What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-19 compared with 2024-03-13 · 128 added, 142 removed, 718 unchanged (27% of the section changed)

26 unchanged sentences

Net Interest and Dividend Income 46,068 44,553 42,935

(Recovery) Provision for Credit Losses - Loans (284) 3,784 (1,125)

Recovery for Credit Losses - Unfunded Commitments (218) — —

Net Interest and Dividend Income After (Recovery) Provision for Credit Losses 45,055 39,151 41,277

Provision (Recovery) for Credit Losses - Loans 379 (284) 3,784

Provision (Recovery) for Credit Losses - Unfunded Commitments 191 (218) —

Net Interest and Dividend Income After Net Provision (Recovery) for Credit Losses 45,498 45,055 39,151

Noninterest Income 5,494 24,012 9,820

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3.20 3.29 3.25

Net (Recoveries) Charge-offs to Average Loans (0.05) 0.25 0.01

Net Charge-offs (Recoveries) to Average Loans 0.03 (0.05) 0.25

Noninterest Expense to Average Assets 2.37 2.76 2.48

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On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology.

Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss methodology.

The Company adopted ASU 2016-13 using a modified retrospective approach.

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Accrued interest receivable on loans is reported as a component of accrued interest receivable and other assets on the Consolidated Statement of Financial Condition, totaled $3.9 million at December 31, 2024 and is excluded from the estimate of credit losses.

Accrued interest receivable on available of sale securities, also a component of accrued interest receivable and other assets on the Consolidated Statement of Financial Condition, totaled $947,000, at December 31, 2023 and is excluded from the estimate of credit losses.

Allowance for Loan Losses.

Prior to the adoption of ASU 2016-13, the Company calculated the allowance for loan losses ("allowance"), using an incurred loan loss methodology.

The following policy related to the allowance in prior periods.

The allowance for loan losses (“allowance”) is maintained at a level considered adequate to provide for losses that can be reasonably anticipated.

Management performs a quarterly evaluation of the adequacy of the allowance based on potential losses in the current loan portfolio, which includes an assessment of economic conditions, changes in the nature and volume of the loan portfolio, loan loss experience, volume and severity of past due, classified and nonaccrual loans as well as other loan modifications, quality of the Company’s loan review system, the degree of oversight by the Company’s Board, existence and effect of any concentrations of credit and changes in the level of such concentrations, effect of external factors, such as competition and legal and regulatory requirements, and other relevant factors.

While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making evaluations.

Additions are made to the allowance through periodic provisions charged to income and recovery of principal and interest on loans previously charged-off.

Losses of principal are charged directly to the allowance when a loss occurs or when a determination is made that the specific loss is probable.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revisions as more information becomes available.

The allowance consists of specific and general components.

The specific component relates to loans that are classified as impaired.

A loan is considered impaired when, based upon current information and events, it is probable that the Company will

be unable to collect all amounts due for principal and interest according to the original contractual terms of the loan agreement.

Generally, management considers all substandard, doubtful, and loss-rated loans, nonaccrual loans, and TDRs for impairment.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

The maximum period without payment that typically can occur before a loan is considered for impairment is 90 days.

Impairment is measured based on the present value of expected future cash flows discounted at a loan’s effective interest rate, or as a practical expedient, the observable market price, or, if the loan is collateral dependent, the fair value of the underlying collateral.

When the measurement of an impaired loan is less than the recorded investment in the loan, the impairment is recorded in a specific valuation allowance.

This specific valuation allowance is periodically adjusted for significant changes in the amount or timing of expected future cash flows, observable market price or fair value of the collateral.

The specific valuation allowance, or allowance for impaired loans, is part of the total allowance for loan losses.

Cash payments received on impaired loans that are considered nonaccrual are recorded as a direct reduction of the recorded investment in the loan.

When the recorded investment has been fully collected, receipts are recorded as recoveries to the allowance for loan losses until the previously charged-off principal is fully recovered.

Subsequent amounts collected are recognized as interest income.

If no charge-off exists, then once the recorded investment has been fully collected, any future amounts collected would be recognized as interest income.

Impaired loans are not returned to accrual status until all amounts due, both principal and interest, are current and a sustained payment history has been demonstrated.

The general allowance component covers pools of homogeneous loans by loan class.

Management determines historical loss experience for each segment of loans using the five-year rolling average of the net charge-off data within each segment.

Qualitative and environmental factors are also considered that are likely to cause estimated credit losses associated with the Bank’s existing portfolio to differ from historical loss experience, and include levels and trends in delinquency and impaired loans;

levels and trends in net charge-offs, trends in volume and terms of loans;

change in underwriting, policies, procedures, practices and key personnel;

national and local economic trends;

industry conditions, and effects of changes in high-risk credit circumstances.

The qualitative and environmental factors are reviewed on a quarterly basis to ensure they are reflective of current conditions in the portfolio and economy.

An unallocated component, which is a part of the general allowance component, is maintained to cover uncertainties that could affect the Company’s estimate of probable losses.

Our allowance is sensitive to a number of inputs, most notably the qualitative factors and historical loss experience by loan segment.

Given the dynamic relationship between the inputs, it is difficult to estimate the impact of a change in any one individual variable on the allowance.

Although management believes that it uses the best information available to establish the allowance, future adjustments to the allowance may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations.

Because future events affecting borrowers and collateral value cannot be predicted with certainty, there can be no assurance that the existing allowance is adequate or that increases will not be necessary should the quality of assets deteriorate as a result of the factors discussed previously.

Any increase in the allowance may adversely affect our financial condition and results of operations.

Changes in factors underlying the assessment could have a material impact on the amount of the allowance that is necessary and the amount of provision to be charged against earnings.

Accrued interest receivable on available of sale securities, also a component of accrued interest receivable and other assets on the Consolidated Statement of Financial Condition, totaled $1.7 million, at December 31, 2024 and is excluded from the estimate of credit losses.

Fair Value Measurements.

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The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement.

The Company attempts to maximize observable inputs and limit the use of unobservable inputs when developing fair value measurements, Fair value measurements for assets where there exists limited or no observable market data and that are based primarily upon the Company’s or other third-party’s estimates, are often calculated based on the characteristics of the asset, the

economic and competitive environment and other such factors.

Therefore, the results cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset.

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Deemed to have an indefinite life and not subject to amortization, goodwill is instead tested for impairment at the reporting unit level at least annually on October 31 or more frequently if triggering events occur or impairment indicators exist.

The Company operates two reporting units – Community Banking segment and Insurance Brokerage Services segment.

The Company has assigned 100% of the goodwill to the Community Banking reporting unit.

The Company operates two segments – Community Banking segment and Insurance Brokerage Services segment.

The Company has assigned 100% of the goodwill to the Community Banking segment.

Determining the fair value of a reporting unit under the goodwill impairment test is judgmental and often involves the use of significant estimates and assumptions.

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The weighting is judgmental and is based on the perceived level of appropriateness of the valuation methodology.

Estimating the fair value involves the use of estimates and significant judgments that are based on a number of factors including actual operating results.

Estimating the fair value involves the use of estimates and significant judgments that are based on a number of factors including

actual operating results.

If current conditions change from those expected, it is reasonably possible that the judgments and estimates described above could change in future periods and require management to further evaluate goodwill for impairment.

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Securities increased $55.1 million, or 26.6%, to $262.2 million at December 31, 2024, compared to $207.1 million at December 31, 2023.

The securities balance was primarily impacted by the purchase of $29.9 million of collateralized loan obligation securities, partially offset by $15.8 million of repayments on mortgage-backed and collateralized mortgage obligation securities and a $110,000 decrease in the market value in the equity securities portfolio, which is primarily comprised of bank stocks.

During the period, the Bank implemented a balance sheet repositioning strategy of its portfolio of available-for-sale securities.

The Bank sold $69.3 million in market value of its lower-yielding U.S government agency, mortgage-backed and municipal securities with an average yield of 1.89% and purchased $69.3 million of higher-yielding mortgage-backed and collateralized mortgage obligation securities with an average yield of 5.49%.

The securities balance was primarily impacted by the purchase of $69.8 million of collateralized loan obligation securities, partially offset by $15.4 million of repayments on amortizing securities.

Securities Portfolio.

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Total Debt Securities $ — — % $ 698 3.30 % $ 51,041 5.33 % $ 207,775 4.02 % $ 259,514 4.26 %

Total loans increased $60.5 million, or 5.8%, to $1.11 billion at December 31, 2023 compared to $1.05 billion at December 31, 2022.

Loan growth was driven by increases in commercial and industrial loans, commercial real estate loans, residential mortgage loans and other loans of $41.2 million, $30.3 million, $17.1 million, and $8.9 million, respectively, partially offset by a decrease in consumer loans of $35.3 million.

Total loans decreased $17.8 million, or 1.6%, to $1.09 billion at December 31, 2024 compared to $1.11 billion at December 31, 2023.

The change was driven by decreases in consumer loans and residential mortgage loans of $41.1 million and $9.8 million, respectively, partially offset by increases in commercial real estate loans, construction real estate loans, other loans and commercial and industrial loans of $18.4 million, $11.6 million, $2.5 million and $769,000, respectively.

The decrease in consumer loans resulted from a reduction in indirect automobile loan production due to rising market interest rates and the discontinuation of this product offering as of June 30, 2023.

1 unchanged sentence

Excluding the $41.5 million decrease in indirect automobile loans, total loans increased $23.7 million, or 1.1%.

Average loans, net for the year ended December 31, 2023 increased $57.8 million compared to the year ended December 31, 2022.

Average loans, net for the year ended December 31, 2024 decreased $3.3 million compared to the year ended December 31, 2023.

Loan Portfolio Composition.

The following table sets forth the composition of the Company’s loan portfolio by type of loan at the dates indicated.

The Company did not have loans held for sale at the dates indicated below.

December 31, Amount Percent Amount Percent

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Loans, Net $ 1,082,821 $ 1,100,689

The Company's loan portfolio is a mix of consumer and commercial credits.

Overall credit exposure and portfolio compensation is managed via a credit concentration policy.

The policy designates specific loan types, collateral types and loan structures to be formally tracked and assigned maximum exposure limits as a percentage of capital.

Commercial lending by asset class, specific limits for Commercial Real Estate ("CRE") project types, loans secured by residential real estate, large dollar exposures and designated high risk loan categories represent examples of specifically tracked components of our concentration management process.

There are no identified concentrations that exceed the assigned exposure limits.

Our concentration management policy is approved by the Company's Board of Directors and is used to ensure a high-quality, well diversified portfolio that is consistent with our overall objective of maintaining an acceptable level of risk.

The Company's CRE portfolio totaled $485.5 million at December 31, 2024, an increase of $18.4 million, or 3.9%, compared to December 31, 2023.

CRE loans are concentrated in the Pittsburgh metropolitan area.

The tables below provide further detail of the composition of the CRE portfolio as of December 31, 2024:

(Dollars in thousands) CRE Nonowner Occupied Loans

Outstanding Balance Percent Average Loan Size Average LTV (1)

Retail Space $ 91,602 24.51 % $ 1,272 71.83 %

Multifamily 89,142 23.86 % 768 78.27 %

Warehouse Space 60,460 16.18 % 1,440 60.37 %

Office Space 48,867 13.08 % 888 67.80 %

Manufacturing 22,371 5.99 % 1,721 60.51 %

Medical Facilities 19,167 5.13 % 1,065 63.66 %

Senior Housing 13,877 3.71 % 1,388 59.85 %

Hotels 3,357 0.90 % 3,357 43.00 %

Oil & Gas 3,296 0.88 % 1,648 51.66 %

Other 21,533 5.76 % 718 61.31 %

Total Nonowner Occupied CRE $ 373,672 100.00 % $ 1,041 68.40 %

(1) Based on collateral value at the time of loan origination.

(Dollars in Thousands) CRE Owner Occupied Loans

Outstanding Balance Percent Average Loan Size Average LTV (1)

Retail Space $ 31,326 28.01 % $ 681 77.70 %

Warehouse Space 19,680 17.60 % 562 53.68 %

Medical Facilities 9,064 8.11 % 697 76.69 %

Office Space 8,258 7.38 % 318 86.86 %

Hotels 5,943 5.31 % 1,981 27.31 %

Manufacturing 3,404 3.04 % 309 57.44 %

Oil & Gas 1,962 1.75 % 392 71.50 %

Other 32,204 28.80 % 374 54.91 %

Total Owner Occupied CRE $ 111,841 100.00 % $ 486 64.26 %

(1) Based on collateral value at the time of loan origination.

Loan Portfolio Maturities and Yields.

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Total liabilities increased $17.9 million, or 1.4%, to $1.33 billion at December 31, 2024 compared to $1.32 billion at December 31, 2023.

Total deposits decreased $1.3 million to $1.267 billion as of December 31, 2023 compared to $1.269 billion at December 31, 2022.

Non interest-bearing demand deposits decreased $112.7 million, savings deposits decreased $53.3 million, and money market deposits decreased $8.1 million, while interest-bearing demand deposits increased $51.2 million and time deposits increased $121.5 million.

The increase in interest-bearing demand deposits was primarily the result of higher interest

rates attracting more customers and additional deposits from existing customers while higher time deposits resulted from the offering of a higher-rate certificate of deposit product and the addition of $29.0 million of brokered certificates of deposit.

The brokered certificates of deposits all mature within three months and were utilized to fund the purchase of floating rate collateralized loan obligation securities.

Total deposits increased $16.4 million, or 1.3%, to $1.28 billion as of December 31, 2024 compared to $1.27 billion at December 31, 2023.

Time deposits increased $66.2 million and money market deposits increased $30.4 million, while interest-bearing demand deposits decreased $46.2 million, savings deposits decreased $24.2 million and non interest-bearing demand deposits decreased $9.9 million.

The current interest rate environment has resulted in a shift in deposit products to

higher priced money market and time deposits.

Brokered time deposits totaled $39.0 million as of December 31, 2024, compared to $29.0 million at December 31, 2023, all of which mature within three months and were utilized to fund the purchase of floating rate CLO securities.

FDIC insured deposits totaled approximately 62.5% of total deposits while an additional 15.9% of deposits were collateralized with investment securities.

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• Short-term borrowings.

Short-term borrowings decreased $8.1 million, or 100.0%, as there were no short-term borrowings at December 31, 2023, compared to $8.1 million at December 31, 2022.

At December 31, 2022, short-term borrowings were comprised entirely of securities sold under agreements to repurchase.

These accounts were transitioned into other deposit products and account for a portion of the interest-bearing demand deposit increase.

There were no short-term borrowings at December 31, 2024 or December 31, 2023.

• Other borrowed funds.

Other borrowed funds increased $20.0 million, or 136.6%, to $34.7 million at December 31, 2023, compared to $14.6 million at December 31, 2022.

During the year, the Bank entered into $20.0 million of FHLB advances for a term of 24 months at 4.92%, the proceeds of which were utilized to match fund originations within the Bank’s commercial and industrial loan portfolio.

Other borrowed funds increased $40,000 to $34.72 million at December 31, 2024, compared to $34.68 million at December 31, 2023.

Borrowings for each period consisted of $20.0 million of FHLB advances entered into during 2023 for a term of 24 months at 4.92%, the proceeds of which were utilized to match fund originations within the Bank’s commercial and industrial loan portfolio and $14.7 million related to the Company's unsecured subordinated debt obligation.

Stockholders’ Equity.

Stockholders’ equity increased $7.5 million, or 5.4%, to $147.4 million at December 31, 2024, compared to $139.8 million at December 31, 2023.

• Key factors positively impacting stockholders’ equity included $22.6 million of net income for the current period, a $9.5 million change in accumulated other comprehensive loss and a $2.1 million positive adjustment, net of tax, due to the Company’s January 1, 2023 adoption of CECL.

These factors were partially offset by the payment of $5.1 million in dividends since December 31, 2022 and activity under share repurchase programs.

On April 21, 2022, a $10.0 million repurchase program was authorized, with the Company repurchasing 74,656 shares at an average price of

$22.38 per share since the inception of the program.

In total, the Company repurchased $274,000 of common stock since December 31, 2022.

The program expired on May 1, 2023.

• Key factors positively impacting stockholders’ equity included $12.6 million of net income for the current period, partially offset by the payment of $5.1 million in dividends since December 31, 2023 and a $488,000 change in accumulated other comprehensive loss.

• Book value per share was $28.71 at December 31, 2024 compared to $27.32 at December 31, 2023, an increase of $1.39.

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Comparison of Operating Results for the Years Ended December 31, 2024 and 2023

2023 Annual Results were impacted by the following significant items:

2024 and 2023 Annual Results were impacted by the following significant items:

• On December 1, 2023, the Company announced that the Bank and EU entered into an Asset Purchase Agreement with World Insurance Associates, LLC ("World") pursuant to which EU sold substantially all of its assets to World for a purchase price of $30.5 million cash plus possible additional earn-out payments.

The sale of assets was completed on December 8, 2023 and resulted in a pre-tax gain of $24.6 million.

During 2024, the Company recognized an additional gain of $138,000 following the final settlement of all liabilities and an earn-out payment of $708,000.

• During the fourth quarter of 2023, the Bank executed a balance sheet repositioning strategy of its portfolio of available-for-sale securities.

• Recovery for credit losses totaled $502,000 for 2023 as the Bank experienced net recoveries for the year ended December 31, 2023 of $557,000 primarily due to recoveries totaling $750,000 related to the prior year $2.7 million charged-off commercial and industrial loan.

• Provision for credit losses totaled $570,000 for 2024 and was primarily due to growth in construction and land development loans, while the Bank recorded a recovery for credit losses of $502,000 for 2023 as the Bank recovered $750,000 related to the prior year $2.7 million charged-off commercial and industrial loan.

Net Interest Income.

Net interest income increased $1.5 million, or 3.4%, to $46.1 million for the year ended December 31, 2024 compared to $44.6 million for the year ended December 31, 2023.

Net interest margin (Non-GAAP) increased 4 bps to 3.29% for the year ended December 31, 2023 compared to 3.25% the year ended December 31, 2022.

Net interest margin (GAAP) increased to 3.28% for the year ended December 31, 2023 compared to 3.24% for the year ended December 31, 2022.

Net interest margin (Non-GAAP) decreased 9 bps to 3.20% for the year ended December 31, 2024 compared to 3.29% the year ended December 31, 2023.

Net interest margin (GAAP) decreased to 3.19% for the year ended December 31, 2024 compared to 3.28% for the year ended December 31, 2023.

Interest and dividend income increased $13.9 million, or 22.3%, to $76.1 million for the year ended December 31, 2024 compared to $62.2 million for the year ended December 31, 2023.

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• Interest income on loans increased $4.7 million, or 8.7%, to $59.4 million for the year ended December 31, 2024 compared to $54.7 million for the year ended December 31, 2023.

Average loans increased $57.8 million while the loan yield increased 97 bps to 5.09% for the year ended December 31, 2023 compared to 4.12% for the year ended December 31, 2022.

• Interest income on taxable investment securities increased $165,000, or 4.3%, to $4.0 million for the year ended December 31, 2023 compared to $3.9 million for the year ended December 31, 2022.

While average investment securities decreased $12.3 million, there was a 19 bps increase in average yield.

• Interest income on tax-exempt investment securities decreased $56,000, or 26.3%, to $157,000 for the year ended December 31, 2023 compared to $213,000 for the year ended December 31, 2022 primarily driven by a decrease of $2.6 million in average balances of municipal securities.

Average loans decreased $3.3 million while the loan yield increased 46 bps to 5.55% for the year ended December 31, 2024 compared to 5.09% for the year ended December 31, 2023.

• Interest income on taxable investment securities increased $7.5 million, or 187.1%, to $11.5 million for the year ended December 31, 2024 compared to $4.0 million for the year ended December 31, 2023.

Average investment securities increased $60.1 million and there was a 236 bps increase in average yield.

• Interest from other interest-earning assets, which primarily consists of interest-earning cash, increased $1.8 million, or 54.9%, to $5.1 million for the year ended December 31, 2024 compared to $3.3 million for the year ended December 31, 2023.

While average interest bearing deposits at other banks decreased $9.1 million, primarily related to changes in deposits and loans, there was a 292 bps increase in average yield due to an increase in Fed interest rates.

Average interest bearing deposits at other banks increased $34.8 million, primarily related to changes in deposits and loans, and there was a 1 bps increase in average yield due to an increase in Fed interest rates.

Interest expense increased $12.4 million, or 70.1%, to $30.1 million for the year ended December 31, 2024 compared to $17.7 million for the year ended December 31, 2023.

This increase was largely due to a 132 basis point increase in the cost of interest-bearing liabilities to 1.38% for the year ended December 31, 2023 compared to 0.53% for the year ended December 31, 2022, adding an additional $12.3 million to interest expense.

This increase was largely due to an 86 basis point increase in the cost of interest-bearing liabilities to 2.24% for the year ended December 31, 2024 compared to 1.38% for the year ended December 31, 2023, adding an additional $9.9 million to interest expense.

• Interest expense on deposits increased $12.0 million, or 73.1%, to $28.4 million for the year ended December 31, 2024 compared to $16.4 million for the year ended December 31, 2023.

Rising market interest rates led to the repricing of interest-bearing demand and money market deposits and a shift in deposits from noninterest-bearing to interest-bearing demand and time deposits which resulted in a 130 bps increase in average cost compared to the year ended December 31, 2022.

Additionally, average interest-bearing deposits increased $80.3 million.

• Interest expense on short-term borrowings decreased $31,000, or 49.2%, to $32,000 for the year ended December 31, 2023 compared to $63,000 for the year ended December 31, 2022 primarily due to the transition of sweep accounts into other deposit products.

• Interest expense on other borrowed funds increased $514,000, or 74.2%, to $1.2 million for the year ended December 31, 2023 compared to $693,000 for the year ended December 31, 2022 primarily due to an $8.7 million increase in average balances due to $20.0 million of FHLB long-term advances added during the second quarter of 2023.

(Recovery) Provision for Credit Losses.

The recovery for credit losses was $502,000 for the year ended December 31, 2023, compared to a $3.8 million provision for the year ended December 31, 2022 due to improvements in qualitative factors and a decrease in historical loss rates.

Net recoveries for the year ended December 31, 2023 were $557,000 primarily due to recoveries totaling $750,000 related to the prior year $2.7 million charged-off commercial and industrial loan.

Net charge-offs for the year ended December 31, 2022 were $2.5 million.

Rising market interest rates led to the repricing of interest-bearing demand and money market deposits and a shift in deposits from noninterest-bearing and interest-bearing demand and savings deposits to money market and time deposits resulted in a 97 bps increase in average cost compared to the year ended December 31, 2023., adding $9.9 million to interest expense.

Additionally, average interest-bearing deposits increased $106.6 million, adding $2.1 million to interest expense.

• Interest expense on other borrowed funds increased $415,000, or 34.4%, to $1.6 million for the year ended December 31, 2024 compared to $1.2 million for the year ended December 31, 2023 primarily due to an $8.4 million increase in average balances due to $20.0 million of FHLB long-term advances added during the second quarter of 2023.

Provision (Recovery) for Credit Losses.

The provision for credit losses was $570,000 for the year ended December 31, 2024, compared to a $502,000 recovery for the year ended December 31, 2023.

The provision for loan losses in 2024 was primarily due to growth in construction and land development loans.

Net charge-offs for the year ended December 31, 2024 were $281,000 while net recoveries for the year ended December 31, 2023 were $557,000 primarily due to recoveries totaling $750,000 related to the prior year $2.7 million charged-off commercial and industrial loan.

Noninterest Income .

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Other Commissions 251 521 (270) (51.8) %

Net Loss on Securities (10,199) (168) (10,031) (5970.8) %

Net Gain on Sales of Loans 52 — 52 — %

Net Gain (Loss) on Securities 51 (10,199) 10,250 100.5 %

Net Gain on Purchased Tax Credits 49 29 20 69.0 %

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Total Noninterest Income $ 5,494 $ 24,012 $ (18,518) (77.1) %

Noninterest income increased $14.2 million, or 144.5%, to $24.0 million for the year ended December 31, 2023, compared to $9.8 million for the year ended December 31, 2022.

Noninterest income decreased $18.5 million, or 77.1%, to $5.5 million for the year ended December 31, 2024, compared to $24.0 million for the year ended December 31, 2023.

• The Company recorded a $24.6 million pre-tax gain on the sale of EU assets during the year ended December 31, 2023.

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The sale of assets was completed on December 8, 2023.

• Net loss on securities was $10.2 million for the year ended December 31, 2023, compared to a loss of $168,000 for the year ended December 31, 2022.

During 2024, the Company recognized an additional gain of $138,000 following the final settlement of all liabilities.

• Net gain on securities was $51,000 for the year ended December 31, 2024, compared to a loss of $10.2 million for the year ended December 31, 2023.

During 2023, the Company sold $79.4 million in book value of its lower-yielding U.S government agency, mortgage-backed and municipal securities with an average yield of 1.89% and purchased $69.3 million of higher-yielding mortgage-backed and collateralized mortgage obligation securities with an average yield of 5.49%, resulting in a pre-tax loss of $10.1 million.

The Company's equity securities, which are primarily comprised of bank stocks, reflected a loss in value of $110,000 for the current period compared to a loss of $168,000 in value in the prior period primarily from a change in market value of these securities.

• The Company recorded a $11,000 net gain on disposal of fixed assets in the current year, compared to a $431,000 gain in the prior year resulting from the sale of two former branch locations.

The Company's equity securities, which are primarily comprised of bank stocks, reflected a gain in value of $51,000 for the current period compared to a loss of $110,000 in value in the prior period primarily from a change in market value of these securities.

• Insurance commissions decreased $5.8 million due to the sale of EU during the year ended December 31, 2023.

• Other income for the year ended December 31, 2024 includes a $708,000 earn-out payment related to EU.

• The Company recorded a $274,000 net gain on disposal of fixed assets in the current year related to the sale of one branch location, compared to a $11,000 gain in the prior year.

Noninterest Expense.

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Total Noninterest Expense $ 35,649 $ 38,782 $ (3,133) (8.1) %

Noninterest expense increased $3.9 million, or 11.2%, to $38.8 million for the year ended December 31, 2023 compared to $34.9 million for the year ended December 31, 2022.

• Salaries and employee benefits increased $3.4 million to $21.9 million for the year ended December 31, 2023 compared to $18.5 million for the year ended December 31, 2022.

The increase was primarily related to merit increases, revenue producing staff additions and related recruiting costs, severance related to the discontinuation of indirect automobile lending and $691,000 of one-time costs related to the sale of the insurance subsidiary.

Noninterest expense decreased $3.1 million, or 8.1%, to $35.6 million for the year ended December 31, 2024 compared to $38.8 million for the year ended December 31, 2023.

• Salaries and employee benefits decreased $3.1 million to $18.8 million for the year ended December 31, 2024 compared to $21.9 million for the year ended December 31, 2023.

The decrease was primarily due to no expense related to EU for the year ended December 31, 2024, compared to $3.1 million for year ended December 31, 2023.

• Amortization of intangible assets decreased $808,000 to $958,000 for the year ended December 31, 2024 compared to $1.8 million for the year ended December 31, 2023 as a component of the Bank’s core deposit intangible was fully amortized in February 2024 and there was no expense related to EU recognized for the year ended December 31, 2024 compared to $174,000 of expense recognized for the year ended December 31, 2023.

• Other noninterest expense decreased $366,000 to $3.4 million for the year ended December 31, 2024 compared to $3.7 million for the year ended December 31, 2023.

The decrease was primarily due to no expense related to EU for the year ended December 31, 2024, compared to $422,000 for year ended December 31, 2023

• Contracted services increased $457,000 to $1.6 million for the year ended December 31, 2024 compared to $1.2 million for the year ended December 31, 2023 due primarily to costs associated with cybersecurity support, website administration, equity compensation management and product consulting.

• Data processing expense increased $294,000 to $3.3 million for the year ended December 31, 2024 compared to $3.0 million for the year ended December 31, 2023.

The increase was primarily related to increased ongoing costs related to the fourth quarter 2022 core conversion.

• Equipment expense increased $325,000 to $1.1 million for the year ended December 31, 2023 compared to $739,000 for the year ended December 31, 2022 due to costs associated with the implementation and operation of new interactive teller machines.

• FDIC assessment expense increased $116,000 to $754,000 for the year ended December 31, 2023 compared to $638,000 for the year ended December 31, 2022.

The increase in assessment was due to an increase in the uniform amount of the FDIC assessment rate calculation impacting the quarterly assessment rates in the current period.

The uniform amount is the contribution to the assessment rate that is constant across FDIC insured institutions and is adjusted by the FDIC.

• Contracted services decreased $462,000 to $1.2 million for the year ended December 31, 2023 compared to $1.6 million for the year ended December 31, 2022 due primarily to costs associated with project management of strategic initiatives during 2022.

The increase was primarily related to costs related to the implementation of a new loan origination system and a financial dashboard program.

• Pennsylvania shares tax expense increased $272,000 to $1.2 million for the year ended December 31, 2024 compared to $889,000 for the year ended December 31, 2023 due to an increase in the Bank's taxable base resulting from the increase in equity from the sale of EU.

Income Tax Expense.

Income tax expense increased $4.9 million to $7.7 million for the year ended December 31, 2023, compared to $2.8 million for the year ended December 31, 2022 and is primarily attributed to the increase in pre-tax income.

Income tax expense decreased $5.0 million to $2.7 million for the year ended December 31, 2024, compared to $7.7 million for the year ended December 31, 2023 and is primarily attributed to the decrease in pre-tax income.

Average Balances and Yields.

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Nonaccrual Loans and Nonperforming Assets.

The following table sets forth the amounts and categories of our nonperforming assets as of December 31, 2023.

The following table sets forth the amounts and categories of our nonperforming assets as of the dates indicated.

December 31, 2024

3 unchanged sentences

$ 1,388 $ — $ — $ 1,388

Commercial and Industrial

Total Nonaccrual Loans

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Total Nonperforming Assets

The following table sets forth the amounts and categories of nonperforming assets as of December 31, 2022, prior to adoption of ASU 2016-13.

Included in nonperforming loans and assets are TDRs, which are loans whose contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties.

Nonaccrual TDRs are included in their specific loan category in the nonaccrual loans section.

December 31, 2023

Nonaccrual With No ACL Nonaccrual With ACL Loans Past Due 90 Days Still Accruing Total Nonperforming Assets

(Dollars in Thousands)

Nonaccrual Loans:

$ 1,476 $ — $ — $ 1,476

Commercial and Industrial 316 — — 316

Total Nonaccrual Loans

Accruing Loans Past Due 90 Days or More:

Total Accruing Loans Past Due 90 Days or More

Total Nonaccrual Loans and Accruing Loans Past Due 90 Days or More

Troubled Debt Restructurings, Accruing:

Commercial and Industrial

Total Troubled Debt Restructurings, Accruing

Total Nonperforming Loans

$ 2,240 $ — $ — 2,240

Other Real Estate Owned:

Residential 162

Total Other Real Estate Owned 162

Total Nonperforming Assets

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At December 31, 2024 and December 31, 2023, we had no loans that were not classified as nonaccrual or 90 days past due where known information about possible credit problems of borrowers caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure as nonaccrual or 90 days past due.

Nonperforming assets decreased $3.4 million to $2.4 million at December 31, 2023, compared to $5.8 million at December 31, 2022.

Nonperforming loans decreased $3.6 million to $2.2 million at December 31, 2023 compared to $5.8 million at December 31, 2022.

The respective decreases are primarily attributable to ten loans totaling $1.7 million transferred from nonaccrual to accrual status during the period and the repayment of a $1.6 million commercial real estate loan that was previously on nonaccrual status.

Nonperforming assets decreased $613,000 to $1.8 million at December 31, 2024, compared to $2.4 million at December 31, 2023.

Nonperforming loans decreased $451,000 to $1.8 million at December 31, 2024 compared to $2.2 million at December 31, 2023.

The respective decreases are primarily attributable to the sale of a $162,000 other real estate owned residential property in the current year, the payoff of a commercial non-owner occupied purchased participation loan for $358,000 and a $316,000 commercial and industrial loan that was placed back on accrual status based on consistent timely loan payments.

This was partially offset by a $175,000 commercial non-owner occupied loan moved to nonaccrual status during the year and increases of $72,000 in nonaccrual personal consumer loans and $52,000 in nonaccrual indirect loans in the current year.

The following table presents the components of the ratio of nonaccrual loans to total loans at the dates indicated.

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Total $ 1,789 $ 1,092,626 0.16 % $ 2,240 $ 1,110,396 0.20 %

Nonaccrual loans decreased $1.8 million to $2.2 million at December 31, 2023 compared to $4.0 million at December 31, 2022.

Nonaccrual commercial real estate loans decreased $1.5 million to $360,000 at December 31, 2023 compared to $1.8 million at December 31, 2022 primarily related to the repayment of a $1.6 million commercial real estate loan that was previously on nonaccrual status.

Classified Assets.

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The Company designates an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention.

The Company uses an eight-point internal risk rating system to monitor the credit quality of the overall loan portfolio.

The first four categories are not considered criticized and are aggregated as “pass” rated.

The Company uses an nine-point internal risk rating system to monitor the credit quality of the overall loan portfolio.

The first five categories are not considered criticized and are aggregated as one to four “pass” and five "pass-watch" rated.

The Company moved to the nine-point internal risk rating system in the current year, which aligned the Company with risk rating systems that are common to community banking peers.

The criticized rating categories used by management generally follow bank regulatory definitions.

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Substandard 6,854 14,457

Doubtful — 415

Total $ 40,397 $ 69,435

The total amount of special mention and classified loans increased $10.7 million, or 18.3%, to $69.4 million at December 31, 2023, compared to $58.7 million at December 31, 2022.

The increase of $11.2 million in the special mention loan category is primarily due to construction loan downgrades.

The total amount of special mention and classified loans decreased $29.0 million, or 41.8%, to $40.4 million at December 31, 2024, compared to $69.4 million at December 31, 2023.

The decrease of $21.4 million in the special mention loan category is primarily due to loan risk rating upgrades due to the receipt of borrowers' current financial information.

decrease of $7.6 million in the substandard category is primarily due to a substantial principal reduction in loans for one commercial borrower previously secured by a pledge of revenues and commercial real estate with the remaining principal balance being refinanced into loans fully secured with commercial real estate.

Allowance for Credit Losses.

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Impact of ASC 326 - Loans — (3,385)

(Recovery) Provision for Loan Losses (284) 3,784

Provision (Recovery) for Loan Losses 379 (284)

Residential (28) (219)

7 unchanged sentences

Total Recoveries 371 1,146

Net Recoveries (Charge-offs) 557 (2,547)

Net (Charge-offs) Recoveries (281) 557

Balance at End of Year $ 9,805 $ 9,707

3 unchanged sentences

Net (Recoveries) Charge-offs to Average Loans 0.03 (0.05)

The allowance for credit losses decreased $3.1 million, or 24.3%, to $9.7 million at December 31, 2023, compared to $12.8 million at December 31, 2022.

Allowance for credit losses to total loans decreased 35 basis points to 0.87% at December 31, 2023 compared to 1.22% at December 31, 2022.

The change in the allowance for credit losses was primarily due to the Company's aforementioned adoption of CECL.

At adoption, the Company decreased its allowance for credit losses by $3.4 million.

During the current year, the Company recorded a recovery of credit losses of $284,000 due to improvements in qualitative factors coupled with a decrease in historical loss rates.

This compared to $3.8 million in provision for credit losses for the year ended December 31, 2022 due to a $2.7 million charge-off of one loan in the commercial and industrial pool.

The allowance for credit losses increased $98,000, or 1.0%, to $9.8 million at December 31, 2024, compared to $9.7 million at December 31, 2023.

Allowance for credit losses to total loans increased 3 basis points to 0.90% at December 31, 2024 compared to 0.87% at December 31, 2023.

The increase in the allowance for credit losses was primarily due to specific reserves for individually analyzed loans of $331,000 for a commercial and industrial loan relationship and two CRE non-owner occupied loans of $68,000 at December 31, 2024.

This was mainly offset by a recovery in the allowance for credit losses of $301,000 due to a decrease in historical loss rates, partially offset by an increase in qualitative factors related to growth in the

loan portfolio.

This compared to $284,000 in recovery for credit losses for the year ended December 31, 2023 due to a $2.7 million charge-off of one loan in the commercial and industrial pool.

The ratio of allowance for credit losses to nonaccrual loans ratio increased to 548.07% at December 31, 2024, compared to 433.35% at December 31, 2023.

Nonaccrual loans decreased $1.8 million to $2.2 million at December 31, 2023 compared to $4.0 million at December 31, 2022.

Nonaccrual loans decreased $451,000 to $1.8 million at December 31, 2024 compared to $2.2 million at December 31, 2023.

Nonaccrual commercial real estate loans decreased $172,000 to $188,000 at December 31, 2024 compared to $360,000 at December 31, 2023 primarily related to the payoff of a commercial non-owner occupied purchased participation loan for $358,000 and a $316,000 commercial and industrial loan that was placed back on accrual status based on consistent timely loan payments.

Net charge-offs for the year ended December 31, 2024 were $281,000 primarily due to charge-offs of $357,000 for consumer indirect, $127,000 for CRE non-owner occupied and $114,000 for consumer revolving lines of credit.

This was partially offset by recoveries of $175,000 for commercial and industrial and $133,000 for consumer indirect loans.

Net recoveries for the year ended December 31, 2023 were $557,000 primarily due to recoveries totaling $750,000 related to the prior year $2.7 million charged-off commercial and industrial loan.

Net charge-offs for the year ended December 31, 2022 were $2.5 million.

The following table presents the ratio of net (recoveries) charge-offs as a percent of average loans for the periods indicated.

The following table presents the ratio of net charge-offs (recoveries) as a percent of average loans for the periods indicated.

Year Ended December 31, 2024 2023

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arrangement with the FHLB with a maximum borrowing limit of approximately $489.5 million and available borrowing capacity of $467.6 million as of December 31, 2024.

At December 31, 2023, $18.9 million of standby letters of credit were utilized to collateralize public deposits in excess of the level insured by the FDIC.

At December 31, 2024, there were no standby letters of credit utilized to collateralize public deposits in excess of the level insured by the FDIC.

This arrangement is subject to annual renewal, incurs no service charge, and is secured by a blanket security agreement on $695.5 million of residential and commercial mortgage loans and the Bank’s investment in FHLB stock.

59 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis