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Item 2. Management’s Discussion and Analysis

2025-11-14 compared with 2025-08-14 · 165 added, 142 removed, 503 unchanged (38% of the section changed)

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Period Ended June 30, 2025

Period Ended September 30, 2025

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

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.

and its wholly owned subsidiary, Community National Bank, as of September 30, 2025 and December 31, 2024, and its consolidated results of operations for the three-month and nine-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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general economic or business conditions, either internationally (including due to changing tariff policies), nationally, regionally or locally, deteriorate, resulting in a decline in credit quality or a diminished demand for the Company's products and services;

the impact of inflation and slowing economic growth on the Company’s customers and on its financial results and performance;

the impact of inflation and the rate of economic growth on the Company’s customers and on its financial results and performance;

the effect of United States monetary and fiscal policies, including deficit spending and the interest rate policies of the FRB and its regulation of the money supply;

the impact on our customers of government shutdowns and federal, state and local budgetary cutbacks;

changes in applicable accounting policies, practices and standards;

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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 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 Company’s consolidated assets as of September 30, 2025, were $1.23 billion compared to $1.25 billion as of December 31, 2024, a decrease of 1.8%.

Changes in the asset base included an increase in loans of $33.9 million, however, there was a decrease in overnight deposits of $52 million, or 51.5%.

The increase in the loan portfolio was primarily attributable to increases of $18.7 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.

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.

lien loans, $9.2 million in CRE loans, $3.0 million in municipal loans and $3.0 million in purchased loans.

While cash funded the increase in the loan portfolio, the decrease in overnight deposits reflects decreases in deposit balances, payoff of borrowings that matured during the first quarter of 2025, as well as the purchase of approximately $30.0 million in brokered time deposits.

Total deposits as of September 30, 2025, were $1.01 billion compared to $1.0 billion as of December 31, 2024, an increase of approximately $6.7 million, or 0.7%.

Year to date, time deposits increased $32.4 million, or 17.3% and savings accounts increased $812 thousand, or 0.6%, while demand and interest-bearing transaction accounts collectively decreased $12.5 million, or 2.5%, and money market funds decreased $14.0 million, or 8.3%.

Borrowed funds decreased $26.3 million, or 36.3%, from December 31, 2024, due primarily to maturities in the BTFP funds, partially offset by new FHLBB advances.

Total interest income increased approximately $1.4 million, or 10.4%, for the third quarter of 2025, and $4.8 million, or 11.9%, for the first nine months of 2025, compared to the respective periods 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 increase in interest income in both comparison periods.

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.

Total interest expense decreased $400 thousand, or 7.5%, for the third quarter of 2025, and increased $45 thousand, or 0.3%, for the first nine 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 $1.8 million, or 17.9%, in interest expense on the Company’s interest bearing deposit accounts was more than offset by a decrease of $1.9 million, or 56.2% 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.

The credit loss expense for the third quarter of 2025 was $258,753 compared to $460,745 for the same quarter of 2024 and $990,853 for the first nine months of 2025 compared to $1,105,906 for the same period in 2024, resulting in decreases between periods of $201,992, or 43.8% and $115,053, or 10.4%, 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 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.

Consolidated net income for the third quarter of 2025 increased $1.6 million, or 52.4%, to $4.7 million compared to $3.1 million for the same quarter of 2024, and increased $3.7 million, or 42.3%, to $12.3 million for the first nine months of 2025 compared to $8.7 million for the same period in 2024.

The increases in net interest income after credit loss expense of $2.1 million for the third quarter of 2025 and $4.8 million for the first nine months of 2025, compared to the respective periods in 2024, were significant 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.

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 six months ended June 30, 2025.

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.

Equity capital increased to $111.9 million, with a book value per share of $19.64 as of September 30, 2025, compared to $98.0 million and a book value per share of $17.24 as of December 31, 2024.

On September 18, 2025, the Company's Board of Directors declared a quarterly cash dividend of $0.25 per common share, payable on November 1, 2025, to shareholders of record on October 15, 2025, an increase of 4% from the previous quarterly cash dividend and the fourth annual increase since 2020.

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

Effective July 31, 2025, the Company’s affiliate, CFS Partners, redeemed the one third limited liability company membership and distributional interests of Guaranty Bancorp, Inc.

(“Guaranty”), immediately prior to consummation of Guaranty’s merger with and into Bar Harbor Bankshares.

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.

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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 six months of 2025 in the Company’s critical accounting policies.

Aside from adjustments in qualitative factors and other economic indicators in the calculation of the ACL, there were no material changes during the first nine 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 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.

The Company’s net income for the third quarter of 2025 was $4.7 million, or $0.84 per common share, compared to $3.1 million, or $0.55 per common share for the same quarter of 2024, and for the first nine months of 2025 was $12.3 million, or $2.18 per common share, compared to $8.7 million, or $1.55 per common share, for the same period in 2024.

Core earnings (NII) were $10.5 million for the third quarter of 2025, compared to $8.7 million for the same period of 2024 and $29.8 million for the first nine months of 2025, compared to $25.1 million for the same period in 2024.

Interest and fees on loans, the major component of interest income, increased $1.5 million, or 11.5% for the third quarter of 2025 compared to the same period of 2024 and increased $4.6 million, or 12.7% for the first nine months of 2025 compared to the same period in 2024.

Interest paid on deposits, which is the major component of total interest expense, increased $89 thousand, or 2.4% for the third quarter of 2025 and increased $1.8 million, or 17.9% for the first nine months of 2025, compared to the respective periods in 2024, driven primarily by increased deposit balances.

Interest on borrowed funds decreased $496 thousand, or 42.8%, for the third quarter of 2025 compared to the same quarter of 2024 and decreased $1.9 million, or 56.2%, for the first nine months of 2025 compared to the same period in 2024, primarily due to a decrease in the 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.

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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 June 30,

Three Months Ended September 30,

Return on average assets

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Average equity to average assets

Six Months Ended June 30,

Nine Months Ended September 30,

Return on average assets

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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 $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 Company’s tax-exempt interest income of $746,706 and $762,126 for the three months ended September 30, 2025 and 2024, respectively, and $2.4 million and $2.0 million for the nine months ended September 30, 2025 and 2024, respectively, was derived from loans to local municipalities of $70.1 million and $65.5 million, and tax-exempt municipal investment securities of $10.1 million and $10.5 million, as of September 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 June 30,

Three Months Ended September 30,

Net interest income as presented

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Net interest income, tax equivalent

Six Months Ended June 30,

Nine Months Ended September 30,

Net interest income as presented

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

Three Months Ended June 30,

Three Months Ended September 30,

Average Assets

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Tax-exempt investment securities

Sweep and interest-earning accounts

Federal funds sold and overnight deposits

Other investments (2)

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$ 840,699,872

Noninterest bearing deposits

Non-interest bearing deposits

Other liabilities

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Net interest margin (4)

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.

Included in net loans are non-accrual loans with average balances of $8,393,522 and $5,324,960 for the three months ended September 30, 2025 and 2024, respectively.

Loans are stated net of unearned discount and ACL, and include loans held-for-sale and include tax-exempt loans to local municipalities with average balances of $64,779,406 and $62,393,304 for the three months ended September 30, 2025 and 2024, respectively.

Included in other investments is the Company’s FHLBB Stock with average balances of $2,815,026 and $2,217,295 for the three months ended September 30, 2025 and 2024, respectively, with a dividend rate of approximately 7.38% and 8.41%, 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.

Six Months Ended June 30,

Nine Months Ended September 30,

Average Assets

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Tax-exempt investment securities

Sweep and interest-earning accounts

Federal funds sold and overnight deposits

Other investments (2)

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Total interest-bearing liabilities

Noninterest bearing deposits

Non-interest bearing deposits

Other liabilities

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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.

Included in net loans are non-accrual loans with average balances of $8,622,384 and $6,075,373 for the nine months ended September 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 $67,278,699 and $59,218,512 for the nine months ended September 30, 2025 and 2024, respectively.

Included in other investments is the Company’s FHLBB Stock with average balances of $2,335,653 and $1,840,201, respectively, with a dividend rate of approximately 7.18% and 8.52%, respectively, for the nine months ended September 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 of interest-earning assets for the three- and nine-month periods ended September 30, 2025 increased 4.7% and 6.2%, respectively, compared to the same periods last year, and the average yield on interest-earning assets increased 26 bps and 28 bps in the respective periods.

The average volume of loans increased over the three- and nine-month comparison periods of 2025 versus 2024 by 7.8% and 8.8%, respectively, and the average yield on loans increased 18 bps and 22 bps, respectively.

Loans accounted for 84.6% and 84.0% of the average interest-earning asset portfolio for the three- and nine-month periods ended September 30, 2025, compared to 82.2% and 82.0%, respectively, for the same periods last year.

Interest earned on the loan portfolio as a percentage of total interest income was 92.1% and 91.8%, respectively, for the three- and nine-month periods in 2025 compared to 91.2% and 91.1%, respectively, for the same periods in 2024.

The average volume of the taxable investment portfolio (classified as AFS) decreased 10.1% and 11.0%, respectively, during the three- and nine-month periods ended September 30, 2025, compared to the same periods last year, while the average yield increased 32 bps and 21 bps, respectively, between periods.

There were purchases of taxable AFS investment securities during the first nine 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 nine-month periods ended September 30, 2025 decreased 0.4% and 0.2% respectively, while the average tax equivalent yield increased 21 bps and 15 bps, respectively.

There were no tax-exempt bond purchases during the first nine 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, decreased 10.6% and increased 91.3%, respectively, for the three- and nine-months ended September 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 average yield on these funds decreased 80 bps and 86 bps, respectively, for the three- and nine-month periods ended September 30, 2025, versus the same periods in 2024.

The average volume of interest-bearing liabilities for the three- and nine-month periods ended September 30, 2025 increased 3.5% and 5.6%, respectively, compared to the same periods in 2024, while the average rate paid on interest-bearing liabilities decreased 27 bps and 11 bps, respectively.

The average volume of interest-bearing transaction accounts decreased 5.4% and increased 0.4%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods of 2024, reflecting moderate growth year over year.

The average rate paid on these accounts decreased 24 bps and 10 bps, respectively, between comparison periods.

Interest-bearing transaction accounts comprised 30.2% and 31.8% of the average interest-bearing liabilities portfolio for the three- and nine-month periods ended September 30, 2025, compared to 33.0% and 33.5%, respectively, for the same periods last year.

Interest paid on these funds accounted for 23.7% and 25.7%, respectively, of total interest expense for the three- and nine-month periods of 2025 compared to 26.3% and 27.1%, respectively, for the same periods in 2024.

The average volume of money market accounts increased 30.7% and 30.8%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods in 2024, while the average rate paid on these deposits decreased 11 bps and increased 17 bps, respectively.

The average volume of savings accounts decreased 1.0% and 3.2%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods in 2024.

There was no change in the average rate paid on these accounts in the three- and nine- month periods ended September 30, 2025 compared to 2024.

The average volume of time deposits increased 27.0% and 34.5%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods in 2024, while the average rate paid decreased 53 bps and 12 bps, respectively.

The average volume of repurchase agreements increased 14.4% and 36.6%, respectively, for the three- and nine-month periods ended September 30, 2025, compared to the same periods in 2024, and the average rate paid increased 14 bps and 12 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 38.1% and 51.9% decrease in average volume of borrowed funds during the three- and nine-month periods ended September 30, 2025, respectively, compared to the same periods in 2024.

The average rate paid on borrowed funds decreased as well by 41 bps and 52 bps for the three- and nine-month periods ended September 30, 2025, respectively, compared to the same periods in 2024.

In summary, between the three- and nine-month periods ended September 30, 2025 and 2024, the average yield on interest-earning assets increased 26 bps and 28 bps for the three- and nine-month periods and the average rate paid on interest-bearing liabilities decreased 27 bps and 11 bps, respectively.

Net interest spread increased 53 bps and 39 bps, respectively, for the three- and nine-month periods ended September 30, 2025 versus the same periods in 2024, and the net interest margin increased 50 bps and 39 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 June 30, 2025

Six Months Ended June 30, 2025

Three Months Ended June 30, 2024

Six Months Ended June 30, 2024

Three Months Ended

September 30, 2025

Nine Months Ended

September 30, 2025

Three Months Ended

September 30, 2024

Nine Months Ended

September 30, 2024

Average Interest-Earning Assets

1 unchanged sentence

Tax-exempt investment securities

Sweep and interest-earning accounts

Federal funds sold and overnight deposits

Other investments

19 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Income from sold loans

3 unchanged sentences

Total non-interest income

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.

Total non-interest income increased $88,380, or 4.4%, and $319,376 or 5.9%, respectively, for the three and nine months ended September 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 nine months of 2025 decreased by $248 thousand compared to the same period last year, accounting for the decrease in income from sold loans between periods.

Decreases in commercial loan documentation fees amounting to $148 thousand primarily accounts for the decrease 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%.

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

September 30,

Salaries and wages

2 unchanged sentences

Other expenses

Directors fees

Charged-off checks

8 unchanged sentences

Total non-interest expense

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.

Total non-interest expense increased $84,840, or 1.3%, and $684,135 or 3.6%, for the three and nine months ended September 30, 2025, compared to the same periods in 2024, with significant changes noted in the following:

The increases in salaries and wages during the three- and nine- month periods of 2025 reflect normal salary increases and remain in line with budget.

The decrease in employee benefits in the three-month period is attributable to a decrease in health insurance claims anticipated as well as run out of claims with the prior health insurance plan.

An increase for the nine-month period is due to a change in the Company’s self-insured health insurance plan and the associated termination fees attributed to the change.

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 increase in directors fees in both periods is attributable to a new director in 2025 as well as an increase in the amount paid to directors compared to 2024.

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

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 audit fees is attributable to an increase in the scope of audits performed in 2025 which was anticipated and budgeted accordingly.

The increase in FDIC insurance year over year 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.

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APPLICABLE INCOME TAXES

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.

The provision for income taxes increased $422,063, or 72.2%, for the third quarter of 2025 and $806,607 or 48.0%, for the first nine 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 third quarter of 2025 and 2024, and $748,836 and $523,836, respectively, for the first nine 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 nine 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 third quarter of 2025 and 2024 and $446,670 and $447,606, respectively, for the first nine 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:

June 30, 2025

September 30, 2025

December 31, 2024

7 unchanged sentences

Time deposits

Overnight borrowings

Short-term advances

Long-term advances

9 unchanged sentences

Time deposits

Overnight borrowings

Short-term advances

Long-term advances

(36,324,978 )

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.

The increase in the loan portfolio during the first nine months of 2025 was primarily attributable to increases in CRE loans, residential real estate 1 st lien loans, residential junior lien loans as well as purchased loans.

The decrease in the securities AFS portfolio at September 30, 2025 is attributable to the combined effect during the first nine months of the year of purchases totaling $18.1 million and a decrease of $6.6 million in unrealized losses reflected in OCI, which was more than offset by maturities of $16.5 million and principal payments on MBS, ABS and CMO investments totaling $15.0 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 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 decrease in interest-bearing transactions accounts at September 30, 2025 from year end 2024 is attributable to a decrease of $10.1 million, or 22.7% in a CFSG deposit account, and a decrease of $13.7 million or 12.5%, in ICS accounts.

The decrease in money market accounts was primarily driven by a decrease of $26.3 million, or 59.2% in ICS accounts.

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.

In addition to the brokered time deposits, the Company used overnight deposits to cover maturities in borrowed funds during the first nine 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 $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.

Estimated deposits in excess of the FDIC insurance level amounted to $262.7 million as of September 30, 2025 and $258.0 million as of December 31, 2024.

The estimated balance of $43.1 million of uninsured time deposits as of September 30, 2025 was made up of time CDs of $39.6 million and retirement accounts of $3.5 million.

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

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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 June 30, 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 September 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 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.

As of September 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 7.43% for the September 2025 payment, compared to a floating rate of 8.45% for the September 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 28.2% of the Company’s loan balances as of June 30, 2025, compared to 27.4% as of December 31, 2024.

Residential mortgage loans represented 28.3% of the Company’s loan balances as of September 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 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%.

As of September 30, 2025, junior lien home equity products made up 15.7% 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 maturities within the Company’s loan portfolio as of June 30, 2025.

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

Fixed Rate Loans

13 unchanged sentences

$ 705,133,665

Consists of commercial loans totaling $6 thousand within 1 year;

$2.9 million in 2 – 5 years and $526 thousand in 6 – 15 years and consumer loans of $0, $186 thousand and $7.9 million in those maturity categories, respectively.

(1) Consists of commercial loans totaling $66 thousand within 1 year, $2.6 million in 2 – 5 years and $504 thousand in 6 – 15 years;

and consumer loans of $0, $362 thousand and $7.2 million in those maturity categories, respectively.

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 71.5% 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.

Commercial & industrial, purchased, CRE and municipal loans collectively comprised 71.4% of the Company’s loan portfolio as of September 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 $165.8 million in non-owner occupied CRE as of September 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 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.

As of September 30, 2025, the Company had $29.0 million in guaranteed loans with guaranteed balances of $19.8 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 $15 thousand as of September 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.

9 unchanged sentences

Three Months Ended

September 30,

Credit loss expense - loans

Credit loss expense (reversal) - OBS credit exposure

Credit loss expense - OBS credit exposure

Credit loss expense

Six Months Ended

Nine Months Ended

September 30,

Credit loss expense - loans

Credit loss reversal - OBS credit exposure

Credit loss (reversal) expense - OBS credit exposure

Credit loss expense

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.

The decrease 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, despite the increase in the volume of the loan portfolio.

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

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.

5 unchanged sentences

The following table summarizes the Company’s credit risk ratios for the balance sheet dates presented:

September 30,

ACL to total loans outstanding

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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:

June 30, 2025

September 30, 2025

December 31, 2024

3 unchanged sentences

Residential real estate - Jr lien

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.

The third quarter ACL analysis indicated that the reserve balance of $10.8 million as of September 30, 2025, was sufficient to cover expected credit losses that are probable and estimable as of the measurement date.

As discussed in Note 5 of the accompanying unaudited interim consolidated financial statements, included in the ACL calculation for the third quarter of 2025 are adjustments to certain qualitative factors made by management, including an increase in the risk status of the qualitative factors for external factors in the purchased loan and residential Jr.

lien segments to reflect uncertainty regarding the impact of the government shutdown as well as an increase in the risk status of volume and terms in the residential Jr.

lien segment to reflect the increase in volume of these loans.

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 Six Months Ended June 30,

For the Nine Months Ended September 30,

Commercial & industrial

Net charge-offs during the period

Net recoveries (charge-offs) during the period

$ (1,203,641 )

Average amount outstanding

11 unchanged sentences

Residential real estate - 1st lien

Net recoveries during the period

Net charge-offs during the period

Average amount outstanding

7 unchanged sentences

Net charge-offs during the period

$ (1,378,949 )

Average amount outstanding

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

During the first nine 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 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.

As of September 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 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 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.

As of September 30, 2025 and December 31, 2024, the Company reported $4.5 million and $2.5 million, respectively, in reciprocal CDARS deposits.

The balance in ICS reciprocal money market deposits was $18.1 million as of September 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 $95.8 million and $109.5 million, respectively.

Additionally, the Company had brokered deposits from other sources totaling approximately $36.6 million as of September 30, 2025 and $13.8 million as of December 31, 2024.

These relationships have 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 September 30, 2025 and December 31, 2024, borrowing capacity of $136.5 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 $46.3 million and $31.1 million, respectively.

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

September 30,

FHLBB Short-Term Advances

FHLBB term advance, 4.49%, due November 21, 2025

FHLBB Long-Term Advances

7 unchanged sentences

FHLBB option advance, 3.51%, due March 27, 2028

FHLB term advance, 0.00%, due September 24, 2030

Total Long-Term Advances

Overnight Borrowings

Correspondent Banks, 4.52%

Total Advances and Overnight Borrowings

Total Advances

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.

7 unchanged sentences

The Company’s advances under the BTFP as of the balance sheet dates were as follows:

September 30,

FRB BTFP term advance, 4.83%, due January 17, 2025

1 unchanged sentence

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 $66.1 million and $60.8 million, respectively, as of June 30, 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 $63.2 million and $60.8 million, respectively, as of September 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 425 bps.

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 through this facility as of September 30, 2025, or December 31, 2024.

As of September 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.

7 unchanged sentences

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:

As of September 30, 2025, 37,453 shares had been repurchased since the inception of the program, for an aggregate purchase price of $701,454.

The following table illustrates the changes in shareholders' equity from December 31, 2024, to September 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 June 30, 2025 (book value $18.69 per common share)

Balance as of September 30, 2025 (book value $19.64 per common share)

$ 111,880,342

Following consultation with the FRBB, the Board has approved for repurchase the remaining 15 shares of the Company's Series A Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock.

The shares were redeemed at par ($100,000 per share), plus the accrued quarterly dividend through the redemption date.

The redemption was completed during the fourth quarter of 2025.

As described in more detail in Note 22 to the audited consolidated financial statements contained in the Company’s 2024 Annual Report on Form 10-K and under the caption “LIQUIDITY AND CAPITAL RESOURCES” in the MD&A section of that report, the Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies pursuant to which they must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items.

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

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.

As of September 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:

5 unchanged sentences

(Dollars in Thousands)

June 30, 2025

September 30, 2025

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

16 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