the nature of their activities, the Company and its subsidiary are at times engaged in various legal proceedings that arise in the course of normal business, some of which were outstanding as of September 30, 2023. Although the ultimate outcome of all claims and lawsuits outstanding as of September 30, 2023 cannot be ascertained at this time, it is the opinion of management that these matters, when resolved, will not have a material adverse effect on the Company’s results of operations or financial condition.

Accounting Standards Adopted in 2023

In January 2023, the Company adopted ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This ASU significantly changed how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaced the incurred loss approach with an expected loss model, referred to as the current expected credit loss (“CECL”) model. The new standard applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. ASU 2016-13 simplifies the accounting for purchased credit-impaired debt

securities and loans and expands the disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for credit losses. In addition, under the new standard, entities are required to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 was effective for interim and annual reporting periods beginning after December 15, 2022. With its adoption, ASU 2016-13 provided for a modified retrospective transition by means of a cumulative effect adjustment to equity as of the beginning of the period in which the guidance was effective.

The Company adopted ASU 2016-13 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach. The adoption of this standard resulted in an increase to the allowance for credit losses on loans of $5.1 million and the creation of an allowance for unfunded commitments of $239,000. These one-time cumulative adjustments resulted in a $3.8 million decrease to retained earnings, net of a $1.5 million increase to deferred tax assets.

For available for sale (“AFS”) securities, the new CECL methodology replaced the other-than-temporary impairment model and required the recognition of an allowance for reductions in a security’s fair value attributable to declines in credit quality, instead of a direct write-down of the security, when a valuation decline was determined to be other-than-temporary. There was no financial impact related to this implementation since the credit risk associated with our securities portfolio was minimal. The Company has made a policy election to exclude accrued interest from the amortized cost basis of AFS securities. Accrued interest receivable for AFS securities totaled $78,000 and $114,000 as of September 30, 2023 and December 31, 2022, respectively. This accrued interest receivable is included in the “accrued interest receivable” line item on the Company’s Consolidated Balance Sheets.

In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”, which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty, unless those loans do not share the same risk characteristics with other loans in the portfolio. Provided that is not the case, these modifications are included in their respective cohort and the allowance for credit losses is estimated on a pooled basis consistent with the other loans with similar risk characteristics. See Note 3 below for further details.

The Company has further evaluated other Accounting Standards Updates issued during 2023 to date but does not expect updates other than those summarized above to have a material impact on the consolidated financial statements.

The following new accounting policies were adopted during 2023 to date:

Allowance for Credit Losses – Available for Sale Securities

The impairment model for available for sale (“AFS”) securities differs from the CECL approach utilized by HTM debt securities because AFS debt securities are measured at fair value rather than amortized cost. Although ASU 2016-13 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model. One notable change from the legacy OTTI model is when evaluating whether credit loss exists, an entity may no longer consider the length of time fair value has been less than amortized cost. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criteria is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been

recorded through an allowance for credit losses is recognized in other comprehensive income. As of September 30, 2023, the Company determined that the unrealized loss positions in AFS securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded. See Note 2 below for further details.

Allowance for Credit Losses - Loans

Under the CECL model, the allowance for credit losses (“ACL”) on loans is a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

The Company estimates the ACL on loans based on the underlying loans’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL.

Expected credit losses are reflected in the allowance for credit losses through a charge to provision for credit losses. When the Company deems all or a portion of a loan to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. Loans are charged off against the ACL when management believes the collection of the principal is unlikely. Subsequent recoveries of previously charged off amounts, if any, are credited to the ACL when received.

The Company measures expected credit losses of loans on a collective (pool) basis, when the loans share similar risk characteristics. Depending on the nature of the pool of loans with similar risk characteristics, the Company uses the discounted cash flow (“DCF”) method and a qualitative approach as discussed further below.

The Company’s methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for loan-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the loans that are reasonable and supportable, to the identified pools of loans with similar risk characteristics for which the historical loss experience was observed. The Company’s methodologies revert back to historical loss information on a straight-line basis over eight quarters when it can no longer develop reasonable and supportable forecasts.

The Company has identified the following pools of loans with similar risk characteristics for measuring expected credit losses:

Construction and development – Loans in this segment primarily include real estate development loans for which payment is derived from the sale of the property as well as construction projects in which the property will ultimately be used by the borrower. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.

Commercial real estate – Loans in this segment are primarily income-producing properties. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment. Management monitors the cash flows of these loans. This loan segment includes farmland loans.

Commercial and industrial – Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased customer spending, will have an effect on the credit quality in this segment.

Single family residential mortgages – Loans in this segment include loans for residential real estate. Loans in this segment are dependent on credit quality of the individual borrower. The overall health of the economy, including unemployment rates will have an effect on the credit quality of this segment.

Consumer and other – Loans in this segment are made to individuals and are secured by personal assets, as well as loans for personal lines of credit and overdraft protection. Loans in this segment are dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates will have an effect on the credit quality in this segment.

Discounted Cash Flow Method

The Company uses the discounted cash flow method to estimate expected credit losses for each of its loan segments. The Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on benchmark peer data.

The Company uses regression analysis of peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, the Company uses national data including gross domestic product, unemployment rates and home price indices (residential mortgage loans only) depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses.

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An ACL is established for the difference between the instrument’s NPV and amortized cost basis.

Qualitative Factors

The Company also considers qualitative adjustments to the quantitative baseline discussed above. For example, the Company considers the impact of current environmental factors at the reporting date that did not exist over the period from which historical experience was used. Relevant factors include, but are not limited to, concentrations of credit risk (geographic, large borrower, and industry), changes in underwriting standards, changes in collateral value, experience and depth of lending staff, trends in delinquencies, and the volume and terms of loans.

Individually Analyzed Loans

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

Allowance for Unfunded Commitments

The Company records an allowance for credit losses on unfunded loan commitments, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Company’s Consolidated Statements of Income. The ACL on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur. The allowance for unfunded commitments totaled $294,000 as of September 30, 2023 and is included in Other Liabilities on the Company’s Consolidated Balance Sheets.  

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INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2023

INVESTMENT SECURITIES

INVESTMENT SECURITIES

NOTE 2 – INVESTMENT SECURITIES

The amortized costs, gross unrealized gains and losses, and estimated fair values of securities available for sale as of September 30, 2023 and December 31, 2022 are summarized as follows:

	September 30, 2023
	Gross		Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Obligations of U.S. Government entities and agencies	$	4,678	$	—	$	—	$	4,678
States and political subdivisions		8,085		—		(2,022)		6,063
Mortgage-backed GSE residential		8,963		—		(2,040)		6,923
Total	$	21,726	$	—	$	(4,062)	$	17,664

	December 31, 2022
	Gross		Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Obligations of U.S. Government entities and agencies	$	5,059	$	—	$	—	$	5,059
States and political subdivisions		8,121		—		(1,718)		6,403
Mortgage-backed GSE residential		9,540		—		(1,757)		7,783
Total	$	22,720	$	—	$	(3,475)	$	19,245

The amortized costs and estimated fair values of investment securities available for sale at September 30, 2023 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Securities Available for Sale
	Amortized		Estimated
(Dollars in thousands)	Cost		Fair Value
Due in one year or less	$	—	$	—
Due after one year but less than five years		5,919		5,860
Due after five years but less than ten years		—		—
Due in more than ten years		6,844		4,881
Mortgage-backed GSE residential		8,963		6,923
Total	$	21,726	$	17,664

Accrued interest receivable for securities available for sale totaled $78,000 and $114,000 as of September 30, 2023 and December 31, 2022, respectively. This accrued interest receivable is included in the “accrued interest receivable” line item on the Company’s Consolidated Balance Sheets.

As of September 30, 2023, the Company had securities pledged to the Federal Reserve Bank Discount Window with a carrying amount of $13.0 million. There were no securities pledged as of December 31, 2022 to secure borrowing lines, public deposits or repurchase agreements. There were no securities sold during the three or nine months ended September 30, 2023 and 2022.

Information pertaining to securities with gross unrealized losses at September 30, 2023 and December 31, 2022 aggregated by investment category and length of time that individual securities have been in a continuous loss position, are summarized in the table below.

	September 30, 2023
	Twelve Months or Less				Over Twelve Months
	Gross		Estimated		Gross		Estimated
	Unrealized		Fair		Unrealized		Fair
(Dollars in thousands)	Losses		Value		Losses		Value
States and political subdivisions	$	—	$	—	$	2,022	$	6,063
Mortgage-backed GSE residential		—		—		2,040		6,923
Total	$	—	$	—	$	4,062	$	12,986

	December 31, 2022
	Twelve Months or Less				Over Twelve Months
	Gross		Estimated		Gross		Estimated
	Unrealized		Fair		Unrealized		Fair
(Dollars in thousands)	Losses		Value		Losses		Value
States and political subdivisions	$	756	$	3,556	$	962	$	2,847
Mortgage-backed GSE residential		48		541		1,709		7,242
Total	$	804	$	4,097	$	2,671	$	10,089

At September 30, 2023, the twenty securities available for sale (11 municipal securities and 9 mortgage-backed securities) with an unrealized loss have depreciated 23.82% from the Company’s amortized cost basis. All of these securities have been in a loss position for greater than twelve months.

The Company does not believe that the securities available for sale that were in an unrealized loss position as of September 30, 2023 represent a credit loss impairment.  As of September 30, 2023, there have been no payment defaults nor do we currently expect any future payment defaults. Furthermore, the Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity.

Equity Securities

As of September 30, 2023 and December 31, 2022, the Company had equity securities with carrying values totaling $10.1 million and $10.3 million, respectively. The equity securities consist of our investment in a market-rate bond mutual fund that invests in high quality fixed income bonds, mainly government agency securities whose proceeds are designed to positively impact community development throughout the United States. The mutual fund focuses exclusively on providing affordable housing to low- and moderate-income borrowers and renters, including those in Majority Minority Census Tracts.

During the three months ended September 30, 2023 and 2022, we recognized unrealized losses of $245,000 and $327,000, respectively, in net income on our equity securities. During the nine months ended September 30, 2023 and 2022, we recognized unrealized losses of $187,000 and $934,000, respectively, in net income on our equity securities. These unrealized gains and losses are recorded in Other Expenses on the Consolidated Statements of Income.

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LOANS AND ALLOWANCE FOR CREDIT LOSSES

9 Months Ended

Sep. 30, 2023

LOANS AND ALLOWANCE FOR CREDIT LOSSES

LOANS AND ALLOWANCE FOR CREDIT LOSSES

NOTE 3 – LOANS AND ALLOWANCE FOR CREDIT LOSSES

Major classifications of loans at September 30, 2023 and December 31, 2022 are summarized as follows:

	September 30,		December 31,
(Dollars in thousands)	2023		2022
Construction and development	$	41,783	$	47,779
Commercial real estate		624,122		657,246
Commercial and industrial		61,332		53,173
Residential real estate		2,310,981		2,306,915
Consumer and other		240		216
Total loans receivable		3,038,458		3,065,329
Unearned income		(8,511)		(9,640)
Allowance for credit losses		(17,660)		(13,888)
Loans, net	$	3,012,287	$	3,041,801

The Company is not committed to lend additional funds to borrowers with nonaccrual or restructured loans.

In the normal course of business, the Company may sell and purchase loan participations to and from other financial institutions and related parties. Loan participations are typically sold to comply with the legal lending limits per borrower as imposed by regulatory authorities. The participations are sold without recourse and the Company imposes no transfer or ownership restrictions on the purchaser.

The Company elected to exclude accrued interest receivable from the amortized cost basis of loans disclosed throughout this note. As of September 30, 2023 and December 31, 2022, accrued interest receivable for loans totaled $14.5 million and $13.1 million, respectively, and is included in the “accrued interest receivable” line item on the Company’s Consolidated Balance Sheets.

Allowance for Credit Losses

As previously mentioned in Note 1, the Company’s January 1, 2023 adoption of ASU 2016-13 resulted in a significant change to our methodology for estimating the allowance for credit losses since December 31, 2022. As a result of this adoption, the Company recorded a $5.1 million increase to the allowance for credit losses as a cumulative-effect adjustment on January 1, 2023.

A summary of changes in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2023 and 2022 is as follows:

	Three Months Ended September 30, 2023
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	30	$	6,208	$	653	$	11,199	$	1	$	—	$	18,091
Charge-offs		—		—		—		—		—		—		—
Recoveries		—		1		3		—		—		—		4
Provision expense		(3)		(13)		(22)		(400)		3		—		(435)
Ending balance	$	27	$	6,196	$	634	$	10,799	$	4	$	—	$	17,660

	Three Months Ended September 30, 2022
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	140	$	3,539	$	4,219	$	8,678	$	6	$	96	$	16,678
Charge-offs		—		—		—		—		—		—		—
Recoveries		—		1		6		—		—		—		7
Provision expense		24		(510)		(1,970)		845		4		(96)		(1,703)
Ending balance	$	164	$	3,030	$	2,255	$	9,523	$	10	$	—	$	14,982

	Nine Months Ended September 30, 2023
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	124	$	2,811	$	1,326	$	9,626	$	1	$	—	$	13,888
Impact of adopting ASU 2016-13		(79)		3,275		(307)		2,166		—		—		5,055
Charge-offs		—		(231)		(221)		—		—		—		(452)
Recoveries		—		4		18		—		—		—		22
Provision expense		(18)		337		(182)		(993)		3		—		(853)
Ending balance	$	27	$	6,196	$	634	$	10,799	$	4	$	—	$	17,660

	Nine Months Ended September 30, 2022
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	100	$	4,146	$	4,989	$	7,717	$	—	$	—	$	16,952
Charge-offs		—		—		(390)		—		—		—		(390)
Recoveries		—		5		9		—		5		—		19
Provision		64		(1,121)		(2,353)		1,806		5		—		(1,599)
Ending balance	$	164	$	3,030	$	2,255	$	9,523	$	10	$	—	$	14,982

Prior to the adoption of ASU 2016-13 on January 1, 2023, the Company calculated the allowance for credit losses under the incurred loss methodology. The following table presents, by portfolio segment, the balance in the allowance for credit losses disaggregated on the basis of the Company’s impairment measurement method and the related unpaid principal balance in loans under the incurred loss methodology as of December 31, 2022.

	December 31, 2022
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Individually evaluated for impairment	$	—	$	249	$	465	$	—	$	—	$	—	$	714
Collectively evaluated for impairment		124		2,562		861		9,626		1		—		13,174
Acquired with deteriorated credit quality		—		—		—		—		—		—		—
Total ending allowance balance	$	124	$	2,811	$	1,326	$	9,626	$	1	$	—	$	13,888
Loans:
Individually evaluated for impairment	$	—	$	23,767	$	1,122	$	5,037	$	—	$	—	$	29,926
Collectively evaluated for impairment		47,567		631,031		51,989		2,294,960		216		—		3,025,763
Acquired with deteriorated credit quality		—		—		—		—		—		—		—
Total ending loans balance	$	47,567	$	654,798	$	53,111	$	2,299,997	$	216	$	—	$	3,055,689

Impaired Loans

Prior to the adoption of ASU 2016-13, loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally were not classified as impaired. Management determined the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impaired loans were measured by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the estimated fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes were included in the allowance for credit losses.

Impaired loans as of December 31, 2022, by portfolio segment, are as follows. The recorded investment consists of the unpaid total principal balance plus accrued interest receivable.

	Unpaid		Recorded		Recorded
	Total		Investment		Investment		Total
(Dollars in thousands)	Principal		With No		With		Recorded		Related
December 31, 2022	Balance		Allowance		Allowance		Investment		Allowance
Construction and development	$	—	$	—	$	—	$	—	$	—
Commercial real estate		23,767		23,121		1,415		24,536		249
Commercial and industrial		1,122		155		997		1,152		465
Residential real estate		5,037		5,037		—		5,037		—
Total	$	29,926	$	28,313	$	2,412	$	30,725	$	714

Collateral-Dependent Loans

Collateral-dependent loans are loans for which foreclosure is probable or loans for which the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The estimated credit losses for these loans are based on the collateral’s fair value less selling costs. In most cases, the Company records a partial charge-off to reduce the loan’s carrying value to the collateral’s fair value less selling costs at the time of foreclosure. As of September 30, 2023, there were $11.6 million, $3.2 million and $95,000 of collateral-dependent loans which were secured by residential real estate, commercial real estate and equipment, respectively. The allowance for credit losses allocated to these loans as of September 30, 2023 was $544,000.

Past Due and Nonaccrual Loans

A primary credit quality indicator for financial institutions is delinquent balances. Delinquencies are updated on a daily basis and are continuously monitored. Loans are placed on nonaccrual status as needed based on repayment status and consideration of accounting and regulatory guidelines. Nonaccrual balances are updated and reported on a daily basis.

The following summarizes the Company’s past due and nonaccrual loans, by portfolio segment, as of September 30, 2023 and December 31, 2022:

							Accruing		Total				Total
(Dollars in thousands)							Greater than		Accruing				Financing
September 30, 2023	Current		30-59 Days		60-89 Days		90 Days		Past Due		Nonaccrual		Receivables
Construction and development	$	41,091	$	—	$	548	$	—	$	548	$	—	$	41,639
Commercial real estate		619,582		—		346		—		346		1,944		621,872
Commercial and industrial		59,420		—		—		—		—		1,612		61,032
Residential real estate		2,289,601		3,992		—		—		3,992		11,571		2,305,164
Consumer and other		240		—		—		—		—		—		240
Total	$	3,009,934	$	3,992	$	894	$	—	$	4,886	$	15,127	$	3,029,947

							Accruing		Total				Total
(Dollars in thousands)							Greater than		Accruing				Financing
December 31, 2022	Current		30-59 Days		60-89 Days		90 Days		Past Due		Nonaccrual		Receivables
Construction and development	$	47,567	$	—	$	—	$	—	$	—	$	—	$	47,567
Commercial real estate		649,552		354		—		—		354		4,892		654,798
Commercial and industrial		52,485		—		310		180		490		136		53,111
Residential real estate		2,282,089		8,882		3,989		—		12,871		5,037		2,299,997
Consumer and other		216		—		—		—		—		—		216
Total	$	3,031,909	$	9,236	$	4,299	$	180	$	13,715	$	10,065	$	3,055,689

The following table presents an analysis of nonaccrual loans with and without a related allowance for credit losses as of September 30, 2023:

	Nonaccrual		Nonaccrual
(Dollars in thousands)	Loans With a		Loans Without a		Total
September 30, 2023	Related ACL		Related ACL		Nonaccrual Loans
Commercial real estate	$	1,163	$	781	$	1,944
Commercial and industrial		90		1,522		1,612
Residential real estate		—		11,571		11,571
Total	$	1,253	$	13,874	$	15,127

All payments received while a loan is on nonaccrual status are applied against the principal balance of the loan. The Company does not recognize interest income while loans are on nonaccrual status.

Credit Quality Indicators

The Company utilizes a ten grade loan risk rating system for its loan portfolio as follows:

● Loans rated Pass – Loans in this category have low to average risk. There are six loan risk ratings (grades 1-6) included in loans rated Pass.

● Loans rated Special Mention (grade 7) – Loans do not presently expose the Company to a sufficient degree of risk to warrant adverse classification, but do possess deficiencies deserving close attention.

● Loans rated Substandard (grade 8) – Loans are inadequately protected by the current credit-worthiness and paying capability of the obligor or of the collateral pledged, if any.

● Loans rated Doubtful (grade 9) – Loans which have all the weaknesses inherent in loans classified Substandard, with the added characteristic that the weaknesses make collections or liquidation in full, or on the basis of currently known facts, conditions and values, highly questionable or improbable.

● Loans rated Loss (grade 10) – Loans classified Loss are considered uncollectible and such little value that their continuance as bankable assets is not warranted.

Loan grades are monitored regularly and updated as necessary based upon review of repayment status and consideration of periodic updates regarding the borrower’s financial condition and capacity to meet contractual requirements.

The following table presents the loan portfolio's amortized cost by loan type, risk rating and year of origination as of September 30, 2023. There were no loans with a risk rating of Doubtful or Loss at September 30, 2023.

(Dollars in thousands)	Term Loan by Origination Year												Revolving
September 30, 2023	2023		2022		2021		2020		2019		Prior		Loans		Total Loans
Construction and development
Pass	$	4,674	$	12,681	$	22,035	$	1,194	$	267	$	240	$	—	$	41,091
Special Mention		—		—		548		—		—		—		—		548
Substandard		—		—		—		—		—		—		—		—
Total construction and development	$	4,674	$	12,681	$	22,583	$	1,194	$	267	$	240	$	—	$	41,639
Commercial real estate
Pass	$	59,750	$	197,514	$	107,960	$	81,012	$	54,341	$	104,130	$	1,170	$	605,877
Special Mention		—		—		—		1,937		—		—		—		1,937
Substandard		—		595		—		1,163		10,636		1,664		—		14,058
Total commercial real estate	$	59,750	$	198,109	$	107,960	$	84,112	$	64,977	$	105,794	$	1,170	$	621,872
Commercial real estate:
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	231	$	—	$	231
Commercial and industrial
Pass	$	11,082	$	14,037	$	5,019	$	3,261	$	2,870	$	3,571	$	17,530	$	57,370
Special Mention		—		—		—		359		222		1,240		—		1,821
Substandard		—		—		1,282		—		538		21		—		1,841
Total commercial and industrial	$	11,082	$	14,037	$	6,301	$	3,620	$	3,630	$	4,832	$	17,530	$	61,032
Commercial and industrial:
Current period gross write offs	$	—	$	—	$	142	$	—	$	79	$	—	$	—	$	221
Residential real estate
Pass	$	192,955	$	741,169	$	854,366	$	295,145	$	62,583	$	145,687	$	—	$	2,291,905
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		118		1,863		2,173		1,386		7,719		—		13,259
Total residential real estate	$	192,955	$	741,287	$	856,229	$	297,318	$	63,969	$	153,406	$	—	$	2,305,164
Consumer and other
Pass	$	240	$	—	$	—	$	—	$	—	$	—	$	—	$	240
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total consumer and other	$	240	$	—	$	—	$	—	$	—	$	—	$	—	$	240
Total loans	$	268,701	$	966,114	$	993,073	$	386,244	$	132,843	$	264,272	$	18,700	$	3,029,947

During the three and nine months ended Setpember 30, 2023, one construction and development revolving loan totaling $11.6 million was converted to a commercial real estate term loan.

The following table presents the Company’s loan portfolio by risk rating as of December 31, 2022:

	Construction
(Dollars in thousands)	and		Commercial		Commercial		Residential		Consumer
December 31, 2022	Development		Real Estate		and Industrial		Real Estate		and Other		Total
Rating:
Pass	$	47,567	$	628,165	$	48,848	$	2,292,568	$	216	$	3,017,364
Special Mention		—		3,677		3,897		—		—		7,574
Substandard		—		22,956		366		7,429		—		30,751
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	47,567	$	654,798	$	53,111	$	2,299,997	$	216	$	3,055,689

Loan Modifications to Borrowers Experiencing Financial Difficulty.

In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”, which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty, unless those loans do not share the same risk characteristics with other loans in the portfolio. Provided that is not the case, these modifications are included in their respective cohort and the allowance for credit losses is estimated on a pooled basis consistent with the other loans with similar risk characteristics.

Modifications to borrowers experiencing financial difficulty may include interest rate reductions, principal or interest forgiveness, payment deferrals, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023. None of the loan modifications below were past due or on nonaccrual status as as of September 30, 2023.

	Interest				Interest				% of Total
(Dollars in thousands)	Term		Payment		Rate				Financing
Three and Nine Months Ended September 30, 2023	Extension		Delay		Reduction		Total		Receivable
Construction and development	$	—	$	—	$	—	$	—	—	%
Commercial real estate		—		—		12,400		12,400	1.99
Commercial and industrial		—		—		—		—	—
Residential real estate		—		—		—		—	—
Consumer and other		—		—		—		—	—
Total	$	—	$	—	$	12,400	$	12,400	0.41	%

The following table presents the financial effect of the loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2023.

	Weighted/Average		Weighted/Average		Weighted/Average
(Dollars in thousands)	Months of		Payment		Interest Rate
Three and Nine Months Ended September 30, 2023	Term Extension		Deferral		Reduction
Construction and development		—	$	—		—	%
Commercial real estate		—		—		3.60
Commercial and industrial		—		—		—
Residential real estate		—		—		—
Consumer and other		—		—		—
Total		—	$	—		3.60	%

No loan modifications made to borrowers experiencing financial difficulty defaulted during the three and nine months ended September 30, 2023. No charge-offs of previously modified loans were recorded during the three and nine months ended September 30, 2023.

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SBA AND USDA LOAN SERVICING

9 Months Ended

Sep. 30, 2023

SBA AND USDA LOAN SERVICING

SBA AND USDA LOAN SERVICING

NOTE 4 – SBA AND USDA LOAN SERVICING

The Company sells the guaranteed portion of certain SBA and USDA loans it originates and continues to service the sold portion of the loan. The portion of the loans sold are not included in the financial statements of the Company. As of September 30, 2023 and December 31, 2022, the unpaid principal balances of serviced loans totaled $487.8 million and $465.1 million, respectively.

Activity for SBA loan servicing rights are as follows:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022
Beginning of period	$	8,018	$	8,062	$	7,038	$	10,091
Change in fair value		(911)		73		69		(1,956)
End of period, fair value	$	7,107	$	8,135	$	7,107	$	8,135

Fair value at September 30, 2023 and December 31, 2022 was determined using discount rates ranging from 8.65% to 17.65% and 8.21% to 19.30%, respectively, and prepayment speeds ranging from 13.36% to 19.29% and 13.12% to 17.60%, respectively, depending on the stratification of the specific right. Average default rates are based on the industry average for the applicable NAICS/SIC code.

The aggregate fair market value of the interest only strips included in SBA servicing assets was $0 and $47,000 at September 30, 2023 and December 31, 2022, respectively. Comparable market values and a valuation model that calculates the present value of future cash flows were used to estimate fair value. For purposes of fair value measurement, risk characteristics including product type and interest rate, were used to stratify the originated loan servicing rights.

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RESIDENTIAL MORTGAGE LOAN SERVICING

9 Months Ended

Sep. 30, 2023

RESIDENTIAL MORTGAGE LOAN SERVICING

RESIDENTIAL MORTGAGE LOAN SERVICING

NOTE 5 – RESIDENTIAL MORTGAGE LOAN SERVICING

Residential mortgage loans serviced for others are not reported as assets. The outstanding principal of these loans at September 30, 2023 and December 31, 2022 was $464.8 million and $526.7 million, respectively.

Activity for mortgage loan servicing rights and the related valuation allowance are as follows:

(Dollars in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Mortgage loan servicing rights:	2023		2022		2023		2022
Beginning of period	$	2,514	$	6,090	$	3,973	$	7,747
Additions		—		—		—		760
Amortization expense		(691)		(1,115)		(2,150)		(3,695)
Valuation allowance		—		—		—		163
End of period, carrying value	$	1,823	$	4,975	$	1,823	$	4,975

(Dollars in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Valuation allowance:	2023		2022		2023		2022
Beginning balance	$	—	$	—	$	—	$	163
Additions expensed		—		—		—		—
Reductions credited to operations		—		—		—		(163)
Direct write-downs		—		—		—		—
Ending balance	$	—	$	—	$	—	$	—

 The fair value of servicing rights was $7.0 million and $7.2 million at September 30, 2023 and December 31, 2022, respectively. Fair value at September 30, 2023 was determined by using a discount rate of 12.55%, prepayment speeds of 16.59%, and a weighted average default rate of 1.31%. Fair value at December 31, 2022 was determined by using a discount rate of 12.56%, prepayment speeds of 18.63%, and a weighted average default rate of 1.29%.

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FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS

9 Months Ended

Sep. 30, 2023

FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS

FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS

NOTE 6 – FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS

Advances from the Federal Home Loan Bank (“FHLB”) at September 30, 2023 and December 31, 2022 are summarized as follows:

(Dollars in thousands)	September 30, 2023		December 31, 2022
Convertible advance maturing February 13, 2026; fixed rate of 4.184%	$	50,000	$	—
Convertible advance maturing May 7, 2027; fixed rate of 3.025%		50,000		—
Convertible advance maturing October 26, 2027; fixed rate of 3.530%		25,000		25,000
Convertible advance maturing January 25, 2028; fixed rate of 3.243%		50,000		—
Convertible advance maturing February 14, 2028; fixed rate of 3.625%		25,000		—
Convertible advance maturing May 8, 2028; fixed rate of 2.860%		50,000		—
Convertible advance maturing June 23, 2028; fixed rate of 3.655%		50,000		—
Convertible advance maturing June 16, 2032; fixed rate of 1.905%		—		50,000
Convertible advance maturing June 23, 2032; fixed rate of 1.950%		—		100,000
Convertible advance maturing August 6, 2032; fixed rate of 1.892%		—		100,000
Convertible advance maturing October 26, 2032; fixed rate of 3.025%		25,000		25,000
Convertible advance maturing May 12, 2037; fixed rate of 1.135%		—		75,000
Total FHLB advances	$	325,000	$	375,000

The FHLB advances outstanding at September 30, 2023 all have a conversion feature that allows the FHLB to call the advances after six months ($100.0 million) or one year ($225.0 million). At September 30, 2023 and December 31, 2022, the Company had a line of credit with the FHLB, set as a percentage of total assets, with maximum borrowing capacity of $1.04 billion and $1.01 billion, respectively. The available borrowing amounts are collateralized by the Company’s FHLB stock and pledged residential real estate loans, which totaled $2.30 billion and $2.29 billion at September 30, 2023 and December 31, 2022, respectively.

At September 30, 2023, the Company had unsecured federal funds lines available with correspondent banks of approximately $47.5 million. There were no advances outstanding on these lines at September 30, 2023.

At September 30, 2023, the Company had Federal Reserve Discount Window funds available of approximately $446.2 million. The funds are collateralized by a pool of construction and development, commercial real estate and commercial and industrial loans with carrying balances totaling $510.4 million as of September 30, 2023, as well as all of the Company’s municipal and mortgage backed securities. There were no outstanding borrowings on this line as of September 30, 2023.

The Company sells the guaranteed portion of certain SBA loans it originates and continues to service the sold portion of the loan. The Company sometimes retains an interest only strip or servicing fee that is considered to be more than customary market rates. An interest rate strip can result from a transaction when the market rate of the transaction differs from the stated rate on the portion of the loan sold.

The sold portion of SBA loans that have an interest only strip are considered secured borrowings and are included in other borrowings. Secured borrowings at September 30, 2023 and December 31, 2022 were $0 and $392,000, respectively.

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OPERATING LEASES

9 Months Ended

Sep. 30, 2023

OPERATING LEASES

OPERATING LEASES

NOTE 7 – OPERATING LEASES

The Company has entered into various operating leases for certain branch locations with terms extending through April 2033. Generally, these leases have initial lease terms of ten years or less. Many of the leases have one or more renewal options which typically are for five years at the then fair market rental rates. We assessed these renewal options using a threshold of reasonably certain. For leases where we were reasonably certain to renew, those option periods were included within the lease term, and therefore, the measurement of the right-of-use (“ROU”) asset and lease liability. None of our leases included options to terminate the lease and none had initial terms of 12 months or less (i.e. short-term leases).

Operating leases in which the Company is the lessee are recorded as operating lease ROU assets and operating lease liabilities on the Consolidated Balance Sheets. The Company currently does not have any finance leases.

Operating lease ROU assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets and operating lease liabilities are recognized at lease commencement based on the present value of the remaining lease payments using a discount rate that represents the Company’s incremental collateralized borrowing rate provided by the FHLB at the lease commencement date. ROU assets are further adjusted for lease incentives, if any. Operating lease expense, which is comprised of amortization of the ROU asset and the implicit interest accreted on the operating lease liability, is recognized on a straight-line basis over the lease term, and is recorded in occupancy expense in the Consolidated Statements of Income.

The components of lease cost for the three and nine months ended September 30, 2023 and 2022 were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022
Operating lease cost	$	532	$	480	$	1,441	$	1,496
Variable lease cost		42		43		130		130
Short-term lease cost		—		—		—		—
Sublease income		—		—		—		—
Total net lease cost	$	574	$	523	$	1,571	$	1,626

Future maturities of the Company’s operating lease liabilities are summarized as follows:

(Dollars in thousands)
Twelve Months Ended:	Lease Liability
September 30, 2024	$	1,918
September 30, 2025		1,737
September 30, 2026		1,478
September 30, 2027		1,228
September 30, 2028		906
After September 30, 2028		905
Total lease payments		8,172
Less: interest discount		(635)
Present value of lease liabilities	$	7,537

Supplemental Lease Information	September 30, 2023
Weighted-average remaining lease term (years)	5.4
Weighted-average discount rate	3.19	%

	Nine Months Ended September 30,
(Dollars in thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (cash payments)	$	1,538	$	1,420
Operating cash flows from operating leases (lease liability reduction)	$	1,345	$	1,219
Operating lease right-of-use assets obtained in exchange for leases entered into during the period	$	—	$	1,273

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INTEREST RATE DERIVATIVES

9 Months Ended

Sep. 30, 2023

INTEREST RATE DERIVATIVES

INTEREST RATE DERIVATIVES

NOTE 8 – INTEREST RATE DERIVATIVES

During 2021 and 2022, the Company entered into fourteen separate interest rate swap agreements with notional amounts totaling $800.0 million. Six of the interest rate swaps are two-year forward three-year term swaps (five-year total term) where cash settlements begin in October 2023, January 2024 or April 2024. Four of the interest rate swaps are two-

year forward two-year term swaps (four-year total term) where cash settlements begin in November 2023 or April 2024. Two of the interest rate swaps are a one-year forward two-year term swap (three-year total term) and a one-year forward three-year term swap (four-year term total) where cash settlements began in May 2023 or July 2023. The two remaining interest rate swaps are 3-year spot swaps where cash settlements began in June 2022 and December 2022. The swap agreements were designated as cash flow hedges of our deposit accounts that are indexed to the Federal Funds Effective rate. The swaps are determined to be highly effective since inception and therefore no amount of ineffectiveness has been included in net income. The aggregate fair value of the swaps amounted to an unrealized gain of $43.3 million and $26.7 million and an unrealized loss of $0 and $779,000 at September 30, 2023 and December 31, 2022, respectively. These unrealized gains and losses are recorded in Interest Rate Derivatives and Other Liabilities on the Consolidated Balance Sheets. The Company expects the hedges to remain highly effective during the remaining terms of the swaps.

During October 2021, the Company entered into an interest rate cap agreement with a notional amount of $50.0 million and a cap rate of 2.50%. This interest rate cap is a two-year forward three-year term (five-year total term) where cash settlements begin on November 2023. The interest rate cap was designated as a cash flow hedge of our deposit accounts that are indexed to the Federal Funds Effective rate. The rate cap premium paid by the Company at inception will be amortized on a straight line basis to deposit interest expense over the total term of the interest rate cap agreement. The fair value of the interest rate cap amounted to an unrealized gain of $3.2 million and $2.1 million at September 30, 2023 and December 31, 2022, respectively, and are recorded in Interest Rate Derivatives on the Consolidated Balance Sheets.

The Company is exposed to credit related losses in the event of the nonperformance by the counterparties to the interest rate swaps. The Company performs an initial credit evaluation and ongoing monitoring procedures for all counterparties and currently anticipates that all counterparties will be able to fully satisfy their obligation under the contracts. In addition, the Company may require collateral from counterparties in the form of cash deposits in the event that the fair value of the contracts are positive and such fair value for all positions with the counterparty exceeds the credit support thresholds specified by the underlying agreement. Conversely, the Company is required to post cash deposits as collateral in the event the fair value of the contracts are negative and are below the credit support thresholds. At September 30, 2023, there were no cash deposits pledged as collateral by the Company. At September 30, 2023, the Company had $40.0 million of restricted cash obtained from the counterparties as collateral for the significant unrealized gains on our interest rate derivatives.

Summary information for the interest rate swaps designated as cash flow hedges is as follows:

	As of or for the		As of or for the
	Nine Months Ended		Year Ended
(Dollars in thousands)	September 30, 2023		December 31, 2022
Notional Amounts	$	800,000	$	800,000
Weighted-average pay rate		2.28%		2.28%
Weighted-average receive rate		4.93%		1.68%
Weighted-average maturity		4.2 years		4.2 years
Weighted-average remaining maturity		2.6 years		3.4 years
Net interest income (expense)	$	2,384	$	(163)

Summary information for the interest rate caps designated as cash flow hedges is as follows:

	As of or for the		As of or for the
	Nine Months Ended		Year Ended
(Dollars in thousands)	September 30, 2023		December 31, 2022
Notional Amounts	$	50,000	$	50,000
Rate Cap Premiums		381		474
Cap Rate		2.50%		2.50%
Weighted-average maturity		5.0 years		5.0 years
Weighted-average remaining maturity		3.1 years		3.8 years
Net interest expense	$	(93)	$	(124)

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LOAN COMMITMENTS AND RELATED FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2023

LOAN COMMITMENTS AND RELATED FINANCIAL INSTRUMENTS

LOAN COMMITMENTS AND RELATED FINANCIAL INSTRUMENTS

NOTE 9 – LOAN COMMITMENTS AND RELATED FINANCIAL INSTRUMENTS

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit written is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments. Financial instruments where contract amounts represent credit risk as of September 30, 2023 and December 31, 2022 include:

	September 30,		December 31,
(Dollars in thousands)	2023		2022
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	75,142	$	62,334
Standby letters of credit	$	7,028	$	6,303

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments to extend credit includes $75.1 million of unused lines of credit and $7.0 million for standby letters of credit as of September 30, 2023. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management’s credit evaluation of the counterparty.

Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.

The Company maintains cash deposits with a financial institution that during the year are in excess of the insured limitation of the Federal Deposit Insurance Corporation. If the financial institution were not to honor its contractual liability, the Company could incur losses. Management is of the opinion that there is not material risk because of the financial strength of the institution.

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FAIR VALUE

9 Months Ended

Sep. 30, 2023

FAIR VALUE

FAIR VALUE

NOTE 10 – FAIR VALUE

Financial Instruments Measured at Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the determination of the fair value

measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The following presents the assets and liabilities as of September 30, 2023 and December 31, 2022 which are measured at fair value on a recurring basis, aggregated by the level in the fair value hierarchy within which those measurements fall, and the financial instruments carried on the consolidated balance sheet by caption and by level in the fair value hierarchy, for which a nonrecurring change in fair value has been recorded:

	September 30, 2023
									Total Gains
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		(Losses)
Assets
Recurring fair value measurements:
Securities available for sale:
Obligations of U.S. Government entities and agencies	$	4,678	$	—	$	—	$	4,678
States and political subdivisions		6,063		—		6,063		—
Mortgage-backed GSE residential		6,923		—		6,923		—
Total securities available for sale		17,664		—		12,986		4,678
Equity securities		10,113		10,113		—		—
SBA servicing asset		7,107		—		—		7,107
Interest rate derivatives		46,502		—		46,502		—
	$	81,386	$	10,113	$	59,488	$	11,785
Nonrecurring fair value measurements:
Collateral-dependent loans	$	2,456	$	—	$	—	$	2,456	$	(137)

	December 31, 2022
									Total Gains
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		(Losses)
Assets
Recurring fair value measurements:
Securities available for sale:
Obligations of U.S. Government entities and agencies	$	5,059	$	—	$	—	$	5,059
States and political subdivisions		6,403		—		6,403		—
Mortgage-backed GSE residential		7,783		—		7,783		—
Total securities available for sale		19,245		—		14,186		5,059
Equity securities		10,300		10,300		—		—
SBA servicing asset		7,038		—		—		7,038
Interest only strip		47		—		—		47
Interest rate derivatives		28,781		—		28,781		—
	$	65,411	$	10,300	$	42,967	$	12,144
Nonrecurring fair value measurements:
Impaired loans	$	1,045	$	—	$	—	$	1,045	$	229
Liabilities
Recurring fair value measurements:
Interest rate swaps	$	779	$	—	$	779	$	—

The Company used the following methods and significant assumptions to estimate fair value:

Securities, Available for Sale: The Company carries securities available for sale at fair value. For securities where quoted prices are not available (Level 2), the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things. The investments in the Company’s portfolio are generally not quoted on an exchange but are actively traded in the secondary institutional markets.

The Company owns certain SBA investments for which the fair value is determined using Level 3 hierarchy inputs and assumptions as the trading market for such securities was determined to be “not active.” This determination was based on the limited number of trades or, in certain cases, the existence of no reported trades. Discounted cash flows are calculated by a third party using interest rate curves that are updated to incorporate current market conditions, including prepayment vectors and credit risk. During time when trading is more liquid, broker quotes are used to validate the model.

Equity Securities: The Company carries equity securities at fair value. Equity securities are measured at fair value using quoted market prices on nationally recognized and foreign securities exchanges (Level 1).

SBA Servicing Assets and Interest Only Strip: The fair values of the Company’s servicing assets are determined using Level 3 inputs. All separately recognized servicing assets and servicing liabilities are initially measured at fair value and at each reporting date and changes in fair value are reported in earnings in the period in which they occur.

The fair values of the Company’s interest-only strips are determined using Level 3 inputs. When the Company sells loans to others, it may hold interest-only strips, which is an interest that continues to be held by the transferor in the securitized receivable. It may also obtain servicing assets or assume servicing liabilities that are initially measured at fair value. Gain or loss on sale of the receivables depends in part on both (a) the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the interests that continue to be held by the transferor based on their relative fair value at the date of transfer, and (b) the proceeds received. To obtain fair values, quoted market prices are used if available. However, quotes are generally not available for interests that continue to be held by the transferor, so the Company generally estimates fair value based on the future expected cash flows estimated using

management’s best estimates of the key assumptions — credit losses and discount rates commensurate with the risks involved.

Interest Rate Derivatives: Exchange-traded derivatives are valued using quoted prices and are classified within Level 1 of the valuation hierarchy. However, few classes of derivative contracts are listed on an exchange; thus, the Company’s derivative positions are valued by third parties using their valuation models and confirmed by the Company. Since the model inputs can be observed in a liquid market and the models do not require significant judgement, such derivative contracts are classified within Level 2 of the fair value hierarchy. The Company’s interest rate derivatives contracts (designated as cash flow hedges) are classified within Level 2.

Under certain circumstances we make adjustments to fair value for our assets and liabilities although they are not measured at fair value on an ongoing basis.

Collateral-dependent and impaired loans: Collateral-dependent loans are loans where repayment is expected to be provided solely by the sale of the underlying collateral and there are no other available and reliable sources of repayment. Prior to the adoption of ASU 2016-13, impaired loans were evaluated and valued at the time the loan was identified as impaired, at the lower of cost or fair value. Fair value for both collateral-dependent and impaired loans are measured based on the value of the collateral securing these loans and are classified at a Level 3 in the fair value hierarchy. Collateral may include real estate, or business assets including equipment, inventory and accounts receivable. The value of real estate collateral is determined based on an appraisal by qualified licensed appraisers hired by the Company. The value of business equipment is based on an appraisal by qualified licensed appraisers hired by the Company if significant, or the equipment’s net book value on the business’ financial statements. Inventory and accounts receivable collateral are valued based on independent field examiner review or aging reports. Appraisals may utilize a single valuation approach or a combination or approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available for similar loans and collateral underlying such loans. Appraised values are reviewed by management using historical knowledge, market considerations, and knowledge of the client and client’s business.

Changes in level 3 fair value measurements

The table below presents a reconciliation of assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2023 and 2022:

	Obligations of		SBA
(Dollars in thousands)	U.S. Government		Servicing		Interest Only
Three Months Ended:	Entities and Agencies		Asset		Strip		Liabilities
Fair value, July 1, 2023	$	4,790	$	8,018	$	—	$	—
Total losses included in income		—		(911)		—		—
Settlements		—		—		—		—
Prepayments/paydowns		(112)		—		—		—
Transfers in and/or out of level 3		—		—		—		—
Fair value, September 30, 2023	$	4,678	$	7,107	$	—	$	—
Fair value, July 1, 2022	$	5,900	$	8,062	$	154	$	—
Total gains included in income		—		73		35		—
Settlements		—		—		—		—
Prepayments/paydowns		(215)		—		—		—
Transfers in and/or out of level 3		—		—		—		—
Fair value, September 30, 2022	$	5,685	$	8,135	$	189	$	—
Nine Months Ended:
Fair value, January 1, 2023	$	5,059	$	7,038	$	47	$	—
Total gains/(losses) included in income		—		69		(47)		—
Settlements		—		—		—		—
Prepayments/paydowns		(381)		—		—		—
Transfers in and/or out of level 3		—		—		—		—
Fair value, September 30, 2023	$	4,678	$	7,107	$	—	$	—
Fair value, January 1, 2022	$	6,949	$	10,091	$	143	$	—
Total (losses)/gains included in income		—		(1,956)		46		—
Settlements		—		—		—		—
Prepayments/paydowns		(1,264)		—		—		—
Transfers in and/or out of level 3		—		—		—		—
Fair value, September 30, 2022	$	5,685	$	8,135	$	189	$	—

There were no gains or losses included in earnings for securities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the periods presented above. The only activity for these securities were prepayments. There were no purchases, sales, or transfers into and out of Level 3. The following table presents quantitative information about recurring Level 3 fair value measures at September 30, 2023 and December 31, 2022:

	Valuation	Unobservable	General
	Technique	Input	Range
September 30, 2023:
Recurring:
Obligations of U.S. Government entities and agencies	Discounted cash flows	Discount rate	3%-5%
SBA servicing asset and interest only strip	Discounted cash flows	Prepayment speed	13.36%-19.29%
		Discount rate	8.65%-17.65%
Nonrecurring:
Collateral-dependent loans	Appraised value less estimated selling costs	Estimated selling costs	6%
December 31, 2022:
Recurring:
Obligations of U.S. Government entities and agencies	Discounted cash flows	Discount rate	3%-5%
SBA servicing asset and interest only strip	Discounted cash flows	Prepayment speed	13.12%-17.60%
		Discount rate	8.21%-19.30%
Nonrecurring:
Impaired Loans	Appraised value less estimated selling costs	Estimated selling costs	6%

The carrying amounts and estimated fair values of the Company’s financial instruments at September 30, 2023 and December 31, 2022 are as follows:

	Carrying			Estimated Fair Value at September 30, 2023
(Dollars in thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash, due from banks, and federal funds sold	$	282,057	$	—	$	282,057	$	—	$	282,057
Investment securities		27,777		10,113		12,986		4,678		27,777
FHLB stock		17,846		—		—		—		N/A
Loans, net		3,012,287		—		—		2,862,576		2,862,576
Accrued interest receivable		14,612		—		61		14,551		14,612
SBA servicing assets		7,107		—		—		7,107		7,107
Mortgage servicing assets		1,823		—		—		7,020		7,020
Interest rate derivatives		46,502		—		46,502		—		46,502
Financial Liabilities:
Deposits		2,718,588		—		2,713,695		—		2,713,695
Federal Home Loan Bank advances		325,000		—		326,268		—		326,268
Accrued interest payable		3,915		—		3,915		—		3,915

	Carrying		Estimated Fair Value at December 31, 2022
(Dollars in thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash, due from banks, and federal funds sold	$	179,485	$	—	$	179,485	$	—	$	179,485
Investment securities		29,545		10,300		14,186		5,059		29,545
FHLB stock		17,493		—		—		—		N/A
Loans, net		3,041,801		—		—		2,999,520		2,999,520
Accrued interest receivable		13,171		—		98		13,073		13,171
SBA servicing asset		7,038		—		—		7,038		7,038
Interest only strips		47		—		—		47		47
Mortgage servicing assets		3,973		—		—		7,209		7,209
Interest rate derivatives		28,781		—		28,781		—		28,781
Financial Liabilities:
Deposits		2,666,838		—		2,658,837		—		2,658,837
Federal Home Loan Bank advances		375,000		—		376,575		—		376,575
Other borrowings		392		—		392		—		392
Accrued interest payable		2,739		—		2,739		—		2,739
Interest rate derivatives		779		—		779		—		779

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REGULATORY MATTERS

9 Months Ended

Sep. 30, 2023

REGULATORY MATTERS

REGULATORY MATTERS

NOTE 11 – REGULATORY MATTERS

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Under the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (“Basel III rules”), the Bank must hold a capital conservation buffer of 2.50% above the adequately capitalized risk-based capital ratios. The net unrealized gain or loss on available for sale securities, if any, is not included in computing regulatory capital. Management believes as of September 30, 2023 the Company and Bank meet all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At September 30, 2023 and December 31, 2022, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.

The Company’s actual capital amounts (in thousands) and ratios are also presented in the following table:

								To Be Well Capitalized
					Minimum Capital Required -			Under Prompt Corrective
	Actual				Basel III			Action Provisions:
(Dollars in thousands)	Amount		Ratio		Amount ≥	Ratio ≥		Amount ≥	Ratio ≥
As of September 30, 2023:
Total Capital (to Risk Weighted Assets)
Consolidated	$	365,268	17.91	%	214,160	10.5	%	N/A	N/A
Bank		362,477	17.77	%	214,153	10.5		203,955	10.0	%
Tier I Capital (to Risk Weighted Assets)
Consolidated		347,314	17.03	%	173,368	8.5	%	N/A	N/A
Bank		344,523	16.89	%	173,362	8.5		163,164	8.0	%
Common Tier 1 (CET1)
Consolidated		347,314	17.03	%	142,773	7.0	%	N/A	N/A
Bank		344,523	16.89	%	142,769	7.0		132,571	6.5	%
Tier 1 Capital (to Average Assets)
Consolidated		347,314	10.07	%	137,909	4.0	%	N/A	N/A
Bank		344,523	9.99	%	137,901	4.0		172,376	5.0	%
As of December 31, 2022:
Total Capital (to Risk Weighted Assets)
Consolidated	$	338,185	16.68	%	212,932	10.5	%	N/A	N/A
Bank		336,866	16.61	%	212,915	10.5		202,777	10.0	%
Tier I Capital (to Risk Weighted Assets)
Consolidated		324,297	15.99	%	172,374	8.5	%	N/A	N/A
Bank		322,978	15.93	%	172,360	8.5		162,221	8.0	%
Common Tier 1 (CET1)
Consolidated		324,297	15.99	%	141,955	7.0	%	N/A	N/A
Bank		322,978	15.93	%	141,944	7.0		131,805	6.5	%
Tier 1 Capital (to Average Assets)
Consolidated		324,297	9.57	%	135,485	4.0	%	N/A	N/A
Bank		322,978	9.54	%	135,446	4.0		169,307	5.0	%

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STOCK BASED COMPENSATION

9 Months Ended

Sep. 30, 2023

STOCK BASED COMPENSATION

STOCK BASED COMPENSATION

NOTE 12 – STOCK BASED COMPENSATION

The Company adopted the MetroCity Bankshares, Inc. 2018 Stock Option Plan (the “Prior Option Plan”) effective as of April 18, 2018, and the Prior Option Plan was approved by the Company’s shareholders on May 30, 2018. The Prior Option Plan provided for awards of stock options to officers, employees and directors of the Company. The Board of Directors of the Company determined that it was in the best interests of the Company and its shareholders to amend and restate the Prior Option Plan to provide for the grant of additional types of awards. Acting pursuant to its authority under the Prior Option Plan, the Board of Directors approved and adopted the MetroCity Bankshares, Inc. 2018 Omnibus Incentive Plan (the “2018 Incentive Plan”), which constitutes the amended and restated version of the Prior Option Plan. The Board of Directors has reserved 2,400,000 shares of Company common stock for issuance pursuant to awards granted under the 2018 Incentive Plan, any or all of which may be granted as nonqualified stock options, incentive stock options, restricted stock, restricted stock units, performance awards and other stock-based awards. In the event all or a portion of a stock award is forfeited, cancelled, expires, or is terminated before becoming vested, paid, exercised, converted, or otherwise settled in full, any unissued or forfeited shares again become available for issuance pursuant to awards granted under the 2018 Incentive Plan and do not count against the maximum number of reserved shares. In addition, shares of common stock deducted or withheld to satisfy tax withholding obligations will be added back to the share reserve and will again be available for issuance pursuant to awards granted under the plan. The 2018 Incentive Plan is administered by the Compensation Committee of our Board of Directors (the “Committee”). The determination of award recipients under the 2018 Incentive Plan, and the terms of those awards, will be made by the Committee. At September 30, 2023, 240,000 stock options had been granted and 774,437 shares of restricted stock had been issued under the 2018 Incentive Plan.

Stock Options

A summary of stock option activity for the nine months ended September 30, 2023 is presented below:

		Weighted
		Average
	Shares	Exercise Price
Outstanding at January 1, 2023	240,000	$	12.70
Granted	—		—
Exercised	—		—
Forfeited	—		—
Outstanding at September 30, 2023	240,000	$	12.70

The Company recognized no compensation expense for stock options during the three and nine months ended September 30, 2023 and 2022. As of both September 30, 2023 and December 31, 2022, there was $0 of total unrecognized compensation cost related to options granted under the 2018 Incentive Plan. As of September 30, 2023, all of the cost related to the outstanding stock options had been recognized.

Restricted Stock Units

The Company has periodically issued restricted stock units to its directors, executive officers and certain employees under the 2018 Incentive Plan. Compensation expense for restricted stock is based upon the grant date fair value of the shares and is recognized over the vesting period of the units. Shares of restricted stock units issued to officers and employees vest in equal annual installments on the first three anniversaries of the grant date. Shares of restricted stock units issued to directors vest 25% on the grant date and 25% on each of the first three anniversaries of the grant date.

A summary of restricted stock activity for the nine months ended September 30, 2023 is presented below:

		Weighted-
		Average Grant-
Nonvested Shares	Shares	Date Fair Value
Nonvested at January 1, 2023	177,399	$	17.95
Granted	188,993		16.43
Vested	(136,171)		16.25
Forfeited	—		—
Nonvested at September 30, 2023	230,221	$	17.71

During the three months ended September 30, 2023 and 2022, the Company recognized compensation expense for restricted stock of $825,000 and $689,000, respectively. During the nine months ended September 30, 2023 and 2022, the Company recognized compensation expense for restricted stock of $1.6 million and $1.2 million, respectively. As of September 30, 2023 and December 31, 2022, there was $3.8 million and $2.3 million, respectively, of total unrecognized compensation cost related to nonvested shares granted under the 2018 Incentive Plan. As of September 30, 2023, the cost is expected to be recognized over a weighted-average period of 2.3 years.

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EARNINGS PER SHARE

9 Months Ended

Sep. 30, 2023

EARNINGS PER SHARE

EARNINGS PER SHARE

NOTE 13 – EARNINGS PER SHARE

The following table presents the calculation of basic and diluted earnings per common share for the periods indicated:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands, except per share data)	2023		2022		2023		2022
Basic earnings per share
Net Income	$	11,428	$	16,893	$	40,266	$	52,422
Weighted average common shares outstanding		25,274,665		25,433,307		25,203,114		25,452,398
Basic earnings per common share	$	0.45	$	0.66	$	1.60	$	2.06
Diluted earnings per share
Net Income	$	11,428	$	16,893	$	40,266	$	52,422
Weighted average common shares outstanding for basic earnings per common share		25,274,665		25,433,307		25,203,114		25,452,398
Add: Dilutive effects of restricted stock and options		317,209		268,716		307,574		279,606
Average shares and dilutive potential common shares		25,591,874		25,702,023		25,510,688		25,732,004
Diluted earnings per common share	$	0.45	$	0.66	$	1.58	$	2.04

There were no stock options or restricted stock excluded from the computation of diluted earnings per common share since they were antidilutive for the three and nine months ended September 30, 2023 and 2022.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2023

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of MetroCity Bankshares, Inc. (“Company”) and its wholly-owned subsidiary, Metro City Bank (the “Bank”). The Company owns 100% of the Bank. The “Company” or “our,” as used herein, includes Metro City Bank unless the context indicates that we refer only to MetroCity Bankshares, Inc.

These unaudited consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) followed within the financial services industry for interim financial information and Article 10 of Regulation S-X. Accordingly, they do not include all of the information or notes required for complete financial statements.

The Company principally operates in one business segment, which is community banking.

In the opinion of management, all adjustments, consisting of normal and recurring items, considered necessary for a fair presentation of the consolidated financial statements for the interim periods have been included. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain amounts reported in prior periods have been reclassified to conform to current year presentation. These reclassifications did not have a material effect on previously reported net income, shareholders’ equity or cash flows.

Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2022.

The Company’s significant accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements for the year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “Company’s 2022 Form 10-K”). Aside from the adoption of ASU 2016-13 (which is further discussed below), there were no new accounting policies or changes to existing policies adopted during the first nine months of 2023 which had a significant effect on the Company’s results of operations or statement of financial condition. For interim reporting purposes, the Company follows the same basic accounting policies and considers each interim period as an integral part of an annual period.

Contingencies

Contingencies

Due to the nature of their activities, the Company and its subsidiary are at times engaged in various legal proceedings that arise in the course of normal business, some of which were outstanding as of September 30, 2023. Although the ultimate outcome of all claims and lawsuits outstanding as of September 30, 2023 cannot be ascertained at this time, it is the opinion of management that these matters, when resolved, will not have a material adverse effect on the Company’s results of operations or financial condition.

Accounting Standards Adopted in 2023

Accounting Standards Adopted in 2023

In January 2023, the Company adopted ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This ASU significantly changed how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaced the incurred loss approach with an expected loss model, referred to as the current expected credit loss (“CECL”) model. The new standard applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance-sheet credit exposures, which include, but are not limited to, loans, leases, held-to-maturity securities, loan commitments and financial guarantees. ASU 2016-13 simplifies the accounting for purchased credit-impaired debt

securities and loans and expands the disclosure requirements regarding an entity’s assumptions, models and methods for estimating the allowance for credit losses. In addition, under the new standard, entities are required to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 was effective for interim and annual reporting periods beginning after December 15, 2022. With its adoption, ASU 2016-13 provided for a modified retrospective transition by means of a cumulative effect adjustment to equity as of the beginning of the period in which the guidance was effective.

The Company adopted ASU 2016-13 and all related subsequent amendments thereto effective January 1, 2023 using the modified retrospective approach. The adoption of this standard resulted in an increase to the allowance for credit losses on loans of $5.1 million and the creation of an allowance for unfunded commitments of $239,000. These one-time cumulative adjustments resulted in a $3.8 million decrease to retained earnings, net of a $1.5 million increase to deferred tax assets.

For available for sale (“AFS”) securities, the new CECL methodology replaced the other-than-temporary impairment model and required the recognition of an allowance for reductions in a security’s fair value attributable to declines in credit quality, instead of a direct write-down of the security, when a valuation decline was determined to be other-than-temporary. There was no financial impact related to this implementation since the credit risk associated with our securities portfolio was minimal. The Company has made a policy election to exclude accrued interest from the amortized cost basis of AFS securities. Accrued interest receivable for AFS securities totaled $78,000 and $114,000 as of September 30, 2023 and December 31, 2022, respectively. This accrued interest receivable is included in the “accrued interest receivable” line item on the Company’s Consolidated Balance Sheets.

In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures”, which eliminated the accounting guidance for troubled debt restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. This guidance was applied on a prospective basis. Upon adoption of this guidance, the Company no longer establishes a specific reserve for modifications to borrowers experiencing financial difficulty, unless those loans do not share the same risk characteristics with other loans in the portfolio. Provided that is not the case, these modifications are included in their respective cohort and the allowance for credit losses is estimated on a pooled basis consistent with the other loans with similar risk characteristics. See Note 3 below for further details.

The Company has further evaluated other Accounting Standards Updates issued during 2023 to date but does not expect updates other than those summarized above to have a material impact on the consolidated financial statements.

The following new accounting policies were adopted during 2023 to date:

Allowance for Credit Losses – Available for Sale Securities

The impairment model for available for sale (“AFS”) securities differs from the CECL approach utilized by HTM debt securities because AFS debt securities are measured at fair value rather than amortized cost. Although ASU 2016-13 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model. One notable change from the legacy OTTI model is when evaluating whether credit loss exists, an entity may no longer consider the length of time fair value has been less than amortized cost. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criteria is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been

recorded through an allowance for credit losses is recognized in other comprehensive income. As of September 30, 2023, the Company determined that the unrealized loss positions in AFS securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded. See Note 2 below for further details.

Allowance for Credit Losses - Loans

Under the CECL model, the allowance for credit losses (“ACL”) on loans is a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

The Company estimates the ACL on loans based on the underlying loans’ amortized cost basis, which is the amount at which the financing receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of cash, and charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of ACL.

Expected credit losses are reflected in the allowance for credit losses through a charge to provision for credit losses. When the Company deems all or a portion of a loan to be uncollectible the appropriate amount is written off and the ACL is reduced by the same amount. Loans are charged off against the ACL when management believes the collection of the principal is unlikely. Subsequent recoveries of previously charged off amounts, if any, are credited to the ACL when received.

The Company measures expected credit losses of loans on a collective (pool) basis, when the loans share similar risk characteristics. Depending on the nature of the pool of loans with similar risk characteristics, the Company uses the discounted cash flow (“DCF”) method and a qualitative approach as discussed further below.

The Company’s methodologies for estimating the ACL consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for loan-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the loans that are reasonable and supportable, to the identified pools of loans with similar risk characteristics for which the historical loss experience was observed. The Company’s methodologies revert back to historical loss information on a straight-line basis over eight quarters when it can no longer develop reasonable and supportable forecasts.

The Company has identified the following pools of loans with similar risk characteristics for measuring expected credit losses:

Construction and development – Loans in this segment primarily include real estate development loans for which payment is derived from the sale of the property as well as construction projects in which the property will ultimately be used by the borrower. Credit risk is affected by cost overruns, time to sell at an adequate price, and market conditions.

Commercial real estate – Loans in this segment are primarily income-producing properties. The underlying cash flows generated by the properties are adversely impacted by a downturn in the economy as evidenced by increased vacancy rates, which in turn, will have an effect on the credit quality in this segment. Management monitors the cash flows of these loans. This loan segment includes farmland loans.

Commercial and industrial – Loans in this segment are made to businesses and are generally secured by assets of the business. Repayment is expected from the cash flows of the business. A weakened economy, and resultant decreased customer spending, will have an effect on the credit quality in this segment.

Single family residential mortgages – Loans in this segment include loans for residential real estate. Loans in this segment are dependent on credit quality of the individual borrower. The overall health of the economy, including unemployment rates will have an effect on the credit quality of this segment.

Consumer and other – Loans in this segment are made to individuals and are secured by personal assets, as well as loans for personal lines of credit and overdraft protection. Loans in this segment are dependent on the credit quality of the individual borrower. The overall health of the economy, including unemployment rates will have an effect on the credit quality in this segment.

Discounted Cash Flow Method

The Company uses the discounted cash flow method to estimate expected credit losses for each of its loan segments. The Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, curtailments, time to recovery, probability of default, and loss given default. The modeling of expected prepayment speeds, curtailment rates, and time to recovery are based on benchmark peer data.

The Company uses regression analysis of peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default and loss given default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, the Company uses national data including gross domestic product, unemployment rates and home price indices (residential mortgage loans only) depending on the nature of the underlying loan pool and how well that loss driver correlates to expected future losses.

For all DCF models, management has determined that four quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over eight quarters on a straight-line basis. Management leverages economic projections from a reputable and independent third party to inform its loss driver forecasts over the four-quarter forecast period. Other internal and external indicators of economic forecasts are also considered by management when developing the forecast metrics.

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level net present value of expected cash flows (“NPV”). An ACL is established for the difference between the instrument’s NPV and amortized cost basis.

Qualitative Factors

The Company also considers qualitative adjustments to the quantitative baseline discussed above. For example, the Company considers the impact of current environmental factors at the reporting date that did not exist over the period from which historical experience was used. Relevant factors include, but are not limited to, concentrations of credit risk (geographic, large borrower, and industry), changes in underwriting standards, changes in collateral value, experience and depth of lending staff, trends in delinquencies, and the volume and terms of loans.

Individually Analyzed Loans

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

Allowance for Unfunded Commitments

The Company records an allowance for credit losses on unfunded loan commitments, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Company’s Consolidated Statements of Income. The ACL on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur. The allowance for unfunded commitments totaled $294,000 as of September 30, 2023 and is included in Other Liabilities on the Company’s Consolidated Balance Sheets.  

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INVESTMENT SECURITIES (Tables)

9 Months Ended

Sep. 30, 2023

INVESTMENT SECURITIES

Schedule of available for sale securities

	September 30, 2023
	Gross		Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Obligations of U.S. Government entities and agencies	$	4,678	$	—	$	—	$	4,678
States and political subdivisions		8,085		—		(2,022)		6,063
Mortgage-backed GSE residential		8,963		—		(2,040)		6,923
Total	$	21,726	$	—	$	(4,062)	$	17,664

	December 31, 2022
	Gross		Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
(Dollars in thousands)	Cost		Gains		Losses		Value
Obligations of U.S. Government entities and agencies	$	5,059	$	—	$	—	$	5,059
States and political subdivisions		8,121		—		(1,718)		6,403
Mortgage-backed GSE residential		9,540		—		(1,757)		7,783
Total	$	22,720	$	—	$	(3,475)	$	19,245

Schedule of available for sale securities by contractual maturities

	Securities Available for Sale
	Amortized		Estimated
(Dollars in thousands)	Cost		Fair Value
Due in one year or less	$	—	$	—
Due after one year but less than five years		5,919		5,860
Due after five years but less than ten years		—		—
Due in more than ten years		6,844		4,881
Mortgage-backed GSE residential		8,963		6,923
Total	$	21,726	$	17,664

Schedule of available for sale securities by investment category and length of time

	September 30, 2023
	Twelve Months or Less				Over Twelve Months
	Gross		Estimated		Gross		Estimated
	Unrealized		Fair		Unrealized		Fair
(Dollars in thousands)	Losses		Value		Losses		Value
States and political subdivisions	$	—	$	—	$	2,022	$	6,063
Mortgage-backed GSE residential		—		—		2,040		6,923
Total	$	—	$	—	$	4,062	$	12,986

	December 31, 2022
	Twelve Months or Less				Over Twelve Months
	Gross		Estimated		Gross		Estimated
	Unrealized		Fair		Unrealized		Fair
(Dollars in thousands)	Losses		Value		Losses		Value
States and political subdivisions	$	756	$	3,556	$	962	$	2,847
Mortgage-backed GSE residential		48		541		1,709		7,242
Total	$	804	$	4,097	$	2,671	$	10,089

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LOANS AND ALLOWANCE FOR CREDIT LOSSES (Tables)

9 Months Ended

Sep. 30, 2023

LOANS AND ALLOWANCE FOR CREDIT LOSSES

Summary of major classifications of loans

	September 30,		December 31,
(Dollars in thousands)	2023		2022
Construction and development	$	41,783	$	47,779
Commercial real estate		624,122		657,246
Commercial and industrial		61,332		53,173
Residential real estate		2,310,981		2,306,915
Consumer and other		240		216
Total loans receivable		3,038,458		3,065,329
Unearned income		(8,511)		(9,640)
Allowance for credit losses		(17,660)		(13,888)
Loans, net	$	3,012,287	$	3,041,801

Schedule of allowance for credit losses by portfolio segment

A summary of changes in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2023 and 2022 is as follows:

	Three Months Ended September 30, 2023
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	30	$	6,208	$	653	$	11,199	$	1	$	—	$	18,091
Charge-offs		—		—		—		—		—		—		—
Recoveries		—		1		3		—		—		—		4
Provision expense		(3)		(13)		(22)		(400)		3		—		(435)
Ending balance	$	27	$	6,196	$	634	$	10,799	$	4	$	—	$	17,660

	Three Months Ended September 30, 2022
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	140	$	3,539	$	4,219	$	8,678	$	6	$	96	$	16,678
Charge-offs		—		—		—		—		—		—		—
Recoveries		—		1		6		—		—		—		7
Provision expense		24		(510)		(1,970)		845		4		(96)		(1,703)
Ending balance	$	164	$	3,030	$	2,255	$	9,523	$	10	$	—	$	14,982

	Nine Months Ended September 30, 2023
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	124	$	2,811	$	1,326	$	9,626	$	1	$	—	$	13,888
Impact of adopting ASU 2016-13		(79)		3,275		(307)		2,166		—		—		5,055
Charge-offs		—		(231)		(221)		—		—		—		(452)
Recoveries		—		4		18		—		—		—		22
Provision expense		(18)		337		(182)		(993)		3		—		(853)
Ending balance	$	27	$	6,196	$	634	$	10,799	$	4	$	—	$	17,660

	Nine Months Ended September 30, 2022
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Beginning balance	$	100	$	4,146	$	4,989	$	7,717	$	—	$	—	$	16,952
Charge-offs		—		—		(390)		—		—		—		(390)
Recoveries		—		5		9		—		5		—		19
Provision		64		(1,121)		(2,353)		1,806		5		—		(1,599)
Ending balance	$	164	$	3,030	$	2,255	$	9,523	$	10	$	—	$	14,982

	December 31, 2022
	Construction
	and		Commercial		Commercial		Residential		Consumer
(Dollars in thousands)	Development		Real Estate		and Industrial		Real Estate		and Other		Unallocated		Total
Allowance for credit losses:
Individually evaluated for impairment	$	—	$	249	$	465	$	—	$	—	$	—	$	714
Collectively evaluated for impairment		124		2,562		861		9,626		1		—		13,174
Acquired with deteriorated credit quality		—		—		—		—		—		—		—
Total ending allowance balance	$	124	$	2,811	$	1,326	$	9,626	$	1	$	—	$	13,888
Loans:
Individually evaluated for impairment	$	—	$	23,767	$	1,122	$	5,037	$	—	$	—	$	29,926
Collectively evaluated for impairment		47,567		631,031		51,989		2,294,960		216		—		3,025,763
Acquired with deteriorated credit quality		—		—		—		—		—		—		—
Total ending loans balance	$	47,567	$	654,798	$	53,111	$	2,299,997	$	216	$	—	$	3,055,689

Summary of impaired loans by portfolio segment

	Unpaid		Recorded		Recorded
	Total		Investment		Investment		Total
(Dollars in thousands)	Principal		With No		With		Recorded		Related
December 31, 2022	Balance		Allowance		Allowance		Investment		Allowance
Construction and development	$	—	$	—	$	—	$	—	$	—
Commercial real estate		23,767		23,121		1,415		24,536		249
Commercial and industrial		1,122		155		997		1,152		465
Residential real estate		5,037		5,037		—		5,037		—
Total	$	29,926	$	28,313	$	2,412	$	30,725	$	714

Schedule of delinquent amounts by portfolio segment

							Accruing		Total				Total
(Dollars in thousands)							Greater than		Accruing				Financing
September 30, 2023	Current		30-59 Days		60-89 Days		90 Days		Past Due		Nonaccrual		Receivables
Construction and development	$	41,091	$	—	$	548	$	—	$	548	$	—	$	41,639
Commercial real estate		619,582		—		346		—		346		1,944		621,872
Commercial and industrial		59,420		—		—		—		—		1,612		61,032
Residential real estate		2,289,601		3,992		—		—		3,992		11,571		2,305,164
Consumer and other		240		—		—		—		—		—		240
Total	$	3,009,934	$	3,992	$	894	$	—	$	4,886	$	15,127	$	3,029,947

							Accruing		Total				Total
(Dollars in thousands)							Greater than		Accruing				Financing
December 31, 2022	Current		30-59 Days		60-89 Days		90 Days		Past Due		Nonaccrual		Receivables
Construction and development	$	47,567	$	—	$	—	$	—	$	—	$	—	$	47,567
Commercial real estate		649,552		354		—		—		354		4,892		654,798
Commercial and industrial		52,485		—		310		180		490		136		53,111
Residential real estate		2,282,089		8,882		3,989		—		12,871		5,037		2,299,997
Consumer and other		216		—		—		—		—		—		216
Total	$	3,031,909	$	9,236	$	4,299	$	180	$	13,715	$	10,065	$	3,055,689

Schedule of of nonaccrual loans with and without a related allowance

	Nonaccrual		Nonaccrual
(Dollars in thousands)	Loans With a		Loans Without a		Total
September 30, 2023	Related ACL		Related ACL		Nonaccrual Loans
Commercial real estate	$	1,163	$	781	$	1,944
Commercial and industrial		90		1,522		1,612
Residential real estate		—		11,571		11,571
Total	$	1,253	$	13,874	$	15,127

Summary of purchased loans by risk rating

(Dollars in thousands)	Term Loan by Origination Year												Revolving
September 30, 2023	2023		2022		2021		2020		2019		Prior		Loans		Total Loans
Construction and development
Pass	$	4,674	$	12,681	$	22,035	$	1,194	$	267	$	240	$	—	$	41,091
Special Mention		—		—		548		—		—		—		—		548
Substandard		—		—		—		—		—		—		—		—
Total construction and development	$	4,674	$	12,681	$	22,583	$	1,194	$	267	$	240	$	—	$	41,639
Commercial real estate
Pass	$	59,750	$	197,514	$	107,960	$	81,012	$	54,341	$	104,130	$	1,170	$	605,877
Special Mention		—		—		—		1,937		—		—		—		1,937
Substandard		—		595		—		1,163		10,636		1,664		—		14,058
Total commercial real estate	$	59,750	$	198,109	$	107,960	$	84,112	$	64,977	$	105,794	$	1,170	$	621,872
Commercial real estate:
Current period gross write offs	$	—	$	—	$	—	$	—	$	—	$	231	$	—	$	231
Commercial and industrial
Pass	$	11,082	$	14,037	$	5,019	$	3,261	$	2,870	$	3,571	$	17,530	$	57,370
Special Mention		—		—		—		359		222		1,240		—		1,821
Substandard		—		—		1,282		—		538		21		—		1,841
Total commercial and industrial	$	11,082	$	14,037	$	6,301	$	3,620	$	3,630	$	4,832	$	17,530	$	61,032
Commercial and industrial:
Current period gross write offs	$	—	$	—	$	142	$	—	$	79	$	—	$	—	$	221
Residential real estate
Pass	$	192,955	$	741,169	$	854,366	$	295,145	$	62,583	$	145,687	$	—	$	2,291,905
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		118		1,863		2,173		1,386		7,719		—		13,259
Total residential real estate	$	192,955	$	741,287	$	856,229	$	297,318	$	63,969	$	153,406	$	—	$	2,305,164
Consumer and other
Pass	$	240	$	—	$	—	$	—	$	—	$	—	$	—	$	240
Special Mention		—		—		—		—		—		—		—		—
Substandard		—		—		—		—		—		—		—		—
Total consumer and other	$	240	$	—	$	—	$	—	$	—	$	—	$	—	$	240
Total loans	$	268,701	$	966,114	$	993,073	$	386,244	$	132,843	$	264,272	$	18,700	$	3,029,947

	Construction
(Dollars in thousands)	and		Commercial		Commercial		Residential		Consumer
December 31, 2022	Development		Real Estate		and Industrial		Real Estate		and Other		Total
Rating:
Pass	$	47,567	$	628,165	$	48,848	$	2,292,568	$	216	$	3,017,364
Special Mention		—		3,677		3,897		—		—		7,574
Substandard		—		22,956		366		7,429		—		30,751
Doubtful		—		—		—		—		—		—
Loss		—		—		—		—		—		—
Total	$	47,567	$	654,798	$	53,111	$	2,299,997	$	216	$	3,055,689

Schedule of financial effect of the loan modifications made to borrowers borrowers experiencing financial difficulty

	Interest				Interest				% of Total
(Dollars in thousands)	Term		Payment		Rate				Financing
Three and Nine Months Ended September 30, 2023	Extension		Delay		Reduction		Total		Receivable
Construction and development	$	—	$	—	$	—	$	—	—	%
Commercial real estate		—		—		12,400		12,400	1.99
Commercial and industrial		—		—		—		—	—
Residential real estate		—		—		—		—	—
Consumer and other		—		—		—		—	—
Total	$	—	$	—	$	12,400	$	12,400	0.41	%

	Weighted/Average		Weighted/Average		Weighted/Average
(Dollars in thousands)	Months of		Payment		Interest Rate
Three and Nine Months Ended September 30, 2023	Term Extension		Deferral		Reduction
Construction and development		—	$	—		—	%
Commercial real estate		—		—		3.60
Commercial and industrial		—		—		—
Residential real estate		—		—		—
Consumer and other		—		—		—
Total		—	$	—		3.60	%

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SBA AND USDA LOAN SERVICING (Tables)

9 Months Ended

Sep. 30, 2023

SBA AND USDA LOAN SERVICING

Activity for SBA loan servicing rights

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022
Beginning of period	$	8,018	$	8,062	$	7,038	$	10,091
Change in fair value		(911)		73		69		(1,956)
End of period, fair value	$	7,107	$	8,135	$	7,107	$	8,135

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RESIDENTIAL MORTGAGE LOAN SERVICING (Tables)

9 Months Ended

Sep. 30, 2023

RESIDENTIAL MORTGAGE LOAN SERVICING

Schedule of activity for mortgage loan servicing rights

(Dollars in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Mortgage loan servicing rights:	2023		2022		2023		2022
Beginning of period	$	2,514	$	6,090	$	3,973	$	7,747
Additions		—		—		—		760
Amortization expense		(691)		(1,115)		(2,150)		(3,695)
Valuation allowance		—		—		—		163
End of period, carrying value	$	1,823	$	4,975	$	1,823	$	4,975

Schedule of valuation allowance activity for mortgage loan servicing rights

(Dollars in thousands)	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
Valuation allowance:	2023		2022		2023		2022
Beginning balance	$	—	$	—	$	—	$	163
Additions expensed		—		—		—		—
Reductions credited to operations		—		—		—		(163)
Direct write-downs		—		—		—		—
Ending balance	$	—	$	—	$	—	$	—

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FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS (Tables)

9 Months Ended

Sep. 30, 2023

FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS

Schedule of advances from the Federal Home Loan Bank

(Dollars in thousands)	September 30, 2023		December 31, 2022
Convertible advance maturing February 13, 2026; fixed rate of 4.184%	$	50,000	$	—
Convertible advance maturing May 7, 2027; fixed rate of 3.025%		50,000		—
Convertible advance maturing October 26, 2027; fixed rate of 3.530%		25,000		25,000
Convertible advance maturing January 25, 2028; fixed rate of 3.243%		50,000		—
Convertible advance maturing February 14, 2028; fixed rate of 3.625%		25,000		—
Convertible advance maturing May 8, 2028; fixed rate of 2.860%		50,000		—
Convertible advance maturing June 23, 2028; fixed rate of 3.655%		50,000		—
Convertible advance maturing June 16, 2032; fixed rate of 1.905%		—		50,000
Convertible advance maturing June 23, 2032; fixed rate of 1.950%		—		100,000
Convertible advance maturing August 6, 2032; fixed rate of 1.892%		—		100,000
Convertible advance maturing October 26, 2032; fixed rate of 3.025%		25,000		25,000
Convertible advance maturing May 12, 2037; fixed rate of 1.135%		—		75,000
Total FHLB advances	$	325,000	$	375,000

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OPERATING LEASES (Tables)

9 Months Ended

Sep. 30, 2023

OPERATING LEASES

Schedule of components of lease cost

	Three Months Ended September 30,				Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		2023		2022
Operating lease cost	$	532	$	480	$	1,441	$	1,496
Variable lease cost		42		43		130		130
Short-term lease cost		—		—		—		—
Sublease income		—		—		—		—
Total net lease cost	$	574	$	523	$	1,571	$	1,626

Schedule of Future maturities of the Company's operating lease liabilities

(Dollars in thousands)
Twelve Months Ended:	Lease Liability
September 30, 2024	$	1,918
September 30, 2025		1,737
September 30, 2026		1,478
September 30, 2027		1,228
September 30, 2028		906
After September 30, 2028		905
Total lease payments		8,172
Less: interest discount		(635)
Present value of lease liabilities	$	7,537

Schedule of Supplemental Lease Information

Supplemental Lease Information	September 30, 2023
Weighted-average remaining lease term (years)	5.4
Weighted-average discount rate	3.19	%

	Nine Months Ended September 30,
(Dollars in thousands)	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (cash payments)	$	1,538	$	1,420
Operating cash flows from operating leases (lease liability reduction)	$	1,345	$	1,219
Operating lease right-of-use assets obtained in exchange for leases entered into during the period	$	—	$	1,273

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INTEREST RATE DERIVATIVES (Tables)

9 Months Ended

Sep. 30, 2023

INTEREST RATE DERIVATIVES

Summary information for the interest rate swaps designated as cash flow hedges

Summary information for the interest rate swaps designated as cash flow hedges is as follows:

	As of or for the		As of or for the
	Nine Months Ended		Year Ended
(Dollars in thousands)	September 30, 2023		December 31, 2022
Notional Amounts	$	800,000	$	800,000
Weighted-average pay rate		2.28%		2.28%
Weighted-average receive rate		4.93%		1.68%
Weighted-average maturity		4.2 years		4.2 years
Weighted-average remaining maturity		2.6 years		3.4 years
Net interest income (expense)	$	2,384	$	(163)

Summary information for the interest rate caps designated as cash flow hedges is as follows:

	As of or for the		As of or for the
	Nine Months Ended		Year Ended
(Dollars in thousands)	September 30, 2023		December 31, 2022
Notional Amounts	$	50,000	$	50,000
Rate Cap Premiums		381		474
Cap Rate		2.50%		2.50%
Weighted-average maturity		5.0 years		5.0 years
Weighted-average remaining maturity		3.1 years		3.8 years
Net interest expense	$	(93)	$	(124)

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LOAN COMMITMENTS AND RELATED FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2023

LOAN COMMITMENTS AND RELATED FINANCIAL INSTRUMENTS

Schedule of financial instruments whose contract amounts represent credit risk

	September 30,		December 31,
(Dollars in thousands)	2023		2022
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	75,142	$	62,334
Standby letters of credit	$	7,028	$	6,303

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FAIR VALUE (Tables)

9 Months Ended

Sep. 30, 2023

FAIR VALUE

Schedule of fair values of assets and liabilities measured on recurring and non-recurring basis

	September 30, 2023
									Total Gains
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		(Losses)
Assets
Recurring fair value measurements:
Securities available for sale:
Obligations of U.S. Government entities and agencies	$	4,678	$	—	$	—	$	4,678
States and political subdivisions		6,063		—		6,063		—
Mortgage-backed GSE residential		6,923		—		6,923		—
Total securities available for sale		17,664		—		12,986		4,678
Equity securities		10,113		10,113		—		—
SBA servicing asset		7,107		—		—		7,107
Interest rate derivatives		46,502		—		46,502		—
	$	81,386	$	10,113	$	59,488	$	11,785
Nonrecurring fair value measurements:
Collateral-dependent loans	$	2,456	$	—	$	—	$	2,456	$	(137)

	December 31, 2022
									Total Gains
(Dollars in thousands)	Total		Level 1		Level 2		Level 3		(Losses)
Assets
Recurring fair value measurements:
Securities available for sale:
Obligations of U.S. Government entities and agencies	$	5,059	$	—	$	—	$	5,059
States and political subdivisions		6,403		—		6,403		—
Mortgage-backed GSE residential		7,783		—		7,783		—
Total securities available for sale		19,245		—		14,186		5,059
Equity securities		10,300		10,300		—		—
SBA servicing asset		7,038		—		—		7,038
Interest only strip		47		—		—		47
Interest rate derivatives		28,781		—		28,781		—
	$	65,411	$	10,300	$	42,967	$	12,144
Nonrecurring fair value measurements:
Impaired loans	$	1,045	$	—	$	—	$	1,045	$	229
Liabilities
Recurring fair value measurements:
Interest rate swaps	$	779	$	—	$	779	$	—

Schedule of reconciliation of fair values of assets and liabilities measured on recurring basis using unobservable inputs

	Obligations of		SBA
(Dollars in thousands)	U.S. Government		Servicing		Interest Only
Three Months Ended:	Entities and Agencies		Asset		Strip		Liabilities
Fair value, July 1, 2023	$	4,790	$	8,018	$	—	$	—
Total losses included in income		—		(911)		—		—
Settlements		—		—		—		—
Prepayments/paydowns		(112)		—		—		—
Transfers in and/or out of level 3		—		—		—		—
Fair value, September 30, 2023	$	4,678	$	7,107	$	—	$	—
Fair value, July 1, 2022	$	5,900	$	8,062	$	154	$	—
Total gains included in income		—		73		35		—
Settlements		—		—		—		—
Prepayments/paydowns		(215)		—		—		—
Transfers in and/or out of level 3		—		—		—		—
Fair value, September 30, 2022	$	5,685	$	8,135	$	189	$	—
Nine Months Ended:
Fair value, January 1, 2023	$	5,059	$	7,038	$	47	$	—
Total gains/(losses) included in income		—		69		(47)		—
Settlements		—		—		—		—
Prepayments/paydowns		(381)		—		—		—
Transfers in and/or out of level 3		—		—		—		—
Fair value, September 30, 2023	$	4,678	$	7,107	$	—	$	—
Fair value, January 1, 2022	$	6,949	$	10,091	$	143	$	—
Total (losses)/gains included in income		—		(1,956)		46		—
Settlements		—		—		—		—
Prepayments/paydowns		(1,264)		—		—		—
Transfers in and/or out of level 3		—		—		—		—
Fair value, September 30, 2022	$	5,685	$	8,135	$	189	$	—

Schedule of quantitative information about recurring Level 3 fair value measures

	Valuation	Unobservable	General
	Technique	Input	Range
September 30, 2023:
Recurring:
Obligations of U.S. Government entities and agencies	Discounted cash flows	Discount rate	3%-5%
SBA servicing asset and interest only strip	Discounted cash flows	Prepayment speed	13.36%-19.29%
		Discount rate	8.65%-17.65%
Nonrecurring:
Collateral-dependent loans	Appraised value less estimated selling costs	Estimated selling costs	6%
December 31, 2022:
Recurring:
Obligations of U.S. Government entities and agencies	Discounted cash flows	Discount rate	3%-5%
SBA servicing asset and interest only strip	Discounted cash flows	Prepayment speed	13.12%-17.60%
		Discount rate	8.21%-19.30%
Nonrecurring:
Impaired Loans	Appraised value less estimated selling costs	Estimated selling costs	6%

Schedule of carrying amounts and estimated fair values of Company's financial instruments

	Carrying			Estimated Fair Value at September 30, 2023
(Dollars in thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash, due from banks, and federal funds sold	$	282,057	$	—	$	282,057	$	—	$	282,057
Investment securities		27,777		10,113		12,986		4,678		27,777
FHLB stock		17,846		—		—		—		N/A
Loans, net		3,012,287		—		—		2,862,576		2,862,576
Accrued interest receivable		14,612		—		61		14,551		14,612
SBA servicing assets		7,107		—		—		7,107		7,107
Mortgage servicing assets		1,823		—		—		7,020		7,020
Interest rate derivatives		46,502		—		46,502		—		46,502
Financial Liabilities:
Deposits		2,718,588		—		2,713,695		—		2,713,695
Federal Home Loan Bank advances		325,000		—		326,268		—		326,268
Accrued interest payable		3,915		—		3,915		—		3,915

	Carrying		Estimated Fair Value at December 31, 2022
(Dollars in thousands)	Amount		Level 1		Level 2		Level 3		Total
Financial Assets:
Cash, due from banks, and federal funds sold	$	179,485	$	—	$	179,485	$	—	$	179,485
Investment securities		29,545		10,300		14,186		5,059		29,545
FHLB stock		17,493		—		—		—		N/A
Loans, net		3,041,801		—		—		2,999,520		2,999,520
Accrued interest receivable		13,171		—		98		13,073		13,171
SBA servicing asset		7,038		—		—		7,038		7,038
Interest only strips		47		—		—		47		47
Mortgage servicing assets		3,973		—		—		7,209		7,209
Interest rate derivatives		28,781		—		28,781		—		28,781
Financial Liabilities:
Deposits		2,666,838		—		2,658,837		—		2,658,837
Federal Home Loan Bank advances		375,000		—		376,575		—		376,575
Other borrowings		392		—		392		—		392
Accrued interest payable		2,739		—		2,739		—		2,739
Interest rate derivatives		779		—		779		—		779

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REGULATORY MATTERS (Tables)

9 Months Ended

Sep. 30, 2023

REGULATORY MATTERS

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations

The Company’s actual capital amounts (in thousands) and ratios are also presented in the following table:

								To Be Well Capitalized
					Minimum Capital Required -			Under Prompt Corrective
	Actual				Basel III			Action Provisions:
(Dollars in thousands)	Amount		Ratio		Amount ≥	Ratio ≥		Amount ≥	Ratio ≥
As of September 30, 2023:
Total Capital (to Risk Weighted Assets)
Consolidated	$	365,268	17.91	%	214,160	10.5	%	N/A	N/A
Bank		362,477	17.77	%	214,153	10.5		203,955	10.0	%
Tier I Capital (to Risk Weighted Assets)
Consolidated		347,314	17.03	%	173,368	8.5	%	N/A	N/A
Bank		344,523	16.89	%	173,362	8.5		163,164	8.0	%
Common Tier 1 (CET1)
Consolidated		347,314	17.03	%	142,773	7.0	%	N/A	N/A
Bank		344,523	16.89	%	142,769	7.0		132,571	6.5	%
Tier 1 Capital (to Average Assets)
Consolidated		347,314	10.07	%	137,909	4.0	%	N/A	N/A
Bank		344,523	9.99	%	137,901	4.0		172,376	5.0	%
As of December 31, 2022:
Total Capital (to Risk Weighted Assets)
Consolidated	$	338,185	16.68	%	212,932	10.5	%	N/A	N/A
Bank		336,866	16.61	%	212,915	10.5		202,777	10.0	%
Tier I Capital (to Risk Weighted Assets)
Consolidated		324,297	15.99	%	172,374	8.5	%	N/A	N/A
Bank		322,978	15.93	%	172,360	8.5		162,221	8.0	%
Common Tier 1 (CET1)
Consolidated		324,297	15.99	%	141,955	7.0	%	N/A	N/A
Bank		322,978	15.93	%	141,944	7.0		131,805	6.5	%
Tier 1 Capital (to Average Assets)
Consolidated		324,297	9.57	%	135,485	4.0	%	N/A	N/A
Bank		322,978	9.54	%	135,446	4.0		169,307	5.0	%

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STOCK BASED COMPENSATION (Tables)

9 Months Ended

Sep. 30, 2023

STOCK BASED COMPENSATION

Summary of stock option activity

		Weighted
		Average
	Shares	Exercise Price
Outstanding at January 1, 2023	240,000	$	12.70
Granted	—		—
Exercised	—		—
Forfeited	—		—
Outstanding at September 30, 2023	240,000	$	12.70

Summary of restricted stock activity

		Weighted-
		Average Grant-
Nonvested Shares	Shares	Date Fair Value
Nonvested at January 1, 2023	177,399	$	17.95
Granted	188,993		16.43
Vested	(136,171)		16.25
Forfeited	—		—
Nonvested at September 30, 2023	230,221	$	17.71

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EARNINGS PER SHARE (Tables)

9 Months Ended

Sep. 30, 2023

EARNINGS PER SHARE

Schedule of earnings per share computation

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(Dollars in thousands, except per share data)	2023		2022		2023		2022
Basic earnings per share
Net Income	$	11,428	$	16,893	$	40,266	$	52,422
Weighted average common shares outstanding		25,274,665		25,433,307		25,203,114		25,452,398
Basic earnings per common share	$	0.45	$	0.66	$	1.60	$	2.06
Diluted earnings per share
Net Income	$	11,428	$	16,893	$	40,266	$	52,422
Weighted average common shares outstanding for basic earnings per common share		25,274,665		25,433,307		25,203,114		25,452,398
Add: Dilutive effects of restricted stock and options		317,209		268,716		307,574		279,606
Average shares and dilutive potential common shares		25,591,874		25,702,023		25,510,688		25,732,004
Diluted earnings per common share	$	0.45	$	0.66	$	1.58	$	2.04

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Basis of presentation (Details)	9 Months Ended
	Sep. 30, 2023 segment
Number of operating segments	1
Metro City Bank - Subsidiaries Member
Percentage of holding in subsidiary	100.00%

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Accounting Standards Adopted in 2023 (Details) - USD ($)	Sep. 30, 2023	Jun. 30, 2023	Jan. 01, 2023	Dec. 31, 2022	Sep. 30, 2022	Jun. 30, 2022	Dec. 31, 2021
New Accounting Pronouncements or Change in Accounting Principle
Allowance for credit losses	$ 17,660,000	$ 18,091,000		$ 13,888,000	$ 14,982,000	$ 16,678,000	$ 16,952,000
Decrease in retained earnings	308,589,000			285,832,000
Accrued interest receivable for AFS securities	$ 78,000			$ 114,000
Debt Securities, Available-for-Sale, Accrued Interest, after Allowance for Credit Loss, Statement of Financial Position [Extensible Enumeration]	Interest Receivable			Interest Receivable
Other Liabilities.
New Accounting Pronouncements or Change in Accounting Principle
Allowance for unfunded commitments	$ 294,000
Adjustment | 2016-13
New Accounting Pronouncements or Change in Accounting Principle
Allowance for credit losses			$ 5,100,000	$ 5,055,000
Allowance for unfunded commitments			239,000
Decrease in retained earnings			(3,800,000)
Increase in deferred tax assets			$ 1,500,000

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INVESTMENT SECURITIES - Amortized cost, gross unrealized gains and losses (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Debt Securities Available-for-sale
Gross Amortized Cost	$ 21,726	$ 22,720
Gross Unrealized Losses	(4,062)	(3,475)
Total securities available for sale	17,664	19,245
Obligations of U.S. Government entities and agencies.
Debt Securities Available-for-sale
Gross Amortized Cost	4,678	5,059
Total securities available for sale	4,678	5,059
States and political subdivisions
Debt Securities Available-for-sale
Gross Amortized Cost	8,085	8,121
Gross Unrealized Losses	(2,022)	(1,718)
Total securities available for sale	6,063	6,403
Mortgage-backed GSE residential
Debt Securities Available-for-sale
Gross Amortized Cost	8,963	9,540
Gross Unrealized Losses	(2,040)	(1,757)
Total securities available for sale	$ 6,923	$ 7,783

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INVESTMENT SECURITIES - Expected maturities (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Amortized Cost
Due after one year but less than five years	$ 5,919
Due in more than ten years	6,844
Mortgage-backed GSE residential	8,963
Total	21,726
Estimated Fair Value
Due after one year but less than five years	5,860
Due in more than ten years	4,881
Mortgage-backed GSE residential	6,923
Total	$ 17,664	$ 19,245

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INVESTMENT SECURITIES - Aggregated by investment category and lengths of time (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2023 USD ($) security	Sep. 30, 2022 USD ($) security	Sep. 30, 2023 USD ($) security	Sep. 30, 2022 USD ($) security	Dec. 31, 2022 USD ($) security
Debt Securities Available-for-sale, Unrealized Loss Position
Twelve Months or Less - Gross Unrealized Losses					$ 804,000
Twelve Months or Less - Estimated Fair Value					4,097,000
Over Twelve Months - Gross Unrealized Losses	$ 4,062,000		$ 4,062,000		2,671,000
Over Twelve Months - Estimated Fair Value	12,986,000		12,986,000		$ 10,089,000
Fair value of securities pledged	$ 13,000,000.0		$ 13,000,000.0
Number of securities pledged | security					0
Number of securities sold | security	0	0	0	0
Number of securities with unrealized losses | security	20		20
Rate of depreciation			23.82%
Number of securities with unrealized losses great than 12 months | security	20		20
Equity securities	$ 10,113,000		$ 10,113,000		$ 10,300,000
Equity securities unrealized gain (loss)	(245,000)	$ (327,000)	187,000	$ (934,000)
Accrued interest receivable for securities available for sale	78,000		78,000		114,000
States and political subdivisions
Debt Securities Available-for-sale, Unrealized Loss Position
Twelve Months or Less - Gross Unrealized Losses					756,000
Twelve Months or Less - Estimated Fair Value					3,556,000
Over Twelve Months - Gross Unrealized Losses	2,022,000		2,022,000		962,000
Over Twelve Months - Estimated Fair Value	$ 6,063,000		$ 6,063,000		2,847,000
Number of securities with unrealized losses | security	11		11
Mortgage-backed GSE residential
Debt Securities Available-for-sale, Unrealized Loss Position
Twelve Months or Less - Gross Unrealized Losses					48,000
Twelve Months or Less - Estimated Fair Value					541,000
Over Twelve Months - Gross Unrealized Losses	$ 2,040,000		$ 2,040,000		1,709,000
Over Twelve Months - Estimated Fair Value	$ 6,923,000		$ 6,923,000		$ 7,242,000
Number of securities with unrealized losses | security	9		9

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Major classifications of loans (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Jun. 30, 2023	Dec. 31, 2022	Sep. 30, 2022	Jun. 30, 2022	Dec. 31, 2021
Loans and allowance for loan losses
Total loans receivable	$ 3,038,458		$ 3,065,329
Unearned income	(8,511)		(9,640)
Allowance for loan losses	(17,660)	$ (18,091)	(13,888)	$ (14,982)	$ (16,678)	$ (16,952)
Loans, net	3,012,287		3,041,801
Accrued interest receivable for loans	$ 14,500		$ 13,100
Accounts Receivable, Noncurrent, Accrued Interest, after Allowance for Credit Loss, Statement of Financial Position [Extensible Enumeration]	Interest Receivable		Interest Receivable
Construction and development
Loans and allowance for loan losses
Total loans receivable	$ 41,783		$ 47,779
Allowance for loan losses	(27)	(30)	(124)	(164)	(140)	(100)
Commercial real estate
Loans and allowance for loan losses
Total loans receivable	624,122		657,246
Allowance for loan losses	(6,196)	(6,208)	(2,811)	(3,030)	(3,539)	(4,146)
Commercial and industrial
Loans and allowance for loan losses
Total loans receivable	61,332		53,173
Allowance for loan losses	(634)	(653)	(1,326)	(2,255)	(4,219)	(4,989)
Residential real estate
Loans and allowance for loan losses
Total loans receivable	2,310,981		2,306,915
Allowance for loan losses	(10,799)	(11,199)	(9,626)	(9,523)	(8,678)	$ (7,717)
Consumer and Other
Loans and allowance for loan losses
Total loans receivable	240		216
Allowance for loan losses	$ (4)	$ (1)	$ (1)	$ (10)	$ (6)

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Allowance for credit losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Allowance for credit losses:
Beginning	$ 18,091	$ 16,678	$ 13,888	$ 16,952
Charge-offs			(452)	(390)
Recoveries	4	7	22	19
Provision expense	(435)	(1,703)	(853)	(1,599)
Ending balance	17,660	14,982	17,660	14,982
Construction and development
Allowance for credit losses:
Beginning	30	140	124	100
Provision expense	(3)	24	(18)	64
Ending balance	27	164	27	164
Commercial real estate
Allowance for credit losses:
Beginning	6,208	3,539	2,811	4,146
Charge-offs			(231)
Recoveries	1	1	4	5
Provision expense	(13)	(510)	337	(1,121)
Ending balance	6,196	3,030	6,196	3,030
Commercial and industrial
Allowance for credit losses:
Beginning	653	4,219	1,326	4,989
Charge-offs			(221)	(390)
Recoveries	3	6	18	9
Provision expense	(22)	(1,970)	(182)	(2,353)
Ending balance	634	2,255	634	2,255
Residential real estate
Allowance for credit losses:
Beginning	11,199	8,678	9,626	7,717
Provision expense	(400)	845	(993)	1,806
Ending balance	10,799	9,523	10,799	9,523
Consumer and Other
Allowance for credit losses:
Beginning	1	6	1
Recoveries				5
Provision expense	3	4	3	5
Ending balance	$ 4	10	4	$ 10
Unallocated
Allowance for credit losses:
Beginning		96
Provision expense		$ (96)
2016-13 | Adjustment
Allowance for credit losses:
Beginning			5,055
2016-13 | Adjustment | Construction and development
Allowance for credit losses:
Beginning			(79)
2016-13 | Adjustment | Commercial real estate
Allowance for credit losses:
Beginning			3,275
2016-13 | Adjustment | Commercial and industrial
Allowance for credit losses:
Beginning			(307)
2016-13 | Adjustment | Residential real estate
Allowance for credit losses:
Beginning			$ 2,166

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Allowance for credit losses disaggregated (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Jun. 30, 2023	Dec. 31, 2022	Sep. 30, 2022	Jun. 30, 2022	Dec. 31, 2021
Allowance for credit losses:
Individually evaluated for impairment			$ 714
Collectively evaluated for impairment			13,174
Total ending allowance balance	$ 17,660	$ 18,091	13,888	$ 14,982	$ 16,678	$ 16,952
Loans:
Individually evaluated for impairment			29,926
Collectively evaluated for impairment			3,025,763
Total ending loans balance			3,055,689
Total ending loans balance	3,029,947		3,055,689
Construction and development
Allowance for credit losses:
Collectively evaluated for impairment			124
Total ending allowance balance	27	30	124	164	140	100
Loans:
Collectively evaluated for impairment			47,567
Total ending loans balance			47,567
Total ending loans balance	41,639		47,567
Commercial real estate
Allowance for credit losses:
Individually evaluated for impairment			249
Collectively evaluated for impairment			2,562
Total ending allowance balance	6,196	6,208	2,811	3,030	3,539	4,146
Loans:
Individually evaluated for impairment			23,767
Collectively evaluated for impairment			631,031
Total ending loans balance			654,798
Total ending loans balance	621,872		654,798
Commercial and industrial
Allowance for credit losses:
Individually evaluated for impairment			465
Collectively evaluated for impairment			861
Total ending allowance balance	634	653	1,326	2,255	4,219	4,989
Loans:
Individually evaluated for impairment			1,122
Collectively evaluated for impairment			51,989
Total ending loans balance			53,111
Total ending loans balance	61,032		53,111
Residential real estate
Allowance for credit losses:
Collectively evaluated for impairment			9,626
Total ending allowance balance	10,799	11,199	9,626	9,523	8,678	$ 7,717
Loans:
Individually evaluated for impairment			5,037
Collectively evaluated for impairment			2,294,960
Total ending loans balance			2,299,997
Total ending loans balance	2,305,164		2,299,997
Consumer and Other
Allowance for credit losses:
Collectively evaluated for impairment			1
Total ending allowance balance	4	$ 1	1	$ 10	6
Loans:
Collectively evaluated for impairment			216
Total ending loans balance			216
Total ending loans balance	$ 240		$ 216
Unallocated
Allowance for credit losses:
Total ending allowance balance					$ 96

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Impaired loans (Details) - USD ($)	12 Months Ended
	Dec. 31, 2022	Sep. 30, 2023
Loans impaired
Unpaid Total Principal Balance	$ 29,926,000
Recorded Investment With No Allowance	28,313,000
Recorded Investment With Allowance	2,412,000
Total Recorded Investment	30,725,000
Related Allowance	714,000
Construction and development
Loans impaired
Unpaid total principal balance of collateral dependent loans		$ 95,000
Commercial real estate
Loans impaired
Unpaid Total Principal Balance	23,767,000
Recorded Investment With No Allowance	23,121,000
Recorded Investment With Allowance	1,415,000
Total Recorded Investment	24,536,000
Related Allowance	249,000
Unpaid total principal balance of collateral dependent loans		3,200,000
Commercial and industrial
Loans impaired
Unpaid Total Principal Balance	1,122,000
Recorded Investment With No Allowance	155,000
Recorded Investment With Allowance	997,000
Total Recorded Investment	1,152,000
Related Allowance	465,000
Residential real estate
Loans impaired
Unpaid Total Principal Balance	5,037,000
Recorded Investment With No Allowance	5,037,000
Total Recorded Investment	$ 5,037,000
Unpaid total principal balance of collateral dependent loans		11,600,000
Collateral-dependent loans
Loans impaired
Related Allowance		$ 544,000

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Past due and nonaccrual loans by portfolio segment (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Loans past due
Non-accrual	$ 15,127	$ 10,065
Total Financing Receivables		3,055,689
Total Financing Receivables	3,029,947	3,055,689
Current
Loans past due
Loans	3,009,934	3,031,909
Past Due
Loans past due
Loans	4,886	13,715
30-59 Days
Loans past due
Loans	3,992	9,236
60-89 Days
Loans past due
Loans	894	4,299
Accruing Greater than 90 Days
Loans past due
Loans		180
Construction and development
Loans past due
Total Financing Receivables		47,567
Total Financing Receivables	41,639	47,567
Construction and development | Current
Loans past due
Loans	41,091	47,567
Construction and development | Past Due
Loans past due
Loans	548
Construction and development | 60-89 Days
Loans past due
Loans	548
Commercial real estate
Loans past due
Non-accrual	1,944	4,892
Total Financing Receivables		654,798
Total Financing Receivables	621,872	654,798
Commercial real estate | Current
Loans past due
Loans	619,582	649,552
Commercial real estate | Past Due
Loans past due
Loans	346	354
Commercial real estate | 30-59 Days
Loans past due
Loans		354
Commercial real estate | 60-89 Days
Loans past due
Loans	346
Commercial and industrial
Loans past due
Non-accrual	1,612	136
Total Financing Receivables		53,111
Total Financing Receivables	61,032	53,111
Commercial and industrial | Current
Loans past due
Loans	59,420	52,485
Commercial and industrial | Past Due
Loans past due
Loans		490
Commercial and industrial | 60-89 Days
Loans past due
Loans		310
Commercial and industrial | Accruing Greater than 90 Days
Loans past due
Loans		180
Residential real estate
Loans past due
Non-accrual	11,571	5,037
Total Financing Receivables		2,299,997
Total Financing Receivables	2,305,164	2,299,997
Residential real estate | Current
Loans past due
Loans	2,289,601	2,282,089
Residential real estate | Past Due
Loans past due
Loans	3,992	12,871
Residential real estate | 30-59 Days
Loans past due
Loans	3,992	8,882
Residential real estate | 60-89 Days
Loans past due
Loans		3,989
Consumer and Other
Loans past due
Total Financing Receivables		216
Total Financing Receivables	240	216
Consumer and Other | Current
Loans past due
Loans	$ 240	$ 216

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Analysis of nonaccrual loans (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual Loans With a Related ACL	$ 1,253
Nonaccrual Loans Without a Related ACL	13,874
Total Nonaccrual Loans	15,127	$ 10,065
Commercial real estate
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual Loans With a Related ACL	1,163
Nonaccrual Loans Without a Related ACL	781
Total Nonaccrual Loans	1,944	4,892
Commercial and industrial
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual Loans With a Related ACL	90
Nonaccrual Loans Without a Related ACL	1,522
Total Nonaccrual Loans	1,612	136
Residential real estate
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual Loans Without a Related ACL	11,571
Total Nonaccrual Loans	$ 11,571	$ 5,037

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Risk ratings (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
Term Loan by Origination Year
2023	$ 268,701
2022	966,114
2021	993,073
2020	386,244
2019	132,843
Prior	264,272
Revolving Loans	18,700
Total Financing Receivables			$ 3,055,689
Total Financing Receivables	3,029,947		3,055,689
Gross write-offs	452	$ 390
Pass
Term Loan by Origination Year
Total Financing Receivables			3,017,364
Special Mention
Term Loan by Origination Year
Total Financing Receivables			7,574
Substandard
Term Loan by Origination Year
Total Financing Receivables			30,751
Doubtful
Term Loan by Origination Year
Total Financing Receivables	0
Loss
Term Loan by Origination Year
Total Financing Receivables	0
Construction and development
Term Loan by Origination Year
2023	4,674
2022	12,681
2021	22,583
2020	1,194
2019	267
Prior	240
Total Financing Receivables			47,567
Total Financing Receivables	41,639		47,567
Construction and development | Pass
Term Loan by Origination Year
2023	4,674
2022	12,681
2021	22,035
2020	1,194
2019	267
Prior	240
Total Financing Receivables	41,091		47,567
Construction and development | Special Mention
Term Loan by Origination Year
2021	548
Total Financing Receivables	548
Commercial real estate
Term Loan by Origination Year
2023	59,750
2022	198,109
2021	107,960
2020	84,112
2019	64,977
Prior	105,794
Revolving Loans	1,170
Total Financing Receivables			654,798
Total Financing Receivables	621,872		654,798
Gross write-offs	231
Commercial real estate | Pass
Term Loan by Origination Year
2023	59,750
2022	197,514
2021	107,960
2020	81,012
2019	54,341
Prior	104,130
Revolving Loans	1,170
Total Financing Receivables	605,877		628,165
Commercial real estate | Special Mention
Term Loan by Origination Year
2020	1,937
Total Financing Receivables	1,937		3,677
Commercial real estate | Substandard
Term Loan by Origination Year
2022	595
2020	1,163
2019	10,636
Prior	1,664
Total Financing Receivables	14,058		22,956
Commercial real estate | Write-offs
Term Loan by Origination Year
Prior	231
Total Financing Receivables	231
Commercial and industrial
Term Loan by Origination Year
2023	11,082
2022	14,037
2021	6,301
2020	3,620
2019	3,630
Prior	4,832
Revolving Loans	17,530
Total Financing Receivables			53,111
Total Financing Receivables	61,032		53,111
Gross write-offs	221	$ 390
Commercial and industrial | Pass
Term Loan by Origination Year
2023	11,082
2022	14,037
2021	5,019
2020	3,261
2019	2,870
Prior	3,571
Revolving Loans	17,530
Total Financing Receivables	57,370		48,848
Commercial and industrial | Special Mention
Term Loan by Origination Year
2020	359
2019	222
Prior	1,240
Total Financing Receivables	1,821		3,897
Commercial and industrial | Substandard
Term Loan by Origination Year
2021	1,282
2019	538
Prior	21
Total Financing Receivables	1,841		366
Commercial and industrial | Write-offs
Term Loan by Origination Year
2021	142
2019	79
Total Financing Receivables	221
Residential real estate
Term Loan by Origination Year
2023	192,955
2022	741,287
2021	856,229
2020	297,318
2019	63,969
Prior	153,406
Total Financing Receivables			2,299,997
Total Financing Receivables	2,305,164		2,299,997
Residential real estate | Pass
Term Loan by Origination Year
2023	192,955
2022	741,169
2021	854,366
2020	295,145
2019	62,583
Prior	145,687
Total Financing Receivables	2,291,905		2,292,568
Residential real estate | Substandard
Term Loan by Origination Year
2022	118
2021	1,863
2020	2,173
2019	1,386
Prior	7,719
Total Financing Receivables	13,259		7,429
Consumer and Other
Term Loan by Origination Year
2023	240
Total Financing Receivables			216
Total Financing Receivables	240		216
Consumer and Other | Pass
Term Loan by Origination Year
2023	240
Total Financing Receivables	$ 240		$ 216

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Troubled Debt Restructures (Details)	3 Months Ended	9 Months Ended
	Sep. 30, 2023 USD ($) item	Sep. 30, 2023 USD ($) item
Loans past due
Charge offs | $	$ 0	$ 0
Number of loans modified | item	0	0
Construction and development
Loans past due
Number of loans modified | item	1	1
Total recorded investment | $	$ 11,600,000	$ 11,600,000

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Amortized cost basis of loan modifications made to borrowers experiencing financial difficulty (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2023 USD ($)
Loans troubled debt restructuring
Loan modifications past due	$ 0
Loan modifications on nonaccrual status	0
Amortized cost basis	$ 12,400
% of Total Financing Receivable	0.41%
Interest Rate Reduction
Loans troubled debt restructuring
Amortized cost basis	$ 12,400
Commercial real estate
Loans troubled debt restructuring
Amortized cost basis	$ 12,400
% of Total Financing Receivable	1.99%
Commercial real estate | Interest Rate Reduction
Loans troubled debt restructuring
Amortized cost basis	$ 12,400

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LOANS AND ALLOWANCE FOR CREDIT LOSSES - Financial effect of loan modifications made to borrowers experiencing financial difficulty (Details)	9 Months Ended
	Sep. 30, 2023
Loans troubled debt restructuring
Weighted/Average Interest Rate Reduction	3.60%
Commercial real estate
Loans troubled debt restructuring
Weighted/Average Interest Rate Reduction	3.60%

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SBA AND USDA LOAN SERVICING - Other information (Details)	Sep. 30, 2023 USD ($)	Dec. 31, 2022 USD ($)
SBA And USDA Loan
SBA AND USDA LOAN SERVICING
Unpaid principal balances of serviced loans	$ 487,800,000	$ 465,100,000
Aggregate fair market value of the interest only strips included in SBA servicing assets	$ 0	$ 47,000
Discount Rate
SBA AND USDA LOAN SERVICING
Measurement input of servicing rights	12.55	12.56
Prepayment speed
SBA AND USDA LOAN SERVICING
Measurement input of servicing rights	16.59	18.63
Minimum | Discount Rate | SBA And USDA Loan
SBA AND USDA LOAN SERVICING
Measurement input of servicing rights	8.65	8.21
Minimum | Prepayment speed | SBA And USDA Loan
SBA AND USDA LOAN SERVICING
Measurement input of servicing rights	13.36	13.12
Maximum | Discount Rate | SBA And USDA Loan
SBA AND USDA LOAN SERVICING
Measurement input of servicing rights	17.65	19.30
Maximum | Prepayment speed | SBA And USDA Loan
SBA AND USDA LOAN SERVICING
Measurement input of servicing rights	19.29	17.60

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SBA AND USDA LOAN SERVICING - Activity for SBA loan servicing rights (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Servicing Asset at Fair Value Roll Forward
Beginning of period			$ 7,200
End of period, fair value	$ 7,000		7,000
SBA And USDA Loan
Servicing Asset at Fair Value Roll Forward
Beginning of period	8,018	$ 8,062	7,038	$ 10,091
Change in fair value	(911)	73	69	(1,956)
End of period, fair value	$ 7,107	$ 8,135	$ 7,107	$ 8,135

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RESIDENTIAL MORTGAGE LOAN SERVICING - Activity for mortgage loan servicing rights (Details) - Residential Mortgage - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Servicing Asset at Amortized Cost Roll Forward
Beginning of period	$ 2,514	$ 6,090	$ 3,973	$ 7,747
Additions				760
Amortization expense	(691)	(1,115)	(2,150)	(3,695)
Valuation allowance				163
End of period, carrying value	$ 1,823	$ 4,975	$ 1,823	4,975
Servicing Assets Valuation Allowance Roll Forward
Beginning balance, valuation allowance				163
Reductions credited to operations				$ (163)

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RESIDENTIAL MORTGAGE LOAN SERVICING - Other information (Details) $ in Thousands	Sep. 30, 2023 USD ($)	Dec. 31, 2022 USD ($)
SBA AND USDA LOAN SERVICING
Fair value of servicing rights	$ 7,000	$ 7,200
Outstanding principal	$ 3,012,287	$ 3,041,801
Discount Rate
SBA AND USDA LOAN SERVICING
Measurement input of servicing rights	12.55	12.56
Prepayment speed
SBA AND USDA LOAN SERVICING
Measurement input of servicing rights	16.59	18.63
Default rate
SBA AND USDA LOAN SERVICING
Measurement input of servicing rights	1.31	1.29
Default rate | Weighted average
SBA AND USDA LOAN SERVICING
Measurement input of servicing rights	1.31
Residential Mortgage
SBA AND USDA LOAN SERVICING
Outstanding principal	$ 464,800	$ 526,700

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FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS - Tabular (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
FHLB advances	$ 325,000	$ 375,000
Convertible advance maturing February 13, 2026; fixed rate of 4.184%
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
FHLB advances	$ 50,000
Interest Rate	4.184%
Convertible advance maturing May 7, 2027; fixed rate of 3.025%
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
FHLB advances	$ 50,000
Interest Rate	3.025%
Convertible advance maturing October 26, 2027; fixed rate of 3.530%
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
FHLB advances	$ 25,000	25,000
Interest Rate	3.53%
Convertible advance maturing January 25, 2028; fixed rate of 3.243%
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
FHLB advances	$ 50,000
Interest Rate	3.243%
Convertible advance maturing February 14, 2028; fixed rate of 3.625%
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
FHLB advances	$ 25,000
Interest Rate	3.625%
Convertible advance maturing May 8, 2028; fixed rate of 2.860%
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
FHLB advances	$ 50,000
Interest Rate	2.86%
Convertible advance maturing June 23, 2028; fixed rate of 3.655%
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
FHLB advances	$ 50,000
Interest Rate	3.655%
Convertible advance maturing June 16, 2032; fixed rate of 1.905%
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
FHLB advances		$ 50,000
Interest Rate		1.905%
Convertible advance maturing June 23, 2032; fixed rate of 1.950%
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
FHLB advances		$ 100,000
Interest Rate		1.95%
Convertible advance maturing August 6, 2032; fixed rate of 1.892%
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
FHLB advances		$ 100,000
Interest Rate		1.892%
Convertible advance maturing October 26, 2032; fixed rate of 3.025%
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
FHLB advances	$ 25,000	$ 25,000
Interest Rate	3.025%
Convertible advance maturing May 12, 2037; fixed rate of 1.135%
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
FHLB advances		$ 75,000
Interest Rate		1.135%

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FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS - Other (Details) - USD ($)	Sep. 30, 2023	Dec. 31, 2022
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
FHLB advance amount that can be called every six months	$ 100,000,000.0
FHLB advance amount that can be called every twelve months	225,000,000.0
Maximum borrowing capacity	1,040,000,000.00	$ 1,010,000,000.00
FHLB advances	325,000,000	375,000,000
Collateralized pledged	2,300,000,000	2,290,000,000
Secured borrowings	0	$ 392,000
Unsecured federal funds lines
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
Unsecured federal funds lines available	47,500,000
FHLB advances	0
Federal Reserve Discount Window funds
FEDERAL HOME LOAN BANK ADVANCES & OTHER BORROWINGS
Maximum borrowing capacity	446,200,000
FHLB advances	0
Collateralized pledged	$ 510,400,000

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OPERATING LEASES - Other information (Details)	9 Months Ended
	Sep. 30, 2023 lease item
Lessee Lease Description
Option to extend	true
Lessee operating lease renewal term	5 years
Option to terminate	false
Number of short term leases | lease	0
Minimum
Lessee Lease Description
Number of renewal options | item	1
Maximum
Lessee Lease Description
Lessee operating lease term of contract	10 years

XML

OPERATING LEASES - Lease cost (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
OPERATING LEASES
Operating lease cost	$ 532	$ 480	$ 1,441	$ 1,496
Variable lease cost	42	43	130	130
Total net lease cost	$ 574	$ 523	$ 1,571	$ 1,626

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OPERATING LEASES - Maturities (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Lessee Operating Lease Maturity
September 30, 2024	$ 1,918
September 30, 2025	1,737
September 30, 2026	1,478
September 30, 2027	1,228
September 30, 2028	906
After September 30, 2028	905
Total lease payments	8,172
Less: interest discount	(635)
Present value of lease liabilities	$ 7,537	$ 8,885

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OPERATING LEASES - Supplemental Lease Information (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022
OPERATING LEASES
Weighted-average remaining lease term (years)	5 years 4 months 24 days
Weighted-average discount rate (as a percent)	3.19%
Operating cash flows from operating leases (cash payments)	$ 1,538	$ 1,420
Operating cash flows from operating leases (lease liability reduction)	$ 1,345	1,219
Operating lease right-of-use assets obtained in exchange for leases entered into during the period		$ 1,273

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INTEREST RATE DERIVATIVES - Other (Details)	1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended	24 Months Ended
	Oct. 31, 2021 USD ($)	Sep. 30, 2023 USD ($)	Sep. 30, 2022 USD ($)	Sep. 30, 2023 USD ($)	Sep. 30, 2022 USD ($)	Dec. 31, 2022 USD ($) item	Dec. 31, 2022 USD ($) item
INTEREST RATE SWAPS
Unrealized gain (loss) from net changes in fair vale of cash flow hedges		$ 7,249,000	$ 19,332,000	$ 18,595,000	$ 31,113,000
Restricted cash and cash equivalents		40,000,000.0		40,000,000.0
Asset Pledged as Collateral with Right
INTEREST RATE SWAPS
Cash deposits pledged as collateral		0		0
Interest Rate Swaps. | Cash flow hedges
INTEREST RATE SWAPS
Number of interest rate derivatives | item						14	14
Notional Amounts		800,000,000		800,000,000		$ 800,000,000	$ 800,000,000
Interest Rate Swaps. | Cash flow hedges | Other Liabilities.
INTEREST RATE SWAPS
Unrealized gain (loss) from net changes in fair vale of cash flow hedges				0		(779,000)
Interest Rate Swaps. | Cash flow hedges | Interest Rate Derivatives.
INTEREST RATE SWAPS
Unrealized gain (loss) from net changes in fair vale of cash flow hedges				43,300,000		$ 26,700,000
Interest Rate Swap One | Cash flow hedges
INTEREST RATE SWAPS
Derivative forward term							1 year
Derivative swap term							3 years
Derivative total term							4 years
Interest Rate Swap Two | Cash flow hedges
INTEREST RATE SWAPS
Number of interest rate derivatives | item						2	2
Derivative forward term							1 year
Derivative swap term							2 years
Derivative total term							3 years
Interest Rate Swap Three | Cash flow hedges
INTEREST RATE SWAPS
Number of interest rate derivatives | item						2	2
Derivative total term							3 years
Interest Rate Swap Four | Cash flow hedges
INTEREST RATE SWAPS
Number of interest rate derivatives | item						4	4
Derivative forward term							2 years
Derivative swap term							2 years
Derivative total term							4 years
Interest Rate Swap Six | Cash flow hedges
INTEREST RATE SWAPS
Number of interest rate derivatives | item						6	6
Derivative forward term							2 years
Derivative swap term							3 years
Derivative total term							5 years
Interest Rate Cap | Cash flow hedges
INTEREST RATE SWAPS
Notional Amounts	$ 50,000,000.0	$ 50,000,000		$ 50,000,000		$ 50,000,000	$ 50,000,000
Derivative forward term	2 years
Derivative swap term	3 years
Derivative total term	5 years
Cap rate (as a percent)	2.50%	2.50%		2.50%		2.50%	2.50%
Interest Rate Cap | Cash flow hedges | Interest Rate Derivatives.
INTEREST RATE SWAPS
Unrealized gain (loss) from net changes in fair vale of cash flow hedges				$ 3,200,000		$ 2,100,000

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INTEREST RATE DERIVATIVES - Summary information for the interest rate swaps (Details) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended		9 Months Ended		12 Months Ended
	Oct. 31, 2021	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022	Dec. 31, 2022
INTEREST RATE SWAPS
Net interest income (expense)		$ 24,154	$ 29,788	$ 75,357	$ 90,661
Interest Rate Swaps. | Cash flow hedges
INTEREST RATE SWAPS
Notional Amounts		$ 800,000		800,000		$ 800,000
Net interest income (expense)				$ 2,384		$ (163)
Interest Rate Swaps. | Cash flow hedges | Weighted average
INTEREST RATE SWAPS
Weighted-average pay rate (as a percent)		2.28%		2.28%		2.28%
Weighted-average receive rate (as a percent)		4.93%		4.93%		1.68%
Weighted-average maturity				4 years 2 months 12 days		4 years 2 months 12 days
Weighted-average remaining maturity		2 years 7 months 6 days		2 years 7 months 6 days		3 years 4 months 24 days
Interest Rate Cap | Cash flow hedges
INTEREST RATE SWAPS
Notional Amounts	$ 50,000	$ 50,000		$ 50,000		$ 50,000
Rate Cap Premiums				$ 381		$ 474
Cap rate (as a percent)	2.50%	2.50%		2.50%		2.50%
Weighted-average maturity	5 years
Net interest income (expense)				$ (93)		$ (124)
Interest Rate Cap | Cash flow hedges | Weighted average
INTEREST RATE SWAPS
Weighted-average maturity				5 years		5 years
Weighted-average remaining maturity		3 years 1 month 6 days		3 years 1 month 6 days		3 years 9 months 18 days

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LOAN COMMITMENTS AND RELATED FINANCIAL INSTRUMENTS (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Commitments to extend credit
Fair Value Disclosure Information
Financial instruments whose contract amounts represent credit risk	$ 75,142	$ 62,334
Standby letters of credit
Fair Value Disclosure Information
Financial instruments whose contract amounts represent credit risk	7,028	$ 6,303
Unused lines of credit
Fair Value Disclosure Information
Financial instruments whose contract amounts represent credit risk	$ 75,100

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FAIR VALUE - Assets and liabilities (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2023	Dec. 31, 2022
Fair value assets and liabilities measured on recurring and nonrecurring basis
Total securities available for sale	$ 17,664	$ 19,245
Equity securities	10,113	10,300
SBA servicing assets	7,000	7,200
States and political subdivisions
Fair value assets and liabilities measured on recurring and nonrecurring basis
Total securities available for sale	6,063	6,403
Mortgage-backed GSE residential
Fair value assets and liabilities measured on recurring and nonrecurring basis
Total securities available for sale	6,923	7,783
Recurring
Fair value assets and liabilities measured on recurring and nonrecurring basis
Total securities available for sale	17,664	19,245
Equity securities	10,113	10,300
SBA servicing assets	7,107	7,038
Interest only strip		47
Interest rate derivatives	46,502	28,781
Assets	81,386	65,411
Liabilities		779
Recurring | Obligations of U.S. Government entities and agencies
Fair value assets and liabilities measured on recurring and nonrecurring basis
Total securities available for sale	4,678	5,059
Recurring | States and political subdivisions
Fair value assets and liabilities measured on recurring and nonrecurring basis
Total securities available for sale	6,063	6,403
Recurring | Mortgage-backed GSE residential
Fair value assets and liabilities measured on recurring and nonrecurring basis
Total securities available for sale	6,923	7,783
Non-recurring fair value measurements
Fair value assets and liabilities measured on recurring and nonrecurring basis
Collateral-dependent loans	2,456
Impaired loans		1,045
Gains (Losses) for Impaired loans	(137)	229
Level 1 | Recurring
Fair value assets and liabilities measured on recurring and nonrecurring basis
Equity securities	10,113	10,300
Assets	10,113	10,300
Level 2 | Recurring
Fair value assets and liabilities measured on recurring and nonrecurring basis
Total securities available for sale	12,986	14,186
Interest rate derivatives	46,502	28,781
Assets	59,488	42,967
Liabilities		779
Level 2 | Recurring | States and political subdivisions
Fair value assets and liabilities measured on recurring and nonrecurring basis
Total securities available for sale	6,063	6,403
Level 2 | Recurring | Mortgage-backed GSE residential
Fair value assets and liabilities measured on recurring and nonrecurring basis
Total securities available for sale	6,923	7,783
Level 3 | Recurring
Fair value assets and liabilities measured on recurring and nonrecurring basis
Total securities available for sale	4,678	5,059
SBA servicing assets	7,107	7,038
Interest only strip		47
Assets	11,785	12,144
Level 3 | Recurring | Obligations of U.S. Government entities and agencies
Fair value assets and liabilities measured on recurring and nonrecurring basis
Total securities available for sale	4,678	5,059
Level 3 | Non-recurring fair value measurements
Fair value assets and liabilities measured on recurring and nonrecurring basis
Collateral-dependent loans	$ 2,456
Impaired loans		$ 1,045

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FAIR VALUE - Level 3 reconciliation (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Fair value assets and liabilities measured on recurring basis unobservable input reconciliation
Purchases, sales, or transfers into and out of Level 3	$ 0	$ 0	$ 0	$ 0
Gain or Losses included in earnings for securities at fair value	0	0	0	0
Obligations of U.S. Government entities and agencies
Fair value assets measured on recurring basis unobservable input reconciliation
Fair value	4,790	5,900	5,059	6,949
Prepayments/paydowns	(112)	(215)	(381)	(1,264)
Fair value	4,678	5,685	4,678	5,685
SBA servicing assets
Fair value assets measured on recurring basis unobservable input reconciliation
Fair value	8,018	8,062	7,038	10,091
Total gains/(loss) included in income	(911)	73	69	(1,956)
Fair value	$ 7,107	8,135	7,107	8,135
Interest only strip
Fair value assets measured on recurring basis unobservable input reconciliation
Fair value		154	47	143
Total gains/(loss) included in income		35	$ (47)	46
Fair value		$ 189		$ 189

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FAIR VALUE - Inputs and Valuation technique (Details)	Sep. 30, 2023	Dec. 31, 2022
Obligations of U.S. Government entities and agencies
Fair value measurement inputs and valuation techniques
Valuation technique of available for sale securities	us-gaap:ValuationTechniqueDiscountedCashFlowMember	us-gaap:ValuationTechniqueDiscountedCashFlowMember
SBA servicing assets and Interest only strip
Fair value measurement inputs and valuation techniques
Valuation technique of servicing asset	us-gaap:ValuationTechniqueDiscountedCashFlowMember	us-gaap:ValuationTechniqueDiscountedCashFlowMember
Collateral-dependent loans
Fair value measurement inputs and valuation techniques
Valuation technique of available for sale securities	us-gaap:ValuationTechniqueConsensusPricingModelMember
Impaired Loans
Fair value measurement inputs and valuation techniques
Valuation technique of available for sale securities		us-gaap:ValuationTechniqueConsensusPricingModelMember
Discount Rate
Fair value measurement inputs and valuation techniques
Servicing asset measurement input	12.55	12.56
Prepayment speed
Fair value measurement inputs and valuation techniques
Servicing asset measurement input	16.59	18.63
Recurring | Discount Rate | Minimum | Obligations of U.S. Government entities and agencies
Fair value measurement inputs and valuation techniques
Available for sale securities measurement input	3	3
Recurring | Discount Rate | Minimum | SBA servicing assets and Interest only strip
Fair value measurement inputs and valuation techniques
Servicing asset measurement input	8.65	8.21
Recurring | Discount Rate | Maximum | Obligations of U.S. Government entities and agencies
Fair value measurement inputs and valuation techniques
Available for sale securities measurement input	5	5
Recurring | Discount Rate | Maximum | SBA servicing assets and Interest only strip
Fair value measurement inputs and valuation techniques
Servicing asset measurement input	17.65	19.30
Recurring | Prepayment speed | Minimum | SBA servicing assets and Interest only strip
Fair value measurement inputs and valuation techniques
Servicing asset measurement input	13.36	13.12
Recurring | Prepayment speed | Maximum | SBA servicing assets and Interest only strip
Fair value measurement inputs and valuation techniques
Servicing asset measurement input	19.29	17.60
Non-recurring fair value measurements | Estimated selling costs | Collateral-dependent loans
Fair value measurement inputs and valuation techniques
Available for sale securities measurement input	6
Non-recurring fair value measurements | Estimated selling costs | Impaired Loans
Fair value measurement inputs and valuation techniques
Available for sale securities measurement input		6

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FAIR VALUE - Carrying amounts and Estimated fair values (Details) - USD ($) $ in Thousands	Sep. 30, 2023	Dec. 31, 2022
Financial Assets:
SBA servicing assets	$ 7,000	$ 7,200
Recurring
Financial Assets:
SBA servicing assets	7,107	7,038
Interest only strips		47
Interest rate derivatives	46,502	28,781
Recurring | Carrying Amount
Financial Assets:
Cash, due from banks, and federal funds sold	282,057	179,485
Investment securities	27,777	29,545
FHLB stock	17,846	17,493
Loans, net	3,012,287	3,041,801
Accrued interest receivable	14,612	13,171
SBA servicing assets	7,107	7,038
Mortgage servicing assets	1,823	3,973
Interest only strips		47
Interest rate derivatives	46,502	28,781
Financial Liabilities:
Deposits	2,718,588	2,666,838
Federal Home Loan Bank advances	325,000	375,000
Other borrowings		392
Accrued interest payable	3,915	2,739
Interest rate swaps		779
Recurring | Estimated Fair Value
Financial Assets:
Cash, due from banks, and federal funds sold	282,057	179,485
Investment securities	27,777	29,545
Loans, net	2,862,576	2,999,520
Accrued interest receivable	14,612	13,171
SBA servicing assets	7,107	7,038
Mortgage servicing assets	7,020	7,209
Interest only strips		47
Interest rate derivatives	46,502	28,781
Financial Liabilities:
Deposits	2,713,695	2,658,837
Federal Home Loan Bank advances	326,268	376,575
Other borrowings		392
Accrued interest payable	3,915	2,739
Interest rate swaps		779
Level 1 | Recurring | Estimated Fair Value
Financial Assets:
Investment securities	10,113	10,300
Level 2 | Recurring
Financial Assets:
Interest rate derivatives	46,502	28,781
Level 2 | Recurring | Estimated Fair Value
Financial Assets:
Cash, due from banks, and federal funds sold	282,057	179,485
Investment securities	12,986	14,186
Accrued interest receivable	61	98
Interest rate derivatives	46,502	28,781
Financial Liabilities:
Deposits	2,713,695	2,658,837
Federal Home Loan Bank advances	326,268	376,575
Other borrowings		392
Accrued interest payable	3,915	2,739
Interest rate swaps		779
Level 3 | Recurring
Financial Assets:
SBA servicing assets	7,107	7,038
Interest only strips		47
Level 3 | Recurring | Estimated Fair Value
Financial Assets:
Investment securities	4,678	5,059
Loans, net	2,862,576	2,999,520
Accrued interest receivable	14,551	13,073
SBA servicing assets	7,107	7,038
Mortgage servicing assets	$ 7,020	7,209
Interest only strips		$ 47

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REGULATORY MATTERS (Details) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2023 USD ($)	Sep. 30, 2022 USD ($)	Sep. 30, 2023 USD ($)	Sep. 30, 2022 USD ($)	Dec. 31, 2021	Dec. 31, 2022 USD ($)
Regulatory matters
Capital conservation buffer percentage (as a percent)					2.50%
Common dividends	$ 4,591	$ 3,844	$ 13,708	$ 11,524
Total Capital (to Risk Weighted Assets)
Actual amount	$ 365,268		$ 365,268			$ 338,185
Actual ratio (as a percent)	0.1791		0.1791			0.1668
Capital Adequacy Purposes, amount	$ 214,160		$ 214,160			$ 212,932
Capital Adequacy Purposes, ratio (as a percent)	0.105		0.105			0.105
Tier I Capital (to Risk Weighted Assets)
Actual amount	$ 347,314		$ 347,314			$ 324,297
Actual ratio (as a percent)	0.1703		0.1703			0.1599
Capital Adequacy Purposes, amount	$ 173,368		$ 173,368			$ 172,374
Capital Adequacy Purposes, ratio (as a percent)	0.085		0.085			0.085
Common Tier 1 (CET1)
Actual amount	$ 347,314		$ 347,314			$ 324,297
Actual ratio (as a percent)	0.1703		0.1703			0.1599
Capital Adequacy Purposes, amount	$ 142,773		$ 142,773			$ 141,955
Capital Adequacy Purposes, ratio (as a percent)	0.070		0.070			0.070
Tier 1 Capital (to Average Assets)
Actual amount	$ 347,314		$ 347,314			$ 324,297
Actual ratio (as a percent)	0.1007		0.1007			0.0957
Capital Adequacy Purposes, amount	$ 137,909		$ 137,909			$ 135,485
Capital Adequacy Purposes, ratio (as a percent)	0.040		0.040			0.040
Bank
Total Capital (to Risk Weighted Assets)
Actual amount	$ 362,477		$ 362,477			$ 336,866
Actual ratio (as a percent)	0.1777		0.1777			0.1661
Capital Adequacy Purposes, amount	$ 214,153		$ 214,153			$ 212,915
Capital Adequacy Purposes, ratio (as a percent)	0.105		0.105			0.105
To be Well Capitalized Under Prompt Corrective Action Provisions, amount	$ 203,955		$ 203,955			$ 202,777
To be Well Capitalized Under Prompt Corrective Action Provisions, ratio (as a percent)	0.100		0.100			0.100
Tier I Capital (to Risk Weighted Assets)
Actual amount	$ 344,523		$ 344,523			$ 322,978
Actual ratio (as a percent)	0.1689		0.1689			0.1593
Capital Adequacy Purposes, amount	$ 173,362		$ 173,362			$ 172,360
Capital Adequacy Purposes, ratio (as a percent)	0.085		0.085			0.085
To be Well Capitalized Under Prompt Corrective Action Provisions, amount	$ 163,164		$ 163,164			$ 162,221
To be Well Capitalized Under Prompt Corrective Action Provisions, ratio (as a percent)	0.080		0.080			0.080
Common Tier 1 (CET1)
Actual amount	$ 344,523		$ 344,523			$ 322,978
Actual ratio (as a percent)	0.1689		0.1689			0.1593
Capital Adequacy Purposes, amount	$ 142,769		$ 142,769			$ 141,944
Capital Adequacy Purposes, ratio (as a percent)	0.070		0.070			0.070
To be Well Capitalized Under Prompt Corrective Action Provisions, amount	$ 132,571		$ 132,571			$ 131,805
To be Well Capitalized Under Prompt Corrective Action Provisions, ratio (as a percent)	0.065		0.065			0.065
Tier 1 Capital (to Average Assets)
Actual amount	$ 344,523		$ 344,523			$ 322,978
Actual ratio (as a percent)	0.0999		0.0999			0.0954
Capital Adequacy Purposes, amount	$ 137,901		$ 137,901			$ 135,446
Capital Adequacy Purposes, ratio (as a percent)	0.040		0.040			0.040
To be Well Capitalized Under Prompt Corrective Action Provisions, amount	$ 172,376		$ 172,376			$ 169,307
To be Well Capitalized Under Prompt Corrective Action Provisions, ratio (as a percent)	0.050		0.050			0.050

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STOCK BASED COMPENSATION - 2018 Incentive Plan (Details) - shares	9 Months Ended
	Sep. 30, 2023	Apr. 18, 2018
Restricted Stock
STOCK BASED COMPENSATION
Restricted stock issued	188,993
2018 Incentive Plan
STOCK BASED COMPENSATION
Shares reserved for future issuance		2,400,000
2018 Incentive Plan | Employee Stock Option [Member]
STOCK BASED COMPENSATION
Stock options granted	240,000
2018 Incentive Plan | Restricted Stock
STOCK BASED COMPENSATION
Restricted stock issued	774,437

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STOCK BASED COMPENSATION - Stock Options (Details) - Employee Stock Option [Member]	9 Months Ended
	Sep. 30, 2023 $ / shares shares
Shares
Outstanding at beginning of the period (in shares) | shares	240,000
Outstanding at ending of the period (in shares) | shares	240,000
Weighted Average Exercise Price
Outstanding at beginning of the period (in dollars per share) | $ / shares	$ 12.70
Outstanding at ending of the period (in dollars per share) | $ / shares	$ 12.70

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STOCK BASED COMPENSATION - Restricted Stock (Details) - Restricted Stock	9 Months Ended
	Sep. 30, 2023 $ / shares shares
Nonvested Shares
Outstanding at beginning of the period (in shares) | shares	177,399
Granted (in shares) | shares	188,993
Vested (in shares) | shares	(136,171)
Outstanding at ending of the period (in shares) | shares	230,221
Weighted-Average Grant-Date Fair Value
Outstanding at beginning of the period (in dollars per share) | $ / shares	$ 17.95
Granted (in dollars per share) | $ / shares	16.43
Vested (in dollars per share) | $ / shares	16.25
Outstanding at ending of the period (in dollars per share) | $ / shares	$ 17.71

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STOCK BASED COMPENSATION - Other (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2023 USD ($)	Sep. 30, 2022 USD ($)	Sep. 30, 2023 USD ($) item	Sep. 30, 2022 USD ($)	Dec. 31, 2022 USD ($)
STOCK BASED COMPENSATION
Compensation cost			$ 1,596,000	$ 1,242,000
Employee Stock Option [Member]
STOCK BASED COMPENSATION
Compensation cost	$ 0	$ 0	0	0
Total unrecognized compensation cost	0		0		$ 0
Restricted Stock
STOCK BASED COMPENSATION
Compensation cost	825,000	$ 689,000	1,600,000	$ 1,200,000
Total unrecognized compensation cost	$ 3,800,000		$ 3,800,000		$ 2,300,000
Cost is expected to be recognized over a weighted-average period			2 years 3 months 18 days
Officers and employees | Vest on each of the first three anniversaries of the grant date | Restricted Stock
STOCK BASED COMPENSATION
Vesting Percentage			33.00%
Number of anniversaries of the grant date | item			3
Directors | Vest on grant date | Restricted Stock
STOCK BASED COMPENSATION
Vesting Percentage			25.00%
Directors | Vest on each of the first three anniversaries of the grant date | Restricted Stock
STOCK BASED COMPENSATION
Vesting Percentage			25.00%
Number of anniversaries of the grant date | item			3

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EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Basic earnings per share
Net Income (Loss)	$ 11,428	$ 16,893	$ 40,266	$ 52,422
Weighted average common shares outstanding (in shares)	25,274,665	25,433,307	25,203,114	25,452,398
Basic earnings per common share (in dollars per share)	$ 0.45	$ 0.66	$ 1.60	$ 2.06
Diluted earnings per share
Net Income (Loss)	$ 11,428	$ 16,893	$ 40,266	$ 52,422
Weighted average common shares outstanding for basic earnings per common share (in shares)	25,274,665	25,433,307	25,203,114	25,452,398
Add: Dilutive effects of restricted stock and options (in shares)	317,209	268,716	307,574	279,606
Average shares and dilutive potential common shares (in shares)	25,591,874	25,702,023	25,510,688	25,732,004
Diluted earnings per common share (in dollars per share)	$ 0.45	$ 0.66	$ 1.58	$ 2.04
Securities excluded from the computation of diluted earnings per common share	0	0	0	0

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Pay vs Performance Disclosure - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2023	Sep. 30, 2022	Sep. 30, 2023	Sep. 30, 2022
Pay vs Performance Disclosure
Net Income (Loss)	$ 11,428	$ 16,893	$ 40,266	$ 52,422

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Insider Trading Arrangements	3 Months Ended
	Sep. 30, 2023
Trading Arrangements, by Individual
Rule 10b5-1 Arrangement Adopted	false
Non-Rule 10b5-1 Arrangement Adopted	false
Rule 10b5-1 Arrangement Terminated	false
Non-Rule 10b5-1 Arrangement Terminated	false