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Item 2. Management’s Discussion and Analysis

2025-08-14 compared with 2025-05-15 · 216 added, 149 removed, 429 unchanged (46% of the section changed)

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Period Ended March 31, 2025

Period Ended June 30, 2025

The following discussion analyzes the consolidated financial condition of Community Bancorp.

and its wholly owned subsidiary, Community National Bank, as of March 31, 2025 and December 31, 2024, and its consolidated results of operations for the three-month interim period and one year period presented.

and its wholly owned subsidiary, Community National Bank, as of June 30, 2025 and December 31, 2024, and its consolidated results of operations for the three-month and six-month interim periods presented.

The Company is considered a “smaller reporting company” and a “non-accelerated filer” under the disclosure rules of the SEC.

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changes in federal or state tax laws or policy;

changes in laws or government rules, including the rules of the federal Consumer Financial Protection Bureau, or the way in which courts or government agencies interpret or implement those laws or rules, increase our costs of doing business, causing us to limit or change our product offerings or pricing, or otherwise adversely affect the Company's business;

changes in laws or government rules, including the rules of the federal Consumer Financial Protection Bureau, or the way in which courts or government agencies interpret or implement those laws or rules, may increase our costs of doing business, causing us to limit or change our product offerings or pricing, or otherwise adversely affect the Company's business;

regulatory responses to high profile bank failures increase our costs of operation, including through regulatory compliance changes and higher FDIC deposit insurance assessments to replenish the Bank Insurance Fund (BIF);

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However, that information should be considered supplemental in nature and not as a substitute for related financial information prepared in accordance with GAAP.

The Company’s consolidated assets as of March 31, 2025, were $1.19 billion compared to $1.25 billion as of December 31, 2024, a decrease of 4.9%.

Changes in the asset base included an increase in loans of $12.3 million, or 1.3%, an increase in investment securities AFS of $8.6 million, or 5.4%, and an increase in cash of $3.5 million, or 35.5%, which more than offset by a decrease in overnight deposits of $85.6 million, or 84.7%.

The increase in the loan portfolio was primarily attributable to an increase of $7.6 million in residential first and Jr.

lien loans, $4.6 million in CRE loans, and $3.4 million in municipal loans, which was partially offset by a decrease of $3.2 million, collectively, in commercial & industrial and purchased loans.

The increase in the investment portfolio was due to the purchase of MBS classified as AFS.

The decrease in overnight deposits is partly due to the increase in the loan and investment securities portfolios, as well as reflecting decreases in deposit balances and payoff of BTFP advances that matured during the first quarter of 2025.

Total deposits as of March 31, 2025, were $979.7 million compared to $1.0 billion as of December 31, 2024, a decrease of approximately $22.0 million, or 2.2%.

The Company’s consolidated assets as of June 30, 2025, were $1.17 billion compared to $1.25 billion as of December 31, 2024, a decrease of 6.6%.

Changes in the asset base included an increase in loans of $13.8 million.

however, there was a substantial decrease in overnight deposits of $98.9 million, or 97.9%.

The increase in the loan portfolio was primarily attributable to increases of $11.9 million in residential first and Jr.

lien loans, $18.8 million in CRE loans, $4.1 million in commercial & industrial and $3.8 million in purchased loans, which was partially offset by a decrease of $24.7 million in municipal loans.

While cash funded the increase in the loan portfolio, the decrease in overnight deposits reflects decreases in deposit balances and payoff of borrowings that matured during the first quarter of 2025.

Total deposits as of June 30, 2025, were $933.0 million compared to $1.0 billion as of December 31, 2024, a decrease of approximately $68.7 million, or 6.9%.

Year to date, time deposits increased $10.1 million, or 5.4% and savings accounts increased $419 thousand, or 0.3%, while interest-bearing demand deposits decreased $44.2 million, or 14.5%, and money market funds decreased $39.1 million, or 23.1%.

A decrease in deposit balances is typical in the first and second quarters of the calendar year, due in part to the timing of customers income tax obligations and the spend down of deposited funds by Vermont municipal customers prior to their June 30 fiscal year end.

The decrease in borrowed funds was the result of maturities in the BTFP funds.

Total interest income increased approximately $1.7 million, or 13.0%, for the first three months of 2025, compared to the same period in 2024.

The growth in the volume of the loan portfolio and origination of loans at higher interest rates, as well as adjustable-rate loans repricing to current market rates, helped to support the year-over-year increase in interest income.

Total interest expense increased $585 thousand, or 13.0%, for the first three months of 2025, compared to the same period in 2024.

The higher rate environment put more pressure on competitive deposit pricing, resulting in an increase in the rates paid on the Company’s money market and time deposit accounts.

The increase of $1.1 million, or 35.9%, in interest on deposits was partially offset by a decrease of $575 thousand, or 60.8% in interest on borrowed funds due to the decrease in borrowed funds.

Please refer to the interest rate sensitivity discussion in the Interest Rate Risk and Asset and Liability Management section for more information on the impact that the actions of the FRB’s FOMC in regulating interest rates, and changes in the yield curve, could have on our net interest income.

The credit loss expense for the first three months of 2025 was $325,054 compared to $313,579 for the same period in 2024, resulting in an increase of $11,475, or 3.7%.

The current period credit loss expense considers a number of factors, including loan growth and changes in balances of the loan categories within the current portfolio, changes in forecasts, historical loss rate and qualitative factors.

During the first quarter of 2025, certain qualitative factors used in the ACL calculation were adjusted to better reflect expected credit losses in the loan portfolio.

Borrowed funds decreased $16.8 million, or 23.1%, from December 31, 2024, due primarily to maturities in the BTFP funds, partially offset by new long-term FHLBB advances and overnight borrowings.

Total interest income increased approximately $1.7 million, or 12.5%, for the second quarter of 2025, and increased $3.3 million, or 12.7%, for the first six months of 2025, compared to the respective periods in 2024.

Total interest expense decreased $140 thousand, or 2.8%, for the second quarter of 2025, and increased $444 thousand, or 4.6%, for the first six months of 2025, compared to the respective periods in 2024.

While the rate environment continues to put pressure on the Company’s funding costs, including competitive deposit pricing, the year-over-year increase of $1.7 million, or 26.7%, in interest expense on the Company’s interest bearing deposit accounts was partially offset by a decrease of $1.4 million, or 63.3% in interest expense on borrowed funds due to the decrease in the average volume of borrowed funds.

Please refer to the interest rate sensitivity discussion in the Interest Rate Risk and Asset and Liability Management section of this Management’s Discussion and Analysis for more information on the impact that the actions of the FRB’s FOMC in regulating interest rates, and changes in the yield curve, could have on our net interest income.

The credit loss expense for the second quarter of 2025 was $407,046 compared to $331,582 for the same quarter of 2024 and $732,100 for the first six months of 2025 compared to $645,161 for the same period in 2024, resulting in increases between periods of $75,464, or 22.8% and $86,939, or 13.5%, respectively.

In determining the current period credit loss expense management considers a number of factors, including loan growth and changes in balances of the loan categories within the current portfolio, changes in forecasts, historical loss rates and various qualitative factors, which management reviews and adjusts, as appropriate, in its ACL calculation to better reflect expected credit losses in the loan portfolio.

Please refer to Note 5 of the unaudited consolidated financial statements as well as the ACL and credit loss expense discussion in the Credit Risk section of this MD&A.

Consolidated net income for the first three months of 2025 increased $703 thousand to $3.5 million compared to $2.8 million for the same period in 2024.

The $1.1 million increase in net interest income after credit loss expense was a contributing factor to the increase in net income.

This change, along with other significant changes in non-interest income and non-interest expense are discussed in the appropriate sections of this MD&A.

Equity capital increased to $102.9 million, with a book value per share of $18.05 as of March 31, 2025, compared to $98.0 million and a book value per share of $17.24 as of December 31, 2024.

Please refer to the section of this Management’s Discussion and Analysis titled “LIQUIDITY AND CAPITAL RESOURCES” for a discussion in of the changes in the Company’s equity capital for the three months ended March 31, 2025.

On March 19, 2025, the Company's Board of Directors declared a quarterly cash dividend of $0.24 per common share, payable on May 1, 2025, to shareholders of record on April 15, 2025.

As described in more detail below under “LIQUIDITY AND CAPITAL RESOURCES” as of March 31, 2025, the Company’s capital ratios, and those of our subsidiary Bank, were in excess of applicable regulatory requirements.

During the first quarter of 2025, CFS Partners, in which the Company currently holds a one-third ownership interest, agreed to redeem all of the limited liability company membership interest of Guaranty Bancorp, Inc., representing a one-third ownership interest, contingent upon, and just prior to, consummation of the pending merger of Guaranty Bancorp with and into Bar Harbor Bankshares.

Under the terms of the redemption agreement, beginning March 1, 2025, Guaranty Bancorp has agreed to forego its distributional interest in CFS Partners through the closing date of the redemption.

Accordingly, beginning March 1, 2025, the Company’s share of the profit and loss from the operations of CFS Partners’ sole subsidiary, CFSG, has increased from one-third to one-half.

The redemption of Guaranty Bancorp’s membership interest in CFS Partners is expected to occur before year end 2025.

The Company does not have a controlling interest in the partnership and will still remain accounting for the investment using the equity method.

Considering recent trade policy developments between Canada and the United States, management is assessing the potential risk to the local economy.

Consolidated net income for the second quarter of 2025 increased $1.3 million, or 48.8%, to $4.1 million compared to $2.7 million for the same quarter of 2024, and increased $2.0 million, or 36.6%, to $7.6 million for the first six months of 2025 compared to $5.6 million for the same period in 2024.

The increases in net interest income after credit loss expense of $1.7 million for the second quarter of 2025 and $2.8 million for the first six months of 2025, compared to the respective periods in 2024, were contributing factors to the increases in net income.

This change, along with significant changes in non-interest income and non-interest expense, are discussed in the appropriate sections of this Management’s Discussion and Analysis.

Equity capital increased to $106.3 million, with a book value per share of $18.69 as of June 30, 2025, compared to $98.0 million and a book value per share of $17.24 as of December 31, 2024.

On July 16, 2025, the Company's Board of Directors declared a quarterly cash dividend of $0.24 per common share, payable on August 1, 2025, to shareholders of record on July 15, 2025.

As described in more detail below under “LIQUIDITY AND CAPITAL RESOURCES” as of June 30, 2025, the Company’s capital ratios, and those of our subsidiary Bank, were in excess of applicable regulatory requirements.

During the first quarter of 2025, CFS Partners, in which the Company held a one-third ownership interest, agreed to redeem all the limited liability company membership and distributional interests of Guaranty Bancorp, Inc.

(“Guaranty”), representing a one-third ownership interest, contingent upon, and just prior to, consummation of Guaranty’s merger with and into Bar Harbor Bankshares.

That merger, and the related redemption of Guaranty’s ownership interest by CFS Partners, were completed on July 31, 2025.

Under the terms of the redemption agreement, beginning March 1, 2025, Guaranty Bancorp agreed to forego its distributional interest in CFS Partners through the closing date of the redemption.

Accordingly, beginning March 1, 2025, the Company’s share of the profit and loss from the operations of CFS Partners’ sole subsidiary, CFSG, increased from one-third to 50%, and effective on July 31, 2025, the Company’s non-economic membership (governance) interest in CFS Partners likewise increased to 50%.

The Company does not have a controlling interest in CFS Partners and will continue to account for its investment using the equity method.

Given the Company’s northern Vermont market area, management is assessing the potential risk to the local economy from recent trade policy developments between the United States and Canada.

Canada is Vermont’s largest international trading partner;

many businesses who rely on trade with Canada are now at risk of experiencing increased costs, reduced sales, and a sense of uncertainty about the future.

Management is evaluating the impact on the bank’s customers, however the impact on profits for many of these businesses remains uncertain.

In light of these challenges, the Company’s own strategic focus will be to safeguard its balance sheet while supporting clients.

many businesses that rely on trade with Canada are now at risk of experiencing increased costs, reduced sales, and a sense of uncertainty about the future.

Although management continues to evaluate the potential impact on the Company’s customers, trade negotiations are on-going, and the ultimate effect on these businesses remains uncertain.

In light of these challenges, the Company’s own strategic focus will be to safeguard its balance sheet while supporting its customers and communities.

CRITICAL ACCOUNTING POLICIES

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These policies are described in the Company’s 2024 Annual Report on Form 10-K in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” and in Note 1 (Significant Accounting Policies) to the audited consolidated financial statements.

There were no material changes during the first three months of 2025 in the Company’s critical accounting policies.

There were no material changes during the first six months of 2025 in the Company’s critical accounting policies.

ACL - Management believes that the calculation of the ACL is a critical accounting policy that requires the most significant judgments and estimates used in the preparation of its consolidated financial statements.

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RESULTS OF OPERATIONS

The Company’s net income for the first three months of 2025 was $3.5 million, or $0.62 per common share, compared to $2.8 million, or $0.51 per common share, for the same period in 2024.

Core earnings (NII) were $9.4 million for the first three months of 2025 compared to $8.4 million for the same period in 2024.

Interest and fees on loans, the major component of interest income, increased $1.5 million, or 13.2% for the first three months of 2025 compared to the same period in 2024.

Interest paid on deposits, which is the major component of total interest expense, increased $1.1 million, or 35.9% for the first three months of 2025 compared to the same period in 2024, driven primarily by the increases in the fed funds rate.

Interest on borrowed funds decreased $575 thousand, or 60.8%, for the first three months of 2025 compared to the same period in 2024.

Market pressures on deposit rates have stabilized and a decrease in wholesale funding has resulted in an improved net interest margin and net interest spread.

The Company’s net income for the second quarter of 2025 was $4.1 million, or $0.72 per common share, compared to $2.7 million, or $0.49 per common share for the same quarter of 2024, and for the first six months of 2025 was $7.6 million, or $1.34 per common share, compared to $5.6 million, or $0.99 per common share, for the same period in 2024.

Core earnings (NII) were $9.9 million for the second quarter of 2025, compared to $8.1 million for the same period of 2024 and $19.3 million for the first six months of 2025, compared to $16.5 million for the same period in 2024.

Interest and fees on loans, the major component of interest income, increased $1.6 million, or 13.5% for the second quarter of 2025 compared to the same period of 2024 and increased $3.2 million, or 13.3% for the first six months of 2025 compared to the same period in 2024.

Interest paid on deposits, which is the major component of total interest expense, increased $612 thousand, or 18.2% for the second quarter of 2025 and increased $1.7 million, or 26.7% for the first six months of 2025, compared to the respective periods in 2024, driven primarily by increased deposit balances.

Interest on borrowed funds decreased $830 thousand, or 65.1%, for the second quarter of 2025 compared to the same quarter of 2024 and decreased $1.4 million, or 63.3%, for the first six months of 2025 compared to the same period in 2024, primarily due to a decrease in average volume of borrowed funds in both comparison periods.

Market pressure on deposit rates has stabilized and a decrease in wholesale funding has resulted in an improved net interest margin and net interest spread.

Return on average assets, which is net income divided by average total assets, measures how effectively a corporation uses its assets to produce earnings.

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The following table shows these ratios annualized, as well as other equity ratios monitored by management, for the comparison periods presented.

Three Months Ended March 31,

Three Months Ended June 30,

Return on average assets

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Average equity to average assets

Six Months Ended June 30,

Return on average assets

Return on average equity

Dividend payout ratio (1)

Average equity to average assets

(1) Dividends declared per common share divided by earnings per common share.

INTEREST INCOME VERSUS INTEREST EXPENSE (NET INTEREST INCOME)

INTEREST INCOME VERSUS INTEREST EXPENSE (NII)

The largest component of the Company’s operating income is NII, which is the difference between interest earned on loans and investments and the interest paid on deposits and other sources of funds (i.e., borrowings).

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therefore, to equalize tax-free and taxable income in the comparison, we divide the tax-free income by 79%, with the result that every tax-free dollar is equivalent to $1.27 in taxable income for the periods presented.

The Company’s tax-exempt interest income of $818,363 and $575,470 for the three months ended March 31, 2025 and 2024, respectively, was derived from loans to local municipalities of $70.4 million and $56.9 million, and tax-exempt municipal investment securities of $10.0 million and $10.4 million as of March 31, 2025 and 2024, respectively.

The Company’s tax-exempt interest income of $827,746 and $617,843 for the three months ended June 30, 2025 and 2024, respectively, and $1.6 million and $1.2 million for the six months ended June 30, 2025 and 2024, respectively, was derived from loans to local municipalities of $42.4 million and $34.1 million, and tax-exempt municipal investment securities of $9.9 million and $10.3 million, as of June 30, 2025 and 2024, respectively.

The following table shows the reconciliation between reported NII and tax equivalent NII for the comparison periods presented.

Three Months Ended March 31,

Three Months Ended June 30,

Net interest income as presented

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Net interest income, tax equivalent

The following table presents the daily average assets and the daily average liabilities, including the yields on interest-earning assets and interest-bearing liabilities for the comparison periods presented.

Six Months Ended June 30,

Net interest income as presented

Effect of tax-exempt income

Net interest income, tax equivalent

The following tables present the daily average assets and the daily average liabilities, including the average yields on interest-earning assets and average expense on interest-bearing liabilities for the comparison periods presented.

Interest income (excluding interest on non-accrual loans) is expressed on a tax equivalent basis, both in dollars and as a yield/rate for the comparison periods presented.

Net interest income, net interest spread, and net interest margin are also expressed on a tax equivalent basis.

Three Months Ended March 31,

Three Months Ended June 30,

Average Assets

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Total interest-bearing liabilities

$ 875,278,651

$ 835,132,143

Noninterest bearing deposits

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Net interest margin (4)

Included in net loans are non-accrual loans with average balances of $8,730,643 and $6,524,051 for the three months ended March 31, 2025 and 2024, respectively.

Loans are stated net of unearned discount and ACL, and include loans held-for-sale and tax-exempt loans to local municipalities with average balances of $68,300,830 and $56,602,242 for the three months ended March 31, 2025 and 2024, respectively.

Included in other investments is the Company’s FHLBB Stock with average balances of $1,824,887 and $1,185,062, respectively, with a dividend rate of approximately 6.96% and 8.56%, respectively, for the three months ended March 31, 2025 and 2024, respectively.

Included in net loans are non-accrual loans with average balances of $8,742,987 and $6,377,110 for the three months ended June 30, 2025 and 2024, respectively.

Loans are stated net of unearned discount and ACL, plus loans held-for-sale and include tax-exempt loans to local municipalities with average balances of $68,794,557 and $58,625,102 for the three months ended June 30, 2025 and 2024, respectively.

Included in other investments is the Company’s FHLBB Stock with average balances of $2,356,166 and $2,114,103 for the three months ended June 30, 2025 and 2024, respectively, with a dividend rate of approximately 7.39% and 8.4%, respectively, per quarter.

Net interest spread is the difference between the average yield on average interest-earning assets and the average rate paid on average interest-bearing liabilities.

Net interest margin is net interest income divided by average earning assets.

The average volume of interest-earning assets for the three-month period ended March 31, 2025 increased 7.8% compared to the same period last year, and the average yield on interest-earning assets increased 29 bps.

The average volume of loans increased over the three-month comparison period of 2025 versus 2024 by 9.8%, and the average yield on loans increased 24 bps.

Loans accounted for 82.8% of the average interest-earning asset portfolio for the three-month period ended March 31, 2025, compared to 81.3% for the same period last year.

Interest earned on the loan portfolio as a percentage of total interest income was 91.0% for the three-month period in 2025 compared to 90.8% for the same period in 2024.

The average volume of the taxable investment portfolio (classified as AFS) decreased 14.6% during the three-month period ended March 31, 2025, compared to the same period last year, while the average yield increased 10 bps between periods.

There were purchases of taxable AFS investment securities during the first three months of 2025, however maturities and paydowns on this portfolio in 2024 and into 2025 outweighed purchases during the same time period, accounting for the decrease in average volume year over year.

The average volume of the tax-exempt investment portfolio (classified as AFS) for the three-month period ended March 31, 2025 decreased 0.1% and the tax equivalent yield increased nine bps.

There were no tax-exempt bond purchases during the first three months of 2025, accounting for the decrease in average volume in this portfolio.

The average volume of sweep and interest-earning accounts, which consists primarily of an interest-bearing account at the FRBB, increased 368.9% for the three-month period ended March 31, 2025, compared to the same periods in 2024.

The average volume grew steadily throughout 2024 with the influx of customer deposit accounts, primarily municipal deposit accounts.

The average yield on these funds decreased 104 bps for the three-month period ended March 31, 2025, versus the same period in 2024.

The average volume of interest-bearing liabilities for the three-month period ended March 31, 2025 increased 8.7% compared to the same period in 2024, and the average rate paid on interest-bearing liabilities increased 11 bps.

The average volume of interest-bearing transaction accounts increased 2.9% for the three-month period ended March 31, 2025, compared to the same period in 2024, reflecting moderate growth year over year, while the average rate paid on these accounts decreased two bps between comparison periods.

Interest-bearing transaction accounts comprised 33.3% of the average interest-bearing liabilities portfolio for the three-month period ended March 31, 2025, compared to 35.2% for the same period last year.

Interest paid on these funds accounted for 27.2% of total interest expense for the three-month period of 2025 compared to 30.4% for the same period in 2024.

The average volume of money market accounts increased 37.2% for the three-month period ended March 31, 2025, compared to the same period in 2024, and the average rate paid on these deposits increased 52 bps.

The increase was driven primarily by increases in the average volume of municipal deposit accounts during the third and fourth quarter of 2024.

The average volume of savings accounts decreased 5.2% for the three-month period ended March 31, 2025, compared to the same period in 2024, with no change in the average rate paid on these accounts.

The average volume of time deposits increased 44.8% for the three-month period ended March 31, 2025, compared to the same period in 2024, and the average rate paid increased 42 bps.

The increase in both the average volume and average rate paid are attributable to CD promotional rates offered throughout 2024 and into 2025.

The average volume of repurchase agreements increased 37.3% for the three-month period ended March 31, 2025, compared to the same period in 2024, and the average rate paid increased 14 bps between comparison periods.

The Company utilized borrowed funds to fund loan growth and cover deposit outflows during 2023 and into the first and second quarters of 2024, but as deposit accounts began to increase, the need for these funds decreased, accounting for the 57.8% decrease in average volume of borrowed funds during the three-month period ended March 31, 2025, compared to the same period in 2024.

The average rate paid on borrowed funds decreased as well by 43 bps for the three-month period ended March 31, 2025, compared to the same period in 2024.

In summary, between the three-month periods ended March 31, 2025 and 2024, the average yield on interest-earning assets increased 29 bps and the average rate paid on interest-bearing liabilities increased 11 bps.

Net interest spread increased 18 bps for the three-month period ended March 31, 2025 versus the same period in 2024, and the net interest margin increased 20 bps between comparison periods.

Six Months Ended June 30,

Average Assets

Loans, net (1)

$ 935,652,854

$ 855,916,469

Taxable investment securities

Tax-exempt investment securities

Sweep and interest-earning accounts

Other investments (2)

Total interest-earning assets

1,118,458,072

$ 1,045,263,074

Cash and due from banks

Premises and equipment

$ 1,185,718,993

$ 1,106,753,221

Average Liabilities and Shareholders' Equity

Interest-bearing transaction accounts

$ 288,056,314

$ 278,669,658

Money market funds

Savings deposits

Time deposits

Repurchase agreements

Borrowed funds

Finance lease obligations

Junior subordinated debentures

Total interest-bearing liabilities

Noninterest bearing deposits

Other liabilities

Total liabilities

1,084,108,150

1,017,473,067

Shareholders' equity

Total liabilities and shareholders' equity

$ 1,185,718,993

$ 1,106,753,221

Net interest income

Net interest spread (3)

Net interest margin (4)

Included in net loans are non-accrual loans with average balances of $8,736,815 and $6,450,580 for the six months ended June 30, 2025 and 2024, respectively.

Loans are stated net of unearned discount and ACL, and include loans held-for-sale and tax-exempt loans to local municipalities with average balances of $68,549,058 and $57,613,672 for the six months ended June 30, 2025 and 2024, respectively.

Included in other investments is the Company’s FHLBB Stock with average balances of $2,091,994 and $1,649,582, respectively, with a dividend rate of approximately 7.02% and 8.4%, respectively, for the six months ended June 30, 2025 and 2024, respectively.

Net interest spread is the difference between the average yield on average interest-earning assets and the average rate paid on average interest-bearing liabilities.

Net interest margin is net interest income divided by average earning assets.

The average volume of interest-earning assets for the three-and six-month periods ended June 30, 2025 increased 6.2% and 7.0%, respectively, compared to the same periods last year, and the average yield on interest-earning assets increased 31 bps in both periods.

The average volume of loans increased over the three- and six-month comparison periods of 2025 versus 2024 by 8.9% and 9.3%, respectively, and the average yield on loans increased 24 bps in both periods.

Loans accounted for 84.5% and 83.7% of the average interest-earning asset portfolio for the three- and six-month periods ended June 30, 2025, compared to 82.4% and 81.9%, respectively, for the same periods last year.

Interest earned on the loan portfolio as a percentage of total interest income was 92.2% and 91.6%, respectively, for the three- and six-month periods in 2025 compared to 91.4% and 91.1%, respectively, for the same periods in 2024.

The average volume of the taxable investment portfolio (classified as AFS) decreased 8.1% and 11.4%, respectively, during the three- and six-month periods ended June 30, 2025, compared to the same periods last year, while the average yield increased 23 bps and 17 bps, respectively, between periods.

There were purchases of taxable AFS investment securities during the first three months of 2025, however maturities and paydowns on this portfolio in 2024 and into 2025 exceeded purchases during the same time period, accounting for the decrease in average volume year over year.

The average volume of the tax-exempt investment portfolio (classified as AFS) for the three- and six-month periods ended June 30, 2025 decreased 0.2% in both periods, while the tax equivalent yield increased 13 bps and 11 bps, respectively.

There were no tax-exempt bond purchases during the first six months of 2025, accounting for the decrease in average volume in this portfolio.

The average volume of sweep and interest-earning accounts, which consists primarily of an interest-bearing account at the FRBB, increased 42.0% and 236.2%, respectively, for the three- and six-months ended June 30, 2025, compared to the same periods in 2024.

The average volume grew steadily during the last half of 2024 with the influx of customer deposit accounts, primarily municipal deposit accounts.

The average yield on these funds decreased 37 bps and 86 bps, respectively, for the three- and six-month periods ended June 30, 2025, versus the same periods in 2024.

The average volume of interest-bearing liabilities for the three- and six-month periods ended June 30, 2025 increased 4.9% and 6.8%, respectively, compared to the same periods in 2024, while the average rate paid on interest-bearing liabilities decreased 18 bps and four bps, respectively.

The average volume of interest-bearing transaction accounts increased 3.9% and 3.4%, respectively, for the three- and six-month periods ended June 30, 2025, compared to the same periods of 2024, reflecting moderate growth year over year.

The average rate paid on these accounts decreased three bps and two bps, respectively, between comparison periods.

Interest-bearing transaction accounts comprised 32.0% and 32.6% of the average interest-bearing liabilities portfolio for the three- and six-month periods ended June 30, 2025, compared to 32.3% and 33.7%, respectively, for the same periods last year.

Interest paid on these funds accounted for 26.2% and 26.7%, respectively, of total interest expense for the three- and six-month periods of 2025 compared to 24.9% and 27.5%, respectively, for the same periods in 2024.

The average volume of money market accounts increased 24.9% and 30.9%, respectively, for the three- and six-month periods ended June 30, 2025, compared to the same periods in 2024, while the average rate paid on these deposits increased seven bps and 30 bps, respectively.

The average volume of savings accounts decreased 3.3% and 4.3%, respectively, for the three- and six-month periods ended June 30, 2025, compared to the same periods in 2024.

There was no change in the average rate paid on these accounts in the three-month period ended June 30, 2025 compared to 2024, while the average rate paid on these accounts decreased one bp in the six-month period ended June 30, 2025 compared to 2024.

The average volume of time deposits increased 33.7% and 39.0%, respectively, for the three- and six-month periods ended June 30, 2025, compared to the same periods in 2024, and the average rate paid decreased 17 bps and increased 11 bps, respectively.

The average volume of repurchase agreements increased 60.1% and 47.9%, respectively, for the three- and six-month periods ended June 30, 2025, compared to the same periods in 2024, and the average rate paid increased 10 bps and 13 bps, respectively, between comparison periods.

The Company utilized borrowed funds to fund loan growth and cover deposit outflows during 2023 and into the first and second quarters of 2024, but as deposit accounts began to increase, the need for these funds decreased, accounting for the 60.5% and 59.3% decrease in average volume of borrowed funds during the three- and six-month periods ended June 30, 2025, respectively, compared to the same periods in 2024.

The average rate paid on borrowed funds decreased as well by 69 bps and 58 bps for the three- and six-month periods ended June 30, 2025, respectively, compared to the same periods in 2024.

In summary, between the three- and six-month periods ended June 30, 2025 and 2024, the average yield on interest-earning assets increased 31 bps in both periods and the average rate paid on interest-bearing liabilities decreased 18 bps and four bps, respectively.

Net interest spread increased 49 bps and 35 bps, respectively, for the three- and six-month periods ended June 30, 2025 versus the same periods in 2024, and the net interest margin increased 47 bps and 34 bps, respectively.

The following table summarizes the variances in interest income and interest expense on a fully tax-equivalent basis for the interim periods presented for 2025 and 2024 resulting from volume changes in daily average assets and daily average liabilities and fluctuations in average rates earned and paid.

Three Months Ended March 31, 2025

Three Months Ended March 31, 2024

Three Months Ended June 30, 2025

Six Months Ended June 30, 2025

Three Months Ended June 30, 2024

Six Months Ended June 30, 2024

Average Interest-Earning Assets

23 unchanged sentences

Three Months Ended

Six Months Ended

Income from sold loans

3 unchanged sentences

Total non-interest income

Total non-interest income decreased $55,298, or 3.4%, for the three months ended March 31, 2025, compared to the same period in 2024, with significant changes noted in the following:

The volume of loans sold into the secondary market during the first three months of 2025 decreased by $274 thousand compared to the same period last year, accounting for the decrease in income from sold loans year over year.

Although loan volume increased during the first three months of 2025, the increase was primarily in the 1 – 4 family residential loan portfolio with moderate growth in the CRE portfolio, generating documentation fees totaling $154 thousand for the first three months of 2025 compared to $175 thousand for the same period in 2024, offset by increases in Commercial LOC annual renewal fees and residential doc fees, accounting for the moderate increase in other income from loans year over year.

Income from CFS Partners decreased between periods due to realized losses from an equity portfolio.

CFS Partners has a small portion of its equity capital invested in the stock market, and as a result is sensitive to general stock market conditions.

Total non-interest income increased $286,294, or 16.2%, and $230,996 or 6.8%, respectively, for the three and six months ended June 30, 2025, compared to the same periods in 2024, with significant changes noted in the following:

The volume of loans sold into the secondary market during the first six months of 2025 decreased by $171 thousand compared to the same period last year, accounting for the decrease in income from sold loans between periods.

Increases in Commercial LOC annual renewal fees and residential doc fees amounting to $50 thousand and $14 thousand, respectively, account for the moderate increase in other income from loans year over year.

Income from CFS Partners increased between periods due in part to a strong equity market and successful retention of managed accounts, as well as an increase, commencing March 1, 2025, in the Company’s share of CFSG’s net income from 33.3% to 50%.

CFSG’s income is derived primarily from asset-based fees on managed accounts and in addition, CFS Partners has a small portion of its equity capital invested in the stock market, with performance generally reflecting stock market conditions.

Non-interest Expense

1 unchanged sentence

Three Months Ended

Six Months Ended

Salaries and wages

9 unchanged sentences

ATM & debit card expense

State deposit tax

Other miscellaneous expenses

Total non-interest expense

Total non-interest expense increased $203,468, or 3.2% for the three months ended March 31, 2025, compared to the same period in 2024, with significant changes noted in the following:

The decrease in salaries and wages during the first quarter of 2025 reflects changes in senior leadership as well as unfilled positions during the quarter.

Total non-interest expense increased $395,829, or 6.3%, and $599,294 or 4.8%, for the three and six months ended June 30, 2025, compared to the same periods in 2024, with significant changes noted in the following:

Although an increase is noted in salaries and wages for the second quarter of 2025, a decrease is noted year over year which reflects changes in senior leadership as well as unfilled positions in 2025.

The increase in employee benefits is attributable to an increase in health insurance claims year over year under the Company’s self-insured health insurance plan.

The increase in occupancy expense year over year is primarily due to normal increases in contracted services including increased expenses for plowing and sanding during the winter months.

In addition, the settlement of a flood insurance claim received in the first quarter of 2024 where the replacement value received exceeded the depreciated value of equipment, resulted in a capital gain on equipment, accounting for a portion of the year over year increase.

The Company received a recovery for a $53 thousand fraudulent check that was charged off in 2024, accounting for most of the decrease in charged-off checks .

The increase in occupancy expense year over year is primarily due to normal increases in contracted services, including increased expenses for plowing and sanding during the winter months as well as increases in maintenance on buildings.

The Company received a recovery for a $53 thousand fraudulent check during the first quarter of 2025 that was charged off in 2024, accounting for most of the decrease in charged-off checks year over year.

The decrease in outsourcing expense is attributable to a renegotiated contract from the Company’s core provider.

The increase in service contracts - administrative is due to a combination of new contracts, an increase in transaction-based pricing for certain contracts, and contractual inflationary adjustment factors that are higher than historical increase adjustments.

The increase in FDIC insurance is attributable in part to an increase in the assessment multiplier, as well as an increase in total assets.

The year over year increase in service contracts - administrative is due to a combination of new contracts, an increase in transaction-based pricing for certain contracts, and contractual inflationary adjustment factors that are higher than historical increase adjustments.

The quarter over quarter decrease is due to the timing of credits from a vendor to correct prior year invoices.

The increase in FDIC insurance is attributable to an increase in the assessment multiplier.

The increase in consultant services is attributable to an increased utilization of these services for branch network and technology projects during 2025.

Collection & non-accruing loan expenses were lower during the first three months of 2025 due to the recovery of expenses associated with properties in foreclosure that were resolved.

ATM & debit card expense are transaction-based and reflect increased customer activity year over year, as well as annual contractual price adjustments.

Collection & non-accruing loan expenses were lower year over year due to the recovery of expenses associated with properties in foreclosure that were resolved.

ATM & debit card expenses are transaction-based and reflect increased customer activity year over year, as well as annual contractual price adjustments.

The increase in state deposit tax is attributable to an increase in average deposits which is used in the calculation of taxes due.

APPLICABLE INCOME TAXES

The provision for income taxes increased $107,884, or 19.4%, for the first three months of 2025 compared to the same period in 2024, which is consistent with the increase in income before income taxes.

Tax credits, which consist of credits from affordable housing investments and NMTC, amounted to $249,612 and $174,612, respectively for the first three months of 2025 and 2024.

The Company’s investment in a project during the last quarter of 2024 generated NMTC for the first quarter of 2025, accounting for the increase in tax credits between comparison periods.

Amortization expense related to the affordable housing investments and NMTC is included as a component of income tax expense and amounted to $212,868 and $149,202, respectively for the first three months of 2025 and 2024.

The provision for income taxes increased $276,660, or 51.0%, for the second quarter of 2025 and $384,544, or 35.0%, for the first six months of 2025 compared to the same periods in 2024, which is consistent with the increase in income before income taxes.

Tax credits, which consist of credits from affordable housing investments and NMTC, amounted to $249,612 and $174,612, for the second quarter of 2025 and 2024, and $499,224 and $349,224, respectively, for the first six months of 2025 and 2024.

The Company’s investment in a project during the last quarter of 2024 generated NMTC for that quarter and for the six months of 2025, accounting for the increase in tax credits between comparison periods.

Amortization expense related to the affordable housing investments and NMTC is included as a component of income tax expense and amounted to $148,890 and $149,202, for the second quarter of 2025 and 2024 and $297,780 and $298,404, respectively, for the first six months of 2025 and 2024.

These investments provide tax benefits, including tax credits, and are designed to provide a targeted effective annual yield between 5% and 7%.

1 unchanged sentence

The following table reflects the composition of the Company's major categories of assets and liabilities as a percentage of total assets or liabilities and shareholders’ equity, as of the balance sheet dates:

March 31, 2025

June 30, 2025

December 31, 2024

7 unchanged sentences

Time deposits

Overnight borrowings

Long-term advances

6 unchanged sentences

Money market funds

(39,129,643 )

Savings deposits

Time deposits

Overnight borrowings

Long-term advances

(36,500,000 )

The increase in the loan portfolio during the first three months of 2025 was primarily attributable to increases in CRE loans, municipal loans and residential real estate 1 st lien loans.

The increase in the securities AFS portfolio at March 31, 2025 is attributable to the combined effect during the first three months of the year of purchases totaling $15.0 million and a decrease of $3.0 million in unrealized losses reflected in OCI, which was partially offset by maturities of $5.5 million and principal payments on MBS, ABS and CMO investments totaling $3.9 million.

The increase in the loan portfolio during the first six months of 2025 was primarily attributable to increases in CRE loans, and residential real estate 1 st lien loans.

The decrease in the securities AFS portfolio at June 30, 2025 is attributable to the combined effect during the first six months of the year of purchases totaling $17.1 million and a decrease of $4.2 million in unrealized losses reflected in OCI, which was more than offset by maturities of $11.3 million and principal payments on MBS, ABS and CMO investments totaling $9.9 million.

In management’s view, the size of the AFS securities portfolio is appropriate and proportional to the overall asset base, as this portfolio serves a significant role in the Company’s liquidity position.

The decrease in interest-bearing transactions accounts is attributable to a decrease of $12.9 million, or 29.9% in government agency accounts for our municipal customers, and a decrease of $4.7 million, or 4.5% in retail deposit accounts.

The decrease in money market funds was driven by a decrease of $12.5 million, or 28.2%, in ICS accounts, which was partially offset by an increase in retail money market funds of $2.8 million, or 2.3%, and an increase in municipal deposits of $3.0 million, or 71.7%.

The increase in time deposits is attributable to an increase in retail time deposits.

The Company used overnight deposits to cover maturities in borrowed funds during the first three months of 2025 and used those funds to cover fluctuations in aggregate deposits during the same period, enabling the Company to rely less on other sources of funding, including brokered deposits.

The decrease in interest-bearing transactions accounts at June 30, 2025 from year end 2024 is attributable to a cyclical decrease of $15.8 million, or 36.8% in government agency accounts for our municipal customers, a decrease of $17.4 million or 15.9%, in ICS accounts, and a decrease of $11.0 million, or 10.2% in retail deposit accounts.

The decrease in money market accounts was driven by a decrease of $36.9 million, or 83.1%, in ICS accounts, and a decrease in retail money market accounts of $862 thousand, or 0.7%, as well as a decrease in municipal money market deposits of $1.4 million, or 33.8%.

The increase in time deposits is attributable to an increase in brokered time deposits.

In addition to the brokered time deposits, the Company used overnight deposits to cover maturities in borrowed funds during the first six months of 2025 and used those funds to cover fluctuations in aggregate deposits during the same period, enabling the Company to rely less on other sources of funding.

Uninsured Deposits

Estimated deposits in excess of the FDIC insurance level amounted to $244.6 million as of March 31, 2025 and $258.0 million as of December 31, 2024.

The estimated balance of $40.5 million of uninsured time deposits as of March 31, 2025 was made up of time CDs of $37.2 million and retirement accounts of $3.3 million.

Estimated deposits in excess of the FDIC insurance level amounted to $228.3 million as of June 30, 2025 and $258.0 million as of December 31, 2024.

The estimated balance of $41.1 million of uninsured time deposits as of June 30, 2025 was made up of time CDs of $37.4 million and retirement accounts of $3.7 million.

Increments of maturity of these time deposits are summarized as follows:

2 unchanged sentences

Over 6 through 12 months

Over 12 months

Interest Rate Risk and Asset and Liability Management - Management actively monitors and manages the Company’s interest rate risk exposure and attempts to structure the balance sheet to maximize net interest income while controlling its exposure to interest rate risk.

11 unchanged sentences

Assumptions used in prior period simulation models are regularly tested by comparing projected NII with actual NII.

The ALCO utilizes the results of the simulation model to quantify the estimated exposure of NII and liquidity to sustained interest rate changes.

The ALCO utilizes the results of the simulation model to quantify the estimated exposure of NII and liquidity to sustain interest rate changes.

The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all interest-earning assets and interest-bearing liabilities reflected on the Company’s balance sheet.

7 unchanged sentences

Thereafter, net interest income is projected to experience sustained downward pressure as funding costs reach their assumed floors and asset yields continue to reprice into the lower rate environment.

The following table summarizes the estimated impact on the Company's NII over a twelve-month period, assuming a gradual parallel shift of the yield curve beginning March 31, 2025:

The following table summarizes the estimated impact on the Company's NII over a twelve-month period, assuming a gradual parallel shift of the yield curve beginning June 30, 2025:

Percent Change in NII

3 unchanged sentences

While assumptions used in the ALCO process, including the interest rate simulation analyses, are developed based upon current economic and local market conditions, and expected future conditions, the Company cannot provide any assurances as to the predictive nature of these assumptions, including how customer preferences or competitor influences might change.

As of March 31, 2025, the Company had $12,887,000 in principal amount of Junior Subordinated Debentures due December 15, 2037, which bear interest at a quarterly floating rate equal to 3-month CME SOFR, as adjusted by a spread adjustment factor of 0.26161, plus 2.85%.

The quarterly floating rate in effect on the debentures was 7.47% for the March 2025 payment, compared to a floating rate of 8.50% for the March 2024 payment.

As of June 30, 2025, the Company had $12,887,000 in principal amount of Junior Subordinated Debentures due December 15, 2037, which bear interest at a quarterly floating rate equal to 3-month CME SOFR, as adjusted by a spread adjustment factor of 0.26161, plus 2.85%.

The quarterly floating rate in effect on the debentures was 7.41% for the June 2025 payment, compared to a floating rate of 8.44% for the June 2024 payment.

Credit Risk - As a financial institution, one of the primary risks the Company manages is credit risk, the risk of loss stemming from borrowers’ failure to repay loans or inability to meet other contractual obligations.

4 unchanged sentences

Loans are reviewed periodically by an independent loan review firm to help ensure accuracy of the Company's internal risk ratings and compliance with various internal policies, procedures and regulatory guidance.

Residential mortgage loans represented 27.8% of the Company’s loan balances as of March 31, 2025, compared to 27.4% as of December 31, 2024.

Residential mortgage loans represented 28.2% of the Company’s loan balances as of June 30, 2025, compared to 27.4% as of December 31, 2024.

The Company maintains a residential mortgage loan portfolio of traditional mortgage products and does not offer higher risk loan products, such as option adjustable-rate mortgage products, high loan-to-value products, interest only mortgages, subprime loans and products with deeply discounted teaser rates.

1 unchanged sentence

A 90% loan-to-value residential mortgage product without PMI is only available to borrowers with excellent credit and low debt-to-income ratios and has not been widely originated.

As of March 31, 2025, junior lien home equity products made up 13.8% of the residential mortgage portfolio with maximum loan-to-value ratios (including prior liens) of 80%.

As of June 30, 2025, junior lien home equity products made up 14.4% of the residential mortgage portfolio with maximum loan-to-value ratios (including prior liens) of 80%.

The Company also originates some home equity loans with loan-to-value ratios greater than 80% under an insured loan program with stringent underwriting criteria.

The following tables show the estimated maturity of the Company’s loan portfolio as of March 31, 2025.

The following tables show the estimated maturities within the Company’s loan portfolio as of June 30, 2025.

Fixed Rate Loans

16 unchanged sentences

The Company experienced solid growth in the CRE loan portfolios, which is consistent with its strategic focus on commercial lending.

Commercial & industrial, purchased, CRE and municipal loans collectively comprised 71.9% of the Company’s loan portfolio as of March 31, 2025, compared to 72.3% as of December 31, 2024.

The largest components of the CRE portfolio were $128.3 million in owner-occupied CRE and $151.9 million in non-owner occupied CRE as of March 31, 2025, compared to $125.5 million and 154.6 million, respectively, as of December 31, 2024.

Commercial & industrial, purchased, CRE and municipal loans collectively comprised 71.5% of the Company’s loan portfolio as of June 30, 2025, compared to 72.3% as of December 31, 2024.

The largest components of the CRE portfolio were $131.5 million in owner-occupied CRE and $165.1 million in non-owner occupied CRE as of June 30, 2025, compared to $125.5 million and 154.6 million, respectively, as of December 31, 2024.

Risk in the Company’s commercial & industrial and CRE loan portfolios is mitigated in part by government guarantees issued by federal agencies such as the SBA and RD.

As of March 31, 2025, the Company had $25.3 million in guaranteed loans with guaranteed balances of $17.1 million, compared to $25.5 million in guaranteed loans with guaranteed balances of $17.2 million as of December 31, 2024.

PPP loans with outstanding balances of $33 thousand as of March 31, 2025, and $43 thousand as of December 31, 2024, are included in these totals, all of which carry a 100% guarantee through the SBA, subject to borrower eligibility requirements.

As of June 30, 2025, the Company had $28.1 million in guaranteed loans with guaranteed balances of $19.1 million, compared to $25.5 million in guaranteed loans with guaranteed balances of $17.2 million as of December 31, 2024.

PPP loans with outstanding balances of $24 thousand as of June 30, 2025, and $43 thousand as of December 31, 2024, are included in these totals, all of which carry a 100% guarantee through the SBA, subject to borrower eligibility requirements.

The Company works actively with customers early in the delinquency process to help them to avoid default and foreclosure.

10 unchanged sentences

Credit loss expense - loans

Credit loss expense (reversal) - OBS credit exposure

Credit loss expense

Six Months Ended

Credit loss expense - loans

Credit loss reversal - OBS credit exposure

Credit loss expense

The increase in the credit loss expense on loans in the first months of 2025 compared to the same period in 2024, was due in part to an increase in certain qualitative factors as well as an increase in the volume of the loan portfolio.

The decrease in the OBS credit exposure between periods is attributable to a decrease in unfunded loan commitments under contract.

The increase in the credit loss expense on loans in both periods of 2025 compared to the same periods of 2024, was due in part to changes in the economic forecast, prepayments speeds, loan curtailments and adjustments to certain qualitative factors used in the model, as well as an increase in the volume of the loan portfolio.

The increase in the OBS credit exposure for the three months ended June 30, 2025 is attributable to an increase in unfunded loan commitments under contract and the decrease in the six months ended June 30, 2025 is attributable to a decrease in unfunded loan commitments under contract.

ACL and provisions –The Company’s ACL policy provides guidance in maintaining an adequate methodology for establishing, estimating, and maintaining allowances for credit losses under ASC 326.

17 unchanged sentences

The following table shows the breakdown of the ACL by loan segment and the percentage of loans in each category to total loans in the respective portfolios at the date indicated:

March 31, 2025

June 30, 2025

December 31, 2024

3 unchanged sentences

Residential real estate - Jr lien

The first quarter ACL analysis indicated that the reserve balance of $10.2 million as of March 31, 2025, was sufficient to cover expected credit losses that are probable and estimable as of the measurement date.

Included in the ACL calculation for the first quarter of 2025 are adjustments to several qualitative factors made by management, including an increase in the risk status of the qualitative factors for volumes and terms in the residential portfolios to reflect increasing trends in volumes.

The quantitative factor for exceptions in that portfolio was also adjusted by increasing the risk status as an increasing trend was noted.

In addition, the risk status for delinquency and non-performing loans was increased to reflect the uncertainty as to how and when inflation or a recession will, or could, affect our consumer customers’ ability to pay.

The second quarter ACL analysis indicated that the reserve balance of $10.5 million as of June 30, 2025, was sufficient to cover expected credit losses that are probable and estimable as of the measurement date.

Included in the ACL calculation for the second quarter of 2025 are adjustments to certain qualitative factors made by management, including a decrease in the risk status of the qualitative factors for loan review in the commercial and CRE segments to reflect the strong loan review system that is in place, as discussed in Note 5 of the accompanying unaudited interim consolidated financial statements.

Management believes that the quantitative calculation adequately captures the risk in these areas, and that the reserve balance continues to be directionally consistent with the overall risk profile of the Company’s loan portfolio and credit risk appetite.

2 unchanged sentences

Net charge-offs during the periods presented to average loans outstanding were as follows:

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Commercial & industrial

13 unchanged sentences

Residential real estate - 1st lien

Net charge-offs during the period

Net recoveries during the period

Average amount outstanding

24 unchanged sentences

The contract or notional amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

During the first three months of 2025, the Company did not engage in any activity that created any additional types of OBS risk.

During the first six months of 2025, the Company did not engage in any activity that created any additional types of OBS risk.

LIQUIDITY AND CAPITAL RESOURCES

10 unchanged sentences

One-way deposits acquired through the CDARS and/or ICS programs provide an alternative funding source when needed.

As of March 31, 2025, and December 31, 2024, the Company had $236 thousand in one-way CDARS deposits, and no one-way ICS deposits outstanding at either period end.

As of June 30, 2025, and December 31, 2024, the Company had $0 and $236 thousand in one-way CDARS deposits, and no one-way ICS deposits outstanding at either period end.

In addition, two-way (reciprocal) CDARS deposits, as well as reciprocal ICS money market and demand deposits, enhance the Company’s ability to retain larger deposit balances by allowing the Company to provide FDIC deposit insurance to its customers in excess of account coverage limits through the exchange of deposits with other participating FDIC-insured financial institutions.

As of March 31, 2025 and December 31, 2024, the Company reported $1.8 million and $2.5 million, respectively, in reciprocal CDARS deposits.

The balance in ICS reciprocal money market deposits was $31.9 million as of March 31, 2025, compared to $44.4 million as of December 31, 2024, and the balance in ICS reciprocal demand deposits as of those dates was $107.0 million and $109.5 million, respectively.

Additionally, the Company had brokered deposits from another source totaling approximately $14.0 million as of March 31, 2025 and $13.8 million as of December 31, 2024.

As of June 30, 2025 and December 31, 2024, the Company reported $2.4 million and $2.5 million, respectively, in reciprocal CDARS deposits.

The balance in ICS reciprocal money market deposits was $7.5 million as of June 30, 2025, compared to $44.4 million as of December 31, 2024, and the balance in ICS reciprocal demand deposits as of those dates was $92.1 million and $109.5 million, respectively.

Additionally, the Company had brokered deposits from another source totaling approximately $19.5 million as of June 30, 2025 and $13.8 million as of December 31, 2024.

This relationship has provided convenient and timely access to short-term funding that is easily accessible without any detrimental effect on the pricing of the core deposit base.

As of March 31, 2025 and December 31, 2024, borrowing capacity of $106.8 million and $108.7 million, respectively, was available through the FHLBB, secured by the Company's qualifying loan portfolio (generally, residential mortgage and commercial loans), reduced by outstanding advances of $36.1 million and $31.1 million, respectively.

As of June 30, 2025 and December 31, 2024, borrowing capacity of $108.7 million for both periods was available through the FHLBB, secured by the Company's qualifying loan portfolio (generally, residential mortgage and commercial loans), reduced by outstanding advances of $55.8 million and $31.1 million, respectively.

The following table reflects the Company’s outstanding advances with FHLBB as of the dates indicated:

9 unchanged sentences

Total Long-Term Advances

Overnight Borrowings

Correspondent Banks, 4.52%

Total Advances and Overnight Borrowings

Under the JNE program, the FHLBB provides a subsidy, funded by the FHLBB’s earnings, to write down interest rates to zero percent on advances that finance qualifying loans to small businesses.

10 unchanged sentences

Interest is chargeable at a rate determined daily, approximately 25 bps higher than the rate paid on federal funds sold.

The Company has a BIC arrangement with the FRBB secured by eligible commercial & industrial loans, CRE loans and home equity loans, resulting in an available credit line of $60.6 million and $60.8 million, respectively, as of March 31, 2025, and December 31, 2024.

The Company has a BIC arrangement with the FRBB secured by eligible commercial & industrial loans, CRE loans and home equity loans, resulting in an available credit line of $66.1 million and $60.8 million, respectively, as of June 30, 2025, and December 31, 2024.

Credit advances under this FRBB lending program are overnight advances with interest chargeable at the primary credit rate (generally referred to as the discount rate), currently 450 bps.

The Company had no outstanding advances through this facility as of March 31, 2025, or December 31, 2024.

As of March 31, 2025, and December 31, 2024, the Company had an unsecured line of credit of $12.5 million with one correspondent bank.

The Company had no outstanding advances through this facility as of June 30, 2025, or December 31, 2024.

As of June 30, 2025, and December 31, 2024, the Company had an unsecured line of credit of $12.5 million with a correspondent bank.

The Company had no outstanding advances against this credit line as of the balance sheet dates.

3 unchanged sentences

During the third quarter of 2024, the Company adopted a stock repurchase program authorizing the repurchase of up to 275,000 shares of the Company’s common stock, representing approximately 5% of the outstanding common shares.

Purchases under the program may be on such terms, including price, as market conditions warrant, and may be made through open market purchases or in privately negotiated transactions.

The repurchase authorization expires in five years, unless extended, or earlier terminated, by the Board.

Notwithstanding the program’s five-year term, the Board will review and re-evaluate the program annually in light of the Company’s then current capital needs, the number and cost of shares repurchased, the number of shares remaining for repurchase under the authorization, and other relevant factors, and management will confer with the FRBB regarding the program, as appropriate in the circumstances.

As of March 31, 2025, 2,000 shares had been repurchased for an aggregate purchase price of $35,380.

The following table illustrates the changes in shareholders' equity from December 31, 2024, to March 31, 2025:

Purchases under the program may be on such terms, including price, as market conditions warrant, and may be made through open market purchases or in privately negotiated transactions, as Management deems appropriate.

The repurchase authorization expires in July, 2029 unless extended, or earlier terminated, by the Board.

Notwithstanding the program’s five-year term, the Board reviews and re-evaluates the program annually in light of the Company’s then current capital needs, the number and cost of shares repurchased, the number of shares remaining for repurchase under the authorization, and other relevant factors.

In addition, management will confer with the FRBB regarding the program, as appropriate in the circumstances.

As of June 30, 2025, 29,813 shares had been repurchased since the inception of the program, for an aggregate purchase price of $548,218.

The following table illustrates the changes in shareholders' equity from December 31, 2024, to June 30, 2025:

Balance as of December 31, 2024 (book value $17.24 per common share)

4 unchanged sentences

Change in AOCI on AFS securities, net of tax

Balance as of March 31, 2025 (book value $18.05 per common share)

Balance as of June 30, 2025 (book value $18.69 per common share)

$ 106,343,407

1 unchanged sentence

Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

As of March 31, 2025, the Bank was considered well capitalized under the standard regulatory capital framework for Prompt Corrective Action and the Company exceeded currently applicable consolidated regulatory guidelines for capital adequacy.

The following table shows the Company’s actual capital ratios and those of its subsidiary, as well as currently applicable regulatory capital requirements, as of the balance sheet date:

As of June 30, 2025, the Bank was considered well capitalized under the standard regulatory capital framework for Prompt Corrective Action and the Company exceeded currently applicable consolidated regulatory guidelines for capital adequacy.

The following table shows the Company’s actual capital ratios and those of its subsidiary, as well as currently applicable regulatory capital requirements, as of the balance sheet dates:

Adequacy Purposes

4 unchanged sentences

(Dollars in Thousands)

March 31, 2025

Common equity tier 1 capital

(to risk-weighted assets)

June 30, 2025

Common equity tier 1 capital (to risk-weighted assets)

Tier 1 capital (to risk-weighted assets)

2 unchanged sentences

December 31, 2024:

Common equity tier 1 capital

(to risk-weighted assets)

Common equity tier 1 capital (to risk-weighted assets)

Tier 1 capital (to risk-weighted assets)

10 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-Q

Item 2. Management’s Discussion and Analysis