10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-36094

THE COMMUNITY FINANCIAL CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Maryland	52-1652138
(State of Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

3035 Leonardtown Road, Waldorf, MD, 20601

(Address of Principal Executive Offices) (Zip Code)

(301) 645-5601

(Registrant’s Telephone Number, Including Area Code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	TCFC	The NASDAQ Stock Market LLC

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 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 October 31, 2022, the registrant had 5,645,749 shares of common stock outstanding. 

TABLE OF CONTENTS

Table of Contents	Page
Forward-Looking Statements
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements (Unaudited)	1
Consolidated Balance Sheets	1
Consolidated Statements of Income	2
Consolidated Statements of Comprehensive Income/Loss	3
Consolidated Statements of Changes in Stockholders’ Equity	4
Consolidated Statements of Cash Flows	6
Notes to Consolidated Financial Statements	8
Item 2 – Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations	41
Item 3 – Quantitative and Qualitative Disclosures about Market Risk	74
Item 4 – Controls and Procedures	75
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings	76
Item 1A – Risk Factors	76
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3 – Defaults Upon Senior Securities	76
Item 4 – Mine Safety Disclosures	76
Item 5 – Other Information	76
Item 6 – Exhibits	77
SIGNATURES	78

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Report may not be based on historical facts and are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements can generally be identified by the fact that they do not relate strictly to historical or current facts. They often include words or phrases such as “is optimistic,” “project,” “believe,” “expect,” “anticipate,” “estimate,” “assume” and “intend” or future or conditional verbs such as “will,” “would,” “should,” “could” or “may.” Statements in this report that are not strictly historical are forward-looking and are based upon current expectations that may differ materially from actual results. These forward-looking statements include, without limitation: (i) those relating to the Company’s and Community Bank of the Chesapeake’s future growth and management’s outlook or expectations for revenue, assets, asset quality, profitability, business prospects, net interest margin, non-interest revenue, allowance for credit losses, the level of credit losses from lending, liquidity levels, capital levels, or future financial or business performance strategies or expectations; (ii) any statements of the plans and objectives of management for future operations products or services, including the expected benefits from, and/or the execution of integration plans relating to any acquisition we have undertaken or that we undertake in the future; (iii) plans and cost savings regarding branch closings or consolidation; (iv) projections related to certain financial metrics, including with respect to the quarterly expense run rate; (v) expected benefits of programs we introduce, including residential mortgage programs and retail and commercial credit card programs; and (vi) any statement of expectation or belief, and any assumptions underlying the foregoing. These forward-looking statements express management’s current expectations or forecasts of future events, results and conditions, and by their nature are subject to and involve risks and uncertainties that could cause actual results to differ materially from those anticipated by the statements made herein.

Factors that might cause actual results to differ materially from those made in such statements include, but are not limited to: (i) risks, uncertainties and other factors relating to the COVID-19 pandemic (including the length of time that the pandemic continues, the ability of states and local governments to successfully implement the lifting of restrictions on movement and the potential imposition of further restrictions on movement and travel in the future, the effect of the pandemic on the general economy and on the businesses of our borrowers and their ability to make payments on their obligations; (ii) the remedial actions and stimulus measures adopted by federal, state and local governments, and the inability of employees to work due to illness, quarantine, or government mandates); (iii) the impacts related to or resulting from Russia’s military action in Ukraine, including the broader impacts to financial markets and the global macroeconomic and geopolitical environments; (iv) assumptions that interest-earning assets will reprice faster than interest-bearing liabilities and the Bank’s ability to maintain its current favorable funding mix; (v) the synergies and other expected financial benefits from any acquisition that we have undertaken or may undertake in the future may or may not be realized within the expected time frames; (vi) the impact of our adoption of the CECL standard; (vii) limitations on our ability to declare and pay dividends or engage in share repurchases; (viii) changes in the Company's or the Bank's strategy, costs or difficulties related to integration matters might be greater than expected; (ix) availability of and costs associated with obtaining adequate and timely sources of liquidity; (x) the ability to maintain credit quality; (xi) general economic trends and conditions, including inflation and its impacts; (xii) changes in interest rates; (xiii) loss of deposits and loan demand to other financial institutions; (xiv) substantial changes in financial markets; (xv) changes in real estate value and the real estate market; (xxi) regulatory changes; (xvii) the impact of government shutdowns or sequestration; (xviii) the possibility of unforeseen events affecting the industry generally; (xix) the uncertainties associated with newly developed or acquired operations; (xx) the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future; (xxi) market disruptions and other effects of terrorist activities; and (xxii) the matters described in “Item 1A Risk Factors” in the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2021, and in its other Reports filed with the Securities and Exchange Commission (the “SEC”).

The Company’s forward-looking statements may also be subject to other risks and uncertainties, including those that it may discuss elsewhere in this Report or in its filings with the SEC, accessible on the SEC’s Web site at www.sec.gov. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required under the rules and regulations of the SEC.

You are cautioned not to place undue reliance on the forward-looking statements contained in this document in that actual results could differ materially from those indicated in such forward-looking statements, due to a variety of factors. Any forward-looking statement speaks only as of the date of this Report, and the Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date of this Report.

PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

	(Unaudited)
(dollars in thousands, except per share amounts)	September 30, 2022		December 31, 2021
Assets
Cash and due from banks	$	18,008	$	108,990
Federal funds sold	20,325		—
Interest-bearing deposits with banks	14,970		30,664
Securities available for sale ("AFS"), at fair value	464,502		497,839
Equity securities carried at fair value through income	4,254		4,772
Non-marketable equity securities held in other financial institutions	207		207
Federal Home Loan Bank ("FHLB") stock - at cost	1,226		1,472
Net U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") Loans	1,211		26,398
Portfolio loans receivable net of allowance for credit losses of $22,027 and $18,417	1,721,250		1,560,393
Net loans	1,722,461		1,586,791
Goodwill	10,835		10,835
Premises and equipment, net	21,626		21,427
Accrued interest receivable	6,791		5,588
Investment in bank owned life insurance	39,583		38,932
Core deposit intangible	725		1,032
Net deferred tax assets	24,755		9,033
Right of use assets - operating leases	6,022		6,124
Other assets	3,331		3,600
Total Assets	$	2,359,621	$	2,327,306
Liabilities and Stockholders’ Equity
Deposits
Non-interest-bearing deposits	$	647,432	$	445,778
Interest-bearing deposits	1,479,125		1,610,386
Total deposits	2,126,557		2,056,164
Long-term debt	—		12,231
Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPs")	12,000		12,000
Subordinated notes net of debt issuance costs - 4.75%	19,552		19,510
Lease liabilities - operating leases	6,288		6,343
Accrued expenses and other liabilities	16,070		12,925
Total Liabilities	2,180,467		2,119,173
Stockholders’ Equity
Common stock - par value $0.01; authorized - 15,000,000 shares; issued 5,644,186 and 5,718,528 shares, respectively	56		57
Additional paid in capital	97,712		96,896
Retained earnings	125,608		113,448
Accumulated other comprehensive losses	(43,906)		(1,952)
Unearned ESOP shares	(316)		(316)
Total Stockholders’ Equity	179,154		208,133
Total Liabilities and Stockholders’ Equity	$	2,359,621	$	2,327,306

See notes to Consolidated Financial Statements

1

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share amounts)	2022		2021		2022		2021
Interest and Dividend Income
Loans, including fees	$	18,735	$	16,342	$	51,117	$	49,254
Interest and dividends on investment securities	2,454		1,296		6,044		3,461
Interest on deposits with banks	156		21		294		66
Total Interest and Dividend Income	21,345		17,659		57,455		52,781
Interest Expense
Deposits	1,850		594		3,182		2,036
Short-term borrowings	52		—		68		—
Long-term debt	386		456		1,111		1,192
Total Interest Expense	2,288		1,050		4,361		3,228
Net Interest Income	19,057		16,609		53,094		49,553
Provision for credit losses	694		—		1,569		586
Provision for unfunded commitments	6		—		1		—
Net Interest Income After Provision For Credit Losses	18,357		16,609		51,524		48,967
Noninterest Income
Loan appraisal, credit, and miscellaneous charges	65		29		285		271
Gain on sale of assets	—				—		68
Net gains on sale of investment securities	—		—		—		586
Unrealized losses on equity securities	(187)		(22)		(564)		(94)
Income from bank owned life insurance	220		220		651		652
Service charges	1,130		987		3,164		3,066
Referral fee income	—		176		361		1,248
Net gains (losses) on sale of loans originated for sale	1		30		(2)		30
Gains (losses) on sale of loans	—		—		209		(191)
Total Noninterest Income	1,229		1,400		4,104		5,616
Noninterest Expense
Compensation and benefits	5,116		5,650		15,222		15,770
Occupancy expense	826		731		2,378		2,180
Advertising	149		145		372		372
Data processing expense	1,062		840		3,077		2,766
Professional fees	923		676		2,499		1,920
Depreciation of premises and equipment	177		137		476		419
FDIC Insurance	160		120		516		512
OREO valuation allowance and expenses	—		20		6		689
Core deposit intangible amortization	97		121		308		380
Fraud losses	37		132		107		1,243
Other expenses	1,079		875		3,083		2,722
Total Noninterest Expense	9,626		9,447		28,044		28,973
Income before income taxes	9,960		8,562		27,584		25,610
Income tax expense	2,380		2,158		6,882		6,475
Net Income	$	7,580	$	6,404	$	20,702	$	19,135
Earnings Per Common Share
Basic	$	1.34	$	1.12	$	3.66	$	3.29
Diluted	$	1.34	$	1.12	$	3.65	$	3.29
Cash dividends paid per common share	$	0.175	$	0.150	$	0.525	$	0.425

See notes to Consolidated Financial Statements

2

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/LOSS

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Net Income	$	7,580	$	6,404	$	20,702	$	19,135
Net unrealized holding losses arising during period, net of tax benefits of $(4,250) and $(1,083), and $(14,787) and $(1,744), respectively.	(12,059)		(3,072)		(41,954)		(4,946)
Reclassification adjustment for gains included in net income, net of tax expense of $0 and $0, and $0 and $153, respectively.	—		—		—		433
Comprehensive (Loss) Income	$	(4,479)	$	3,332	$	(21,252)	$	14,622

See notes to Consolidated Financial Statements

3

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

For the Three Months Ended September 30, 2022 and 2021

(dollars in thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Unearned ESOP Shares		Total
Balance at June 30, 2022	$	56	$	97,455	$	119,523	$	(31,847)	$	(316)	$	184,871
Net Income	—		—		7,580		—		—		7,580
Unrealized holding loss on investment securities, net of tax $(4,250)	—		—		—		(12,059)		—		(12,059)
Cash dividend at $0.175 per common share	—		—		(935)		—		—		(935)
Dividend reinvestment	—		54		(54)		—		—		—
Net change in fair market value above cost of leveraged ESOP shares released	—		2		—		—		—		2
Repurchase of common stock			—		(506)		—		—		(506)
Stock based compensation	—		201		—		—		—		201
Balance at September 30, 2022	$	56	$	97,712	$	125,608	$	(43,906)	$	(316)	$	179,154

(dollars in thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Unearned ESOP Shares		Total
Balance at June 30, 2021	$	58	$	96,411	$	104,889	$	3,063	$	(459)	$	203,962
Net Income	—		—		6,404		—		—		6,404
Unrealized holding loss on investment securities, net of tax $(1,083)	—		—		—		(3,072)		—		(3,072)
Cash dividend at $0.150 per common share	—		—		(812)		—		—		(812)
Dividend reinvestment	—		45		(45)		—		—		—
Net change in fair market value below cost of leveraged ESOP shares released	—		2		—		—		—		2
Repurchase of common stock	(1)		—		(2,546)		—		—		(2,547)
Stock based compensation	—		191		—		—		—		191
Balance at September 30, 2021	$	57	$	96,649	$	107,890	$	(9)	$	(459)	$	204,128

See notes to Consolidated Financial Statements

4

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

For the Nine Months Ended September 30, 2022 and 2021

(dollars in thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Unearned ESOP Shares		Total
Balance at January 1, 2022	$	57	$	96,896	$	113,448	$	(1,952)	$	(316)	$	208,133
Cumulative effect adjustment due to the adoption of ASC 326, net of tax	—		—		(2,006)		—		—		(2,006)
Net Income	—		—		20,702		—		—		20,702
Unrealized holding loss on investment securities net of tax $(14,787)	—		—		—		(41,954)		—		(41,954)
Cash dividend at $0.525 per common share	—		—		(2,823)		—		—		(2,823)
Dividend reinvestment	—		159		(159)		—		—		—
Net change in fair market value above cost of leveraged ESOP shares released	—		11		—		—		—		11
Repurchase of common stock	(1)		—		(3,554)		—		—		(3,555)
Stock based compensation	—		646		—		—		—		646
Balance at September 30, 2022	$	56	$	97,712	$	125,608	$	(43,906)	$	(316)	$	179,154

(dollars in thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Unearned ESOP Shares		Total
Balance at January 1, 2021	$	59	$	95,965	$	97,944	$	4,504	$	(459)	$	198,013
Net Income	—		—		19,135		—		—		19,135
Unrealized holding loss on investment securities net of tax $(1,591)	—		—		—		(4,513)		—		(4,513)
Cash dividend at $0.425 per common share	—		—		(2,355)		—		—		(2,355)
Dividend reinvestment	—		125		(125)		—		—		—
Net change in fair market value over cost of leveraged ESOP shares released	—		(2)		—		—		—		(2)
Repurchase of common stock	(2)		—		(6,709)		—		—		(6,711)
Stock based compensation	—		561		—						561
Balance at September 30, 2021	$	57	$	96,649	$	107,890	$	(9)	$	(459)	$	204,128

See notes to Consolidated Financial Statements

5

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
(dollars in thousands)	2022		2021
Cash Flows from Operating Activities
Net income	$	20,702	$	19,135
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses	1,569		586
Provision for unfunded commitments	1		—
Depreciation and amortization	1,165		1,150
Provision for loss on premises held for sale	—		20
Loans originated for resale	(1,800)		(1,479)
Proceeds from sale of loans originated for sale	1,838		1,514
Net losses (gains) on sale of loans held for sale	2		(30)
(Gains) losses on sale of loans	(209)		191
Net gains on the sale of OREO	—		(16)
Gains on sales of investment securities	—		(586)
Unrealized losses on equity securities	564		94
Gains on sale of assets	—		(68)
Net amortization of premium/discount on investment securities	2,148		636
Net accretion of merger accounting adjustments	(168)		(256)
Net amortization of debt issuance costs	42		(30)
Amortization of core deposit intangible	308		380
Amortization of right of use asset	288		304
Net change in right of use assets and lease liabilities	(241)		(302)
Increase in OREO valuation allowance	—		641
Increase in cash surrender value of bank owned life insurance	(651)		(652)
(Decrease) increase in deferred income tax benefit	(237)		710
(Increase) decrease in accrued interest receivable	(1,203)		2,672
Stock based compensation	646		561
Net change in fair market value above (below) cost of leveraged ESOP shares released	11		(2)
(Increase) decrease in net deferred loan costs	(441)		2,324
Increase in accrued expenses and other liabilities	2,927		3,886
Decrease (increase) in other assets	269		(917)
Net Cash Provided by Operating Activities	27,530		30,466
Cash Flows from Investing Activities
Purchase of AFS investment securities	(69,078)		(265,704)
Proceeds from redemption or principal payments of AFS investment securities	43,480		36,408
Proceeds from sale of AFS investment securities	—		12,540
Net decrease of FHLB stock	246		1,305
Net change in loans	(142,537)		9,617
Purchase of premises and equipment	(1,364)		(2,264)
Proceeds from sale of OREO	—		947
Proceeds from sale of loans	3,588		11,965
Proceeds from disposal of asset	—		12
Net Cash Used in Investing Activities	(165,665)		(195,174)

6

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Continued)

	Nine Months Ended September 30,
(dollars in thousands)	2022		2021
Cash Flows from Financing Activities
Net increase in deposits	$	70,393	$	259,005
Payments of long-term debt	(12,231)		(15,053)
Dividends paid	(2,823)		(2,355)
Repurchase of common stock	(3,555)		(6,711)
Net Cash Provided by Financing Activities	51,784		234,886
(Decrease) increase in Cash and Cash Equivalents	(86,351)		70,178
Cash and Cash Equivalents - January 1	139,654		77,065
Cash and Cash Equivalents - September 30	$	53,303	$	147,243
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for
Interest	$	4,138	$	3,205
Income taxes	$	6,239	$	6,278
Supplemental Schedule of Non-Cash Operating Activities
Issuance of common stock for payment of compensation	$	355	$	164
Supplemental Schedule of Non-Cash Investing and Financing Activities
Cumulative effect adjustment for adoption of ASU 2016-13	$	2,006	$	—

See notes to Consolidated Financial Statements

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION AND NATURE OF OPERATIONS

Basis of Presentation

The Consolidated Financial Statements include the accounts of The Community Financial Corporation and its wholly-owned subsidiary, Community Bank of the Chesapeake (the “Bank”), (collectively, the “Company”), included herein are unaudited.

The Consolidated Financial Statements reflect all adjustments consisting only of normal recurring accruals that, in the opinion of management, are necessary to present fairly the Company’s financial condition, results of operations, and cash flows for the periods presented. Certain information and note disclosures normally included in Consolidated Financial Statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to the rules and regulations of the SEC. Management believes that the included disclosures are adequate to make the information presented not misleading. The balances as of December 31, 2021 have been derived from audited Consolidated Financial Statements. The Company’s accounting policies are disclosed in Note 1 to the 2021 Consolidated Financial Statements. The adoption on January 1, 2022 of the new Current Expected Credit Loss ("CECL") accounting standard is described below. The results of operations for the nine months September 30, 2022 are not necessarily indicative of the results of operations to be expected for the remainder of the year or any other period.

These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes included in the Company’s 2021 Annual Report on Form 10-K.

Reclassification

Certain items in prior Consolidated Financial Statements have been reclassified to conform to the current presentation.

Nature of Operations

The Company provides financial services to individuals and businesses through its offices in Southern Maryland and Fredericksburg, Virginia. Its primary deposit products are demand, savings and time deposits, and its primary lending products are commercial and residential mortgage loans, commercial loans, construction and land development loans, home equity and second mortgages and commercial equipment loans.

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amount of income and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses ("ACL"), real estate acquired in the settlement of loans ("OREO"), fair value of financial instruments, fair value of assets acquired, and liabilities assumed in a business combination, evaluating potential credit losses of investment securities and valuation of deferred tax assets.

8

New Accounting Policy

Allowance for Credit Losses

On January 1, 2022, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology for determining the provision for credit losses and ACL with the CECL methodology. The measurement of expected credit losses under the CECL methodology applies to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. In addition, ASU 2016-13 made changes to the accounting for available-for-sale ("AFS") debt securities. Credit-related impairments of AFS debt securities are now recognized through an allowance for credit loss rather than a write-down of the securities' amortized cost basis when management does not intend to sell or believes that it is not likely that they will be required to sell the securities prior to recovery of the securities amortized cost basis.

We adopted ASU 2016-13 using the modified retrospective method. Results for reporting periods beginning after January 1, 2022 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. At adoption, the Company did not hold Held to Maturity ("HTM") investment debt securities.

The following table shows the impact of the Company's adoption of ASC 326:

	January 1, 2022
(dollars in thousands)	As Reported Under ASC 326		Pre-ASC 326 Adoption		Impact of ASC 326 Adoption
Portfolio Loans:
Commercial real estate	$	1,113,793	$	1,115,485	(1,692)
Residential first mortgages	92,710		91,120		1,590
Residential rentals	194,911		195,035		(124)
Construction and land development	35,502		35,590		(88)
Home equity and second mortgages	25,661		25,638		23
Commercial loans	50,512		50,574		(62)
Consumer loans	3,015		3,002		13
Commercial equipment	62,706		62,499		207
Gross Portfolio Loans	1,578,810		1,578,943		(133)
Adjustments:
Net deferred costs	—		(133)		133
Allowance for credit losses	(20,913)		(18,417)		(2,496)
Net Portfolio Loans	1,557,897		1,560,393		(2,496)
U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans	26,398		27,276		(878)
Net deferred fees	—		(878)		878
Net U.S. SBA PPP Loans	26,398		26,398		—
Total Net Loans	$	1,584,295	$	1,586,791	$	(2,496)
Liabilities: Reserve for Unfunded Commitments	$	268	$	51	$	217

Loans that the Company has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are reported at their outstanding unpaid principal balances, adjusted for the allowance for credit losses and any deferred fees or premiums. Interest income is accrued on the unpaid principal balance. Loan origination fees and premiums, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered credit deteriorated. Evidence of credit quality deterioration as of the purchase date may include statistics such as internal risk grade, past due and nonaccrual status, recent borrower credit scores and recent loan-to-value (“LTV”) percentages. At December 31, 2021, the Bank had purchased credit-deteriorated (“PCD”) loans from the County First acquisition with unpaid principal balances of $1.4 million and carrying values of $1.1 million. At the adoption of ASC 326, management evaluated the remaining unamortized discount on the PCD loans and determined that approximately $8,000 of the discount was credit related and

9

reclassified into the ACL. The non-credit component of the discount will be recognized in interest income over the remaining life of the loans.

The Company considers a loan to be past due or delinquent when the terms of the contractual obligation are not met by the borrower. Loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, the collection of additional interest is doubtful. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection. Non-accrual loans include certain loans that are current with all loan payments and are placed on non-accrual status due to customer operating results and cash flows. Non-accrual loans are evaluated for impairment on a loan-by-loan basis in accordance with the Company’s impairment methodology.

Consumer loans, excluding credit card loans, are typically charged-off no later than 90 days past due. Credit card loans are typically charged-off no later than 180 days past due. Mortgage and commercial loans are fully or partially charged-off when in management’s judgment all reasonable efforts to return a loan to performing status have occurred. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected from loans that are placed on non-accrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

TDRs are loans that have been modified to provide for a reduction or a delay in the payment of either interest or principal because of deterioration in the financial condition of the borrower. A loan extended or renewed at a stated interest rate equal to the current interest rate for new debt with similar risk is not considered a TDR. Once an obligation has been classified as a TDR it continues to be considered a TDR until paid in full or until the debt is refinanced and considered unimpaired. All TDRs are assessed on a loan-by-loan basis. The Company does not participate in any specific government or Company-sponsored loan modification programs. All restructured loan agreements are individual contracts negotiated with a borrower.

Allowance for Credit Losses - Loans

The ACL is an estimate of the expected credit losses for loans held for investment and off-balance sheet exposures. ASU 2016-13 replaced the incurred loss model that recognized a loss when it became probable that a credit loss had occurred, with a model that immediately recognizes the credit loss expected to occur over the lifetime of a financial asset whether originated or purchased. Charge-offs are recorded to the ACL when management believes the loan is uncollectible. Subsequent recoveries, if any, are credited to the ACL. Management believes the ACL is in accordance with U.S. GAAP and in compliance with appropriate regulatory guidelines.

The ACL includes quantitative estimates of losses for collectively and individually evaluated loans. As more fully described below, the model-based quantitative estimate for collectively evaluated loans is determined using the probability of default (PD) and loss given default (LGD) at the segment level and applied at the loan level against the expected exposure at default (EAD). Qualitative adjustments to the quantitative estimate may be made using information not considered in the quantitative model.

The Bank uses a range of data to estimate expected credit losses under CECL, including information about past events, current conditions, and reasonable and supportable forecasts relevant to assessing the collectability of the cash flows of the loans. Historical loss experience serves as the foundation for our estimated credit losses. Adjustments to our historical loss experience are made for differences in current loan portfolio segment credit risk characteristics such as the impact of changing unemployment rates, changes in U.S. Treasury yields, portfolio concentrations, the volume of classified loans, inflation, and other prevailing economic conditions and factors that may affect the borrower’s ability to repay, or reduce the estimated value of underlying collateral. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

The ACL is measured on a collective basis when similar risk characteristics exist. Generally, collectively assessed loans are grouped by loan type code or product type codes and assigned to a corresponding portfolio segment. Portfolio segments may be further subdivided into similar risk profile groupings based on interest rate structure, types of collateral or other terms and characteristics.

The probability of default (“PD”) calculation analyzes the historical loan portfolio over the given look back period to identify, by segment, loans that have defaulted. 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. The model observes loans over a 12-month window, detecting any events previously defined. This information is then used by the model to calculate annual iterative count-based PD rates for each segment. This process is then repeated for all dates within the historical data range. These averaged PD’s are used for a 12-month straight-line reversion to the historical mean. The historical data used was from mid-2006 through the most recent quarter end.

The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the ACL on loans. The model’s calculation also includes a 12-month forecasted PD based on a regression model that compares the Company’s historical loan data to

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various national economic metrics during the same periods. The results show the Company’s past losses having a high rate of correlation to national unemployment rates for fixed rate loans and the 10-Year U.S. Treasury for adjustable-rate loans. The model uses this information, along with the most recently published Wall Street Journal survey of sixty economists’ forecasts predicting unemployment rates out over the next four quarters to estimate the PD for the forward-looking 12-month period. These data are also used to predict credit losses at different levels of stress, including a baseline, low, high and adverse economic conditions. After the forecast period, PD rates revert to the historical mean straight line over a 12-month period for the entire data set.

The loss given default (“LGD”) calculation is based on actual losses (charge-offs, net of recoveries) at a loan level over the entire look-back period aggregated for each loan segment. The aggregate loss is divided by the exposure at default to determine an LGD rate. Defaults occurring during the look-back period are included in the denominator, whether or not a loss occurred and exposure at default is determined by the loan balance immediately preceding the default event. When the Company's data are insufficient. an industry index is used.

The exposure at default (“EAD”) calculation projects future expected balances from monthly cash flow schedules to apply PD and LGD assumptions. These are derived based on current contractual terms (balance, interest rate, payment structure), adjusted for expected voluntary prepayments. The contractual terms exclude expected extensions, renewals and modifications unless either of the following applies: management has the reasonable expectation that a loan will be restructured, or the extension or renewal option are included in the borrower contract.

On a quarterly basis, the Company uses internal portfolio credit data, such as levels of non-accrual loans, classified assets and concentrations of credit along with other external information not used in the quantitative calculation to determine qualitative adjustments.

Loans that do not share the same common risk characteristics with other loans are individually assessed. Such loans include non-accrual loans, TDRs, loans classified as substandard or worse, loans that are greater than 89 days delinquent and any other loan identified by management for individual assessment. Reserves on individually assessed loans are measured on a loan-by-loan basis. Generally, consumer loans, including credit cards, are not individually assessed as the Bank's policy is to charge-off credit card loans when they become 180 days delinquent and other consumer loans when they are more than 90 days delinquent.

The methodology used to estimate the ACL is designed to be responsive to changes in portfolio credit quality and forecasted economic conditions. Changes due to new information are reflected in the pool-based allowance and in reserves assigned on an individual basis. Executive management closely monitors loss ratios, reviews the appropriateness of the ACL and presents conclusions to the Credit Risk Committee and the Audit Committee. The committees report to the Board as part of Board's quarterly review of our regulatory reporting and consolidated financial statements.

The calculation of the ACL excludes accrued interest receivable balances because these balances are reversed in a timely manner against previously recognized interest income when a loan is placed on non-accrual status.

Allowance for Credit Losses - AFS Debt securities

As described above, the Company does not presently hold any HTM debt securities and therefore is not presently required to apply a CECL methodology for an HTM investment portfolio.

The impairment model for AFS debt securities measures fair value. Although ASU No. 2016-13 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model for AFS securities. One notable change from the legacy OTTI model is when evaluating whether credit loss exists, an entity may no longer consider the length of time fair value has been less than amortized cost. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criterion is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and a corresponding allowance for credit losses is recorded. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Any impairment not recorded through an allowance for credit loss is recognized in other comprehensive income as a noncredit-related impairment. As of September 30, 2022, the Company determined that the unrealized loss

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positions in AFS securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded. See Note 2 Investment Securities for more information.

The Bank elected as allowed under ASU No. 2016-13 to exclude accrued interest from the amortized cost basis of AFS debt securities and report accrued interest separately in accrued interest and other assets in the consolidated balance sheets. AFS debt securities are placed on non-accrual status when management no longer expects to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status. Accordingly, the Company does not recognize an allowance for credit loss against accrued interest receivable. The majority of AFS debt securities as of September 30, 2022 and December 31, 2021 were issued by Government Sponsored Enterprises (“GSEs”) and U.S. agencies. As such, an allowance for credit losses is not considered necessary.

Collateral Dependent Financial Assets

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the Net Present Value ("NPV") from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset. Subsequent changes to the fair value of collateral, for which an ACL was previously recognized, will be reported as a provision (recovery) for credit losses.

The Bank generally uses the practical expedient of the fair value of the collateral, net of estimated selling costs, to determine the expected credit loss for individually assessed collateral dependent loans.

Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposure

Financial instruments include off-balance sheet credit instruments such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records a reserve for unfunded commitments (“RUC”) on off-balance sheet credit exposures through a charge to provision for credit loss expense in the Company’s consolidated statements of operations. The RUC on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in Other Liabilities on the Company’s consolidated balance sheets.

See Note 1 – Summary of Significant Accounting Policies included in the Company’s 2021 Annual Report on Form 10-K for a list of policies in effect as of December 31, 2021.

Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)

Adopted New Accounting Standard

ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaced the existing “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, applies to (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, HTM securities, loan commitments, and financial guarantees. Credit losses relating to AFS debt securities will be recorded through an allowance for credit losses. The ASU also simplifies the accounting model for Purchased Credit Impaired (“PCI”) debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach).

In December 2019, the FASB issued ASU No 2019-10, Financial Instruments - Credit Losses (Topic 326). This update amends the effective date of ASU 2016-13 for certain entities, including smaller reporting companies until fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption was permitted. The FASB has issued other ASUs that clarify items related to ASU 2016-13. The Company adopted this guidance effective January 1, 2022.

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The Company's estimates are derived using one-year reasonable and supportable economic forecasts with subsequent one-year reversion to the historical mean loss rates. For loans that share similar risk characteristics and are collectively assessed, the Company uses a probability of default/loss given default cash flow method to determine the expected losses at the loan level. Loans that do not share similar risk characteristics are evaluated on an individual basis. Based on forecasted economic conditions and portfolio balances as of January 1, 2022, we recognized an increase to the opening allowance for credit losses of $2.5 million. The increase is primarily related to the change in methodology from estimating losses incurred as of the balance sheet date to estimating lifetime credit losses required by the CECL standard.

The impact of adoption was not significant to the Bank's regulatory capital. The Bank did not elect to phase-in, over a three-year period, the standard's initial impact on regulatory capital as permitted by the regulatory transition rules.

ASU 2019-05 – Financial Instruments-Credit Losses (Topic 326). In May 2019, the FASB issued ASU No. 2019-05. This ASU allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to HTM debt securities. Entities are required to make this election on an instrument-by-instrument basis. The Company adopted ASU 2019-05 concurrently upon adoption of ASU 2016-13. The adoption of CECL did not have a material effect on available-for-sale securities, which are predominantly composed of mortgage-backed securities issued by government sponsored entities and U.S. agencies and U.S. government obligations.

Pending adoption

ASU 2020-04 – Reference Rate Reform (Topic 848). In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its Consolidated Financial Statements.

ASU Update 2022-02 – Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU Update 2022-02 eliminates the TDR recognition and measurement guidance and, instead requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. In addition, ASU Update 2022-02 requires that an entity disclosure current-period gross write-offs by year of origination for financing receivables and net investment in leases. Entities have the option to apply a modified retrospective transition method for TDRs. The disclosure amendments in the Update 2022-02 will be applied prospectively. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its Consolidated Financial Statements.

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NOTE 2 – INVESTMENT SECURITIES

Amortized cost and fair values of investment securities at September 30, 2022 and December 31, 2021 are summarized as follows:

	September 30, 2022
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
AFS Securities
Asset-backed securities issued by GSEs and U.S. Agencies
Residential Mortgage Backed Securities ("MBS")	$	128,493	$	13	$	13,770	$	114,736
Residential Collateralized Mortgage Obligations ("CMOs")	181,433		13		16,579		164,867
U.S. Agency	14,601		—		2,375		12,226
Asset-backed securities ("ABSs") issued by Others:
Residential CMOs	9,363		—		260		9,103
Student Loan Trust ABSs	50,315		103		1,879		48,539
Municipal bonds	99,846		—		20,982		78,864
Corporate bonds	3,000		—		391		2,609
U.S. government obligations	36,831		—		3,273		33,558
Total AFS Securities	$	523,882	$	129	$	59,509	$	464,502
Equity securities carried at fair value through income
CRA investment fund	$	4,254	$	—	$	—	$	4,254
Non-marketable equity securities
Other equity securities	$	207	$	—	$	—	$	207
Total Investment Securities	$	528,343	$	129	$	59,509	$	468,963

	December 31, 2021
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
AFS Securities
Asset-backed securities issued by GSEs and U.S. Agencies
Residential MBS	$	121,125	$	1,057	$	2,266	$	119,916
Residential CMOs	198,780		710		2,367		197,123
U.S. Agency	14,433		11		140		14,304
Asset-backed securities issued by Others:
Residential CMOs	220		5		4		221
Student Loan Trust ABSs	56,422		438		286		56,574
Municipal bonds	92,556		1,169		884		92,841
U.S. government obligations	16,942		—		82		16,860
Total AFS Securities	$	500,478	$	3,390	$	6,029	$	497,839
Equity securities carried at fair value through income
CRA investment fund	$	4,772	$	—	$	—	$	4,772
Non-marketable equity securities
Other equity securities	$	207	$	—	$	—	$	207
Total Investment Securities	$	505,457	$	3,390	$	6,029	$	502,818

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The Company elected to exclude accrued interest receivable (“AIR”) from the amortized cost basis of debt securities disclosed throughout this footnote. AFS debt securities, AIR totaled $1.6 million and $1.1 million as of September 30, 2022, and December 31, 2021, respectively. AIR is included in the “accrued interest receivable” line item on the Company’s consolidated balance sheets.

At September 30, 2022 and December 31, 2021, securities with an amortized cost of $55.6 million and $50.9 million were pledged to secure certain customer deposits.

During the quarter ended September 30, 2022, the Company did not sell any securities. During the year ended December 31, 2021, the Company recognized net gains of $0.6 million on the sale of AFS securities with aggregate carrying values of $11.9 million.

Management does not believe that the AFS debt securities in an unrealized loss position as of September 30, 2022 have credit loss impairment. As of September 30, 2022, and December 31, 2021, the gross unrealized loss positions were primarily related to mortgage-backed securities issued by U.S. government agencies or U.S. government sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. The Company also performed credit reviews on municipal bonds issued by States and Political Subdivisions and asset backed securities issued by Student Loan Trust. Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. The Company does not intend to sell the investment securities that were in an unrealized loss position, and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity. Management believes that the securities will either recover in market value or be paid off as agreed.

AFS Securities

Gross unrealized losses and estimated fair value by length of time that individual AFS securities have been in a continuous unrealized loss position at September 30, 2022, and December 31, 2021 were as follows:

September 30, 2022	Less Than 12 Months				More Than 12 Months				Total
(dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Losses
Asset-backed securities issued by GSEs and U.S. Agencies	$	69,403	$	6,302	$	220,175	$	26,422	$	289,578	$	32,724
Asset-backed securities issued by Others	5,937		244		149		16		6,086		260
Student Loan Trust ABSs	6,536		1,000		34,823		879		41,359		1,879
Municipal bonds	38,786		8,927		40,078		12,055		78,864		20,982
Corporate bonds	2,609		391		—		—		2,609		391
U.S. government obligations	18,656		1,232		14,902		2,041		33,558		3,273
	$	141,927	$	18,096	$	310,127	$	41,413	$	452,054	$	59,509

December 31, 2021	Less Than 12 Months				More Than 12 Months				Total
(dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Losses
Asset-backed securities issued by GSEs and U.S. Agencies	$	205,891	$	3,997	$	41,327	$	776	$	247,218	$	4,773
Asset-backed securities issued by Others	—		—		57		4		57		4
Student Loan Trust ABSs	21,640		281		2,226		5		23,866		286
Municipal bonds	47,314		776		6,696		108		54,010		884
U.S. government obligations	14,860		82		1,999		—		16,859		82
	$	289,705	$	5,136	$	52,305	$	893	$	342,010	$	6,029

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Maturities

The amortized cost and estimated fair value of debt securities at September 30, 2022, and December 31, 2021 by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call premiums or prepayment penalties.

	September 30, 2022				December 31, 2021
(dollars in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Within one year	$	35,730	$	31,680	$	36,859	$	36,665
Over one year through five years	137,433		121,856		121,308		120,668
Over five years through ten years	219,912		194,986		191,166		190,158
After ten years	130,807		115,980		151,145		150,348
Total AFS securities	$	523,882	$	464,502	$	500,478	$	497,839

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NOTE 3 – LOANS

Portfolio loans, net of deferred costs and fees, are summarized by type as follows at September 30, 2022:

	September 30, 2022
(dollars in thousands)	Total		% of Total Loans
Portfolio Loans:
Commercial real estate	$	1,202,660	68.98	%
Residential first mortgages	83,081		4.77	%
Residential rentals	282,365		16.20	%
Construction and land development	23,197		1.33	%
Home equity and second mortgages	26,054		1.49	%
Commercial loans	41,615		2.39	%
Consumer loans	5,754		0.33	%
Commercial equipment	78,551		4.51	%
Total portfolio loans (1)	1,743,277		100.00	%
Less: Allowance for Credit Losses	(22,027)		(1.26)	%
Total net portfolio loans	1,721,250
U.S. SBA PPP loans (1)	1,211
Total net loans	$	1,722,461
Portfolio loans are summarized by type as follows at December 31, 2021:
Portfolio Loans:	December 31, 2021
Commercial real estate	$	1,115,485	70.66	%
Residential first mortgages	91,120		5.77	%
Residential rentals	195,035		12.35	%
Construction and land development	35,590		2.25	%
Home equity and second mortgages	25,638		1.62	%
Commercial loans	50,574		3.20	%
Consumer loans	3,002		0.19	%
Commercial equipment	62,499		3.96	%
Gross portfolio loans (1)	1,578,943		100.00	%
Adjustments:
Net deferred costs	(133)		(0.01)	%
Allowance for loan losses	(18,417)		(1.17)	%
	(18,550)
Net portfolio loans	1,560,393
Gross U.S. SBA PPP loans (1)	27,276
Net deferred fees	(878)
Net U.S. SBA PPP Loans	26,398
Total net loans	$	1,586,791
Total gross loans	$	1,606,219

(1)Excludes accrued interest receivable of $5.2 million and $4.5 million, at September 30, 2022 and December 31, 2021, respectively.

The Company has segregated its loans into portfolio loans and U.S. SBA PPP loans at December 31, 2021.

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Deferred Costs/Fees

Portfolio net deferred fees of $1.4 million at September 30, 2022 included deferred fees paid by customers of $5.6 million offset by deferred costs of $4.2 million. Deferred loan costs include premiums paid for the purchase of residential first mortgages and deferred loan origination costs in accordance with ASC 310-20. Net deferred loan fees of $0.1 million at December 31, 2021 included deferred fees paid by customers of $4.1 million offset by deferred costs of $4.0 million.

U.S. SBA PPP loan net deferred fees of $41,000 at September 30, 2022 included deferred fees paid by the U.S. SBA of $44,000 partially offset by deferred costs of $3,000. U.S. SBA PPP net deferred loan fees of $0.2 million at December 31, 2021 included deferred fees paid by the SBA of $0.2 million offset by deferred costs of $18,000. The net deferred fees are being amortized as a component of interest income through the contractual maturity date of each U.S. SBA PPP loan. Net deferred fees include fees received by participant banks for each U.S. SBA PPP loan underwritten and funded net of costs incurred to underwrite the loans. Net deferred fees will be recognized in income when the U.S. SBA PPP loan is forgiven or paid.

Risk Characteristics of Portfolio Segments

Concentrations of Credit - Loans are primarily made within the Company’s operating footprint of Southern Maryland and the greater Fredericksburg area of Virginia. Real estate loans can be affected by the condition of the local real estate market. Commercial and industrial loans can be affected by the local economic conditions. The commercial loan portfolio has business loans secured by real estate and real estate development loans. At September 30, 2022 and December 31, 2021, the Company had no loans outstanding with foreign entities.

The Company manages its credit products and exposure to credit losses (credit risk) by the following specific portfolio segments (classes), which are levels at which the Company develops and documents its allowance for loan loss methodology. These segments are:

Commercial Real Estate (“CRE”)

Commercial and other real estate projects include office, medical and professional buildings, retail locations, churches, other special purpose buildings and commercial construction. Commercial construction balances were 7.5% and 6.5% of the CRE portfolio at September 30, 2022 and December 31, 2021, respectively. The Bank offers both fixed-rate and adjustable-rate loans under these product lines. The primary security on a commercial real estate loan is the real property and the leases that produce income for the real property. Loans secured by commercial real estate are generally limited to 80% of the lower of the appraised value or sales price at origination and have an initial contractual loan payment period ranging from three to 20 years.

Because payments on loans secured by such properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy.

Residential First Mortgages

Residential first mortgage loans are generally long-term (10 to 30 years) amortizing loans. The Bank’s residential portfolio has both fixed-rate and adjustable-rate residential first mortgages.

The annual and lifetime limitations on interest rate adjustments may constrain interest rate increases on these loans. There are also credit risks resulting from potential increased costs to the borrower as a result of repricing of adjustable-rate mortgage loans. During periods of rising interest rates, the risk of default on adjustable-rate mortgage loans may increase due to the upward adjustment of interest cost to the borrower. The Bank’s adjustable rate residential first mortgage portfolio was $13.4 million or 0.8% of total portfolio loans of $1.7 billion at September 30, 2022 compared to $18.9 million or 1.2% of total gross portfolio loans of $1.6 billion at December 31, 2021.

The Bank generally retains the right to service loans sold for a payment based upon a percentage (generally 0.25% of the outstanding loan balance). As of September 30, 2022 and December 31, 2021, the Bank serviced $20.0 million and $20.9 million, respectively, in residential mortgage loans for others.

Residential Rentals

Residential rental mortgage loans are amortizing long-term loans. Loans secured by residential rental properties are generally limited to 80% of the lower of the appraised value or sales price at origination and have an initial contractual loan payment period ranging from three to 20 years. During periods of rising interest rates, the risk of default on adjustable-rate mortgage loans may increase due to the upward adjustment of interest cost to the borrower.

Loans secured by residential rental properties involve greater risks than 1-4 family residential mortgage loans. Although, there are similar risk characteristics shared with commercial real estate loans, the balances for the loans secured by residential rental properties are generally smaller. Payments on loans secured by residential rental properties are dependent on the successful operation of the properties; and repayment of these loans may be subject to adverse conditions in the rental real estate market or the economy than similar owner-occupied properties.

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Construction and Land Development

The Bank offers loans for the construction of residential dwellings. These loans are secured by the real estate under construction as well as by guarantees of the principals involved. In addition, the Bank offers loans to acquire and develop land. Construction and Land Development loans are dependent on the successful completion of the underlying project, or the borrowers guarantee to repay the loan. As such, they are subject to the risks of the project including the borrower’s ability to successfully manage construction and development activities. The repayment of these loans is also subject to economic risks such as changing prices and interest rates.

Home Equity and Second Mortgage Loans

The Bank maintains a portfolio of home equity and second mortgage loans. These products contain a higher risk of default than residential first mortgages as in the event of foreclosure, the first mortgage would need to be paid off prior to collection of the second mortgage.

Commercial Loans

Commercial loans including lines of credit are short-term loans (5 years or less) that are secured by the equipment financed, the guarantees of the borrower, and other collateral. These loans are dependent on the success of the underlying business or the strength of the guarantor.

Consumer Loans

Consumer loans consist of loans secured by automobiles, boats, recreational vehicles and trucks. The Bank also makes home improvement loans and offers both secured and unsecured personal lines of credit and credit card loans. The repayment of these loans is dependent on the continued financial stability of the customer.

Commercial Equipment Loans

These loans consist primarily of fixed-rate, short-term loans collateralized by a commercial customer’s equipment or secured by real property, accounts receivable, or other security as determined by the Bank. Commercial loans are dependent on the success of the underlying business or the strength of the guarantor.

U.S. SBA PPP Loans

U.S. SBA PPP loans are fully guaranteed by the Small Business Administration and the Bank's ACL does not include an allowance for U.S. SBA PPP loans. Management believes all U.S. SBA PPP loans were underwritten in accordance with the program's guidelines.

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Loans

Non-accrual loans as of September 30, 2022 and December 31, 2021 were as follows:

	September 30, 2022
(dollars in thousands)	Nonaccrual with No Allowance for Credit Losses		Nonaccrual with Allowance for Credit Losses		Total Nonaccrual Loans
Commercial real estate	$	4,577	$	84	$	4,661
Residential rentals	1,153		—		1,153
Home equity and second mortgages	240		—		240
Commercial loans	—		25		25
Commercial equipment	211		—		211
Total	$	6,181	$	109	$	6,290
Interest Income on Nonaccrual Loans	$	63	$	—	$	63

	September 30, 2022
(dollars in thousands)	Non-accrual Delinquent Loans		Non-accrual Current Loans		Total Non-accrual Loans
Commercial real estate	$	—	$	4,661	$	4,661
Residential rentals	454		699		1,153
Home equity and second mortgages	124		116		240
Commercial loans	—		25		25
Commercial equipment	—		211		211
	$	578	$	5,712	$	6,290

	December 31, 2021
(dollars in thousands)	Non-accrual Delinquent Loans		Non-accrual Current Loans		Total Non-accrual Loans
Commercial real estate	$	—	$	4,890	$	4,890
Residential first mortgages	450		—		450
Residential rentals	252		690		942
Home equity and second mortgages	202		399		601
Commercial equipment	—		691		691
U.S. SBA PPP loans	57		—		57
	$	961	$	6,670	$	7,631

Non-accrual loans decreased $1.3 million from $7.6 million or 0.48% of total loans at December 31, 2021 to $6.3 million or 0.36% of total loans at September 30, 2022. Loans can be current but classified as non-accrual due to customer operating results or payment history. All interest accrued but not collected from loans that are placed on non-accrual or charged-off is reversed against interest income. In accordance with the Company’s policy, such interest income is recognized on a cash basis or cost-recovery method, until qualifying for return to accrual status.

At December 31, 2021, there were $6.7 million (87%) of non-accrual loans were current with all payments of principal and interest with no impairment and $1.0 million (13%) of non-accrual loans were delinquent with specific valuation reserves of $0.3 million.

Non-accrual loans at September 30, 2022 and December 31, 2021 included no delinquent TDRs. Non-accrual loans on which the recognition of interest has been discontinued, which did not have a specific allowance for impairment, amounted to $6.2 million and $7.4 million at September 30, 2022 and December 31, 2021, respectively. Interest due but not recognized on these balances at September 30, 2022 and December 31, 2021 was $36,000 and $0.1 million, respectively. Non-accrual loans with a specific allowance for impairment amounted to $0.1 million and $0.3 million at September 30, 2022 and December 31, 2021, respectively. Interest due but not recognized on these balances at September 30, 2022 and December 31, 2021 was $1,000 and $1,000, respectively.

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The Company considers a loan to be past due or delinquent when the terms of the contractual obligation are not met by the borrower. Regardless of payment status, as long as cash flows can be reasonably estimated, the associated discount on these loan pools results in income recognition. An analysis of days past due ("DPD") loans as of September 30, 2022 follows:

	September 30, 2022
(dollars in thousands)	31-60 DPD		61-89 DPD		90 DPD and Still Accruing		90 DPD and Not Accruing		Total Past Due		Current Non-Accrual Loans		Current Accrual Loans		Total Loans
Commercial real estate	$	—	$	—	$	—	$	—	$	—	$	4,661	$	1,197,999	$	1,202,660
Residential first mortgages	—		—		—		—		—		—		83,081		83,081
Residential rentals	32		181		—		273		486		699		281,180		282,365
Construction and land development	—		—		—		—		—		—		23,197		23,197
Home equity and second mortgages	204		—		—		124		328		116		25,610		26,054
Commercial loans	—		—		—		—		—		25		41,590		41,615
Consumer loans	19		5		31		—		55		—		5,699		5,754
Commercial equipment	—		—		—		—		—		211		78,340		78,551
U.S. SBA PPP	272		—		—		—		272		—		939		1,211
Total Loans	$	527	$	186	$	31	$	397	$	1,141	$	5,712	$	1,737,635	$	1,744,488

Loan delinquency (total past due) decreased $0.3 million from $1.4 million, or 0.09% of loans, at December 31, 2021 to $1.1 million, or 0.07% of loans, at September 30, 2022.

PCI loans are included as a single category in the table below as management believes there is a lower likelihood of aggregate loss related to these loan pools. Additionally, PCI loans are discounted to allow for the accretion of income on a level yield basis over the life of the loan based on expected cash flows. An analysis of days past due loans as of December 31, 2021 follows:

	December 31, 2021
(dollars in thousands)	31-60 Days		61-89 Days		90 or Greater Days		Total Past Due		PCI Loans		Current		Total Loan Receivables
Commercial real estate	$	—	$	—	$	—	$	—	$	1,116	$	1,114,369	$	1,115,485
Residential first mortgages	—		277		450		727		—		90,393		91,120
Residential rentals	—		42		252		294		—		194,741		195,035
Construction and land development	—		—		—		—		—		35,590		35,590
Home equity and second mortgages	200		—		202		402		—		25,236		25,638
Commercial loans	—		—		—		—		—		50,574		50,574
Consumer loans	—		—		—		—		—		3,002		3,002
Commercial equipment	—		—		—		—		—		62,499		62,499
Total portfolio loans	$	200	$	319	$	904	$	1,423	$	1,116	$	1,576,404	$	1,578,943
U.S. SBA PPP loans	$	9	$	40	$	57	$	106	$	—	$	27,170	$	27,276

There were no loans that were past due 90 days or greater accruing interest at December 31, 2021.

Allowance for Credit Losses ("ACL")

The following tables detail activity in the ACL at and for the three and nine months ended September 30, 2022 and 2021. An allocation of the allowance to one category of loans does not prevent the Company from using that allowance to absorb losses in a different category.

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Three Months Ended	September 30, 2022
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provisions		Ending Balance
Commercial real estate	$	16,833	$	—	$	—	$	203	$	17,036
Residential first mortgages	255		—		14		(32)		237
Residential rentals	1,660		—		—		885		2,545
Construction and land development	166		—		—		31		197
Home equity and second mortgages	143		—		—		(1)		142
Commercial loans	238		(49)		1		64		254
Consumer loans	132		(14)		—		24		142
Commercial equipment	1,977		(29)		6		(480)		1,474
	$	21,404	$	(92)	$	21	$	694	$	22,027

Three Months Ended	September 30, 2021
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provisions		Ending Balance
Commercial real estate	$	13,918	$	(491)	$	4	$	(12)	$	13,419
Residential first mortgages	847		—		—		65		912
Residential rentals	1,186		—		—		614		1,800
Construction and land development	332		—		—		36		368
Home equity and second mortgages	242		—		1		6		249
Commercial loans	1,113		—		529		(733)		909
Consumer loans	28		—		—		14		42
Commercial equipment	798		—		20		10		828
	$	18,464	$	(491)	$	554	$	—	$	18,527
Purchase Credit Impaired**	$	52	$	—	$	—	$	—	$	52

Nine Months Ended	September 30, 2022
(dollars in thousands)	Beginning Balance		Impact of ASC 326 Adoption		Charge-offs		Recoveries		Provisions		Ending Balance
Commercial real estate	$	13,095	$	3,734	$	(280)	$	—	$	487	$	17,036
Residential first mortgages	1,002		(679)		(111)		14		11		237
Residential rentals	2,175		(586)		—		—		956		2,545
Construction and land development	260		(82)		—		—		19		197
Home equity and second mortgages	274		(86)		—		1		(47)		142
Commercial loans	582		(290)		(99)		2		59		254
Consumer loans	58		2		(20)		—		102		142
Commercial equipment	971		483		(29)		67		(18)		1,474
	$	18,417	$	2,496	$	(539)	$	84	$	1,569	$	22,027

_______________________________________

**There is no allowance for credit loss on the SBA PPP portfolios. A more detailed roll forward schedule will be presented if an allowance is required.

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Nine Months Ended	September 30, 2021
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provisions		Ending Balance
Commercial real estate	$	13,744	$	(1,739)	$	6	$	1,408	$	13,419
Residential first mortgages	1,305		(142)		—		(251)		912
Residential rentals	1,413		(46)		—		433		1,800
Construction and land development	401		—		—		(33)		368
Home equity and second mortgages	261		—		4		(16)		249
Commercial loans	1,222		(76)		539		(776)		909
Consumer loans	20		—		—		22		42
Commercial equipment	1,058		(34)		57		(253)		828
	$	19,424	$	(2,037)	$	606	$	534	$	18,527
Purchase Credit Impaired**	$	—	$	—	$	—	$	52	$	52

_______________________________________

**There is no allowance for loan loss on the PCI or the SBA PPP portfolios. A more detailed roll forward schedule will be presented if an allowance is required.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans.

	September 30, 2022
(dollars in thousands)	Business/Other Assets		Real Estate
Commercial real estate	$	—	$	4,660
Residential first mortgages	—		—
Residential rentals	—		972
Home equity and second mortgages	—		240
Commercial loans	25		—
Commercial equipment	645		—
Total	$	670	$	5,872

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Credit Quality Indicators

Credit quality indicators as of September 30, 2022 were as follows:

Credit Risk Profile by Internally Assigned Grade

The risk category of loans by class of loans is as follows:

	Term Loans by Origination Year
(dollars in thousands)	Prior		2018		2019		2020		2021		2022		Revolving Loans		Total
Commercial Real Estate
Pass	$	335,465	$	74,482	$	107,720	$	188,070	$	282,781	$	187,151	$	—	$	1,175,669
Watch	5,588		4,216		—		5,567		—		6,960		—		22,331
Special Mention	—		—		—		—		—		—		—		—
Substandard	808		—		2,999		—		853		—		—		4,660
Total	$	341,861	$	78,698	$	110,719	$	193,637	$	283,634	$	194,111	$	—	$	1,202,660
Residential Rentals
Pass	$	45,188	$	4,495	$	21,141	$	42,263	$	65,468	$	102,838	$	—	$	281,393
Watch	—		—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—		—
Substandard	972		—		—		—		—		—		—		972
Total	$	46,160	$	4,495	$	21,141	$	42,263	$	65,468	$	102,838	$	—	$	282,365
Construction and Land Development
Pass	$	4,550	$	8,987	$	5,094	$	1,399	$	2,529	$	638	$	—	$	23,197
Watch	—		—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Total	$	4,550	$	8,987	$	5,094	$	1,399	$	2,529	$	638	$	—	$	23,197
Commercial Loans
Pass	$	23,516	$	2,628	$	2,708	$	1,868	$	7,792	$	3,078	$	—	$	41,590
Watch	—		—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		25		—		—		—		25
Total	$	23,516	$	2,628	$	2,708	$	1,893	$	7,792	$	3,078	$	—	$	41,615
Commercial Equipment
Pass	$	8,737	$	5,363	$	15,519	$	7,995	$	13,290	$	27,100	$	—	$	78,004
Watch	—		175		—		—		—		—		—		175
Special Mention	—		—		160		—		—		—		—		160
Substandard	—		—		212		—		—		—		—		212
Total	$	8,737	$	5,538	$	15,891	$	7,995	$	13,290	$	27,100	$	—	$	78,551
Total loans by risk category	$	424,824	$	100,346	$	155,553	$	247,187	$	372,713	$	327,765	$	—	$	1,628,388

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Loans evaluated by performance category are as follows:

	Term Loans by Origination Year
(dollars in thousands)	Prior		2018		2019		2020		2021		2022		Revolving Loans		Total
Residential First Mortgages
Performing	$	39,498	$	3,891	$	19,542	$	8,577	$	5,279	$	6,294	$	—	$	83,081
Non-performing	—		—		—		—		—		—		—		—
Total	$	39,498	$	3,891	$	19,542	$	8,577	$	5,279	$	6,294	$	—	$	83,081
Home Equity and Second Mortgages
Performing	$	15,900	$	1,383	$	933	$	1,384	$	3,881	$	2,474	$	—	$	25,955
Non-performing	99		—		—		—		—		—		—		99
Total	$	15,999	$	1,383	$	933	$	1,384	$	3,881	$	2,474	$	—	$	26,054
Consumer Loans
Performing	$	42	$	3	$	108	$	139	$	678	$	850	$	3,903	$	5,723
Non-performing	—				—								31		31
Total	$	42	$	3	$	108	$	139	$	678	$	850	$	3,934	$	5,754
U.S. SBA PPP Loans
Performing	$	—	$	—	$	—	$	—	$	1,211	$	—	$	—	$	1,211
Non-performing	—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	1,211	$	—	$	—	$	1,211
Total loans evaluated by performing status	$	55,539	$	5,277	$	20,583	$	10,100	$	11,049	$	9,618	$	3,934	$	116,100
Total Recorded Investment	$	480,363	$	105,623	$	176,136	$	257,287	$	383,762	$	337,383	$	3,934	$	1,744,488

Credit quality indicators as of December 31, 2021 were as follows:

	Commercial Real Estate		Construction and Land Development		Residential Rentals
(dollars in thousands)	12/31/2021		12/31/2021		12/31/2021
Unrated	$	—	$	—	$	—
Pass	1,111,857		35,590		194,093
Special mention	—		—		—
Substandard	3,628		—		942
Doubtful	—		—		—
Loss	—		—		—
Total	$	1,115,485	$	35,590	$	195,035

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	Commercial Loans		Commercial Equipment		Total Commercial Portfolios
(dollars in thousands)	12/31/2021		12/31/2021		12/31/2021
Unrated	$	—	$	—	$	—
Pass	50,574		62,326		1,454,440
Special mention	—		—		—
Substandard	—		173		4,743
Doubtful	—		—		—
Loss	—		—		—
Total	$	50,574	$	62,499	$	1,459,183

	Non-Commercial Portfolios **		U.S. SBA PPP Loans		Total Loans Portfolios
(dollars in thousands)	12/31/2021		12/31/2021		12/31/2021
Unrated	$	100,403	$	27,276	$	127,679
Pass	18,889		—		1,473,329
Special mention	—		—		—
Substandard	468		—		5,211
Doubtful	—		—		—
Loss	—		—		—
Total	$	119,760	$	27,276	$	1,606,219

_______________________________________

**Non-commercial portfolios are generally evaluated based on payment activity but may be risk graded if part of a larger commercial relationship or are credit impaired (e.g. non-accrual loans, TDRs).

Credit Risk Profile Based on Payment Activity

	Residential First Mortgages		Home Equity and Second Mortgages		Consumer Loans
(dollars in thousands)	12/31/2021		12/31/2021		12/31/2021
Performing	$	90,670	$	25,436	$	3,002
Nonperforming	450		202		—
Total	$	91,120	$	25,638	$	3,002

A risk-grading scale is used to assign grades to commercial relationships, which include commercial real estate, residential rentals, construction and land development, commercial loans and commercial equipment loans. Loans are graded at inception, annually thereafter when financial statements are received and at other times when there is an indication that a credit may have weakened or improved. At December 31, 2020 and prior, only commercial loan relationships with an aggregate exposure to the Bank of $1,000,000 or greater were subject to being risk rated. During the quarter ended March 31, 2021, the Bank's policy was amended to risk rate all commercial loan relationships.

Home equity and second mortgages and consumer loans are evaluated for creditworthiness in underwriting and are monitored based on borrower payment history. Residential first mortgages are evaluated for creditworthiness during credit due diligence before being purchased. Residential first mortgages, home equity and second mortgages and consumer loans are classified as unrated unless they are part of a larger commercial relationship that requires grading or are TDRs or nonperforming loans with an Other Assets Especially Mentioned ("OAEM") or higher risk rating due to a delinquency payment history.

The overall quality of the Bank’s loan portfolio is assessed using the Bank’s risk-grading scale, the level and trends of net charge-offs, nonperforming loans and delinquencies, the performance of TDRs and the general economic conditions in the Company’s geographical market. This review process is assisted by frequent internal reporting of loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. Credit quality indicators and allowance factors are adjusted based on management’s judgment during the monthly and quarterly review process. Loans subject to risk ratings are graded on a scale of one to ten. The Company considers loans rated substandard, doubtful and loss as classified assets for regulatory and financial reporting.

Ratings 1 thru 6 - Pass

Ratings 1 thru 6 have asset risks ranging from excellent-low to adequate. The specific rating assigned considers customer history of earnings, cash flows, liquidity, leverage, capitalization, consistency of debt service coverage, the nature and extent of customer relationship and other relevant specific business factors such as the stability of the industry or market area, changes to management, litigation or unexpected events that could have an impact on risks.

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Rating 7 - OAEM (Other Assets Especially Mentioned) – Special Mention

These credits, while protected by the financial strength of the borrowers, guarantors or collateral, have reduced quality due to economic conditions, less than adequate earnings performance or other factors which require the lending officer to direct more than normal attention to the credit. Financing alternatives may be limited and/or command higher risk interest rates. OAEM loans relationships are reviewed at least quarterly.

Rating 8 - Substandard

Substandard assets are assets that are inadequately protected by the sound worth or paying capacity of the borrower or of the collateral pledged. Substandard loans are the first adversely classified loans on the Bank's watchlist. These assets have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. The loans may have a delinquent history or combination of weak collateral, weak guarantor strength or operating losses. When a loan is assigned to this category the Bank may estimate a specific reserve in the loan loss allowance analysis. These assets listed may include assets with histories of repossessions or some that are non-performing bankruptcies. These relationships will be reviewed at least quarterly.

Rating 9 - Doubtful

Doubtful assets have many of the same characteristics of Substandard with the exception that the Bank has determined that loss is not only possible but is probable and the risk is close to certain that loss will occur. When a loan is assigned to this category the Bank will identify the probable loss and the loan will receive a specific reserve in the loan loss allowance analysis. These relationships will be reviewed at least quarterly.

Rating 10 – Loss

Once an asset is identified as a definite loss to the Bank, it will receive the classification of “loss.” There may be some future potential recovery; however, it is more practical to write off the loan at the time of classification. Losses will be taken in the period in which they are determined to be non-collectable.

TDRs included in the impaired loan schedules above, as of September 30, 2022 and December 31, 2021 were as follows:

	September 30, 2022			December 31, 2021
(dollars in thousands)	Number of Loans	Recorded Investments		Number of Loans	Recorded Investments
Commercial equipment	1	$	433	1	$	447
Total TDRs	1	$	433	1	$	447
Less: TDRs included in non-accrual loans	—	—		—	—
Total accrual TDR loans	1	$	433	1	$	447

The Company had no specific reserves on TDRs at September 30, 2022 and at December 31, 2021. During the year ended December 31, 2021, TDR disposals, which included payoffs and refinancing, included three loans totaling $0.1 million. TDR loan principal curtailments were $5,000 and $12,000 for the three and nine months ended September 30, 2022, respectively and $19,000 for the year ended December 31, 2021. There were no TDRs added during the three months ended September 30, 2022 or the year ended December 31, 2021.

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Prior to adoption of CECL

Impaired Loans and Troubled Debt Restructures (“TDRs”)

Impaired loans, including TDRs at December 31, 2021 and September 30, 2021, were as follows:

	December 31, 2021
(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		YTD Average Recorded Investment		YTD Interest Income Recognized
Commercial real estate	$	4,994	$	4,797	$	93	$	4,890	$	93	$	4,866	$	254
Residential first mortgages	879		866		—		866		—		874		32
Residential rentals	982		942		—		942		—		959		48
Home equity and second mortgages	626		601		—		601		—		604		14
Commercial equipment	1,200		1,022		173		1,195		173		2,184		99
Total	$	8,681	$	8,228	$	266	$	8,494	$	266	$	9,487	$	447

	September 30, 2021
(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Quarter Average Recorded Investment		Quarter Interest Income Recognized		YTD Average Recorded Investment		YTD Interest Income Recognized
Commercial real estate	$	3,205	$	2,377	$	759	$	3,136	$	291	$	3,146	$	25	$	3,177	$	80
Residential first mortgages	884		872		—		872		—		873		7		878		25
Residential rentals	990		961		—		961		—		961		13		956		38
Home equity and second mortgages	602		580		—		580		—		581		3		583		10
Commercial equipment	490		455		32		487		32		489		5		493		16
Total	$	6,171	$	5,245	$	791	$	6,036	$	323	$	6,050	$	53	$	6,087	$	169

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The following tables detail loan receivable and allowance balances disaggregated on the basis of the Company’s impairment methodology at September 30, 2021 and December 31, 2021.

	December 31, 2021								September 30, 2021
(dollars in thousands)	Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Purchased Credit Impaired		Total		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Purchased Credit Impaired		Total
Loan Receivables:
Commercial real estate	$	4,890	$	1,109,479	$	1,116	$	1,115,485	$	3,136	$	1,084,356	$	1,144	$	1,088,636
Residential first mortgages	866		90,254		—		91,120		872		95,963		—		96,835
Residential rentals	942		194,093		—		195,035		961		171,121		—		172,082
Construction and land development	—		35,590		—		35,590		—		37,139		—		37,139
Home equity and second mortgages	601		25,037		—		25,638		580		25,938		—		26,518
Commercial loans	—		50,574		—		50,574		—		48,327		—		48,327
Consumer loans	—		3,002		—		3,002		—		2,168		—		2,168
Commercial equipment	1,195		61,304		—		62,499		487		60,859		—		61,346
	$	8,494	$	1,569,333	$	1,116	$	1,578,943	$	6,036	$	1,525,871	$	1,144	$	1,533,051
Allowance for credit losses:
Commercial real estate	$	93	$	13,002	$	—	$	13,095	$	291	$	13,128	$	52	$	13,471
Residential first mortgages	—		1,002		—		1,002		—		912		—		912
Residential rentals	—		2,175		—		2,175		—		1,800		—		1,800
Construction and land development	—		260		—		260		—		368		—		368
Home equity and second mortgages	—		274		—		274		—		249		—		249
Commercial loans	—		582		—		582		—		909		—		909
Consumer loans	—		58		—		58		—		42		—		42
Commercial equipment	173		798		—		971		32		796		—		828
	$	266	$	18,151	$	—	$	18,417	$	323	$	18,204	$	52	$	18,579

Purchased Credit-Impaired Loans and Acquired Loans ("PCI")

Determining the fair value of the PCI loans at the time of acquisition required the Company to estimate cash flows expected to result from those loans considering prepayment assumptions and to discount those cash flows at appropriate rates of interest. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans and is called accretable yield. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and is called the nonaccretable difference. In accordance with GAAP upon the adoption of CECL, there was no carryover of a previously established allowance for credit losses from acquisition. A summary of changes in the accretable yield for PCI loans for the three and nine months ended September 30, 2021 and the year ended December 31, 2021 follows:

	Three Months Ended September 30,		Nine Months Ended September 30,		Year Ended
(dollars in thousands)	2021		2021		December 31, 2021
Accretable yield, beginning of period	$	324	$	342	$	342
Additions	—		—		—
Accretion	(31)		(92)		(117)
Reclassification from nonaccretable difference	15		29		43
Other changes, net	(15)		14		55
Accretable yield, end of period	$	293	$	293	$	323

At December 31, 2021 acquired performing loans, which totaled $41.1 million, included a $0.8 million net acquisition accounting fair market value adjustment, representing a 1.25% discount; and PCI loans which totaled $1.1 million, included a $0.3 million adjustment, representing a 14.95% discount.

During the three months ended September 30, 2021 there was $0.1 million of accretion interest.

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Accounting standards require a periodic recast of the expected cash flows on the PCI loan portfolio. The recast was performed during the fourth quarter of 2021 which resulted in a reclassification of $0.5 million, from the credit (nonaccretable) portion of the discount to the liquidity (accretable) portion of the discount.

The following is a summary of acquired and non-acquired loans as of December 31, 2021:

BY ACQUIRED AND NON-ACQUIRED	December 31, 2021		%
Acquired loans - performing	$	41,066	2.56	%
Acquired loans - purchase credit impaired ("PCI")	1,116		0.07	%
Total acquired loans	42,182		2.63	%
U.S. SBA PPP loans	27,276		1.70	%
Non-acquired loans**	1,536,761		95.68	%
Gross loans	1,606,219
Net deferred fees	(1,011)		(0.06)	%
Total loans, net of deferred fees	$	1,605,208

______________________________

**Non-acquired loans include loans transferred from acquired pools following release of acquisition accounting FMV adjustments.

NOTE 4 – GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets are presented in the tables below.

(dollars in thousands)	As of September 30, 2022		As of December 31, 2021
Goodwill	$	10,835	$	10,835

	As of September 30, 2022						As of December 31, 2021
(dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets		Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets
Core deposit intangible ("CDI")	$	3,590	$	(2,865)	$	725	$	3,590	$	(2,558)	$	1,032

The estimated aggregate future amortization expense for intangible assets remaining as of September 30, 2022 is as follows:

(dollars in thousands)
Remainder of 2022	$	91
2023	302
2024	205
2025	109
2026	18
	$	725

At September 30, 2022 the Company had goodwill of $10.8 million or 6.05% of equity and CDI of $0.7 million or 0.40% of equity.

Management performed its annual analysis of goodwill and CDI during the fourth quarter of 2021 and concluded that there was no impairment at December 31, 2021. At September 30, 2022, management's analysis concluded that there were no changes in the Company's financial statements or operations subsequent to the fourth quarter 2021 annual analyses that would indicate that it was more likely than not that goodwill or CDI was impaired.

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NOTE 5 – OTHER REAL ESTATE OWNED (“OREO”)

OREO assets are presented net of the valuation allowance. The Company considers OREO as classified assets for regulatory and financial reporting. OREO carrying amounts reflect management’s estimate of the realizable value of these properties incorporating current appraised values, local real estate market conditions and related costs. An analysis of activity follows.

	Nine Months Ended September 30,				Years Ended December 31,
(dollars in thousands)	2022		2021		2021
Balance at beginning of year	$	—	$	3,109	$	3,109
Additions of underlying property	—		—		—
Disposals of underlying property	—		(932)		(1,722)
Valuation allowance	—		(641)		(1,387)
Balance at end of period	$	—	$	1,536	$	—

Expenses applicable to OREO assets included the following.

	Nine Months Ended September 30,
(dollars in thousands)	2022		2021
Valuation allowance	$	—	$	641
Losses (gains) on dispositions	—		(16)
Operating expenses	6		64
	$	6	$	689

The Company had $0.1 million in loans secured by residential real estate for which formal foreclosure proceedings were in process as of September 30, 2022. There were no loans secured by residential real estate for which formal foreclosure proceedings were in the process as of December 31, 2021.

NOTE 6 – DEPOSITS

Deposits consist of the following:

	September 30, 2022				December 31, 2021
(dollars in thousands)	Balance		%		Balance		%
Noninterest-bearing demand	$	647,432	30.45	%	$	445,778	21.68	%
Interest-bearing:
Demand	691,987		32.54	%	790,481		38.45	%
Money market deposits	371,175		17.45	%	372,717		18.13	%
Savings	123,564		5.81	%	119,767		5.82	%
Certificates of deposit	292,399		13.75	%	327,421		15.92	%
Total interest-bearing	1,479,125		69.55	%	1,610,386		78.32	%
Total Deposits	$	2,126,557	100.00	%	$	2,056,164	100.00	%

The aggregate amount of certificates of deposit that exceed the FDIC insurance limit of $250,000 at September 30, 2022 and December 31, 2021 was $55.1 million and $57.6 million, respectively.

The Company monitors all customer deposit concentrations at or above 2% of total deposits. At September 30, 2022, the Bank had two customer deposit relationships that exceeded 2% of total deposits, totaling $427.7 million which represented 20.1% of total deposits. At December 31, 2021, the Bank had two customer deposit relationships that exceeded 2% of total deposits, totaling $335.6 million which represented 16.3% of total deposits. These concentrations were with local municipal agencies.

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NOTE 7 – LEASE COMMITMENTS & CONTINGENCIES

Operating Leases

The Company's, operating lease agreements are primarily for leases of branches and office space. Topic 842 requires operating lease agreements to be recognized on the consolidated balance sheet as a right-of-use-asset with a corresponding lease liability.

The table below details the Right of Use asset (net of accumulated amortization), lease liability and other information related to the Company's operating leases:

(dollars in thousands)	September 30, 2022			December 31, 2021
Operating Leases
Operating lease right of use asset, net	$	6,022		$	6,124
Operating lease liability	$	6,288		$	6,343
Weighted average remaining lease term	15.84 years			17.21 years
Weighted average discount rate	3.50		%	3.51		%
Remaining lease term - min	4.8 years			6.3 years
Remaining lease term - max	22.0 years			23.0 years

The table below details the Company's lease cost, which is included in occupancy expense in the Unaudited Consolidated Statements of Income.

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Operating lease cost	$	157	$	146	$	454	$	489
Cash paid for lease liability	$	140	$	150	$	406	$	485

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows:

(dollars in thousands)	As of September 30, 2022
Lease payments due:
Within one year	$	569
After one but within two years	584
After two but within three years	611
After three but within four years	637
After four but within five years	629
After five years	5,375
Total undiscounted cash flows	$	8,405
Discount on cash flows	2,117
Total lease liability	$	6,288

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NOTE 8 – GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES (“TRUPs”)

On June 15, 2005, Tri-County Capital Trust II (“Capital Trust II”), a Delaware business trust formed, funded and wholly-owned by the Company, issued $5.0 million of variable-rate capital securities in a private pooled transaction. The variable rate is based on the 90-day LIBOR rate plus 1.70%. The Trust used the proceeds from this issuance, along with the $0.2 million for Capital Trust II’s common securities, to purchase $5.2 million of the Company’s junior subordinated debentures. The interest rate on the debentures and the trust preferred securities is variable and adjusts quarterly. These capital securities qualify as Tier I capital and are presented in the Consolidated Balance Sheets as “Guaranteed Preferred Beneficial Interests in Junior Subordinated Debentures.” Both the capital securities of Capital Trust II and the junior subordinated debentures are scheduled to mature on June 15, 2035, unless called by the Company.

On July 22, 2004, Tri-County Capital Trust I (“Capital Trust I”), a Delaware business trust formed, funded and wholly owned by the Company, issued $7.0 million of variable-rate capital securities in a private pooled transaction. The variable rate is based on the 90-day LIBOR rate plus 2.60%. The Trust used the proceeds from this issuance, along with the Company’s $0.2 million capital contribution for Capital Trust I’s common securities, to purchase $7.2 million of the Company’s junior subordinated debentures. The interest rate on the debentures and the trust preferred securities is variable and adjusts quarterly. These debentures qualify as Tier I capital and are presented in the Consolidated Balance Sheets as “Guaranteed Preferred Beneficial Interests in Junior Subordinated Debentures.” Both the capital securities of Capital Trust I and the junior subordinated debentures are scheduled to mature on July 22, 2034, unless called by the Company.

NOTE 9 – SUBORDINATED NOTES

On October 14, 2020, the Company issued and sold $20.0 million in aggregate principal amount of its 4.75% Fixed to Floating Rate Subordinated Notes due 2030 (the "Notes"). The Notes were sold by the Company in a private offering. The Notes mature on October 15, 2030 and bear interest at a fixed rate of 4.75% to October 14, 2025. From October 15, 2025 to the maturity date or early redemption date, the interest rate will reset quarterly to the three-month Secured Overnight Financing Rate ("SOFR") plus 458 basis points. The Company may redeem the Notes at any time after October 14, 2025, and at any time in whole, but not in part, upon the occurrence of certain events. Any redemption of the Notes will be subject to prior regulatory approval. The Company incurred debt issuance costs for placement fees, legal and other out-of-pocket expenses of approximately $0.6 million, which are being amortized over the life of the Notes. The Company recognized amortization expense of $42,000 and $42,000 for the nine months ended September 30, 2022 and 2021, respectively.

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NOTE 10 – REGULATORY CAPITAL

The Bank’s primary regulator is the Federal Deposit Insurance Corporation (“FDIC”). The Bank is subject to regulation, supervision and regular examination by the Maryland Commissioner of Financial Regulation (the “Commissioner”) and the FDIC. The Company is subject to regulation, examination and supervision by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (the “BHCA”).

The Company and Bank are subject to the Basel III Capital Rules which establish a comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee’s “Basel III” framework for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Basel III Capital Rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios.

The rules include a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, require a minimum ratio (“Min. Ratio”) of Total Capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. A capital conservation buffer (“CCB”) is also established above the regulatory minimum capital requirements. The rules revised the definition and calculation of Tier 1 capital, Total Capital, and risk-weighted assets.

As of September 30, 2022 and December 31, 2021, the Company and Bank were well-capitalized under the regulatory framework for prompt corrective action ("PCA") under the new Basel III Capital Rules. Management believes, as of September 30, 2022 and December 31, 2021, that the Company and the Bank met all capital adequacy requirements to which they were subject. The Company’s and the Bank’s actual regulatory capital amounts and ratios are presented in the following table.

Regulatory Capital and Ratios	Regulatory Minimum Ratio + CCB(1)	The Company						The Bank
(dollars in thousands)		September 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021
Common equity		$	179,154		$	208,133		$	207,146		$	236,561
Goodwill		(10,835)			(10,835)			(10,835)			(10,835)
Core deposit intangible (net of deferred tax liability)		(537)			(766)			(537)			(766)
AOCI losses		43,906			1,952			43,906			1,952
Common Equity Tier 1 Capital		211,688			198,484			239,680			226,912
TRUPs		12,000			12,000			—			—
Tier 1 Capital		223,688			210,484			239,680			226,912
Allowable reserve for credit losses and other Tier 2 adjustments		22,295			18,468			22,295			18,468
Subordinated notes		19,552			19,510			—			—
Tier 2 Capital		$	265,535		$	248,462		$	261,975		$	245,380
Risk-Weighted Assets ("RWA")		$	1,856,827		$	1,665,296		$	1,855,483		$	1,663,831
Average Assets ("AA")		$	2,340,703		$	2,281,210		$	2,338,751		$	2,279,835
Common Tier 1 Capital to RWA	7.00%	11.40		%	11.92		%	12.92		%	13.64		%
Tier 1 Capital to RWA	8.50%	12.05			12.64			12.92			13.64
Tier 2 Capital to RWA	10.50%	14.30			14.92			14.12			14.75
Tier 1 Capital to AA (Leverage) (2)	n/a	9.56			9.23			10.25			9.95

____________________________________

(1)The regulatory minimum capital ratio ("Min. Ratio") + the capital conservation buffer ("CCB").

(2)Tier 1 Capital to AA (Leverage) has no capital conservation buffer defined. The PCA well capitalized is defined as 5.00%.

Dividends paid by the Company are substantially funded from dividends received from the Bank. Federal and holding company regulations, as well as Maryland law, impose certain restrictions on capital distributions, including dividend payments and share repurchases. These restrictions generally require advanced approval from the Bank's regulator for payment of dividends in excess of the sum of net income for the current calendar year and the retained net income of the prior two calendar years.

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NOTE 11 – FAIR VALUE MEASUREMENTS

The Company adopted FASB ASC Topic 820, “Fair Value Measurements” and FASB ASC Topic 825, “The Fair Value Option for Financial Assets and Financial Liabilities”, which provides a framework for measuring and disclosing fair value under U.S. GAAP. FASB ASC Topic 820 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, AFS investment securities) or on a nonrecurring basis (for example, impaired loans).

FASB ASC Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC Topic 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. AFS securities 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 loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Under FASB ASC Topic 820, 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 the fair value. These hierarchy levels are:

Level 1 inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s quarterly valuation process. Intra-quarter transfers in and out of level 3 assets and liabilities recorded at fair value on a recurring basis are disclosed. There were no such transfers during the quarter ended September 30, 2022 or the year ended December 31, 2021.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value:

Securities Available for Sale

AFS investment securities are recorded at fair value on a recurring basis. Standard inputs include 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, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities (“GSEs”), municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Equity Securities Carried at Fair Value Through Income

Equity securities carried at fair value through income are recorded at fair value on a recurring basis. Standard inputs include 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 equity securities include those traded on an active exchange, such as the New York Stock Exchange. Level 2 equity securities include mutual funds with asset-backed securities issued by government sponsored entities (“GSEs”) as the underlying investment supporting the fund. Equity securities classified as Level 3 include mutual funds with asset-backed securities in less liquid markets.

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Loans held for sale

The Company has elected to carry loans held for sale at fair value. This election reduces certain timing differences in the Consolidated Statement of Income and better aligns with the management of the portfolio from a business perspective. Fair value is derived from secondary market quotations for similar instruments. Gains and losses on sales of residential mortgage loans are recorded as a component of noninterest income in the Consolidated Statements of Income. As such, loans subjected to fair value adjustments are classified as Level 2 valuation.

Loans Receivable

The Company does not record loans at fair value on a recurring basis; however, from time to time, a loan is individually evaluated and an ACL is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are segregated individually. Management estimates the fair value of individually evaluated loans using one of several methods, including the collateral value, market value of similar debt, or discounted cash flows. Individually evaluated loans not requiring an allowance are those for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At September 30, 2022 and December 31, 2021, substantially all of the individually evaluated loans were based upon the fair value of the collateral.

In accordance with FASB ASC 820, loans where an allowance is established based on the fair value of collateral (loans with impairment) require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price (e.g., contracted sales price), the Company records the loan as nonrecurring Level 2. When the fair value of the impaired loan is derived from an appraisal, the Company records the loan as nonrecurring Level 3. Fair value is re-assessed at least quarterly or more frequently when circumstances occur that indicate a change in the fair value. The fair values of impaired loans that are not measured based on collateral values are measured using discounted cash flows and considered to be Level 3 inputs.

Other Real Estate Owned ("OREO")

OREO is adjusted for fair value upon transfer of the loans to foreclosed assets. Subsequently, OREO is reported at the lower of carrying value or fair value. Fair value is based on independent market prices, appraised value 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 (e.g., contracted sales price), the Company records the foreclosed asset as nonrecurring Level 2. When the fair value is derived from an appraisal, the Company records the foreclosed asset at nonrecurring Level 3.

Mortgage Banking Derivatives

The mortgage banking derivative comprises interest rate lock commitments for residential loans to be sold on a best-efforts basis. The significant unobservable input used in the fair value measurement of the Bank's interest rate lock commitments is the pull-through rate, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. The pull-through rate is estimated based on mortgage banking activity in 2021. All interest rate lock commitments are considered to be Level 3.

36

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets as of September 30, 2022 and December 31, 2021 measured at fair value on a recurring basis.

(dollars in thousands)	September 30, 2022
Description of Asset	Fair Value		Level 1		Level 2		Level 3
AFS securities
Asset-backed securities issued by GSEs and U.S. Agencies
MBS	$	114,736	$	—	$	114,736	$	—
CMOs	164,867		—		164,867		—
U.S. Agency	12,226		—		12,226		—
Asset-backed securities issued by Others:
Residential CMOs	9,103		—		9,103		—
Student Loan Trust ABSs	48,539		—		48,539		—
Municipal bonds	78,864		—		78,864		—
Corporate bonds	2,609		—		2,609		—
U.S. government obligations	33,558		—		33,558		—
Total AFS securities	$	464,502	$	—	$	464,502	$	—
Equity securities carried at fair value through income
CRA investment fund	$	4,254	$	—	$	4,254	$	—
Non-marketable equity securities
Other equity securities	$	207	$	—	$	207	$	—

(dollars in thousands)	December 31, 2021
Description of Asset	Fair Value		Level 1		Level 2		Level 3
AFS securities
Asset-backed securities issued by GSEs and U.S. Agencies
MBS	$	119,916	$	—	$	119,916	$	—
CMOs	197,123		—		197,123		—
U.S. Agency	14,304		—		14,304		—
Asset-backed securities issued by others:
Residential CMOs	221		—		221		—
Student Loan Trust ABSs	56,574		—		56,574		—
Municipal bonds	92,841		—		92,841		—
U.S. government obligations	16,860		—		16,860		—
Total AFS securities	$	497,839	$	—	$	497,839	$	—
Equity securities carried at fair value through income
CRA investment fund	$	4,772	$	—	$	4,772	$	—
Non-marketable equity securities
Other equity securities	$	207	$	—	$	207	$	—
Mortgage banking derivative
Interest rate lock commitments	$	28	$	—	$	—	$	28

37

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company may be required 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. Loans with an allowance had unpaid principal balances of $0.1 million and $0.3 million at September 30, 2022 and December 31, 2021, respectively. The fair values of these loans were zero for both periods. There were no other assets measured at fair value on a nonrecurring basis as of September 30, 2022 and December 31, 2021.

The following tables provide information describing the unobservable inputs used in Level 3 fair value measurements at September 30, 2022 and December 31, 2021.

September 30, 2022	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
(dollars in thousands)
Description of Asset
Loans with individually assessed loans	$	—	Third party appraisals and in-house equipment evaluations of fair value	Management discount for equipment type and current market conditions	0% - 50% - 100%

December 31, 2021	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
(dollars in thousands)
Description of Asset
Interest rate lock commitments	$	28	Freddie Mac pricing of loans with comparable terms	Pull-through rate	0% - 100% - 75%

38

NOTE 12 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments require disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the exchange of cash. Certain items are specifically excluded from the financial instrument fair value disclosure requirements, including the Company’s common stock, OREO, premises and equipment and other assets and liabilities.

The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Therefore, any aggregate unrealized gains or losses should not be interpreted as a forecast of future earnings or cash flows. Furthermore, the fair values disclosed should not be interpreted as the aggregate current value of the Company.

The Company’s estimated fair values of financial instruments are presented in the following tables.

September 30, 2022	Carrying Amount		Fair Value		Fair Value Measurements
Description of Asset (dollars in thousands)					Level 1		Level 2		Level 3
Assets
Investment securities - AFS	$	464,502	$	464,502	$	—	$	464,502	$	—
Equity securities carried at fair value through income	4,254		4,254		—		4,254		—
Non-marketable equity securities in other financial institutions	207		207		—		207		—
FHLB Stock	1,226		1,226		—		1,226		—
Net loans receivable	1,722,461		1,654,640		—		—		1,654,640
Accrued interest receivable	6,791		6,791		—		6,791		—
Investment in BOLI	39,583		39,583		—		39,583		—
Liabilities
Savings, NOW and money market accounts	$	1,834,158	$	1,834,158	$	—	$	1,834,158	$	—
Time deposits	292,399		292,034		—		292,034		—
TRUPs	12,000		10,159		—		10,159		—
Subordinated notes	19,552		18,610		—		18,610		—

See the Company’s methodologies disclosed in Note 21 of the Company’s 2021 Form 10-K for the fair value methodologies used as of December 31, 2021:

39

December 31, 2021	Carrying Amount		Fair Value		Fair Value Measurements
Description of Asset (dollars in thousands)					Level 1		Level 2		Level 3
Assets
Investment securities - AFS	$	497,839	$	497,839	$	—	$	497,839	$	—
Equity securities carried at fair value through income	4,772		4,772		—		4,772		—
Non-marketable equity securities in other financial institutions	207		207		—		207		—
FHLB Stock	1,472		1,472		—		1,472		—
Net loans receivable	1,586,791		1,578,032		—		—		1,578,032
Accrued interest receivable	5,588		5,588		—		5,588		—
Investment in BOLI	38,932		38,932		—		38,932		—
Mortgage ranking derivatives	28		28		—		—		28
Liabilities
Savings, NOW and money market accounts	$	1,728,743	$	1,728,743	$	—	$	1,728,743	$	—
Time deposits	327,421		328,083		—		328,083		—
Long-term debt	12,231		12,391		—		12,391		—
TRUPs	12,000		11,589		—		11,589		—
Subordinated notes	19,510		20,979		—		20,979		—

At September 30, 2022 and December 31, 2021, the Company had outstanding loan commitments and standby letters of credit with customers of $59.1 million and $64.4 million, respectively, and $23.0 million and $22.0 million, respectively. Additionally, at September 30, 2022 and December 31, 2021, customers had $261.1 million and $241.7 million, respectively, available and unused on lines of credit, which include lines of credit for commercial customers, home equity loans as well as builder and construction lines. Based on the short-term lives of these instruments, the Company does not believe that the fair value of these instruments differs significantly from their carrying values.

The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2022 and December 31, 2021. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these Consolidated Financial Statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

NOTE 13 – ACCUMULATED OTHER COMPREHENSIVE INCOME/LOSS ("AOCI"/"AOCL")

The following table presents the changes in each component of accumulated other comprehensive gain, net of tax, for the three and nine months ended September 30, 2022 and 2021.

	Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
(dollars in thousands)	Net Unrealized Gains And Losses		Net Unrealized Gains And Losses		Net Unrealized Gains And Losses		Net Unrealized Gains And Losses
Beginning of period	$	(31,847)	$	3,063	$	(1,952)	$	4,504
Other comprehensive losses, net of tax before reclassifications	(12,059)		(3,072)		(41,954)		(4,946)
Amounts reclassified from accumulated other comprehensive gain	—		—		—		433
Net other comprehensive losses	(12,059)		(3,072)		(41,954)		(4,513)
End of period	$	(43,906)	$	(9)	$	(43,906)	$	(9)

As of the nine months ended September 30, 2021, reclassification adjustment was due to the gain on sale of AFS investment securities of $0.6 million.

40

NOTE 14 – EARNINGS PER SHARE (“EPS”)

Basic earnings per common share represent income available to common shareholders, divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may have been issued by the Company related to outstanding unvested restricted stock unit and performance stock unit awards were determined using the treasury stock method and included in the calculation of dilutive common stock equivalents. The Company has not granted any stock options since 2007 and all outstanding options expired on July 17, 2017.

As of three and nine months ended September 30, 2022, there were 1,034 and 587, respectively of unvested restricted stock and performance stock unit awards which were excluded from the calculation as their effect would be anti-dilutive. There were 40 and 3,355 antidilutive awards that were excluded from the calculation for the three and nine months ended September 30, 2021. Basic and diluted earnings per share have been computed based on weighted-average common and common equivalent shares outstanding as follows:

(dollars in thousands, except per share amounts)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net Income	$	7,580	$	6,404	$	20,702	$	19,135
Average number of common shares outstanding	5,636,640		5,709,814		5,656,950		5,813,704
Dilutive effect of common stock equivalents	8,182		10,187		9,000		9,514
Average number of shares used to calculate diluted EPS	5,644,822		5,720,001		5,665,950		5,823,218
Anti-dilutive shares	1,034		40		587		3,355
Earnings Per Common Share
Basic	$	1.34	$	1.12	$	3.66	$	3.29
Diluted	$	1.34	$	1.12	$	3.65	$	3.29

NOTE 15 – INCOME TAXES

The Company files a consolidated federal income tax return with its subsidiaries. Deferred tax assets and liabilities are determined using the liability (or balance sheet) method which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. If it is more likely than not that some portion or the entire deferred tax asset will not be realized, deferred tax assets will be reduced by a valuation allowance. It is the Company’s policy to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense.

(dollars in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Current income tax expense	$	2,572		$	1,448		$	7,119		$	6,048
Deferred income tax (benefit) expense	(192)			710			(237)			427
Income tax expense as reported	$	2,380		$	2,158		$	6,882		$	6,475
Effective tax rate	23.9		%	25.2		%	24.9		%	25.3		%

Net deferred tax assets totaled $24.8 million at September 30, 2022 and $9.0 million at December 31, 2021. No valuation allowance for deferred tax assets was recorded at September 30, 2022 as management believes it is more likely than not that deferred tax assets will be realized against deferred tax liabilities and projected future taxable income.

The effective tax rate differed from the statutory federal and state income rates during 2022 and 2021 primarily due to the effect of tax-exempt loans, life insurance policies, the income tax effects associated with stock-based compensation and certain non-deductible expenses for state income taxes. The Company’s consolidated effective tax rate is expected to be between 25.00% and 26.06% in 2022.

41

ITEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS (“MD&A”) OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

Critical accounting policies are defined as those that involve significant judgments and uncertainties and could result in materially different results under different assumptions and conditions. The Company considers its determination of the allowance for credit losses ("ACL"), goodwill impairment, and the valuation of deferred tax assets to be critical accounting policies. The Company believes that the most critical accounting policies upon which its financial condition and results of operation depend, and which involve the most complex subjective decisions or assessments, are included in the discussion entitled "Critical Accounting Policies" in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC.

For additional information regarding the ACL, Goodwill, and the valuation of deferred taxes, refer to Notes 1, 3, 4, and 14 in the Consolidated Financial Statements as presented in the Company’s Form 10-K for the year ended December 31, 2021.

On January 1, 2022, the Company adopted FASB ASU 2016-13, which changes the accounting for the allowance for credit losses. For a discussion of this new accounting policy, refer to Note 1 "Basis of Presentation" to the Consolidated Financial Statements.

OVERVIEW

Community Bank of the Chesapeake (the “Bank”) is headquartered in Southern Maryland with 12 branches located in Maryland and Virginia. The Bank is a wholly-owned subsidiary of The Community Financial Corporation (the “Company”). The Company provides financial services to individuals and businesses through its offices in Southern Maryland and Fredericksburg, Virginia. Its primary deposit products are demand, savings and time deposits, and its primary lending products are commercial and residential mortgage loans, commercial loans, construction and land development loans, home equity and second mortgages and commercial equipment loans.

Our customer focus is to serve small and medium sized commercial businesses as well as local municipal agencies and not-for-profits. Relationship teams provide customers with specific banker contacts and a support team to address product and service demands. The Bank believes that its ability to offer fast, flexible, local decision-making will continue to attract significant new business relationships. Our structure provides a consistent and superior level of professional service and excelling at customer service is a critical part of our culture. The Bank’s marketing is directed towards increasing its balances of transactional deposit accounts. The Bank believes that increases in these account types will lessen the Bank’s dependence on higher-cost funding, such as certificates of deposit and borrowings.

The Company’s income is primarily earned from interest received on its loans and investments. The Company's primary source of funds for making these loans and investments is its deposits. One of the key measures of the Company's success is its net interest income, or the difference between the income on loans and investments, and the expense on deposits and borrowings. Another key measure is the spread between the yield the Company earns on interest-earning assets and the rate the Company pays on interest-bearing liabilities, which is called net interest spread. In addition to earning interest on loans and investments, the Company earns income through fees and other charges for services to clients.

Management will continue to focus on growth and operating efficiency to deliver strong results during 2022. During the first nine months of 2022, we had robust portfolio loan growth, and strong non-interest bearing deposit growth, while continuing to optimize our branch and virtual banking operations.

•The Company reported record net income for the three months ended September 30, 2022 of $7.6 million, or $1.34 per diluted common share compared to net income of $6.4 million or $1.12 per diluted common share for the quarter ended September 30, 2021. The Company also reported record net income for the nine months ended September 30, 2022 of $20.7 million or diluted earnings per share of $3.65 compared to net income for the comparable 2021 period of $19.1 million or diluted earnings per share of $3.29.

•Portfolio loan end of period contractual rates increased by 57 basis points to 4.41% at September 30, 2022 compared to December 31, 2021. The loan portfolio is positioned for rising rates with $467.8 million or 27% of loans, excluding the allowance for credit losses, scheduled to reprice monthly or in the next three months and an additional $76.6 million or 4% repricing within the following nine months. The Bank's effective duration on the loan portfolio was 2.1 years at September 30, 2022.

•Total portfolio loans increased $164.5 million or 13.9% annualized to $1,743.3 million from December 31, 2021, as the Company maintained its market dominance in Southern Maryland and continued to gain market share in Virginia. The loan pipeline at September 2022 was $153.0 million, which is expected to provide solid loan growth in the fourth quarter.

41

•Non-interest-bearing accounts increased $201.7 million to $647.4 million or 30.45% of deposits at September 30, 2022, from 21.68% of deposits at December 31, 2021. Transaction deposits increased $105.4 million, or 8.13% annualized, to $1,834.2 million in the first nine months of 2022. The Company's change in funding mix has well positioned the balance sheet for a rising rate environment. In addition, increased non-interest bearing accounts of 30.45% as a percentage of deposits also better positions the Company for a rising rate environment.

•As of September 30, 2022, the FOMC had increased the federal funds target rate range to between 3.00%-3.25%. As a result of the Company's balance sheet being asset sensitive, net interest margin increased 22 basis points to 3.47% for the three months ended September 30, 2022 compared to the second quarter of 2022.

•Total stockholders’ equity decreased $29.0 million during the nine months ended September 30, 2022. The decrease in equity was primarily due to an increase of $42.0 million in accumulated other comprehensive loss ("AOCL") related to unrealized losses in the Bank's AFS securities portfolio due to changes in market interest rates, partially offset by net income of $20.7 million. Management intends and has the ability to hold its AFS securities until maturity. See discussion in Liquidity and Capital Resources section of this MD&A.

•The Company's common equity to assets ratio decreased to 7.59% at September 30, 2022 from 8.94% at December 31, 2021. The Company’s ratio of tangible common equity ("TCE") to tangible assets decreased to 7.14% at September 30, 2022 from 8.48% at December 31, 2021 (see Non-GAAP reconciliation schedules) due primarily to increases in AOCL. Regulatory capital was not impacted by the increase in AOCL and Tier 1 capital to average asset ratios at the Bank and the Company remain strong.

•Asset quality continues to improve as non-accrual loans, OREO and TDRs were $6.7 million or 0.28% of total assets at September 2022 compared to $8.1 million or 0.35% of total assets at December 31, 2021.

•The Bank opened its second Virginia branch in May 2022 in Fredericksburg. Additionally, with our Virginia lending team managing over 40% of the Bank's loans, the Bank intends to open a loan production office in Charlottesville in the fourth quarter of 2022 to support our existing efforts. Management believes the greater Fredericksburg area provides significant opportunities for continued organic growth supported by our efficient operating model and ability to leverage technology.

Subsequent events

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date the unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q were issued.

42

USE OF NON-GAAP FINANCIAL MEASURES

Statements included in management’s discussion and analysis include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. The Company’s management uses these non-GAAP financial measures and believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP. See Non-GAAP reconciliation schedules that immediately follow:

RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)

Reconciliation of U.S. GAAP total assets, common equity, common equity to assets and book value to Non-GAAP tangible assets, tangible common equity, tangible common equity to tangible assets and tangible book value.

This Form 10-Q, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with GAAP. This financial information includes certain performance measures, which exclude intangible assets. These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company.

(dollars in thousands, except per share amounts)	September 30, 2022			December 31, 2021			September 30, 2021
Total assets	$	2,359,621		$	2,327,306		$	2,278,692
Less: intangible assets
Goodwill	10,835			10,835			10,835
Core deposit intangible	725			1,032			1,147
Total intangible assets	11,560			11,867			11,982
Tangible assets	$	2,348,061		$	2,315,439		$	2,266,710
Total common equity	$	179,154		$	208,133		$	204,128
Less: intangible assets	11,560			11,867			11,982
Tangible common equity	$	167,594		$	196,266		$	192,146
Common shares outstanding at end of period	5,644,186			5,718,528			5,724,011
GAAP common equity to assets	7.59		%	8.94		%	8.96		%
Non-GAAP tangible common equity to tangible assets	7.14		%	8.48		%	8.48		%
GAAP common book value per share	$	31.74		$	36.40		$	35.66
Non-GAAP tangible common book value per share	$	29.69		$	34.32		$	33.57

43

RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)

Return on Average Common Equity ("ROACE")

The ROACE is a financial ratio that measures the profitability of a company in relation to the average shareholders' equity. This financial metric is expressed in the form of a percentage which is equal to net income after tax divided by the average shareholders' equity for a specific period of time.

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2022			2021			2022			2021
Net income (as reported)	$	7,580		$	6,404		$	20,702		$	19,135
ROACE	15.97		%	12.45		%	14.17		%	12.53		%
Average equity	$	189,838		$	205,723		$	194,741		$	203,597

Return on Average Tangible Common Equity ("ROATCE")

ROATCE is computed by dividing net earnings applicable to common shareholders by average tangible common shareholders' equity. Management believes that ROATCE is meaningful because it measures the performance of a business consistently, whether acquired or internally developed. ROATCE is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies.

	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	2022			2021			2022			2021
Net income (as reported)	$	7,580		$	6,404		$	20,702		$	19,135
Core deposit intangible amortization (net of tax)	74			91			231			284
Net earnings applicable to common shareholders	$	7,654		$	6,495		$	20,933		$	19,419
ROATCE	17.18		%	13.41		%	15.25		%	13.53		%
Average tangible common equity	$	178,215		$	193,662		$	183,017		$	191,411

44

SUMMARY OF OPERATING RESULTS

A comparison of the results of operations for the three and nine months ended September 30, 2022 and September 30, 2021 is presented below.

	(Unaudited)				(Unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands, except per share amounts)	2022		2021		2022		2021
OPERATING DATA
Interest and dividend income	$	21,345	$	17,659	$	57,455	$	52,781
Interest expenses	2,288		1,050		4,361		3,228
Net interest income ("NII")	19,057		16,609		53,094		49,553
Provision for credit losses	694		—		1,569		586
Provision for unfunded commitments	6		—		1		—
NII after provision for credit losses and unfunded commitments	18,357		16,609		51,524		48,967
Noninterest income	1,229		1,400		4,104		5,616
Noninterest expenses	9,626		9,447		28,044		28,973
Income before income taxes	9,960		8,562		27,584		25,610
Income taxes	2,380		2,158		6,882		6,475
Net income	7,580		6,404		20,702		19,135
Income available to common shares	$	7,580	$	6,404	$	20,702	$	19,135

	(Unaudited)						(Unaudited)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
KEY OPERATING RATIOS
Return on average assets ("ROAA")	1.31		%	1.17		%	1.19		%	1.20		%
Return on average common equity ("ROACE")	15.97			12.45			14.17			12.53
Return on Average Tangible Common Equity ("ROATCE")	17.18			13.41			15.25			13.53
Average total equity to average total assets	8.17			9.40			8.42			9.58
Interest rate spread	3.26			3.22			3.15			3.31
Net interest margin	3.47			3.28			3.28			3.38
Efficiency ratio(1)	47.45			52.46			49.03			52.52
Non-interest income to average assets	0.21			0.26			0.24			0.35
Non-interest expense to average assets	1.66			1.73			1.62			1.82
Net operating expense to average assets(2)	1.45			1.47			1.38			1.47
COMMON SHARE DATA
Basic net income per common share	$	1.34		$	1.12		$	3.66		$	3.29
Diluted net income per common share	$	1.34		$	1.12		$	3.65		$	3.29
Cash dividends paid per common share	$	0.175		$	0.150		$	0.525		$	0.425
Common dividend payout ratio	13.06		%	13.37		%	14.35		%	12.91		%

_______________________________________

(1) Efficiency ratio is noninterest expense divided by the sum of net interest income and noninterest income.

(2) Net operating expense is the sum of non-interest expense offset by non-interest income.

45

COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

Summary of Financial Results

The Company reported net income for the three months ended September 30, 2022 of $7.6 million or diluted earnings per share of $1.34 compared to net income of $6.4 million or $1.12 per diluted earnings per share for the three months ended September 30, 2021. The Company’s ROAA and ROACE were 1.31% and 15.97% for the three months ended September 30, 2022 compared to 1.17% and 12.45% in September 30, 2021.

Net income in the third quarter of 2022 increased 18.4% compared to the same quarter in 2021, primarily due to increased net interest income partially offset by lower noninterest income.

	Three Months Ended September 30,
(dollars in thousands)	2022		2021		$ Change		% Change
Interest and dividend income	$	21,345	$	17,659	$	3,686	20.9	%
Interest expense	2,288		1,050		1,238		117.9	%
Net interest income	19,057		16,609		2,448		14.7	%
Provision for credit losses	694		—		694		0.0	%
Provision for unfunded commitments	6		—		6		0.0	%
Noninterest income	1,229		1,400		(171)		(12.2)	%
Noninterest expense	9,626		9,447		179		1.9	%
Income before income taxes	9,960		8,562		1,398		16.3	%
Income tax expense	2,380		2,158		222		10.3	%
Net income	$	7,580	$	6,404	$	1,176	18.4	%

Net Interest Income

Net interest income is the difference between income earned on assets and interest paid on the deposits and borrowings used to fund them. Net interest income is affected by the difference between the yields earned on the Company’s interest-earning assets and the rates paid on interest-bearing liabilities, as well as the relative amounts of such assets and liabilities. Net interest income, divided by average interest-earning assets, represents the Company’s net interest margin. The following table shows the components of net interest income and the dollar and percentage changes for the periods presented.

	Three Months Ended September 30,
(dollars in thousands)	2022		2021		$ Change		% Change
Interest and Dividend Income
Loans, including fees	$	18,735	$	16,342	$	2,393	14.6	%
Taxable interest and dividends on investment securities	2,454		1,296		1,158		89.4	%
Interest on deposits with banks	156		21		135		642.9	%
Total Interest and Dividend Income	21,345		17,659		3,686		20.9	%
Interest Expenses
Deposits	1,850		594		1,256		211.4	%
Short-term borrowings	52		—		52		—	%
Long-term debt	386		456		(70)		(15.4)	%
Total Interest Expenses	2,288		1,050		1,238		117.9	%
Net Interest Income (NII)	$	19,057	$	16,609	$	2,448	14.7	%

46

Average Balances and Yields

The following table sets forth average balances, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

	Three Months Ended September 30,
	2022						2021
(dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Assets
Commercial real estate	$	1,205,675	$	13,117	4.35	%	$	1,094,089	$	10,977	4.01	%
Residential first mortgages	82,336		715		3.47	%	100,195		742		2.96	%
Residential rentals	223,532		2,286		4.09	%	154,481		1,565		4.05	%
Construction and land development	27,770		386		5.56	%	34,810		399		4.58	%
Home equity and second mortgages	25,612		352		5.50	%	27,751		246		3.55	%
Commercial loans	52,280		865		6.62	%	44,881		547		4.88	%
Commercial equipment loans	76,392		781		4.09	%	59,964		614		4.10	%
U.S. SBA PPP loans	2,595		160		24.66	%	71,751		1,236		6.89	%
Consumer loans	5,082		73		5.75	%	1,742		16		3.67	%
Allowance for credit losses	(21,667)		—		—	%	(18,852)		—		—	%
Loan portfolio (1)	1,679,607		18,735		4.46	%	1,570,812		16,342		4.16	%
Taxable investment securities	464,560		2,338		2.01	%	370,498		1,212		1.31	%
Nontaxable investment securities	21,225		116		2.19	%	16,204		84		2.07	%
Interest-bearing deposits in other banks	18,930		85		1.80	%	36,516		16		0.18	%
Federal funds sold	11,163		71		2.54	%	30,266		5		0.07	%
Interest-Earning Assets ("IEAs")	2,195,485		21,345		3.89	%	2,024,296		17,659		3.49	%
Cash and cash equivalents	18,975						66,292
Goodwill	10,835						10,835
Core deposit intangible	788						1,226
Other assets	96,232						85,340
Total Assets	$	2,322,315					$	2,187,989
Liabilities and Stockholders’ Equity
Noninterest-bearing demand deposits	$	644,606	$	—	—	%	$	434,316	$	—	—	%
Interest-bearing demand deposits
Savings	121,450		15		0.05	%	110,873		14		0.05	%
Demand deposits	620,109		1,499		0.97	%	659,628		75		0.05	%
Money market deposits	378,251		99		0.10	%	358,017		100		0.11	%
Certificates of deposit	304,361		237		0.31	%	341,672		405		0.47	%
Total interest-bearing deposits	1,424,171		1,850		0.52	%	1,470,190		594		0.16	%
Total Deposits	2,068,777		1,850		0.36	%	1,904,506		594		0.12	%
Long-term debt	—		—		—	%	25,625		131		2.04	%
Short-term borrowings	8,310		52		2.50	%	—		—		—	%
Subordinated Notes	19,543		252		5.16	%	19,487		251		5.15	%
Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPs")	12,000		134		4.47	%	12,000		74		2.47	%
Total Debt	39,853		438		4.40	%	57,112		456		3.19	%

47

	Three Months Ended September 30,
	2022						2021
(dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Interest-Bearing Liabilities ("IBLs")	1,464,024		2,288		0.63	%	1,527,302		1,050		0.27	%
Total Funds	2,108,630		2,288		0.43	%	1,961,618		1,050		0.21	%
Other liabilities	23,847						20,648
Stockholders’ equity	189,838						205,723
Total Liabilities and Stockholders’ Equity	$	2,322,315					$	2,187,989
Net interest income			$	19,057					$	16,609
Interest rate spread					3.26	%					3.22	%
Net yield on interest-earning assets					3.47	%					3.28	%
Average loans to average deposits					81.19	%					82.48	%
Average transaction deposits to total average deposits **					85.29	%					82.06	%
Ratio of average IEAs to average IBLs					149.96	%					132.54	%

__________________________

(1)Average balance includes non-accrual loans. There are no tax equivalent adjustments. There was $62,000 and $91,000 of accretion interest during the three months ended September 30, 2022 and 2021, respectively.

**Transaction deposits exclude time deposits

48

The following table presents changes in interest income and interest expense of the Company for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate); and (2) changes in rate (changes in rate multiplied by old volume). Changes in rate-volume (changes in rate multiplied by the change in volume) have been allocated to changes due to volume.

For the Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021
(dollars in thousands)	Volume		Due to Rate		Total
Interest income:
Loan portfolio (1)
Commercial real estate	$	1,214	$	926	$	2,140
Residential first mortgages	(155)		128		(27)
Residential rentals	706		15		721
Construction and land development	(98)		85		(13)
Home equity and second mortgages	(29)		135		106
Commercial loans	122		196		318
Commercial equipment loans	168		(1)		167
SBA PPP loans	(4,264)		3,188		(1,076)
Consumer loans	48		9		57
Taxable investment securities	473		653		1,126
Nontaxable investment securities	27		5		32
Interest-bearing deposits in other banks	(79)		148		69
Federal funds sold	(122)		188		66
Total interest-earning assets	$	(1,989)	$	5,675	$	3,686
Interest-bearing liabilities:
Savings	$	1	$	—	$	1
Demand deposits	(96)		1,520		1,424
Money market deposits	5		(6)		(1)
Certificates of deposit	(29)		(139)		(168)
Long-term debt	—		(131)		(131)
Short-term borrowings	52		—		52
Subordinated Notes	1		—		1
Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPs")	—		60		60
Total interest-bearing liabilities	$	(66)	$	1,304	$	1,238
Net change in net interest income	$	(1,923)	$	4,371	$	2,448

___________________________________

(1)Average balance includes non-accrual loans. There are no tax equivalent adjustments. There was $62,000 and $91,000 of accretion interest during the three months ended September 30, 2022 and 2021, respectively.

Fluctuations in net interest income can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and actions of regulatory authorities. In response to the inflation effects on the economy, the Federal Reserve Open Market Committee ("FOMC") has increased the federal funds interest rate by 300 basis points from a target range of 0.00% to 0.25% in January 2022 to a target range of 3.00% to 3.25% at September 30, 2022. The September 22, 2022, the Federal Reserve Bank commentary indicates that it is probable that the next scheduled meeting will result in additional rate hikes of at least 75 basis points.

The growth in net interest income for the comparable quarters resulted from increases in interest-earning asset yields and growth in loans and investments partially offset by increased interest expense from higher funding rates. Interest income increased as portfolio loan growth coupled with higher yields more than replaced the run-off of U.S. SBA PPP income for the comparable quarters. Loan interest income increased $2.4 million for the comparable periods. Excluding U.S. SBA PPP loan interest portfolio loan interest income increased $3.5 million from $15.1 million for the three months ended September 30, 2021 to $18.6 million for the three months ended September 30,

49

2022. Average investment and interest-earning cash balances increased $62.4 million for the comparable periods and contributed $1.3 million in additional interest income.

Net interest margin of 3.47% for the three months ended September 30, 2022 increased 19 basis points from 3.28% for the three months ended September 30, 2021. Net interest margin expanded from the third quarter of 2021 primarily from the Company’s increased average yield on loans and investment securities (not including interest-bearing deposits) increasing to 4.46% and 2.02% in the third quarter of 2022 from 4.16% and 1.34% for the three months ended September 30, 2021, while overall interest earning asset yields increased to 3.89% for the three months ended September 30, 2022 from 3.49% for the three months ended September 30, 2021. Interest income from the Company's participation in the U.S. SBA PPP program was $0.2 million and $1.2 million for the three months ended September 30, 2022 and September 30, 2021, respectively.

The Company’s cost of funds was 0.43% during the third quarter of 2022, an increase from 0.21% for the three months ended September 30, 2021. The Bank's interest rate asset sensitivity improved as average non-interest bearing deposit accounts increased to 31.2% of total average deposits for the third quarter of 2022 compared to 22.8% for the comparable period in 2021. Management is optimistic that improvements in the Bank's funding composition will benefit margins and profitability in an increasing interest-rate environment.

Net interest margins continued to increase in the third quarter of 2022 as FOMC rate increases continued to impact the Bank's asset sensitive balance sheet. Average yields on loans and investments increased to 4.46% and 2.02% for the three months ended September 30, 2022 from 4.13% and 1.52% for the three months ended June 30, 2022. Net interest margin increased 22 basis points from 3.25% for the three months ended June 30, 2022 to 3.47% for the three months ended September 30, 2022.

Management is optimistic that a stable to increasing net interest margin is possible during the balance of 2022 assuming interest-earning assets continue to reprice faster than interest-bearing liabilities and the Bank maintains its current favorable funding mix.

Provision for Credit Losses

The following table shows the dollar and percentage changes for the provision for credit losses for the periods presented.

	Three Months Ended September 30,
(dollars in thousands)	2022		2021		$ Change		% Change
Provision for credit losses	$	694	$	—	$	694	—	%

The provision for credit losses is a function of the calculation of the allowance for credit losses on the Company's end of period loan portfolios. See further discussion of the provision and the allowance under the caption “Asset Quality” in the Comparison of Financial Condition section of this MD&A.

50

Noninterest Income

The following table shows the components of noninterest income and the dollar and percentage changes for the periods presented.

	Three Months Ended September 30,
(dollars in thousands)	2022		2021		$ Change		% Change
Noninterest Income
Loan appraisal, credit, and miscellaneous charges	$	65	$	29	$	36	124.1	%
Unrealized losses on equity securities	(187)		(22)		(165)		750.0	%
Loss on premises and equipment held for sale	—		(20)		20		(100.0)	%
Income from bank owned life insurance	220		220		—		—	%
Service charges	1,130		987		143		14.5	%
Referral fee income	—		176		(176)		(100.0)	%
Net gains on sale of loans originated for sale	1		30		(29)		(96.7)	%
Total Noninterest Income	$	1,229	$	1,400	$	(171)	(12.2)	%

Noninterest income for the three months ended September 30, 2022 decreased $0.2 million compared to the three months ended September 30, 2021, principally due to no interest rate protection referral fee income for the current quarter. In addition, changes in interest rates resulted in unrealized losses on securities invested in a Community Reinvestment Act mutual fund. These reductions in noninterest income for the comparable quarters were partially offset by increases in service charges due to increased interchange fees. Noninterest income as a percentage of average assets was 0.21% and 0.26% for the three months ended September 30, 2022 and 2021, respectively.

Noninterest Expense

The following tables show the components of noninterest expense and the dollar and percentage changes for the periods presented.

	Three Months Ended September 30,
(dollars in thousands)	2022		2021		$ Change		% Change
Noninterest Expense
Compensation and benefits	$	5,116	$	5,650	$	(534)	(9.5)	%
OREO valuation allowance and expenses	—		20		(20)		(100.0)	%
Sub-total	5,116		5,670		(554)		(9.8)	%
Operating Expenses
Occupancy expense	826		731		95		13.0	%
Advertising	149		145		4		2.8	%
Data processing expense	1,062		840		222		26.4	%
Professional fees	923		676		247		36.5	%
Depreciation of premises and equipment	177		137		40		29.2	%
FDIC Insurance	160		120		40		33.3	%
Core deposit intangible amortization	97		121		(24)		(19.8)	%
Fraud losses	37		132		(95)		(72.0)	%
Other expenses	1,079		875		204		23.3	%
Total Operating Expenses	$	4,510	$	3,777	$	733	19.4	%
Total Noninterest Expense	$	9,626	$	9,447	$	179	1.9	%

51

The flat overall expense run rates for the comparable periods were primarily due to increases of $0.2 million in data processing expenses and $0.2 million in professional fees as well as other operating expenses of $0.2 million, partially offset by a decrease of $0.5 million in compensation and benefits. Professional fees, occupancy and data processing have increased substantially compared to the same quarter in the prior year due in large part to increased cost of labor and materials due to inflation.

Lower than anticipated health care costs and a lower average full-time equivalent headcount contributed to a lower compensation and benefits run rate in the third quarter of 2022. In addition, compensation and benefits expense has benefited from the Company's increased use of technology. In the second quarter, the Bank increased base compensation by 4% and its minimum starting wage to $20.00 per hour for non-executive employees to address local wage pressures caused by inflation and to attract and retain our employees. Management's projected quarterly normalized expense run rate for the fourth quarter of 2022 is estimated between $9.6 million and $9.8 million.

The Company’s efficiency ratio was 47.45% for the three months ended September 30, 2022 compared to 52.46% for the three months ended September 30, 2021. The Company’s net operating expense ratio was 1.45% for the three months ended September 30, 2022 compared to 1.47% for the three months ended September 30, 2021. The efficiency and net operating expense ratios have improved (decreased) as the Company has been able to improve asset quality and generate more operating revenues while controlling expense growth.

Income Tax Expense

The effective tax rate for the three months ended September 30, 2022 was 23.90% compared to an effective tax rate of 25.20% for the three months ended September 30, 2021.

52

COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

Summary of Financial Results

The Company reported net income for the nine months ended September 30, 2022 of $20.7 million or diluted earnings per share of $3.65 compared to net income of $19.1 million or $3.29 per diluted share for the nine months ended September 30, 2021. The Company’s ROAA and ROACE were 1.19% and 14.17% for the nine months ended September 30, 2022 compared to 1.20% and 12.53% for the nine months ended September 30, 2021.

The increase to net income in the first nine months of 2022 compared to the same period in 2021 was due to increased net interest income and decreased noninterest expense partially offset by an increase in provision for credit losses and a decrease in non-interest income.

	Nine Months Ended September 30,
(dollars in thousands)	2022		2021		$ Change		% Change
Interest and dividend income	$	57,455	$	52,781	$	4,674	8.9	%
Interest expense	4,361		3,228		1,133		35.1	%
Net interest income	53,094		49,553		3,541		7.1	%
Provision for credit losses	1,569		586		983		167.7	%
Provision for unfunded commitments	1		—		1		—	%
Noninterest income	4,104		5,616		(1,512)		(26.9)	%
Noninterest expense	28,044		28,973		(929)		(3.2)	%
Income before income taxes	27,584		25,610		1,974		7.7	%
Income tax expense	6,882		6,475		407		6.3	%
Net income	$	20,702	$	19,135	$	1,567	8.2	%

Net Interest Income

The following table shows the components of net interest income and the dollar and percentage changes for the periods presented.

	Nine Months Ended September 30,
(dollars in thousands)	2022		2021		$ Change		% Change
Interest and Dividend Income
Loans, including fees	$	51,117	$	49,254	$	1,863	3.8	%
Taxable interest and dividends on investment securities	6,044		3,461		2,583		74.6	%
Interest on deposits with banks	294		66		228		345.5	%
Total Interest and Dividend Income	57,455		52,781		4,674		8.9	%
Interest Expenses
Deposits	3,182		2,036		1,146		56.3	%
Short-term borrowings	68		—		68		—	%
Long-term debt	1,111		1,192		(81)		(6.8)	%
Total Interest Expenses	4,361		3,228		1,133		35.1	%
Net Interest Income (NII)	$	53,094	$	49,553	$	3,541	7.1	%

53

Average Balances and Yields

The following table sets forth average balances, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense. The following table presents information on the average balances of the Company’s interest-earning assets and interest-bearing liabilities and interest earned or paid for the nine months ended September 30, 2022 and 2021, respectively.

	Nine Months Ended September 30,
	2022						2021
(dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Assets
Commercial real estate	$	1,166,898	$	35,697	4.08	%	$	1,081,350	$	32,625	4.02	%
Residential first mortgages	84,707		2,157		3.40	%	111,401		2,494		2.99	%
Residential rentals	205,368		6,116		3.97	%	144,316		4,421		4.08	%
Construction and land development	30,559		1,154		5.04	%	36,401		1,226		4.49	%
Home equity and second mortgages	25,885		871		4.49	%	28,689		745		3.46	%
Commercial loans	47,252		1,932		5.45	%	44,241		1,614		4.86	%
Commercial equipment loans	68,872		2,122		4.11	%	60,506		1,725		3.80	%
U.S. SBA PPP loans	11,563		927		10.69	%	97,231		4,356		5.97	%
Consumer loans	4,119		141		4.56	%	1,497		48		4.28	%
Allowance for credit losses	(21,364)		—		—	%	(18,908)		—		—	%
Loan portfolio (1)	1,623,859		51,117		4.20	%	1,586,724		49,254		4.14	%
Taxable investment securities	477,527		5,717		1.60	%	292,625		3,182		1.45	%
Non-taxable investment securities	20,028		327		2.18	%	17,517		279		2.12	%
Interest bearing deposits in other banks	28,412		209		0.98	%	30,183		44		0.19	%
Federal funds sold	5,821		85		1.95	%	27,964		22		0.10	%
Interest-Earning Assets ("IEAs")	2,155,647		57,455		3.55	%	1,955,013		52,781		3.60	%
Cash and cash equivalents	54,369						71,559
Goodwill	10,835						10,835
Core deposit intangible	889						1,351
Other assets	92,147						86,838
Total Assets	$	2,313,887					$	2,125,596
Liabilities and Stockholders’ Equity
Noninterest-bearing demand deposits	$	635,013	$	—	—	%	$	407,375	$	—	—	%
Interest-bearing liabilities:
Savings	121,111		46		0.05	%	106,190		40		0.05	%
Demand deposits	605,590		2,033		0.45	%	628,543		258		0.05	%
Money market deposits	380,873		302		0.11	%	354,161		297		0.11	%
Certificates of deposit	314,813		801		0.34	%	345,821		1,441		0.56	%
Total Interest-bearing deposits	1,422,387		3,182		0.30	%	1,434,715		2,036		0.19	%
Total Deposits	2,057,400		3,182		0.21	%	1,842,090		2,036		0.15	%
Long-term debt	5,145		47		1.22	%	26,723		213		1.06	%
Short-term borrowings	4,731		68		1.92	%	—		—		—	%
Subordinated Notes	19,529		755		5.15	%	19,483		754		5.16	%
Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPs")	12,000		309		3.43	%	12,000		225		2.50	%
Total debt	41,405		1,179		3.80	%	58,206		1,192		2.73	%

54

	Nine Months Ended September 30,
	2022						2021
(dollars in thousands)	Average Balance		Interest		Average Yield/Cost		Average Balance		Interest		Average Yield/Cost
Total Interest-Bearing Liabilities ("IBLs")	1,463,792		4,361		0.40	%	1,492,921		3,228		0.29	%
Total funds	2,098,805		4,361		0.28	%	1,900,296		3,228		0.23	%
Other liabilities	20,341						21,703
Stockholders’ equity	194,741						203,597
Total Liabilities and Stockholders’ Equity	$	2,313,887					$	2,125,596
Net interest income			$	53,094					$	49,553
Interest rate spread					3.15	%					3.31	%
Net yield on interest-earning assets					3.28	%					3.38	%
Average loans to avg. deposits					78.93	%					86.14	%
Average transaction deposits to total average deposits **					84.70	%					81.23	%
Ratio of average IEAs to average IBLs					147.26	%					130.95	%
Cost of funds					0.28	%					0.23	%
Cost of deposits					0.21	%					0.15	%
Cost of debt					3.80	%					2.73	%

__________________________

(1)Average balance includes non-accrual loans. There are no tax equivalent adjustments. There was $0.2 million and $0.3 million of accretion interest during the nine months ended September 30, 2022 and 2021, respectively.

**Transaction deposits excluded time deposits

55

The following table presents changes in interest income and interest expense of the Company for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate); and (2) changes in rate (changes in rate multiplied by old volume). Changes in rate-volume (changes in rate multiplied by the change in volume) have been allocated to changes due to volume.

For the Nine Months Ended September 30, 2022 compared to the Nine Months Ended September 30, 2021
(dollars in thousands)	Volume		Due to Rate		Total
Interest income:
Loan portfolio (1)
Commercial real estate	$	2,617	$	455	$	3,072
Residential first mortgages	(680)		343		(337)
Residential rentals	1,818		(123)		1,695
Construction and land development	(221)		149		(72)
Home equity and second mortgages	(94)		220		126
Commercial loans	123		195		318
Commercial equipment loans	258		139		397
SBA PPP loans	(6,868)		3,439		(3,429)
Consumer loans	90		3		93
Taxable investment securities	2,214		321		2,535
Nontaxable investment securities	41		7		48
Interest-bearing deposits in other banks	(13)		178		165
Federal funds sold	(323)		386		63
Total interest-earning assets	$	(1,038)	$	5,712	$	4,674
Interest-bearing liabilities:
Savings	$	6	$	—	$	6
Demand deposits	(77)		1,852		1,775
Money market deposits	21		(16)		5
Certificates of deposit	(79)		(561)		(640)
Long-term debt	(197)		31		(166)
Short-term borrowings	68		—		68
Subordinated notes	2		(1)		1
Guaranteed preferred beneficial interest in junior subordinated debentures	—		84		84
Total interest-bearing liabilities	$	(256)	$	1,389	$	1,133
Net change in net interest income	$	(782)	$	4,323	$	3,541

___________________________________

(1)Average balance includes non-accrual loans. There are no tax equivalent adjustments. There was $0.2 million and $0.3 million of accretion interest during the nine months ended September 30, 2022 and 2021, respectively.

56

Net interest income increased $3.5 million or 7.1% for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021 with interest income increasing $4.7 million and interest expense increasing of $1.1 million. Increased interest income was primarily due to growth in investment balances and yields and increases in loan yields from the re-pricing of the Bank's adjustable rate portfolios as well as a change in the mix of loans from lower yielding U.S. PPP loans to higher yielding commercial real estate loans. Overall loan interest income increased $1.9 million to $51.1 million for the nine months ended September 30, 2022 from $49.3 million for the nine months ended September 30, 2021. Excluding U.S. SBA PPP loans, interest income for the same comparable periods increased $5.1 million. Interest expense increased due to higher funding costs.

Net interest margin of 3.28% for the nine months ended September 30, 2022 was 10 basis points lower than the 3.38% for the nine months ended September 30, 2021. Loan yields increased from 4.14% for the nine months ended September 30, 2021 to 4.20% for the nine months ended September 30, 2022. U.S. SBA PPP loan interest positively impacted margins by four basis points for the nine months ended September 30, 2022 and 14 basis points for the nine months ended September 30, 2021.

As a result of organic growth, average total earning assets increased $200.6 million, or 10.3%, for the nine months ended September 30, 2022 to $2,155.6 million compared to $1,955.0 million for the nine months ended September 30, 2021. The increase in average total earning assets for the nine months ended September 30, 2022 from the comparable period in 2021 resulted primarily from a $37.1 million, or 2.34%, increase in average loans, average portfolio loans increasing $122.8 million that substantially offset the decrease in average U.S. SBA PPP loans, and an increase of $163.5 million, or 44.4%, increase in average investments, federal funds sold, and interest-bearing deposits.

The Company’s cost of funds was 0.28% during the first nine months of 2022 compared to 0.23% for the nine months ended September 30, 2021. Average total interest-bearing liabilities decreased $29.1 million, or 2.0%, for the nine months ended September 30, 2022 to $1,463.8 million compared to $1,492.9 million for the nine months ended September 30, 2021. During the same time, the Company increased balance sheet asset sensitivity with average noninterest-bearing demand deposits increasing $227.6 million, or 55.9%, to $635.0 million, or 30.9% of average deposits compared to $407.4 million, or 22.1% of average deposits.

Provision for Credit Losses

The following table shows the dollar and percentage changes for the provision for credit losses for the periods presented.

	Nine Months Ended September 30,
(dollars in thousands)	2022		2021		$ Change		% Change
Provision for credit losses	$	1,569	$	586	$	983	167.7	%

See further discussion of the provision and the allowance under the caption “Asset Quality” in the Comparison of Financial Condition section of this MD&A.

57

Noninterest Income

The following table shows the components of noninterest income and the dollar and percentage changes for the periods presented.

	Nine Months Ended September 30,
(dollars in thousands)	2022		2021		$ Change		% Change
Noninterest Income
Loan appraisal, credit, and miscellaneous charges	$	285	$	271	$	14	5.2	%
Gain on sale of assets	—		68		(68)		(100.0)	%
Net gains on sale of investment securities	—		586		(586)		(100.0)	%
Unrealized losses on equity securities	(564)		(94)		(470)		500.0	%
Loss on premises and equipment held for sale	—		(20)		20		(100.0)	%
Income from bank owned life insurance	651		652		(1)		(0.2)	%
Service charges	3,164		3,066		98		3.2	%
Referral fee income	361		1,248		(887)		(71.1)	%
Net (losses) gains on sale of loans originated for sale	(2)		30		(32)		(106.7)	%
Gains (losses) on sale of loans	209		(191)		400		(209.4)	%
Total Noninterest Income	$	4,104	$	5,616	$	(1,512)	(26.9)	%

Noninterest income for the nine months ended September 30, 2022 decreased compared to the nine months ended September 30, 2021. The decreases were primarily due to decreased referral fee income in the first nine months of 2022, and unrealized losses on securities invested in a Community Reinvestment Act mutual fund that was impacted by increases in interest rates. These reductions for the comparable periods were partially offset by $0.4 million related to the sale of impaired loans. In the first quarter of 2021, the Bank sold non-accrual and classified commercial real estate and residential mortgage loans and recognized a loss on the sale of $0.2 million and in the second quarter of 2022, impaired loan sales resulted in a gain of $0.2 million. Noninterest income as a percentage of assets was 0.24% and 0.35%, respectively, for the nine months ended September 30, 2022 and 2021.

Noninterest Expense

The following tables show the components of noninterest expense and the dollar and percentage changes for the periods presented.

	Nine Months Ended September 30,
(dollars in thousands)	2022		2021		$ Change		% Change
Noninterest Expense
Compensation and benefits	$	15,222	$	15,770	$	(548)	(3.5)	%
OREO valuation allowance and expenses	6		689		(683)		(99.1)	%
Sub-total	15,228		16,459		(1,231)		(7.5)	%
Operating Expense
Occupancy expense	2,378		2,180		198		9.1	%
Advertising	372		372		—		—	%
Data processing expense	3,077		2,766		311		11.2	%
Professional fees	2,499		1,920		579		30.2	%
Depreciation of premises and equipment	476		419		57		13.6	%
FDIC Insurance	516		512		4		0.8	%
Core deposit intangible amortization	308		380		(72)		(18.9)	%
Fraud losses	107		1,243		(1,136)		(91.4)	%
Other expenses	3,083		2,722		361		13.3	%
Total Operating Expense	12,816		12,514		302		2.4	%
Total Noninterest Expense	$	28,044	$	28,973	$	(929)	(3.2)	%

58

The decrease in noninterest expense for the comparable periods was primarily due to decreased compensation and benefits, fraud losses and OREO expenses, partially offset by increased professional fees, data processing, occupancy, and other expenses.

Compensation expenses were lower for the comparative periods due to lower health insurance claims, a lower average full time equivalent count than the prior year and lower deferred compensation accruals. In addition, compensation and benefits expense has benefited from the Company's increased use of technology. Deferred costs for U.S. SBA PPP loans originated were $0.3 million for the nine months ended September 30, 2021. Compensation and benefits would have increased overall 2021 noninterest expense if U.S. SBA PPP loans deferred costs were not included in loan origination costs.

Noninterest expense in the first nine months of 2021 included a $1.3 million initial expense and subsequent recovery of $0.2 million related to an isolated wire transfer fraud incident. Our investigation determined that no information systems of the Bank were compromised, and no employee fraud was involved.

OREO expenses have moderated as the Bank reduced foreclosed assets from $1.5 million at September 30, 2021 to no OREO assets at September 30, 2022.

Expenses applicable to OREO assets included the following.

	Nine Months Ended September 30,
(dollars in thousands)	2022		2021
Valuation allowance	$	—	$	641
Losses (gains) on dispositions	—		(16)
Operating expenses	6		64
	$	6	$	689

To adjust properties to current appraised values, additions to the valuation allowance were taken for the nine months ended September 30, 2021. OREO carrying amounts reflect management’s estimate of the realizable value of these properties incorporating current appraised values, local real estate market conditions and related costs. At September 30, 2022 and December 31, 2021, the carrying value of OREO assets was zero.

These decreases to noninterest expense were partially offset by increases of $0.6 million in professional fees, $0.3 million in data processing expenses, and $0.2 million in occupancy expense. As noted above, inflationary pressures have increased the cost of labor and materials affecting these financial line items.

The Company’s efficiency ratio was 49.03% for the nine months ended September 30, 2022 compared to 52.52% for the nine months ended September 30, 2021. The Company’s net operating expense ratio was 1.38% at September 30, 2022 compared to 1.47% at September 30, 2021. The efficiency and net operating expense ratios have improved (decreased) as the Company has been able to generate more noninterest income while controlling expense growth.

Income Tax Expense

The Company’s consolidated effective tax rate for the nine months ended September 30, 2022 and September 30, 2021 was 24.9% and 25.3%, respectively.

59

COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2022 AND DECEMBER 31, 2021

The following table shows selected historical consolidated financial data for the Company, which has been derived from our audited consolidated financial statements. You should read this table together with our consolidated financial statements and related notes included in this Quarterly Report for Form 10-Q and in the Annual Report on Form 10-K for the year ended December 31, 2021.

	(Unaudited)
(dollars in thousands, except per share amounts)	September 30, 2022		December 31, 2021
FINANCIAL CONDITION DATA
Total assets	$	2,359,621	$	2,327,306
Loans receivable, net	1,722,461		1,586,791
Investment securities	468,963		502,818
Goodwill	10,835		10,835
Core deposit intangible	725		1,032
Deposits	2,126,557		2,056,164
Borrowings	—		12,231
Junior subordinated debentures	12,000		12,000
Subordinated notes - 4.75%	19,552		19,510
Stockholders’ equity - common	179,154		208,133

	(Unaudited)
(dollars in thousands, except per share amounts)	September 30, 2022			December 31, 2021
COMMON SHARE DATA
Book value per common share	$	31.74		$	36.40
Tangible book value per common share**	$	29.69		$	34.32
Common shares outstanding at end of period	5,644,186			5,718,528
OTHER DATA
Full-time equivalent employees	199			186
Branches	12			11
Loan Production Offices	4			4
CAPITAL RATIOS
Tier 1 capital to average assets (Leverage)	9.56		%	9.23		%
Tier 1 common capital to risk-weighted assets	11.40			11.92
Tier 1 capital to risk-weighted assets	12.05			12.64
Total risk-based capital to risk-weighted assets	14.30			14.92
Common equity to total assets	7.59			8.94
Tangible common equity to tangible assets**	7.14			8.48

____________________________________

**Non-GAAP financial measure. See reconciliation of GAAP and NON-GAAP measures.

60

Assets

Total assets at September 30, 2022 were comparable to December 31, 2021 as cash balances decreased to fund loan growth. In addition, net deferred tax assets increased primarily due to increases in unrealized losses of the Bank's AFS investment portfolio related to changes in interest rates as well as increases in the ACL for the adoption of the current expected credit losses ("CECL") accounting standard on January 1, 2022. The differences in allocations between the cash and investment categories reflect operational needs.

The following table shows the Company’s assets and the dollar and percentage changes for the periods presented.

(dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change
Cash and due from banks	$	18,008	$	108,990	$	(90,982)	(83.5)	%
Federal funds sold	20,325		—		20,325		—	%
Interest-bearing deposits with banks	14,970		30,664		(15,694)		(51.2)	%
Securities available for sale ("AFS"), at fair value	464,502		497,839		(33,337)		(6.7)	%
Equity securities carried at fair value through income	4,254		4,772		(518)		(10.9)	%
Non-marketable equity securities held in other financial institutions	207		207		—		—	%
FHLB stock - at cost	1,226		1,472		(246)		(16.7)	%
Net Loans	1,722,461		1,586,791		135,670		8.5	%
Goodwill	10,835		10,835		—		—	%
Premises and equipment, net	21,626		21,427		199		0.9	%
Accrued interest receivable	6,791		5,588		1,203		21.5	%
Investment in bank owned life insurance	39,583		38,932		651		1.7	%
Core deposit intangible	725		1,032		(307)		(29.7)	%
Net deferred tax assets	24,755		9,033		15,722		174.1	%
Right of use assets, net operating leases	6,022		6,124		(102)		(1.7)	%
Other assets	3,331		3,600		(269)		(7.5)	%
Total Assets	$	2,359,621	$	2,327,306	$	32,315	1.4	%

Cash and Cash Equivalents

Cash and cash equivalents totaled $53.3 million at September 30, 2022, compared to $139.7 million at December 31, 2021. Total cash and cash equivalents fluctuate on a daily basis due to transactions in process and other liquidity demands. Management believes liquidity needs are satisfied by the current balance of cash and cash equivalents, access to traditional and wholesale funding sources, and the portions of the investment and loan portfolios that mature within one year.

Investment Securities and Credit Quality of Investment Securities

Investment securities and FHLB stock at September 30, 2022 and December 31, 2021, had estimated fair values of $470.2 million, and $504.3 million, respectively.

Management monitors and manages investment portfolio performance and liquidity through monthly reporting including analyses of expected cash inflows and outflows from investment securities. Management believes the risk characteristics inherent in the investment portfolio are acceptable. The Company did not hold any noninvestment grade securities at September 30, 2022 and December 31, 2021. AFS securities are evaluated quarterly to determine whether a decline in their value is the result of a deterioration in credit quality. A reserve for credit losses was not recorded for the periods reported.

At September 30, 2022, approximately 92%, or $429.4 million, of the carrying value of AFS securities were rated AAA by Standard & Poor’s or the equivalent credit rating from another major rating agency compared to approximately 92%, or $456.2 million, at December 31, 2021.

Gross unrealized losses at September 30, 2022 and December 31, 2021 for AFS securities were $59.5 million and $6.0 million, respectively, of amortized cost of $523.9 million and $500.5 million, respectively (see Note 2 in Consolidated Financial Statements). The change in unrealized losses was the result of changes in interest rates and other non-credit related factors, while credit risks remained stable. The Company intends to, and has the ability to, hold investment securities with unrealized losses until they mature, at which time the Company will receive full value for the securities. Management believes that the investment securities with unrealized losses will either recover in market value or be paid off as agreed.

61

The Bank holds 69.0% or $361.4 million of its AFS investment securities at amortized cost, as asset-backed securities issued by GSEs or U.S. Agencies, GSE agency bonds or U.S. government obligations. In addition, the Company's amortized cost investment of $50.3 million in student loan trusts, which represent 9.6% of the AFS investment portfolio, are 97% U.S. government guaranteed. At September 30, 2022, the Company also had $99.8 million or 19.1% of AFS investments in municipal bonds.

The average effective duration of the Company's AFS investment portfolio at September 30, 2022 and December 31, 2021, were 4.10 years and 3.90 years, respectively.

At September 30, 2022 and December 31, 2021, AFS asset-backed securities issued and guaranteed by GSEs and U.S. Agencies had an average life of 6.24 years and 6.91 years and an average duration of 5.26 years and 6.41 years, respectively. At September 30, 2022 and December 31, 2021, AFS asset-backed securities issued by student loan trusts and others had an average life of 6.29 years and 6.24 years and an average duration of 5.33 years and 6.03 years, respectively. At September 30, 2022 and December 31, 2021, AFS municipal bonds issued by states, political subdivisions or agencies had average life of 10.96 years and 8.75 years and an average duration of 9.01 years and 7.83 years, respectively.

The amortized cost of AFS investment securities by contractual maturity at September 30, 2022 are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties. The maturities and weighted average yields at September 30, 2022 are shown below.

	One year or Less				After One Through Five Years				After Five Through Ten Years				After Ten Years				Total Investment Securities
(dollars in thousands)	Amortized Cost		Average Yield		Amortized Cost		Average Yield		Amortized Cost		Average Yield		Amortized Cost		Average Yield		Amortized Cost		Fair Value
AFS Investment securities:
Asset-backed securities issued by GSEs and U.S. Agencies	$	22,133	2.91	%	$	85,135	2.89	%	$	136,228	2.81	%	$	81,031	2.88	%	$	324,527	$	291,829
Asset-backed securities issued by Others	4,070		3.28	%	15,656		3.28	%	25,051		3.27	%	14,901		3.27	%	59,678		57,642
Municipal securities	6,810		2.50	%	26,193		2.50	%	41,913		2.50	%	24,930		2.84	%	99,846		78,864
Corporate bonds	205		3.88	%	787		3.88	%	1,259		3.88	%	749		—	%	3,000		2,609
U.S. Treasury bonds	2,512		1.17	%	9,662		1.24	%	15,461		1.23	%	9,196		—	%	36,831		33,558
Total AFS investment securities	$	35,730	2.75	%	$	137,433	2.74	%	$	219,912	2.71	%	$	130,807	2.93	%	$	523,882	$	464,502

The tables below present the Standard & Poor’s (“S&P”) or equivalent credit rating from other major rating agencies for AFS securities at September 30, 2022 and December 31, 2021 by carrying value. The Company considers noninvestment grade securities rated BB+ or lower as classified assets for regulatory and financial reporting. GSE asset-backed securities and GSE agency bonds with S&P AA+ ratings were treated as AAA based on regulatory guidance.

September 30, 2022			December 31, 2021
Credit Rating	Amount		Credit Rating	Amount
(dollars in thousands)			(dollars in thousands)
AAA	$	429,389	AAA	$	456,162
AA	32,355		AA	41,455
A	149		A	222
BBB	2,609		BBB	—
Total	$	464,502	Total	$	497,839

62

Loan Portfolio and U.S. SBA PPP Loans

The Bank's primary market areas consist of Southern Maryland, the city of Fredericksburg, Virginia and Spotsylvania and Stafford counties in Virginia. Management is committed to continue as the leading commercial lending financial institution in Southern Maryland. In 2021, the Bank increased lending in Virginia in the cities and surrounding areas of Culpeper, Orange and Charlottesville. The Bank plans to open a loan production office in Charlottesville, Virginia in 2022. At September 30, 2022, loans managed by our Maryland and Virginia lending teams are almost evenly distributed. Management is optimistic that the Virginia market will continue to provide opportunities for organic loan growth.

At September 30, 2022, total net loans, which include portfolio loans and U.S. SBA PPP loans, increased 11.4% annualized or $135.7 million from December 31, 2021. Total net portfolio loans increased $160.9 million and U.S. SBA PPP loans decreased $25.2 million for the comparable period ends. The commercial real estate portfolio increased in total during the first nine months of 2022, while decreasing slightly as a percentage of total portfolio loans. During the first nine months of 2022, the residential rental portfolio increased in total to 16.20% of total portfolio loans compared to 12.35% of total portfolio loans at December 31, 2021. The Company’s loan pipeline was $153.0 million at September 30, 2022 compared to $160.0 million at December 31, 2021.

During 2020 and 2021, the Company originated 1,532 U.S. SBA PPP loans with original balances of $201.3 million. As of September 30, 2022, there were 7 U.S. SBA PPP loans outstanding with an aggregate balance of $1.3 million.

The following is a breakdown of the Company’s loan portfolio, net of deferred costs and fees at September 30, 2022 and December 31, 2021:

(dollars in thousands)	September 30, 2022		%		December 31, 2021**		%		$ Change		Annualized % Change
BY LOAN TYPE
Portfolio Loans:
Commercial real estate	$	1,202,660	68.98	%	$	1,113,793	70.54	%	$	88,867	10.64	%
Residential first mortgages	83,081		4.77	%	92,710		5.87	%	(9,629)		(13.85)	%
Residential rentals	282,365		16.20	%	194,911		12.35	%	87,454		59.82	%
Construction and land development	23,197		1.33	%	35,502		2.25	%	(12,305)		(46.21)	%
Home equity and second mortgages	26,054		1.49	%	25,661		1.63	%	393		2.04	%
Commercial loans	41,615		2.39	%	50,512		3.20	%	(8,897)		(23.48)	%
Consumer loans	5,754		0.33	%	3,015		0.19	%	2,739		121.13	%
Commercial equipment	78,551		4.51	%	62,706		3.97	%	15,845		33.69	%
Total portfolio loans	1,743,277		100.00	%	1,578,810		100.00	%	164,467		13.89	%
Less: Allowance for Credit Losses	(22,027)		(1.26)	%	(18,417)		(1.17)	%	(3,610)		26.14	%
Total net portfolio loans	1,721,250				1,560,393				160,857		13.74	%
U.S. SBA PPP loans	1,211				26,398				(25,187)		(127.22)	%
Total net loans	$	1,722,461			$	1,586,791			$	135,670	11.40	%

____________________________________

**December 31, 2021 reported balance are shown net of deferred costs and fees to conform with the current period's presentation.

Loan Concentrations

At September 30, 2022 and December 31, 2021, commercial loans, including residential rentals, represented 92.1% and 90.1%, respectively, of total portfolio loans. The Bank's commercial loans are concentrated in its market area; however, these loans are distributed among many different borrowers and industries.

Non-owner occupied commercial real estate as a percentage of risk-based capital at September 30, 2022 and December 31, 2021 were $978.2 million or 373.8% and $813.0 million or 331.4%, respectively. Construction loans as a percentage of risk-based capital at September 30, 2022 and December 31, 2021 were $145.4 million or 55.6% and $140.4 million or 57.2%, respectively.

63

Asset Quality

The following tables show asset quality ratios at September 30, 2022 and December 31, 2021.

	(Unaudited)
(dollars in thousands, except per share amounts)	September 30, 2022			December 31, 2021
ASSET QUALITY
Total portfolio loans	$	1,743,277		$	1,578,810
Classified Assets	5,967			5,211
Allowance for credit losses	22,027			18,417
Past due loans - 31 to 89 days	713			568
Past due loans >=90 days (1)	428			961
Total past due (delinquency) loans	1,141			1,529
Non-accrual loans (2)	6,290			7,631
Accruing troubled debt restructures (TDRs) (3)	433			447
Other real estate owned (OREO)	—			—
Non-accrual loans, OREO and TDRs	$	6,723		$	8,078
ASSET QUALITY RATIOS (4)
Classified assets to total assets	0.25		%	0.22		%
Classified assets to risk-based capital	2.25			2.10
Allowance for credit losses to total portfolio loans	1.26			1.17
Allowance for credit losses to non-accrual loans	350.19			241.34
Past due loans - 31 to 89 days to total portfolio loans	0.04			0.04
Past due loans >=90 days to total portfolio loans	0.02			0.06
Total past due (delinquency) to total portfolio loans	0.07			0.10
Non-accrual loans to total portfolio loans	0.36			0.48
Non-accrual loans and TDRs to total portfolio loans	0.39			0.51
Non-accrual loans and OREO to total assets	0.27			0.33
Non-accrual loans and OREO to total portfolio loans and OREO	0.36			0.48
Non-accrual loans, OREO and TDRs to total assets	0.28			0.35

___________________________________________

(1) Nonperforming loans include all loans that are 90 days or more delinquent.

(2) Non-accrual loans include all loans that are 90 days or more delinquent and loans that are non-accrual due to the operating results or cash flows of a customer.

(3) TDR loans include both non-accrual and accruing performing loans. All TDR loans are included in the calculation of asset quality financial ratios. Non-accrual TDR loans are included in the non-accrual balance and accruing TDR loans are included in the accruing TDR balance.

(4) Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio. Asset quality ratios for loans exclude U.S. SBA PPP loans.

64

Allowance for Credit Losses ("ACL"), Provision for Credit Losses ("PCL"), Allowance for Loan Losses ("ALLL") and Provision for Loan Losses ("PLL")

The following is a breakdown of the Company’s general and specific allowances as a percentage of total portfolio loans at September 30, 2022 and 2021 and at December 31, 2021:

Breakdown of general and specific allowance as a percentage of total portfolio loans (1)

	September 30, 2022			September 30, 2021			December 31, 2021
General allowance	$	21,919		$	18,256		$	18,151
Specific allowance	108			323			266
	$	22,027		$	18,579		$	18,417
General allowance	1.26		%	1.19		%	1.15		%
Specific allowance	0.00		%	0.02		%	0.02		%
Allowance to total portfolio loans(1)	1.26		%	1.21		%	1.17		%
Allowance to non-acquired loans(2)	n/a			1.25		%	1.20		%
Total acquired loans(2)	n/a			$	50,486		$	42,182
Non-acquired loans**(2)	n/a			$	1,482,565		$	1,536,761
Total portfolio loans	$	1,743,277		$	1,533,051		$	1,578,943

____________________________________

**Non-acquired loans include loans transferred from acquired pools following release of acquisition accounting FMV adjustments. Non-acquired loans exclude U.S. SBA PPP loans.

(1)Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio.

(2)Allowance to non-acquired loans is no longer relevant as the ACL considers all portfolio loans.

On January 1, 2022, the Company adopted ASU 2016-13 and implemented the current expected credit loss model ("CECL"). The ACL is a valuation account that is deducted from loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The Bank uses a range of data to estimate expected credit losses under CECL, including information about past events, current conditions, and reasonable and supportable forecasts relevant to assessing the collectability of the cash flows of the loans. Historical loss experience serves as the foundation for our estimated credit losses. Adjustments to our historical loss experience are made for differences in current loan portfolio segment credit risk characteristics such as the impact of changing unemployment rates, changes in U.S. Treasury yields, portfolio concentrations, the volume of classified loans, and other prevailing economic conditions and factors that may affect the borrower’s ability to repay, or reduce the estimated value of any underlying collateral. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

We adopted ASU 2016-13 using the modified retrospective method. Results for reporting periods beginning after January 1, 2022 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Upon the adoption of ASC 326, the Company recorded a $2.5 million increase to the ACL. At September 30, 2022, the ACL was $22.0 million increased $3.6 million or 19.6% when compared to $18.4 million at December 31, 2021. The increase is related to the impact of adoption and the current year-to-date provision.

ACL balances increased to 1.26% of portfolio loans at September 30, 2022 compared to 1.17% at December 31, 2021. At and for the nine months ended September 30, 2022, the Company's ACL increased $3.6 million or 19.6% to $22.0 million at September 30, 2022 from $18.4 million at December 31, 2021. The increase in the general allowance was primarily related to the impact of adoption of ASC-326 and portfolio loan growth.

The Company recorded a $0.7 million and $1.6 million PCL for the three and nine months ended September 30, 2022 compared to a $0 and $0.6 million PLL for the three and nine months ended September 30, 2021. There were $0.5 million in net charge-offs during the nine months ended September 30, 2022 compared to $1.4 million in net charge-offs for the nine months ended September 30, 2021. During the nine months ended September 30, 2021, the Bank sold non-accrual and classified commercial real estate and residential mortgage loans with an amortized cost of $9.1 million, net of charge-offs of $1.4 million, and recognized a loss on the sale of $0.2 million. During the nine

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months ended September 30, 2022, the Bank sold non-accrual and classified commercial real estate and residential mortgage loans with an amortized cost of $3.4 million, net of charge-offs of $0.4 million, and recognized a gain on the sale of $0.2 million.

Management believes that the allowance is adequate at September 30, 2022. The ACL as a percent of total loans may increase or decrease in future periods based on economic conditions. Management’s determination of the adequacy of the allowance is based on a periodic evaluation of the portfolio. For additional information regarding the allowance for credit losses, refer to Notes 1 and 3 of the Consolidated Financial Statements and the Critical Accounting Policy section of the MD&A.

The following table allocates the ACL and ALLL by portfolio loan category at the dates indicated. The allocation of the allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any category.

	September 30, 2022				December 31, 2021
(dollars in thousands)	Amount		%**		Amount		%**
Commercial real estate	$	17,036	68.98	%	$	13,095	70.54	%
Residential first mortgages	237		4.77	%	1,002		5.87	%
Residential rentals	2,545		16.20	%	2,175		12.35	%
Construction and land development	197		1.33	%	260		2.25	%
Home equity and second mortgages	142		1.49	%	274		1.63	%
Commercial loans	254		2.39	%	582		3.20	%
Consumer loans	142		0.33	%	58		0.19	%
Commercial equipment	1,474		4.51	%	971		3.97	%
Total allowance for credit losses	$	22,027	100.00	%	$	18,417	100.00	%

____________________________________

**Percent of loans in each category to total portfolio loans. December 31, 2021 reported percentages are shown net of deferred costs and fees to conform with the current period's presentation.

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The following table indicates net charge-offs by average portfolio loan category for the three and nine months ended September 30, 2022 and September 30, 2021, and for the year ended December 31, 2021:

	Three Months Ended
	September 30, 2022						September 30, 2021
(dollars in thousands)	Net (Charge-off) Recovery		Average Balance		%		Net (Charge-off) Recovery		Average Balance		%
Commercial real estate	$	—	$	1,205,675	—	%	$	(487)	$	1,094,089	(0.18)	%
Residential first mortgages	14		82,336		0.07	%	—		100,195		—	%
Residential rentals	—		223,532		—	%	—		154,481		—	%
Construction and land development	—		27,770		—	%	—		34,810		—	%
Home equity and second mortgages	—		25,612		—	%	1		27,751		0.01	%
Commercial loans	(48)		52,280		(0.37)	%	529		44,881		4.71	%
Consumer loans	(14)		5,082		(1.10)	%	—		1,742		—	%
Commercial equipment loans	(23)		76,392		(0.12)	%	20		59,964		0.13	%
	(71)		1,698,679		(0.02)	%	63		1,517,913		0.02	%
Allowance for credit losses	—		(21,667)		—	%	—		(18,852)		—	%
Total net charge-off and average portfolio loans	$	(71)	$	1,677,012	(0.02)	%	$	63	$	1,499,061	0.02	%

	Nine Months Ended												Year Ended
	September 30, 2022						September 30, 2021						December 31, 2021
(dollars in thousands)	Net (Charge-off) Recovery		Average Balance		%		Net (Charge-off) Recovery		Average Balance		%		Net (Charge-off) Recovery		Average Balance		%
Commercial real estate	$	(280)	$	1,166,898	(0.03)	%	$	(1,733)	$	1,081,350	(0.21)	%	$	(1,914)	$	1,085,823	(0.18)	%
Residential first mortgages	(97)		84,707		(0.15)	%	(142)		111,401		(0.17)	%	(142)		107,011		(0.13)	%
Residential rentals	—		205,368		—	%	(46)		144,316		(0.04)	%	(46)		151,606		(0.03)	%
Construction and land development	—		30,559		—	%	—		36,401		—	%	—		36,891		—	%
Home equity and second mortgages	1		25,885		0.01	%	4		28,689		0.02	%	5		28,051		0.02	%
Commercial loans	(97)		47,252		(0.27)	%	463		44,241		1.40	%	467		46,390		1.01	%
Consumer loans	(20)		4,119		(0.65)	%	—		1,497		—	%	—		1,783		—	%
Commercial equipment loans	38		68,872		0.07	%	23		60,506		0.05	%	37		60,845		0.06	%
	(455)		1,633,660		(0.04)	%	(1,431)		1,508,401		(0.13)	%	(1,593)		1,518,400		(0.10)	%
Allowance for credit losses	—		(21,364)		—	%	—		(18,908)		—	%	—		(18,788)		—	%
Total net charge-off and average portfolio loans	$	(455)	$	1,612,296	(0.04)	%	$	(1,431)	$	1,489,493	(0.13)	%	$	(1,593)	$	1,499,612	(0.11)	%

Off Balance Sheet Credit Exposure Reserve

The Company's reserve for off balance sheet credit exposures was $0.3 million and increased due to impact of the ASC 326 adoption. The Company is monitoring line of credit usage and has not seen substantive increases in usage or expected usage. Management believes that many of the Bank's customers presently have sufficient liquidity due to COVID-19 government stimulus programs. The Company will continue to monitor activity for potential increases in the off-balance sheet reserve in future quarters as customers use available liquidity.

Classified Assets and Special Mention Assets

Classified assets increased $0.8 million from $5.2 million at December 31, 2021 to $6.0 million at September 30, 2022. Management considers classified assets to be an important measure of asset quality. The Company's risk rating process for classified loans are an important input into the Company's ACL qualitative framework. The following is a breakdown of the Company’s classified and special mention assets at September 30, 2022, June 30, 2022, and March 31, 2022, December 31, 2021, 2020, 2019, and 2018, respectively:

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	As of
(dollars in thousands)	9/30/2022			6/30/2022			3/31/2022			12/31/2021			12/31/2020			12/31/2019			12/31/2018
Classified loans
Substandard	$	5,967		$	6,062		$	4,745		$	5,211		$	19,249		$	26,863		$	32,226
Doubtful	—			—			—			—			—			—			—
Total classified loans	5,967			6,062			4,745			5,211			19,249			26,863			32,226
Special mention loans	160			160			—			—			7,672			—			—
Total classified and special mention loans	$	6,127		$	6,222		$	4,745		$	5,211		$	26,921		$	26,863		$	32,226
Classified loans	$	5,967		$	6,062		$	4,745		$	5,211		$	19,249		$	26,863		$	32,226
Classified securities	—			—			—			—			—			—			482
Other real estate owned	—			—			—			—			3,109			7,773			8,111
Total classified assets	$	5,967		$	6,062		$	4,745		$	5,211		$	22,358		$	34,636		$	40,819
Total classified assets as a percentage of total assets	0.25		%	0.26		%	0.20		%	0.22		%	1.10		%	1.93		%	2.42		%
Total classified assets as a percentage of Risk Based Capital	2.25		%	2.35		%	1.87		%	2.10		%	9.61		%	16.21		%	21.54		%

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Non-Performing Assets

(dollars in thousands)	September 30, 2022		December 31, 2021
Non-accrual loans:
Commercial real estate	$	4,661	$	4,890
Residential first mortgages	—		450
Residential rentals	1,153		942
Construction and land development	—		—
Home equity and second mortgages	240		601
Commercial loans	25		—
Consumer loans	—		—
Commercial equipment	211		691
U.S. SBA PPP loans	—		57
Total non-accrual loans (1)	6,290		7,631
OREO	—		—
TDRs: (1) (2)
Commercial real estate	—		—
Residential first mortgages	—		—
Residential rentals	—		—
Construction and land development	—		—
Home equity and second mortgages	—		—
Commercial loans	—		—
Consumer loans	—		—
Commercial equipment	433		447
U.S. SBA PPP loans	—		—
Total TDRs	433		447
Total Accrual TDRs	433		447
Total non-accrual loans, OREO and Accrual TDRs	$	6,723	$	8,078
Interest income due at stated rates, but not recognized on non-accruals	$	36	$	102

___________________________________________

(1) Non-accrual loans include all loans that are 90 days or more delinquent and loans that are non-accrual due to the operating results or cash flows of a customer.

(2) TDR loans include both non-accrual and accruing performing loans. All TDR loans are included in the calculation of asset quality financial ratios. Non-accrual TDR loans are included in the non-accrual balance and accruing TDR loans are included in the accruing TDR balance.

Non-performing assets, which consist of OREO, non-accrual loans and TDRs, decreased $1.4 million from $8.1 million at December 31, 2021 to $6.7 million at September 30, 2022.

Non-accrual loans and OREO to total portfolio loans and OREO decreased 12 basis points from 0.48% at December 31, 2021 to 0.36% at September 30, 2022. Non-accrual loans, OREO and TDRs to total assets decreased seven basis points from 0.35% at December 31, 2021 to 0.28% at September 30, 2022. 

All interest accrued but not collected from loans that are placed on non-accrual or charged-off is reversed against interest income. Interest income is recognized on a cash-basis or cost-recovery method, until qualifying for return to accrual status. Loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, the collection of additional interest is doubtful. The accrual of interest on loans is discontinued at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection. Non-accrual loans include certain loans that are current with all loan payments and are placed on non-accrual status due to customer operating results and cash flows. Non-accrual loans are considered impaired and evaluated for impairment on a loan-by-loan basis.

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At September 30, 2022, there were $5.7 million (90.8%) of non-accrual loans current with all payments of principal and interest with specific reserves of $0.1 million. Delinquent non-accrual loans were $0.6 million (9.2%) of with no specific reserves at September 30, 2022. At December 31, 2021, there were $6.1 million (98.0%) of non-accrual loans current with all payments of principal and interest with no impairment and $0.1 million (2.0%) of delinquent non-accrual loans with a total of twenty-nine thousand specifically reserved. There were no non-accrual TDRs at September 30, 2022. Non-accrual loans at December 31, 2021 included zero TDRs. These loans were classified solely as non-accrual for the calculation of financial ratios.

Other Real Estate Owned

There were no OREO balances at September 30, 2022 and at December 31, 2021. For additional information on OREO, refer to Note 5 of the Consolidated Financial Statements.

LIABILITIES

The following table shows the Company’s liabilities and the dollar and percentage changes for the periods presented.

(dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change
Deposits
Non-interest-bearing deposits	$	647,432	$	445,778	$	201,654	45.2	%
Interest-bearing deposits	1,479,125		1,610,386		(131,261)		(8.2)	%
Total deposits	2,126,557		2,056,164		70,393		3.4	%
Long-term debt	—		12,231		(12,231)		(100.0)	%
Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPs")	12,000		12,000		—		—	%
Subordinated notes net of debt issuance costs - 4.75%	19,552		19,510		42		0.2	%
Lease liabilities - operating leases	6,288		6,343		(55)		(0.9)	%
Accrued expenses and other liabilities	16,070		12,925		3,145		24.3	%
Total Liabilities	$	2,180,467	$	2,119,173	$	61,294	2.9	%

Funding

The Bank uses retail deposits and wholesale funding. Retail deposits continue to be the most significant source of funds totaling $2,126.5 million or 100.0% of funding at September 30, 2022 compared to $2,048.2 million or 99.0% of funding at December 31, 2021. Wholesale funding, which consists of short-term borrowings, long-term debt and brokered deposits, was zero at September 30, 2022 compared to $20.2 million or 1.0% of funding at December 31, 2021.

In addition to funding for operations, the Company had junior subordinated debentures of $12.0 million and subordinated notes of $20.0 million of 4.75% fixed-to-floating rate subordinated notes at September 30, 2022 and December 31, 2021.

The following is a breakdown of the Company’s deposit portfolio at September 30, 2022 and December 31, 2021:

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	September 30, 2022				December 31, 2021
(dollars in thousands)	Balance		%		Balance		%
Noninterest-bearing demand	$	647,432	30.45	%	$	445,778	21.68	%
Interest-bearing:
Demand	691,987		32.54	%	790,481		38.45	%
Money market deposits	371,175		17.45	%	372,717		18.13	%
Savings	123,564		5.81	%	119,767		5.82	%
Certificates of deposit	292,399		13.75	%	327,421		15.92	%
Total interest-bearing	1,479,125		69.55	%	1,610,386		78.32	%
Total Deposits	$	2,126,557	100.00	%	$	2,056,164	100.00	%
Transaction accounts	$	1,834,158	86.25	%	$	1,728,743	84.08	%

Total deposits increased $70.4 million or 3.42% (4.6% annualized) at September 30, 2022 compared to December 31, 2021. Transacrtion deposits grew by $105.4 million while time deposits declined by $35.0 million. During the first nine months of 2022, non-interest-bearing demand deposits increased $201.7 million to $647.4 million at September 30, 2022, representing 30.5% of deposits, compared to 21.7% of deposits at December 31, 2021. The Company's business development efforts continue to focus on increasing non-interest bearing and lower cost transaction accounts. The Bank's increased customer deposit balances provided additional on-balance sheet liquidity compared to the prior year.

For FDIC call reporting purposes reciprocal deposits are classified as brokered deposits when they exceed 20% of a bank’s liabilities or $5.0 billion. Reciprocal deposits considered brokered deposits for call reporting purposes at September 30, 2022 were $136.8 million compared to $65.7 million at December 31, 2021. Reciprocal deposits are included in retail deposits and are used to maximize FDIC insurance available to the Bank's customers.

STOCKHOLDERS' EQUITY AND REGULATORY CAPITAL

The following table shows the Company’s equity and the dollar and percentage changes for the periods presented.

(dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change
Common Stock at par of $0.01	$	56	$	57	$	(1)	(1.75)	%
Additional paid in capital	97,712		96,896		816		0.84	%
Retained earnings	125,608		113,448		12,160		10.72	%
Accumulated other comprehensive loss	(43,906)		(1,952)		(41,954)		2,149.28	%
Unearned ESOP shares	(316)		(316)		—		—	%
Total Stockholders’ Equity	$	179,154	$	208,133	$	(28,979)	(13.92)	%

Total stockholders’ equity decreased $29.0 million during the nine months ended September 30, 2022. Equity increased due to net income of $20.7 million and net stock related activities in connection with stock-based compensation and ESOP activity of $0.7 million. The decrease in equity was primarily due to an increase of $42.0 million in accumulated other comprehensive loss ("AOCL") in the Bank's AFS securities portfolio due to changes in market interest rates. In addition, equity decreased for common dividends paid of $2.8 million, stock repurchases of $3.6 million and $2.0 million for the adoption of the CECL accounting standard on January 1, 2022. On May 25, 2022, the Company announced a quarterly cash dividend of $0.175 per share of common stock. The dividend was paid on or about July 26, 2022 to stockholders of record as of the close of business on July 12, 2022.

The Company had a book value per common share of $31.74 and $36.40, at September 30, 2022 and December 31, 2021, respectively. Tangible book value at September 30, 2022 and December 31, 2021 was $29.69 and $34.32. The Company's common equity to assets ratio decreased to 7.59% at September 30, 2022 from 8.94% at December 31, 2021. The Company’s ratio of TCE to tangible assets decreased to 7.14% at September 30, 2022 from 8.48% at December 31, 2021 (see Non-GAAP reconciliation schedules). The decrease in the TCE ratio was due primarily to increased unrealized losses in the Bank's AFS investment portfolio.

In April 2020, banking regulators issued an interim final rule that excluded U.S. SBA PPP loans from the calculation of risk-based capital ratios by assigning a zero percent risk weight. The Company remains well capitalized at September 30, 2022 with a Tier 1 capital to average assets ("leverage ratio") of 9.56% at September 30, 2022 compared to 9.23% at December 31, 2021.

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LIQUIDITY AND CAPITAL RESOURCES

Capital Resources

The Company has no business other than holding the stock of the Bank and does not have significant operating cash needs, except for the payment of dividends declared on common stock, and the payment of interest on subordinated debentures and subordinated notes, and noninterest expense.

The Company evaluates capital resources by its ability to maintain adequate regulatory capital ratios. The Company and the Bank annually update a three-year strategic capital plan. In developing its plan, the Company considers the impact to capital of asset growth, income accretion, dividends, holding company liquidity, investment in markets and people and stress testing.

Federal banking regulations require the Company and the Bank to maintain specified levels of capital. As of September 30, 2022 and December 31, 2021, the Company and Bank were well-capitalized under the regulatory framework for prompt corrective action under the Basel III Capital Rules. Management believes, as of September 30, 2022 and December 31, 2021, that the Company and the Bank met all capital adequacy requirements to which they were subject. See Note 10 of the Consolidated Financial Statements.

Liquidity

Liquidity is our ability to meet cash demands as they arise. Cash needs may come from loan demand, deposit withdrawals or acquisition opportunities. Potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers are other factors affecting our liquidity needs. Many of these obligations and commitments are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position.

Based on management’s going concern evaluation, we believe that there are no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s or the Bank’s ability to continue as a going concern, within one year of the date of the issuance of the financial statements.

The Company’s principal sources of liquidity are cash on hand and dividends received from the Bank. The Bank’s most liquid assets are cash, cash equivalents and federal funds sold. The levels of such assets are dependent on the Bank’s operating, financing and investment activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows. Customer deposits are considered the primary source of funds supporting the Bank’s lending and investment activities.

Liquidity is provided by access to funding sources, which include core depositors and brokered deposits. Other sources of funds include our ability to borrow, such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and advances from the FHLB of Atlanta. The Bank uses wholesale funding (brokered deposits and other sources of funds) to supplement funding when loan growth exceeds core deposit growth and for asset-liability management purposes.

At September 30, 2022 and December 31, 2021, the Bank had $59.1 million and $64.4 million, respectively, in loan commitments outstanding. In addition, at September 30, 2022 and December 31, 2021, the Bank had $23.0 million and $22.0 million, respectively, in letters of credit and approximately $261.1 million and $241.7 million, respectively, available under lines of credit. Certificates of deposit due within one year of September 30, 2022 and December 31, 2021 totaled $225.5 million, or 77.11% and $256.9 million, or 78.45%, respectively, of total certificates of deposit outstanding. If maturing deposits do not remain, the Bank will be required to seek other sources of funds, including other certificates of deposit and borrowings. Depending on market conditions, the Bank may be required to pay higher rates on such deposits or other borrowings than the Bank currently pays on the certificates of deposits. Management believes, however, based on past experience that a significant portion of the Bank's certificates of deposit will remain with the Bank. Management has the ability to attract and retain deposits by adjusting the interest rates offered.

Management has increased oversight and review of customer line of credit usage due to current inflationary pressures and the possibility of a recession. If we were to experience increases in draws on customer lines of credit or decreased deposit levels in future periods as a result of the distressed economic conditions in our market areas, our level of borrowed funds could increase.

At September 30, 2022, the Company had on-balance sheet liquidity of $53.3 million in cash and cash equivalents. At September 30, 2022, the Company had loans and securities pledged or in safekeeping at FHLB which provided for funding availability of $564.0 million at September 30, 2022.

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Advances from the FHLB are secured by the Bank’s stock in the FHLB, a portion of the Bank’s loan portfolio and certain investments. Generally, the Bank’s ability to borrow from the FHLB of Atlanta is limited by its available collateral and also by an overall limitation of 30% of assets. FHLB long-term debt may consist of adjustable-rate advances with rates based upon LIBOR, fixed-rate advances, and convertible advances. As of September 30, 2022, the Bank has no FHLB long-term debt outstanding. The Bank has also established unsecured and secured lines of credit with the Federal Reserve Bank and commercial banks.

The decrease in equity of $29.0 million during the nine months ended September 30, 2022 was primarily due to an increase of $42.0 million in AOCL in the Bank's AFS securities portfolio due to changes in market interest rates. The Company intends and has the ability to hold AFS securities with unrealized losses until maturity or interest rates decrease. Management believes there is adequate available liquidity with available lines of credit and cash to fund operational needs.

For additional information on these agreements, including collateral, see Note 8 of the Consolidated Financial Statements as presented in the Company’s Form 10-K for the year ended December 31, 2021.

The Company’s net loan to deposit ratio increased from 77.2% at December 31, 2021 to 81.0% at September 30, 2022. The Company intends to use available on-balance sheet liquidity to fund loans and limit the use of wholesale funding.

The Bank’s principal sources of funds for investment and operations are net income, deposits, sales of loans, borrowings, principal and interest payments on loans, principal and interest received on investment securities and proceeds from the maturity and sale of investment securities. The Bank’s principal funding commitments are for the origination or purchase of loans, the purchase of securities and the payment of maturing deposits.

The Bank is subject to various regulatory restrictions on the payment of dividends.

The Bank’s most liquid assets are cash, cash equivalents and federal funds sold. The levels of such assets are dependent on the Bank’s operating, financing and investment activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows.

During the nine months ended September 30, 2022, all financing activities provided $51.8 million in cash compared to $234.9 million in cash for the same period in 2021. Cash from financing activities decreased $183.1 million for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 primarily due to decreased deposit growth of $188.6 million and an increase in dividends paid, slightly offset by a decrease in payments of long-term debt and repurchases of common stock.

During the nine months ended September 30, 2022 all investing activities used $165.7 million in cash compared to $195.2 million in cash used for the same period in 2021. The decrease in cash used was primarily the result of purchases of investment securities which decreased $196.6 million from $265.7 million for the nine months ended September 30, 2021 to $69.1 million for the nine months ended September 30, 2022. Cash used increased $160.5 million as cash used for loan activities for the nine months ended September 30, 2022 increased over the prior year comparable period. In addition, cash used decreased $5.5 million as total proceeds from the sales and principal payments of available for sale securities for the nine months ended September 30, 2022 decreased over the prior year comparable period.

Operating activities provided cash of $27.5 million, or $2.9 million less cash, for the nine months ended September 30, 2022, compared to $30.5 million of cash provided for the same period of 2021.

For information on risks relating to liquidity, see Item 1A. "Risk Factors - Liquidity Risk", as presented in the Company's Form 10-K for the year ended December 31, 2021.

73

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest rate risk is defined as the exposure to changes in net interest income and capital that arises from movements in interest rates. Depending on the composition of the balance sheet, increasing or decreasing interest rates can negatively affect the Company’s results of operations and financial condition.

The Company measures interest rate risk over the short and long term. The Company measures interest rate risk as the change in net interest income (“NII”) caused by a change in interest rates over twelve and twenty-four months. The Company’s NII simulations provide information about short-term interest rate risk exposure. The Company also measures interest rate risk by measuring changes in the values of assets and liabilities due to changes in interest rates. The economic value of equity (“EVE”) is defined as the present value of future cash flows from existing assets, minus the present value of future cash flows from existing liabilities. EVE simulations reflect the interest rate sensitivity of assets and liabilities over a longer time period, considering the maturities, average life and duration of all balance sheet accounts.

The Board of Directors has approved the Company's interest rate risk policy and assigned oversight to the Board Risk Oversight Committee (“BROC”). The policy establishes limits on risk, which are quantitative measures of the percentage change in NII and EVE resulting from changes in interest rates. Both NII and EVE simulations assist in identifying, measuring, monitoring and controlling interest rate risk and along with mitigating strategies are used by management to maintain interest rate risk exposure within Board policy guidelines.

The Company’s interest rate risk (“IRR”) model uses assumptions which include factors such as call features, prepayment options and interest rate caps and floors included in investment and loan portfolio contracts. The IRR model estimates the lives and interest rate sensitivity of the Company’s non-maturity deposits. These assumptions have a significant effect on model results. The assumptions are developed primarily based upon historical behavior of Bank customers. The Company also considers industry and regional data in developing IRR model assumptions. There are inherent limitations in the Company’s IRR model and underlying assumptions. When interest rates change, actual movements of interest-earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model.

The Company prepares a current base case and several alternative simulations at least quarterly. Current interest rates are shocked by +/- 100, 200, 300, and 400 basis points (“bp”). In addition, the Company simulates additional rate curve scenarios (e.g., bear flattener). The Company may elect not to use particular scenarios that it determines are impractical in a current rate environment.

The Company’s internal limits for parallel shock scenarios are as follows:

Shock in Basis Points	Net Interest Income	Economic Value of Equity
+ - 400	25%	40%
+ - 300	20%	30%
+ - 200	15%	20%
+ - 100	10%	10%

It is management’s goal to manage the Bank’s portfolios so that net interest income at risk over twelve and twenty-four-month periods and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels. At September 30, 2022 and December 31, 2021, the Company did not exceed any Board approved sensitivity limits for percentage change in net interest income. In the third quarter of 2022 the percentage change in economic value of equity slightly exceeded policy guidelines due to already low level of rates on non-maturing deposit instruments. Management has determined that due to the level of market rates at September 30, 2022, interest rate shocks of -100, -200, -300 and -400 basis points leave the Bank with near zero down to negative rate instruments and are not considered practical or informative. Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. The below schedule estimates the changes in net interest income over a twelve-month period for parallel rate shocks for up 200, 100 and down 100 scenarios:

74

Estimated Changes in Net Interest Income
Change in Interest Rates:	+ 200 bp		+ 100 bp		-100 bp
Policy Limit	(15.00)	%	(10.00)	%	(10.00)	%
September 30, 2022	(1.71)	%	(0.56)	%	(4.14)	%
June 30, 2022	1.60	%	1.55	%	(6.23)	%
March 31, 2022	(1.83)	%	(0.84)	%	(5.95)	%
December 31, 2021	(1.54)	%	(0.74)	%	(1.13)	%

Measures of equity value at risk indicate the ongoing economic value of the Company by considering the effects of changes in interest rates on all of the Company’s cash flows, and by discounting the cash flows to estimate the present value of assets and liabilities. The below schedule estimates the changes in the EVE at parallel shocks for up 200, up 100 and down 100 scenarios:

Estimated Changes in Economic Value of Equity
Change in Interest Rates:	+ 200 bp		+ 100 bp		-100 bp
Policy Limit	(20.00)	%	(10.00)	%	(10.00)	%
September 30, 2022	9.11	%	5.99	%	(10.59)	%
June 30, 2022	10.34	%	6.82	%	(11.88)	%
March 31, 2022	13.66	%	9.28	%	(16.40)	%
December 31, 2021	24.45	%	15.16	%	(25.07)	%

ITEM 4 – CONTROLS AND PROCEDURES

As of the end of the period covered by this report, management of the Company carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the Company’s disclosure controls and procedures. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended, (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to the Company’s management, including its principal executive and financial officers as appropriate to allow timely decisions regarding required disclosure. It should be noted that the design of the Company’s disclosure controls and procedures is based in part upon certain reasonable assumptions about the likelihood of future events, and there can be no reasonable assurance that any design of disclosure controls and procedures will succeed in achieving its stated goals under all potential future conditions, regardless of how remote, but the Company’s principal executive and financial officers have concluded that the Company’s disclosure controls and procedures are, in fact, effective at a reasonable assurance level.

Changes in Internal Control over Financial Reporting

Effective January 1, 2022, the Company adopted FASB ASU 2016-13. The Company designed new controls and modified existing controls as part of the adoption. Management revised previous internal controls used under legacy GAAP and incorporated new internal controls related to the methodology of the new allowance for credit losses. There were no other changes in the Company's internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

75

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

In the normal course of business, the Company becomes involved in litigation arising from the banking, financial and other activities it conducts. Management, after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising from these matters will have a material effect on the Company’s financial condition, operating results or liquidity.

Item 1A – Risk Factors 

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Part I, “Item 1A- Risk Factors” in the Form 10-K for the year ended December 31, 2021 that the Company filed with the SEC on March 3, 2022. These risk factors could materially affect our business, financial condition or future results. The risks described are not the only risks that the Company face. Additional risks and uncertainties not currently known or that the Company currently deem to be immaterial also may materially adversely affect its business, financial condition and/or operating results. There have been no material changes to the risk factors discussed in the Company's Form 10-K filed on March 3, 2022.

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

(a)Not applicable

(b)Not applicable

(c)On October 20, 2020, 184,863 shares were available to be repurchased under the 2015 repurchase plan, and, on that date, the Board of Directors approved an expansion to the 2015 repurchase plan (the "2020 repurchase plan") that allows the Company to repurchase up to 300,000 of the Company’s outstanding shares of common stock using up to $7.0 million of the proceeds the Company raised in its $20.0 million subordinated debt offering completed in October 2020. On July 15, 2021, the Company announced that it had completed the repurchase of the $7.0 million of shares of the Company’s common stock that it was originally authorized to repurchase under the 2020 repurchase plan. On December 9, 2021, the Company announced that its Board of Directors authorized the Company to continue repurchasing shares of the Company’s common stock under the October 2020 repurchase plan using up to $4.0 million in the aggregate and up to $1.5 million in the aggregate on a quarterly basis. As of September 30, 2022, 0 shares were available to be repurchased under the 2020 repurchase plan. The following schedule shows the repurchases during the three months ended September 30, 2022.

Period	( a ) Total Number of Shares Purchased	( b ) Average Price Paid per Share		( c ) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	( d ) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1-31, 2022	1,600	$	36.67	1,600	12,047
August 1-31, 2022	12,047	$	37.17	12,047	—
September 1-30, 2022	—	$	—	—	—
Total	13,647	$	37.11	13,647	—

Item 3 – Defaults Upon Senior Securities 

Not applicable. 

Item 4 – Mine Safety Disclosures 

Not applicable.

Item 5 – Other Information 

None 

76

Item 6 – Exhibits

Number	Description
3.1	Amended and Restated Bylaws of The Community Financial Corporation (Incorporated by reference to Exhibit 3.1 to the Form 8-K filed on September 28, 2022).
31	Rule 13a‑14(a) Certifications
32	Section 1350 Certifications
101	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income/Loss, (iv) the Consolidated Statements of Changes in Stockholders' Equity, (v) the Consolidated Statements of Cash Flows; and (vi) the Notes to the Consolidated Financial Statements.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

77

SIGNATURES

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

	THE COMMUNITY FINANCIAL CORPORATION
Date: November 7, 2022	By:	/s/ James M. Burke
		James M. Burke
		Chief Executive Officer

Date: November 7, 2022	By:	/s/ Todd L. Capitani
		Todd L. Capitani
		Chief Financial Officer

78

EX-31

Exhibit 31

Certification

I, James M. Burke, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of The Community Financial Corporation;

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

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

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

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

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

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

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

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

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

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

Date: November 7, 2022	By:	/s/ James M. Burke
		James M. Burke Chief Executive Officer

Certification

I, Todd L. Capitani, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of The Community Financial Corporation;

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

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

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

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

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

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

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

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

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

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

Date: November 7, 2022	By:	/s/ Todd L. Capitani
		Todd L. Capitani Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION

This Report on Form 10-Q of The Community Financial Corporation (the “Company”) for the quarter ended September 30, 2022 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 7, 2022	By:	/s/ James M. Burke
		James M. Burke Chief Executive Officer
Date: November 7, 2022	By:	/s/ Todd L. Capitani
		Todd L. Capitani Chief Financial Officer

XML

Cover Page - shares	9 Months Ended
	Sep. 30, 2022	Oct. 31, 2022
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2022
Document Transition Report	false
Entity File Number	001-36094
Entity Registrant Name	THE COMMUNITY FINANCIAL CORPORATION
Entity Incorporation, State or Country Code	MD
Entity Tax Identification Number	52-1652138
Entity Address, Address Line One	3035 Leonardtown Road
Entity Address, City or Town	Waldorf
Entity Address, State or Province	MD
Entity Address, Postal Zip Code	20601
City Area Code	(301)
Local Phone Number	645-5601
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	TCFC
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		5,645,749
Current Fiscal Year End Date	--12-31
Entity Central Index Key	0000855874
Document Fiscal Period Focus	Q3
Amendment Flag	false
Document Fiscal Year Focus	2022

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Assets
Cash and due from banks	$ 18,008	$ 108,990
Federal funds sold	20,325	0
Interest-bearing deposits with banks	14,970	30,664
Securities available for sale ("AFS"), at fair value	464,502	497,839
Equity securities carried at fair value through income	4,254	4,772
Non-marketable equity securities held in other financial institutions	207	207
Federal Home Loan Bank ("FHLB") stock - at cost	1,226	1,472
Net loans	1,722,461	1,586,791
Goodwill	10,835	10,835
Premises and equipment, net	21,626	21,427
Accrued interest receivable	6,791	5,588
Investment in bank owned life insurance	39,583	38,932
Core deposit intangible	725	1,032
Net deferred tax assets	24,755	9,033
Right of use assets - operating leases	6,022	6,124
Other assets	3,331	3,600
Total Assets	2,359,621	2,327,306
Liabilities and Stockholders’ Equity
Non-interest-bearing deposits	647,432	445,778
Interest-bearing deposits	1,479,125	1,610,386
Total Deposits	2,126,557	2,056,164
Long-term debt	0	12,231
Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPs")	12,000	12,000
Subordinated notes net of debt issuance costs - 4.75%	19,552	19,510
Lease liabilities - operating leases	6,288	6,343
Accrued expenses and other liabilities	16,070	12,925
Total Liabilities	2,180,467	2,119,173
Stockholders’ Equity
Common stock - par value $0.01; authorized - 15,000,000 shares; issued 5,644,186 and 5,718,528 shares, respectively	56	57
Additional paid in capital	97,712	96,896
Retained earnings	125,608	113,448
Accumulated other comprehensive losses	(43,906)	(1,952)
Unearned ESOP shares	(316)	(316)
Total Stockholders’ Equity	179,154	208,133
Total Liabilities and Stockholders’ Equity	2,359,621	2,327,306
U.S. SBA PPP
Assets
Net loans	1,211	26,398
Portfolio Loans
Assets
Net loans	$ 1,721,250	$ 1,560,393

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Statement of Financial Position [Abstract]
Allowance for loan losses	$ 22,027	$ 18,417
Subordinated notes interest rate	4.75%
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, authorized (in shares)	15,000,000	15,000,000
Common stock, issued (in shares)	5,644,186	5,718,528

XML

CONSOLIDATED STATEMENTS OF INCOME (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Interest and Dividend Income
Loans, including fees	$ 18,735	$ 16,342	$ 51,117	$ 49,254
Interest and dividends on investment securities	2,454	1,296	6,044	3,461
Interest on deposits with banks	156	21	294	66
Total Interest and Dividend Income	21,345	17,659	57,455	52,781
Interest Expense
Deposits	1,850	594	3,182	2,036
Short-term borrowings	52	0	68	0
Long-term debt	386	456	1,111	1,192
Total Interest Expense	2,288	1,050	4,361	3,228
Net Interest Income	19,057	16,609	53,094	49,553
Provision for credit losses	694	0	1,569	586
Provision for unfunded commitments	6	0	1	0
Net Interest Income After Provision For Credit Losses	18,357	16,609	51,524	48,967
Noninterest Income
Gain on sale of assets	0		0	68
Net gains on sale of investment securities	0	0	0	586
Unrealized losses on equity securities	(187)	(22)	(564)	(94)
Income from bank owned life insurance	220	220	651	652
Net losses (gains) on sale of loans held for sale	1	30	(2)	30
Gains (losses) on sale of loans	0	0	209	(191)
Total Noninterest Income	1,229	1,400	4,104	5,616
Noninterest Expense
Compensation and benefits	5,116	5,650	15,222	15,770
Occupancy expense	826	731	2,378	2,180
Advertising	149	145	372	372
Data processing expense	1,062	840	3,077	2,766
Professional fees	923	676	2,499	1,920
Depreciation of premises and equipment	177	137	476	419
FDIC Insurance	160	120	516	512
OREO valuation allowance and expenses	0	20	6	689
Core deposit intangible amortization	97	121	308	380
Fraud losses	37	132	107	1,243
Other expenses	1,079	875	3,083	2,722
Total Noninterest Expense	9,626	9,447	28,044	28,973
Income before income taxes	9,960	8,562	27,584	25,610
Income tax expense	2,380	2,158	6,882	6,475
Net Income	$ 7,580	$ 6,404	$ 20,702	$ 19,135
Earnings Per Common Share
Basic (in dollars per share)	$ 1.34	$ 1.12	$ 3.66	$ 3.29
Diluted (in dollars per share)	1.34	1.12	3.65	3.29
Cash dividends paid per common share (in dollars per share)	$ 0.175	$ 0.150	$ 0.525	$ 0.425
Loan appraisal, credit, and miscellaneous charges
Noninterest Income
Noninterest Income	$ 65	$ 29	$ 285	$ 271
Service charges
Noninterest Income
Noninterest Income	1,130	987	3,164	3,066
Referral fee income
Noninterest Income
Noninterest Income	$ 0	$ 176	$ 361	$ 1,248

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/LOSS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Statement of Comprehensive Income [Abstract]
Net Income	$ 7,580	$ 6,404	$ 20,702	$ 19,135
Net unrealized holding losses arising during period, net of tax benefits of $(4,250) and $(1,083), and $(14,787) and $(1,744), respectively.	(12,059)	(3,072)	(41,954)	(4,946)
Reclassification adjustment for gains included in net income, net of tax expense of $0 and $0, and $0 and $153, respectively.	0	0	0	433
Comprehensive (Loss) Income	$ (4,479)	$ 3,332	$ (21,252)	$ 14,622

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Income Statement [Abstract]
Net unrealized holding (loss) gains arising during period, Tax Effect	$ (4,250)	$ (1,083)	$ (14,787)	$ (1,744)
Reclassification adjustment, Tax Effect	$ 0	$ 0	$ 0	$ 153

XML

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($) $ in Thousands	Total	Cumulative Effect, Period of Adoption, Adjustment	Common Stock	Additional Paid-in Capital	Retained Earnings	Retained Earnings Cumulative Effect, Period of Adoption, Adjustment	Accumulated Other Comprehensive Income (Loss)	Unearned ESOP Shares
Beginning Balance at Dec. 31, 2020	$ 198,013		$ 59	$ 95,965	$ 97,944		$ 4,504	$ (459)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	19,135				19,135
Unrealized holding loss on investment securities, net of tax	(4,513)						(4,513)
Cash dividends	(2,355)				(2,355)
Dividend reinvestment	0			125	(125)
Net change in fair market value below cost of leveraged ESOP shares released	(2)			(2)
Repurchase of common stock	(6,711)		(2)		(6,709)
Stock based compensation	561			561
Ending Balance at Sep. 30, 2021	204,128		57	96,649	107,890		(9)	(459)
Beginning Balance at Jun. 30, 2021	203,962		58	96,411	104,889		3,063	(459)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	6,404				6,404
Unrealized holding loss on investment securities, net of tax	(3,072)						(3,072)
Cash dividends	(812)				(812)
Dividend reinvestment	0			45	(45)
Net change in fair market value below cost of leveraged ESOP shares released	2			2
Repurchase of common stock	(2,547)		(1)		(2,546)
Stock based compensation	191			191
Ending Balance at Sep. 30, 2021	204,128		57	96,649	107,890		(9)	(459)
Beginning Balance at Dec. 31, 2021	208,133	$ (2,006)	57	96,896	113,448	$ (2,006)	(1,952)	(316)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	20,702				20,702
Unrealized holding loss on investment securities, net of tax	(41,954)						(41,954)
Cash dividends	(2,823)				(2,823)
Dividend reinvestment	0			159	(159)
Net change in fair market value below cost of leveraged ESOP shares released	11			11
Repurchase of common stock	(3,555)		(1)		(3,554)
Stock based compensation	646			646
Ending Balance at Sep. 30, 2022	$ 179,154		56	97,712	125,608		(43,906)	(316)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Accounting Standards Update [Extensible List]	Accounting Standards Update 2019-11
Beginning Balance at Jun. 30, 2022	$ 184,871		56	97,455	119,523		(31,847)	(316)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Income	7,580				7,580
Unrealized holding loss on investment securities, net of tax	(12,059)						(12,059)
Cash dividends	(935)				(935)
Dividend reinvestment	0			54	(54)
Net change in fair market value below cost of leveraged ESOP shares released	2			2
Repurchase of common stock	(506)				(506)
Stock based compensation	201			201
Ending Balance at Sep. 30, 2022	$ 179,154		$ 56	$ 97,712	$ 125,608		$ (43,906)	$ (316)

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Statement of Stockholders' Equity [Abstract]
Net unrealized holding gains (losses) arising during period, tax effect	$ (4,250)	$ (1,083)	$ (14,787)	$ (1,591)
Cash dividends (in dollars per share)	$ 0.175	$ 0.150	$ 0.525	$ 0.425

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Cash Flows from Operating Activities
Net income	$ 20,702	$ 19,135
Adjustments to reconcile net income to net cash provided by operating activities
Provision for credit losses	1,569	586
Provision for unfunded commitments	1	0
Depreciation and amortization	1,165	1,150
Provision for loss on premises held for sale	0	20
Loans originated for resale	(1,800)	(1,479)
Proceeds from sale of loans originated for sale	1,838	1,514
Net losses (gains) on sale of loans held for sale	2	(30)
(Gains) losses on sale of loans	(209)	191
Net gains on the sale of OREO	0	(16)
Gains on sales of investment securities	0	(586)
Unrealized losses on equity securities	564	94
Gains on sale of assets	0	(68)
Net amortization of premium/discount on investment securities	2,148	636
Net accretion of merger accounting adjustments	(168)	(256)
Net amortization of debt issuance costs	42	(30)
Amortization of core deposit intangible	308	380
Amortization of right of use asset	288	304
Net change in right of use assets and lease liabilities	(241)	(302)
Increase in OREO valuation allowance	0	641
Increase in cash surrender value of bank owned life insurance	(651)	(652)
(Decrease) increase in deferred income tax benefit	(237)	710
(Increase) decrease in accrued interest receivable	(1,203)	2,672
Stock based compensation	646	561
Net change in fair market value above (below) cost of leveraged ESOP shares released	11	(2)
(Increase) decrease in net deferred loan costs	(441)	2,324
Increase in accrued expenses and other liabilities	2,927	3,886
Decrease (increase) in other assets	269	(917)
Net Cash Provided by Operating Activities	27,530	30,466
Cash Flows from Investing Activities
Purchase of AFS investment securities	(69,078)	(265,704)
Proceeds from redemption or principal payments of AFS investment securities	43,480	36,408
Proceeds from sale of AFS investment securities	0	12,540
Net decrease of FHLB stock	246	1,305
Net change in loans	(142,537)	9,617
Purchase of premises and equipment	(1,364)	(2,264)
Proceeds from sale of OREO	0	947
Proceeds from sale of loans	3,588	11,965
Proceeds from disposal of asset	0	12
Net Cash Used in Investing Activities	(165,665)	(195,174)
Cash Flows from Financing Activities
Net increase in deposits	70,393	259,005
Payments of long-term debt	(12,231)	(15,053)
Dividends paid	(2,823)	(2,355)
Repurchase of common stock	(3,555)	(6,711)
Net Cash Provided by Financing Activities	51,784	234,886
(Decrease) increase in Cash and Cash Equivalents	(86,351)	70,178
Cash and Cash Equivalents - January 1	139,654	77,065
Cash and Cash Equivalents - September 30	53,303	147,243
Cash paid during the period for
Interest	4,138	3,205
Income taxes	6,239	6,278
Supplemental Schedule of Non-Cash Operating Activities
Issuance of common stock for payment of compensation	355	164
Supplemental Schedule of Non-Cash Investing and Financing Activities
Cumulative effect adjustment for adoption of ASU 2016-13	$ 2,006	$ 0

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BASIS OF PRESENTATION AND NATURE OF OPERATIONS

9 Months Ended

Sep. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Nature of Operations

BASIS OF PRESENTATION AND NATURE OF OPERATIONS

Basis of Presentation

The Consolidated Financial Statements include the accounts of The Community Financial Corporation and its wholly-owned subsidiary, Community Bank of the Chesapeake (the “Bank”), (collectively, the “Company”), included herein are unaudited.

The Consolidated Financial Statements reflect all adjustments consisting only of normal recurring accruals that, in the opinion of management, are necessary to present fairly the Company’s financial condition, results of operations, and cash flows for the periods presented. Certain information and note disclosures normally included in Consolidated Financial Statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to the rules and regulations of the SEC. Management believes that the included disclosures are adequate to make the information presented not misleading. The balances as of December 31, 2021 have been derived from audited Consolidated Financial Statements. The Company’s accounting policies are disclosed in Note 1 to the 2021 Consolidated Financial Statements. The adoption on January 1, 2022 of the new Current Expected Credit Loss ("CECL") accounting standard is described below. The results of operations for the nine months September 30, 2022 are not necessarily indicative of the results of operations to be expected for the remainder of the year or any other period.

These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes included in the Company’s 2021 Annual Report on Form 10-K.

Reclassification

Certain items in prior Consolidated Financial Statements have been reclassified to conform to the current presentation.

Nature of Operations

The Company provides financial services to individuals and businesses through its offices in Southern Maryland and Fredericksburg, Virginia. Its primary deposit products are demand, savings and time deposits, and its primary lending products are commercial and residential mortgage loans, commercial loans, construction and land development loans, home equity and second mortgages and commercial equipment loans.

Use of Estimates

The preparation of Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amount of income and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses ("ACL"), real estate acquired in the settlement of loans ("OREO"), fair value of financial instruments, fair value of assets acquired, and liabilities assumed in a business combination, evaluating potential credit losses of investment securities and valuation of deferred tax assets.

New Accounting Policy

Allowance for Credit Losses

On January 1, 2022, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology for determining the provision for credit losses and ACL with the CECL methodology. The measurement of expected credit losses under the CECL methodology applies to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. In addition, ASU 2016-13 made changes to the accounting for available-for-sale ("AFS") debt securities. Credit-related impairments of AFS debt securities are now recognized through an allowance for credit loss rather than a write-down of the securities' amortized cost basis when management does not intend to sell or believes that it is not likely that they will be required to sell the securities prior to recovery of the securities amortized cost basis.

We adopted ASU 2016-13 using the modified retrospective method. Results for reporting periods beginning after January 1, 2022 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. At adoption, the Company did not hold Held to Maturity ("HTM") investment debt securities.

The following table shows the impact of the Company's adoption of ASC 326:

	January 1, 2022
(dollars in thousands)	As Reported Under ASC 326		Pre-ASC 326 Adoption		Impact of ASC 326 Adoption
Portfolio Loans:
Commercial real estate	$	1,113,793	$	1,115,485	(1,692)
Residential first mortgages	92,710		91,120		1,590
Residential rentals	194,911		195,035		(124)
Construction and land development	35,502		35,590		(88)
Home equity and second mortgages	25,661		25,638		23
Commercial loans	50,512		50,574		(62)
Consumer loans	3,015		3,002		13
Commercial equipment	62,706		62,499		207
Gross Portfolio Loans	1,578,810		1,578,943		(133)
Adjustments:
Net deferred costs	—		(133)		133
Allowance for credit losses	(20,913)		(18,417)		(2,496)
Net Portfolio Loans	1,557,897		1,560,393		(2,496)
U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans	26,398		27,276		(878)
Net deferred fees	—		(878)		878
Net U.S. SBA PPP Loans	26,398		26,398		—
Total Net Loans	$	1,584,295	$	1,586,791	$	(2,496)
Liabilities: Reserve for Unfunded Commitments	$	268	$	51	$	217

Loans that the Company has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are reported at their outstanding unpaid principal balances, adjusted for the allowance for credit losses and any deferred fees or premiums. Interest income is accrued on the unpaid principal balance. Loan origination fees and premiums, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered credit deteriorated. Evidence of credit quality deterioration as of the purchase date may include statistics such as internal risk grade, past due and nonaccrual status, recent borrower credit scores and recent loan-to-value (“LTV”) percentages. At December 31, 2021, the Bank had purchased credit-deteriorated (“PCD”) loans from the County First acquisition with unpaid principal balances of $1.4 million and carrying values of $1.1 million. At the adoption of ASC 326, management evaluated the remaining unamortized discount on the PCD loans and determined that approximately $8,000 of the discount was credit related and

reclassified into the ACL. The non-credit component of the discount will be recognized in interest income over the remaining life of the loans.

The Company considers a loan to be past due or delinquent when the terms of the contractual obligation are not met by the borrower. Loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, the collection of additional interest is doubtful. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection. Non-accrual loans include certain loans that are current with all loan payments and are placed on non-accrual status due to customer operating results and cash flows. Non-accrual loans are evaluated for impairment on a loan-by-loan basis in accordance with the Company’s impairment methodology.

Consumer loans, excluding credit card loans, are typically charged-off no later than 90 days past due. Credit card loans are typically charged-off no later than 180 days past due. Mortgage and commercial loans are fully or partially charged-off when in management’s judgment all reasonable efforts to return a loan to performing status have occurred. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected from loans that are placed on non-accrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

TDRs are loans that have been modified to provide for a reduction or a delay in the payment of either interest or principal because of deterioration in the financial condition of the borrower. A loan extended or renewed at a stated interest rate equal to the current interest rate for new debt with similar risk is not considered a TDR. Once an obligation has been classified as a TDR it continues to be considered a TDR until paid in full or until the debt is refinanced and considered unimpaired. All TDRs are assessed on a loan-by-loan basis. The Company does not participate in any specific government or Company-sponsored loan modification programs. All restructured loan agreements are individual contracts negotiated with a borrower.

Allowance for Credit Losses - Loans

The ACL is an estimate of the expected credit losses for loans held for investment and off-balance sheet exposures. ASU 2016-13 replaced the incurred loss model that recognized a loss when it became probable that a credit loss had occurred, with a model that immediately recognizes the credit loss expected to occur over the lifetime of a financial asset whether originated or purchased. Charge-offs are recorded to the ACL when management believes the loan is uncollectible. Subsequent recoveries, if any, are credited to the ACL. Management believes the ACL is in accordance with U.S. GAAP and in compliance with appropriate regulatory guidelines.

The ACL includes quantitative estimates of losses for collectively and individually evaluated loans. As more fully described below, the model-based quantitative estimate for collectively evaluated loans is determined using the probability of default (PD) and loss given default (LGD) at the segment level and applied at the loan level against the expected exposure at default (EAD). Qualitative adjustments to the quantitative estimate may be made using information not considered in the quantitative model.

The Bank uses a range of data to estimate expected credit losses under CECL, including information about past events, current conditions, and reasonable and supportable forecasts relevant to assessing the collectability of the cash flows of the loans. Historical loss experience serves as the foundation for our estimated credit losses. Adjustments to our historical loss experience are made for differences in current loan portfolio segment credit risk characteristics such as the impact of changing unemployment rates, changes in U.S. Treasury yields, portfolio concentrations, the volume of classified loans, inflation, and other prevailing economic conditions and factors that may affect the borrower’s ability to repay, or reduce the estimated value of underlying collateral. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

The ACL is measured on a collective basis when similar risk characteristics exist. Generally, collectively assessed loans are grouped by loan type code or product type codes and assigned to a corresponding portfolio segment. Portfolio segments may be further subdivided into similar risk profile groupings based on interest rate structure, types of collateral or other terms and characteristics.

The probability of default (“PD”) calculation analyzes the historical loan portfolio over the given look back period to identify, by segment, loans that have defaulted. 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. The model observes loans over a 12-month window, detecting any events previously defined. This information is then used by the model to calculate annual iterative count-based PD rates for each segment. This process is then repeated for all dates within the historical data range. These averaged PD’s are used for a 12-month straight-line reversion to the historical mean. The historical data used was from mid-2006 through the most recent quarter end.

The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the ACL on loans. The model’s calculation also includes a 12-month forecasted PD based on a regression model that compares the Company’s historical loan data to

various national economic metrics during the same periods. The results show the Company’s past losses having a high rate of correlation to national unemployment rates for fixed rate loans and the 10-Year U.S. Treasury for adjustable-rate loans. The model uses this information, along with the most recently published Wall Street Journal survey of sixty economists’ forecasts predicting unemployment rates out over the next four quarters to estimate the PD for the forward-looking 12-month period. These data are also used to predict credit losses at different levels of stress, including a baseline, low, high and adverse economic conditions. After the forecast period, PD rates revert to the historical mean straight line over a 12-month period for the entire data set.

The loss given default (“LGD”) calculation is based on actual losses (charge-offs, net of recoveries) at a loan level over the entire look-back period aggregated for each loan segment. The aggregate loss is divided by the exposure at default to determine an LGD rate. Defaults occurring during the look-back period are included in the denominator, whether or not a loss occurred and exposure at default is determined by the loan balance immediately preceding the default event. When the Company's data are insufficient. an industry index is used.

The exposure at default (“EAD”) calculation projects future expected balances from monthly cash flow schedules to apply PD and LGD assumptions. These are derived based on current contractual terms (balance, interest rate, payment structure), adjusted for expected voluntary prepayments. The contractual terms exclude expected extensions, renewals and modifications unless either of the following applies: management has the reasonable expectation that a loan will be restructured, or the extension or renewal option are included in the borrower contract.

On a quarterly basis, the Company uses internal portfolio credit data, such as levels of non-accrual loans, classified assets and concentrations of credit along with other external information not used in the quantitative calculation to determine qualitative adjustments.

Loans that do not share the same common risk characteristics with other loans are individually assessed. Such loans include non-accrual loans, TDRs, loans classified as substandard or worse, loans that are greater than 89 days delinquent and any other loan identified by management for individual assessment. Reserves on individually assessed loans are measured on a loan-by-loan basis. Generally, consumer loans, including credit cards, are not individually assessed as the Bank's policy is to charge-off credit card loans when they become 180 days delinquent and other consumer loans when they are more than 90 days delinquent.

The methodology used to estimate the ACL is designed to be responsive to changes in portfolio credit quality and forecasted economic conditions. Changes due to new information are reflected in the pool-based allowance and in reserves assigned on an individual basis. Executive management closely monitors loss ratios, reviews the appropriateness of the ACL and presents conclusions to the Credit Risk Committee and the Audit Committee. The committees report to the Board as part of Board's quarterly review of our regulatory reporting and consolidated financial statements.

The calculation of the ACL excludes accrued interest receivable balances because these balances are reversed in a timely manner against previously recognized interest income when a loan is placed on non-accrual status.

Allowance for Credit Losses - AFS Debt securities

As described above, the Company does not presently hold any HTM debt securities and therefore is not presently required to apply a CECL methodology for an HTM investment portfolio.

The impairment model for AFS debt securities measures fair value. Although ASU No. 2016-13 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model for AFS securities. One notable change from the legacy OTTI model is when evaluating whether credit loss exists, an entity may no longer consider the length of time fair value has been less than amortized cost. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criterion is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and a corresponding allowance for credit losses is recorded. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Any impairment not recorded through an allowance for credit loss is recognized in other comprehensive income as a noncredit-related impairment. As of September 30, 2022, the Company determined that the unrealized loss

positions in AFS securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded. See Note 2 Investment Securities for more information.

The Bank elected as allowed under ASU No. 2016-13 to exclude accrued interest from the amortized cost basis of AFS debt securities and report accrued interest separately in accrued interest and other assets in the consolidated balance sheets. AFS debt securities are placed on non-accrual status when management no longer expects to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status. Accordingly, the Company does not recognize an allowance for credit loss against accrued interest receivable. The majority of AFS debt securities as of September 30, 2022 and December 31, 2021 were issued by Government Sponsored Enterprises (“GSEs”) and U.S. agencies. As such, an allowance for credit losses is not considered necessary.

Collateral Dependent Financial Assets

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the Net Present Value ("NPV") from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset. Subsequent changes to the fair value of collateral, for which an ACL was previously recognized, will be reported as a provision (recovery) for credit losses.

The Bank generally uses the practical expedient of the fair value of the collateral, net of estimated selling costs, to determine the expected credit loss for individually assessed collateral dependent loans.

Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposure

Financial instruments include off-balance sheet credit instruments such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records a reserve for unfunded commitments (“RUC”) on off-balance sheet credit exposures through a charge to provision for credit loss expense in the Company’s consolidated statements of operations. The RUC on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in Other Liabilities on the Company’s consolidated balance sheets.

See Note 1 – Summary of Significant Accounting Policies included in the Company’s 2021 Annual Report on Form 10-K for a list of policies in effect as of December 31, 2021.

Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)

Adopted New Accounting Standard

ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaced the existing “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, applies to (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, HTM securities, loan commitments, and financial guarantees. Credit losses relating to AFS debt securities will be recorded through an allowance for credit losses. The ASU also simplifies the accounting model for Purchased Credit Impaired (“PCI”) debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach).

In December 2019, the FASB issued ASU No 2019-10, Financial Instruments - Credit Losses (Topic 326). This update amends the effective date of ASU 2016-13 for certain entities, including smaller reporting companies until fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption was permitted. The FASB has issued other ASUs that clarify items related to ASU 2016-13. The Company adopted this guidance effective January 1, 2022.

The Company's estimates are derived using one-year reasonable and supportable economic forecasts with subsequent one-year reversion to the historical mean loss rates. For loans that share similar risk characteristics and are collectively assessed, the Company uses a probability of default/loss given default cash flow method to determine the expected losses at the loan level. Loans that do not share similar risk characteristics are evaluated on an individual basis. Based on forecasted economic conditions and portfolio balances as of January 1, 2022, we recognized an increase to the opening allowance for credit losses of $2.5 million. The increase is primarily related to the change in methodology from estimating losses incurred as of the balance sheet date to estimating lifetime credit losses required by the CECL standard.

The impact of adoption was not significant to the Bank's regulatory capital. The Bank did not elect to phase-in, over a three-year period, the standard's initial impact on regulatory capital as permitted by the regulatory transition rules.

ASU 2019-05 – Financial Instruments-Credit Losses (Topic 326). In May 2019, the FASB issued ASU No. 2019-05. This ASU allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to HTM debt securities. Entities are required to make this election on an instrument-by-instrument basis. The Company adopted ASU 2019-05 concurrently upon adoption of ASU 2016-13. The adoption of CECL did not have a material effect on available-for-sale securities, which are predominantly composed of mortgage-backed securities issued by government sponsored entities and U.S. agencies and U.S. government obligations.

Pending adoption

ASU 2020-04 – Reference Rate Reform (Topic 848). In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its Consolidated Financial Statements.

ASU Update 2022-02 – Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU Update 2022-02 eliminates the TDR recognition and measurement guidance and, instead requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. In addition, ASU Update 2022-02 requires that an entity disclosure current-period gross write-offs by year of origination for financing receivables and net investment in leases. Entities have the option to apply a modified retrospective transition method for TDRs. The disclosure amendments in the Update 2022-02 will be applied prospectively. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its Consolidated Financial Statements.

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INVESTMENT SECURITIES

9 Months Ended

Sep. 30, 2022

Investments, Debt and Equity Securities [Abstract]

Investment Securities

INVESTMENT SECURITIES

Amortized cost and fair values of investment securities at September 30, 2022 and December 31, 2021 are summarized as follows:

	September 30, 2022
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
AFS Securities
Asset-backed securities issued by GSEs and U.S. Agencies
Residential Mortgage Backed Securities ("MBS")	$	128,493	$	13	$	13,770	$	114,736
Residential Collateralized Mortgage Obligations ("CMOs")	181,433		13		16,579		164,867
U.S. Agency	14,601		—		2,375		12,226
Asset-backed securities ("ABSs") issued by Others:
Residential CMOs	9,363		—		260		9,103
Student Loan Trust ABSs	50,315		103		1,879		48,539
Municipal bonds	99,846		—		20,982		78,864
Corporate bonds	3,000		—		391		2,609
U.S. government obligations	36,831		—		3,273		33,558
Total AFS Securities	$	523,882	$	129	$	59,509	$	464,502
Equity securities carried at fair value through income
CRA investment fund	$	4,254	$	—	$	—	$	4,254
Non-marketable equity securities
Other equity securities	$	207	$	—	$	—	$	207
Total Investment Securities	$	528,343	$	129	$	59,509	$	468,963

	December 31, 2021
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
AFS Securities
Asset-backed securities issued by GSEs and U.S. Agencies
Residential MBS	$	121,125	$	1,057	$	2,266	$	119,916
Residential CMOs	198,780		710		2,367		197,123
U.S. Agency	14,433		11		140		14,304
Asset-backed securities issued by Others:
Residential CMOs	220		5		4		221
Student Loan Trust ABSs	56,422		438		286		56,574
Municipal bonds	92,556		1,169		884		92,841
U.S. government obligations	16,942		—		82		16,860
Total AFS Securities	$	500,478	$	3,390	$	6,029	$	497,839
Equity securities carried at fair value through income
CRA investment fund	$	4,772	$	—	$	—	$	4,772
Non-marketable equity securities
Other equity securities	$	207	$	—	$	—	$	207
Total Investment Securities	$	505,457	$	3,390	$	6,029	$	502,818

The Company elected to exclude accrued interest receivable (“AIR”) from the amortized cost basis of debt securities disclosed throughout this footnote. AFS debt securities, AIR totaled $1.6 million and $1.1 million as of September 30, 2022, and December 31, 2021, respectively. AIR is included in the “accrued interest receivable” line item on the Company’s consolidated balance sheets.

At September 30, 2022 and December 31, 2021, securities with an amortized cost of $55.6 million and $50.9 million were pledged to secure certain customer deposits.

During the quarter ended September 30, 2022, the Company did not sell any securities. During the year ended December 31, 2021, the Company recognized net gains of $0.6 million on the sale of AFS securities with aggregate carrying values of $11.9 million.

Management does not believe that the AFS debt securities in an unrealized loss position as of September 30, 2022 have credit loss impairment. As of September 30, 2022, and December 31, 2021, the gross unrealized loss positions were primarily related to mortgage-backed securities issued by U.S. government agencies or U.S. government sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. The Company also performed credit reviews on municipal bonds issued by States and Political Subdivisions and asset backed securities issued by Student Loan Trust. Total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. The Company does not intend to sell the investment securities that were in an unrealized loss position, and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity. Management believes that the securities will either recover in market value or be paid off as agreed.

AFS Securities

Gross unrealized losses and estimated fair value by length of time that individual AFS securities have been in a continuous unrealized loss position at September 30, 2022, and December 31, 2021 were as follows:

September 30, 2022	Less Than 12 Months				More Than 12 Months				Total
(dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Losses
Asset-backed securities issued by GSEs and U.S. Agencies	$	69,403	$	6,302	$	220,175	$	26,422	$	289,578	$	32,724
Asset-backed securities issued by Others	5,937		244		149		16		6,086		260
Student Loan Trust ABSs	6,536		1,000		34,823		879		41,359		1,879
Municipal bonds	38,786		8,927		40,078		12,055		78,864		20,982
Corporate bonds	2,609		391		—		—		2,609		391
U.S. government obligations	18,656		1,232		14,902		2,041		33,558		3,273
	$	141,927	$	18,096	$	310,127	$	41,413	$	452,054	$	59,509

December 31, 2021	Less Than 12 Months				More Than 12 Months				Total
(dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Losses
Asset-backed securities issued by GSEs and U.S. Agencies	$	205,891	$	3,997	$	41,327	$	776	$	247,218	$	4,773
Asset-backed securities issued by Others	—		—		57		4		57		4
Student Loan Trust ABSs	21,640		281		2,226		5		23,866		286
Municipal bonds	47,314		776		6,696		108		54,010		884
U.S. government obligations	14,860		82		1,999		—		16,859		82
	$	289,705	$	5,136	$	52,305	$	893	$	342,010	$	6,029

Maturities

The amortized cost and estimated fair value of debt securities at September 30, 2022, and December 31, 2021 by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call premiums or prepayment penalties.

	September 30, 2022				December 31, 2021
(dollars in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Within one year	$	35,730	$	31,680	$	36,859	$	36,665
Over one year through five years	137,433		121,856		121,308		120,668
Over five years through ten years	219,912		194,986		191,166		190,158
After ten years	130,807		115,980		151,145		150,348
Total AFS securities	$	523,882	$	464,502	$	500,478	$	497,839

XML

LOANS

9 Months Ended

Sep. 30, 2022

Receivables [Abstract]

Loans

LOANS

Portfolio loans, net of deferred costs and fees, are summarized by type as follows at September 30, 2022:

	September 30, 2022
(dollars in thousands)	Total		% of Total Loans
Portfolio Loans:
Commercial real estate	$	1,202,660	68.98	%
Residential first mortgages	83,081		4.77	%
Residential rentals	282,365		16.20	%
Construction and land development	23,197		1.33	%
Home equity and second mortgages	26,054		1.49	%
Commercial loans	41,615		2.39	%
Consumer loans	5,754		0.33	%
Commercial equipment	78,551		4.51	%
Total portfolio loans (1)	1,743,277		100.00	%
Less: Allowance for Credit Losses	(22,027)		(1.26)	%
Total net portfolio loans	1,721,250
U.S. SBA PPP loans (1)	1,211
Total net loans	$	1,722,461
Portfolio loans are summarized by type as follows at December 31, 2021:
Portfolio Loans:	December 31, 2021
Commercial real estate	$	1,115,485	70.66	%
Residential first mortgages	91,120		5.77	%
Residential rentals	195,035		12.35	%
Construction and land development	35,590		2.25	%
Home equity and second mortgages	25,638		1.62	%
Commercial loans	50,574		3.20	%
Consumer loans	3,002		0.19	%
Commercial equipment	62,499		3.96	%
Gross portfolio loans (1)	1,578,943		100.00	%
Adjustments:
Net deferred costs	(133)		(0.01)	%
Allowance for loan losses	(18,417)		(1.17)	%
	(18,550)
Net portfolio loans	1,560,393
Gross U.S. SBA PPP loans (1)	27,276
Net deferred fees	(878)
Net U.S. SBA PPP Loans	26,398
Total net loans	$	1,586,791
Total gross loans	$	1,606,219

(1)Excludes accrued interest receivable of $5.2 million and $4.5 million, at September 30, 2022 and December 31, 2021, respectively.

The Company has segregated its loans into portfolio loans and U.S. SBA PPP loans at December 31, 2021.

Deferred Costs/Fees

Portfolio net deferred fees of $1.4 million at September 30, 2022 included deferred fees paid by customers of $5.6 million offset by deferred costs of $4.2 million. Deferred loan costs include premiums paid for the purchase of residential first mortgages and deferred loan origination costs in accordance with ASC 310-20. Net deferred loan fees of $0.1 million at December 31, 2021 included deferred fees paid by customers of $4.1 million offset by deferred costs of $4.0 million.

U.S. SBA PPP loan net deferred fees of $41,000 at September 30, 2022 included deferred fees paid by the U.S. SBA of $44,000 partially offset by deferred costs of $3,000. U.S. SBA PPP net deferred loan fees of $0.2 million at December 31, 2021 included deferred fees paid by the SBA of $0.2 million offset by deferred costs of $18,000. The net deferred fees are being amortized as a component of interest income through the contractual maturity date of each U.S. SBA PPP loan. Net deferred fees include fees received by participant banks for each U.S. SBA PPP loan underwritten and funded net of costs incurred to underwrite the loans. Net deferred fees will be recognized in income when the U.S. SBA PPP loan is forgiven or paid.

Risk Characteristics of Portfolio Segments

Concentrations of Credit - Loans are primarily made within the Company’s operating footprint of Southern Maryland and the greater Fredericksburg area of Virginia. Real estate loans can be affected by the condition of the local real estate market. Commercial and industrial loans can be affected by the local economic conditions. The commercial loan portfolio has business loans secured by real estate and real estate development loans. At September 30, 2022 and December 31, 2021, the Company had no loans outstanding with foreign entities.

The Company manages its credit products and exposure to credit losses (credit risk) by the following specific portfolio segments (classes), which are levels at which the Company develops and documents its allowance for loan loss methodology. These segments are:

Commercial Real Estate (“CRE”)

Commercial and other real estate projects include office, medical and professional buildings, retail locations, churches, other special purpose buildings and commercial construction. Commercial construction balances were 7.5% and 6.5% of the CRE portfolio at September 30, 2022 and December 31, 2021, respectively. The Bank offers both fixed-rate and adjustable-rate loans under these product lines. The primary security on a commercial real estate loan is the real property and the leases that produce income for the real property. Loans secured by commercial real estate are generally limited to 80% of the lower of the appraised value or sales price at origination and have an initial contractual loan payment period ranging from three to 20 years.

Because payments on loans secured by such properties are often dependent on the successful operation or management of the properties, repayment of such loans may be subject to adverse conditions in the real estate market or the economy.

Residential First Mortgages

Residential first mortgage loans are generally long-term (10 to 30 years) amortizing loans. The Bank’s residential portfolio has both fixed-rate and adjustable-rate residential first mortgages.

The annual and lifetime limitations on interest rate adjustments may constrain interest rate increases on these loans. There are also credit risks resulting from potential increased costs to the borrower as a result of repricing of adjustable-rate mortgage loans. During periods of rising interest rates, the risk of default on adjustable-rate mortgage loans may increase due to the upward adjustment of interest cost to the borrower. The Bank’s adjustable rate residential first mortgage portfolio was $13.4 million or 0.8% of total portfolio loans of $1.7 billion at September 30, 2022 compared to $18.9 million or 1.2% of total gross portfolio loans of $1.6 billion at December 31, 2021.

The Bank generally retains the right to service loans sold for a payment based upon a percentage (generally 0.25% of the outstanding loan balance). As of September 30, 2022 and December 31, 2021, the Bank serviced $20.0 million and $20.9 million, respectively, in residential mortgage loans for others.

Residential Rentals

Residential rental mortgage loans are amortizing long-term loans. Loans secured by residential rental properties are generally limited to 80% of the lower of the appraised value or sales price at origination and have an initial contractual loan payment period ranging from three to 20 years. During periods of rising interest rates, the risk of default on adjustable-rate mortgage loans may increase due to the upward adjustment of interest cost to the borrower.

Loans secured by residential rental properties involve greater risks than 1-4 family residential mortgage loans. Although, there are similar risk characteristics shared with commercial real estate loans, the balances for the loans secured by residential rental properties are generally smaller. Payments on loans secured by residential rental properties are dependent on the successful operation of the properties; and repayment of these loans may be subject to adverse conditions in the rental real estate market or the economy than similar owner-occupied properties.

Construction and Land Development

The Bank offers loans for the construction of residential dwellings. These loans are secured by the real estate under construction as well as by guarantees of the principals involved. In addition, the Bank offers loans to acquire and develop land. Construction and Land Development loans are dependent on the successful completion of the underlying project, or the borrowers guarantee to repay the loan. As such, they are subject to the risks of the project including the borrower’s ability to successfully manage construction and development activities. The repayment of these loans is also subject to economic risks such as changing prices and interest rates.

Home Equity and Second Mortgage Loans

The Bank maintains a portfolio of home equity and second mortgage loans. These products contain a higher risk of default than residential first mortgages as in the event of foreclosure, the first mortgage would need to be paid off prior to collection of the second mortgage.

Commercial Loans

Commercial loans including lines of credit are short-term loans (5 years or less) that are secured by the equipment financed, the guarantees of the borrower, and other collateral. These loans are dependent on the success of the underlying business or the strength of the guarantor.

Consumer Loans

Consumer loans consist of loans secured by automobiles, boats, recreational vehicles and trucks. The Bank also makes home improvement loans and offers both secured and unsecured personal lines of credit and credit card loans. The repayment of these loans is dependent on the continued financial stability of the customer.

Commercial Equipment Loans

These loans consist primarily of fixed-rate, short-term loans collateralized by a commercial customer’s equipment or secured by real property, accounts receivable, or other security as determined by the Bank. Commercial loans are dependent on the success of the underlying business or the strength of the guarantor.

U.S. SBA PPP Loans

U.S. SBA PPP loans are fully guaranteed by the Small Business Administration and the Bank's ACL does not include an allowance for U.S. SBA PPP loans. Management believes all U.S. SBA PPP loans were underwritten in accordance with the program's guidelines.

Loans

Non-accrual loans as of September 30, 2022 and December 31, 2021 were as follows:

	September 30, 2022
(dollars in thousands)	Nonaccrual with No Allowance for Credit Losses		Nonaccrual with Allowance for Credit Losses		Total Nonaccrual Loans
Commercial real estate	$	4,577	$	84	$	4,661
Residential rentals	1,153		—		1,153
Home equity and second mortgages	240		—		240
Commercial loans	—		25		25
Commercial equipment	211		—		211
Total	$	6,181	$	109	$	6,290
Interest Income on Nonaccrual Loans	$	63	$	—	$	63

	September 30, 2022
(dollars in thousands)	Non-accrual Delinquent Loans		Non-accrual Current Loans		Total Non-accrual Loans
Commercial real estate	$	—	$	4,661	$	4,661
Residential rentals	454		699		1,153
Home equity and second mortgages	124		116		240
Commercial loans	—		25		25
Commercial equipment	—		211		211
	$	578	$	5,712	$	6,290

	December 31, 2021
(dollars in thousands)	Non-accrual Delinquent Loans		Non-accrual Current Loans		Total Non-accrual Loans
Commercial real estate	$	—	$	4,890	$	4,890
Residential first mortgages	450		—		450
Residential rentals	252		690		942
Home equity and second mortgages	202		399		601
Commercial equipment	—		691		691
U.S. SBA PPP loans	57		—		57
	$	961	$	6,670	$	7,631

Non-accrual loans decreased $1.3 million from $7.6 million or 0.48% of total loans at December 31, 2021 to $6.3 million or 0.36% of total loans at September 30, 2022. Loans can be current but classified as non-accrual due to customer operating results or payment history. All interest accrued but not collected from loans that are placed on non-accrual or charged-off is reversed against interest income. In accordance with the Company’s policy, such interest income is recognized on a cash basis or cost-recovery method, until qualifying for return to accrual status.

At December 31, 2021, there were $6.7 million (87%) of non-accrual loans were current with all payments of principal and interest with no impairment and $1.0 million (13%) of non-accrual loans were delinquent with specific valuation reserves of $0.3 million.

Non-accrual loans at September 30, 2022 and December 31, 2021 included no delinquent TDRs. Non-accrual loans on which the recognition of interest has been discontinued, which did not have a specific allowance for impairment, amounted to $6.2 million and $7.4 million at September 30, 2022 and December 31, 2021, respectively. Interest due but not recognized on these balances at September 30, 2022 and December 31, 2021 was $36,000 and $0.1 million, respectively. Non-accrual loans with a specific allowance for impairment amounted to $0.1 million and $0.3 million at September 30, 2022 and December 31, 2021, respectively. Interest due but not recognized on these balances at September 30, 2022 and December 31, 2021 was $1,000 and $1,000, respectively.

The Company considers a loan to be past due or delinquent when the terms of the contractual obligation are not met by the borrower. Regardless of payment status, as long as cash flows can be reasonably estimated, the associated discount on these loan pools results in income recognition. An analysis of days past due ("DPD") loans as of September 30, 2022 follows:

	September 30, 2022
(dollars in thousands)	31-60 DPD		61-89 DPD		90 DPD and Still Accruing		90 DPD and Not Accruing		Total Past Due		Current Non-Accrual Loans		Current Accrual Loans		Total Loans
Commercial real estate	$	—	$	—	$	—	$	—	$	—	$	4,661	$	1,197,999	$	1,202,660
Residential first mortgages	—		—		—		—		—		—		83,081		83,081
Residential rentals	32		181		—		273		486		699		281,180		282,365
Construction and land development	—		—		—		—		—		—		23,197		23,197
Home equity and second mortgages	204		—		—		124		328		116		25,610		26,054
Commercial loans	—		—		—		—		—		25		41,590		41,615
Consumer loans	19		5		31		—		55		—		5,699		5,754
Commercial equipment	—		—		—		—		—		211		78,340		78,551
U.S. SBA PPP	272		—		—		—		272		—		939		1,211
Total Loans	$	527	$	186	$	31	$	397	$	1,141	$	5,712	$	1,737,635	$	1,744,488

Loan delinquency (total past due) decreased $0.3 million from $1.4 million, or 0.09% of loans, at December 31, 2021 to $1.1 million, or 0.07% of loans, at September 30, 2022.

PCI loans are included as a single category in the table below as management believes there is a lower likelihood of aggregate loss related to these loan pools. Additionally, PCI loans are discounted to allow for the accretion of income on a level yield basis over the life of the loan based on expected cash flows. An analysis of days past due loans as of December 31, 2021 follows:

	December 31, 2021
(dollars in thousands)	31-60 Days		61-89 Days		90 or Greater Days		Total Past Due		PCI Loans		Current		Total Loan Receivables
Commercial real estate	$	—	$	—	$	—	$	—	$	1,116	$	1,114,369	$	1,115,485
Residential first mortgages	—		277		450		727		—		90,393		91,120
Residential rentals	—		42		252		294		—		194,741		195,035
Construction and land development	—		—		—		—		—		35,590		35,590
Home equity and second mortgages	200		—		202		402		—		25,236		25,638
Commercial loans	—		—		—		—		—		50,574		50,574
Consumer loans	—		—		—		—		—		3,002		3,002
Commercial equipment	—		—		—		—		—		62,499		62,499
Total portfolio loans	$	200	$	319	$	904	$	1,423	$	1,116	$	1,576,404	$	1,578,943
U.S. SBA PPP loans	$	9	$	40	$	57	$	106	$	—	$	27,170	$	27,276

There were no loans that were past due 90 days or greater accruing interest at December 31, 2021.

Allowance for Credit Losses ("ACL")

The following tables detail activity in the ACL at and for the three and nine months ended September 30, 2022 and 2021. An allocation of the allowance to one category of loans does not prevent the Company from using that allowance to absorb losses in a different category.

Three Months Ended	September 30, 2022
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provisions		Ending Balance
Commercial real estate	$	16,833	$	—	$	—	$	203	$	17,036
Residential first mortgages	255		—		14		(32)		237
Residential rentals	1,660		—		—		885		2,545
Construction and land development	166		—		—		31		197
Home equity and second mortgages	143		—		—		(1)		142
Commercial loans	238		(49)		1		64		254
Consumer loans	132		(14)		—		24		142
Commercial equipment	1,977		(29)		6		(480)		1,474
	$	21,404	$	(92)	$	21	$	694	$	22,027

Three Months Ended	September 30, 2021
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provisions		Ending Balance
Commercial real estate	$	13,918	$	(491)	$	4	$	(12)	$	13,419
Residential first mortgages	847		—		—		65		912
Residential rentals	1,186		—		—		614		1,800
Construction and land development	332		—		—		36		368
Home equity and second mortgages	242		—		1		6		249
Commercial loans	1,113		—		529		(733)		909
Consumer loans	28		—		—		14		42
Commercial equipment	798		—		20		10		828
	$	18,464	$	(491)	$	554	$	—	$	18,527
Purchase Credit Impaired**	$	52	$	—	$	—	$	—	$	52

Nine Months Ended	September 30, 2022
(dollars in thousands)	Beginning Balance		Impact of ASC 326 Adoption		Charge-offs		Recoveries		Provisions		Ending Balance
Commercial real estate	$	13,095	$	3,734	$	(280)	$	—	$	487	$	17,036
Residential first mortgages	1,002		(679)		(111)		14		11		237
Residential rentals	2,175		(586)		—		—		956		2,545
Construction and land development	260		(82)		—		—		19		197
Home equity and second mortgages	274		(86)		—		1		(47)		142
Commercial loans	582		(290)		(99)		2		59		254
Consumer loans	58		2		(20)		—		102		142
Commercial equipment	971		483		(29)		67		(18)		1,474
	$	18,417	$	2,496	$	(539)	$	84	$	1,569	$	22,027

_______________________________________

**There is no allowance for credit loss on the SBA PPP portfolios. A more detailed roll forward schedule will be presented if an allowance is required.

Nine Months Ended	September 30, 2021
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provisions		Ending Balance
Commercial real estate	$	13,744	$	(1,739)	$	6	$	1,408	$	13,419
Residential first mortgages	1,305		(142)		—		(251)		912
Residential rentals	1,413		(46)		—		433		1,800
Construction and land development	401		—		—		(33)		368
Home equity and second mortgages	261		—		4		(16)		249
Commercial loans	1,222		(76)		539		(776)		909
Consumer loans	20		—		—		22		42
Commercial equipment	1,058		(34)		57		(253)		828
	$	19,424	$	(2,037)	$	606	$	534	$	18,527
Purchase Credit Impaired**	$	—	$	—	$	—	$	52	$	52

_______________________________________

**There is no allowance for loan loss on the PCI or the SBA PPP portfolios. A more detailed roll forward schedule will be presented if an allowance is required.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans.

	September 30, 2022
(dollars in thousands)	Business/Other Assets		Real Estate
Commercial real estate	$	—	$	4,660
Residential first mortgages	—		—
Residential rentals	—		972
Home equity and second mortgages	—		240
Commercial loans	25		—
Commercial equipment	645		—
Total	$	670	$	5,872

Credit Quality Indicators

Credit quality indicators as of September 30, 2022 were as follows:

Credit Risk Profile by Internally Assigned Grade

The risk category of loans by class of loans is as follows:

	Term Loans by Origination Year
(dollars in thousands)	Prior		2018		2019		2020		2021		2022		Revolving Loans		Total
Commercial Real Estate
Pass	$	335,465	$	74,482	$	107,720	$	188,070	$	282,781	$	187,151	$	—	$	1,175,669
Watch	5,588		4,216		—		5,567		—		6,960		—		22,331
Special Mention	—		—		—		—		—		—		—		—
Substandard	808		—		2,999		—		853		—		—		4,660
Total	$	341,861	$	78,698	$	110,719	$	193,637	$	283,634	$	194,111	$	—	$	1,202,660
Residential Rentals
Pass	$	45,188	$	4,495	$	21,141	$	42,263	$	65,468	$	102,838	$	—	$	281,393
Watch	—		—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—		—
Substandard	972		—		—		—		—		—		—		972
Total	$	46,160	$	4,495	$	21,141	$	42,263	$	65,468	$	102,838	$	—	$	282,365
Construction and Land Development
Pass	$	4,550	$	8,987	$	5,094	$	1,399	$	2,529	$	638	$	—	$	23,197
Watch	—		—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Total	$	4,550	$	8,987	$	5,094	$	1,399	$	2,529	$	638	$	—	$	23,197
Commercial Loans
Pass	$	23,516	$	2,628	$	2,708	$	1,868	$	7,792	$	3,078	$	—	$	41,590
Watch	—		—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		25		—		—		—		25
Total	$	23,516	$	2,628	$	2,708	$	1,893	$	7,792	$	3,078	$	—	$	41,615
Commercial Equipment
Pass	$	8,737	$	5,363	$	15,519	$	7,995	$	13,290	$	27,100	$	—	$	78,004
Watch	—		175		—		—		—		—		—		175
Special Mention	—		—		160		—		—		—		—		160
Substandard	—		—		212		—		—		—		—		212
Total	$	8,737	$	5,538	$	15,891	$	7,995	$	13,290	$	27,100	$	—	$	78,551
Total loans by risk category	$	424,824	$	100,346	$	155,553	$	247,187	$	372,713	$	327,765	$	—	$	1,628,388

Loans evaluated by performance category are as follows:

	Term Loans by Origination Year
(dollars in thousands)	Prior		2018		2019		2020		2021		2022		Revolving Loans		Total
Residential First Mortgages
Performing	$	39,498	$	3,891	$	19,542	$	8,577	$	5,279	$	6,294	$	—	$	83,081
Non-performing	—		—		—		—		—		—		—		—
Total	$	39,498	$	3,891	$	19,542	$	8,577	$	5,279	$	6,294	$	—	$	83,081
Home Equity and Second Mortgages
Performing	$	15,900	$	1,383	$	933	$	1,384	$	3,881	$	2,474	$	—	$	25,955
Non-performing	99		—		—		—		—		—		—		99
Total	$	15,999	$	1,383	$	933	$	1,384	$	3,881	$	2,474	$	—	$	26,054
Consumer Loans
Performing	$	42	$	3	$	108	$	139	$	678	$	850	$	3,903	$	5,723
Non-performing	—				—								31		31
Total	$	42	$	3	$	108	$	139	$	678	$	850	$	3,934	$	5,754
U.S. SBA PPP Loans
Performing	$	—	$	—	$	—	$	—	$	1,211	$	—	$	—	$	1,211
Non-performing	—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	1,211	$	—	$	—	$	1,211
Total loans evaluated by performing status	$	55,539	$	5,277	$	20,583	$	10,100	$	11,049	$	9,618	$	3,934	$	116,100
Total Recorded Investment	$	480,363	$	105,623	$	176,136	$	257,287	$	383,762	$	337,383	$	3,934	$	1,744,488

Credit quality indicators as of December 31, 2021 were as follows:

	Commercial Real Estate		Construction and Land Development		Residential Rentals
(dollars in thousands)	12/31/2021		12/31/2021		12/31/2021
Unrated	$	—	$	—	$	—
Pass	1,111,857		35,590		194,093
Special mention	—		—		—
Substandard	3,628		—		942
Doubtful	—		—		—
Loss	—		—		—
Total	$	1,115,485	$	35,590	$	195,035

	Commercial Loans		Commercial Equipment		Total Commercial Portfolios
(dollars in thousands)	12/31/2021		12/31/2021		12/31/2021
Unrated	$	—	$	—	$	—
Pass	50,574		62,326		1,454,440
Special mention	—		—		—
Substandard	—		173		4,743
Doubtful	—		—		—
Loss	—		—		—
Total	$	50,574	$	62,499	$	1,459,183

	Non-Commercial Portfolios **		U.S. SBA PPP Loans		Total Loans Portfolios
(dollars in thousands)	12/31/2021		12/31/2021		12/31/2021
Unrated	$	100,403	$	27,276	$	127,679
Pass	18,889		—		1,473,329
Special mention	—		—		—
Substandard	468		—		5,211
Doubtful	—		—		—
Loss	—		—		—
Total	$	119,760	$	27,276	$	1,606,219

_______________________________________

**Non-commercial portfolios are generally evaluated based on payment activity but may be risk graded if part of a larger commercial relationship or are credit impaired (e.g. non-accrual loans, TDRs).

Credit Risk Profile Based on Payment Activity

	Residential First Mortgages		Home Equity and Second Mortgages		Consumer Loans
(dollars in thousands)	12/31/2021		12/31/2021		12/31/2021
Performing	$	90,670	$	25,436	$	3,002
Nonperforming	450		202		—
Total	$	91,120	$	25,638	$	3,002

A risk-grading scale is used to assign grades to commercial relationships, which include commercial real estate, residential rentals, construction and land development, commercial loans and commercial equipment loans. Loans are graded at inception, annually thereafter when financial statements are received and at other times when there is an indication that a credit may have weakened or improved. At December 31, 2020 and prior, only commercial loan relationships with an aggregate exposure to the Bank of $1,000,000 or greater were subject to being risk rated. During the quarter ended March 31, 2021, the Bank's policy was amended to risk rate all commercial loan relationships.

Home equity and second mortgages and consumer loans are evaluated for creditworthiness in underwriting and are monitored based on borrower payment history. Residential first mortgages are evaluated for creditworthiness during credit due diligence before being purchased. Residential first mortgages, home equity and second mortgages and consumer loans are classified as unrated unless they are part of a larger commercial relationship that requires grading or are TDRs or nonperforming loans with an Other Assets Especially Mentioned ("OAEM") or higher risk rating due to a delinquency payment history.

The overall quality of the Bank’s loan portfolio is assessed using the Bank’s risk-grading scale, the level and trends of net charge-offs, nonperforming loans and delinquencies, the performance of TDRs and the general economic conditions in the Company’s geographical market. This review process is assisted by frequent internal reporting of loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. Credit quality indicators and allowance factors are adjusted based on management’s judgment during the monthly and quarterly review process. Loans subject to risk ratings are graded on a scale of one to ten. The Company considers loans rated substandard, doubtful and loss as classified assets for regulatory and financial reporting.

Ratings 1 thru 6 - Pass

Ratings 1 thru 6 have asset risks ranging from excellent-low to adequate. The specific rating assigned considers customer history of earnings, cash flows, liquidity, leverage, capitalization, consistency of debt service coverage, the nature and extent of customer relationship and other relevant specific business factors such as the stability of the industry or market area, changes to management, litigation or unexpected events that could have an impact on risks.

Rating 7 - OAEM (Other Assets Especially Mentioned) – Special Mention

These credits, while protected by the financial strength of the borrowers, guarantors or collateral, have reduced quality due to economic conditions, less than adequate earnings performance or other factors which require the lending officer to direct more than normal attention to the credit. Financing alternatives may be limited and/or command higher risk interest rates. OAEM loans relationships are reviewed at least quarterly.

Rating 8 - Substandard

Substandard assets are assets that are inadequately protected by the sound worth or paying capacity of the borrower or of the collateral pledged. Substandard loans are the first adversely classified loans on the Bank's watchlist. These assets have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. The loans may have a delinquent history or combination of weak collateral, weak guarantor strength or operating losses. When a loan is assigned to this category the Bank may estimate a specific reserve in the loan loss allowance analysis. These assets listed may include assets with histories of repossessions or some that are non-performing bankruptcies. These relationships will be reviewed at least quarterly.

Rating 9 - Doubtful

Doubtful assets have many of the same characteristics of Substandard with the exception that the Bank has determined that loss is not only possible but is probable and the risk is close to certain that loss will occur. When a loan is assigned to this category the Bank will identify the probable loss and the loan will receive a specific reserve in the loan loss allowance analysis. These relationships will be reviewed at least quarterly.

Rating 10 – Loss

Once an asset is identified as a definite loss to the Bank, it will receive the classification of “loss.” There may be some future potential recovery; however, it is more practical to write off the loan at the time of classification. Losses will be taken in the period in which they are determined to be non-collectable.

TDRs included in the impaired loan schedules above, as of September 30, 2022 and December 31, 2021 were as follows:

	September 30, 2022			December 31, 2021
(dollars in thousands)	Number of Loans	Recorded Investments		Number of Loans	Recorded Investments
Commercial equipment	1	$	433	1	$	447
Total TDRs	1	$	433	1	$	447
Less: TDRs included in non-accrual loans	—	—		—	—
Total accrual TDR loans	1	$	433	1	$	447

The Company had no specific reserves on TDRs at September 30, 2022 and at December 31, 2021. During the year ended December 31, 2021, TDR disposals, which included payoffs and refinancing, included three loans totaling $0.1 million. TDR loan principal curtailments were $5,000 and $12,000 for the three and nine months ended September 30, 2022, respectively and $19,000 for the year ended December 31, 2021. There were no TDRs added during the three months ended September 30, 2022 or the year ended December 31, 2021.

Prior to adoption of CECL

Impaired Loans and Troubled Debt Restructures (“TDRs”)

Impaired loans, including TDRs at December 31, 2021 and September 30, 2021, were as follows:

	December 31, 2021
(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		YTD Average Recorded Investment		YTD Interest Income Recognized
Commercial real estate	$	4,994	$	4,797	$	93	$	4,890	$	93	$	4,866	$	254
Residential first mortgages	879		866		—		866		—		874		32
Residential rentals	982		942		—		942		—		959		48
Home equity and second mortgages	626		601		—		601		—		604		14
Commercial equipment	1,200		1,022		173		1,195		173		2,184		99
Total	$	8,681	$	8,228	$	266	$	8,494	$	266	$	9,487	$	447

	September 30, 2021
(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Quarter Average Recorded Investment		Quarter Interest Income Recognized		YTD Average Recorded Investment		YTD Interest Income Recognized
Commercial real estate	$	3,205	$	2,377	$	759	$	3,136	$	291	$	3,146	$	25	$	3,177	$	80
Residential first mortgages	884		872		—		872		—		873		7		878		25
Residential rentals	990		961		—		961		—		961		13		956		38
Home equity and second mortgages	602		580		—		580		—		581		3		583		10
Commercial equipment	490		455		32		487		32		489		5		493		16
Total	$	6,171	$	5,245	$	791	$	6,036	$	323	$	6,050	$	53	$	6,087	$	169

The following tables detail loan receivable and allowance balances disaggregated on the basis of the Company’s impairment methodology at September 30, 2021 and December 31, 2021.

	December 31, 2021								September 30, 2021
(dollars in thousands)	Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Purchased Credit Impaired		Total		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Purchased Credit Impaired		Total
Loan Receivables:
Commercial real estate	$	4,890	$	1,109,479	$	1,116	$	1,115,485	$	3,136	$	1,084,356	$	1,144	$	1,088,636
Residential first mortgages	866		90,254		—		91,120		872		95,963		—		96,835
Residential rentals	942		194,093		—		195,035		961		171,121		—		172,082
Construction and land development	—		35,590		—		35,590		—		37,139		—		37,139
Home equity and second mortgages	601		25,037		—		25,638		580		25,938		—		26,518
Commercial loans	—		50,574		—		50,574		—		48,327		—		48,327
Consumer loans	—		3,002		—		3,002		—		2,168		—		2,168
Commercial equipment	1,195		61,304		—		62,499		487		60,859		—		61,346
	$	8,494	$	1,569,333	$	1,116	$	1,578,943	$	6,036	$	1,525,871	$	1,144	$	1,533,051
Allowance for credit losses:
Commercial real estate	$	93	$	13,002	$	—	$	13,095	$	291	$	13,128	$	52	$	13,471
Residential first mortgages	—		1,002		—		1,002		—		912		—		912
Residential rentals	—		2,175		—		2,175		—		1,800		—		1,800
Construction and land development	—		260		—		260		—		368		—		368
Home equity and second mortgages	—		274		—		274		—		249		—		249
Commercial loans	—		582		—		582		—		909		—		909
Consumer loans	—		58		—		58		—		42		—		42
Commercial equipment	173		798		—		971		32		796		—		828
	$	266	$	18,151	$	—	$	18,417	$	323	$	18,204	$	52	$	18,579

Purchased Credit-Impaired Loans and Acquired Loans ("PCI")

Determining the fair value of the PCI loans at the time of acquisition required the Company to estimate cash flows expected to result from those loans considering prepayment assumptions and to discount those cash flows at appropriate rates of interest. For such loans, the excess of cash flows expected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans and is called accretable yield. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and is called the nonaccretable difference. In accordance with GAAP upon the adoption of CECL, there was no carryover of a previously established allowance for credit losses from acquisition. A summary of changes in the accretable yield for PCI loans for the three and nine months ended September 30, 2021 and the year ended December 31, 2021 follows:

	Three Months Ended September 30,		Nine Months Ended September 30,		Year Ended
(dollars in thousands)	2021		2021		December 31, 2021
Accretable yield, beginning of period	$	324	$	342	$	342
Additions	—		—		—
Accretion	(31)		(92)		(117)
Reclassification from nonaccretable difference	15		29		43
Other changes, net	(15)		14		55
Accretable yield, end of period	$	293	$	293	$	323

At December 31, 2021 acquired performing loans, which totaled $41.1 million, included a $0.8 million net acquisition accounting fair market value adjustment, representing a 1.25% discount; and PCI loans which totaled $1.1 million, included a $0.3 million adjustment, representing a 14.95% discount.

During the three months ended September 30, 2021 there was $0.1 million of accretion interest.

Accounting standards require a periodic recast of the expected cash flows on the PCI loan portfolio. The recast was performed during the fourth quarter of 2021 which resulted in a reclassification of $0.5 million, from the credit (nonaccretable) portion of the discount to the liquidity (accretable) portion of the discount.

The following is a summary of acquired and non-acquired loans as of December 31, 2021:

BY ACQUIRED AND NON-ACQUIRED	December 31, 2021		%
Acquired loans - performing	$	41,066	2.56	%
Acquired loans - purchase credit impaired ("PCI")	1,116		0.07	%
Total acquired loans	42,182		2.63	%
U.S. SBA PPP loans	27,276		1.70	%
Non-acquired loans**	1,536,761		95.68	%
Gross loans	1,606,219
Net deferred fees	(1,011)		(0.06)	%
Total loans, net of deferred fees	$	1,605,208

______________________________

**Non-acquired loans include loans transferred from acquired pools following release of acquisition accounting FMV adjustments.

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GOODWILL AND OTHER INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets are presented in the tables below.

(dollars in thousands)	As of September 30, 2022		As of December 31, 2021
Goodwill	$	10,835	$	10,835

	As of September 30, 2022						As of December 31, 2021
(dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets		Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets
Core deposit intangible ("CDI")	$	3,590	$	(2,865)	$	725	$	3,590	$	(2,558)	$	1,032

The estimated aggregate future amortization expense for intangible assets remaining as of September 30, 2022 is as follows:

(dollars in thousands)
Remainder of 2022	$	91
2023	302
2024	205
2025	109
2026	18
	$	725

At September 30, 2022 the Company had goodwill of $10.8 million or 6.05% of equity and CDI of $0.7 million or 0.40% of equity.

Management performed its annual analysis of goodwill and CDI during the fourth quarter of 2021 and concluded that there was no impairment at December 31, 2021. At September 30, 2022, management's analysis concluded that there were no changes in the Company's financial statements or operations subsequent to the fourth quarter 2021 annual analyses that would indicate that it was more likely than not that goodwill or CDI was impaired.

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OTHER REAL ESTATE OWNED ("OREO")

9 Months Ended

Sep. 30, 2022

Real Estate [Abstract]

Other Real Estate Owned ("OREO")

OTHER REAL ESTATE OWNED (“OREO”)

OREO assets are presented net of the valuation allowance. The Company considers OREO as classified assets for regulatory and financial reporting. OREO carrying amounts reflect management’s estimate of the realizable value of these properties incorporating current appraised values, local real estate market conditions and related costs. An analysis of activity follows.

	Nine Months Ended September 30,				Years Ended December 31,
(dollars in thousands)	2022		2021		2021
Balance at beginning of year	$	—	$	3,109	$	3,109
Additions of underlying property	—		—		—
Disposals of underlying property	—		(932)		(1,722)
Valuation allowance	—		(641)		(1,387)
Balance at end of period	$	—	$	1,536	$	—

Expenses applicable to OREO assets included the following.

	Nine Months Ended September 30,
(dollars in thousands)	2022		2021
Valuation allowance	$	—	$	641
Losses (gains) on dispositions	—		(16)
Operating expenses	6		64
	$	6	$	689

The Company had $0.1 million in loans secured by residential real estate for which formal foreclosure proceedings were in process as of September 30, 2022. There were no loans secured by residential real estate for which formal foreclosure proceedings were in the process as of December 31, 2021.

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DEPOSITS

9 Months Ended

Sep. 30, 2022

Deposits, by Type [Abstract]

Deposits

DEPOSITS

Deposits consist of the following:

	September 30, 2022				December 31, 2021
(dollars in thousands)	Balance		%		Balance		%
Noninterest-bearing demand	$	647,432	30.45	%	$	445,778	21.68	%
Interest-bearing:
Demand	691,987		32.54	%	790,481		38.45	%
Money market deposits	371,175		17.45	%	372,717		18.13	%
Savings	123,564		5.81	%	119,767		5.82	%
Certificates of deposit	292,399		13.75	%	327,421		15.92	%
Total interest-bearing	1,479,125		69.55	%	1,610,386		78.32	%
Total Deposits	$	2,126,557	100.00	%	$	2,056,164	100.00	%

The aggregate amount of certificates of deposit that exceed the FDIC insurance limit of $250,000 at September 30, 2022 and December 31, 2021 was $55.1 million and $57.6 million, respectively.

The Company monitors all customer deposit concentrations at or above 2% of total deposits. At September 30, 2022, the Bank had two customer deposit relationships that exceeded 2% of total deposits, totaling $427.7 million which represented 20.1% of total deposits. At December 31, 2021, the Bank had two customer deposit relationships that exceeded 2% of total deposits, totaling $335.6 million which represented 16.3% of total deposits. These concentrations were with local municipal agencies.

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LEASE COMMITMENTS & CONTINGENCIES

9 Months Ended

Sep. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

LEASE COMMITMENTS & CONTINGENCIES

LEASE COMMITMENTS & CONTINGENCIES

Operating Leases

The Company's, operating lease agreements are primarily for leases of branches and office space. Topic 842 requires operating lease agreements to be recognized on the consolidated balance sheet as a right-of-use-asset with a corresponding lease liability.

The table below details the Right of Use asset (net of accumulated amortization), lease liability and other information related to the Company's operating leases:

(dollars in thousands)	September 30, 2022			December 31, 2021
Operating Leases
Operating lease right of use asset, net	$	6,022		$	6,124
Operating lease liability	$	6,288		$	6,343
Weighted average remaining lease term	15.84 years			17.21 years
Weighted average discount rate	3.50		%	3.51		%
Remaining lease term - min	4.8 years			6.3 years
Remaining lease term - max	22.0 years			23.0 years

The table below details the Company's lease cost, which is included in occupancy expense in the Unaudited Consolidated Statements of Income.

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Operating lease cost	$	157	$	146	$	454	$	489
Cash paid for lease liability	$	140	$	150	$	406	$	485

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows:

(dollars in thousands)	As of September 30, 2022
Lease payments due:
Within one year	$	569
After one but within two years	584
After two but within three years	611
After three but within four years	637
After four but within five years	629
After five years	5,375
Total undiscounted cash flows	$	8,405
Discount on cash flows	2,117
Total lease liability	$	6,288

LEASE COMMITMENTS & CONTINGENCIES

LEASE COMMITMENTS & CONTINGENCIES

Operating Leases

The Company's, operating lease agreements are primarily for leases of branches and office space. Topic 842 requires operating lease agreements to be recognized on the consolidated balance sheet as a right-of-use-asset with a corresponding lease liability.

The table below details the Right of Use asset (net of accumulated amortization), lease liability and other information related to the Company's operating leases:

(dollars in thousands)	September 30, 2022			December 31, 2021
Operating Leases
Operating lease right of use asset, net	$	6,022		$	6,124
Operating lease liability	$	6,288		$	6,343
Weighted average remaining lease term	15.84 years			17.21 years
Weighted average discount rate	3.50		%	3.51		%
Remaining lease term - min	4.8 years			6.3 years
Remaining lease term - max	22.0 years			23.0 years

The table below details the Company's lease cost, which is included in occupancy expense in the Unaudited Consolidated Statements of Income.

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Operating lease cost	$	157	$	146	$	454	$	489
Cash paid for lease liability	$	140	$	150	$	406	$	485

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows:

(dollars in thousands)	As of September 30, 2022
Lease payments due:
Within one year	$	569
After one but within two years	584
After two but within three years	611
After three but within four years	637
After four but within five years	629
After five years	5,375
Total undiscounted cash flows	$	8,405
Discount on cash flows	2,117
Total lease liability	$	6,288

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GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES (“TRUPs”)

9 Months Ended

Sep. 30, 2022

Guaranteed Preferred Beneficial Interest in Junior Subordinated Debentures (TRUPs) [Abstract]

Guaranteed Preferred Beneficial Interest in Junior Subordinated Debentures ("TRUPs")

GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES (“TRUPs”)

On June 15, 2005, Tri-County Capital Trust II (“Capital Trust II”), a Delaware business trust formed, funded and wholly-owned by the Company, issued $5.0 million of variable-rate capital securities in a private pooled transaction. The variable rate is based on the 90-day LIBOR rate plus 1.70%. The Trust used the proceeds from this issuance, along with the $0.2 million for Capital Trust II’s common securities, to purchase $5.2 million of the Company’s junior subordinated debentures. The interest rate on the debentures and the trust preferred securities is variable and adjusts quarterly. These capital securities qualify as Tier I capital and are presented in the Consolidated Balance Sheets as “Guaranteed Preferred Beneficial Interests in Junior Subordinated Debentures.” Both the capital securities of Capital Trust II and the junior subordinated debentures are scheduled to mature on June 15, 2035, unless called by the Company.

On July 22, 2004, Tri-County Capital Trust I (“Capital Trust I”), a Delaware business trust formed, funded and wholly owned by the Company, issued $7.0 million of variable-rate capital securities in a private pooled transaction. The variable rate is based on the 90-day LIBOR rate plus 2.60%. The Trust used the proceeds from this issuance, along with the Company’s $0.2 million capital contribution for Capital Trust I’s common securities, to purchase $7.2 million of the Company’s junior subordinated debentures. The interest rate on the debentures and the trust preferred securities is variable and adjusts quarterly. These debentures qualify as Tier I capital and are presented in the Consolidated Balance Sheets as “Guaranteed Preferred Beneficial Interests in Junior Subordinated Debentures.” Both the capital securities of Capital Trust I and the junior subordinated debentures are scheduled to mature on July 22, 2034, unless called by the Company.

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SUBORDINATED NOTES	9 Months Ended
	Sep. 30, 2022
Subordinated Borrowings [Abstract]
Subordinated Notes	SUBORDINATED NOTESOn October 14, 2020, the Company issued and sold $20.0 million in aggregate principal amount of its 4.75% Fixed to Floating Rate Subordinated Notes due 2030 (the "Notes"). The Notes were sold by the Company in a private offering. The Notes mature on October 15, 2030 and bear interest at a fixed rate of 4.75% to October 14, 2025. From October 15, 2025 to the maturity date or early redemption date, the interest rate will reset quarterly to the three-month Secured Overnight Financing Rate ("SOFR") plus 458 basis points. The Company may redeem the Notes at any time after October 14, 2025, and at any time in whole, but not in part, upon the occurrence of certain events. Any redemption of the Notes will be subject to prior regulatory approval. The Company incurred debt issuance costs for placement fees, legal and other out-of-pocket expenses of approximately $0.6 million, which are being amortized over the life of the Notes. The Company recognized amortization expense of $42,000 and $42,000 for the nine months ended September 30, 2022 and 2021, respectively.

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REGULATORY CAPITAL

9 Months Ended

Sep. 30, 2022

Regulatory Assets and Liabilities Disclosure [Abstract]

Regulatory Capital

REGULATORY CAPITAL

The Bank’s primary regulator is the Federal Deposit Insurance Corporation (“FDIC”). The Bank is subject to regulation, supervision and regular examination by the Maryland Commissioner of Financial Regulation (the “Commissioner”) and the FDIC. The Company is subject to regulation, examination and supervision by the Federal Reserve Board under the Bank Holding Company Act of 1956, as amended (the “BHCA”).

The Company and Bank are subject to the Basel III Capital Rules which establish a comprehensive capital framework for U.S. banking organizations. The rules implement the Basel Committee’s “Basel III” framework for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The Basel III Capital Rules define the components of capital and address other issues affecting the numerator in banking institutions’ regulatory capital ratios. The Basel III Capital Rules also address risk weights and other issues affecting the denominator in banking institutions’ regulatory capital ratios.

The rules include a common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.50%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, require a minimum ratio (“Min. Ratio”) of Total Capital to risk-weighted assets of 8.0%, and require a minimum Tier 1 leverage ratio of 4.0%. A capital conservation buffer (“CCB”) is also established above the regulatory minimum capital requirements. The rules revised the definition and calculation of Tier 1 capital, Total Capital, and risk-weighted assets.

As of September 30, 2022 and December 31, 2021, the Company and Bank were well-capitalized under the regulatory framework for prompt corrective action ("PCA") under the new Basel III Capital Rules. Management believes, as of September 30, 2022 and December 31, 2021, that the Company and the Bank met all capital adequacy requirements to which they were subject. The Company’s and the Bank’s actual regulatory capital amounts and ratios are presented in the following table.

Regulatory Capital and Ratios	Regulatory Minimum Ratio + CCB(1)	The Company						The Bank
(dollars in thousands)		September 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021
Common equity		$	179,154		$	208,133		$	207,146		$	236,561
Goodwill		(10,835)			(10,835)			(10,835)			(10,835)
Core deposit intangible (net of deferred tax liability)		(537)			(766)			(537)			(766)
AOCI losses		43,906			1,952			43,906			1,952
Common Equity Tier 1 Capital		211,688			198,484			239,680			226,912
TRUPs		12,000			12,000			—			—
Tier 1 Capital		223,688			210,484			239,680			226,912
Allowable reserve for credit losses and other Tier 2 adjustments		22,295			18,468			22,295			18,468
Subordinated notes		19,552			19,510			—			—
Tier 2 Capital		$	265,535		$	248,462		$	261,975		$	245,380
Risk-Weighted Assets ("RWA")		$	1,856,827		$	1,665,296		$	1,855,483		$	1,663,831
Average Assets ("AA")		$	2,340,703		$	2,281,210		$	2,338,751		$	2,279,835
Common Tier 1 Capital to RWA	7.00%	11.40		%	11.92		%	12.92		%	13.64		%
Tier 1 Capital to RWA	8.50%	12.05			12.64			12.92			13.64
Tier 2 Capital to RWA	10.50%	14.30			14.92			14.12			14.75
Tier 1 Capital to AA (Leverage) (2)	n/a	9.56			9.23			10.25			9.95

____________________________________

(1)The regulatory minimum capital ratio ("Min. Ratio") + the capital conservation buffer ("CCB").

(2)Tier 1 Capital to AA (Leverage) has no capital conservation buffer defined. The PCA well capitalized is defined as 5.00%.

Dividends paid by the Company are substantially funded from dividends received from the Bank. Federal and holding company regulations, as well as Maryland law, impose certain restrictions on capital distributions, including dividend payments and share repurchases. These restrictions generally require advanced approval from the Bank's regulator for payment of dividends in excess of the sum of net income for the current calendar year and the retained net income of the prior two calendar years.

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

The Company adopted FASB ASC Topic 820, “Fair Value Measurements” and FASB ASC Topic 825, “The Fair Value Option for Financial Assets and Financial Liabilities”, which provides a framework for measuring and disclosing fair value under U.S. GAAP. FASB ASC Topic 820 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, AFS investment securities) or on a nonrecurring basis (for example, impaired loans).

FASB ASC Topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC Topic 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. AFS securities 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 loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

Under FASB ASC Topic 820, 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 the fair value. These hierarchy levels are:

Level 1 inputs - Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date.

Level 2 inputs - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company’s quarterly valuation process. Intra-quarter transfers in and out of level 3 assets and liabilities recorded at fair value on a recurring basis are disclosed. There were no such transfers during the quarter ended September 30, 2022 or the year ended December 31, 2021.

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value:

Securities Available for Sale

AFS investment securities are recorded at fair value on a recurring basis. Standard inputs include 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, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities (“GSEs”), municipal bonds and corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Equity Securities Carried at Fair Value Through Income

Equity securities carried at fair value through income are recorded at fair value on a recurring basis. Standard inputs include 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 equity securities include those traded on an active exchange, such as the New York Stock Exchange. Level 2 equity securities include mutual funds with asset-backed securities issued by government sponsored entities (“GSEs”) as the underlying investment supporting the fund. Equity securities classified as Level 3 include mutual funds with asset-backed securities in less liquid markets.

Loans held for sale

The Company has elected to carry loans held for sale at fair value. This election reduces certain timing differences in the Consolidated Statement of Income and better aligns with the management of the portfolio from a business perspective. Fair value is derived from secondary market quotations for similar instruments. Gains and losses on sales of residential mortgage loans are recorded as a component of noninterest income in the Consolidated Statements of Income. As such, loans subjected to fair value adjustments are classified as Level 2 valuation.

Loans Receivable

The Company does not record loans at fair value on a recurring basis; however, from time to time, a loan is individually evaluated and an ACL is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are segregated individually. Management estimates the fair value of individually evaluated loans using one of several methods, including the collateral value, market value of similar debt, or discounted cash flows. Individually evaluated loans not requiring an allowance are those for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At September 30, 2022 and December 31, 2021, substantially all of the individually evaluated loans were based upon the fair value of the collateral.

In accordance with FASB ASC 820, loans where an allowance is established based on the fair value of collateral (loans with impairment) require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price (e.g., contracted sales price), the Company records the loan as nonrecurring Level 2. When the fair value of the impaired loan is derived from an appraisal, the Company records the loan as nonrecurring Level 3. Fair value is re-assessed at least quarterly or more frequently when circumstances occur that indicate a change in the fair value. The fair values of impaired loans that are not measured based on collateral values are measured using discounted cash flows and considered to be Level 3 inputs.

Other Real Estate Owned ("OREO")

OREO is adjusted for fair value upon transfer of the loans to foreclosed assets. Subsequently, OREO is reported at the lower of carrying value or fair value. Fair value is based on independent market prices, appraised value 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 (e.g., contracted sales price), the Company records the foreclosed asset as nonrecurring Level 2. When the fair value is derived from an appraisal, the Company records the foreclosed asset at nonrecurring Level 3.

Mortgage Banking Derivatives

The mortgage banking derivative comprises interest rate lock commitments for residential loans to be sold on a best-efforts basis. The significant unobservable input used in the fair value measurement of the Bank's interest rate lock commitments is the pull-through rate, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. The pull-through rate is estimated based on mortgage banking activity in 2021. All interest rate lock commitments are considered to be Level 3.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets as of September 30, 2022 and December 31, 2021 measured at fair value on a recurring basis.

(dollars in thousands)	September 30, 2022
Description of Asset	Fair Value		Level 1		Level 2		Level 3
AFS securities
Asset-backed securities issued by GSEs and U.S. Agencies
MBS	$	114,736	$	—	$	114,736	$	—
CMOs	164,867		—		164,867		—
U.S. Agency	12,226		—		12,226		—
Asset-backed securities issued by Others:
Residential CMOs	9,103		—		9,103		—
Student Loan Trust ABSs	48,539		—		48,539		—
Municipal bonds	78,864		—		78,864		—
Corporate bonds	2,609		—		2,609		—
U.S. government obligations	33,558		—		33,558		—
Total AFS securities	$	464,502	$	—	$	464,502	$	—
Equity securities carried at fair value through income
CRA investment fund	$	4,254	$	—	$	4,254	$	—
Non-marketable equity securities
Other equity securities	$	207	$	—	$	207	$	—

(dollars in thousands)	December 31, 2021
Description of Asset	Fair Value		Level 1		Level 2		Level 3
AFS securities
Asset-backed securities issued by GSEs and U.S. Agencies
MBS	$	119,916	$	—	$	119,916	$	—
CMOs	197,123		—		197,123		—
U.S. Agency	14,304		—		14,304		—
Asset-backed securities issued by others:
Residential CMOs	221		—		221		—
Student Loan Trust ABSs	56,574		—		56,574		—
Municipal bonds	92,841		—		92,841		—
U.S. government obligations	16,860		—		16,860		—
Total AFS securities	$	497,839	$	—	$	497,839	$	—
Equity securities carried at fair value through income
CRA investment fund	$	4,772	$	—	$	4,772	$	—
Non-marketable equity securities
Other equity securities	$	207	$	—	$	207	$	—
Mortgage banking derivative
Interest rate lock commitments	$	28	$	—	$	—	$	28

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

The Company may be required 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. Loans with an allowance had unpaid principal balances of $0.1 million and $0.3 million at September 30, 2022 and December 31, 2021, respectively. The fair values of these loans were zero for both periods. There were no other assets measured at fair value on a nonrecurring basis as of September 30, 2022 and December 31, 2021.

The following tables provide information describing the unobservable inputs used in Level 3 fair value measurements at September 30, 2022 and December 31, 2021.

September 30, 2022	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
(dollars in thousands)
Description of Asset
Loans with individually assessed loans	$	—	Third party appraisals and in-house equipment evaluations of fair value	Management discount for equipment type and current market conditions	0% - 50% - 100%

December 31, 2021	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
(dollars in thousands)
Description of Asset
Interest rate lock commitments	$	28	Freddie Mac pricing of loans with comparable terms	Pull-through rate	0% - 100% - 75%

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FAIR VALUE OF FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2022

Investments, All Other Investments [Abstract]

Fair Value of Financial Instruments

FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial instruments require disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the exchange of cash. Certain items are specifically excluded from the financial instrument fair value disclosure requirements, including the Company’s common stock, OREO, premises and equipment and other assets and liabilities.

The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Therefore, any aggregate unrealized gains or losses should not be interpreted as a forecast of future earnings or cash flows. Furthermore, the fair values disclosed should not be interpreted as the aggregate current value of the Company.

The Company’s estimated fair values of financial instruments are presented in the following tables.

September 30, 2022	Carrying Amount		Fair Value		Fair Value Measurements
Description of Asset (dollars in thousands)					Level 1		Level 2		Level 3
Assets
Investment securities - AFS	$	464,502	$	464,502	$	—	$	464,502	$	—
Equity securities carried at fair value through income	4,254		4,254		—		4,254		—
Non-marketable equity securities in other financial institutions	207		207		—		207		—
FHLB Stock	1,226		1,226		—		1,226		—
Net loans receivable	1,722,461		1,654,640		—		—		1,654,640
Accrued interest receivable	6,791		6,791		—		6,791		—
Investment in BOLI	39,583		39,583		—		39,583		—
Liabilities
Savings, NOW and money market accounts	$	1,834,158	$	1,834,158	$	—	$	1,834,158	$	—
Time deposits	292,399		292,034		—		292,034		—
TRUPs	12,000		10,159		—		10,159		—
Subordinated notes	19,552		18,610		—		18,610		—

See the Company’s methodologies disclosed in Note 21 of the Company’s 2021 Form 10-K for the fair value methodologies used as of December 31, 2021:

December 31, 2021	Carrying Amount		Fair Value		Fair Value Measurements
Description of Asset (dollars in thousands)					Level 1		Level 2		Level 3
Assets
Investment securities - AFS	$	497,839	$	497,839	$	—	$	497,839	$	—
Equity securities carried at fair value through income	4,772		4,772		—		4,772		—
Non-marketable equity securities in other financial institutions	207		207		—		207		—
FHLB Stock	1,472		1,472		—		1,472		—
Net loans receivable	1,586,791		1,578,032		—		—		1,578,032
Accrued interest receivable	5,588		5,588		—		5,588		—
Investment in BOLI	38,932		38,932		—		38,932		—
Mortgage ranking derivatives	28		28		—		—		28
Liabilities
Savings, NOW and money market accounts	$	1,728,743	$	1,728,743	$	—	$	1,728,743	$	—
Time deposits	327,421		328,083		—		328,083		—
Long-term debt	12,231		12,391		—		12,391		—
TRUPs	12,000		11,589		—		11,589		—
Subordinated notes	19,510		20,979		—		20,979		—

At September 30, 2022 and December 31, 2021, the Company had outstanding loan commitments and standby letters of credit with customers of $59.1 million and $64.4 million, respectively, and $23.0 million and $22.0 million, respectively. Additionally, at September 30, 2022 and December 31, 2021, customers had $261.1 million and $241.7 million, respectively, available and unused on lines of credit, which include lines of credit for commercial customers, home equity loans as well as builder and construction lines. Based on the short-term lives of these instruments, the Company does not believe that the fair value of these instruments differs significantly from their carrying values.

The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2022 and December 31, 2021. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these Consolidated Financial Statements since that date and, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

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ACCUMULATED OTHER COMPREHENSIVE INCOME/LOSS ("AOCI"/"AOCL")

9 Months Ended

Sep. 30, 2022

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME/LOSS ("AOCI"/"AOCL")

ACCUMULATED OTHER COMPREHENSIVE INCOME/LOSS ("AOCI"/"AOCL")

The following table presents the changes in each component of accumulated other comprehensive gain, net of tax, for the three and nine months ended September 30, 2022 and 2021.

	Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
(dollars in thousands)	Net Unrealized Gains And Losses		Net Unrealized Gains And Losses		Net Unrealized Gains And Losses		Net Unrealized Gains And Losses
Beginning of period	$	(31,847)	$	3,063	$	(1,952)	$	4,504
Other comprehensive losses, net of tax before reclassifications	(12,059)		(3,072)		(41,954)		(4,946)
Amounts reclassified from accumulated other comprehensive gain	—		—		—		433
Net other comprehensive losses	(12,059)		(3,072)		(41,954)		(4,513)
End of period	$	(43,906)	$	(9)	$	(43,906)	$	(9)

As of the nine months ended September 30, 2021, reclassification adjustment was due to the gain on sale of AFS investment securities of $0.6 million.

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EARNINGS PER SHARE (“EPS”)

9 Months Ended

Sep. 30, 2022

Earnings Per Share [Abstract]

Earnings Per Share ("EPS")

EARNINGS PER SHARE (“EPS”)

Basic earnings per common share represent income available to common shareholders, divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued. Potential common shares that may have been issued by the Company related to outstanding unvested restricted stock unit and performance stock unit awards were determined using the treasury stock method and included in the calculation of dilutive common stock equivalents. The Company has not granted any stock options since 2007 and all outstanding options expired on July 17, 2017.

As of three and nine months ended September 30, 2022, there were 1,034 and 587, respectively of unvested restricted stock and performance stock unit awards which were excluded from the calculation as their effect would be anti-dilutive. There were 40 and 3,355 antidilutive awards that were excluded from the calculation for the three and nine months ended September 30, 2021. Basic and diluted earnings per share have been computed based on weighted-average common and common equivalent shares outstanding as follows:

(dollars in thousands, except per share amounts)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net Income	$	7,580	$	6,404	$	20,702	$	19,135
Average number of common shares outstanding	5,636,640		5,709,814		5,656,950		5,813,704
Dilutive effect of common stock equivalents	8,182		10,187		9,000		9,514
Average number of shares used to calculate diluted EPS	5,644,822		5,720,001		5,665,950		5,823,218
Anti-dilutive shares	1,034		40		587		3,355
Earnings Per Common Share
Basic	$	1.34	$	1.12	$	3.66	$	3.29
Diluted	$	1.34	$	1.12	$	3.65	$	3.29

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INCOME TAXES

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The Company files a consolidated federal income tax return with its subsidiaries. Deferred tax assets and liabilities are determined using the liability (or balance sheet) method which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. If it is more likely than not that some portion or the entire deferred tax asset will not be realized, deferred tax assets will be reduced by a valuation allowance. It is the Company’s policy to recognize accrued interest and penalties related to unrecognized tax benefits as a component of tax expense.

(dollars in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Current income tax expense	$	2,572		$	1,448		$	7,119		$	6,048
Deferred income tax (benefit) expense	(192)			710			(237)			427
Income tax expense as reported	$	2,380		$	2,158		$	6,882		$	6,475
Effective tax rate	23.9		%	25.2		%	24.9		%	25.3		%

Net deferred tax assets totaled $24.8 million at September 30, 2022 and $9.0 million at December 31, 2021. No valuation allowance for deferred tax assets was recorded at September 30, 2022 as management believes it is more likely than not that deferred tax assets will be realized against deferred tax liabilities and projected future taxable income.

The effective tax rate differed from the statutory federal and state income rates during 2022 and 2021 primarily due to the effect of tax-exempt loans, life insurance policies, the income tax effects associated with stock-based compensation and certain non-deductible expenses for state income taxes. The Company’s consolidated effective tax rate is expected to be between 25.00% and 26.06% in 2022.

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BASIS OF PRESENTATION AND NATURE OF OPERATIONS (Policies)

9 Months Ended

Sep. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation

The Consolidated Financial Statements include the accounts of The Community Financial Corporation and its wholly-owned subsidiary, Community Bank of the Chesapeake (the “Bank”), (collectively, the “Company”), included herein are unaudited.

The Consolidated Financial Statements reflect all adjustments consisting only of normal recurring accruals that, in the opinion of management, are necessary to present fairly the Company’s financial condition, results of operations, and cash flows for the periods presented. Certain information and note disclosures normally included in Consolidated Financial Statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to the rules and regulations of the SEC. Management believes that the included disclosures are adequate to make the information presented not misleading. The balances as of December 31, 2021 have been derived from audited Consolidated Financial Statements. The Company’s accounting policies are disclosed in Note 1 to the 2021 Consolidated Financial Statements. The adoption on January 1, 2022 of the new Current Expected Credit Loss ("CECL") accounting standard is described below. The results of operations for the nine months September 30, 2022 are not necessarily indicative of the results of operations to be expected for the remainder of the year or any other period.

These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes included in the Company’s 2021 Annual Report on Form 10-K.

Reclassification

ReclassificationCertain items in prior Consolidated Financial Statements have been reclassified to conform to the current presentation.

Nature of Operations

Nature of Operations

The Company provides financial services to individuals and businesses through its offices in Southern Maryland and Fredericksburg, Virginia. Its primary deposit products are demand, savings and time deposits, and its primary lending products are commercial and residential mortgage loans, commercial loans, construction and land development loans, home equity and second mortgages and commercial equipment loans.

Use of Estimates

Use of EstimatesThe preparation of Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amount of income and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses ("ACL"), real estate acquired in the settlement of loans ("OREO"), fair value of financial instruments, fair value of assets acquired, and liabilities assumed in a business combination, evaluating potential credit losses of investment securities and valuation of deferred tax assets.

New Accounting Policy

New Accounting Policy

Allowance for Credit Losses

On January 1, 2022, the Company adopted ASU 2016-13 Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology for determining the provision for credit losses and ACL with the CECL methodology. The measurement of expected credit losses under the CECL methodology applies to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. In addition, ASU 2016-13 made changes to the accounting for available-for-sale ("AFS") debt securities. Credit-related impairments of AFS debt securities are now recognized through an allowance for credit loss rather than a write-down of the securities' amortized cost basis when management does not intend to sell or believes that it is not likely that they will be required to sell the securities prior to recovery of the securities amortized cost basis.

We adopted ASU 2016-13 using the modified retrospective method. Results for reporting periods beginning after January 1, 2022 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. At adoption, the Company did not hold Held to Maturity ("HTM") investment debt securities.

The following table shows the impact of the Company's adoption of ASC 326:

	January 1, 2022
(dollars in thousands)	As Reported Under ASC 326		Pre-ASC 326 Adoption		Impact of ASC 326 Adoption
Portfolio Loans:
Commercial real estate	$	1,113,793	$	1,115,485	(1,692)
Residential first mortgages	92,710		91,120		1,590
Residential rentals	194,911		195,035		(124)
Construction and land development	35,502		35,590		(88)
Home equity and second mortgages	25,661		25,638		23
Commercial loans	50,512		50,574		(62)
Consumer loans	3,015		3,002		13
Commercial equipment	62,706		62,499		207
Gross Portfolio Loans	1,578,810		1,578,943		(133)
Adjustments:
Net deferred costs	—		(133)		133
Allowance for credit losses	(20,913)		(18,417)		(2,496)
Net Portfolio Loans	1,557,897		1,560,393		(2,496)
U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans	26,398		27,276		(878)
Net deferred fees	—		(878)		878
Net U.S. SBA PPP Loans	26,398		26,398		—
Total Net Loans	$	1,584,295	$	1,586,791	$	(2,496)
Liabilities: Reserve for Unfunded Commitments	$	268	$	51	$	217

Loans that the Company has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are reported at their outstanding unpaid principal balances, adjusted for the allowance for credit losses and any deferred fees or premiums. Interest income is accrued on the unpaid principal balance. Loan origination fees and premiums, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

Loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered credit deteriorated. Evidence of credit quality deterioration as of the purchase date may include statistics such as internal risk grade, past due and nonaccrual status, recent borrower credit scores and recent loan-to-value (“LTV”) percentages. At December 31, 2021, the Bank had purchased credit-deteriorated (“PCD”) loans from the County First acquisition with unpaid principal balances of $1.4 million and carrying values of $1.1 million. At the adoption of ASC 326, management evaluated the remaining unamortized discount on the PCD loans and determined that approximately $8,000 of the discount was credit related and

reclassified into the ACL. The non-credit component of the discount will be recognized in interest income over the remaining life of the loans.

The Company considers a loan to be past due or delinquent when the terms of the contractual obligation are not met by the borrower. Loans are reviewed on a regular basis and are placed on non-accrual status when, in the opinion of management, the collection of additional interest is doubtful. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well secured and in the process of collection. Non-accrual loans include certain loans that are current with all loan payments and are placed on non-accrual status due to customer operating results and cash flows. Non-accrual loans are evaluated for impairment on a loan-by-loan basis in accordance with the Company’s impairment methodology.

Consumer loans, excluding credit card loans, are typically charged-off no later than 90 days past due. Credit card loans are typically charged-off no later than 180 days past due. Mortgage and commercial loans are fully or partially charged-off when in management’s judgment all reasonable efforts to return a loan to performing status have occurred. In all cases, loans are placed on non-accrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.

All interest accrued but not collected from loans that are placed on non-accrual or charged-off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual status. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured.

TDRs are loans that have been modified to provide for a reduction or a delay in the payment of either interest or principal because of deterioration in the financial condition of the borrower. A loan extended or renewed at a stated interest rate equal to the current interest rate for new debt with similar risk is not considered a TDR. Once an obligation has been classified as a TDR it continues to be considered a TDR until paid in full or until the debt is refinanced and considered unimpaired. All TDRs are assessed on a loan-by-loan basis. The Company does not participate in any specific government or Company-sponsored loan modification programs. All restructured loan agreements are individual contracts negotiated with a borrower.

Allowance for Credit Losses - Loans

The ACL is an estimate of the expected credit losses for loans held for investment and off-balance sheet exposures. ASU 2016-13 replaced the incurred loss model that recognized a loss when it became probable that a credit loss had occurred, with a model that immediately recognizes the credit loss expected to occur over the lifetime of a financial asset whether originated or purchased. Charge-offs are recorded to the ACL when management believes the loan is uncollectible. Subsequent recoveries, if any, are credited to the ACL. Management believes the ACL is in accordance with U.S. GAAP and in compliance with appropriate regulatory guidelines.

The ACL includes quantitative estimates of losses for collectively and individually evaluated loans. As more fully described below, the model-based quantitative estimate for collectively evaluated loans is determined using the probability of default (PD) and loss given default (LGD) at the segment level and applied at the loan level against the expected exposure at default (EAD). Qualitative adjustments to the quantitative estimate may be made using information not considered in the quantitative model.

The Bank uses a range of data to estimate expected credit losses under CECL, including information about past events, current conditions, and reasonable and supportable forecasts relevant to assessing the collectability of the cash flows of the loans. Historical loss experience serves as the foundation for our estimated credit losses. Adjustments to our historical loss experience are made for differences in current loan portfolio segment credit risk characteristics such as the impact of changing unemployment rates, changes in U.S. Treasury yields, portfolio concentrations, the volume of classified loans, inflation, and other prevailing economic conditions and factors that may affect the borrower’s ability to repay, or reduce the estimated value of underlying collateral. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

The ACL is measured on a collective basis when similar risk characteristics exist. Generally, collectively assessed loans are grouped by loan type code or product type codes and assigned to a corresponding portfolio segment. Portfolio segments may be further subdivided into similar risk profile groupings based on interest rate structure, types of collateral or other terms and characteristics.

The probability of default (“PD”) calculation analyzes the historical loan portfolio over the given look back period to identify, by segment, loans that have defaulted. 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. The model observes loans over a 12-month window, detecting any events previously defined. This information is then used by the model to calculate annual iterative count-based PD rates for each segment. This process is then repeated for all dates within the historical data range. These averaged PD’s are used for a 12-month straight-line reversion to the historical mean. The historical data used was from mid-2006 through the most recent quarter end.

The Company utilizes reasonable and supportable forecasts of future economic conditions when estimating the ACL on loans. The model’s calculation also includes a 12-month forecasted PD based on a regression model that compares the Company’s historical loan data to

various national economic metrics during the same periods. The results show the Company’s past losses having a high rate of correlation to national unemployment rates for fixed rate loans and the 10-Year U.S. Treasury for adjustable-rate loans. The model uses this information, along with the most recently published Wall Street Journal survey of sixty economists’ forecasts predicting unemployment rates out over the next four quarters to estimate the PD for the forward-looking 12-month period. These data are also used to predict credit losses at different levels of stress, including a baseline, low, high and adverse economic conditions. After the forecast period, PD rates revert to the historical mean straight line over a 12-month period for the entire data set.

The loss given default (“LGD”) calculation is based on actual losses (charge-offs, net of recoveries) at a loan level over the entire look-back period aggregated for each loan segment. The aggregate loss is divided by the exposure at default to determine an LGD rate. Defaults occurring during the look-back period are included in the denominator, whether or not a loss occurred and exposure at default is determined by the loan balance immediately preceding the default event. When the Company's data are insufficient. an industry index is used.

The exposure at default (“EAD”) calculation projects future expected balances from monthly cash flow schedules to apply PD and LGD assumptions. These are derived based on current contractual terms (balance, interest rate, payment structure), adjusted for expected voluntary prepayments. The contractual terms exclude expected extensions, renewals and modifications unless either of the following applies: management has the reasonable expectation that a loan will be restructured, or the extension or renewal option are included in the borrower contract.

On a quarterly basis, the Company uses internal portfolio credit data, such as levels of non-accrual loans, classified assets and concentrations of credit along with other external information not used in the quantitative calculation to determine qualitative adjustments.

Loans that do not share the same common risk characteristics with other loans are individually assessed. Such loans include non-accrual loans, TDRs, loans classified as substandard or worse, loans that are greater than 89 days delinquent and any other loan identified by management for individual assessment. Reserves on individually assessed loans are measured on a loan-by-loan basis. Generally, consumer loans, including credit cards, are not individually assessed as the Bank's policy is to charge-off credit card loans when they become 180 days delinquent and other consumer loans when they are more than 90 days delinquent.

The methodology used to estimate the ACL is designed to be responsive to changes in portfolio credit quality and forecasted economic conditions. Changes due to new information are reflected in the pool-based allowance and in reserves assigned on an individual basis. Executive management closely monitors loss ratios, reviews the appropriateness of the ACL and presents conclusions to the Credit Risk Committee and the Audit Committee. The committees report to the Board as part of Board's quarterly review of our regulatory reporting and consolidated financial statements.

The calculation of the ACL excludes accrued interest receivable balances because these balances are reversed in a timely manner against previously recognized interest income when a loan is placed on non-accrual status.

Allowance for Credit Losses - AFS Debt securities

As described above, the Company does not presently hold any HTM debt securities and therefore is not presently required to apply a CECL methodology for an HTM investment portfolio.

The impairment model for AFS debt securities measures fair value. Although ASU No. 2016-13 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model for AFS securities. One notable change from the legacy OTTI model is when evaluating whether credit loss exists, an entity may no longer consider the length of time fair value has been less than amortized cost. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criterion is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and a corresponding allowance for credit losses is recorded. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Any impairment not recorded through an allowance for credit loss is recognized in other comprehensive income as a noncredit-related impairment. As of September 30, 2022, the Company determined that the unrealized loss

positions in AFS securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded. See Note 2 Investment Securities for more information.

The Bank elected as allowed under ASU No. 2016-13 to exclude accrued interest from the amortized cost basis of AFS debt securities and report accrued interest separately in accrued interest and other assets in the consolidated balance sheets. AFS debt securities are placed on non-accrual status when management no longer expects to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status. Accordingly, the Company does not recognize an allowance for credit loss against accrued interest receivable. The majority of AFS debt securities as of September 30, 2022 and December 31, 2021 were issued by Government Sponsored Enterprises (“GSEs”) and U.S. agencies. As such, an allowance for credit losses is not considered necessary.

Collateral Dependent Financial Assets

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the Net Present Value ("NPV") from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset. Subsequent changes to the fair value of collateral, for which an ACL was previously recognized, will be reported as a provision (recovery) for credit losses.

The Bank generally uses the practical expedient of the fair value of the collateral, net of estimated selling costs, to determine the expected credit loss for individually assessed collateral dependent loans.

Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposure

Financial instruments include off-balance sheet credit instruments such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records a reserve for unfunded commitments (“RUC”) on off-balance sheet credit exposures through a charge to provision for credit loss expense in the Company’s consolidated statements of operations. The RUC on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the CECL model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in Other Liabilities on the Company’s consolidated balance sheets.

See Note 1 – Summary of Significant Accounting Policies included in the Company’s 2021 Annual Report on Form 10-K for a list of policies in effect as of December 31, 2021.

Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)

Adopted New Accounting Standard

ASU 2016-13 – Financial Instruments – Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaced the existing “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, applies to (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, HTM securities, loan commitments, and financial guarantees. Credit losses relating to AFS debt securities will be recorded through an allowance for credit losses. The ASU also simplifies the accounting model for Purchased Credit Impaired (“PCI”) debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach).

In December 2019, the FASB issued ASU No 2019-10, Financial Instruments - Credit Losses (Topic 326). This update amends the effective date of ASU 2016-13 for certain entities, including smaller reporting companies until fiscal years beginning after December 15, 2022, including interim periods within those fiscal periods. Early adoption was permitted. The FASB has issued other ASUs that clarify items related to ASU 2016-13. The Company adopted this guidance effective January 1, 2022.

The Company's estimates are derived using one-year reasonable and supportable economic forecasts with subsequent one-year reversion to the historical mean loss rates. For loans that share similar risk characteristics and are collectively assessed, the Company uses a probability of default/loss given default cash flow method to determine the expected losses at the loan level. Loans that do not share similar risk characteristics are evaluated on an individual basis. Based on forecasted economic conditions and portfolio balances as of January 1, 2022, we recognized an increase to the opening allowance for credit losses of $2.5 million. The increase is primarily related to the change in methodology from estimating losses incurred as of the balance sheet date to estimating lifetime credit losses required by the CECL standard.

The impact of adoption was not significant to the Bank's regulatory capital. The Bank did not elect to phase-in, over a three-year period, the standard's initial impact on regulatory capital as permitted by the regulatory transition rules.

ASU 2019-05 – Financial Instruments-Credit Losses (Topic 326). In May 2019, the FASB issued ASU No. 2019-05. This ASU allows entities to irrevocably elect, upon adoption of ASU 2016-13, the fair value option for financial instruments that (1) were previously recorded at amortized cost and (2) are within the scope of ASC 326-20 if the instruments are eligible for the fair value option under ASC 825-10. The fair value option election does not apply to HTM debt securities. Entities are required to make this election on an instrument-by-instrument basis. The Company adopted ASU 2019-05 concurrently upon adoption of ASU 2016-13. The adoption of CECL did not have a material effect on available-for-sale securities, which are predominantly composed of mortgage-backed securities issued by government sponsored entities and U.S. agencies and U.S. government obligations.

Pending adoption

ASU 2020-04 – Reference Rate Reform (Topic 848). In March 2020, the FASB issued guidance to provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The amendments are effective as of March 12, 2020 through December 31, 2022. The Company does not expect these amendments to have a material effect on its Consolidated Financial Statements.

ASU Update 2022-02 – Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. ASU Update 2022-02 eliminates the TDR recognition and measurement guidance and, instead requires that an entity evaluate whether the modification represents a new loan or a continuation of an existing loan. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. In addition, ASU Update 2022-02 requires that an entity disclosure current-period gross write-offs by year of origination for financing receivables and net investment in leases. Entities have the option to apply a modified retrospective transition method for TDRs. The disclosure amendments in the Update 2022-02 will be applied prospectively. The amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company does not expect these amendments to have a material effect on its Consolidated Financial Statements.

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BASIS OF PRESENTATION AND NATURE OF OPERATIONS (Tables)

9 Months Ended

Sep. 30, 2022

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Impact of the Adoption of Accounting Standards Update

The following table shows the impact of the Company's adoption of ASC 326:

	January 1, 2022
(dollars in thousands)	As Reported Under ASC 326		Pre-ASC 326 Adoption		Impact of ASC 326 Adoption
Portfolio Loans:
Commercial real estate	$	1,113,793	$	1,115,485	(1,692)
Residential first mortgages	92,710		91,120		1,590
Residential rentals	194,911		195,035		(124)
Construction and land development	35,502		35,590		(88)
Home equity and second mortgages	25,661		25,638		23
Commercial loans	50,512		50,574		(62)
Consumer loans	3,015		3,002		13
Commercial equipment	62,706		62,499		207
Gross Portfolio Loans	1,578,810		1,578,943		(133)
Adjustments:
Net deferred costs	—		(133)		133
Allowance for credit losses	(20,913)		(18,417)		(2,496)
Net Portfolio Loans	1,557,897		1,560,393		(2,496)
U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans	26,398		27,276		(878)
Net deferred fees	—		(878)		878
Net U.S. SBA PPP Loans	26,398		26,398		—
Total Net Loans	$	1,584,295	$	1,586,791	$	(2,496)
Liabilities: Reserve for Unfunded Commitments	$	268	$	51	$	217

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INVESTMENT SECURITIES (Tables)

9 Months Ended

Sep. 30, 2022

Investments, Debt and Equity Securities [Abstract]

Schedule of Amortized Cost and Fair Values of Investment Securities

Amortized cost and fair values of investment securities at September 30, 2022 and December 31, 2021 are summarized as follows:

	September 30, 2022
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
AFS Securities
Asset-backed securities issued by GSEs and U.S. Agencies
Residential Mortgage Backed Securities ("MBS")	$	128,493	$	13	$	13,770	$	114,736
Residential Collateralized Mortgage Obligations ("CMOs")	181,433		13		16,579		164,867
U.S. Agency	14,601		—		2,375		12,226
Asset-backed securities ("ABSs") issued by Others:
Residential CMOs	9,363		—		260		9,103
Student Loan Trust ABSs	50,315		103		1,879		48,539
Municipal bonds	99,846		—		20,982		78,864
Corporate bonds	3,000		—		391		2,609
U.S. government obligations	36,831		—		3,273		33,558
Total AFS Securities	$	523,882	$	129	$	59,509	$	464,502
Equity securities carried at fair value through income
CRA investment fund	$	4,254	$	—	$	—	$	4,254
Non-marketable equity securities
Other equity securities	$	207	$	—	$	—	$	207
Total Investment Securities	$	528,343	$	129	$	59,509	$	468,963

	December 31, 2021
(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
AFS Securities
Asset-backed securities issued by GSEs and U.S. Agencies
Residential MBS	$	121,125	$	1,057	$	2,266	$	119,916
Residential CMOs	198,780		710		2,367		197,123
U.S. Agency	14,433		11		140		14,304
Asset-backed securities issued by Others:
Residential CMOs	220		5		4		221
Student Loan Trust ABSs	56,422		438		286		56,574
Municipal bonds	92,556		1,169		884		92,841
U.S. government obligations	16,942		—		82		16,860
Total AFS Securities	$	500,478	$	3,390	$	6,029	$	497,839
Equity securities carried at fair value through income
CRA investment fund	$	4,772	$	—	$	—	$	4,772
Non-marketable equity securities
Other equity securities	$	207	$	—	$	—	$	207
Total Investment Securities	$	505,457	$	3,390	$	6,029	$	502,818

Debt Securities, Available-for-Sale, Unrealized Loss Position, Fair Value

AFS Securities

Gross unrealized losses and estimated fair value by length of time that individual AFS securities have been in a continuous unrealized loss position at September 30, 2022, and December 31, 2021 were as follows:

September 30, 2022	Less Than 12 Months				More Than 12 Months				Total
(dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Losses
Asset-backed securities issued by GSEs and U.S. Agencies	$	69,403	$	6,302	$	220,175	$	26,422	$	289,578	$	32,724
Asset-backed securities issued by Others	5,937		244		149		16		6,086		260
Student Loan Trust ABSs	6,536		1,000		34,823		879		41,359		1,879
Municipal bonds	38,786		8,927		40,078		12,055		78,864		20,982
Corporate bonds	2,609		391		—		—		2,609		391
U.S. government obligations	18,656		1,232		14,902		2,041		33,558		3,273
	$	141,927	$	18,096	$	310,127	$	41,413	$	452,054	$	59,509

December 31, 2021	Less Than 12 Months				More Than 12 Months				Total
(dollars in thousands)	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Losses
Asset-backed securities issued by GSEs and U.S. Agencies	$	205,891	$	3,997	$	41,327	$	776	$	247,218	$	4,773
Asset-backed securities issued by Others	—		—		57		4		57		4
Student Loan Trust ABSs	21,640		281		2,226		5		23,866		286
Municipal bonds	47,314		776		6,696		108		54,010		884
U.S. government obligations	14,860		82		1,999		—		16,859		82
	$	289,705	$	5,136	$	52,305	$	893	$	342,010	$	6,029

Schedule of Amortized Cost and Fair Values of Debt Securities

The amortized cost and estimated fair value of debt securities at September 30, 2022, and December 31, 2021 by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call premiums or prepayment penalties.

	September 30, 2022				December 31, 2021
(dollars in thousands)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Within one year	$	35,730	$	31,680	$	36,859	$	36,665
Over one year through five years	137,433		121,856		121,308		120,668
Over five years through ten years	219,912		194,986		191,166		190,158
After ten years	130,807		115,980		151,145		150,348
Total AFS securities	$	523,882	$	464,502	$	500,478	$	497,839

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LOANS (Tables)

9 Months Ended

Sep. 30, 2022

Receivables [Abstract]

Schedule of Loans Receivable

Portfolio loans, net of deferred costs and fees, are summarized by type as follows at September 30, 2022:

	September 30, 2022
(dollars in thousands)	Total		% of Total Loans
Portfolio Loans:
Commercial real estate	$	1,202,660	68.98	%
Residential first mortgages	83,081		4.77	%
Residential rentals	282,365		16.20	%
Construction and land development	23,197		1.33	%
Home equity and second mortgages	26,054		1.49	%
Commercial loans	41,615		2.39	%
Consumer loans	5,754		0.33	%
Commercial equipment	78,551		4.51	%
Total portfolio loans (1)	1,743,277		100.00	%
Less: Allowance for Credit Losses	(22,027)		(1.26)	%
Total net portfolio loans	1,721,250
U.S. SBA PPP loans (1)	1,211
Total net loans	$	1,722,461
Portfolio loans are summarized by type as follows at December 31, 2021:
Portfolio Loans:	December 31, 2021
Commercial real estate	$	1,115,485	70.66	%
Residential first mortgages	91,120		5.77	%
Residential rentals	195,035		12.35	%
Construction and land development	35,590		2.25	%
Home equity and second mortgages	25,638		1.62	%
Commercial loans	50,574		3.20	%
Consumer loans	3,002		0.19	%
Commercial equipment	62,499		3.96	%
Gross portfolio loans (1)	1,578,943		100.00	%
Adjustments:
Net deferred costs	(133)		(0.01)	%
Allowance for loan losses	(18,417)		(1.17)	%
	(18,550)
Net portfolio loans	1,560,393
Gross U.S. SBA PPP loans (1)	27,276
Net deferred fees	(878)
Net U.S. SBA PPP Loans	26,398
Total net loans	$	1,586,791
Total gross loans	$	1,606,219

(1)Excludes accrued interest receivable of $5.2 million and $4.5 million, at September 30, 2022 and December 31, 2021, respectively.

Non-accrual Loans

Non-accrual loans as of September 30, 2022 and December 31, 2021 were as follows:

	September 30, 2022
(dollars in thousands)	Nonaccrual with No Allowance for Credit Losses		Nonaccrual with Allowance for Credit Losses		Total Nonaccrual Loans
Commercial real estate	$	4,577	$	84	$	4,661
Residential rentals	1,153		—		1,153
Home equity and second mortgages	240		—		240
Commercial loans	—		25		25
Commercial equipment	211		—		211
Total	$	6,181	$	109	$	6,290
Interest Income on Nonaccrual Loans	$	63	$	—	$	63

	September 30, 2022
(dollars in thousands)	Non-accrual Delinquent Loans		Non-accrual Current Loans		Total Non-accrual Loans
Commercial real estate	$	—	$	4,661	$	4,661
Residential rentals	454		699		1,153
Home equity and second mortgages	124		116		240
Commercial loans	—		25		25
Commercial equipment	—		211		211
	$	578	$	5,712	$	6,290

	December 31, 2021
(dollars in thousands)	Non-accrual Delinquent Loans		Non-accrual Current Loans		Total Non-accrual Loans
Commercial real estate	$	—	$	4,890	$	4,890
Residential first mortgages	450		—		450
Residential rentals	252		690		942
Home equity and second mortgages	202		399		601
Commercial equipment	—		691		691
U.S. SBA PPP loans	57		—		57
	$	961	$	6,670	$	7,631

The following table presents the amortized cost basis of collateral-dependent loans by class of loans.

	September 30, 2022
(dollars in thousands)	Business/Other Assets		Real Estate
Commercial real estate	$	—	$	4,660
Residential first mortgages	—		—
Residential rentals	—		972
Home equity and second mortgages	—		240
Commercial loans	25		—
Commercial equipment	645		—
Total	$	670	$	5,872

Past Due Financing Receivables

An analysis of days past due ("DPD") loans as of September 30, 2022 follows:

	September 30, 2022
(dollars in thousands)	31-60 DPD		61-89 DPD		90 DPD and Still Accruing		90 DPD and Not Accruing		Total Past Due		Current Non-Accrual Loans		Current Accrual Loans		Total Loans
Commercial real estate	$	—	$	—	$	—	$	—	$	—	$	4,661	$	1,197,999	$	1,202,660
Residential first mortgages	—		—		—		—		—		—		83,081		83,081
Residential rentals	32		181		—		273		486		699		281,180		282,365
Construction and land development	—		—		—		—		—		—		23,197		23,197
Home equity and second mortgages	204		—		—		124		328		116		25,610		26,054
Commercial loans	—		—		—		—		—		25		41,590		41,615
Consumer loans	19		5		31		—		55		—		5,699		5,754
Commercial equipment	—		—		—		—		—		211		78,340		78,551
U.S. SBA PPP	272		—		—		—		272		—		939		1,211
Total Loans	$	527	$	186	$	31	$	397	$	1,141	$	5,712	$	1,737,635	$	1,744,488

Loan delinquency (total past due) decreased $0.3 million from $1.4 million, or 0.09% of loans, at December 31, 2021 to $1.1 million, or 0.07% of loans, at September 30, 2022.

PCI loans are included as a single category in the table below as management believes there is a lower likelihood of aggregate loss related to these loan pools. Additionally, PCI loans are discounted to allow for the accretion of income on a level yield basis over the life of the loan based on expected cash flows. An analysis of days past due loans as of December 31, 2021 follows:

	December 31, 2021
(dollars in thousands)	31-60 Days		61-89 Days		90 or Greater Days		Total Past Due		PCI Loans		Current		Total Loan Receivables
Commercial real estate	$	—	$	—	$	—	$	—	$	1,116	$	1,114,369	$	1,115,485
Residential first mortgages	—		277		450		727		—		90,393		91,120
Residential rentals	—		42		252		294		—		194,741		195,035
Construction and land development	—		—		—		—		—		35,590		35,590
Home equity and second mortgages	200		—		202		402		—		25,236		25,638
Commercial loans	—		—		—		—		—		50,574		50,574
Consumer loans	—		—		—		—		—		3,002		3,002
Commercial equipment	—		—		—		—		—		62,499		62,499
Total portfolio loans	$	200	$	319	$	904	$	1,423	$	1,116	$	1,576,404	$	1,578,943
U.S. SBA PPP loans	$	9	$	40	$	57	$	106	$	—	$	27,170	$	27,276

Allowance for Credit Losses on Financing Receivables

The following tables detail activity in the ACL at and for the three and nine months ended September 30, 2022 and 2021. An allocation of the allowance to one category of loans does not prevent the Company from using that allowance to absorb losses in a different category.

Three Months Ended	September 30, 2022
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provisions		Ending Balance
Commercial real estate	$	16,833	$	—	$	—	$	203	$	17,036
Residential first mortgages	255		—		14		(32)		237
Residential rentals	1,660		—		—		885		2,545
Construction and land development	166		—		—		31		197
Home equity and second mortgages	143		—		—		(1)		142
Commercial loans	238		(49)		1		64		254
Consumer loans	132		(14)		—		24		142
Commercial equipment	1,977		(29)		6		(480)		1,474
	$	21,404	$	(92)	$	21	$	694	$	22,027

Three Months Ended	September 30, 2021
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provisions		Ending Balance
Commercial real estate	$	13,918	$	(491)	$	4	$	(12)	$	13,419
Residential first mortgages	847		—		—		65		912
Residential rentals	1,186		—		—		614		1,800
Construction and land development	332		—		—		36		368
Home equity and second mortgages	242		—		1		6		249
Commercial loans	1,113		—		529		(733)		909
Consumer loans	28		—		—		14		42
Commercial equipment	798		—		20		10		828
	$	18,464	$	(491)	$	554	$	—	$	18,527
Purchase Credit Impaired**	$	52	$	—	$	—	$	—	$	52

Nine Months Ended	September 30, 2022
(dollars in thousands)	Beginning Balance		Impact of ASC 326 Adoption		Charge-offs		Recoveries		Provisions		Ending Balance
Commercial real estate	$	13,095	$	3,734	$	(280)	$	—	$	487	$	17,036
Residential first mortgages	1,002		(679)		(111)		14		11		237
Residential rentals	2,175		(586)		—		—		956		2,545
Construction and land development	260		(82)		—		—		19		197
Home equity and second mortgages	274		(86)		—		1		(47)		142
Commercial loans	582		(290)		(99)		2		59		254
Consumer loans	58		2		(20)		—		102		142
Commercial equipment	971		483		(29)		67		(18)		1,474
	$	18,417	$	2,496	$	(539)	$	84	$	1,569	$	22,027

_______________________________________

**There is no allowance for credit loss on the SBA PPP portfolios. A more detailed roll forward schedule will be presented if an allowance is required.

Nine Months Ended	September 30, 2021
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provisions		Ending Balance
Commercial real estate	$	13,744	$	(1,739)	$	6	$	1,408	$	13,419
Residential first mortgages	1,305		(142)		—		(251)		912
Residential rentals	1,413		(46)		—		433		1,800
Construction and land development	401		—		—		(33)		368
Home equity and second mortgages	261		—		4		(16)		249
Commercial loans	1,222		(76)		539		(776)		909
Consumer loans	20		—		—		22		42
Commercial equipment	1,058		(34)		57		(253)		828
	$	19,424	$	(2,037)	$	606	$	534	$	18,527
Purchase Credit Impaired**	$	—	$	—	$	—	$	52	$	52

_______________________________________

**There is no allowance for loan loss on the PCI or the SBA PPP portfolios. A more detailed roll forward schedule will be presented if an allowance is required.

Credit Quality Indicators

Credit quality indicators as of September 30, 2022 were as follows:

Credit Risk Profile by Internally Assigned Grade

The risk category of loans by class of loans is as follows:

	Term Loans by Origination Year
(dollars in thousands)	Prior		2018		2019		2020		2021		2022		Revolving Loans		Total
Commercial Real Estate
Pass	$	335,465	$	74,482	$	107,720	$	188,070	$	282,781	$	187,151	$	—	$	1,175,669
Watch	5,588		4,216		—		5,567		—		6,960		—		22,331
Special Mention	—		—		—		—		—		—		—		—
Substandard	808		—		2,999		—		853		—		—		4,660
Total	$	341,861	$	78,698	$	110,719	$	193,637	$	283,634	$	194,111	$	—	$	1,202,660
Residential Rentals
Pass	$	45,188	$	4,495	$	21,141	$	42,263	$	65,468	$	102,838	$	—	$	281,393
Watch	—		—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—		—
Substandard	972		—		—		—		—		—		—		972
Total	$	46,160	$	4,495	$	21,141	$	42,263	$	65,468	$	102,838	$	—	$	282,365
Construction and Land Development
Pass	$	4,550	$	8,987	$	5,094	$	1,399	$	2,529	$	638	$	—	$	23,197
Watch	—		—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—
Total	$	4,550	$	8,987	$	5,094	$	1,399	$	2,529	$	638	$	—	$	23,197
Commercial Loans
Pass	$	23,516	$	2,628	$	2,708	$	1,868	$	7,792	$	3,078	$	—	$	41,590
Watch	—		—		—		—		—		—		—		—
Special Mention	—		—		—		—		—		—		—		—
Substandard	—		—		—		25		—		—		—		25
Total	$	23,516	$	2,628	$	2,708	$	1,893	$	7,792	$	3,078	$	—	$	41,615
Commercial Equipment
Pass	$	8,737	$	5,363	$	15,519	$	7,995	$	13,290	$	27,100	$	—	$	78,004
Watch	—		175		—		—		—		—		—		175
Special Mention	—		—		160		—		—		—		—		160
Substandard	—		—		212		—		—		—		—		212
Total	$	8,737	$	5,538	$	15,891	$	7,995	$	13,290	$	27,100	$	—	$	78,551
Total loans by risk category	$	424,824	$	100,346	$	155,553	$	247,187	$	372,713	$	327,765	$	—	$	1,628,388

Loans evaluated by performance category are as follows:

	Term Loans by Origination Year
(dollars in thousands)	Prior		2018		2019		2020		2021		2022		Revolving Loans		Total
Residential First Mortgages
Performing	$	39,498	$	3,891	$	19,542	$	8,577	$	5,279	$	6,294	$	—	$	83,081
Non-performing	—		—		—		—		—		—		—		—
Total	$	39,498	$	3,891	$	19,542	$	8,577	$	5,279	$	6,294	$	—	$	83,081
Home Equity and Second Mortgages
Performing	$	15,900	$	1,383	$	933	$	1,384	$	3,881	$	2,474	$	—	$	25,955
Non-performing	99		—		—		—		—		—		—		99
Total	$	15,999	$	1,383	$	933	$	1,384	$	3,881	$	2,474	$	—	$	26,054
Consumer Loans
Performing	$	42	$	3	$	108	$	139	$	678	$	850	$	3,903	$	5,723
Non-performing	—				—								31		31
Total	$	42	$	3	$	108	$	139	$	678	$	850	$	3,934	$	5,754
U.S. SBA PPP Loans
Performing	$	—	$	—	$	—	$	—	$	1,211	$	—	$	—	$	1,211
Non-performing	—		—		—		—		—		—		—		—
Total	$	—	$	—	$	—	$	—	$	1,211	$	—	$	—	$	1,211
Total loans evaluated by performing status	$	55,539	$	5,277	$	20,583	$	10,100	$	11,049	$	9,618	$	3,934	$	116,100
Total Recorded Investment	$	480,363	$	105,623	$	176,136	$	257,287	$	383,762	$	337,383	$	3,934	$	1,744,488

Credit quality indicators as of December 31, 2021 were as follows:

	Commercial Real Estate		Construction and Land Development		Residential Rentals
(dollars in thousands)	12/31/2021		12/31/2021		12/31/2021
Unrated	$	—	$	—	$	—
Pass	1,111,857		35,590		194,093
Special mention	—		—		—
Substandard	3,628		—		942
Doubtful	—		—		—
Loss	—		—		—
Total	$	1,115,485	$	35,590	$	195,035

	Commercial Loans		Commercial Equipment		Total Commercial Portfolios
(dollars in thousands)	12/31/2021		12/31/2021		12/31/2021
Unrated	$	—	$	—	$	—
Pass	50,574		62,326		1,454,440
Special mention	—		—		—
Substandard	—		173		4,743
Doubtful	—		—		—
Loss	—		—		—
Total	$	50,574	$	62,499	$	1,459,183

	Non-Commercial Portfolios **		U.S. SBA PPP Loans		Total Loans Portfolios
(dollars in thousands)	12/31/2021		12/31/2021		12/31/2021
Unrated	$	100,403	$	27,276	$	127,679
Pass	18,889		—		1,473,329
Special mention	—		—		—
Substandard	468		—		5,211
Doubtful	—		—		—
Loss	—		—		—
Total	$	119,760	$	27,276	$	1,606,219

_______________________________________

**Non-commercial portfolios are generally evaluated based on payment activity but may be risk graded if part of a larger commercial relationship or are credit impaired (e.g. non-accrual loans, TDRs).

Credit Risk Profile Based on Payment Activity

	Residential First Mortgages		Home Equity and Second Mortgages		Consumer Loans
(dollars in thousands)	12/31/2021		12/31/2021		12/31/2021
Performing	$	90,670	$	25,436	$	3,002
Nonperforming	450		202		—
Total	$	91,120	$	25,638	$	3,002

TDRs, Included in Impaired Loans Schedule

TDRs included in the impaired loan schedules above, as of September 30, 2022 and December 31, 2021 were as follows:

	September 30, 2022			December 31, 2021
(dollars in thousands)	Number of Loans	Recorded Investments		Number of Loans	Recorded Investments
Commercial equipment	1	$	433	1	$	447
Total TDRs	1	$	433	1	$	447
Less: TDRs included in non-accrual loans	—	—		—	—
Total accrual TDR loans	1	$	433	1	$	447

Impaired Loans, Including TDRs

Impaired loans, including TDRs at December 31, 2021 and September 30, 2021, were as follows:

	December 31, 2021
(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		YTD Average Recorded Investment		YTD Interest Income Recognized
Commercial real estate	$	4,994	$	4,797	$	93	$	4,890	$	93	$	4,866	$	254
Residential first mortgages	879		866		—		866		—		874		32
Residential rentals	982		942		—		942		—		959		48
Home equity and second mortgages	626		601		—		601		—		604		14
Commercial equipment	1,200		1,022		173		1,195		173		2,184		99
Total	$	8,681	$	8,228	$	266	$	8,494	$	266	$	9,487	$	447

	September 30, 2021
(dollars in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Quarter Average Recorded Investment		Quarter Interest Income Recognized		YTD Average Recorded Investment		YTD Interest Income Recognized
Commercial real estate	$	3,205	$	2,377	$	759	$	3,136	$	291	$	3,146	$	25	$	3,177	$	80
Residential first mortgages	884		872		—		872		—		873		7		878		25
Residential rentals	990		961		—		961		—		961		13		956		38
Home equity and second mortgages	602		580		—		580		—		581		3		583		10
Commercial equipment	490		455		32		487		32		489		5		493		16
Total	$	6,171	$	5,245	$	791	$	6,036	$	323	$	6,050	$	53	$	6,087	$	169

Loan Receivable And Allowance Balances Disaggregated On Basis Of Company's Impairment Methodology

The following tables detail loan receivable and allowance balances disaggregated on the basis of the Company’s impairment methodology at September 30, 2021 and December 31, 2021.

	December 31, 2021								September 30, 2021
(dollars in thousands)	Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Purchased Credit Impaired		Total		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment		Purchased Credit Impaired		Total
Loan Receivables:
Commercial real estate	$	4,890	$	1,109,479	$	1,116	$	1,115,485	$	3,136	$	1,084,356	$	1,144	$	1,088,636
Residential first mortgages	866		90,254		—		91,120		872		95,963		—		96,835
Residential rentals	942		194,093		—		195,035		961		171,121		—		172,082
Construction and land development	—		35,590		—		35,590		—		37,139		—		37,139
Home equity and second mortgages	601		25,037		—		25,638		580		25,938		—		26,518
Commercial loans	—		50,574		—		50,574		—		48,327		—		48,327
Consumer loans	—		3,002		—		3,002		—		2,168		—		2,168
Commercial equipment	1,195		61,304		—		62,499		487		60,859		—		61,346
	$	8,494	$	1,569,333	$	1,116	$	1,578,943	$	6,036	$	1,525,871	$	1,144	$	1,533,051
Allowance for credit losses:
Commercial real estate	$	93	$	13,002	$	—	$	13,095	$	291	$	13,128	$	52	$	13,471
Residential first mortgages	—		1,002		—		1,002		—		912		—		912
Residential rentals	—		2,175		—		2,175		—		1,800		—		1,800
Construction and land development	—		260		—		260		—		368		—		368
Home equity and second mortgages	—		274		—		274		—		249		—		249
Commercial loans	—		582		—		582		—		909		—		909
Consumer loans	—		58		—		58		—		42		—		42
Commercial equipment	173		798		—		971		32		796		—		828
	$	266	$	18,151	$	—	$	18,417	$	323	$	18,204	$	52	$	18,579

Summary Of Acquired And Non Acquired Loans Table

A summary of changes in the accretable yield for PCI loans for the three and nine months ended September 30, 2021 and the year ended December 31, 2021 follows:

	Three Months Ended September 30,		Nine Months Ended September 30,		Year Ended
(dollars in thousands)	2021		2021		December 31, 2021
Accretable yield, beginning of period	$	324	$	342	$	342
Additions	—		—		—
Accretion	(31)		(92)		(117)
Reclassification from nonaccretable difference	15		29		43
Other changes, net	(15)		14		55
Accretable yield, end of period	$	293	$	293	$	323

The following is a summary of acquired and non-acquired loans as of December 31, 2021:

BY ACQUIRED AND NON-ACQUIRED	December 31, 2021		%
Acquired loans - performing	$	41,066	2.56	%
Acquired loans - purchase credit impaired ("PCI")	1,116		0.07	%
Total acquired loans	42,182		2.63	%
U.S. SBA PPP loans	27,276		1.70	%
Non-acquired loans**	1,536,761		95.68	%
Gross loans	1,606,219
Net deferred fees	(1,011)		(0.06)	%
Total loans, net of deferred fees	$	1,605,208

______________________________

**Non-acquired loans include loans transferred from acquired pools following release of acquisition accounting FMV adjustments.

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GOODWILL AND OTHER INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2022

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill and Other Intangible Assets

Goodwill and other intangible assets are presented in the tables below.

(dollars in thousands)	As of September 30, 2022		As of December 31, 2021
Goodwill	$	10,835	$	10,835

	As of September 30, 2022						As of December 31, 2021
(dollars in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets		Gross Carrying Amount		Accumulated Amortization		Net Intangible Assets
Core deposit intangible ("CDI")	$	3,590	$	(2,865)	$	725	$	3,590	$	(2,558)	$	1,032

Schedule of Estimated Amortization Expense

The estimated aggregate future amortization expense for intangible assets remaining as of September 30, 2022 is as follows:

(dollars in thousands)
Remainder of 2022	$	91
2023	302
2024	205
2025	109
2026	18
	$	725

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OTHER REAL ESTATE OWNED ("OREO") (Tables)

9 Months Ended

Sep. 30, 2022

Real Estate [Abstract]

Analysis of OREO Activity

An analysis of activity follows.

	Nine Months Ended September 30,				Years Ended December 31,
(dollars in thousands)	2022		2021		2021
Balance at beginning of year	$	—	$	3,109	$	3,109
Additions of underlying property	—		—		—
Disposals of underlying property	—		(932)		(1,722)
Valuation allowance	—		(641)		(1,387)
Balance at end of period	$	—	$	1,536	$	—

Expenses Applicable to OREO Assets

Expenses applicable to OREO assets included the following.

	Nine Months Ended September 30,
(dollars in thousands)	2022		2021
Valuation allowance	$	—	$	641
Losses (gains) on dispositions	—		(16)
Operating expenses	6		64
	$	6	$	689

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DEPOSITS (Tables)

9 Months Ended

Sep. 30, 2022

Deposits, by Type [Abstract]

Schedule of Deposits

Deposits consist of the following:

	September 30, 2022				December 31, 2021
(dollars in thousands)	Balance		%		Balance		%
Noninterest-bearing demand	$	647,432	30.45	%	$	445,778	21.68	%
Interest-bearing:
Demand	691,987		32.54	%	790,481		38.45	%
Money market deposits	371,175		17.45	%	372,717		18.13	%
Savings	123,564		5.81	%	119,767		5.82	%
Certificates of deposit	292,399		13.75	%	327,421		15.92	%
Total interest-bearing	1,479,125		69.55	%	1,610,386		78.32	%
Total Deposits	$	2,126,557	100.00	%	$	2,056,164	100.00	%

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LEASE COMMITMENTS & CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2022

Commitments and Contingencies Disclosure [Abstract]

Schedule of Maturities of Operating Lease Liabilities

The table below details the Right of Use asset (net of accumulated amortization), lease liability and other information related to the Company's operating leases:

(dollars in thousands)	September 30, 2022			December 31, 2021
Operating Leases
Operating lease right of use asset, net	$	6,022		$	6,124
Operating lease liability	$	6,288		$	6,343
Weighted average remaining lease term	15.84 years			17.21 years
Weighted average discount rate	3.50		%	3.51		%
Remaining lease term - min	4.8 years			6.3 years
Remaining lease term - max	22.0 years			23.0 years

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows:

(dollars in thousands)	As of September 30, 2022
Lease payments due:
Within one year	$	569
After one but within two years	584
After two but within three years	611
After three but within four years	637
After four but within five years	629
After five years	5,375
Total undiscounted cash flows	$	8,405
Discount on cash flows	2,117
Total lease liability	$	6,288

Lease Cost

The table below details the Company's lease cost, which is included in occupancy expense in the Unaudited Consolidated Statements of Income.

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Operating lease cost	$	157	$	146	$	454	$	489
Cash paid for lease liability	$	140	$	150	$	406	$	485

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REGULATORY CAPITAL (Tables)

9 Months Ended

Sep. 30, 2022

Regulatory Assets and Liabilities Disclosure [Abstract]

Regulatory Capital Amounts and Ratios

The Company’s and the Bank’s actual regulatory capital amounts and ratios are presented in the following table.

Regulatory Capital and Ratios	Regulatory Minimum Ratio + CCB(1)	The Company						The Bank
(dollars in thousands)		September 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021
Common equity		$	179,154		$	208,133		$	207,146		$	236,561
Goodwill		(10,835)			(10,835)			(10,835)			(10,835)
Core deposit intangible (net of deferred tax liability)		(537)			(766)			(537)			(766)
AOCI losses		43,906			1,952			43,906			1,952
Common Equity Tier 1 Capital		211,688			198,484			239,680			226,912
TRUPs		12,000			12,000			—			—
Tier 1 Capital		223,688			210,484			239,680			226,912
Allowable reserve for credit losses and other Tier 2 adjustments		22,295			18,468			22,295			18,468
Subordinated notes		19,552			19,510			—			—
Tier 2 Capital		$	265,535		$	248,462		$	261,975		$	245,380
Risk-Weighted Assets ("RWA")		$	1,856,827		$	1,665,296		$	1,855,483		$	1,663,831
Average Assets ("AA")		$	2,340,703		$	2,281,210		$	2,338,751		$	2,279,835
Common Tier 1 Capital to RWA	7.00%	11.40		%	11.92		%	12.92		%	13.64		%
Tier 1 Capital to RWA	8.50%	12.05			12.64			12.92			13.64
Tier 2 Capital to RWA	10.50%	14.30			14.92			14.12			14.75
Tier 1 Capital to AA (Leverage) (2)	n/a	9.56			9.23			10.25			9.95

____________________________________

(1)The regulatory minimum capital ratio ("Min. Ratio") + the capital conservation buffer ("CCB").

(2)Tier 1 Capital to AA (Leverage) has no capital conservation buffer defined. The PCA well capitalized is defined as 5.00%.

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2022

Fair Value Disclosures [Abstract]

Fair Value, Assets Measured on Recurring Basis

The tables below present the recorded amount of assets as of September 30, 2022 and December 31, 2021 measured at fair value on a recurring basis.

(dollars in thousands)	September 30, 2022
Description of Asset	Fair Value		Level 1		Level 2		Level 3
AFS securities
Asset-backed securities issued by GSEs and U.S. Agencies
MBS	$	114,736	$	—	$	114,736	$	—
CMOs	164,867		—		164,867		—
U.S. Agency	12,226		—		12,226		—
Asset-backed securities issued by Others:
Residential CMOs	9,103		—		9,103		—
Student Loan Trust ABSs	48,539		—		48,539		—
Municipal bonds	78,864		—		78,864		—
Corporate bonds	2,609		—		2,609		—
U.S. government obligations	33,558		—		33,558		—
Total AFS securities	$	464,502	$	—	$	464,502	$	—
Equity securities carried at fair value through income
CRA investment fund	$	4,254	$	—	$	4,254	$	—
Non-marketable equity securities
Other equity securities	$	207	$	—	$	207	$	—

(dollars in thousands)	December 31, 2021
Description of Asset	Fair Value		Level 1		Level 2		Level 3
AFS securities
Asset-backed securities issued by GSEs and U.S. Agencies
MBS	$	119,916	$	—	$	119,916	$	—
CMOs	197,123		—		197,123		—
U.S. Agency	14,304		—		14,304		—
Asset-backed securities issued by others:
Residential CMOs	221		—		221		—
Student Loan Trust ABSs	56,574		—		56,574		—
Municipal bonds	92,841		—		92,841		—
U.S. government obligations	16,860		—		16,860		—
Total AFS securities	$	497,839	$	—	$	497,839	$	—
Equity securities carried at fair value through income
CRA investment fund	$	4,772	$	—	$	4,772	$	—
Non-marketable equity securities
Other equity securities	$	207	$	—	$	207	$	—
Mortgage banking derivative
Interest rate lock commitments	$	28	$	—	$	—	$	28

Schedule of unobservable inputs used in Level 3 fair value measurements

The following tables provide information describing the unobservable inputs used in Level 3 fair value measurements at September 30, 2022 and December 31, 2021.

September 30, 2022	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
(dollars in thousands)
Description of Asset
Loans with individually assessed loans	$	—	Third party appraisals and in-house equipment evaluations of fair value	Management discount for equipment type and current market conditions	0% - 50% - 100%

December 31, 2021	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
(dollars in thousands)
Description of Asset
Interest rate lock commitments	$	28	Freddie Mac pricing of loans with comparable terms	Pull-through rate	0% - 100% - 75%

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Tables)

9 Months Ended

Sep. 30, 2022

Investments, All Other Investments [Abstract]

Fair Value, by Balance Sheet Grouping

The Company’s estimated fair values of financial instruments are presented in the following tables.

September 30, 2022	Carrying Amount		Fair Value		Fair Value Measurements
Description of Asset (dollars in thousands)					Level 1		Level 2		Level 3
Assets
Investment securities - AFS	$	464,502	$	464,502	$	—	$	464,502	$	—
Equity securities carried at fair value through income	4,254		4,254		—		4,254		—
Non-marketable equity securities in other financial institutions	207		207		—		207		—
FHLB Stock	1,226		1,226		—		1,226		—
Net loans receivable	1,722,461		1,654,640		—		—		1,654,640
Accrued interest receivable	6,791		6,791		—		6,791		—
Investment in BOLI	39,583		39,583		—		39,583		—
Liabilities
Savings, NOW and money market accounts	$	1,834,158	$	1,834,158	$	—	$	1,834,158	$	—
Time deposits	292,399		292,034		—		292,034		—
TRUPs	12,000		10,159		—		10,159		—
Subordinated notes	19,552		18,610		—		18,610		—

See the Company’s methodologies disclosed in Note 21 of the Company’s 2021 Form 10-K for the fair value methodologies used as of December 31, 2021:

December 31, 2021	Carrying Amount		Fair Value		Fair Value Measurements
Description of Asset (dollars in thousands)					Level 1		Level 2		Level 3
Assets
Investment securities - AFS	$	497,839	$	497,839	$	—	$	497,839	$	—
Equity securities carried at fair value through income	4,772		4,772		—		4,772		—
Non-marketable equity securities in other financial institutions	207		207		—		207		—
FHLB Stock	1,472		1,472		—		1,472		—
Net loans receivable	1,586,791		1,578,032		—		—		1,578,032
Accrued interest receivable	5,588		5,588		—		5,588		—
Investment in BOLI	38,932		38,932		—		38,932		—
Mortgage ranking derivatives	28		28		—		—		28
Liabilities
Savings, NOW and money market accounts	$	1,728,743	$	1,728,743	$	—	$	1,728,743	$	—
Time deposits	327,421		328,083		—		328,083		—
Long-term debt	12,231		12,391		—		12,391		—
TRUPs	12,000		11,589		—		11,589		—
Subordinated notes	19,510		20,979		—		20,979		—

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ACCUMULATED OTHER COMPREHENSIVE INCOME/LOSS ("AOCI"/"AOCL") (Tables)

9 Months Ended

Sep. 30, 2022

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Schedule of Accumulated Other Comprehensive Gain

The following table presents the changes in each component of accumulated other comprehensive gain, net of tax, for the three and nine months ended September 30, 2022 and 2021.

	Three Months Ended September 30, 2022		Three Months Ended September 30, 2021		Nine Months Ended September 30, 2022		Nine Months Ended September 30, 2021
(dollars in thousands)	Net Unrealized Gains And Losses		Net Unrealized Gains And Losses		Net Unrealized Gains And Losses		Net Unrealized Gains And Losses
Beginning of period	$	(31,847)	$	3,063	$	(1,952)	$	4,504
Other comprehensive losses, net of tax before reclassifications	(12,059)		(3,072)		(41,954)		(4,946)
Amounts reclassified from accumulated other comprehensive gain	—		—		—		433
Net other comprehensive losses	(12,059)		(3,072)		(41,954)		(4,513)
End of period	$	(43,906)	$	(9)	$	(43,906)	$	(9)

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EARNINGS PER SHARE (“EPS”) (Tables)

9 Months Ended

Sep. 30, 2022

Earnings Per Share [Abstract]

Schedule of Basic and Diluted Earnings Per Share

Basic and diluted earnings per share have been computed based on weighted-average common and common equivalent shares outstanding as follows:

(dollars in thousands, except per share amounts)	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net Income	$	7,580	$	6,404	$	20,702	$	19,135
Average number of common shares outstanding	5,636,640		5,709,814		5,656,950		5,813,704
Dilutive effect of common stock equivalents	8,182		10,187		9,000		9,514
Average number of shares used to calculate diluted EPS	5,644,822		5,720,001		5,665,950		5,823,218
Anti-dilutive shares	1,034		40		587		3,355
Earnings Per Common Share
Basic	$	1.34	$	1.12	$	3.66	$	3.29
Diluted	$	1.34	$	1.12	$	3.65	$	3.29

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INCOME TAXES (Tables)

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Current and Deferred Income Tax Expense (Benefit)

(dollars in thousands)	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Current income tax expense	$	2,572		$	1,448		$	7,119		$	6,048
Deferred income tax (benefit) expense	(192)			710			(237)			427
Income tax expense as reported	$	2,380		$	2,158		$	6,882		$	6,475
Effective tax rate	23.9		%	25.2		%	24.9		%	25.3		%

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BASIS OF PRESENTATION AND NATURE OF OPERATIONS (Schedule of Adjustments for ASC 326) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Jun. 30, 2022	Jan. 01, 2022	Dec. 31, 2021	Sep. 30, 2021	Jun. 30, 2021	Dec. 31, 2020
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans				$ 1,606,219
Net deferred costs				(1,011)
Allowance for loan losses	$ (22,027)	$ (21,404)		(18,417)	$ (18,527)	$ (18,464)	$ (19,424)
Net portfolio loans	1,722,461		$ 1,584,295	1,586,791
Unfunded Loan Commitment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			268
Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Allowance for loan losses				(2,496)
Cumulative Effect, Period of Adoption, Adjusted Balance
Financing Receivable, Troubled Debt Restructuring [Line Items]
Net portfolio loans			(2,496)
Cumulative Effect, Period of Adoption, Adjusted Balance | Unfunded Loan Commitment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			217
Portfolio Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	1,744,488		1,578,810	1,578,943
Net deferred costs			0	(133)
Allowance for loan losses	(22,027)		(20,913)	(18,417)
Net portfolio loans	1,721,250		1,557,897	1,560,393
Portfolio Loans | Cumulative Effect, Period of Adoption, Adjusted Balance
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			(133)
Net deferred costs			133
Allowance for loan losses			(2,496)
Net portfolio loans			(2,496)
Commercial real estate
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	1,202,660			1,115,485
Allowance for loan losses	(17,036)	(16,833)		(13,095)	(13,419)	(13,918)	(13,744)
Commercial real estate | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Allowance for loan losses				(3,734)
Commercial real estate | Portfolio Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	1,202,660		1,113,793	1,115,485
Commercial real estate | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjusted Balance
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			(1,692)
Residential first mortgages
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	83,081			91,120
Allowance for loan losses	(237)	(255)		(1,002)	(912)	(847)	(1,305)
Residential first mortgages | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Allowance for loan losses				679
Residential first mortgages | Portfolio Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	83,081		92,710	91,120
Residential first mortgages | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjusted Balance
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			1,590
Residential rentals
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	282,365			195,035
Allowance for loan losses	(2,545)	(1,660)		(2,175)	(1,800)	(1,186)	(1,413)
Residential rentals | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Allowance for loan losses				586
Residential rentals | Portfolio Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	282,365		194,911	195,035
Residential rentals | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjusted Balance
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			(124)
Construction and land development
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	23,197			35,590
Allowance for loan losses	(197)	(166)		(260)	(368)	(332)	(401)
Construction and land development | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Allowance for loan losses				82
Construction and land development | Portfolio Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	23,197		35,502	35,590
Construction and land development | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjusted Balance
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			(88)
Home equity and second mortgages
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans				25,638
Allowance for loan losses	(142)	(143)		(274)	(249)	(242)	(261)
Home equity and second mortgages | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Allowance for loan losses				86
Home equity and second mortgages | Portfolio Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			25,661
Home equity and second mortgages | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjusted Balance
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			23
Commercial loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	41,615			50,574
Allowance for loan losses	(254)	(238)		(582)	(909)	(1,113)	(1,222)
Commercial loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Allowance for loan losses				290
Commercial loans | Portfolio Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	41,615		50,512	50,574
Commercial loans | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjusted Balance
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			(62)
Consumer loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	5,754			3,002
Allowance for loan losses	(142)	(132)		(58)	(42)	(28)	(20)
Consumer loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Allowance for loan losses				(2)
Consumer loans | Portfolio Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	5,754		3,015	3,002
Consumer loans | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjusted Balance
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			13
Commercial equipment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	78,551			62,499
Allowance for loan losses	(1,474)	$ (1,977)		(971)	$ (828)	$ (798)	$ (1,058)
Commercial equipment | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Allowance for loan losses				(483)
Commercial equipment | Portfolio Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	78,551		62,706	62,499
Commercial equipment | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjusted Balance
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			207
U.S. SBA PPP
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans				27,276
U.S. SBA PPP | Non Portfolio Loans
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans	1,211		26,398	27,276
Net deferred costs			0	(878)
Net portfolio loans	$ 1,211		26,398	$ 26,398
U.S. SBA PPP | Non Portfolio Loans | Cumulative Effect, Period of Adoption, Adjusted Balance
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			(878)
Net deferred costs			878
Net portfolio loans			0
Accounting Standards Update 2019-11 | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Net portfolio loans			1,586,791
Accounting Standards Update 2019-11 | Cumulative Effect, Period of Adoption, Adjustment | Unfunded Loan Commitment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			51
Accounting Standards Update 2019-11 | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			1,578,943
Net deferred costs			(133)
Allowance for loan losses			(18,417)
Net portfolio loans			1,560,393
Accounting Standards Update 2019-11 | Commercial real estate | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			1,115,485
Accounting Standards Update 2019-11 | Residential first mortgages | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			91,120
Accounting Standards Update 2019-11 | Residential rentals | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			195,035
Accounting Standards Update 2019-11 | Construction and land development | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			35,590
Accounting Standards Update 2019-11 | Home equity and second mortgages | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			25,638
Accounting Standards Update 2019-11 | Commercial loans | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			50,574
Accounting Standards Update 2019-11 | Consumer loans | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			3,002
Accounting Standards Update 2019-11 | Commercial equipment | Portfolio Loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			62,499
Accounting Standards Update 2019-11 | U.S. SBA PPP | Non Portfolio Loans | Cumulative Effect, Period of Adoption, Adjustment
Financing Receivable, Troubled Debt Restructuring [Line Items]
Gross loans			27,276
Net deferred costs			(878)
Net portfolio loans			$ 26,398

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BASIS OF PRESENTATION AND NATURE OF OPERATIONS (Narrative) (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2022	Dec. 31, 2021	Jan. 01, 2022
Financing Receivable, Troubled Debt Restructuring [Line Items]
PCD loans unpaid principal balance		$ 1,400
PCD loans purchased, carrying amount		1,100
PCD loans discount		$ 8
Estimates for economic forecast, period (in years)	1 year
Reversion to historical mean loss rates, period (in years)	1 year
Minimum | Cumulative Effect, Period of Adoption, Adjustment | Accounting Standards Update 2016-13
Financing Receivable, Troubled Debt Restructuring [Line Items]
Adjustment to opening allowance for credit losses			$ (2,500)

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INVESTMENT SECURITIES (Fair Value to Amortized Cost Basis) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Debt and Equity Securities, FV-NI [Line Items]
Amortized Cost	$ 523,882	$ 500,478
Gross Unrealized Gains	129	3,390
Gross Unrealized Losses	59,509	6,029
Estimated Fair Value	464,502	497,839
CRA investment fund	4,254	4,772
Other equity securities	207	207
Total Investment Securities, Amortized Cost	528,343	505,457
Total Investment Securities, Gross Unrealized Gains	129	3,390
Total Investment Securities, Gross Unrealized Losses	59,509	6,029
Total Investment Securities, Estimated Fair Value	468,963	502,818
Residential Mortgage Backed Securities ("MBS")
Debt and Equity Securities, FV-NI [Line Items]
Amortized Cost	128,493	121,125
Gross Unrealized Gains	13	1,057
Gross Unrealized Losses	13,770	2,266
Estimated Fair Value	114,736	119,916
Residential Collateralized Mortgage Obligations ("CMOs")
Debt and Equity Securities, FV-NI [Line Items]
Amortized Cost	181,433	198,780
Gross Unrealized Gains	13	710
Gross Unrealized Losses	16,579	2,367
Estimated Fair Value	164,867	197,123
U.S. Agency
Debt and Equity Securities, FV-NI [Line Items]
Amortized Cost	14,601	14,433
Gross Unrealized Gains	0	11
Gross Unrealized Losses	2,375	140
Estimated Fair Value	12,226	14,304
Residential CMOs
Debt and Equity Securities, FV-NI [Line Items]
Amortized Cost	9,363	220
Gross Unrealized Gains	0	5
Gross Unrealized Losses	260	4
Estimated Fair Value	9,103	221
Student Loan Trust ABSs
Debt and Equity Securities, FV-NI [Line Items]
Amortized Cost	50,315	56,422
Gross Unrealized Gains	103	438
Gross Unrealized Losses	1,879	286
Estimated Fair Value	48,539	56,574
Municipal bonds
Debt and Equity Securities, FV-NI [Line Items]
Amortized Cost	99,846	92,556
Gross Unrealized Gains	0	1,169
Gross Unrealized Losses	20,982	884
Estimated Fair Value	78,864	92,841
Corporate bonds
Debt and Equity Securities, FV-NI [Line Items]
Amortized Cost	3,000
Gross Unrealized Gains	0
Gross Unrealized Losses	391
Estimated Fair Value	2,609
U.S. government obligations
Debt and Equity Securities, FV-NI [Line Items]
Amortized Cost	36,831	16,942
Gross Unrealized Gains	0	0
Gross Unrealized Losses	3,273	82
Estimated Fair Value	33,558	16,860
CRA investment fund
Debt and Equity Securities, FV-NI [Line Items]
CRA investment fund	4,254	4,772
Other equity securities
Debt and Equity Securities, FV-NI [Line Items]
Other equity securities	$ 207	$ 207

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INVESTMENT SECURITIES (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2021	Sep. 30, 2022
Debt and Equity Securities, FV-NI [Line Items]
Accrued interest receivable ("AIR")	$ 1,100	$ 1,600
Asset backed securities pledged to secure certain deposits	50,900	55,600
Recognized net gains	600
Securities available for sale ("AFS"), at fair value	497,839	$ 464,502
Available for Sale Securities Sold
Debt and Equity Securities, FV-NI [Line Items]
Securities available for sale ("AFS"), at fair value	$ 11,900

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INVESTMENT SECURITIES (Schedule of Unrealized Loss on Investments, AFS) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Fair Value
Less than 12 months, fair value	$ 141,927	$ 289,705
More than 12 months, fair value	310,127	52,305
Fair value	452,054	342,010
Unrealized Loss
Less than 12 months, unrealized loss	18,096	5,136
More than 12 months, unrealized loss	41,413	893
Unrealized loss	59,509	6,029
Asset-backed securities issued by GSEs and U.S. Agencies
Fair Value
Less than 12 months, fair value	69,403	205,891
More than 12 months, fair value	220,175	41,327
Fair value	289,578	247,218
Unrealized Loss
Less than 12 months, unrealized loss	6,302	3,997
More than 12 months, unrealized loss	26,422	776
Unrealized loss	32,724	4,773
Asset-backed securities issued by Others
Fair Value
Less than 12 months, fair value	5,937	0
More than 12 months, fair value	149	57
Fair value	6,086	57
Unrealized Loss
Less than 12 months, unrealized loss	244	0
More than 12 months, unrealized loss	16	4
Unrealized loss	260	4
Student Loan Trust ABSs
Fair Value
Less than 12 months, fair value	6,536	21,640
More than 12 months, fair value	34,823	2,226
Fair value	41,359	23,866
Unrealized Loss
Less than 12 months, unrealized loss	1,000	281
More than 12 months, unrealized loss	879	5
Unrealized loss	1,879	286
Municipal bonds
Fair Value
Less than 12 months, fair value	38,786	47,314
More than 12 months, fair value	40,078	6,696
Fair value	78,864	54,010
Unrealized Loss
Less than 12 months, unrealized loss	8,927	776
More than 12 months, unrealized loss	12,055	108
Unrealized loss	20,982	884
Corporate bonds
Fair Value
Less than 12 months, fair value	2,609
More than 12 months, fair value	0
Fair value	2,609
Unrealized Loss
Less than 12 months, unrealized loss	391
More than 12 months, unrealized loss	0
Unrealized loss	391
U.S. government obligations
Fair Value
Less than 12 months, fair value	18,656	14,860
More than 12 months, fair value	14,902	1,999
Fair value	33,558	16,859
Unrealized Loss
Less than 12 months, unrealized loss	1,232	82
More than 12 months, unrealized loss	2,041	0
Unrealized loss	$ 3,273	$ 82

XML

INVESTMENT SECURITIES (Maturities Schedule) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Amortized Cost
Within one year	$ 35,730	$ 36,859
Over one year through five years	137,433	121,308
Over five years through ten years	219,912	191,166
After ten years	130,807	151,145
Amortized Cost	523,882	500,478
Estimated Fair Value
Within one year	31,680	36,665
Over one year through five years	121,856	120,668
Over five years through ten years	194,986	190,158
After ten years	115,980	150,348
Securities available for sale ("AFS"), at fair value	$ 464,502	$ 497,839

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LOANS (Schedule of Accounts, Notes, Loans and Financing Receivable) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Jun. 30, 2022	Jan. 01, 2022	Dec. 31, 2021	Sep. 30, 2021	Jun. 30, 2021	Dec. 31, 2020
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans				$ 1,606,219
Less
Net deferred costs				$ (1,011)
Net deferred costs (fees), percentage				(0.06%)
Allowance for loan losses	$ (22,027)	$ (21,404)		$ (18,417)	$ (18,527)	$ (18,464)	$ (19,424)
Net portfolio loans	1,722,461		$ 1,584,295	1,586,791
Accrued interest receivable	5,200			4,500
Portfolio Loans, Excluding US SBA PPP Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 1,743,277			$ 1,578,943
Percentage status of loan in portfolio	100.00%			100.00%
Portfolio Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 1,744,488		1,578,810	$ 1,578,943
Less
Net deferred costs			0	$ (133)
Net deferred costs (fees), percentage				(0.01%)
Allowance for loan losses	$ (22,027)		(20,913)	$ (18,417)
Allowance for loan losses, percentage	(1.26%)			(1.17%)
Subtotal loans				$ (18,550)
Net portfolio loans	$ 1,721,250		1,557,897	1,560,393
Commercial real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 1,202,660			1,115,485
Percentage status of loan in portfolio	68.98%
Less
Allowance for loan losses	$ (17,036)	(16,833)		(13,095)	(13,419)	(13,918)	(13,744)
Commercial real estate | Portfolio Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	1,202,660		1,113,793	$ 1,115,485
Percentage status of loan in portfolio				70.66%
Residential first mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 83,081			$ 91,120
Percentage status of loan in portfolio	4.77%
Less
Allowance for loan losses	$ (237)	(255)		(1,002)	(912)	(847)	(1,305)
Residential first mortgages | Portfolio Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	83,081		92,710	$ 91,120
Percentage status of loan in portfolio				5.77%
Residential rentals
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 282,365			$ 195,035
Percentage status of loan in portfolio	16.20%
Less
Allowance for loan losses	$ (2,545)	(1,660)		(2,175)	(1,800)	(1,186)	(1,413)
Residential rentals | Portfolio Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	282,365		194,911	$ 195,035
Percentage status of loan in portfolio				12.35%
Construction and land development
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 23,197			$ 35,590
Percentage status of loan in portfolio	1.33%
Less
Allowance for loan losses	$ (197)	(166)		(260)	(368)	(332)	(401)
Construction and land development | Portfolio Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	23,197		35,502	$ 35,590
Percentage status of loan in portfolio				2.25%
Home equity and second mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 26,054
Percentage status of loan in portfolio	1.49%
Home equity and second mortgages | Portfolio Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 26,054			$ 25,638
Percentage status of loan in portfolio				1.62%
Commercial loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 41,615			$ 50,574
Percentage status of loan in portfolio	2.39%
Less
Allowance for loan losses	$ (254)	(238)		(582)	(909)	(1,113)	(1,222)
Commercial loans | Portfolio Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	41,615		50,512	$ 50,574
Percentage status of loan in portfolio				3.20%
Consumer loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 5,754			$ 3,002
Percentage status of loan in portfolio	0.33%
Less
Allowance for loan losses	$ (142)	(132)		(58)	(42)	(28)	(20)
Consumer loans | Portfolio Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	5,754		3,015	$ 3,002
Percentage status of loan in portfolio				0.19%
Commercial equipment
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 78,551			$ 62,499
Percentage status of loan in portfolio	4.51%
Less
Allowance for loan losses	$ (1,474)	$ (1,977)		(971)	$ (828)	$ (798)	$ (1,058)
Commercial equipment | Portfolio Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	78,551		62,706	$ 62,499
Percentage status of loan in portfolio				3.96%
U.S. SBA PPP
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans				$ 27,276
U.S. SBA PPP | Non Portfolio Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	1,211		26,398	27,276
Less
Net deferred costs			0	(878)
Net portfolio loans	$ 1,211		$ 26,398	$ 26,398

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LOANS (Narrative) (Details)	3 Months Ended			9 Months Ended	12 Months Ended
	Sep. 30, 2022 USD ($)	Dec. 31, 2021 USD ($)	Sep. 30, 2021 USD ($)	Sep. 30, 2022 USD ($) loan tDR_Loan	Dec. 31, 2021 USD ($) tDR_Loan loan
Accounts, Notes, Loans and Financing Receivable [Line Items]
Deferred loan fee and premiums, net	$ (1,400,000)				$ (100,000)
Deferred loan fee and premium, paid by customers	5,600,000			$ 5,600,000
Total Deferred Fee and Premiums	$ 4,200,000	$ 4,000,000		$ 4,200,000	4,000,000
Deferred loan fees and premiums include net deferred fees paid by customers		4,100,000			4,100,000
Net deferred costs		1,011,000			1,011,000
Gross loans		1,606,219,000			1,606,219,000
Service rights retained, percent of outstanding balance	0.25%			0.25%
Service rights retained, amount	$ 20,000,000	20,900,000		$ 20,000,000	20,900,000
Number of non-accrual delinquent loans	578,000	961,000		$ 578,000	961,000
Delinquent non-accrual loans, impairment		0			0
Reserve for delinquent non accrual loans		300,000			$ 300,000
Number of non-accrual loans, number of delinquent TDRs. | loan				0	0
Nonaccrual	6,290,000	7,631,000		$ 6,290,000	$ 7,631,000
Number of TDR loans | tDR_Loan				1	1
Specific reserves for TDR loans	$ 0	0		$ 0	$ 0
Loans added to troubled debt restructuring | loan				0	0
Purchased with credit deterioration, allowance for credit loss at acquisition				$ 0
Impaired financing receivable, recorded investment		8,494,000	$ 6,036,000		$ 8,494,000
PCI Loans, accretion interest			100,000
Reclassification to nonaccretable difference		$ 500,000
County First Acquisition
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percentage status of loan in portfolio		2.63%			2.63%
Gross loans		$ 42,182,000			$ 42,182,000
Purchased credit impaired
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired financing receivable, recorded investment		$ 1,100,000			$ 1,100,000
Purchased credit impaired | County First Acquisition
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percentage status of loan in portfolio		0.07%			0.07%
Gross loans		$ 1,116,000			$ 1,116,000
Purchased credit impaired | County First Bank Acquisition
Accounts, Notes, Loans and Financing Receivable [Line Items]
New acquisition accounting for fair market value adjustment		$ 300,000			$ 300,000
Net acquisition accounting fair market value adjustment, mark		14.95%			14.95%
All Other Loans | County First Acquisition
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percentage status of loan in portfolio		2.56%			2.56%
Gross loans		$ 41,066,000			$ 41,066,000
All Other Loans | County First Bank Acquisition
Accounts, Notes, Loans and Financing Receivable [Line Items]
New acquisition accounting for fair market value adjustment		$ 800,000			$ 800,000
Net acquisition accounting fair market value adjustment, mark		1.25%			1.25%
Loan Delinquency
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percentage status of loan in portfolio	0.07%	0.09%		0.07%	0.09%
Nonaccrual	$ 1,100,000	$ 1,400,000		$ 1,100,000	$ 1,400,000
Increase (decrease) In loan delinquency					$ (300,000)
Nonaccrual Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percentage status of loan in portfolio	0.36%	0.48%		0.36%	0.48%
Increase (decrease) in finance receivables				$ (1,300,000)
Number of non-accrual delinquent loans	$ 6,300,000	$ 7,600,000		6,300,000	$ 7,600,000
Nonaccrual Loans With No Impairment
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of non-accrual delinquent loans		6,700,000			$ 6,700,000
Percentage of current loans on total non accrual loans					87.00%
Nonaccrual	6,200,000	7,400,000		6,200,000	$ 7,400,000
Interest due to debt				36,000	100,000
Nonaccrual Loans With Impairment
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of non-accrual delinquent loans		1,000,000			$ 1,000,000
Percentage of delinquent loans on total non accrual loans					13.00%
Nonaccrual	100,000	300,000		100,000	$ 300,000
Interest due to debt				$ 1,000	1,000
Residential rentals | Minimum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Debt maturity period (in years)				3 years
Residential rentals | Maximum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Debt maturity period (in years)				20 years
U.S. SBA PPP
Accounts, Notes, Loans and Financing Receivable [Line Items]
Net deferred costs	(41,000)	(200,000)		$ (41,000)	(200,000)
Offset by net deferred premiums paid to purchase loans	3,000	18,000		3,000	18,000
Deferred loan fees and premiums included in deferred fees paid by SBA	44,000	200,000		44,000	200,000
Adjustable Rate Residential First Mortgage
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	1,700,000,000	1,600,000,000		1,700,000,000	$ 1,600,000,000
One Troubled Debt Restructuring Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of TDR loans | loan					0
Financing Receivable Troubled Debt Restructuring
Accounts, Notes, Loans and Financing Receivable [Line Items]
TDR loan principal curtailment	$ 5,000			12,000	$ 19,000
Seven Trouble Debt Restructuring Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans removed from troubled debt restructuring | loan					3
Amount of loans removed from troubled debt restructuring					$ 100,000
Commercial loans | Minimum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Bank exposure, threshold limit for credit rating (or greater)				$ 1,000,000
Commercial real estate
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percentage status of loan in portfolio	68.98%			68.98%
Gross loans	$ 1,202,660,000	1,115,485,000		$ 1,202,660,000	1,115,485,000
Number of non-accrual delinquent loans	0	0		0	0
Nonaccrual	$ 4,661,000	4,890,000		$ 4,661,000	4,890,000
Impaired financing receivable, recorded investment		$ 4,890,000	3,136,000		$ 4,890,000
Commercial real estate | Commercial Construction Loans
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percentage status of loan in portfolio	7.50%	6.50%		7.50%	6.50%
Percent of appraised value or sales price				80.00%
Residential first mortgages
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percentage status of loan in portfolio	4.77%			4.77%
Gross loans	$ 83,081,000	$ 91,120,000		$ 83,081,000	$ 91,120,000
Number of non-accrual delinquent loans		450,000			450,000
Nonaccrual		450,000			450,000
Impaired financing receivable, recorded investment		$ 866,000	872,000		$ 866,000
Residential first mortgages | Minimum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Debt maturity period (in years)				10 years
Residential first mortgages | Maximum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Debt maturity period (in years)				30 years
Residential first mortgages | Adjustable Rate Residential First Mortgage
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percentage status of loan in portfolio	0.80%	1.20%		0.80%	1.20%
Gross loans	$ 13,400,000	$ 18,900,000		$ 13,400,000	$ 18,900,000
Residential rentals
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percentage status of loan in portfolio	16.20%			16.20%
Gross loans	$ 282,365,000	195,035,000		$ 282,365,000	195,035,000
Number of non-accrual delinquent loans	454,000	252,000		454,000	252,000
Nonaccrual	$ 1,153,000	942,000		$ 1,153,000	942,000
Impaired financing receivable, recorded investment		$ 942,000	$ 961,000		$ 942,000
Residential rentals | Minimum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Debt maturity period (in years)				3 years
Residential rentals | Maximum
Accounts, Notes, Loans and Financing Receivable [Line Items]
Debt maturity period (in years)				20 years
Residential rentals | Apartment Buildings Rentals
Accounts, Notes, Loans and Financing Receivable [Line Items]
Percent of appraised value or sales price				80.00%

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LOANS (Schedule of Financing Receivables, Non-Accrual Status) (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual with No Allowance for Credit Losses	$ 6,181
Nonaccrual with Allowance for Credit Losses	109
Number of non-accrual delinquent loans	578	$ 961
Non-accrual current loans	5,712	6,670
Nonaccrual	6,290	7,631
Interest Income on Nonaccrual Loans	0
Interest Income on Nonaccrual Loans	63
Commercial real estate
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual with No Allowance for Credit Losses	4,577
Nonaccrual with Allowance for Credit Losses	84
Number of non-accrual delinquent loans	0	0
Non-accrual current loans	4,661	4,890
Nonaccrual	4,661	4,890
Residential first mortgages
Financing Receivable, Recorded Investment, Past Due [Line Items]
Number of non-accrual delinquent loans		450
Non-accrual current loans		0
Nonaccrual		450
Residential rentals
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual with No Allowance for Credit Losses	1,153
Nonaccrual with Allowance for Credit Losses	0
Number of non-accrual delinquent loans	454	252
Non-accrual current loans	699	690
Nonaccrual	1,153	942
Home equity and second mortgages
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual with No Allowance for Credit Losses	240
Nonaccrual with Allowance for Credit Losses	0
Number of non-accrual delinquent loans	124	202
Non-accrual current loans	116	399
Nonaccrual	240	601
Commercial loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual with No Allowance for Credit Losses	0
Nonaccrual with Allowance for Credit Losses	25
Number of non-accrual delinquent loans	0
Non-accrual current loans	25
Nonaccrual	25
Commercial equipment
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual with No Allowance for Credit Losses	211
Nonaccrual with Allowance for Credit Losses	0
Number of non-accrual delinquent loans	0	0
Non-accrual current loans	211	691
Nonaccrual	$ 211	691
U.S. SBA PPP
Financing Receivable, Recorded Investment, Past Due [Line Items]
Number of non-accrual delinquent loans		57
Non-accrual current loans		0
Nonaccrual		$ 57

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LOANS (Past Due Financing Receivables) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Jan. 01, 2022	Dec. 31, 2021
Financing Receivable, Impaired [Line Items]
Gross loans			$ 1,606,219
Nonaccrual	$ 6,290		7,631
Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	1,744,488	$ 1,578,810	1,578,943
31-60 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	527		200
61-89 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	186		319
90 or Greater DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	31		904
Nonaccrual	397
Total Past Due | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	1,141		1,423
Commercial real estate
Financing Receivable, Impaired [Line Items]
Gross loans	1,202,660		1,115,485
Nonaccrual	4,661		4,890
Commercial real estate | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	1,202,660	1,113,793	1,115,485
Commercial real estate | 31-60 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Commercial real estate | 61-89 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Commercial real estate | 90 or Greater DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Nonaccrual	0
Commercial real estate | Total Past Due | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Residential first mortgages
Financing Receivable, Impaired [Line Items]
Gross loans	83,081		91,120
Nonaccrual			450
Residential first mortgages | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	83,081	92,710	91,120
Residential first mortgages | 31-60 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Residential first mortgages | 61-89 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		277
Residential first mortgages | 90 or Greater DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		450
Nonaccrual	0
Residential first mortgages | Total Past Due | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		727
Residential rentals
Financing Receivable, Impaired [Line Items]
Gross loans	282,365		195,035
Nonaccrual	1,153		942
Residential rentals | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	282,365	194,911	195,035
Residential rentals | 31-60 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	32		0
Residential rentals | 61-89 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	181		42
Residential rentals | 90 or Greater DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		252
Nonaccrual	273
Residential rentals | Total Past Due | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	486		294
Construction and land development
Financing Receivable, Impaired [Line Items]
Gross loans	23,197		35,590
Construction and land development | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	23,197	35,502	35,590
Construction and land development | 31-60 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Construction and land development | 61-89 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Construction and land development | 90 or Greater DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Nonaccrual	0
Construction and land development | Total Past Due | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Home equity and second mortgages
Financing Receivable, Impaired [Line Items]
Gross loans	26,054
Home equity and second mortgages | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	26,054		25,638
Home equity and second mortgages | 31-60 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	204		200
Home equity and second mortgages | 61-89 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Home equity and second mortgages | 90 or Greater DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		202
Nonaccrual	124
Home equity and second mortgages | Total Past Due | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	328		402
Commercial loans
Financing Receivable, Impaired [Line Items]
Gross loans	41,615		50,574
Commercial loans | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	41,615	50,512	50,574
Commercial loans | 31-60 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Commercial loans | 61-89 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Commercial loans | 90 or Greater DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Nonaccrual	0
Commercial loans | Total Past Due | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Consumer loans
Financing Receivable, Impaired [Line Items]
Gross loans	5,754		3,002
Consumer loans | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	5,754	3,015	3,002
Consumer loans | 31-60 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	19		0
Consumer loans | 61-89 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	5		0
Consumer loans | 90 or Greater DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	31		0
Nonaccrual	0
Consumer loans | Total Past Due | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	55		0
Commercial equipment
Financing Receivable, Impaired [Line Items]
Gross loans	78,551		62,499
Nonaccrual	211		691
Commercial equipment | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	78,551	62,706	62,499
Commercial equipment | 31-60 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Commercial equipment | 61-89 DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Commercial equipment | 90 or Greater DPD | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
Nonaccrual	0
Commercial equipment | Total Past Due | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		0
U.S. SBA PPP
Financing Receivable, Impaired [Line Items]
Gross loans			27,276
Nonaccrual			57
U.S. SBA PPP | Non Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	1,211	$ 26,398	27,276
PCI Loans			0
U.S. SBA PPP | 31-60 DPD | Non Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	272		9
U.S. SBA PPP | 61-89 DPD | Non Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		40
U.S. SBA PPP | 90 or Greater DPD | Non Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	0		57
Nonaccrual	0
U.S. SBA PPP | Total Past Due | Non Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	272		106
U.S. SBA PPP | Current | Non Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	939		27,170
Nonaccrual	0
Purchased credit impaired | Portfolio Loans
Financing Receivable, Impaired [Line Items]
PCI Loans			1,116
Purchased credit impaired | Commercial real estate | Portfolio Loans
Financing Receivable, Impaired [Line Items]
PCI Loans			1,116
Purchased credit impaired | Residential first mortgages | Portfolio Loans
Financing Receivable, Impaired [Line Items]
PCI Loans			0
Purchased credit impaired | Residential rentals | Portfolio Loans
Financing Receivable, Impaired [Line Items]
PCI Loans			0
Purchased credit impaired | Construction and land development | Portfolio Loans
Financing Receivable, Impaired [Line Items]
PCI Loans			0
Purchased credit impaired | Home equity and second mortgages | Portfolio Loans
Financing Receivable, Impaired [Line Items]
PCI Loans			0
Purchased credit impaired | Commercial loans | Portfolio Loans
Financing Receivable, Impaired [Line Items]
PCI Loans			0
Purchased credit impaired | Consumer loans | Portfolio Loans
Financing Receivable, Impaired [Line Items]
PCI Loans			0
Purchased credit impaired | Commercial equipment | Portfolio Loans
Financing Receivable, Impaired [Line Items]
PCI Loans			0
All Other Loans | Current | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	1,737,635		1,576,404
Nonaccrual	5,712
All Other Loans | Commercial real estate | Current | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	1,197,999		1,114,369
Nonaccrual	4,661
All Other Loans | Residential first mortgages | Current | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	83,081		90,393
Nonaccrual	0
All Other Loans | Residential rentals | Current | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	281,180		194,741
Nonaccrual	699
All Other Loans | Construction and land development | Current | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	23,197		35,590
Nonaccrual	0
All Other Loans | Home equity and second mortgages | Current | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	25,610		25,236
Nonaccrual	116
All Other Loans | Commercial loans | Current | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	41,590		50,574
Nonaccrual	25
All Other Loans | Consumer loans | Current | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	5,699		3,002
Nonaccrual	0
All Other Loans | Commercial equipment | Current | Portfolio Loans
Financing Receivable, Impaired [Line Items]
Gross loans	78,340		$ 62,499
Nonaccrual	$ 211

XML

LOANS (Allowance for Credit Losses "ACL" on Financing Receivables) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Allowance for credit losses:
Beginning Balance	$ 21,404	$ 18,464	$ 18,417	$ 19,424
Charge-offs	(92)	(491)	(539)	(2,037)
Recoveries	21	554	84	606
Provisions	694	0	1,569	534
Ending Balance	22,027	18,527	22,027	18,527
Cumulative Effect, Period of Adoption, Adjustment
Allowance for credit losses:
Beginning Balance			2,496
Commercial real estate
Allowance for credit losses:
Beginning Balance	16,833	13,918	13,095	13,744
Charge-offs	0	(491)	(280)	(1,739)
Recoveries	0	4	0	6
Provisions	203	(12)	487	1,408
Ending Balance	17,036	13,419	17,036	13,419
Commercial real estate | Cumulative Effect, Period of Adoption, Adjustment
Allowance for credit losses:
Beginning Balance			3,734
Residential first mortgages
Allowance for credit losses:
Beginning Balance	255	847	1,002	1,305
Charge-offs	0	0	(111)	(142)
Recoveries	14	0	14	0
Provisions	(32)	65	11	(251)
Ending Balance	237	912	237	912
Residential first mortgages | Cumulative Effect, Period of Adoption, Adjustment
Allowance for credit losses:
Beginning Balance			(679)
Residential rentals
Allowance for credit losses:
Beginning Balance	1,660	1,186	2,175	1,413
Charge-offs	0	0	0	(46)
Recoveries	0	0	0	0
Provisions	885	614	956	433
Ending Balance	2,545	1,800	2,545	1,800
Residential rentals | Cumulative Effect, Period of Adoption, Adjustment
Allowance for credit losses:
Beginning Balance			(586)
Construction and land development
Allowance for credit losses:
Beginning Balance	166	332	260	401
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provisions	31	36	19	(33)
Ending Balance	197	368	197	368
Construction and land development | Cumulative Effect, Period of Adoption, Adjustment
Allowance for credit losses:
Beginning Balance			(82)
Home equity and second mortgages
Allowance for credit losses:
Beginning Balance	143	242	274	261
Charge-offs	0	0	0	0
Recoveries	0	1	1	4
Provisions	(1)	6	(47)	(16)
Ending Balance	142	249	142	249
Home equity and second mortgages | Cumulative Effect, Period of Adoption, Adjustment
Allowance for credit losses:
Beginning Balance			(86)
Commercial loans
Allowance for credit losses:
Beginning Balance	238	1,113	582	1,222
Charge-offs	(49)	0	(99)	(76)
Recoveries	1	529	2	539
Provisions	64	(733)	59	(776)
Ending Balance	254	909	254	909
Commercial loans | Cumulative Effect, Period of Adoption, Adjustment
Allowance for credit losses:
Beginning Balance			(290)
Consumer loans
Allowance for credit losses:
Beginning Balance	132	28	58	20
Charge-offs	(14)	0	(20)	0
Recoveries	0	0	0	0
Provisions	24	14	102	22
Ending Balance	142	42	142	42
Consumer loans | Cumulative Effect, Period of Adoption, Adjustment
Allowance for credit losses:
Beginning Balance			2
Commercial equipment
Allowance for credit losses:
Beginning Balance	1,977	798	971	1,058
Charge-offs	(29)	0	(29)	(34)
Recoveries	6	20	67	57
Provisions	(480)	10	(18)	(253)
Ending Balance	$ 1,474	828	1,474	828
Commercial equipment | Cumulative Effect, Period of Adoption, Adjustment
Allowance for credit losses:
Beginning Balance			$ 483
Purchased credit impaired
Allowance for credit losses:
Beginning Balance		52		0
Charge-offs		0		0
Recoveries		0		0
Provisions		0		52
Ending Balance		$ 52		$ 52

XML

LOANS (Amortized Cost for Collateral-Dependent Loans by Class of Loans) (Details) $ in Thousands	Sep. 30, 2022 USD ($)
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	$ 6,181
Commercial real estate
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	4,577
Residential rentals
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	1,153
Home equity and second mortgages
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	240
Commercial equipment
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	211
Business/Other Assets
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	670
Business/Other Assets | Commercial real estate
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	0
Business/Other Assets | Residential first mortgages
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	0
Business/Other Assets | Residential rentals
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	0
Business/Other Assets | Home equity and second mortgages
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	0
Business/Other Assets | Commercial loans
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	25
Business/Other Assets | Commercial equipment
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	645
Real Estate
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	5,872
Real Estate | Commercial real estate
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	4,660
Real Estate | Residential first mortgages
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	0
Real Estate | Residential rentals
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	972
Real Estate | Home equity and second mortgages
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	240
Real Estate | Commercial loans
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	0
Real Estate | Commercial equipment
Financing Receivable, Nonaccrual [Line Items]
Nonaccrual with No Allowance for Credit Losses	$ 0

XML

LOANS (Risk Category of Loans by Class of Loans) (Details) $ in Thousands	Sep. 30, 2022 USD ($)
Loans and Leases Receivable Disclosure [Line Items]
Prior	$ 480,363
Originated, Four years before current fiscal year	105,623
Originated, Three years before current fiscal year	176,136
Originated, Two years before current fiscal year	257,287
Originated, Fiscal year before current fiscal year	383,762
Originated, Current fiscal year	337,383
Revolving Loans	3,934
Total	1,744,488
Total loans by risk category
Loans and Leases Receivable Disclosure [Line Items]
Prior	424,824
Originated, Four years before current fiscal year	100,346
Originated, Three years before current fiscal year	155,553
Originated, Two years before current fiscal year	247,187
Originated, Fiscal year before current fiscal year	372,713
Originated, Current fiscal year	327,765
Revolving Loans	0
Total	1,628,388
Total loans evaluated by performing status
Loans and Leases Receivable Disclosure [Line Items]
Prior	55,539
Originated, Four years before current fiscal year	5,277
Originated, Three years before current fiscal year	20,583
Originated, Two years before current fiscal year	10,100
Originated, Fiscal year before current fiscal year	11,049
Originated, Current fiscal year	9,618
Revolving Loans	3,934
Total	116,100
Commercial real estate | Total loans by risk category
Loans and Leases Receivable Disclosure [Line Items]
Prior	341,861
Originated, Four years before current fiscal year	78,698
Originated, Three years before current fiscal year	110,719
Originated, Two years before current fiscal year	193,637
Originated, Fiscal year before current fiscal year	283,634
Originated, Current fiscal year	194,111
Revolving Loans	0
Total	1,202,660
Commercial real estate | Pass
Loans and Leases Receivable Disclosure [Line Items]
Prior	335,465
Originated, Four years before current fiscal year	74,482
Originated, Three years before current fiscal year	107,720
Originated, Two years before current fiscal year	188,070
Originated, Fiscal year before current fiscal year	282,781
Originated, Current fiscal year	187,151
Revolving Loans	0
Total	1,175,669
Commercial real estate | Watch
Loans and Leases Receivable Disclosure [Line Items]
Prior	5,588
Originated, Four years before current fiscal year	4,216
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	5,567
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	6,960
Revolving Loans	0
Total	22,331
Commercial real estate | Special mention
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	0
Commercial real estate | Substandard
Loans and Leases Receivable Disclosure [Line Items]
Prior	808
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	2,999
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	853
Originated, Current fiscal year	0
Revolving Loans	0
Total	4,660
Residential rentals | Total loans by risk category
Loans and Leases Receivable Disclosure [Line Items]
Prior	46,160
Originated, Four years before current fiscal year	4,495
Originated, Three years before current fiscal year	21,141
Originated, Two years before current fiscal year	42,263
Originated, Fiscal year before current fiscal year	65,468
Originated, Current fiscal year	102,838
Revolving Loans	0
Total	282,365
Residential rentals | Pass
Loans and Leases Receivable Disclosure [Line Items]
Prior	45,188
Originated, Four years before current fiscal year	4,495
Originated, Three years before current fiscal year	21,141
Originated, Two years before current fiscal year	42,263
Originated, Fiscal year before current fiscal year	65,468
Originated, Current fiscal year	102,838
Revolving Loans	0
Total	281,393
Residential rentals | Watch
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	0
Residential rentals | Special mention
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	0
Residential rentals | Substandard
Loans and Leases Receivable Disclosure [Line Items]
Prior	972
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	972
Construction and land development | Total loans by risk category
Loans and Leases Receivable Disclosure [Line Items]
Prior	4,550
Originated, Four years before current fiscal year	8,987
Originated, Three years before current fiscal year	5,094
Originated, Two years before current fiscal year	1,399
Originated, Fiscal year before current fiscal year	2,529
Originated, Current fiscal year	638
Revolving Loans	0
Total	23,197
Construction and land development | Pass
Loans and Leases Receivable Disclosure [Line Items]
Prior	4,550
Originated, Four years before current fiscal year	8,987
Originated, Three years before current fiscal year	5,094
Originated, Two years before current fiscal year	1,399
Originated, Fiscal year before current fiscal year	2,529
Originated, Current fiscal year	638
Revolving Loans	0
Total	23,197
Construction and land development | Watch
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	0
Construction and land development | Special mention
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	0
Construction and land development | Substandard
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	0
Commercial loans | Total loans by risk category
Loans and Leases Receivable Disclosure [Line Items]
Prior	23,516
Originated, Four years before current fiscal year	2,628
Originated, Three years before current fiscal year	2,708
Originated, Two years before current fiscal year	1,893
Originated, Fiscal year before current fiscal year	7,792
Originated, Current fiscal year	3,078
Revolving Loans	0
Total	41,615
Commercial loans | Pass
Loans and Leases Receivable Disclosure [Line Items]
Prior	23,516
Originated, Four years before current fiscal year	2,628
Originated, Three years before current fiscal year	2,708
Originated, Two years before current fiscal year	1,868
Originated, Fiscal year before current fiscal year	7,792
Originated, Current fiscal year	3,078
Revolving Loans	0
Total	41,590
Commercial loans | Watch
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	0
Commercial loans | Special mention
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	0
Commercial loans | Substandard
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	25
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	25
Commercial equipment | Total loans by risk category
Loans and Leases Receivable Disclosure [Line Items]
Prior	8,737
Originated, Four years before current fiscal year	5,538
Originated, Three years before current fiscal year	15,891
Originated, Two years before current fiscal year	7,995
Originated, Fiscal year before current fiscal year	13,290
Originated, Current fiscal year	27,100
Revolving Loans	0
Total	78,551
Commercial equipment | Pass
Loans and Leases Receivable Disclosure [Line Items]
Prior	8,737
Originated, Four years before current fiscal year	5,363
Originated, Three years before current fiscal year	15,519
Originated, Two years before current fiscal year	7,995
Originated, Fiscal year before current fiscal year	13,290
Originated, Current fiscal year	27,100
Revolving Loans	0
Total	78,004
Commercial equipment | Watch
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	175
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	175
Commercial equipment | Special mention
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	160
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	160
Commercial equipment | Substandard
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	212
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	212
Residential first mortgages | Performing
Loans and Leases Receivable Disclosure [Line Items]
Prior	39,498
Originated, Four years before current fiscal year	3,891
Originated, Three years before current fiscal year	19,542
Originated, Two years before current fiscal year	8,577
Originated, Fiscal year before current fiscal year	5,279
Originated, Current fiscal year	6,294
Revolving Loans	0
Total	83,081
Residential first mortgages | Nonperforming
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Total	0
Residential first mortgages | Total loans evaluated by performing status
Loans and Leases Receivable Disclosure [Line Items]
Prior	39,498
Originated, Four years before current fiscal year	3,891
Originated, Three years before current fiscal year	19,542
Originated, Two years before current fiscal year	8,577
Originated, Fiscal year before current fiscal year	5,279
Originated, Current fiscal year	6,294
Total	83,081
Residential first mortgages | Total loans evaluated by performing status | Performing
Loans and Leases Receivable Disclosure [Line Items]
Revolving Loans	0
Home equity and second mortgages | Performing
Loans and Leases Receivable Disclosure [Line Items]
Prior	15,900
Originated, Four years before current fiscal year	1,383
Originated, Three years before current fiscal year	933
Originated, Two years before current fiscal year	1,384
Originated, Fiscal year before current fiscal year	3,881
Originated, Current fiscal year	2,474
Revolving Loans	0
Total	25,955
Home equity and second mortgages | Nonperforming
Loans and Leases Receivable Disclosure [Line Items]
Prior	99
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	99
Home equity and second mortgages | Total loans evaluated by performing status
Loans and Leases Receivable Disclosure [Line Items]
Prior	15,999
Originated, Four years before current fiscal year	1,383
Originated, Three years before current fiscal year	933
Originated, Two years before current fiscal year	1,384
Originated, Fiscal year before current fiscal year	3,881
Originated, Current fiscal year	2,474
Revolving Loans	0
Total	26,054
Consumer loans | Performing
Loans and Leases Receivable Disclosure [Line Items]
Prior	42
Originated, Four years before current fiscal year	3
Originated, Three years before current fiscal year	108
Originated, Two years before current fiscal year	139
Originated, Fiscal year before current fiscal year	678
Originated, Current fiscal year	850
Revolving Loans	3,903
Total	5,723
Consumer loans | Nonperforming
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year
Originated, Fiscal year before current fiscal year
Originated, Current fiscal year
Revolving Loans	31
Total	31
Consumer loans | Total loans evaluated by performing status
Loans and Leases Receivable Disclosure [Line Items]
Prior	42
Originated, Four years before current fiscal year	3
Originated, Three years before current fiscal year	108
Originated, Two years before current fiscal year	139
Originated, Fiscal year before current fiscal year	678
Originated, Current fiscal year	850
Revolving Loans	3,934
Total	5,754
U.S. SBA PPP | Performing
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	1,211
Originated, Current fiscal year	0
Revolving Loans	0
Total	1,211
U.S. SBA PPP | Nonperforming
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	0
Originated, Current fiscal year	0
Revolving Loans	0
Total	0
U.S. SBA PPP | Total loans evaluated by performing status
Loans and Leases Receivable Disclosure [Line Items]
Prior	0
Originated, Four years before current fiscal year	0
Originated, Three years before current fiscal year	0
Originated, Two years before current fiscal year	0
Originated, Fiscal year before current fiscal year	1,211
Originated, Current fiscal year	0
Revolving Loans	0
Total	$ 1,211

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LOANS (Schedule of Financing Receivable Recorded Investment Credit Quality Indicator) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		$ 1,606,219
Unrated
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		127,679
Pass
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		1,473,329
Special mention
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Substandard
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		5,211
Doubtful
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Loss
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Commercial real estate
Loans and Leases Receivable Disclosure [Line Items]
Gross loans	$ 1,202,660	1,115,485
Commercial real estate | Unrated
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Commercial real estate | Pass
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		1,111,857
Commercial real estate | Special mention
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Commercial real estate | Substandard
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		3,628
Commercial real estate | Doubtful
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Commercial real estate | Loss
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Construction and land development
Loans and Leases Receivable Disclosure [Line Items]
Gross loans	23,197	35,590
Construction and land development | Unrated
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Construction and land development | Pass
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		35,590
Construction and land development | Special mention
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Construction and land development | Substandard
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Construction and land development | Doubtful
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Construction and land development | Loss
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Residential rentals
Loans and Leases Receivable Disclosure [Line Items]
Gross loans	282,365	195,035
Residential rentals | Unrated
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Residential rentals | Pass
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		194,093
Residential rentals | Special mention
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Residential rentals | Substandard
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		942
Residential rentals | Doubtful
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Residential rentals | Loss
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Commercial loans
Loans and Leases Receivable Disclosure [Line Items]
Gross loans	41,615	50,574
Commercial loans | Unrated
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Commercial loans | Pass
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		50,574
Commercial loans | Special mention
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Commercial loans | Substandard
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Commercial loans | Doubtful
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Commercial loans | Loss
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Commercial equipment
Loans and Leases Receivable Disclosure [Line Items]
Gross loans	78,551	62,499
Commercial equipment | Unrated
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Commercial equipment | Pass
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		62,326
Commercial equipment | Special mention
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Commercial equipment | Substandard
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		173
Commercial equipment | Doubtful
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Commercial equipment | Loss
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Total Commercial Portfolios
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		1,459,183
Total Commercial Portfolios | Unrated
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Total Commercial Portfolios | Pass
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		1,454,440
Total Commercial Portfolios | Special mention
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Total Commercial Portfolios | Substandard
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		4,743
Total Commercial Portfolios | Doubtful
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Total Commercial Portfolios | Loss
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Non-Commercial Portfolios
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		119,760
Non-Commercial Portfolios | Unrated
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		100,403
Non-Commercial Portfolios | Pass
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		18,889
Non-Commercial Portfolios | Special mention
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Non-Commercial Portfolios | Substandard
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		468
Non-Commercial Portfolios | Doubtful
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Non-Commercial Portfolios | Loss
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
U.S. SBA PPP
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		27,276
U.S. SBA PPP | Unrated
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		27,276
U.S. SBA PPP | Pass
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
U.S. SBA PPP | Special mention
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
U.S. SBA PPP | Substandard
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
U.S. SBA PPP | Doubtful
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
U.S. SBA PPP | Loss
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		0
Residential first mortgages
Loans and Leases Receivable Disclosure [Line Items]
Gross loans	83,081	91,120
Residential first mortgages | Performing
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		90,670
Residential first mortgages | Nonperforming
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		450
Home equity and second mortgages
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		25,638
Home equity and second mortgages | Performing
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		25,436
Home equity and second mortgages | Nonperforming
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		202
Consumer loans
Loans and Leases Receivable Disclosure [Line Items]
Gross loans	$ 5,754	3,002
Consumer loans | Performing
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		3,002
Consumer loans | Nonperforming
Loans and Leases Receivable Disclosure [Line Items]
Gross loans		$ 0

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LOANS (Troubled Debt Restructurings on Financing Receivables) (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2022 USD ($) tDR_Loan	Dec. 31, 2021 USD ($) tDR_Loan
Financing Receivable, Impaired [Line Items]
Number of TDR loans | tDR_Loan	1	1
Number of non-accrual TDR loans | tDR_Loan	0	0
Number of accrual TDR loans | tDR_Loan	1	1
Financing receivable post modification recorded investment | $	$ 433	$ 447
Less: TDRs included in non-accrual loans | $	0	0
Accrual TDR loans | $	$ 433	$ 447
Commercial equipment
Financing Receivable, Impaired [Line Items]
Number of TDR loans | tDR_Loan	1	1
Financing receivable post modification recorded investment | $	$ 433	$ 447

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LOANS (Impaired Financing Receivables) (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Sep. 30, 2021	Dec. 31, 2021
Financing Receivable, Impaired [Line Items]
Unpaid Contractual Principal Balance	$ 6,171	$ 6,171	$ 8,681
Recorded Investment With No Allowance	5,245	5,245	8,228
Recorded Investment With Allowance	791	791	266
Total Recorded Investment	6,036	6,036	8,494
Related Allowance	323	323	266
Average Recorded Investment	6,050	6,087	9,487
Interest Income Recognized	53	169	447
Commercial real estate
Financing Receivable, Impaired [Line Items]
Unpaid Contractual Principal Balance	3,205	3,205	4,994
Recorded Investment With No Allowance	2,377	2,377	4,797
Recorded Investment With Allowance	759	759	93
Total Recorded Investment	3,136	3,136	4,890
Related Allowance	291	291	93
Average Recorded Investment	3,146	3,177	4,866
Interest Income Recognized	25	80	254
Residential first mortgages
Financing Receivable, Impaired [Line Items]
Unpaid Contractual Principal Balance	884	884	879
Recorded Investment With No Allowance	872	872	866
Recorded Investment With Allowance	0	0	0
Total Recorded Investment	872	872	866
Related Allowance	0	0	0
Average Recorded Investment	873	878	874
Interest Income Recognized	7	25	32
Residential rentals
Financing Receivable, Impaired [Line Items]
Unpaid Contractual Principal Balance	990	990	982
Recorded Investment With No Allowance	961	961	942
Recorded Investment With Allowance	0	0	0
Total Recorded Investment	961	961	942
Related Allowance	0	0	0
Average Recorded Investment	961	956	959
Interest Income Recognized	13	38	48
Home equity and second mortgages
Financing Receivable, Impaired [Line Items]
Unpaid Contractual Principal Balance	602	602	626
Recorded Investment With No Allowance	580	580	601
Recorded Investment With Allowance	0	0	0
Total Recorded Investment	580	580	601
Related Allowance	0	0	0
Average Recorded Investment	581	583	604
Interest Income Recognized	3	10	14
Commercial equipment
Financing Receivable, Impaired [Line Items]
Unpaid Contractual Principal Balance	490	490	1,200
Recorded Investment With No Allowance	455	455	1,022
Recorded Investment With Allowance	32	32	173
Total Recorded Investment	487	487	1,195
Related Allowance	32	32	173
Average Recorded Investment	489	493	2,184
Interest Income Recognized	$ 5	$ 16	$ 99

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LOANS (Loan Receivable and Allowance Balances Disaggregated) (Details) - USD ($) $ in Thousands	Dec. 31, 2021	Sep. 30, 2021
Allowance for credit losses:
Ending balance: individually evaluated for impairment	$ 266	$ 323
Ending balance: collectively evaluated for impairment	18,151	18,204
Total allowance for loan losses	18,417	18,579
Portfolio Loans
Loan Receivables:
Ending balance: individually evaluated for impairment	8,494	6,036
Ending balance: collectively evaluated for impairment	1,569,333	1,525,871
Gross loans	1,578,943	1,533,051
Purchased credit impaired
Allowance for credit losses:
Total allowance for loan losses	0	52
Purchased credit impaired | Portfolio Loans
Loan Receivables:
Gross loans	1,116	1,144
Commercial real estate
Allowance for credit losses:
Ending balance: individually evaluated for impairment	93	291
Ending balance: collectively evaluated for impairment	13,002	13,128
Total allowance for loan losses	13,095	13,471
Commercial real estate | Portfolio Loans
Loan Receivables:
Ending balance: individually evaluated for impairment	4,890	3,136
Ending balance: collectively evaluated for impairment	1,109,479	1,084,356
Gross loans	1,115,485	1,088,636
Commercial real estate | Purchased credit impaired
Allowance for credit losses:
Total allowance for loan losses	0	52
Commercial real estate | Purchased credit impaired | Portfolio Loans
Loan Receivables:
Gross loans	1,116	1,144
Residential first mortgages
Allowance for credit losses:
Ending balance: individually evaluated for impairment		0
Ending balance: collectively evaluated for impairment	1,002	912
Total allowance for loan losses	1,002	912
Residential first mortgages | Portfolio Loans
Loan Receivables:
Ending balance: individually evaluated for impairment	866	872
Ending balance: collectively evaluated for impairment	90,254	95,963
Gross loans	91,120	96,835
Residential first mortgages | Purchased credit impaired | Portfolio Loans
Loan Receivables:
Gross loans	0	0
Residential rentals
Allowance for credit losses:
Ending balance: collectively evaluated for impairment	2,175	1,800
Total allowance for loan losses	2,175	1,800
Residential rentals | Portfolio Loans
Loan Receivables:
Ending balance: individually evaluated for impairment	942	961
Ending balance: collectively evaluated for impairment	194,093	171,121
Gross loans	195,035	172,082
Residential rentals | Purchased credit impaired | Portfolio Loans
Loan Receivables:
Gross loans	0	0
Construction and land development
Allowance for credit losses:
Ending balance: collectively evaluated for impairment	260	368
Total allowance for loan losses	260	368
Construction and land development | Portfolio Loans
Loan Receivables:
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	35,590	37,139
Gross loans	35,590	37,139
Construction and land development | Purchased credit impaired | Portfolio Loans
Loan Receivables:
Gross loans	0	0
Home equity and second mortgages
Allowance for credit losses:
Ending balance: collectively evaluated for impairment	274	249
Total allowance for loan losses	274	249
Home equity and second mortgages | Portfolio Loans
Loan Receivables:
Ending balance: individually evaluated for impairment	601	580
Ending balance: collectively evaluated for impairment	25,037	25,938
Gross loans	25,638	26,518
Home equity and second mortgages | Purchased credit impaired | Portfolio Loans
Loan Receivables:
Gross loans	0	0
Commercial loans
Allowance for credit losses:
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	582	909
Total allowance for loan losses	582	909
Commercial loans | Portfolio Loans
Loan Receivables:
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	50,574	48,327
Gross loans	50,574	48,327
Consumer loans
Allowance for credit losses:
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	58	42
Total allowance for loan losses	58	42
Consumer loans | Portfolio Loans
Loan Receivables:
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	3,002	2,168
Gross loans	3,002	2,168
Commercial equipment
Allowance for credit losses:
Ending balance: individually evaluated for impairment	173	32
Ending balance: collectively evaluated for impairment	798	796
Total allowance for loan losses	971	828
Commercial equipment | Portfolio Loans
Loan Receivables:
Ending balance: individually evaluated for impairment	1,195	487
Ending balance: collectively evaluated for impairment	61,304	60,859
Gross loans	$ 62,499	$ 61,346

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LOANS (Changes in the Accretable Yield for PCI Loans) (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Sep. 30, 2021	Dec. 31, 2021
Certain Loans Acquired in Transfer Accounted for as Debt Securities, Accretable Yield Movement Schedule [Roll Forward]
Accretable yield, beginning of period	$ 324	$ 342	$ 342
Additions	0	0	0
Accretion	(31)	(92)	(117)
Reclassification from nonaccretable difference	15	29	43
Other changes, net	(15)	14	55
Accretable yield, end of period	$ 293	$ 293	$ 323

XML

LOANS (Acquired and Non-Acquired Loans) (Details) $ in Thousands	Dec. 31, 2021 USD ($)
Loans and Leases Receivable Disclosure [Line Items]
Gross loans	$ 1,606,219
Net deferred costs	$ (1,011)
Net deferred costs (fees), percentage	(0.06%)
Total loans, net of deferred fees	$ 1,605,208
County First Acquisition
Loans and Leases Receivable Disclosure [Line Items]
Gross loans	$ 42,182
Percentage status of loan in portfolio	2.63%
County First Acquisition | All Other Loans
Loans and Leases Receivable Disclosure [Line Items]
Gross loans	$ 41,066
Percentage status of loan in portfolio	2.56%
County First Acquisition | Purchased credit impaired
Loans and Leases Receivable Disclosure [Line Items]
Gross loans	$ 1,116
Percentage status of loan in portfolio	0.07%
U.S. SBA PPP
Loans and Leases Receivable Disclosure [Line Items]
Gross loans	$ 27,276
Percentage status of loan in portfolio	1.70%
Non-acquired loans
Loans and Leases Receivable Disclosure [Line Items]
Gross loans	$ 1,536,761
Percentage status of loan in portfolio	95.68%

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GOODWILL AND OTHER INTANGIBLE ASSETS (Goodwill and Acquired Intangible Assets Subject to Amortization) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Acquired Finite-Lived Intangible Assets [Line Items]
Goodwill	$ 10,835	$ 10,835
Net Intangible Assets	725
Core deposit intangible ("CDI")
Acquired Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	3,590	3,590
Accumulated Amortization	(2,865)	(2,558)
Net Intangible Assets	$ 725	$ 1,032

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GOODWILL AND OTHER INTANGIBLE ASSETS (Estimated Amortization Expense) (Details) $ in Thousands	Sep. 30, 2022 USD ($)
Estimated amortization expense
Remainder of 2022	$ 91
2023	302
2024	205
2025	109
2026	18
Net Intangible Assets	$ 725

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GOODWILL AND OTHER INTANGIBLE ASSETS (Narrative) (Details) - USD ($)	3 Months Ended	9 Months Ended
	Dec. 31, 2021	Sep. 30, 2022
Acquired Finite-Lived Intangible Assets [Line Items]
Goodwill	$ 10,835,000	$ 10,835,000
Goodwill, percent of equity		6.05%
Goodwill and core deposit intangibles	$ 0	$ 0
Core deposit intangible ("CDI")
Acquired Finite-Lived Intangible Assets [Line Items]
Core deposit intangibles		$ 700,000
Core deposit intangibles, percent of equity		0.40%

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OTHER REAL ESTATE OWNED ("OREO") (Foreclosed Real Estate Roll Forward) (Details) - USD ($) $ in Thousands	9 Months Ended		12 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Repossessed Assets Rollforward [Roll Forward]
Balance at beginning of year	$ 0	$ 3,109	$ 3,109
Additions of underlying property	0	0	0
Disposals of underlying property	0	(932)	(1,722)
Valuation allowance	0	(641)	(1,387)
Balance at end of period	$ 0	$ 1,536	$ 0

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OTHER REAL ESTATE OWNED ("OREO") (Foreclosed Real Estate Expenses) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Real Estate [Abstract]
Valuation allowance			$ 0	$ 641	$ 1,387
Losses (gains) on dispositions			0	(16)
Operating expenses			6	64
Expenses applicable to OREO assets	$ 0	$ 20	$ 6	$ 689

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OTHER REAL ESTATE OWNED ("OREO") (Narrative) (Details) - USD ($) $ in Millions	Sep. 30, 2022	Dec. 31, 2021
Residential Lots
Debt and Equity Securities, FV-NI [Line Items]
Impaired loans secured by residential real estate	$ 0.1	$ 0.0

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DEPOSITS (Schedule Of Deposits) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Deposits, by Type [Abstract]
Non-interest-bearing deposits	$ 647,432	$ 445,778
Noninterest bearing deposit liabilities, percent	30.45%	21.68%
Interest-bearing deposit, Amount
Demand	$ 691,987	$ 790,481
Money market deposits	371,175	372,717
Savings	123,564	119,767
Certificates of deposit	292,399	327,421
Total interest-bearing	1,479,125	1,610,386
Total deposits	$ 2,126,557	$ 2,056,164
Interest-bearing deposit, percent
Demand	32.54%	38.45%
Money market deposits	17.45%	18.13%
Savings	5.81%	5.82%
Certificates of deposit	13.75%	15.92%
Total interest-bearing	69.55%	78.32%
Total Deposits	100.00%	100.00%

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DEPOSITS (Narrative) (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2022 USD ($) customer_relationship	Dec. 31, 2021 USD ($) customer_relationship
Deposit Liability [Line Items]
Time deposits 250000 or more	$ 55,100	$ 57,600
Total deposits	$ 2,126,557	$ 2,056,164
Customer Concentration Risk | Sales Revenue, Net
Deposit Liability [Line Items]
Concentration risk, customer with deposits exceeding threshold | customer_relationship	2	2
Total deposits	$ 427,700	$ 335,600
Concentration risk percentage of total deposits	20.10%	16.30%
Customer Concentration Risk | Sales Revenue, Net | Product
Deposit Liability [Line Items]
Concentration risk, percentage	2.00%	2.00%

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LEASE COMMITMENTS & CONTINGENCIES (Right of Use Assets, Net of Accumulated Amortization) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Operating Leases
Operating lease right of use asset, net	$ 6,022	$ 6,124
Operating lease liability	$ 6,288	$ 6,343
Weighted average remaining lease term (in years)	15 years 10 months 2 days	17 years 2 months 15 days
Weighted average discount rate	3.50%	3.51%
Minimum
Operating Leases
Remaining lease term (in years)	4 years 9 months 18 days	6 years 3 months 18 days
Maximum
Operating Leases
Remaining lease term (in years)	22 years	23 years

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LEASE COMMITMENTS & CONTINGENCIES (Lease Cost) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Commitments and Contingencies Disclosure [Abstract]
Operating lease cost	$ 157	$ 146	$ 454	$ 489
Cash paid for lease liability	$ 140	$ 150	$ 406	$ 485

XML

LEASE COMMITMENTS & CONTINGENCIES (Maturity Analysis of Operating Lease Liabilities) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Commitments and Contingencies Disclosure [Abstract]
Within one year	$ 569
After one but within two years	584
After two but within three years	611
After three but within four years	637
After four but within five years	629
After five years	5,375
Total undiscounted cash flows	8,405
Discount on cash flows	2,117
Operating lease liability	$ 6,288	$ 6,343

XML

GUARANTEED PREFERRED BENEFICIAL INTEREST IN JUNIOR SUBORDINATED DEBENTURES (“TRUPs”) (Narrative) (Details) - USD ($)			9 Months Ended
	Jun. 15, 2005	Jul. 22, 2004	Sep. 30, 2022
Capital Trust I I
Debt Instrument [Line Items]
Debt instrument, face amount	$ 5,000,000
Basis spread on variable rate (as a percent)			1.70%
Additional amount contributed to purchase debt	200,000
Junior subordinated notes purchased	$ 5,200,000
Capital Trust I
Debt Instrument [Line Items]
Debt instrument, face amount		$ 7,000,000
Basis spread on variable rate (as a percent)		2.60%
Additional amount contributed to purchase debt		$ 200,000
Junior subordinated notes purchased		$ 7,200,000

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SUBORDINATED NOTES (Details) - USD ($) $ in Thousands	Oct. 14, 2020	Sep. 30, 2022	Dec. 31, 2021	Sep. 30, 2021
Debt Instrument [Line Items]
Subordinated notes		$ 19,552	$ 19,510
Fixed 4.75% to Floating Rate Notes, Due 2030
Debt Instrument [Line Items]
Subordinated notes	$ 20,000
Stated interest rate (as a percentage)	4.75%
Fixed 4.75% to Floating Rate Notes, Due 2030 | Minimum
Debt Instrument [Line Items]
Debt issuance costs	$ 600	$ 42		$ 42
Fixed 4.75% to Floating Rate Notes, Due 2030 | Federal Home Loan Bank of New York
Debt Instrument [Line Items]
Basis spread on variable rate (as a percent)	4.58%

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REGULATORY CAPITAL (Narrative) (Details) - Minimum	Sep. 30, 2022
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common equity Tier 1 capital to risk-weighted assets minimum ratio	4.50%
Minimum ratio of Tier 1 capital to risk-weighted assets	0.060
Total Capital to risk-weighted assets	0.080
Tier 1 leverage ratio	0.040

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REGULATORY CAPITAL (Schedule of Regulatory Capital Amounts and Ratios) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Regulatory Assets
Common equity	$ 179,154	$ 208,133
Goodwill	(10,835)	(10,835)
Core deposit intangible (net of deferred tax liability)	(537)	(766)
AOCI losses	43,906	1,952
Common Equity Tier 1 Capital	211,688	198,484
TRUPs	12,000	12,000
Tier 1 Capital	223,688	210,484
Allowable reserve for credit losses and other Tier 2 adjustments	22,295	18,468
Subordinated notes	19,552	19,510
Tier 2 Capital	265,535	248,462
Risk-Weighted Assets ("RWA")	1,856,827	1,665,296
Average Assets ("AA")	$ 2,340,703	$ 2,281,210
Common Tier 1 Capital to RWA, Regulatory Min. Ratio + CCB	7.00%
Tier 1 Capital to RWA, Regulatory Min. Ratio + CCB	8.50%
Tier 2 Capital to RWA, Regulatory Min. Ratio + CCB	10.50%
Common Tier 1 Capital to RWA	11.40%	11.92%
Tier 1 Capital to RWA	0.1205	0.1264
Tier 2 Capital to RWA	14.30%	14.92%
Tier 1 Capital to AA (Leverage)	0.0956	0.0923
PCA well capitalized (as a percent)	0.0500
Bank
Regulatory Assets
Common equity	$ 207,146	$ 236,561
Goodwill	(10,835)	(10,835)
Core deposit intangible (net of deferred tax liability)	(537)	(766)
AOCI losses	43,906	1,952
Common Equity Tier 1 Capital	239,680	226,912
Tier 1 Capital	239,680	226,912
Allowable reserve for credit losses and other Tier 2 adjustments	22,295	18,468
Tier 2 Capital	261,975	245,380
Risk-Weighted Assets ("RWA")	1,855,483	1,663,831
Average Assets ("AA")	$ 2,338,751	$ 2,279,835
Common Tier 1 Capital to RWA	12.92%	13.64%
Tier 1 Capital to RWA	0.1292	0.1364
Tier 2 Capital to RWA	14.12%	14.75%
Tier 1 Capital to AA (Leverage)	0.1025	0.0995

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FAIR VALUE MEASUREMENTS (Fair Value, Assets Measured on Recurring Basis) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	$ 464,502	$ 497,839
Equity securities carried at fair value through income	4,254	4,772
Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest rate lock commitments		28
U.S. Agency
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	12,226	14,304
Residential CMOs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	9,103	221
Municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	78,864	92,841
Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	2,609
U.S. government obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	33,558	16,860
CRA investment fund
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities carried at fair value through income	4,254	4,772
Other equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities carried at fair value through income	207	207
Interest Rate Lock Commitments | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest rate lock commitments		28
Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	464,502	497,839
Fair Value, Measurements, Recurring | MBS
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	114,736	119,916
Fair Value, Measurements, Recurring | CMOs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	164,867	197,123
Fair Value, Measurements, Recurring | U.S. Agency
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	12,226	14,304
Fair Value, Measurements, Recurring | Residential CMOs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	9,103	221
Fair Value, Measurements, Recurring | Student Loan Trust ABSs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	48,539	56,574
Fair Value, Measurements, Recurring | Municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	78,864	92,841
Fair Value, Measurements, Recurring | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	2,609
Fair Value, Measurements, Recurring | U.S. government obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	33,558	16,860
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 1 | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest rate lock commitments		0
Level 1 | CRA investment fund
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities carried at fair value through income	0	0
Level 1 | Other equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities carried at fair value through income	0	0
Level 1 | Interest Rate Lock Commitments | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest rate lock commitments		0
Level 1 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 1 | Fair Value, Measurements, Recurring | MBS
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 1 | Fair Value, Measurements, Recurring | CMOs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 1 | Fair Value, Measurements, Recurring | U.S. Agency
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 1 | Fair Value, Measurements, Recurring | Residential CMOs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 1 | Fair Value, Measurements, Recurring | Student Loan Trust ABSs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 1 | Fair Value, Measurements, Recurring | Municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 1 | Fair Value, Measurements, Recurring | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0
Level 1 | Fair Value, Measurements, Recurring | U.S. government obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	464,502	497,839
Level 2 | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest rate lock commitments		0
Level 2 | CRA investment fund
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities carried at fair value through income	4,254	4,772
Level 2 | Other equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities carried at fair value through income	207	207
Level 2 | Interest Rate Lock Commitments | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest rate lock commitments		0
Level 2 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	464,502	497,839
Level 2 | Fair Value, Measurements, Recurring | MBS
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	114,736	119,916
Level 2 | Fair Value, Measurements, Recurring | CMOs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	164,867	197,123
Level 2 | Fair Value, Measurements, Recurring | U.S. Agency
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	12,226	14,304
Level 2 | Fair Value, Measurements, Recurring | Residential CMOs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	9,103	221
Level 2 | Fair Value, Measurements, Recurring | Student Loan Trust ABSs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	48,539	56,574
Level 2 | Fair Value, Measurements, Recurring | Municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	78,864	92,841
Level 2 | Fair Value, Measurements, Recurring | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	2,609
Level 2 | Fair Value, Measurements, Recurring | U.S. government obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	33,558	16,860
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 3 | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest rate lock commitments		28
Level 3 | CRA investment fund
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities carried at fair value through income	0	0
Level 3 | Other equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Equity securities carried at fair value through income	0	0
Level 3 | Interest Rate Lock Commitments | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Interest rate lock commitments		28
Level 3 | Fair Value, Measurements, Recurring
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 3 | Fair Value, Measurements, Recurring | MBS
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 3 | Fair Value, Measurements, Recurring | CMOs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 3 | Fair Value, Measurements, Recurring | U.S. Agency
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 3 | Fair Value, Measurements, Recurring | Residential CMOs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 3 | Fair Value, Measurements, Recurring | Student Loan Trust ABSs
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 3 | Fair Value, Measurements, Recurring | Municipal bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0	0
Level 3 | Fair Value, Measurements, Recurring | Corporate bonds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	0
Level 3 | Fair Value, Measurements, Recurring | U.S. government obligations
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale ("AFS"), at fair value	$ 0	$ 0

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FAIR VALUE MEASUREMENTS (Narrative) (Details) - USD ($) $ in Millions	Sep. 30, 2022	Dec. 31, 2021
Fair Value Disclosures [Abstract]
Loans with impairment, unpaid principal	$ 0.1	$ 0.3

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FAIR VALUE MEASUREMENTS (Unobservable Inputs Used in Level 3 Fair Value Measurements) (Details) - Level 3 - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Individually assessed loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure of assets	$ 0
Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value disclosure of assets		$ 28
Minimum | Individually assessed loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of inputs discount rate	0.00%
Minimum | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of inputs discount rate		0.00%
Maximum | Individually assessed loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of inputs discount rate	50.00%
Maximum | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of inputs discount rate		100.00%
Weighted Average | Individually assessed loans
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of inputs discount rate	100.00%
Weighted Average | Interest Rate Lock Commitments
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of inputs discount rate		75.00%

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Fair Value, by Balance Sheet Grouping) (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Assets
Estimated Fair Value	$ 464,502	$ 497,839
Equity securities carried at fair value through income	4,254	4,772
Non-marketable equity securities in other financial institutions	207	207
FHLB Stock	1,226	1,472
Net loans receivable	1,654,640	1,578,032
Accrued interest receivable	6,791	5,588
Investment in BOLI	39,583	38,932
Liabilities
Savings, NOW and money market accounts	1,834,158	1,728,743
Time deposits	292,034	328,083
Long-term debt		12,391
TRUPs	10,159	11,589
Subordinated notes	18,610	20,979
Interest Rate Lock Commitments
Assets
Mortgage ranking derivatives		28
Carrying Amount
Assets
Estimated Fair Value	464,502	497,839
Equity securities carried at fair value through income	4,254	4,772
Non-marketable equity securities in other financial institutions	207	207
FHLB Stock	1,226	1,472
Net loans receivable	1,722,461	1,586,791
Accrued interest receivable	6,791	5,588
Investment in BOLI	39,583	38,932
Liabilities
Savings, NOW and money market accounts	1,834,158	1,728,743
Time deposits	292,399	327,421
Long-term debt		12,231
TRUPs	12,000	12,000
Subordinated notes	19,552	19,510
Carrying Amount | Interest Rate Lock Commitments
Assets
Mortgage ranking derivatives		28
Level 1
Assets
Estimated Fair Value	0	0
Equity securities carried at fair value through income	0	0
Non-marketable equity securities in other financial institutions	0	0
FHLB Stock	0	0
Net loans receivable	0	0
Accrued interest receivable	0	0
Investment in BOLI	0	0
Liabilities
Savings, NOW and money market accounts	0	0
Time deposits	0	0
Long-term debt		0
TRUPs	0	0
Subordinated notes	0	0
Level 1 | Interest Rate Lock Commitments
Assets
Mortgage ranking derivatives		0
Level 2
Assets
Estimated Fair Value	464,502	497,839
Equity securities carried at fair value through income	4,254	4,772
Non-marketable equity securities in other financial institutions	207	207
FHLB Stock	1,226	1,472
Net loans receivable	0	0
Accrued interest receivable	6,791	5,588
Investment in BOLI	39,583	38,932
Liabilities
Savings, NOW and money market accounts	1,834,158	1,728,743
Time deposits	292,034	328,083
Long-term debt		12,391
TRUPs	10,159	11,589
Subordinated notes	18,610	20,979
Level 2 | Interest Rate Lock Commitments
Assets
Mortgage ranking derivatives		0
Level 3
Assets
Estimated Fair Value	0	0
Equity securities carried at fair value through income	0	0
Non-marketable equity securities in other financial institutions	0	0
FHLB Stock	0	0
Net loans receivable	1,654,640	1,578,032
Accrued interest receivable	0	0
Investment in BOLI	0	0
Liabilities
Savings, NOW and money market accounts	0	0
Time deposits	0	0
Long-term debt		0
TRUPs	0	0
Subordinated notes	$ 0	0
Level 3 | Interest Rate Lock Commitments
Assets
Mortgage ranking derivatives		$ 28

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FAIR VALUE OF FINANCIAL INSTRUMENTS (Narrative) (Details) - USD ($) $ in Millions	Sep. 30, 2022	Dec. 31, 2021
Investments, All Other Investments [Abstract]
Loans commitments outstanding	$ 59.1	$ 64.4
Letters of credit outstanding, amount	23.0	22.0
Line of credit facility, remaining borrowing capacity	$ 261.1	$ 241.7

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ACCUMULATED OTHER COMPREHENSIVE INCOME/LOSS ("AOCI"/"AOCL") (Schedule of Accumulated Other Comprehensive Income (Loss)) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance	$ 184,871	$ 203,962	$ 208,133	$ 198,013
Ending Balance	179,154	204,128	179,154	204,128
Net Unrealized Gains And Losses
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance	(31,847)	3,063	(1,952)	4,504
Other comprehensive losses, net of tax before reclassifications	(12,059)	(3,072)	(41,954)	(4,946)
Amounts reclassified from accumulated other comprehensive gain	0	0	0	433
Net other comprehensive losses	(12,059)	(3,072)	(41,954)	(4,513)
Ending Balance	$ (43,906)	$ (9)	$ (43,906)	$ (9)

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ACCUMULATED OTHER COMPREHENSIVE INCOME/LOSS ("AOCI"/"AOCL") (Narrative) (Details) $ in Millions	9 Months Ended
	Sep. 30, 2021 USD ($)
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]
Gain on sale of AFS securities	$ 0.6

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EARNINGS PER SHARE ("EPS") (Narrative) (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Earnings Per Share [Abstract]
Shares excluded from diluted net income per share (in shares)	1,034	40	587	3,355

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EARNINGS PER SHARE (“EPS”) (Schedule of Earnings Per Share, Basic and Diluted) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Earnings Per Share [Abstract]
Net Income	$ 7,580	$ 6,404	$ 20,702	$ 19,135
Average number of common shares outstanding (in shares)	5,636,640	5,709,814	5,656,950	5,813,704
Dilutive effect of common stock equivalents (in shares)	8,182	10,187	9,000	9,514
Average number of shares used to calculate diluted EPS (in shares)	5,644,822	5,720,001	5,665,950	5,823,218
Anti-dilutive shares (in shares)	1,034	40	587	3,355
Earnings per common share, basic (in dollars per share)	$ 1.34	$ 1.12	$ 3.66	$ 3.29
Earnings per common share, diluted (in dollars per share)	$ 1.34	$ 1.12	$ 3.65	$ 3.29

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INCOME TAXES (Schedule of Current and Deferred Income Tax Expense (Benefit)) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Current
Current income tax expense	$ 2,572	$ 1,448	$ 7,119	$ 6,048
Deferred
Deferred income tax (benefit) expense	(192)	710	(237)	427
Income tax expense as reported	$ 2,380	$ 2,158	$ 6,882	$ 6,475
Effective tax rate	23.90%	25.20%	24.90%	25.30%

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INCOME TAXES (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	Dec. 31, 2021
Income Tax Contingency [Line Items]
Net deferred tax assets	$ 24.8		$ 24.8		$ 9.0
Valuation allowance for deferred tax assets	$ 0.0		$ 0.0
Effective tax rate	23.90%	25.20%	24.90%	25.30%
Minimum
Income Tax Contingency [Line Items]
Effective tax rate			25.00%
Maximum
Income Tax Contingency [Line Items]
Effective tax rate			26.06%