10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 March 31, 2024


☐	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: 333-205986

RIVER FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)


ALABAMA		46-1422125
( State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
2611 Legends Drive Prattville, Alabama		36066
(Address of principal executive offices)		(Zip Code)

(334) 290-1012

“Registrant’s telephone number, including area code”

Securities registered pursuant to Section 12(b) of the Act: None


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None

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 May 1, 2024, the registrant had 7,664,055 shares of common stock, $1.00 par value per share, outstanding.


Auditor Firm Id:	669	Auditor Name:	Mauldin & Jenkins, LLC	Auditor Location:	Birmingham, Alabama, USA

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	5
	Consolidated Statements of Financial Condition	5
	Consolidated Statements of Income	6
	Consolidated Statements of Comprehensive Income	7
	Consolidated Statements of Changes in Stockholders’ Equity	8
	Consolidated Statements of Cash Flows	9
	Notes to Unaudited Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	58
Item 4.	Controls and Procedures	58
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60
Signatures		62

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that reflect our current views with respect to, among other things, future events and financial performance, which involve substantial risks and uncertainties. Certain statements made in this Quarterly Report on Form 10-Q are “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 Exchange Act. Forward-looking statements are not historical facts and include any statement that, without limitation, may predict, forecast, indicate or imply future results, performance or achievements instead of historical or current facts and may contain words like “anticipates,” “approximately,” “believes,” “budget,” “can,” “could,” “continues,” “contemplates,” “estimates,” “expects,” “forecast,” “intends,” “may,” “might,” “objective,” “outlook,” “predicts,” “probably,” “plans,” “potential,” “project,” “seeks,” “shall,” “should,” “target,” “will,” or the negative of these terms and other words, phrases, or expressions with similar meaning.

Any forward-looking statements contained in this Quarterly Report on Form 10-Q are based upon our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of forward-looking information should not be regarded as a representation by us that the future plans, estimates or expectations will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially from those projected in the forward-looking statements, and the Company cannot give assurances that such statements will prove to be correct. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information or otherwise. Given these uncertainties, the reader should not place undue reliance on forward-looking statements as a prediction of actual results. Factors that could cause actual results to differ materially from those projected or estimated by us include those that are discussed herein as well as in our Annual Report on Form 10-K for the year ended December 31, 2023, under “Part I, Item 1A. – Risk Factors,” as well as other unknown risks and uncertainties. Factors that might cause such differences include, but are not limited to:

Acquisition related factors:

•

The businesses of any bank acquired by us may not be integrated successfully or the integration may be more difficult, time-consuming or costly than expected;

•

The expected growth opportunities or costs savings from such transactions may not be fully realized or may take longer to realize than expected;

•

Revenues following such transactions may be lower than expected as a result of losses of customers or other reasons;

•

Deposit attrition, operating costs, customer loss and business disruption following such transactions, including difficulties in maintaining relationships with employees, may be greater than expected;

•

Governmental approvals of such transactions may not be obtained on the proposed terms or expected timeframe;

•

Reputational risks and the reaction of the companies’ customers to such transactions;

•

Diversion of management time on merger related issues.

Factors affecting our Bank generally:

•

Changes in asset quality and credit risk of our Bank;

•

Inflation;

•

Customer acceptance of our products and services;

•

Customer borrowing, repayment, investment and deposit practices;

•

The negative impact on profitability imposed on us by a compressed net interest margin on loans and other extensions of credit that affects our ability to lend profitably and to price loans effectively in the face of competitive pressures;

•

Our liquidity requirements could be adversely affected by changes in our assets and liabilities;

•

Our ability to attract, develop and retain qualified banking professionals;

•

Failure to attract or retain stable deposits at reasonable cost that is competitive with the larger international, national, and regional financial service providers with which we compete;

•

Significant reliance on loans secured by real estate and the associated vulnerability to downturns in the local real estate market, natural disasters and other variables impacting the value of real estate;

•

The introduction, withdrawal, success and timing of business initiatives;

•

The impact, extent, and timing of technological changes;

•

A weakening of the economies in which we conduct operations may adversely affect our operating results;

•

The U.S. legal and regulatory framework, changes in such framework, or official or informal mandates directed by state and federal regulators in reports of examination or other mandates could adversely affect our operating results;

•

The interest rate environment may compress margins and adversely affect net interest income and negatively affect the market value of state, county and municipal securities held for investment;

•

Competition from other financial services companies in our markets could adversely affect operations; and

•

Interruption in our business and the businesses of our customers caused by a downturn in the economy and possible weather-related conditions such as tornadoes or hurricanes.

You should also consider carefully the risk factors referred to in Item 1A of Part II of this Form 10-Q, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect our business, operating results and financial condition. The risks discussed in this report are factors that, individually or in the aggregate, management believes could cause our actual results to differ materially from expected and historical results. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider such disclosures to be a complete discussion of all potential risks or uncertainties. Factors not here or there listed may develop or, if currently extant, we may not have yet recognized them.

The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements (Unaudited)

RIVER FINANCIAL CORPORATION

Consolidated Statements of Financial Condition

(in thousands except share data)


	March 31, 2024			December 31, 2023
	Unaudited			Audited
Assets
Cash and due from banks	$	33,038		$	32,572
Interest-bearing deposits in banks		134,893			7,975
Federal funds sold		46,000			32,000
Cash and cash equivalents		213,931			72,547

Certificates of deposit in banks		4,218			4,218
Securities held-to-maturity, at amortized cost (fair value of $100,538 and $103,174, respectively)		125,711			126,793
Securities available-for-sale, at fair value (amortized cost of $671,255 and $703,915, respectively)		584,438			621,091
Loans held for sale		4,554			4,595
Loans, net of deferred fees and discounts		2,269,845			2,240,006
Less allowance for credit losses		(29,856	)		(28,991	)
Net loans		2,239,989			2,211,015
Premises and equipment, net		45,536			45,216
Accrued interest receivable		14,090			14,091
Bank owned life insurance		47,342			47,001
Foreclosed assets		924			92
Deferred income taxes, net		30,784			29,901
Core deposit intangible		1,306			1,445
Goodwill		27,817			27,817
Restricted equity securities		12,526			13,433
Other assets		15,394			15,995
Total assets	$	3,368,560		$	3,235,250
Liabilities and Shareholders' Equity
Noninterest-bearing deposits	$	647,499		$	628,415
Interest-bearing deposits		2,246,263			2,102,240
Total deposits		2,893,762			2,730,655
Securities sold under agreements to repurchase		14,588			16,731
Federal Home Loan Bank advances		205,000			230,000
Subordinated debentures, net of loan costs		39,510			39,492
Accrued interest payable and other liabilities		13,490			15,551
Total liabilities		3,166,350			3,032,429
Common stock related to 401(k) Employee Stock Ownership Plan		4,484			4,483
Stockholders' Equity
Preferred stock ($0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding)		-			-
Common stock ($1 par value; 15,000,000 shares authorized; 7,677,124 and 7,670,318 shares issued; 7,664,055 and 7,655,860 shares outstanding at March 31, 2024 and December 31, 2023, respectively)		7,677			7,670
Additional paid-in capital		137,195			137,017
Retained earnings		126,310			124,333
Accumulated other comprehensive loss		(66,934	)		(64,003	)
Unvested restricted stock		(1,585	)		(1,700	)
Treasury stock at cost (13,069 and 14,458 shares, respectively)		(453	)		(496	)
Common stock related to 401(k) Employee Stock Ownership Plan		(4,484	)		(4,483	)
Total stockholders' equity		197,726			198,338
Total equity		202,210			202,821
Total liabilities and stockholders' equity	$	3,368,560		$	3,235,250

The accompanying notes are an integral part of these financial statements.

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Income

(in thousands except per share data)


	For the Three Months Ended:
	March 31,
	2024			2023
Interest income:
Loans, including fees	$	33,948		$	23,751
Taxable securities		3,390			3,657
Nontaxable securities		346			467
Federal funds sold		419			153
Other interest income		932			617
Total interest income		39,035			28,645
Interest expense:
Deposits		14,644			7,820
Short-term borrowings		132			99
Federal Home Loan Bank advances		2,257			1,187
Subordinated debentures		418			415
Note payable		-			87
Total interest expense		17,451			9,608
Net interest income		21,584			19,037
Provision for credit losses		1,309			1,311
Net interest income after provision for credit losses		20,275			17,726
Noninterest income:
Service charges and fees		1,985			1,738
Investment brokerage revenue		191			163
Mortgage operations		953			650
Bank owned life insurance income		341			310
Net loss on sales of investment securities		(1,432	)		-
Other noninterest income		524			219
Total noninterest income		2,562			3,080
Noninterest expense:
Salaries and employee benefits		9,191			8,568
Occupancy expenses		981			908
Equipment rentals, depreciation, and maintenance		524			472
Telephone and communications		126			141
Advertising and business development		249			295
Data processing		1,026			1,020
Foreclosed assets, net		35			10
Federal deposit insurance and other regulatory assessments		724			571
Legal and other professional services		352			365
Other operating expenses		2,074			1,982
Total noninterest expense		15,282			14,332
Income before income taxes		7,555			6,474
Provision for income taxes		1,745			1,367
Net income	$	5,810		$	5,107

Basic net earnings per common share	$	0.76		$	0.77
Diluted net earnings per common share	$	0.75		$	0.76
Dividends per common share	$	0.50		$	0.48

The accompanying notes are an integral part of these financial statements.

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Comprehensive Income

(in thousands)


	For the Three Months Ended
	March 31,
	2024			2023
Net income	$	5,810		$	5,107
Other comprehensive (loss) income, net of tax:
Investment securities available-for-sale:
Net unrealized (losses) gains		(5,263	)		12,607
Income tax effect		1,321			(3,166	)
Reclassification adjustments for losses realized in net income		1,432			-
Income tax effect		(360	)		-
Reclassification adjustment for accretion of unrealized holding loss included in accumulated other comprehensive loss from the transfer of securities from available-for-sale to held-to-maturity		(82	)		(2,896	)
Income tax effect		21			727
Other comprehensive (loss) income, net of tax		(2,931	)		7,272
Comprehensive income	$	2,879		$	12,379

The accompanying notes are an integral part of these financial statements.

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Changes in Stockholders' Equity

(in thousands except share and per share data)


	Common Stock	Additional Paid In Capital	Retained Earnings	Accumulated Other Comprehensive Loss	Unvested Restricted Stock	Treasury Stock	Common Stock Related to ESOP	Total Stockholders' Equity



Balance at December 31, 2023	$7,670	$137,017	$124,333	$(64,003)	$(1,700)	$(496)	$(4,483)	$198,338
Net income	-	-	5,810	-	-	-	-	5,810
Other comprehensive loss, net of tax	-	-	-	(2,931)	-	-	-	(2,931)
Exercise of stock options (6,806 shares)	7	151	-	-	-	-	-	158
Purchase of treasury stock (3,476 shares)	-	-	-	-	-	(118)	-	(118)
Sale of treasury shares (4,865 shares)	-	4	-	-	-	161	-	165
Dividends declared ($0.50 per share)	-	-	(3,833)	-	-	-	-	(3,833)
Stock-based compensation expense	-	23	-	-	115	-	-	138
Change for ESOP related shares	-	-	-	-	-	-	(1)	(1)
Balance at March 31, 2024	$7,677	$137,195	$126,310	$(66,934)	$(1,585)	$(453)	$(4,484)	$197,726

The accompanying notes are an integral part of these financial statements.

RIVER FINANCIAL CORPORATION

Unaudited Consolidated Statements of Cash Flows

(in thousands)


	For the Three Months
	Ended March 31,
	2024			2023
Cash Flows From Operating Activities:
Net Income	$	5,810		$	5,107
Adjustments to reconcile net income to net cash from operating activities:
Provision for credit losses		1,309			1,311
Provision for losses on foreclosed assets		15			30
Amortization of securities		648			746
Accretion of securities		(102	)		(116	)
Realized net loss on sales of securities available-for-sale		1,432			-
Accretion of discount on acquired loans		(2	)		(3	)
Accretion of deferred loan fees / costs		(1,117	)		(969	)
Amortization of core deposit intangible asset		139			186
Amortization of debt issuance costs		18			19
Stock-based compensation expense		138			134
Bank owned life insurance income		(341	)		(310	)
Depreciation and amortization of premises and equipment		800			666
(Gain) loss on sales of foreclosed assets		-			(45	)
Deferred income tax benefit		99			(114	)
(Increase) decrease in operating assets and (decrease) increase in operating liabilities:
Loans held-for-sale		41			(2,023	)
Accrued interest receivable		1			(40	)
Other assets		601			(549	)
Accrued interest payable and other liabilities		(2,061	)		1,072
Net cash from operating activities		7,428			5,102
Cash Flows From (Used For) Investing Activities:
Maturity of certificate of deposit		-			245
Activity in securities available-for-sale:
Sales of securities available-for-sale		33,681			-
Maturities, payments, calls of securities available-for-sale		10,610			10,072
Purchases of securities available-for-sale		(13,562	)		(4,943	)
Activity in securities held-to-maturity:
Maturities, payments, calls of securities held-to-maturity		1,115			1,172
Loan principal originations, net		(30,014	)		(106,407	)
Proceeds from sale of foreclosed assets		3			426
Purchases of premises and equipment		(1,120	)		(1,514	)
Redemption (purchase) of restricted equity securities, net		907			(219	)
Net cash from (used for) investing activities		1,620			(101,168	)
Cash Flows From Financing Activities:
Net increase in deposits		163,107			149,735
Net (decrease) increase in securities sold under agreements to repurchase		(2,143	)		8,523
Proceeds from Federal Home Loan Bank advances		-			70,000
Repayment of Federal Home Loan Bank advances		(25,000	)		(70,000	)
Proceeds from issuance of line of credit		-			12,000
Repayment of Federal Reserve Bank discount window borrowings		-			(25,000	)
Proceeds from exercise of common stock options		158			254
Purchase of treasury stock		(118	)		(472	)
Sale of treasury stock		165			159
Cash dividends		(3,833	)		(3,208	)
Net cash from financing activities		132,336			141,991
Net Change In Cash And Cash Equivalents		141,384			45,925
Cash and Cash Equivalents At Beginning Of Period		72,547			74,826
Cash and Cash Equivalents At End Of Period	$	213,931		$	120,751

Supplemental Disclosures Of Cash Flows Information:
Cash Payments For:
Interest paid to depositors	$	14,384		$	7,696
Interest paid on borrowings	$	2,752		$	1,835
Non-cash investing and financing activities:
Transfer of loans to foreclosed assets	$	850		$	-
Restricted stock grant	$	-		$	53

The accompanying notes are an integral part of these financial statements.

River Financial Corporation

Notes to Unaudited Consolidated Financial Statements

(amounts in thousands, except share and per share data)

Note 1 – Basis of Presentation

General

The unaudited consolidated financial statements include the accounts of River Financial Corporation (“River” or the “Company”) and its wholly owned subsidiary, River Bank & Trust (“Bank”). The Bank provides a full range of commercial and consumer banking services primarily in the Montgomery, Alabama metropolitan area, Autauga, Baldwin, Chilton, Coffee, Elmore, Etowah, Houston, Jefferson, Lee, Madison, Mobile, Morgan and Tallapoosa counties and surrounding counties in Alabama. The Bank is primarily regulated by the Federal Deposit Insurance Corporation (FDIC) and undergoes periodic examinations by this regulatory agency and the Alabama Banking Department. The Company is regulated by the Federal Reserve Bank (FRB) and is also subject to periodic examinations.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly River Financial Corporation’s consolidated statements of financial condition, statements of income, statements of comprehensive income, statements of changes in stockholders’ equity and statements of cash flows for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year.

These interim consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and note disclosures normally presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been omitted or abbreviated. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes as of December 31, 2023, which are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

Preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, the allowance for credit losses, foreclosed asset valuations, useful lives for depreciation and amortization, fair value of financial instruments, deferred taxes, and contingencies. Estimates that are particularly susceptible to significant change for the Company include the determination of the allowance for credit losses, investment securities impairment, and assessment of deferred tax assets and liabilities, and therefore are critical accounting policies. Management does not anticipate any material changes to estimates in the near term. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, economic conditions in our markets, and changes in applicable banking regulations. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period presented.

Significant Accounting Policies

Allowance for credit losses and provision for credit losses

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Bank measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. Generally, collectively assessed loans are grouped by call report code and then risk grade grouping. Risk grade is grouped within each call report code by pass, watch, special mention, substandard, and doubtful. Other loan types are separated into their own cohorts due to specific risk characteristics for that pool of loans.

The Bank has elected a non-discounted cash flow methodology with a probability of default (PD) and loss-given default (LGD) for all cohorts. The PD calculation looks at the historical loan portfolio at particular points in time (each month during the lookback period) to determine the probability that loans in a certain cohort will default over the next 12-month period. A default is defined as a loan that has moved to past due 90 days and greater, nonaccrual status, or experienced a charge-off during the period. Currently, the Bank’s historical data is insufficient due to a minimal amount of default activity or zero defaults, therefore management uses index PDs comprised of rates derived from the PD experience of other community banks in place of the Bank’s historical PDs.

The LGD calculation looks at actual losses (net charge-offs) experienced over the entire lookback period for each cohort of loans. The aggregate loss amount is divided by the exposure at default to determine an LGD rate. All defaults (non-accrual, charge-off, or greater than 90 days past due) occurring during the lookback period are included in the denominator, whether a loss occurred or not and exposure at default is determined by the loan balance immediately preceding the default event (i.e. nonaccrual or charge-off). Due to the very limited charge-off history, management uses index LGDs comprised of rates derived from the LGD experience of other community banks in place of the Bank’s historical LGDs.

The Bank utilizes reasonable and supportable forecasts of future economic conditions when estimating the allowance for credit losses on loans. The calculation includes a 12-month PD forecast based on the peer index regression model comparing peer defaults to the national unemployment rate. After the forecast period, PD rates revert on a straight-line basis back to long-term historical average rates over 12 months.

The Bank recognizes that all significant factors that affect the collectability of the loan portfolio must be considered to determine the estimated credit losses as of the evaluation date. Furthermore, the methodology, in and of itself and even when selectively adjusted by comparison to market and peer data, does not provide a sufficient basis to determine the estimated credit losses. The Bank adjusts the modeled historical losses by a qualitative adjustment to incorporate all significant risks to form a sufficient basis to estimate the credit losses. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending management experience, loan review and audit results, asset quality and portfolio trends, loan portfolio growth, and concentrations, trends in underlying collateral, as well as external factors and economic conditions not already captured.

Loans that do not share risk characteristics are evaluated on an individual basis. Generally, this population includes loans on non-accrual status, however, they can also include any loan that does not share risk characteristics with its respective pool. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of the collateral at the reporting date unadjusted for selling costs as appropriate. When the expected source of repayment is from a source other than the underlying collateral, impairment will generally be measured based on the present value of expected proceeds discounted at the contractual interest rate.

The loss allocations for individually assessed and collectively assessed loans are totaled to determine the total required allowance for credit losses. This total is compared to the current allowance on the Bank’s books and adjustments made accordingly by a charge or credit to the provision for credit losses.

Investment Securities Impairment

Effective January 1, 2023, the Company estimates and recognizes an allowance for credit losses for held-to-maturity (HTM) debt securities pursuant to ASU No. 2016-13. The Company has a zero loss expectation for its HTM securities portfolio, except for U.S. State and Municipal securities, and therefore it is not required to estimate an allowance for credit losses related to these securities. For HTM securities that do not have a zero loss expectation, the allowance for credit losses is based on the security’s amortized cost, excluding interest receivable, and represents the portion of the amortized cost that the Company does not expect to collect over the life of the security. The allowance for credit losses is determined using average industry credit ratings and historical loss experience, and is initially recognized upon acquisition of the securities, and subsequently remeasured on a recurring basis. The Company evaluates available for sale (AFS) debt securities that experienced a decline in fair value below amortized cost for credit impairment. In performing an assessment of whether any decline in fair value is due to a credit loss, the Company considers the extent to which the fair value is less than the amortized cost, changes in credit ratings, any adverse economic conditions, as well as all relevant information at the individual security level, such as credit deterioration of the issuer, explicit or implicit guarantees by the federal government or collateral underlying the security. If it is determined that the decline in fair value was due to credit losses, an allowance for credit losses is recorded, limited to the amount the fair value is less than the amortized cost basis. The non-credit related decrease in the fair value, such as a decline due to changes in market interest rates, is recorded in other comprehensive income, net of tax. The Company recognizes a credit impairment if the Company has the intent to sell the security, or it is more likely than not that the Bank will be required to sell the security before recovery of its amortized cost. Prior to the adoption of ASU No. 2016-13 Management evaluated AFS and HTM debt securities for other-than-temporary-impairment on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

Note 2 – Reclassifications

Certain prior period amounts have been reclassified to conform to the presentation used in 2024. These reclassifications had no material effect on the operations, financial condition or cash flows of the Company.

Note 3 – Earnings Per Share

Basic earnings per common share are computed by dividing net income by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share are computed by dividing net income by the effect of the issuance of potential common shares that are dilutive and by the sum of the weighted-average number of shares of common stock outstanding. All shares owned by the Company’s 401(k) Employee Stock Ownership Plan (ESOP) are included in the earnings per share calculations.

The reconciliation of the components of the basic and diluted earnings per share is as follows (amounts in thousands):


	For the Three Months
	Ended March 31,
	2024	2023
Net earnings available to common shareholders	$5,810	$5,107
Weighted average common shares outstanding	7,662,887	6,666,765
Dilutive effect of stock options	77,294	91,882
Diluted common shares	7,740,181	6,758,647
Basic earnings per common share	$0.76	$0.77
Diluted earnings per common share	$0.75	$0.76

Note 4 – Investment Securities

The following tables summarize the amortized cost and fair value of securities available-for-sale and securities held-to-maturity and the corresponding amounts of unrealized gains and losses recognized in accumulated other comprehensive loss at March 31, 2024 and December 31, 2023 (amounts in thousands):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2024:
Securities available-for-sale:
Residential mortgage-backed	$	406,554	$	28	$	(60,105	)	$	346,477
U.S. treasury securities		115,822		-		(10,003	)		105,819
U.S. govt. sponsored enterprises		61,738		-		(5,317	)		56,421
State, county, and municipal		70,397		-		(9,418	)		60,979
Corporate debt obligations		16,744		4		(2,006	)		14,742
Total available-for-sale	$	671,255	$	32	$	(86,849	)	$	584,438


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2024:
Securities held-to-maturity:
Residential mortgage-backed	$	62,884	$	-	$	(12,819	)	$	50,065
State, county, and municipal		62,827		-		(12,354	)		50,473
Total held-to-maturity	$	125,711	$	-	$	(25,173	)	$	100,538


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2023:
Securities available-for-sale:
Residential mortgage-backed	$	413,179	$	102	$	(55,981	)	$	357,300
U.S. treasury securities		130,713		-		(10,661	)		120,052
U.S. govt. sponsored enterprises		68,751		-		(5,185	)		63,566
State, county, and municipal		73,514		4		(8,857	)		64,661
Corporate debt obligations		17,758		5		(2,251	)		15,512
Total available-for-sale	$	703,915	$	111	$	(82,935	)	$	621,091

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2023:
Securities held-to-maturity:
Residential mortgage-backed	$	63,953	$	-	$	(12,022	)	$	51,931
State, county, and municipal		62,840		-		(11,597	)		51,243
Total held-to-maturity	$	126,793	$	-	$	(23,619	)	$	103,174

The unrecognized losses on held-to-maturity investment securities presented in the table above do not include unrecognized losses on securities that were transferred from available-for-sale to held-to-maturity totaling $2.54 million at March 31, 2024 and $2.62 million at December 31, 2023. These unrecognized losses are included as a separate component of stockholders' equity and are being amortized over the remaining term of the securities.

The Company has a zero loss expectation for its HTM securities portfolio, except for U.S. State and Municipal securities, and therefore it is not required to estimate an allowance for credit losses related to these securities. For HTM securities that do not have a zero loss expectation, the allowance for credit losses is based on the security’s amortized cost, excluding interest receivable, and represents the portion of the amortized cost that the Company does not expect to collect over the life of the security. The allowance for credit losses is determined using average industry credit ratings and historical loss experience, and is initially recognized upon acquisition of the securities, and subsequently remeasured on a recurring basis. The Company evaluates available for sale (AFS) debt securities that experienced a decline in fair value below amortized cost for credit impairment. In performing an assessment of whether any decline in fair value is due to a credit loss, the Company considers the extent to which the fair value is less than the amortized cost, changes in credit ratings, any adverse economic conditions, as well as all relevant information at the individual security level, such as credit deterioration of the issuer, explicit or implicit guarantees by the federal government or collateral underlying the security. If it is determined that the decline in fair value was due to credit losses, an allowance for credit losses is recorded, limited to the amount the fair value is less than the amortized cost basis. The non-credit related decrease in the fair value, such as a decline due to changes in market interest rates, is recorded in other comprehensive income, net of tax. The Company recognizes a credit impairment if the Company has the intent to sell the security, or it is more likely than not that the Bank will be required to sell the security before recovery of its amortized cost.

The following tables summarize securities with unrealized and unrecognized losses as of March 31, 2024 and December 31, 2023 aggregated by major security type and length of time in a continuous unrealized or unrecognized loss position (amounts in thousands):


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2024:
Securities available-for-sale:
Residential mortgage-backed	$	6,232	$	38	$	333,411	$	60,067	$	339,643	$	60,105
U.S. treasury securities		-		-		105,819		10,003		105,819		10,003
U.S. govt. sponsored enterprises		-		-		56,421		5,317		56,421		5,317
State, county & municipal		1,497		4		59,483		9,414		60,980		9,418
Corporate debt obligations		-		-		12,329		2,006		12,329		2,006
Total available-for-sale	$	7,729	$	42	$	567,463	$	86,807	$	575,192	$	86,849

Securities held-to-maturity:
Residential mortgage-backed	$	-	$	-	$	50,065	$	12,819	$	50,065	$	12,819
State, county & municipal		-		-		45,127		12,354		45,127		12,354
Total held-to-maturity	$	-	$	-	$	95,192	$	25,173	$	95,192	$	25,173

December 31, 2023:
Securities available-for-sale:
Residential mortgage-backed	$	2,028	$	2	$	352,807	$	55,979	$	354,835	$	55,981
U.S. treasury securities		-		-		120,053		10,661		120,053		10,661
U.S. govt. sponsored enterprises		1,689		7		61,877		5,178		63,566		5,185
State, county & municipal		-		-		63,657		8,857		63,657		8,857
Corporate debt obligations		926		29		13,131		2,222		14,057		2,251
Total available-for-sale	$	4,643	$	38	$	611,525	$	82,897	$	616,168	$	82,935

Securities held-to-maturity:
Residential mortgage-backed	$	-	$	-	$	51,931	$	12,022	$	51,931	$	12,022
State, county & municipal		-		-		45,898		11,597		45,898		11,597
Total held-to-maturity	$	-	$	-	$	97,829	$	23,619	$	97,829	$	23,619

The Company owned a total of 318 securities with unrealized losses of $112.0 million at March 31, 2024. The unrealized losses were primarily attributable to changes in interest rates, rather than deterioration in credit quality. The individual securities are each investment grade securities. The Company considers factors such as the financial condition of the issuer including credit ratings and specific events affecting the operations of the issuer, volatility of the security, underlying assets that collateralize the debt security, and other industry and macroeconomic conditions. The Company does not intend to sell these securities, and it is more likely than not that the Company will not be required to sell these securities before recovery of the amortized cost. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. As such, there is no allowance for credit losses on available for sale or held to maturity securities recognized as of March 31, 2024. Accrued interest receivable is not included in available-for-sale security balances and is presented in accrued interest receivable on the consolidated statement of financial condition. Interest receivable on securities was approximately $2.1 million as of March 31, 2024, and was excluded from the estimate of credit losses.

As of March 31, 2024 and December 31, 2023, securities with a carrying value of approximately $366.2 million and $268.2 million, respectively, were pledged to secure public deposits as required by law. At March 31, 2024 and December 31, 2023, the carrying value of securities pledged to secure repurchase agreements was approximately $21.4 million and $26.9 million, respectively.

During the three months ended March 31, 2024, the Company sold investment securities for proceeds of $33.7 million and realized losses of $1.4 million. The net loss consisted of gross gains of $44 thousand and gross losses of $1.5 million. During the three months ended March 31, 2023, the Company did not sell any investment securities.

The amortized cost and estimated fair value of debt securities at March 31, 2024 and December 31, 2023, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities for residential mortgage backed securities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties. These securities are therefore not presented by maturity classification.


	March 31, 2024				December 31, 2023
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)				(In Thousands)
Securities available-for-sale
Less than 1 year	$	-	$	-	$	2,500	$	2,424
1 to 5 years		150,066		137,022		163,927		150,501
5 to 10 years		48,236		42,909		51,970		46,415
After 10 years		66,399		58,030		72,339		64,451
		264,701		237,961		290,736		263,791
Residential mortgage-backed securities		406,554		346,477		413,179		357,300
Total available-for-sale	$	671,255	$	584,438	$	703,915	$	621,091


	March 31, 2024				December 31, 2023
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In Thousands)				(In Thousands)
Securities held-to-maturity
5 to 10 years	$	21,717	$	17,626	$	19,706	$	16,192
After 10 years		41,110		32,847		43,134		35,051
		62,827		50,473		62,840		51,243
Residential mortgage-backed securities		62,884		50,065		63,953		51,931
Total held-to-maturity	$	125,711	$	100,538	$	126,793	$	103,174

Note 5 – Loans, Allowance for Credit Losses and Credit Quality

Major classifications of loans at March 31, 2024 and December 31, 2023 are summarized as follows (amounts in thousands):


	March 31, 2024						December 31, 2023
	Amount			% of Total			Amount			% of Total
Residential real estate:
Closed-end 1-4 family - first lien	$	791,345			35.3	%	$	771,144			34.9	%
Closed-end 1-4 family - junior lien		12,383			0.6	%		11,814			0.5	%
Multi-family		19,402			0.9	%		26,739			1.2	%
Total residential real estate		823,130			36.8	%		809,697			36.6	%
Commercial real estate:
Nonfarm nonresidential		594,096			26.5	%		557,202			25.2	%
Farmland		68,105			3.0	%		58,532			2.6	%
Total commercial real estate		662,201			29.5	%		615,734			27.8	%
Construction and land development:
Residential		99,056			4.4	%		100,974			4.6	%
Other		165,460			7.4	%		195,724			8.9	%
Total construction and land development		264,516			11.8	%		296,698			13.5	%
Home equity lines of credit		103,643			4.6	%		95,544			4.3	%
Commercial loans:
Other commercial loans		271,725			12.1	%		273,639			12.4	%
Agricultural		61,664			2.8	%		66,510			3.0	%
State, county, and municipal loans		35,116			1.6	%		34,819			1.6	%
Total commercial loans		368,505			16.5	%		374,968			17.0	%
Consumer loans		55,909			2.5	%		55,587			2.5	%
Total gross loans		2,277,904			101.7	%		2,248,228			101.7	%
Allowance for credit losses		(29,856	)		-1.3	%		(28,991	)		-1.3	%
Net discounts		(21	)		0.0	%		(129	)		0.0	%
Net deferred loan fees		(8,038	)		-0.4	%		(8,093	)		-0.4	%
Net loans	$	2,239,989			100.0	%	$	2,211,015			100.0	%

The Bank grants loans and extensions of credit to individuals and a variety of businesses and corporations located in its general trade area. Although the Bank has a diversified loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate and is dependent upon the real estate market. Relevant risk characteristics for these portfolio segments generally include debt service coverage, loan-to-value ratios and financial performance on non-consumer loans and credit scores, debt-to-income, collateral type and loan-to-value ratios for consumer loans.

The loan portfolio has been disaggregated into segments and then further disaggregated into classes for certain disclosures. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. There are three primary loan portfolio segments that include real estate, commercial, and consumer. A class is generally determined based on the initial measurement attribute, risk characteristic of the loan, and the Company’s method for monitoring and assessing credit risk. Classes within the real estate portfolio segment include residential real estate, commercial real estate, construction and land development and home equity lines of credit. The portfolio segments of non-real estate commercial loans and consumer loans have not been further segregated by class.

The following describe risk characteristics relevant to each of the portfolio segments:

Real estate - As discussed below, the Company offers various types of real estate loan products. All loans within this portfolio segment are particularly sensitive to the valuation of real estate:

Residential real estate and home equity lines of credit are repaid by various means such as through a borrower’s income, sale of the property, or rental income derived from the property.

Commercial real estate loans include both owner-occupied commercial real estate loans and other commercial real estate loans secured by income producing properties. Owner-occupied commercial real estate loans to operating businesses are long-term financing of land and buildings. These loans are repaid by cash flow generated from the business operation. Real estate loans for income-producing properties such as office and industrial buildings and retail shopping centers are repaid from rent income derived from the properties. Loans secured by farmland are repaid by various means such as through a borrower’s income, sale of the property, or rental income derived from the property.

Construction and land development loans are repaid through cash flow related to the operations, sale or refinance of the underlying property. This portfolio class includes extensions of credit to real estate developers or investors where repayment is dependent on the sale of the real estate or income generated from the real estate collateral.

Commercial loans - The commercial loan portfolio segment includes commercial and industrial loans, agricultural loans and loans to states and municipalities. These loans include those loans to commercial customers for use in normal business operations to finance working capital needs, equipment purchases, or expansion projects. Loans are repaid by business cash flows or tax revenues. Collection risk in this portfolio is driven by the creditworthiness of the underlying borrower, particularly by cash flows from the customers’ business operations.

Consumer loans - The consumer loan portfolio segment includes direct consumer installment loans, overdrafts and other revolving credit loans. Loans in this portfolio are sensitive to unemployment and other key consumer economic measures.

Under the current expected credit losses (CECL) methodology, the allowance for credit losses is measured on a collective basis for pools of loans with similar risk characteristics. For loans that do not share similar risk characteristics with the collectively evaluated pools, evaluations are performed on an individual basis. For all loan segments collectively evaluated, losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable forecast period losses are reverted to long-term historical averages. The estimated loan losses for all loan segments are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses.

The following tables present the balance in the allowance for credit losses by portfolio segment. It also includes the balance in the allowance for credit losses and the recorded investment in loans by portfolio segment and based on evaluation method for the periods indicated below (amounts in thousands).


	Real Estate Mortgage Loans
						Construction			Home equity
						and land			lines
Allowance for Credit Losses	Residential		Commercial			development			of credit			Commercial			Consumer			Total
Balance - December 31, 2023	$	7,233	$	10,530		$	4,646		$	1,078		$	4,906		$	598		$	28,991
Provision for credit losses		264		1,211			(738	)		143			367			62			1,309
Loan charge-offs		-		(249	)		(19	)		(50	)		(88	)		(61	)		(467	)
Loan recoveries		-		2			-			-			16			5			23
Balance - March 31, 2024	$	7,497	$	11,494		$	3,889		$	1,171		$	5,201		$	604		$	29,856

Ending balance:
Individually evaluated	$	11	$	278		$	-		$	-		$	302		$	34		$	625
Collectively evaluated		7,486		11,216			3,889			1,171			4,899			570			29,231
Total	$	7,497	$	11,494		$	3,889		$	1,171		$	5,201		$	604		$	29,856

Loans:
Individually evaluated	$	2,396	$	1,956		$	5		$	202		$	337		$	34		$	4,930
Collectively evaluated		820,734		660,245			264,511			103,441			368,168			55,875			2,272,974


	Real Estate Mortgage Loans
					Construction		Home equity
					and land		lines
Allowance for Credit Losses	Residential		Commercial		development		of credit		Commercial			Consumer			Total
Balance - December 31, 2022 prior to adoption of ASC 326	$	5,088	$	10,057	$	3,377	$	562	$	4,778		$	448		$	24,310
Impact of adopting ASC 326		-		-		-		-		73			7			80
Provision for credit losses		253		892		138		156		(208	)		80			1,311
Loan charge-offs		-		-		-		-		(67	)		(34	)		(101	)
Loan recoveries		-		77		-		-		33			4			114
Balance - March 31, 2023	$	5,341	$	11,026	$	3,515	$	718	$	4,609		$	505		$	25,714

Ending balance:
Individually evaluated	$	-	$	693	$	-	$	-	$	312		$	42		$	1,047
Collectively evaluated		5,341		10,333		3,515		718		4,297			463			24,667
Total	$	5,341	$	11,026	$	3,515	$	718	$	4,609		$	505		$	25,714

Loans:
Individually evaluated	$	1,818	$	6,729	$	177	$	-	$	591		$	42		$	9,357
Collectively evaluated		637,041		579,290		271,223		69,227		299,764			51,115			1,907,660
Total	$	638,859	$	586,019	$	271,400	$	69,227	$	300,355		$	51,157		$	1,917,017

The Company's unfunded lending commitments are unconditionally cancellable and therefore no allowance for credit losses has been recorded. 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 the allowance for credit losses. Accrued interest on loans of $11.4 million and $11.3 million at March 31, 2024 and December 31, 2023, respectively, was included in accrued interest receivable and was excluded from the estimate of credit losses.

The following table presents collateral dependent loans by class of loans as of March 31, 2024 (amounts in thousands). Collateral dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. The Company reviews individually evaluated loans for designation as collateral dependent loans, as well as other loans that management of the Company designates as having higher risk. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. The Company considers all individually evaluated loans to be collateral dependent.


Nonaccruing Collateral Dependent Loans	Unpaid Principal Balance		Recorded Investment		Loans With No Allowance		Loans With Allowance		Allowance for Credit Losses
Mortgage loans on real estate:
Residential real estate	$	1,306	$	1,306	$	1,306	$	-	$	-
Commercial real estate		1,652		1,652		328		1,324		278
Construction and land development		5		5		5		-		-
Total mortgage loans on real estate		2,963		2,963		1,639		1,324		278
Home equity lines of credit		202		202		202		-		-
Commercial loans		277		277		-		277		277
Consumer loans		4		4		-		4		4
Total Loans	$	3,446	$	3,446	$	1,841	$	1,605	$	559


Accruing Collateral Dependent Loans	Unpaid Principal Balance		Recorded Investment		Loans With No Allowance		Loans With Allowance		Allowance for Credit Losses
Mortgage loans on real estate:
Residential real estate	$	1,090	$	1,090	$	926	$	164	$	11
Commercial real estate		304		304		304		-		-
Construction and land development		-		-		-		-		-
Total mortgage loans on real estate		1,394		1,394		1,230		164		11
Home equity lines of credit		-		-		-		-		-
Commercial loans		60		60		34		26		25
Consumer loans		30		30		-		30		30
Total Loans	$	1,484	$	1,484	$	1,264	$	220	$	66


Total Collateral Dependent Loans	Unpaid Principal Balance		Recorded Investment		Loans With No Allowance		Loans With Allowance		Allowance for Credit Losses
Mortgage loans on real estate:
Residential real estate	$	2,396	$	2,396	$	2,232	$	164	$	11
Commercial real estate		1,956		1,956		632		1,324		278
Construction and land development		5		5		5		-		-
Total mortgage loans on real estate		4,357		4,357		2,869		1,488		289
Home equity lines of credit		202		202		202		-		-
Commercial loans		337		337		34		303		302
Consumer loans		34		34		-		34		34
Total Loans	$	4,930	$	4,930	$	3,105	$	1,825	$	625

The following table presents collateral dependent loans by class of loans as of December 31, 2023 (amounts in thousands).


Nonaccruing Collateral Dependent Loans	Unpaid Principal Balance		Recorded Investment		Loans With No Allowance		Loans With Allowance		Allowance for Credit Losses
Mortgage loans on real estate:
Residential real estate	$	1,229	$	1,229	$	1,229	$	-	$	-
Commercial real estate		2,769		2,769		1,423		1,346		300
Construction and land development		364		364		364		-		-
Total mortgage loans on real estate		4,362		4,362		3,016		1,346		300
Home equity lines of credit		202		202		202		-		-
Commercial loans		-		-		-		-		-
Consumer loans		5		5		-		5		5
Total Loans	$	4,569	$	4,569	$	3,218	$	1,351	$	305


Accruing Collateral Dependent Loans	Unpaid Principal Balance		Recorded Investment		Loans With No Allowance		Loans With Allowance		Allowance for Credit Losses
Mortgage loans on real estate:
Residential real estate	$	1,099	$	1,099	$	934	$	165	$	12
Commercial real estate		9		9		9		-		-
Construction and land development		-		-		-		-		-
Total mortgage loans on real estate		1,108		1,108		943		165		12
Home equity lines of credit		-		-		-		-		-
Commercial loans		26		26		-		26		26
Consumer loans		35		35		-		35		35
Total Loans	$	1,169	$	1,169	$	943	$	226	$	73


Total Collateral Dependent Loans	Unpaid Principal Balance		Recorded Investment		Loans With No Allowance		Loans With Allowance		Allowance for Credit Losses
Mortgage loans on real estate:
Residential real estate	$	2,328	$	2,328	$	2,163	$	165	$	12
Commercial real estate		2,778		2,778		1,432		1,346		300
Construction and land development		364		364		364		-		-
Total mortgage loans on real estate		5,470		5,470		3,959		1,511		312
Home equity lines of credit		202		202		202		-		-
Commercial loans		26		26		-		26		26
Consumer loans		40		40		-		40		40
Total Loans	$	5,738	$	5,738	$	4,161	$	1,577	$	378

The following tables present the performance status of loans as of March 31, 2024 and December 31, 2023, by class of loans (amounts in thousands).


As of March 31, 2024	Performing		Nonperforming		Total
Mortgage loans on real estate:
Residential real estate	$	821,413	$	1,717	$	823,130
Commercial real estate		660,549		1,652		662,201
Construction and land development		264,223		293		264,516
Total mortgage loans on real estate		1,746,185		3,662		1,749,847
Home equity lines of credit		103,265		378		103,643
Commercial loans		368,228		277		368,505
Consumer loans		55,801		108		55,909
Total Loans	$	2,273,479	$	4,425	$	2,277,904


As of December 31, 2023	Performing		Nonperforming		Total
Mortgage loans on real estate:
Residential real estate	$	807,682	$	2,015	$	809,697
Commercial real estate		612,965		2,769		615,734
Construction and land development		296,187		511		296,698
Total mortgage loans on real estate		1,716,834		5,295		1,722,129
Home equity lines of credit		95,115		429		95,544
Commercial loans		374,968		-		374,968
Consumer loans		55,444		143		55,587
Total Loans	$	2,242,361	$	5,867	$	2,248,228

The following tables present the aging of loans and non-accrual loans as of March 31, 2024 and December 31, 2023, by class of loans (amounts in thousands).


	Accruing Loans
As of March 31, 2024	Current		30-89 Days Past Due		90+ Days Past Due		Nonaccrual Loans		Total Loans		Nonaccrual With No ACL
Mortgage loans on real estate:
Residential real estate	$	818,821	$	2,592	$	-	$	1,717	$	823,130	$	1,717
Commercial real estate		657,692		2,857		-		1,652		662,201		328
Construction and land development		264,170		53		68		225		264,516		225
Total mortgage loans on real estate		1,740,683		5,502		68		3,594		1,749,847		2,270
Home equity lines of credit		102,892		373		-		378		103,643		378
Commercial loans		367,730		498		-		277		368,505		-
Consumer loans		55,400		401		-		108		55,909		104
Total Loans	$	2,266,705	$	6,774	$	68	$	4,357	$	2,277,904	$	2,752


	Accruing Loans
As of December 31, 2023	Current		30-89 Days Past Due		90+ Days Past Due		Nonaccrual Loans		Total Loans		Nonaccrual With No ACL
Mortgage loans on real estate:
Residential real estate	$	805,262	$	2,420	$	288	$	1,727	$	809,697	$	1,727
Commercial real estate		612,901		64		-		2,769		615,734		1,423
Construction and land development		296,030		157		-		511		296,698		511
Total mortgage loans on real estate		1,714,193		2,641		288		5,007		1,722,129		3,661
Home equity lines of credit		95,003		112		-		429		95,544		429
Commercial loans		374,699		269		-		-		374,968		-
Consumer loans		55,061		383		-		143		55,587		137
Total Loans	$	2,238,956	$	3,405	$	288	$	5,579	$	2,248,228	$	4,227

The Bank categorizes loans in risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis is performed on a continuous basis. The Bank uses the following definitions for its risk ratings:

Special Mention - Weakness exists that could cause future impairment, including the deterioration of financial ratios, past due status and questionable management capabilities. Collateral values generally afford adequate coverage but may not be immediately marketable.

Substandard - Specific and well-defined weaknesses exist that may include poor liquidity and deterioration of financial ratios. The loan may be past due and related deposit accounts experiencing overdrafts. Immediate corrective action is necessary.

Doubtful - Specific weaknesses characterized as Substandard that are severe enough to make collection in full unlikely. There is no reliable secondary source of full repayment. Loans classified as doubtful will be placed on non-accrual, analyzed and fully or partially charged-off based on review of collateral and other relevant factors.

Loans not meeting the criteria above that are evaluated individually as part of the above described process are considered to be Pass rated loans.

The following table presents loan balances classified by credit quality indicator, loan type and based on year of origination as of March 31, 2024 (amounts in thousands).


	2024		2023		2022		2021		2020		Prior		Revolving Loans		Total
Residential real estate
Pass	$	24,786	$	214,582	$	348,365	$	117,437	$	66,311	$	40,678	$	2,799	$	814,958
Special Mention		232		1,700		2,227		580		156		205		-		5,100
Substandard		74		35		1,533		82		258		1,090		-		3,072
Doubtful		-		-		-		-		-		-		-		-
Total residential real estate	$	25,092	$	216,317	$	352,125	$	118,099	$	66,725	$	41,973	$	2,799	$	823,130
Commercial real estate
Pass	$	9,780	$	103,686	$	210,951	$	98,190	$	94,837	$	112,271	$	17,332	$	647,047
Special Mention		-		542		975		4,218		1,495		5,054		772		13,056
Substandard		-		48		-		-		45		1,995		10		2,098
Doubtful		-		-		-		-		-		-		-		-
Total commercial real estate	$	9,780	$	104,276	$	211,926	$	102,408	$	96,377	$	119,320	$	18,114	$	662,201
Current-period gross charge-offs	$	-	$	-			$	-	$	-	$	249	$	-	$	249
Construction and land development
Pass	$	14,407	$	148,289	$	71,009	$	13,707	$	3,633	$	4,141	$	8,412	$	263,598
Special Mention		-		211		450		-		-		32		-		693
Substandard		-		-		46		82		5		92		-		225
Doubtful		-		-		-		-		-		-		-		-
Total construction and land development	$	14,407	$	148,500	$	71,505	$	13,789	$	3,638	$	4,265	$	8,412	$	264,516
Current-period gross charge-offs	$	-	$	-	$	19	$	-	$	-	$	-	$	-	$	19
Home equity lines of credit
Pass	$	73	$	749	$	450	$	-	$	582	$	-	$	101,174	$	103,028
Special Mention		-		-		-		-		-		-		197		197
Substandard		-		-		-		-		-		20		398		418
Doubtful		-		-		-		-		-		-		-		-
Total home equity lines of credit	$	73	$	749	$	450	$	-	$	582	$	20	$	101,769	$	103,643
Current-period gross charge-offs	$	-	$	-	$	-	$	50	$	-	$	-	$	-	$	50
Commercial loans
Pass	$	16,103	$	88,943	$	71,182	$	29,083	$	14,844	$	13,205	$	126,285	$	359,645
Special Mention		-		165		134		141		220		4,035		3,828		8,523
Substandard		-		-		159		-		41		-		137		337
Doubtful		-		-		-		-		-		-		-		-
Total commercial loans	$	16,103	$	89,108	$	71,475	$	29,224	$	15,105	$	17,240	$	130,250	$	368,505
Current-period gross charge-offs	$	-	$	-	$	-	$	-	$	-	$	88	$	-	$	88
Consumer loans
Pass	$	4,942	$	18,739	$	13,005	$	7,403	$	3,632	$	3,639	$	4,054	$	55,414
Special Mention		29		55		102		78		16		2		23		305
Substandard		-		28		39		26		54		33		10		190
Doubtful		-		-		-		-		-		-		-		-
Total consumer loans	$	4,971	$	18,822	$	13,146	$	7,507	$	3,702	$	3,674	$	4,087	$	55,909
Current-period gross charge-offs	$	-	$	45	$	16	$	-	$	-	$	-	$	-	$	61
Total Loans
Pass	$	70,091	$	574,988	$	714,962	$	265,820	$	183,839	$	173,934	$	260,056	$	2,243,690
Special Mention		261		2,673		3,888		5,017		1,887		9,328		4,820		27,874
Substandard		74		111		1,777		190		403		3,230		555		6,340
Doubtful		-		-		-		-		-		-		-		-
Total loans	$	70,426	$	577,772	$	720,627	$	271,027	$	186,129	$	186,492	$	265,431	$	2,277,904
Current-period gross charge-offs	$	-	$	45	$	35	$	50	$	-	$	337	$	-	$	467

The following table presents loan balances classified by credit quality indicator, loan type and based on year of origination as of December 31, 2023 (amounts in thousands).


	2023		2022		2021		2020		2019		Prior		Revolving Loans		Total
Residential real estate
Pass	$	209,016	$	354,153	$	120,802	$	68,229	$	16,903	$	25,380	$	7,420	$	801,903
Special Mention		1,742		2,013		590		157		27		176		-		4,705
Substandard		36		1,240		151		258		719		685		-		3,089
Doubtful		-		-		-		-		-		-		-		-
Total residential real estate	$	210,794	$	357,406	$	121,543	$	68,644	$	17,649	$	26,241	$	7,420	$	809,697
Commercial real estate
Pass	$	81,239	$	196,437	$	99,072	$	96,775	$	51,677	$	64,851	$	14,977	$	605,028
Special Mention		419		978		383		881		-		5,122		-		7,783
Substandard		49		-		-		46		50		2,769		9		2,923
Doubtful		-		-		-		-		-		-		-		-
Total commercial real estate	$	81,707	$	197,415	$	99,455	$	97,702	$	51,727	$	72,742	$	14,986	$	615,734
Construction and land development
Pass	$	148,804	$	93,987	$	20,752	$	4,678	$	2,421	$	4,591	$	20,139	$	295,372
Special Mention		211		472		14		-		22		12		-		731
Substandard		-		411		84		-		-		100		-		595
Doubtful		-		-		-		-		-		-		-		-
Total construction and land development	$	149,015	$	94,870	$	20,850	$	4,678	$	2,443	$	4,703	$	20,139	$	296,698
Current-period gross charge-offs	$	-	$	-	$	196	$	-	$	-	$	-	$	-	$	196
Home equity lines of credit
Pass	$	750	$	450	$	-	$	852	$	-	$	-	$	92,823	$	94,875
Special Mention		-		-		-		-		-		-		200		200
Substandard		-		-		-		-		-		20		449		469
Doubtful		-		-		-		-		-		-		-		-
Total home equity lines of credit	$	750	$	450	$	-	$	852	$	-	$	20	$	93,472	$	95,544
Commercial loans
Pass	$	94,966	$	73,381	$	30,912	$	16,257	$	6,505	$	10,700	$	134,488	$	367,209
Special Mention		175		142		49		294		26		4,057		2,990		7,733
Substandard		-		-		-		26		-		-		-		26
Doubtful		-		-		-		-		-		-		-		-
Total commercial loans	$	95,141	$	73,523	$	30,961	$	16,577	$	6,531	$	14,757	$	137,478	$	374,968
Current-period gross charge-offs	$	288	$	46	$	1	$	-	$	23	$	338	$	-	$	696
Consumer loans
Pass	$	21,479	$	14,017	$	8,188	$	3,949	$	1,950	$	2,567	$	2,933	$	55,083
Special Mention		77		107		36		16		3		-		27		266
Substandard		65		46		26		56		-		34		11		238
Doubtful		-		-		-		-		-		-		-		-
Total consumer loans	$	21,621	$	14,170	$	8,250	$	4,021	$	1,953	$	2,601	$	2,971	$	55,587
Current-period gross charge-offs	$	-	$	120	$	-	$	15	$	-	$	-	$	-	$	135
Total Loans
Pass	$	556,254	$	732,425	$	279,726	$	190,740	$	79,456	$	108,089	$	272,780	$	2,219,470
Special Mention		2,624		3,712		1,072		1,348		78		9,367		3,217		21,418
Substandard		150		1,697		261		386		769		3,608		469		7,340
Doubtful		-		-		-		-		-		-		-		-
Total loans	$	559,028	$	737,834	$	281,059	$	192,474	$	80,303	$	121,064	$	276,466	$	2,248,228
Current-period gross charge-offs	$	288	$	166	$	197	$	15	$	23	$	338	$	-	$	1,027

Note 6 – Fair Value Measurements and Disclosures

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as individually evaluated loans, foreclosed assets, and repossessed assets. These nonrecurring fair value adjustments typically involve application of the lower of cost or market accounting or write-downs of individual assets.

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

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

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

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

The following is a description of valuation methodologies used for assets and liabilities recorded or disclosed at fair value:

Cash and cash equivalents – For disclosure purposes, for cash, due from banks, interest-bearing deposits and federal funds sold, the carrying amount is a reasonable estimate of fair value.

Certificates of deposit in banks – For disclosure purposes, the carrying amount of certificates of deposit is a reasonable estimate of fair value.

Investment Securities – Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange and securities that are traded by dealers or brokers in active over-the-counter market funds. Level 2 securities include mortgage-backed securities issued by government sponsored enterprises and municipal bonds. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Mortgage loans held for sale – Loans held for sale are carried at the lower of cost or fair value, which is evaluated on a loan-level basis. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors.

Loans – The fair value estimation process for the loan portfolio uses an exit price concept and reflects discounts the Company believes are consistent with discounts in the marketplace. Fair values are estimated for portfolios of loans with similar characteristics. The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for similar maturities. The fair value analysis also includes other assumptions to estimate fair value, intended to approximate those a market participant would use in an orderly transaction, with adjustments for discount rates, interest rates, liquidity, and credit spreads, as appropriate.

Accrued interest receivable – For disclosure purposes, the fair value of the accrued interest on investments and loans is the carrying value.

Bank owned life insurance – For disclosure purposes, the fair value of the cash surrender value of bank owned life insurance policies is equivalent to the carrying value.

Foreclosed assets – Other real estate properties and miscellaneous repossessed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value less selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. When the fair value of the collateral is based on an observable market price, the Company records the foreclosed asset as nonrecurring Level 2. When the fair value is based on an appraised value or management’s estimate of value, the Company records the foreclosed asset as nonrecurring Level 3.

Restricted equity securities – It is not practical to determine the fair value of restricted equity securities due to restrictions placed on transferability.

Deposits – For disclosure purposes, the fair value for demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered for deposits of similar remaining maturities.

Securities sold under agreements to repurchase – For disclosure purposes, the carrying amounts of securities sold under agreements to repurchase approximate their fair values.

Federal Home Loan Bank advances – For disclosure purposes, the fair value of Federal Home Loan Bank advances is estimated using discounted cash flow analyses using interest rates offered for borrowings with similar maturities.

Subordinated debentures – For disclosure purposes, the fair value is estimated using a discounted cash flow calculation that applies interest rates currently being offered for similar subordinated debenture offerings.

Accrued interest payable – For disclosure purposes, the fair value of the accrued interest payable on deposits is the carrying value.

Commitments to extend credit and standby letters of credit – Because commitments to extend credit and standby letters of credit are generally short-term and made using variable rates, the carrying value and estimated fair value associated with these instruments are immaterial.

Assets and liabilities measured at fair value on a recurring basis – The only assets and liabilities measured at fair value on a recurring basis are our securities available-for-sale. Information related to the Company’s assets and liabilities measured at fair value on a recurring basis at March 31, 2024 and December 31, 2023 is as follows: (amounts in thousands)


	Fair Value Measurements At Reporting Date Using:
March 31, 2024	Fair Value		Quoted Prices In Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Securities available-for-sale:
Residential mortgage -backed	$	346,477	$	-	$	346,477	$	-
U.S. treasury securities		105,819		-		105,819		-
U.S. government sponsored enterprises		56,421		-		56,421		-
State, county, and municipal		60,979		-		60,979		-
Corporate debt obligations		14,742		-		14,742		-
Totals	$	584,438	$	-	$	584,438	$	-


	Fair Value Measurements At Reporting Date Using:
December 31, 2023	Fair Value		Quoted Prices In Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Securities available-for-sale:
Residential mortgage -backed	$	357,300	$	-	$	357,300	$	-
U.S. treasury securities		120,052		-		120,052		-
U.S. government sponsored enterprises		63,566		-		63,566		-
State, county, and municipal		64,661		-		64,661		-
Corporate debt obligations		15,512		-		15,512		-
Totals	$	621,091	$	-	$	621,091	$	-

The Company's policy is to recognize transfers in and transfers out of levels 1, 2, and 3 as of the end of a reporting period. There were no transfers between levels from December 31, 2023 to March 31, 2024 (amounts in thousands):


	Significant Unobservable Inputs (Level 3)
	March 31, 2024		December 31, 2023
Fair value, beginning of period	$	-	$	5,621
Transfers into Level 3		-		-
Transfers out of Level 3		-		(5,621	)
Changes in unrealized gains/losses included in other comprehensive income for assets and liabilities still held at period-end		-		-
Fair value, end of period	$	-	$	-

Assets measured at fair value on a nonrecurring basis – The Company may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. These include assets that are measured at the lower of cost or market that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis are included in the table below as of March 31, 2024 and December 31, 2023 (amounts in thousands):


	Fair Value Measurements At Reporting Date Using:
March 31, 2024	Fair Value		Quoted Prices In Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Individually evaluated loans	$	4,305	$	-	$	-	$	4,305
Foreclosed assets		924		-		-		924
Totals	$	5,229	$	-	$	-	$	5,229


December 31, 2023	Fair Value		Quoted Prices In Active Markets For Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Individually evaluated loans	$	5,360	$	-	$	-	$	5,360
Foreclosed assets		92		-		-		92
Totals	$	5,452	$	-	$	-	$	5,452

The Company has estimated the fair values of these assets using Level 3 inputs, specifically the appraised value of the collateral. Individually evaluated loan balances represent those collateral dependent loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the collateral dependent loan for the amount of the credit loss. For Level 3 assets measured at fair value on a non-recurring basis as of March 31, 2024 and December 31, 2023 for the valuation technique, we used appraisals. For the significant unobservable input, we used appraisal discounts, and weighted average input of 15-20% was used for the period ended March 31, 2024 and December 31, 2023.

The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments as of March 31, 2024 and December 31, 2023 are as follows (amounts in thousands):


			Estimated Fair Value
March 31, 2024	Carrying Amount		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	213,931	$	213,931	$	-	$	-
Certificates of deposit in banks		4,218		-		4,218		-
Securities held-to-maturity		125,711		-		100,538		-
Securities available-for-sale		584,438		-		584,438		-
Loans held-for-sale		4,554		-		4,554		-
Loans receivable, net		2,239,989		-		2,189,409		4,305
Accrued interest receivable		14,090		-		14,090		-
Bank owned life insurance		47,342		-		47,342		-
Restricted equity securities		12,526		-		-		12,526
Financial liabilities:
Deposits		2,893,762		-		2,654,851		-
Securities sold under agreements to repurchase		14,588		-		14,588		-
Federal Home Loan Bank advances		205,000		-		204,090		-
Subordinated debentures		39,510		-		30,301		-
Accrued interest payable		2,022		-		2,022		-


			Estimated Fair Value
December 31, 2023	Carrying Amount		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	72,547	$	72,547	$	-	$	-
Certificates of deposit in banks		4,218		-		4,218		-
Securities held-to-maturity		126,793		-		103,174		-
Securities available-for-sale		621,091		-		621,091		-
Loans held-for-sale		4,595		-		4,595		-
Loans receivable, net		2,211,015		-		2,180,082		5,360
Accrued interest receivable		14,091		-		14,091		-
Bank owned life insurance		47,001		-		47,001		-
Restricted equity securities		13,433		-		-		13,433
Financial liabilities:
Deposits		2,730,655		-		2,574,801		-
Securities sold under agreements to repurchase		16,731		-		16,731		-
Federal Home Loan Bank advances		230,000		-		229,430		-
Subordinated debentures		39,492		-		30,944		-
Accrued interest payable		2,178		-		2,178		-

The estimated fair values of the standby letters of credit and loan commitments on which the committed interest rate is less than the current market rate are insignificant as of March 31, 2024 and December 31, 2023.

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed-rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed-rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling-rate environment. Management monitors rates and maturities of assets and liabilities, and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

Note 7 – Recently Adopted Accounting Pronouncements

In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The amendments eliminate the accounting guidance for TDR recognition in Subtopic 310-40, Receivables – Trouble Debt Restructurings by Creditors by entities that have adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. For public business entities, the amendments require disclosure of current-period gross write-offs by year of origination for financing receivables and net investment in leases within the scope of Subtopic 326-20. Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 326-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit quality indicator and class of financing receivable by year of origination. The Company adopted ASU 2022-02 effective January 1, 2023 on a prospective basis. Adoption of ASU 2022-02 did not have a material impact on the Company’s consolidated financial statements.

On January 1, 2023, the Company adopted ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”, as amended, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not they will be required to sell.

The Company adopted ASU 2016-13 and all subsequent amendments thereto effective January 1, 2023, using the modified retrospective method for all financial assets measured at amortized cost and off balance sheet credit exposures. Amounts for periods beginning on or after January 1, 2023, are presented under ASU 2016-13 and all prior period information is presented in accordance with previously applicable GAAP. At January 1, 2023, the Company recognized a cumulative adjustment to retained earnings of $24 thousand, net of tax, attributable to an increase in the allowance for credit losses of $80 thousand and an increase in deferred tax assets of $8 thousand. Included in the $80 thousand increase in the allowance for credit losses is $48 thousand that was recognized on purchased with credit deterioration (PCD) loans previously classified as purchased credit impaired (PCI) with a corresponding adjustment to the gross carrying amount of the loans. The Company adopted ASU 2016-13 using the prospective transition approach for PCD loans, which did not require re-evaluation of whether loans previously classified as PCI loans met the criteria of PCD assets at the date of adoption. The remaining noncredit discount will be accreted into interest income over the life of the individual loans beginning January 1, 2023.

On January 1, 2024, the Company adopted ASU 2023-02, Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. These amendments allowed entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits. The ASU responded to stakeholder feedback that the proportional amortization method provided investors and other allocators of capital with a better understanding of the returns from investments that were made primarily for the purpose of receiving income tax credits and other income tax benefits. ASU 2023-02 was effective for public entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Adoption of ASU 2023-02 did not have a material impact on the Company’s consolidated financial statements.

Note 8 – Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 expands disclosure requirements for significant segment expenses under Topic 280. The amendments require public entities to disclose significant expense categories for each reportable segment, other segment items, the title and position of the chief operating decision-maker, and interim disclosures of certain segment-related information previously required only on an annual basis. The amendments clarify that entities reporting single segments must disclose both the new and existing segment disclosures under Topic 280, and a public entity is permitted to disclose multiple measures of segment profit or loss if certain criteria are met. The amendments in this update are effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 31, 2024. ASU 2023-07 must be applied on a retrospective basis. Early adoption is permitted. This standard is not expected to have a material impact on the Company’s consolidated results of operations or financial position.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 expands income tax disclosure requirements. The amendments require annual disclosure of certain information relating to the rate reconciliation, income taxes paid by jurisdiction, income (loss) from continuing operations before income tax expense (benefit) disaggregated between domestic and foreign, income tax expense (benefit) from continuing operations disaggregated by federal (national), state, and foreign. The amendments also eliminate certain requirements relating to unrecognized tax benefits and certain deferred tax disclosure relating to subsidiaries and corporate joint ventures. The amendments in this update are effective for years beginning after December 15, 2024. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. Early adoption is permitted. This standard is not expected to have a material impact on the Company’s consolidated results of operations or financial position.

Note 9 – Defined Contribution Plan

The Company provides a 401(k) employee stock ownership plan (ESOP), which covers substantially all of the Company’s employees who are eligible, as to age and length of service. A participant may elect to make contributions up to $23.0 thousand and $22.5 thousand of the participant’s annual compensation in 2024 and 2023, respectively. The Company makes contributions up to 3% of each participant’s annual compensation and the Company matches 50% of the next 2% contributed by the employee. Contributions to the plan by the Company were approximately $211 thousand and $198 thousand for the three months ended March 31, 2024 and 2023, respectively. Outstanding shares of the Company’s common stock allocated to participants at March 31, 2024 and December 31, 2023 totaled 166,664 shares, and there were no unallocated shares. These shares are treated as outstanding for purposes of calculating earnings per share and dividends on these shares are included in the Consolidated Statements of Stockholders’ Equity.

The Company’s ESOP includes a put option for shares of the Company’s common stock distributed from the ESOP. Shares are distributed from the ESOP primarily to separate vested participants and certain eligible participants who elect to diversify their account balances. Since the Company’s common stock is not currently traded on an established securities market, if the owners of distributed shares desire to sell their shares, the Company is required to purchase the shares at fair value during two put option periods following the distribution of the shares from the ESOP. The first put option period is within sixty days following the distribution of the shares from the ESOP. The second put option period begins on the first day of the fifth month of the plan year for a sixty day period. The fair value of distributed shares subject to the put option totaled $0 as of March 31, 2024 and December 31, 2023. The cost of the ESOP shares totaled $4.48 million and $4.48 million as of March 31, 2024 and December 31, 2023, respectively. Due to the Company’s obligation under the put option, the distributed shares and ESOP shares are classified as temporary equity in the mezzanine section of the consolidated statements of financial condition and totaled $4.48 million and $4.48 million as of March 31, 2024 and December 31, 2023, respectively. The fair value of the ESOP shares totaled $6.17 million and $6.17 million as of March 31, 2024 and December 31, 2023, respectively.

Note 10 – Loans Held for Sale

The Company has entered into agreements with secondary market investors to deliver loans on a “best efforts delivery” basis. When a rate is committed to a borrower, it is based on the best price that day and locked with the investor for the customer for a thirty day period. In the event the loan is not delivered to the investor, the Company has no risk or exposure with the investor. The fair values of the Company’s agreements with investors and rate lock commitments to customers as of March 31, 2024 and December 31, 2023, respectively, were not material.

Note 11 – Leases

Operating lease assets represent the Company’s right to use an underlying asset during the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and 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 borrowing rate at the lease commencement date. Operating lease cost, which is comprised of amortization of the operating lease 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 expenses in the consolidated statements of income.The Company leases certain full-service branch offices, land, and equipment. Leases with an initial term of twelve months or less are not recorded on the balance sheet. Most leases include one or more options to renew and the exercise of the lease renewal options are at the Company’s sole discretion. The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option.

The following table represents the consolidated statements of condition classification of the Company’s ROU assets and lease liabilities. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the consolidated statements of financial condition.


Lease Right-of-Use Assets	Classification on Consolidated Statement of Condition	March 31, 2024		December 31, 2023
Operating lease right-of-use assets	Other Assets	$	3,104	$	3,243

Lease Liabilities	Classification on Consolidated Statement of Condition	March 31, 2024		December 31, 2023
Operating lease liabilities	Accrued interest payable and other liabilities	$	3,264	$	3,407


	March 31, 2024			December 31, 2023
Weighted-average remaining lease term for operating leases	8.45 Years			8.50 Years
Weighted-average discount rate for operating leases		6.00	%		6.00	%

Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2024 are as follows:


	Operating Leases
April 1, 2024 - March 31, 2025	$	770
April 1, 2025 - March 31, 2026		648
April 1, 2026 - March 31, 2027		449
April 1, 2027 - March 31, 2028		401
April 1, 2028 - March 31, 2029		333
Afterward		1,667
Total future minimum lease payments		4,268
Amounts representing interest		(1,004	)
Present value of net future minimum lease payments	$	3,264

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

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes thereto for the year ended December 31, 2023, which are contained in the Annual Report on Form 10-K for the year ended December 31, 2023. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from our expectations. Factors that could cause such differences are discussed in our 2023 Annual Report on Form 10-K under “Part I, Item 1A - Risk Factors.” We assume no obligation to update any of these forward-looking statements.

The following discussion pertains to our historical results on a consolidated basis. However, because we conduct all of our material business operations through our subsidiaries, the discussion and analysis relates to activities primarily conducted at the subsidiary level.

All dollar amounts in the tables in this section are in thousands of dollars, except per share data, yields, percentages and rates or when specifically identified. As used in this Item, the words “we,” “us,” “our,” the “Company,” “RFC,” “River” and similar terms refer to River Financial Corporation and its consolidated affiliate, unless the context indicates otherwise.

Our Business

We are a bank holding company headquartered in Prattville, Alabama. We engage in the business of banking through our wholly-owned banking subsidiary, River Bank & Trust, which we may refer to as the “Bank” or “River Bank.” Through the Bank, we provide a broad array of financial services to businesses, business owners, professionals, and consumers. As of March 31, 2024, we operated twenty-three full-service banking offices in Alabama in the cities of Montgomery, Prattville, Millbrook, Wetumpka, Auburn, Opelika, Gadsden, Alexander City, Daphne, Clanton, Dothan, Enterprise, Mobile, Decatur, Huntsville, Saraland, and Birmingham, Alabama. We also have one loan production office in Florence, Alabama.

Segments

While our chief decision makers monitor the revenue streams of the various banking products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all of the Company’s banking operations are considered by management to be aggregated in one reportable operating segment. Because the overall banking operations comprise substantially all of the consolidated operations, no separate segment disclosures are presented in the accompanying consolidated financial statements.

Overview of First Quarter 2024 Results

Net income was $5.8 million in the quarter ended March 31, 2024, compared with $5.1 million in the quarter ended March 31, 2023. Several significant measures from the 2024 first quarter include:

•

Net interest margin (taxable equivalent) of 2.76%, compared with 2.78% for the first quarter of 2023.

•

Net interest income increase of $2.5 million for the quarter ended March 31, 2024, representing a 13.38% rate of increase over the quarter ended March 31, 2023.

•

Annualized return on average earning assets for the quarter ended March 31, 2024 of 0.73% compared with 0.73% for the quarter ended March 31, 2023.

•

Annualized return on average equity for the quarter ended March 31, 2024 of 11.61% compared with 14.51% for the quarter ended March 31, 2023.

•

Loan increase of $29.8 million during the quarter ended March 31, 2024, representing a 5.33% annualized growth rate.

•

Securities decrease of $37.7 million during the quarter ended March 31, 2024, representing a 20.18% annualized decrease for the quarter.

•

Deposit increase of $163.1 million during the quarter ended March 31, 2024, representing a 23.89% annualized growth rate.

•

Stockholders’ equity decrease of $612.0 thousand during the quarter ended March 31, 2024, representing a 1.23% annualized decrease.

•

Book value per share of $26.38 at March 31, 2024, compared with $26.49 per share at December 31, 2023.

•

Tangible book value per share of $22.58 at March 31, 2024, compared with $22.67 at December 31, 2023.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared based on the application of certain accounting policies, the most significant of which are described in the notes to the financial statements for the year ended December 31, 2023, which are contained in our Annual Report filed on Form 10-K. Certain of these policies require numerous estimates and strategic or economic assumptions that may prove inaccurate or subject to variation and may significantly affect our reported results and financial position for the current period or future periods. The use of estimates, assumptions, and judgment is necessary when financial assets and liabilities are required to be recorded at or adjusted to reflect fair value. Assets carried at fair value inherently result in more financial statement volatility. Fair values and information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices or are provided by other independent third-party sources, when available. When such information is not available, management estimates valuation adjustments. Changes in underlying factors, assumptions or estimates in any of these areas could have a material impact on our future financial condition and results of operations.

The following briefly describes the more complex policies involving a significant amount of judgments about valuation and the application of complex accounting standards and interpretations.

Allowance for Credit Losses

The allowance for credit losses has been determined in accordance with GAAP. The Company is responsible for the timely and periodic determination of the amount of the allowance for credit losses. Management believes that the allowance for credit losses is adequate to cover expected credit losses over the life of the loan portfolio. Although management evaluates available information to determine the adequacy of the allowance for credit losses, the level of allowance is an estimate which is subject to significant judgment and short-term change. Because of uncertainties associated with local and national economic forecasts, the operating and regulatory environment, collateral values and future cash flows from the loan portfolio, it is possible that a material change could occur in the allowance for credit losses in the near term. The evaluation of the adequacy of loan collateral is often based upon estimates and appraisals. Because of changing economic conditions, the valuations determined from such estimates and appraisals may also change.

Accordingly, the Company may ultimately incur losses that vary from management’s current estimates. Adjustments to the allowance for credit losses will be reported in the period in which such adjustments become known and can be reasonably estimated. All loan losses are charged to the allowance for credit losses when the loss actually occurs or when the collectability of the principal is unlikely. Recoveries are credited to the allowance at the time of recovery. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for credit losses. As a result of such examinations, the Company may need to recognize additions to the allowance for credit losses based on the regulators’ judgments.

In estimating the allowance for credit losses, the Company relies on models and economic forecasts developed by external parties as the primary driver of the allowance for credit losses. These models and forecasts are based on nationwide sets of data. Economic forecasts can change significantly over an economic cycle and have a significant level of uncertainty associated with them. The performance of the models is dependent on the variables used in the models being reasonable proxies for the loan portfolio’s performance. However, these variables may not capture all sources of risk within the portfolio. As a result, the Company reviews the results and makes qualitative adjustments to the models to capture limitations of the models as necessary. Such qualitative factors may include adjustments to better capture the imprecision associated with the economic forecasts, and the ability of the models to capture emerging risks within the portfolio that may not be represented in the data. These judgments are evaluated through the Company’s review process and revised on a quarterly basis to account for changes in facts and circumstances. It is difficult to estimate how potential changes in any one of the quantitative inputs or qualitative factors might affect the overall allowance for credit losses, and the Company’s current assessments may not reflect the potential future impact of changes to those inputs or factors.

Investment Securities Impairment

Income Taxes

Deferred income tax assets and liabilities are computed using the asset and liability method, which recognizes a liability or asset representing the tax effects, based on current tax law, of future deductible or taxable amounts attributable to events recognized in the financial statements. A valuation allowance may be established to the extent necessary to reduce the deferred tax asset to a level at which it is “more likely than not” that the tax assets or benefits will be realized. Realization of tax benefits depends on having sufficient taxable income, available tax loss carrybacks or credits, the reversing of taxable temporary differences and/or tax planning strategies within the reversal period, and whether current tax law allows for the realization of recorded tax benefits.

Comparison of the Results of Operations for the three months ended March 31, 2024 and 2023

The following is a narrative discussion and analysis of significant changes in our results of operations for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.

Net Income

During the three months ended March 31, 2024, our net income was $5.8 million, compared to $5.1 million for the three months ended March 31, 2023, an increase of $703.0 thousand, or 13.77%. The primary reason for the increase in net income for the first quarter of 2024 as compared to the first quarter of 2023 was an increase in net interest income. During the three months ended March 31, 2024, net interest income was $21.6 million compared to $19.0 million for the three months ended March 31, 2023, a increase of $2.5 million, or 13.38%. This increase is a result of higher yields on new and repricing loans. Overall income was slightly offset by total noninterest expense in the first quarter of 2024 which increased $950.0 thousand, or 6.63%, from the first quarter of 2023. The most significant increase was an increase of $623.0 thousand in salaries and employee benefits.

Net Interest Income and Net Interest Margin Analysis

The largest component of our net income is net interest income – the difference between the income earned on interest earning assets and the interest paid on deposits and borrowed funds used to support assets. Net interest income divided by average interest earning assets represents our net interest margin. The major factors that affect net interest income and net interest margin are changes in volumes, the yield on interest earning assets and the cost of interest bearing liabilities. Our net interest margin can also be affected by economic conditions, the competitive environment, loan demand, and deposit flow. Management’s ability to respond to changes in these factors by using effective asset-liability management techniques is critical to maintaining the stability of the net interest margin and the primary source of earnings. This is discussed in greater detail under the heading “Interest Sensitivity and Market Risk”.

Comparison of net interest income for the three months ended March 31, 2024 and 2023

The following table shows, for the three months ended March 31, 2024 and 2023, the average balances of each principal category of our earning assets and interest bearing liabilities and the average taxable equivalent yields on assets and average costs of liabilities. These yields and costs are calculated by dividing the income or expense by the average daily balance of the associated assets or liabilities (amounts in thousands).


	Three Months Ended March 31, 2024								Three Months Ended March 31, 2023
			Interest								Interest
	Average		Income/			Average			Average		Income/			Average
	Balance		Expense			Yield/Rate			Balance		Expense			Yield/Rate
Interest earning assets
Loans	$	2,253,010	$	33,998			6.07	%	$	1,850,442	$	23,786			5.21	%
Mortgage loans held for sale		4,422		58			5.29	%		6,967		59			3.45	%
Investment securities:
Taxable securities		743,201		3,390			1.83	%		809,799		3,657			1.83	%
Tax-exempt securities		65,266		459			2.83	%		81,627		614			3.05	%
Interest bearing balances in other banks		68,460		932			5.46	%		55,153		617			4.54	%
Federal funds sold		30,559		419			5.51	%		12,721		153			4.87	%
Total interest earning assets	$	3,164,918	$	39,256			4.99	%	$	2,816,709	$	28,886			4.16	%

Interest bearing liabilities
Interest bearing transaction accounts	$	682,062	$	2,852			1.68	%	$	629,888	$	1,520			0.98	%
Savings and money market accounts		906,427		6,111			2.71	%		823,622		3,094			1.52	%
Time deposits		561,902		5,681			4.07	%		471,683		3,206			2.76	%
Short-term borrowings		14,986		132			3.53	%		14,460		99			3.04	%
Federal Home Loan Bank advances		212,692		2,257			4.27	%		95,256		1,187			5.02	%
Subordinated debentures		40,000		418			4.20	%		40,000		415			4.20	%
Line of credit		-		-			0.00	%		4,511		87			7.85	%
Total interest bearing liabilities	$	2,418,069	$	17,451			2.89	%	$	2,079,420	$	9,608			1.87	%
Noninterest-bearing funding of earning assets		746,849		-			0.00	%		737,289		-			0.00	%
Total cost of funding earning assets	$	3,164,918	$	17,451			2.21	%	$	2,816,709	$	9,608			1.38	%
Net interest rate spread							2.09	%							2.29	%
Net interest income/margin (taxable equivalent)			$	21,805			2.76	%			$	19,278			2.78	%
Tax equivalent adjustment				(221	)							(241	)
Net interest income/margin			$	21,584			2.74	%			$	19,037			2.74	%

The following table reflects, for the three months ended March 31, 2024 and 2023, the changes in our net interest income due to variances in the volume of interest earning assets and interest bearing liabilities and variances in the associated rates earned or paid on these assets and liabilities (amounts in thousands).


	Three Months Ended March 31, 2024 vs.
	Three Months Ended March 31, 2023
				Variance
				due to
	Volume			Yield/Rate			Total
Interest earning assets
Loans	$	5,314		$	4,898		$	10,212
Mortgage loans held for sale		(22	)		21			(1	)
Investment securities:
Taxable securities		(267	)		-			(267	)
Tax-exempt securities		(119	)		(36	)		(155	)
Interest bearing balances in other banks		156			159			315
Federal funds sold		212			54			266
Total interest earning assets	$	5,274		$	5,096		$	10,370


Interest bearing liabilities
Interest bearing transaction accounts	$	127		$	1,205		$	1,332
Savings and money market accounts		313			2,704			3,017
Time deposits		618			1,857			2,475
Short-term borrowings		14			19			33
Federal Home Loan Bank advances		1,440			(370	)		1,070
Subordinated debentures		(1	)		4			3
Line of credit		(87	)		-			(87	)
Total interest bearing liabilities	$	2,424		$	5,419		$	7,843

Net interest income
Net interest income (taxable equivalent)	$	2,850		$	(323	)	$	2,527
Taxable equivalent adjustment		38			(18	)		20
Net interest income	$	2,888		$	(341	)	$	2,547

Total interest income for the three months ended March 31, 2024 was $39.0 million and total interest expense was $17.5 million, resulting in net interest income of $21.6 million for the period. For the same period of 2023, total interest income was $28.6 million and total interest expense was $9.6 million, resulting in net interest income of $19.0 million for the period. This represents a 13.38% increase in net interest income when comparing the same period from 2024 and 2023. When comparing the variances related to interest income for the three months ended March 31, 2024 and 2023, the increase was primarily attributed to increases in average volumes in loans. The volume related increase in interest income for the three months ended March 31, 2024 was accompanied by an increase in the yield on loans and investment securities. When comparing variances related to interest expense for the three months ended March 31, 2024 and 2023, the increase primarily resulted from an increase in deposit and borrowing rates in 2023.

Provision for Credit Losses

On January 1, 2023, we adopted ASC 326, which introduces the current expected credit losses (CECL) methodology and requires us to estimate all expected credit losses over the remaining life of our loans. Accordingly, the provision for credit losses represents a charge to earnings necessary to establish an allowance for credit losses that, in management's evaluation, is adequate to provide coverage for all expected credit losses. As a result of evaluating the allowance for credit losses at March 31, 2024, management recorded a provision for credit losses of $1.31 million in the first quarter of 2024 compared to $1.31 million in the first quarter of 2023. The minimally decreased provision for credit losses allocated was primarily due to continued improvement in economic conditions. In management’s evaluation, our allowance for credit losses reflects an amount we believe appropriate, based on our allowance assessment methodology, to adequately cover all expected future losses as of the date the allowance is determined.

Noninterest Income

In addition to net interest income, we generate various types of noninterest income from our operations. Our banking operations generate revenue from service charges and fees mainly on deposit accounts. Our mortgage division generates revenue from originating and selling mortgage loans. Our investment brokerage division generates revenue through a revenue-sharing relationship with a registered broker-dealer. We also own life insurance policies on several key employees and record income on the increase in the cash surrender value of these policies.

The following table sets forth the principal components of noninterest income for the periods indicated (amounts in thousands).


	For the Three Months
	Ended March 31,
	2024			2023
Service charges and fees	$	1,985		$	1,738
Investment brokerage revenue		191			163
Mortgage operations		953			650
Bank owned life insurance income		341			310
Net loss on sales of investment securities		(1,432	)		-
Other noninterest income		524			219
Total noninterest income	$	2,562		$	3,080

Noninterest income for the three months ended March 31, 2024 was $2.6 million compared to $3.1 million for the same period in 2023. The most significant decrease in noninterest income was due to an increase in the loss on sales of investment securities while the most significant increase was a $303 thousand increase in mortgage operations revenue.

Noninterest Expense

Noninterest expenses consist primarily of salaries and employee benefits, building occupancy and equipment expenses, advertising and promotion expenses, data processing expenses, legal and professional services and miscellaneous other operating expenses.

The following table sets forth the principal components of noninterest expense for the periods indicated (amounts in thousands).


	For the Three Months
	Ended March 31,
	2024		2023
Salaries and employee benefits	$	9,191	$	8,568
Occupancy expenses		981		908
Equipment rentals, depreciation, and maintenance		524		472
Telephone and communications		126		141
Advertising and business development		249		295
Data processing		1,026		1,020
Foreclosed assets, net		35		10
Federal deposit insurance and other regulatory assessments		724		571
Legal and other professional services		352		365
Other operating expense		2,074		1,982
Total noninterest expense	$	15,282	$	14,332

Noninterest expense for the three months ended March 31, 2024 totaled $15.3 million compared with $14.3 million for the same period of 2023. The overall increase was primarily a result of increases in salaries and employee benefits. Salaries and employee benefits increased $623.0 thousand, or 7.27%, to $9.2 million in the first quarter of 2024 from $8.6 million in the first quarter of 2023. The number of full-time equivalent employees increased from approximately 328 at March 31, 2023 to approximately 331 at March 31, 2024 for an increase of approximately 0.91%.

Provision for Income Taxes

We recognized income tax expense of $1.7 million for the three months ended March 31, 2024, compared to $1.4 million for the three months ended March 31, 2023. The effective tax rate for the three months ended March 31, 2024 was 23.1% compared to 21.1% for the same period in 2023. The effective tax rate is affected by levels of items of income that are not subject to federal and/or state taxation and by levels of items of expense that are not deductible for federal and/or state income tax purposes.

Comparison of Financial Condition at March 31, 2024 and December 31, 2023

Overview

Our total assets increased $133.3 million, or 4.12%, from December 31, 2023 to March 31, 2024. Loans, net of deferred fees and discounts, increased $29.8 million, or 1.33%, from December 31, 2023 to March 31, 2024. Securities available-for-sale decreased by $36.7 million, or 5.90%, and securities held-to-maturity decreased by $1.1 million, or 0.85%, from December 31, 2023 to March 31, 2024, respectively. Cash and cash equivalents increased $141.4 million, or 194.89% from December 31, 2023 to March 31, 2024. Total deposits increased $163.1 million, or 5.97%, from December 31, 2023 to March 31, 2024 which funded a majority of our loan growth. Total stockholders’ equity decreased $612.0 thousand, or 0.31% from December 31, 2023 to March 31, 2024.

Investment Securities

We use our securities portfolio primarily to enhance our overall yield on interest-earning assets and as a source of liquidity, as a tool to manage our balance sheet sensitivity and regulatory capital ratios, and as a base upon which to pledge assets for public deposits. When our liquidity position exceeds current needs and our expected loan demand, other investments are considered as a secondary earnings alternative. As investments mature, they are used to meet current cash needs, or they are reinvested to maintain our desired liquidity position. We have designated the majority of our securities as available-for-sale to provide flexibility, in case an immediate need for liquidity arises, and we believe that the composition of the portfolio offers needed flexibility in managing our liquidity position and interest rate sensitivity without adversely impacting our regulatory capital levels. In certain cases, we have designated securities as held-to-maturity to protect capital from changes in the value of the securities portfolio. Securities available-for-sale are reported at fair value with unrealized gains or losses reported as a separate component of other comprehensive income, net of related deferred taxes while securities held-to-maturity are reported at amortized cost. Purchase premiums and discounts are recognized in income using the interest method over the terms of the securities.

During the three months ended March 31, 2024, we purchased investment securities totaling $13.6 million and sold investment securities with proceeds received of $33.7 million including net realized losses of $1.4 million.

The following tables summarize the amortized cost, gross unrealized gains, gross unrealized losses, and fair value of debt securities at March 31, 2024 and December 31, 2023 (amounts in thousands).


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2024:
Securities available-for-sale:
Residential mortgage-backed	$	406,554	$	28	$	(60,105	)	$	346,477
U.S. treasury securities		115,822		-		(10,003	)		105,819
U.S. govt. sponsored enterprises		61,738		-		(5,317	)		56,421
State, county, and municipal		70,397		-		(9,418	)		60,979
Corporate debt obligations		16,744		4		(2,006	)		14,742
Total available-for-sale	$	671,255	$	32	$	(86,849	)	$	584,438


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
March 31, 2024:
Securities held-to-maturity:
Residential mortgage-backed	$	62,884	$	-	$	(12,819	)	$	50,065
State, county, and municipal		62,827		-		(12,354	)		50,473
Total held-to-maturity	$	125,711	$	-	$	(25,173	)	$	100,538


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2023:
Securities available-for-sale:
Residential mortgage-backed	$	413,179	$	102	$	(55,981	)	$	357,300
U.S. treasury securities		130,713		-		(10,661	)		120,052
U.S. govt. sponsored enterprises		68,751		-		(5,185	)		63,566
State, county, and municipal		73,514		4		(8,857	)		64,661
Corporate debt obligations		17,758		5		(2,251	)		15,512
Total available-for-sale	$	703,915	$	111	$	(82,935	)	$	621,091

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2023:
Securities held-to-maturity:
Residential mortgage-backed	$	63,953	$	-	$	(12,022	)	$	51,931
State, county, and municipal		62,840		-		(11,597	)		51,243
Total held-to-maturity	$	126,793	$	-	$	(23,619	)	$	103,174

Loans

Loans are the largest category of interest earning assets and typically provide higher yields than other types of interest earning assets. Associated with the higher loan yields are the inherent credit and liquidity risks which management attempts to control and counterbalance. Total loans averaged $2.25 billion during the three months ended March 31, 2024, or 71.2% of average interest earning assets, as compared to $1.85 billion, or 65.7% of average interest earning assets, for the three months ended March 31, 2023. At March 31, 2024, total loans, net of deferred loan fees and discounts, were $2.27 billion, compared to $2.24 billion at December 31, 2023, an increase of $29.8 million, or 1.33%.

The organic, or non-acquired, growth in our loan portfolio is attributable both to our ability to attract new customers and to our ability to benefit from the overall growth in our markets. We seek to build relationships with new customers, maintain and even improve our relationships with existing customers, and encourage our bankers to be involved in their communities. We expect our bankers to recognize business development efforts and to maintain healthy relationships with clients, and our philosophy is to be responsive to customer needs by providing decisions in a timely manner. In addition to our business development efforts, many of the markets that we serve have shown signs of economic recovery over the last few years.

The following table provides a summary of the loan portfolio as of March 31, 2024, and December 31, 2023.


	March 31, 2024						December 31, 2023
	Amount			% of Total			Amount			% of Total
Residential real estate:
Closed-end 1-4 family - first lien	$	791,345			35.3	%	$	771,144			34.9	%
Closed-end 1-4 family - junior lien		12,383			0.6	%		11,814			0.5	%
Multi-family		19,402			0.9	%		26,739			1.2	%
Total residential real estate		823,130			36.8	%		809,697			36.6	%
Commercial real estate:
Nonfarm nonresidential		594,096			26.5	%		557,202			25.2	%
Farmland		68,105			3.0	%		58,532			2.6	%
Total commercial real estate		662,201			29.5	%		615,734			27.8	%
Construction and land development:
Residential		99,056			4.4	%		100,974			4.6	%
Other		165,460			7.4	%		195,724			8.9	%
Total construction and land development		264,516			11.8	%		296,698			13.5	%
Home equity lines of credit		103,643			4.6	%		95,544			4.3	%
Commercial loans:
Other commercial loans		271,725			12.1	%		273,639			12.4	%
Agricultural		61,664			2.8	%		66,510			3.0	%
State, county, and municipal loans		35,116			1.6	%		34,819			1.6	%
Total commercial loans		368,505			16.5	%		374,968			17.0	%
Consumer loans		55,909			2.5	%		55,587			2.5	%
Total gross loans		2,277,904			101.7	%		2,248,228			101.7	%
Allowance for credit losses		(29,856	)		-1.3	%		(28,991	)		-1.3	%
Net discounts		(21	)		0.0	%		(129	)		0.0	%
Net deferred loan fees		(8,038	)		-0.4	%		(8,093	)		-0.4	%
Net loans	$	2,239,989			100.0	%	$	2,211,015			100.0	%

In this context, a “real estate loan” is defined as any loan, secured by real estate, regardless of the purpose of the loan. It is common practice for financial institutions in our market areas, and for our Bank, to obtain a security interest or lien in real estate whenever possible, in addition to any other available collateral. This collateral is taken to reinforce the likelihood of the ultimate repayment of the loan and tends to increase the magnitude of the real estate loan portfolio component. In general, we prefer real estate collateral to many other potential collateral sources, such as accounts receivable, inventory and equipment.

Real estate loans are the largest component of our loan portfolio and include residential real estate loans, commercial real estate loans, and construction and land development loans. At March 31, 2024, this category totaled $1.75 billion, or 76.82% of total gross loans, compared to $1.72 billion, or 76.60%, at December 31, 2023. Real estate loans increased $27.7 million, or 1.61%, during the period December 31, 2023 to March 31, 2024. Commercial loans decreased $6.5 million, or 1.72% during the same period. Our management team and lending officers have a great deal of experience and expertise in real estate lending and commercial lending.

The federal regulatory agencies issued two “guidance” documents that have a significant impact on real estate related lending and, thus, on the operations of the Bank. One part of the guidance could require lenders to restrict lending secured primarily by certain categories of commercial real estate to a level of 300% of their capital or to raise additional capital. This factor, combined with the current economic environment, could affect the Bank’s lending strategy away from, or to limit its expansion of, commercial real estate lending, which has been a material part of River Financial Corporation’s lending strategy. This could also have a negative impact on our lending and profitability. Management actively monitors the composition of the Bank’s loan portfolio, focusing on concentrations of credit, and the results of that monitoring activity are periodically reported to the Board of Directors.

The other guidance relates to the structuring of certain types of mortgages that allow negative amortization of consumer mortgage loans. Although the Bank does not engage at present in lending using these types of instruments, the guidance could have the effect of making the Bank less competitive in consumer mortgage lending if the local market is driving the demand for such an offering.

The repayment of loans is a source of additional liquidity for us. The following table sets forth our variable rate and fixed rate loans maturing within specific intervals at March 31, 2024.

LOAN MATURITY AND SENSITIVITY TO CHANGES IN INTEREST RATES


			Over one		Over five
	One year		year through		years through		Over fifteen
Variable Rate Loans:	or less		five years		fifteen years		years		Total
Residential real estate:
Closed-end 1-4 family - first lien	$	5,799	$	3,792	$	4,337	$	436,269	$	450,197
Closed-end 1-4 family - junior lien		652		-		-		265		917
Multi-family		431		2,741		-		-		3,172
Total residential real estate		6,882		6,533		4,337		436,534		454,286
Commercial real estate:
Nonfarm nonresidential		6,517		15,140		1,886		-		23,543
Farmland		3,443		1,375		-		246		5,064
Total commercial real estate		9,960		16,515		1,886		246		28,607
Construction and land development:
Residential		22,532		422		240		42,829		66,023
Other		15,438		9,989		53		4,467		29,947
Total construction and land development		37,970		10,411		293		47,296		95,970
Home equity lines of credit		7,858		4,463		67,999		-		80,320
Commercial loans:
Other commercial loans		75,640		15,236		8,640		-		99,516
Agricultural		37,179		743		-		-		37,922
State, county, and municipal loans		-		-		-		-		-
Total commercial loans		112,819		15,979		8,640		-		137,438
Consumer loans		2,633		1,088		52		-		3,773
Total gross variable rate loans	$	178,122	$	54,989	$	83,207	$	484,076	$	800,394


			Over one		Over five
	One year		year through		years through		Over fifteen
Fixed Rate Loans:	or less		five years		fifteen years		years		Total
Residential real estate:
Closed-end 1-4 family - first lien	$	21,055	$	149,117	$	68,381	$	102,595	$	341,148
Closed-end 1-4 family - junior lien		932		8,690		1,538		306		11,466
Multi-family		214		12,912		2,262		842		16,230
Total residential real estate		22,201		170,719		72,181		103,743		368,844
Commercial real estate:
Nonfarm nonresidential		28,842		284,025		252,578		5,108		570,553
Farmland		1,987		41,952		19,035		67		63,041
Total commercial real estate		30,829		325,977		271,613		5,175		633,594
Construction and land development:
Residential		30,652		1,475		214		692		33,033
Other		36,355		61,276		37,195		687		135,513
Total construction and land development		67,007		62,751		37,409		1,379		168,546
Home equity lines of credit		853		4,049		18,421		-		23,323
Commercial loans:
Other commercial loans		23,186		111,700		37,323		-		172,209
Agricultural		5,797		16,724		1,221		-		23,742
State, county, and municipal loans		3,856		8,853		22,407		-		35,116
Total commercial loans		32,839		137,277		60,951		-		231,067
Consumer loans		6,025		29,603		16,372		136		52,136
Total fixed rate gross loans	$	159,754	$	730,376	$	476,947	$	110,433	$	1,477,510

			Over one		Over five
	One year		year through		years through		Over fifteen
Total Loans:	or less		five years		fifteen years		years		Total
Residential real estate:
Closed-end 1-4 family - first lien	$	26,854	$	152,909	$	72,718	$	538,864	$	791,345
Closed-end 1-4 family - junior lien		1,584		8,690		1,538		571		12,383
Multi-family		645		15,653		2,262		842		19,402
Total residential real estate		29,083		177,252		76,518		540,277		823,130
Commercial real estate:
Nonfarm nonresidential		35,359		299,165		254,464		5,108		594,096
Farmland		5,430		43,327		19,035		313		68,105
Total commercial real estate		40,789		342,492		273,499		5,421		662,201
Construction and land development:
Residential		53,184		1,897		454		43,521		99,056
Other		51,793		71,265		37,248		5,154		165,460
Total construction and land development		104,977		73,162		37,702		48,675		264,516
Home equity lines of credit		8,711		8,512		86,420		-		103,643
Commercial loans:
Other commercial loans		98,826		126,936		45,963		-		271,725
Agricultural		42,976		17,467		1,221		-		61,664
State, county, and municipal loans		3,856		8,853		22,407		-		35,116
Total commercial loans		145,658		153,256		69,591		-		368,505
Consumer loans		8,658		30,691		16,424		136		55,909
Total gross loans	$	337,876	$	785,365	$	560,154	$	594,509	$	2,277,904

The information presented in the table above is based upon the contractual maturities of the individual loans, which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms at their maturity. Consequently, we believe that this treatment presents fairly the maturity structure of the loan portfolio.

Allowance for Credit Losses, Provision for Credit Losses and Asset Quality

Allowance for credit losses and provision for credit losses

The allowance for credit losses represents management’s estimate of probable inherent credit losses in the loan portfolio. Management determines the allowance based on an ongoing evaluation of risk as it correlates to potential losses within the portfolio. Increases to the allowance for credit losses are made by charges to the provision for credit losses. Loans deemed to be uncollectible are charged against the allowance. Recoveries of previously charged-off amounts are credited to the allowance for credit losses.

Management believes the data it uses in determining the allowance for credit losses is sufficient to estimate potential losses in the loan portfolio; however, actual results could differ from management’s estimate.

The following table presents a summary of changes in the allowance for credit losses for the periods indicated (amounts in thousands).


	As of and for the
	Three Months Ended:
	March 31,			March 31,
	2024			2023
Allowance for credit losses at beginning of period	$	28,991		$	24,310
Impact of adopting ASC 326		-			80
Charge-offs:
Mortgage loans on real estate:
Residential real estate		-			-
Commercial real estate		249			-
Construction and land development		19			-
Total mortgage loans on real estate		268			-
Home equity lines of credit		50			-
Commercial		88			67
Consumer		61			34
Total		467			101

Recoveries:
Mortgage loans on real estate:
Residential real estate		-			-
Commercial real estate		2			77
Construction and land development		-			-
Total mortgage loans on real estate		2			77
Home equity lines of credit		-			-
Commercial		16			33
Consumer		5			4
Total		23			114

Net charge-offs (recoveries)		444			(13	)
Provision for credit losses		1,309			1,311
Allowance for credit losses at end of period	$	29,856		$	25,714

Total loans outstanding, net of deferred loan fees		2,269,845			1,910,514
Average loans outstanding, net of deferred loan fees		2,253,010			1,850,442
Allowance for credit losses to period end loans		1.32	%		1.35	%
Net charge-offs to average loans (annualized)		0.08	%		0.00	%

Allocation of the Allowance for Credit Losses

While no portion of the allowance for credits losses is in any way restricted to any individual loan or group of loans and the entire allowance is available to absorb losses from any and all loans, the following table represents management’s allocation of the allowance for credit losses to specific loan categories as of the dates indicated (amounts in thousands).


	March 31, 2024					December 31, 2023
			Percent of					Percent of
	Amount		Total			Amount		Total
Mortgage loans on real estate:
Residential real estate	$	7,497		25.2	%	$	7,233		25.0	%
Commercial real estate		11,494		38.5	%		10,530		36.3	%
Construction and land development		3,889		13.0	%		4,646		16.0	%
Total mortgage loans on real estate		22,880		76.7	%		22,409		77.3	%
Home equity lines of credit		1,171		3.9	%		1,078		3.7	%
Commercial		5,201		17.4	%		4,906		16.9	%
Consumer		604		2.0	%		598		2.1	%
Total	$	29,856		100.0	%	$	28,991		100.0	%

Nonperforming Assets

The following table presents our nonperforming assets as of the dates indicated (amounts in thousands):


	March 31,						December 31,
	2024			2023			2023
Nonaccrual loans	$	4,357		$	4,714		$	5,579
Accruing loans past due 90 days or more		68			-			288
Total nonperforming loans		4,425			4,714			5,867
Foreclosed assets		924			198			92
Total nonperforming assets	$	5,349		$	4,912		$	5,959

Allowance for credit losses to period end loans		1.32	%		1.35	%		1.29	%
Allowance for credit losses to period end nonperforming loans		674.71	%		545.48	%		494.14	%
Net charge-offs (recoveries) to average loans (annualized)		0.07	%		0.00	%		0.03	%
Nonperforming assets to period end loans and foreclosed property		0.24	%		0.26	%		0.27	%
Nonperforming loans to period end loans		0.19	%		0.25	%		0.26	%
Nonperforming assets to total assets		0.16	%		0.16	%		0.18	%
Period end loans		2,269,845			1,910,514			2,240,006
Period end total assets		3,368,560			2,988,952			3,235,250
Allowance for credit losses		29,856			25,714			28,991
Average loans for the period		2,253,010			1,850,442			2,043,466
Net charge-offs (recoveries) for the period		444			(13	)		643
Period end loans plus foreclosed property		2,270,769			1,910,712			2,240,098

Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that the collection of interest is doubtful. In addition to consideration of these factors, loans that are past due 90 days or more are generally placed on nonaccrual status. When a loan is placed on nonaccrual status, all accrued interest on the loan is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until collection of both principal and interest becomes reasonably certain. Payments received while a loan is on nonaccrual status will generally be applied to the outstanding principal balance. When a problem loan is finally resolved, there may ultimately be an actual write-down or charge-off of the principal balance of the loan that would necessitate additional charges to the allowance for credit losses.

Deposits

Deposits, which include noninterest bearing demand deposits, interest bearing demand deposits, money market accounts, savings accounts, and time deposits, are the principal source of funds for the Bank. We offer a variety of products designed to attract and retain customers, with primary focus on building and expanding client relationships. Management continues to focus on establishing a comprehensive relationship with consumer and business borrowers, seeking deposits as well as lending relationships.

The following table details the composition of our deposit portfolio as of March 31, 2024, and December 31, 2023.


	March 31, 2024					December 31, 2023
			Percent of					Percent of
	Amount		Total			Amount		Total
Demand deposits, non-interest bearing	$	647,499		22.4	%	$	628,415		23.0	%
Demand deposits, interest bearing		706,488		24.4	%		693,421		25.4	%
Money market accounts		834,470		28.8	%		761,164		27.9	%
Savings deposits		113,562		3.9	%		112,563		4.1	%
Time certificates of $250 thousand or more		312,412		10.8	%		272,008		10.0	%
Other time certificates		279,331		9.7	%		263,084		9.6	%
Totals	$	2,893,762		100.0	%	$	2,730,655		100.0	%

Total deposits were $2.89 billion at March 31, 2024, an increase of $163.1 million from December 31, 2023 with the increase resulting mainly in the balances of interest bearing demand deposits, money market account, and time deposit accounts. Some of our demand deposit accounts are seasonal and have expected balance fluctuations. The seasonality of these demand deposits is related to property tax collections and to agricultural production.

The following table presents the Bank’s time certificates of deposits by various maturities as of March 31, 2024 (amounts in thousands).


	All Time Deposits		Time Deposits $250 or more		Time Deposits less than $250
Three months or less	$	171,004	$	69,568	$	101,436
Greater than three months through six months		145,494		91,198		54,296
Greater than six months through one year		209,001		119,385		89,616
Greater than one year through three years		60,690		30,032		30,658
Greater than three years		5,554		2,228		3,326
Total	$	591,743	$	312,411	$	279,332

Other Funding Sources

We supplement our deposit funding with wholesale funding when needed for balance sheet planning and management or when the terms are attractive and will not disrupt our offering rates in our markets. A source we have used for wholesale funding is the Federal Home Loan Bank of Atlanta (FHLB). The line of credit with the FHLB is secured by pledges of various loans in our loan portfolio. At March 31, 2024, the FHLB line of credit available was $350.0 million and at December 31, 2023 it was $210.3 million. As of March 31, 2024 and December 31, 2023, we had $205 million and $230 million Federal Home Loan Bank advances outstanding, respectively. We also have lines of credit for federal funds borrowings with other banks that totaled $100.0 million and $88.5 million at March 31, 2024 and December 31, 2023, respectively. Furthermore, we have pledged certain loans to the Federal Reserve Bank (FRB) to secure a line of credit. At March 31, 2024, the FRB line of credit available was $357.2 million and at December 31, 2023, the FRB line of credit available was $157.6 million. Another source that we have used for wholesale funding is the Federal Reserve Bank discount window. At both March 31, 2024 and December 31, 2023, we had no borrowings outstanding with the Federal Reserve Bank discount window.

On August 9, 2021, the Company entered into a line of credit agreement with ServisFirst Bank for $10 million. The line of credit agreement was amended on March 17, 2023 to increase the line to $20 million. The line of credit is to be used for general capital needs and investments. The line, when drawn, will require quarterly payments of interest only. The line of credit was amended on March 15, 2024 and extended the maturity date 24 months to March 15, 2026. Additionally, the amendment dated March 15, 2024 increased the interest rate float at Wall Street Journal Prime with a floor of 4.50% up from 3.25%. The line of credit is secured by 51% of the Company’s stock.

On March 9, 2021, River Financial Corporation (“the Company”) entered into a Subordinated Note Purchase Agreement (the “Purchase Agreement”) with the purchasers signatory thereto providing for a private placement of $40 million in aggregate principal amount of 4.00% fixed-to-floating rate Subordinated Notes due March 15, 2031 (the “Notes”). The Notes were issued by the Company to the purchasers at a price equal to 100% of their face amount. Interest on the Notes will accrue from March 9, 2021, and the Company will pay interest semi-annually on March 15th and September 15th of each year, beginning on September 15, 2021, until the Notes mature. The Notes will bear interest at a fixed rate of 4.00% per year, from and including March 9, 2021 to, but excluding, March 15, 2026. From and including March 15, 2026, but excluding the maturity date or early redemption date, the interest rate will reset quarterly at a variable rate equal to the then current three-month term SOFR plus 342 basis points. The Notes may not be prepaid by the Company prior to March 15, 2026. From and after March 15, 2026, the Company may prepay all or, from time to time, any part of the Notes at 100% of the principal amount (plus accrued interest) without penalty, subject to any requirement under Federal Reserve Board regulations to obtain prior approval from the Board of Governors of the Federal Reserve System before making any prepayment. The Notes may also be prepaid by the Company at any time after the occurrence of an event that would preclude the Notes from being included in the Tier 2 Capital of the Company. The Purchase Agreement contains customary representations and warranties, events of default, and affirmative and negative covenants, including the requirement that, subject to certain limitations, the Company restructure any portion of the Notes that ceases to be deemed Tier 2 Capital. The Company used approximately $19.7 million of the net proceeds from the issuance of the Notes to pay off its note with CenterState Bank dated October 31, 2018, including interest accrued on such notes, and the remaining proceeds for general corporate purposes, including providing capital to support the organic growth of its bank subsidiary, River Bank.

Liquidity

Market and public confidence in our financial strength and financial institutions in general will largely determine our access to appropriate levels of liquidity. This confidence is significantly dependent on our ability to maintain sound asset quality and appropriate levels of capital reserves.

Liquidity is defined as the ability to meet anticipated customer demands for funds under credit commitments and deposit withdrawals at a reasonable cost and on a timely basis. We measure our liquidity position by giving consideration to both on- and off-balance sheet sources of and demands for funds on a daily, weekly and monthly basis.

Liquidity risk involves the risk of being unable to fund assets with the appropriate duration and rate-based liabilities, as well as the risk of not being able to meet unexpected cash needs. Liquidity planning and management are necessary to ensure the ability to fund operations cost-effectively and to meet current and future potential obligations such as loan commitments and unexpected deposit outflows. In this process, we focus on assets and liabilities and on the manner in which they combine to provide adequate liquidity to meet our needs.

Funds are available from a number of basic banking activity sources, including the core deposit base, the repayment and maturity of loans, and investment cash flows. Other funding sources include federal funds borrowings, brokered certificates of deposit and borrowings from the FHLB and FRB.

Cash and cash equivalents at March 31, 2024 and December 31, 2023, were $213.9 million and $72.6 million, respectively. Based on recorded cash and cash equivalents, management believes River Financial Corporation’s liquidity resources were sufficient at March 31, 2024 to fund loans and meet other cash needs as necessary.

Off-Balance Sheet Arrangements

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

The 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 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. In most cases, the Company requires collateral or other security to support financial instruments with credit risk.

Financial instruments whose contract amount represents credit risk at March 31, 2024 and December 31, 2023 were as follows (amounts in thousands):


	March 31, 2024		December 31, 2023
Commitments to extend credit	$	466,161	$	477,476
Stand-by and performance letters of credit		7,666		8,025
Total	$	473,827	$	485,501

Contractual Obligations

While our liquidity monitoring and management considers both present and future demands for and sources of liquidity, the following table of contractual commitments focuses only on future obligations as of March 31, 2024 (amounts in thousands).


			Due after 1		Due after 3
	Due in 1		through		through		Due after
	year or less		3 years		5 years		5 years		Total
Deposits without a stated maturity	$	2,302,019	$	-	$	-	$	-	$	2,302,019
Certificates of deposit of less than $250		245,348		30,658		3,326		-		279,332
Certificates of deposit of $250 or more		280,151		30,032		2,228		-		312,411
Securities sold under agreements to repurchase		14,588		-		-		-		14,588
Federal Home Loan Bank advances		55,000		50,000		40,000		60,000		205,000
Subordinated debt, net of loan costs		-		-		-		39,510		39,510
Operating leases		770		1,097		734		1,667		4,268
Total contractual obligations	$	2,897,876	$	111,787	$	46,288	$	101,177	$	3,157,128

Capital Position and Dividends

At March 31, 2024 and December 31, 2023, total stockholders’ equity was $197.7 million and $198.3 million, respectively. The decrease of approximately $612.0 thousand resulted mainly from the net change in retained earnings and accumulated other comprehensive loss for the three months ended March 31, 2024. Retained earnings for the first three months of 2024 increased $2.0 million while accumulated other comprehensive loss increased $2.9 million. The ratio of stockholders’ equity to total assets was 5.87% and 6.13% at March 31, 2024 and December 31, 2023, respectively.

River Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Certain items such as goodwill and other intangible assets are deducted from total capital in arriving at the various regulatory capital measures such as Common Equity Tier 1 capital, Tier 1 capital, and total risk-based capital. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on River Financial Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, River Bank must meet specific capital guidelines that involve quantitative measures of the bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory regulations and guidelines. River Bank’s capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors.

River Bank is eligible to utilize the community bank leverage ratio (CBLR) framework. The Bank has evaluated this option and has elected not to utilize the CBLR framework at this time, but may do so in the future.

Quantitative measures, established by regulation to ensure capital adequacy effective January 1, 2015, require River Financial Corporation and River Bank to maintain minimum amounts and ratios (set forth in the table below) of total risk based capital, Common Equity Tier 1 capital, and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined in the regulations), and of Tier 1 capital (as defined in the regulations) to average assets (as defined in the regulations).

Management believes, as of March 31, 2024, that the Company and Bank meet all capital adequacy requirements to which they are subject. The following table presents the Company's and Bank’s capital amounts and ratios as of March 31, 2024 with the required minimum levels for capital adequacy purposes including the phase in of the capital conservation buffer under Basel III and minimum levels to be well capitalized (as defined) under the regulatory prompt corrective action regulations.


As of March 31, 2024:
									To Be Well Capitalized
						Required For Capital			Under Prompt Corrective
	Actual					Adequacy Purposes			Action Regulations (1)
	Amount		Ratio			Amount		Ratio	Amount		Ratio
River Financial Corporation:
Total Capital (To Risk-Weighted Assets)	$	310,205		12.884	%	$	252,806	>= 10.500%	N/A		N/A
Common Equity Tier 1 Capital (To Risk-Weighted Assets)		240,350		9.983	%		168,532	>= 7.000%	N/A		N/A
Tier 1 Capital (To Risk-Weighted Assets)		240,350		9.983	%		204,645	>= 8.500%	N/A		N/A
Tier 1 Capital (To Average Assets)		240,350		7.400	%		129,919	>= 4.000%	N/A		N/A

River Bank:
Total Capital (To Risk-Weighted Assets)	$	306,856		12.745	%	$	252,802	>= 10.500%	$	240,764	>= 10.00%
Common Equity Tier 1 Capital (To Risk-Weighted Assets)		277,001		11.505	%		168,535	>= 7.000%		156,496	>= 6.50%
Tier 1 Capital (To Risk-Weighted Assets)		277,001		11.505	%		204,649	>= 8.500%		192,611	>= 8.00%
Tier 1 Capital (To Average Assets)		277,001		8.529	%		129,913	>= 4.000%		162,392	>= 5.00%
(1) the prompt corrective action provisions are applicable at the Bank level only.

Management believes, as of December 31, 2023, that the Bank met all capital adequacy requirements to which it was subject at the time. The following table presents the Company's and Bank’s capital amounts and ratios as of December 31, 2023 with the required minimum levels for capital adequacy purposes and minimum levels to be well capitalized (as defined) under the prompt corrective action regulations.


As of December 31, 2023:
									To Be Well Capitalized
						Required For Capital			Under Prompt Corrective
	Actual					Adequacy Purposes			Action Regulations (1)
	Amount		Ratio			Amount		Ratio	Amount		Ratio
River Financial Corporation:
Total Capital (To Risk-Weighted Assets)	$	306,917		12.948	%	$	248,890	>= 10.500%	N/A		N/A
Common Equity Tier 1 Capital (To Risk-Weighted Assets)		237,927		10.037	%		165,935	>= 7.000%	N/A		N/A
Tier 1 Capital (To Risk-Weighted Assets)		237,927		10.037	%		201,492	>= 8.500%	N/A		N/A
Tier 1 Capital (To Average Assets)		237,927		7.505	%		126,810	>= 4.000%	N/A		N/A

River Bank:
Total Capital (To Risk-Weighted Assets)	$	303,279		12.794	%	$	248,892	>= 10.500%	$	237,040	>= 10.00%
Common Equity Tier 1 Capital (To Risk-Weighted Assets)		274,289		11.571	%		165,928	>= 7.000%		154,076	>= 6.50%
Tier 1 Capital (To Risk-Weighted Assets)		274,289		11.571	%		201,484	>= 8.500%		189,632	>= 8.00%
Tier 1 Capital (To Average Assets)		274,289		8.652	%		126,807	>= 4.000%		158,508	>= 5.00%
(1) the prompt corrective action provisions are applicable at the Bank level only.

River Financial Corporation’s principal source of funds for dividend payments and debt service is dividends received from River Bank. There are statutory limitations on the payment of dividends by River Bank to River Financial Corporation. As of March 31, 2024, the maximum amount the Bank could dividend to River Financial Corporation without prior regulatory authority approval was approximately $60.9 million. In addition to dividend restrictions, federal statutes prohibit unsecured loans from banks to bank holding companies.

During the three months ending March 31, 2024 there were 3,500 incentive stock options issued with a weighted average exercise price of $33.84 per share. During the same period, there were 6,806 incentive stock options exercised at a weighted average exercise price of $23.34 per share. During the same period, there were no incentive stock options forfeited. A total of 337,044 incentive stock options were outstanding as of March 31, 2024 with a weighted average exercise price of $25.45 per share and a weighted average remaining life of 4.89 years.

During the three months ending March 31, 2024 there were no restricted stock grants issued. During the same time period, there were 10,350 stock grants that vested with a weighted average exercise price of $31.40. During the same time period, there were no stock grants forfeited. A total of 55,383 restricted stock grants remained nonvested as of March 31, 2024 with a weighted average exercise price of $32.07 per share and a weighted average remaining life of 2.57 years.

Interest Sensitivity and Market Risk

Management monitors and manages the pricing and maturity of our assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on net interest income. The principal monitoring technique employed by the Bank is simulation analysis.

In simulation analysis, we review each asset and liability category and its projected behavior in various different interest rate environments. These projected behaviors are based on management’s past experience and on current competitive environments, including the various environments in the different markets in which we compete. Using projected behavior and differing rate scenarios as inputs, the simulation analysis generates projections of net interest income. We also periodically verify the validity of this approach by comparing actual results with those that were projected in previous models.

Another technique used in interest rate management, but to a lesser degree than simulation analysis, is the measurement of the interest sensitivity “gap”, which is the positive or negative dollar difference between assets and liabilities that are subject to interest rate repricing within a given period of time. Interest rate sensitivity can be managed by repricing assets and liabilities, selling securities available for sale, replacing an asset or liability at maturity or by adjusting the interest rate during the life of an asset or liability.

We evaluate interest rate sensitivity risk and then formulate guidelines regarding asset generation and repricing, and sources and prices of off-balance sheet commitments in order to maintain interest sensitivity risk at levels deemed prudent by management. We use computer simulations to measure the net income effect of various rate scenarios. The modeling reflects interest rate changes and the related impact on net income over specified periods of time.

The following table illustrates our interest rate sensitivity at March 31, 2024, assuming the relevant assets and liabilities are collected and paid, respectively, based upon historical experience rather than their stated maturities (amounts in thousands).


	0-1 Mos			1-3 Mos			3-12 Mos			1-2 Yrs			2-3 Yrs			>3 Yrs			Total
Interest earning assets
Loans	$	379,292		$	108,053		$	346,114		$	348,729		$	259,606		$	828,051		$	2,269,845
Securities		25,069			13,450			39,348			66,773			144,344			421,165			710,149
Certificates of deposit in banks		-			-			-			1,250			2,500			468			4,218
Cash balances in banks		134,893			-			-			-			-			-			134,893
Federal funds sold		46,000			-			-			-			-			-			46,000
Total interest earning assets	$	585,254		$	121,503		$	385,462		$	416,752		$	406,450		$	1,249,684		$	3,165,105

Interest bearing liabilities
Interest bearing transaction accounts	$	223,205		$	11,644		$	52,401		$	69,866		$	69,866		$	279,506		$	706,488
Savings and money market accounts		467,990			9,624			43,314			57,752			57,752			311,600			948,032
Time deposits		66,079			85,598			369,847			54,581			8,737			6,901			591,743
Securities sold under agreements to repurchase		14,588			-			-			-			-			-			14,588
Federal Home Loan Bank advances		60,000			55,000			40,000			25,000			25,000			-			205,000
Subordinated debentures, net of loan costs		-			-			-			-			-			39,510			39,510
Total interest bearing liabilities	$	831,862		$	161,866		$	505,562		$	207,199		$	161,355		$	637,517		$	2,505,361

Interest sensitive gap
Period gap	$	(246,608	)	$	(40,363	)	$	(120,100	)	$	209,553		$	245,095		$	612,167		$	659,744
Cumulative gap	$	(246,608	)	$	(286,971	)	$	(407,071	)	$	(197,518	)	$	47,577		$	659,744
Cumulative gap - Rate Sensitive Assets/ Rate Sensitive Liabilities		-7.8	%		-9.1	%		-12.9	%		-6.2	%		1.5	%		20.8	%

The Bank generally benefits from increasing market interest rates when it has an asset-sensitive gap (a positive number) and generally benefits from decreasing market interest rates when it is liability sensitive (a negative number). As shown in the table above, the Bank is liability sensitive on a cumulative basis throughout the one to two year time frame. The interest sensitivity analysis presents only a static view of the timing and repricing opportunities, without taking into consideration that changes in interest rates do not affect all assets and liabilities equally. For example, rates paid on a substantial portion of core deposits may change contractually within a relatively short time frame, but those are viewed by management as significantly less interest sensitive than market-based rates such as those paid on non-core deposits. For this and other reasons, management relies more upon the simulations analysis (as noted above) in managing interest rate risk. Net interest income may be impacted by other significant factors in a given interest rate environment, including changes in volume and mix of interest earning assets and interest bearing liabilities.

The Bank’s earnings are dependent, to a large degree, on its net interest income, which is the difference between interest income earned on all interest earning assets, primarily loans and securities, and interest paid on all interest bearing liabilities, primarily deposits. Market risk is the risk of loss from adverse changes in market prices and interest rates. Our market risk arises primarily from inherent interest rate risk in our lending, investing and deposit gathering activities. We seek to reduce our exposure to market risk through actively monitoring and managing interest rate risk. Management relies on simulations analysis to evaluate the impact of varying levels of prevailing interest rates and the sensitivity of specific earning assets and interest bearing liabilities to changes in those prevailing rates. Simulation analysis consists of evaluating the impact on net interest income given changes from 400 basis points below the current prevailing rates to 400 basis points above current prevailing interest rates. Management makes certain assumptions as to the effect varying levels of interest rates have on certain interest earning assets and interest bearing liabilities, which assumptions consider both historical experience and consensus estimates of outside sources.

The following table illustrates the results of our simulation analysis to determine the extent to which market risk would affect net interest income for the next twelve months if prevailing interest rates increased or decreased by the specified amounts from current rates. As noted above, this model uses estimates and assumptions in asset and liability account rate reactions to changes in prevailing interest rates. However, to isolate the market risk inherent in the balance sheet, the model assumes that no growth in the balance sheet occurs during the projection period. This model also assumes an immediate and parallel shift in interest rates, which would result in no change in the shape or slope of the interest rate yield curve. Because of the inherent use of the estimates and assumptions in the simulation model to derive this market risk information, the actual results of the future impact of market risk on our net interest income may differ from that found in the table. Given the current level of prevailing interest rates, management believes prevailing market rates falling 300 basis points and 400 basis points are not reasonable assumptions. All other simulated prevailing interest rates changes modeled indicate a level of sensitivity of the Bank’s net interest income to those changes that is acceptable to management and within established Bank policy limits as of both dates shown.


	Impact on net interest income
	As of			As of
	March 31, 2024			December 31, 2023
Change in prevailing rates:
+ 400 basis points		(10.10	)%		(13.84	)%
+ 300 basis points		(7.51	)%		(10.27	)%
+ 200 basis points		(5.01	)%		(6.87	)%
+ 100 basis points		(2.50	)%		(3.35	)%
+ 0 basis points		-			-
- 100 basis points		2.28	%		3.02	%
- 200 basis points		4.20	%		5.59	%
- 300 basis points		5.22	%		8.11	%
- 400 basis points		7.08	%		12.40	%

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This item is not applicable to smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company has carried out an evaluation under the supervision and with participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even the effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2024, the Company’s disclosure controls and procedures are effective in ensuring that material information relating to the Company required to be disclosed in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the three months ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time the Company is a party to legal proceedings. At the present time the Company is not part of any proceeding which the Company deems to be material except as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 at Item 1., "Supervision and Regulation - USA Patriot Act."

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 that could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to the Company or that the Company currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

Item 6. Exhibits.


Exhibit Number		Description

3.1		Certificate of Incorporation of River Financial Corporation included as Exhibit 3.1 in the River Financial Corporation Form 8-K filed May 18, 2023 and incorporated herein by reference.

3.2		Bylaws of River Financial Corporation included as Exhibit 3.2 in the River Financial Corporation 8-K filed May 18, 2023 and incorporated herein by reference.

4.1		Article IV and Article V of the Certificates of Incorporation filed at Exhibit 3.1 to the Registrants’ Form 8-K filed May 18, 2023, and Article II and Article VI of the Bylaws included as Exhibit 3.2 of the Registrants’ Form 8-K filed May 18, 2023, and incorporated herein by reference.

10.1		River Financial 2006 Stock Compensation Plan filed as Exhibit 10.1 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

10.2		River Financial Change in Control Agreement for Jimmy Stubbs filed as Exhibit 10.2 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

10.3		River Financial Change in Control Agreement for Kenneth H. Givens filed as Exhibit 10.3 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

10.4		River Financial Change in Control Agreement for Joel K. Winslett filed as Exhibit 10.4 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

10.5		River Financial Change in Control Agreement for Ray Smith filed as Exhibit 10.5 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

10.6		River Financial Change in Control Agreement for Boles Pegues filed as Exhibit 10.6 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

10.7		River Financial Employment Term Sheet for Ray Smith filed as Exhibit 10.7 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

10.8		River Financial Employment Term Sheet for Boles Pegues filed as Exhibit 10.8 to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

10.9		River Bank & Trust Form of Warrant Agreement, assumed by River Financial filed as Exhibit 10.9 to the Registrant’s Registration statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

10.10		River Financial 2015 Incentive Stock Compensation Plan filed as Annex E to the Registrant’s Registration Statement on Form S-4, registration no. 333-205986 filed on July 31, 2015 and incorporated herein by reference.

10.11		Loan Agreement between River Financial Corporation and CenterState Bank (now SouthState Bank) filed as Exhibit 10.1 to the Registrant’s Form 8-K/A filed November 2, 2018 and incorporated herein by reference.

10.12		Form of Subordinated Note Purchase Agreement, dated March 9, 2021, between River Financial Corporation and certain accredited investors, included as Exhibit 10.1 in the River Financial Corporation Form 8-K, filed on March 10, 2021 and incorporated herein by reference.

10.13		Loan and Security Agreement, dated August 9, 2021, between River Financial Corporation and ServisFirst Bank, included as Exhibit 10.13 in the River Financial Corporation Form 10-K, filed on March 15, 2022 and incorporated herein by reference.

31.1**		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.


31.2**		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.

32 **		Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.



101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

* Schedules omitted. Registrant agrees to furnish a copy of any omitted schedule to the SEC upon request.

** Filed herewith.

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.


	RIVER FINANCIAL CORPORATION

Date: May 7, 2024	By:	/s/ James M. Stubbs
		James M. Stubbs
		Chief Executive Officer (principal executive officer)

Date: May 7, 2024	By:	/s/ Jason B. Davis
		Jason B. Davis
		Chief Financial Officer