Either extending the oundation upwards, your "concrete sill plate, or replacing the sill with PT 2x's is gonna work. Be sure to use proper joist hangers that support bottoms of joists and "fill every hole" a hanger nail or screw in every hole in the hanger. Note thatholes that are manufacturing holes" that are not filled, why they need holes to make a hanger, I dunno, but there they are. Those holes are either labelled on the hanger, a different shape, square or diamond or such, or are identified on the tech sheet you get where you buy hangers.
You'll also want a water barrier between concrete and wood, neal's gasket. When I was starting out, we still set plates in a bed of mortar on the foundation, not only to seal the gap but also to help in leveling the plate. Then we mainly used asphalt or tar. Nowadays there's all sorts of products, some in a tube applied with caulking gun, some rolls of “rubber,” some that are also insulation. I think it would be a real good idea to install metal termite shields between cocrete and wood. Metal flashing that extends a couple of inches on each side of foundation, slanted down at 45 deg angle. Some of that comes with a peel and stick rubber “gasket on each side. You can just sandwich flat flashing between foundation, goopy, flashing goopy, and plate, and bend the outer edges down.
Wouldn't be a bad idea to rip off more siding along length and check for termite damage farther along. Damage may not show, poke with screw driver or ice pick or such.
Ice pick? Back when I was setting sills in mortar we got ice picks free at the ice house. Now ya gotta search the hardware store, they aren't in the kitchen area with cast iron pans and pressure cooker gaskets, now they are in tool area. If ya ask a younger clerk where they are, he'll stare at you blankly. So ask the old guy in the back. The one that's at least as old as me.