What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2025-03-14 compared with 2024-03-15 · 83 added, 99 removed, 372 unchanged (33% of the section changed)

8 unchanged sentences

Its customers are located primarily in Holmes, Stark, Tuscarawas, Wayne, and portions of surrounding counties in Ohio.

Economic activity in the Company’s market area increased slightly in the fourth quarter of 2023.

Demand for goods and services improved as steady sales were recorded during the fourth quarter 2023 with households spending more during the holidays.

Supply chain challenges improved during the year, creating less constrained inventories, and costs appear to be leveling off.

Consumer spending has increased slightly .

Economic activity in the Company’s market area grew modestly in the fourth quarter of 2024.

Demand for goods and services increased moderately as steady sales were recorded during the fourth quarter of 2024.

Reported unemployment levels in December 2024 ranged from 2.9% to 4.6% in the four primary counties served by the Company.

These levels decreased from the December 2022 range of 2.9% to 4.0% in the four counties served by the Company.

These levels increased from the December 2023 range of 2.1% to 3.3%.

Labor demand remained solid as competition for workers with specialized skills has put upward pressure on labor costs.

The local housing market continues to be strong with extremely low inventory levels.

Residential construction has softened again year over year with higher interest rates as the main factor reducing demand while nonresidential construction activity has improved since the prior year.

Core deposits remain flat, and customers continue to move funds into interest-bearing accounts.

The local housing market continues to be strong with low inventory levels.

Residential construction activity has increased modestly with stable interest rates and resolution of uncertainty after the election as the main factors increasing demand.

Nonresidential construction activity has also improved since the prior year.

Core deposits decreased slightly, and customers continue to move funds into higher yielding interest-bearing accounts.

FORWARD-LOOKING STATEMENTS

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Management’s Discussion and Analysis of Financial Condition and Results of Operations contains non-U.S.

GAAP financial measures where management believes it to be helpful in understanding CSB’s results of operations or financial position.

generally accepted accounting principles ("GAAP") financial measures where management believes it to be helpful in understanding CSB’s results of operations or financial position.

Where non-U.S.

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Net interest income

Provision (recovery) for credit losses

Net interest income after provision (recovery) for credit losses

Provision (recovery) for credit loss expense

Net interest income after provision (recovery) for credit loss expense

Noninterest income

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Dividend payout ratio 2

1 Net interest margin is shown on a fully taxable equivalent, ("FTE") basis.

1 Net interest margin is shown on a fully taxable equivalent, ("FTE") basis, (non-GAAP).

2 Dividend payout ratio is calculated as dividends declared as a percentage of net income.

RESULTS OF OPERATIONS

CSB’s 2023 net income was $14.8 million compared to $13.3 million for 2022, an increase of 11%.

CSB’s 2024 net income was $10.0 million compared to $14.8 million for 2023, a decrease of 32%.

Total revenue, net interest income plus noninterest income, increased $1.1 million, or 2.5%, over the prior year to a total of $44 million.

The provision for credit losses increased to a $442 thousand expense as compared to a $895 thousand recovery for the prior year.

Noninterest expense increased $667 thousand, or 3% and the provision for income tax increased $404 thousand over the prior year due to an increase in taxable income.

Basic and diluted earnings per share were $5.51, up 12% from the prior year.

The provision for credit losses increased to $7.0 million as compared to $442 thousand for the prior year .

Noninterest expense increased $529 thousand, or 2% and the provision for income tax decreased $1.3 million over the prior year due to a decrease in taxable income .

Basic and diluted earnings per share were $3.76, down 32% from the prior year.

The return on average assets was 0.85% in 2024 compared to 1.27% in 2023 and return on average equity was 8.96% in 2024 compared to 14.69% in 2023.

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Changes in volume, interest rates, composition of interest-earning assets, and interest-bearing liabilities affect net interest income.

Net interest income increased $3.8 million, or 12%, in 2023 compared to 2022.

Net interest income increased $712 thousand, or 2%, in 2024 compared to 2023.

The increase was a result of a $5.6 million increase in interest income, partially offset by an increase of $4.9 million in interest expense.

The FTE net interest margin increased to 3.32% from 2.98% in 2022.

Interest income increased $11.2 million, or 32%, in 2023 compared to 2022 primarily due to an increase of $9.7 million, or 37%, in interest and fees on loans due to an increase in average balances of $79 million and an increase in yield of 93 basis points ("bps").

Interest income on taxable securities increased $1.1 million due to a increase of 31 bps.

Interest income on interest-earning deposits mainly held at the Federal Reserve increased $404 thousand in 2023 compared to 2022 primarily due to a 365 bps yield increase.

Interest expense increased $7.4 million, or 296%, in 2023 as compared to 2022 primarily due to rate increases of 75 bps on deposits and 69 bps on other borrowed funds.

Average interest-bearing demand and savings deposit balances decreased $8 million during the year as the level of savings continued to decrease, but at a lesser pace than the prior year as the increase in the money supply created by the government to offset pandemic economic decreases phased out to consumers and businesses.

Average time deposit balances increased $36 million, and the average interest rate increased 210 bps.

The FTE net interest margin decreased to 3.31% from 3.32% in 2023 .

Interest income increased $5.6 million, or 12%, in 2024 compared to 2023 primarily due to an increase of $5.8 million, or 16%, in interest and fees on loans from an increase in average balances of $52 million and an increase in yield of 42 basis points ("bps").

Interest income on taxable securities decreased $488 thousand due to a decrease in average balances of $31 million.

Interest income on interest-earning deposits mainly held at the Federal Reserve increased $277 thousand in 2024 compared to 2023 primarily due to an increase in average balances of $5 million.

Interest expense increased $4.9 million, or 49%, in 2024 as compared to 2023 primarily due to shifts in volume from noninterest-bearing demand deposits and lower yielding interest-bearing demand deposits to higher yielding time deposits.

Average noninterest-bearing demand and interest-bearing demand deposit balances decreased $57 million during the year and average time deposit balances increased $69 million, and the average interest rate paid on time deposits increased by 112 bps.

The following table provides detailed analysis of changes in average balances, yield, and net interest income:

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4 Interest income is shown on a fully tax-equivalent basis (non-GAAP), reconciled to the GAAP amount at the bottom of the table.

The following table compares the impact of changes in average rates and changes in average volumes on net interest income:

The following table compares the impact of changes in average rates and average volumes on net interest income:

RATE/VOLUME ANALYSIS OF CHANGES IN INCOME AND EXPENSE 1

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Increase (decrease) in interest income:

Federal Funds

Interest-earning deposits in other banks

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2 Interest income is shown on a fully tax-equivalent basis (non-GAAP).

Provision (Recovery) for Credit Losses on Loans

The provision (recovery) for credit losses on loans is determined by management as the amount required to bring the allowance for credit losses to a level considered appropriate to absorb an estimation of credit loss during the expected weighted average life of the loan.

During 2023, a provision for credit loss expense for loans of $198 thousand was recognized compared to a 2022 recovery of credit losses for loans of $895 thousand.

The recapture of provision for credit losses for the prior year primarily reflects the improvement in credit quality including the reduction of impaired and adversely classified loans, as well as the improvement in economic indicators including unemployment, residential real estate prices and consumer confidence .

A credit loss provision for off-balance sheet commitments of $244 thousand was recognized in 2023 as compared to a recovery of credit loss provision for off-balance sheet commitments of $128 thousand in 2022, which was included in other noninterest expenses.

This provision is primarily the result of the adoption of ASU 2016-13, which is the Current Expected Credit Loss Model ("CECL"), to reserve against construction loan commitments, which will most likely be drawn as compared to 2022 when provisions for off-balance sheet items were provided primarily on impaired lines of credit.

Nonperforming loans increased $140 thousand from 2022 to 2023.

Provision (Recovery) for Credit Losses on Loans and Off-Balance Sheet Commitments

The provision for credit losses on loans is determined by management as the amount required to bring the allowance for credit losses to a level considered appropriate to absorb an estimation of credit loss during the expected weighted average life of the loan.

During 2024, a provision for credit loss expense on loans of $7.2 million was recognized compared to a provision of $198 thousand in 2023.

A recovery for credit loss expense on off-balance sheet commitments of $213 thousand was recognized in 2024 as compared to a provision for credit loss expense for off-balance sheet commitments of $244 thousand in 2023.

Nonperforming loans increased $1.3 million from 2023 to 2024.

See Financial Condition – Allowance for Credit Losses for additional discussion and information relative to the provision for credit losses.

Noninterest Income

YEAR ENDED DECEMBER 31

YEARS ENDED DECEMBER 31

Change from 2023

6 unchanged sentences

Earnings on bank-owned life insurance

Unrealized (loss) gain on equity securities

Unrealized gain on equity securities

Total noninterest income

Noninterest income increased $358 thousand, or 5%, in 2024 compared to the same period in 2023.

Trust service revenue increased $59 thousand with fair market value increases.

Service charges on deposits, increased $35 thousand in 2023 primarily from fees on business accounts.

Earnings on bank owned life insurance increased $28 thousand.

Credit card interchange income increased $24 thousand as business credit card usage continued to increase.

Gain on sales of mortgage loans including mortgage servicing rights (“MSRs”) decreased $170 thousand due to fewer

sales of real estate mortgage loans into the secondary market.

The Bank sold $5 million in mortgage loans, including gains, in 2023 as compared to the sale of $10 million of loans in 2022.

Trust services revenue increased $206 thousand with asset market value increases.

Gain on sales of mortgage loans, including mortgage servicing rights ("MSRs") increased $120 thousand, as $9 million in loans were sold into the secondary market compared to $5 million in 2023.

Earnings on bank owned life insurance increased $112 thousand, with the purchase of an additional $2 million of insurance.

Credit card interchange income decreased $58 thousand due to an overall decline in volume.

Service charges on deposit accounts decreased $53 thousand, as increases in monthly deposit account service charges were offset by decreases in non-sufficient funds ("NSF") charges.

Noninterest Expenses

YEAR ENDED DECEMBER 31

YEARS ENDED DECEMBER 31

Change from 2023

4 unchanged sentences

Professional and director fees

Financial institutions tax

Ohio financial institutions tax

Marketing and public relations

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Noninterest expense increased $529 thousand, or 2%, in 2024 compared to 2023.

Salaries and employee benefits increased $227 thousand from increases in base salaries, medical, and other benefits.

Software expense increased $222 thousand, or 16%, due to full-year implementation of a new analytical software and cyber security software.

FDIC insurance increased $169 thousand due to increased rates.

Professional and director fees decreased $80 thousand primarily due to a decrease in third party assistance with contracting the bank's core vendor that did not recur in 2023, partially offset by audit and accounting fees for the implementation of CECL.

Salaries and employee benefits decreased $50 thousand as increases in base salaries were offset by decreases in employee profit sharing and incentive compensation.

Ohio financial institutions tax expense increased $97 thousand, which is based on the increase in shareholders' equity.

Professional and director fees increased $94 thousand, primarily from increases in legal expenses related to loan collection efforts.

Other expenses increased $116 thousand, or 4%.

The provision for income taxes amounted to $2.3 million in 2024 as compared to $3.6 million in 2023.

The increase in 2023 resulted from an increase in taxable income.

The decrease in 2024 resulted from lower taxable income.

The corporate statutory tax rate was 21% for 2024 and 2023.

2 unchanged sentences

Total assets of the Company were $1.2 billion on December 31, 2024 and 2023, representing an increase of $13 million, or 1%.

Net loans increased $74 million, or 12%, while investment securities decreased $33 million, or 8%, and total cash and cash equivalents decreased $22 million, or 26%.

Deposits increased $4 million and short-term borrowings increased $3 million, while other borrowings from the Federal Home Loan Bank (“FHLB”) decreased by $707 thousand, or 29%.

Net loans increased $35 million, or 5%, while investment securities decreased $37 million, or 10%, and total cash and cash equivalents increased $9 million, or 15%.

Deposits increased $17 million and short-term borrowings decreased $10 million, while other borrowings from the Federal Home Loan Bank (“FHLB”) decreased by $488 thousand.

Total investment securities decreased $37 million, or 10%, to $332 million at year-end 2024, primarily related to principal repayments on mortgage-backed securities.

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Volume increases were recognized as follows:

commercial loans increased $23 million, or 18%, during 2023.

Construction and land development loans decreased $6 million, or 11% as several commercial projects were under

construction and consumer demand slowed for 1-4 family residential construction at year end.

Residential real estate loans increased $16 million, or 8%.

Commercial real estate loans increased $42 million, or 18%.

Commercial real estate and construction loan demand remains strong, within the company's market footprint.

At year-end 2023, commercial real estate is comprised mostly of owner occupied buildings, $191 million and $83 million of buildings held for investment and leased to others.

Owner occupied buildings are mostly assisted living, light industrial, and warehouse buildings.

Investment properties include commercial strip centers, medical and office buildings.

commercial real estate buildings held for investment and leased to others increased $18 million, or 22%, construction loans increased $15 million, or 31%, residential real estate loans increased $11 million, or 6%, and home equity lines of credit increased $2 million, or 4%.

Commercial and industrial loans decreased $8 million, or 5% during 2024, and consumer installment loans, including consumer indirect loans, also decreased $2 million, or 10%.

At year-end 2024, commercial real estate is comprised mostly of owner occupied buildings of $191 million, and $101 million of buildings held for investment and leased to others.

Owner occupied buildings are mostly light industrial, warehouse buildings and auto repair.

Investment properties include healthcare buildings, retail strip centers, and residential investment properties.

The Company originated $58 million and $52 million of residential mortgage loans held in the portfolio, including residential construction, conventional 1-4 family, and equity line loans, which were predominately variable rate, in 2024 and 2023, respectively.

The increase in interest rates slowed consumer demand for 1-4 family fixed-rate thirty-year residential mortgages which are sold into the secondary market as the Company sold $5 million of mortgages into the secondary market in 2023 as compared to $10 million of mortgages into the secondary market in 2022.

Demand for home equity loans declined in 2023, with balances decreasing $1 million, as rates rose.

Installment loans increased $206 thousand.

The increase in interest rates slowed consumer demand for 1-4 family fixed-rate thirty-year residential mortgages which are sold into the secondary market, thus limiting the Company's mortgage sales to $9 million in 2024 and $5 million in 2023.

Home equity loan balances increased $2 million during 2024 with demand improving as interest rates declined during the second half of the year.

Management anticipates modest economic growth in the Company’s local service areas will continue to improve.

1 unchanged sentence

Residential real estate loans approximated 30% of the portfolio in 2024 and 2023.

Construction and land development loans decreased from 9% to 7% of the portfolio;

however a number of construction loans will fund in 2024.

Construction and land development loans increased from 7% to 9% of the portfolio.

The Company is well within the respective regulatory guidelines for investment in construction, development, and investment property loans that are not owner occupied.

The Company has very little exposure to commercial office space leased properties.

See Note 3 - Loans for further discussion of Concentrations of Credit.

Most of the Company’s lending activity is with customers primarily located within Holmes, Stark, Tuscarawas and Wayne counties in Ohio.

The majority of the Company’s loan portfolio consists of commercial and industrial and commercial real estate loans.

See Note 3 - Loans for further discussion on Concentrations of Credit.

Most of the Company’s lending activity is with customers primarily located within Holmes, Medina, Stark, Tuscarawas and Wayne counties in Ohio.

Nonperforming Assets, Individually Evaluated Loans, and Loans Past Due 90 Days or More

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The allowance for credit losses ("ACL") is maintained at a level considered by management to be adequate to cover credit losses currently expected over the weighted average life of the loan pools.

The ACL decreased by $159 thousand, or 3%, to $6.6 million on December 31, 2023 from $6.8 million on December 31, 2022.

The decrease was primarily the result of the adoption of the CECL model under the Weighted Average Remaining Maturity historical loss method, ("WARM") that is based on the weighted average life loan pools.

This method is similar to the incurred loss method utilized prior to the implementation of CECL.

The weighted average life of the loan pools are calculated on an instrument level and incorporate prepayment speeds from a 12 month trailing period.

Additionally, a two year economic forecast is made based on the Bloomberg Financial consensus.

During 2023 decreases in the allowance were recognized in the WARM method (due to continuing recoveries)

and the Bloomberg financial forecast (due to the decrease in the prediction of a recession).

The ACL increased by $1 million, or 15%, to $7.6 million on December 31, 2024, from $6.6 million on December 31, 2023.

The additional ACL was primarily the result of the increase in the historical loss rate applied to the commercial and industrial loan portfolio as well as the increase in the average life of the loans.

The Bank continues to maintain qualitative factors tied to changes in:

the lending policy, economic conditions, lending credit management, delinquent and classified loans, and the value of collateral.

During 2023, $113 thousand in nonaccrual loans were collected, $40 thousand were charged-off, and $293 thousand new loans entered nonaccrual status.

During 2024, $381 thousand in nonaccrual loans were collected, $5.9 million were charged-off, and $7.1 million new loans entered nonaccrual status.

ALLOWANCE FOR CREDIT LOSSES

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Allowance for credit losses as a percentage of total loans

Allowance for credit losses to total nonacrrual loans

Allowance for credit losses to total nonaccrual loans

Components of the allowance for credit losses:

2 unchanged sentences

Total allowance for credit losses

The allowance for credit losses on loans totaled $6.6 million, or 0.94% of total loans at year-end 2023 as compared to $6.8 million, or 1.09%, of total loans at year-end 2022.

The Bank had net loan recoveries of $130 thousand in 2023, compared to $115 thousand in recoveries in 2022.

The Company maintains an internal watch list on which it places loans where management’s analysis of the borrower’s operating results and financial condition indicates the borrower’s cash flows are inadequate to meet its debt service requirements and loans where there exists an increased risk that such a shortfall may occur.

Nonperforming loans, which consist of loans past due 90 days or more and nonaccrual loans, aggregated $396 thousand, or 0.06%, of loans at year-end 2023 compared to $256 thousand, or 0.04%, of loans at year-end 2022.

Net premises and equipment decreased $412 thousand to $13 million at year-end 2023 with depreciation expense exceeding purchases.

Total bank-owned life insurance increased from $24 million at year-end 2022 to $25 million at year-end 2023 with increasing cash surrender values.

The ACL on loans totaled $7.6 million, or 1.03% of total loans at year-end 2024 as compared to $6.6 million, or 0.94%, of total loans at year-end 2023.

The Bank had net credit losses of $6.3 million in 2024, compared to $130 thousand in recoveries in 2023.

As previously disclosed during 2024, court liquidation continues on a $7 million commercial relationship that has been charged down by $6 million.

Related to this loan, approximately $900 thousand remains in nonperforming assets with $400 thousand in auction proceeds held by the receiver and $500 thousand in commercial real estate (office building) remaining to be liquidated.

The Company maintains an internal watch list for loans where management’s analysis of the borrower’s operating results and financial condition indicates the borrower’s cash flows are inadequate to meet its debt service requirements and for loans where there exists an increased risk that a shortfall may occur.

See the Credit Quality Indicators section of Note 3 to the Consolidated Financial Statements for additional information.

Nonperforming loans, which consist of loans past due 90 days or more and nonaccrual loans, aggregated $1.7 million, or 0.23%, of loans at year-end 2024 compared to $396 thousand, or 0.06%, of loans at year-end 2023.

Net premises and equipment increased $1 million to $14 million at year-end 2024 with $2 million in capitalized purchases and $1 million in depreciation expense.

Total bank-owned life insurance increased from $25 million at year-end 2023 to $28 million at year-end 2024, including a $2 million purchase of insurance and increasing cash surrender values.

There was no other real estate owned on December 31, 2024 or 2023.

3 unchanged sentences

For deposits, the Company must compete with products offered by other financial institutions, as well as alternative investment options.

Time deposits increased for the year ended 2023.

Market rates on deposits and cash management products increased throughout the year as liquidity decreased in the industry.

Time deposits and money market savings account balances increased for the year ended 2024.

Market rates on deposits and cash management products increased during the first half of the year before beginning to decrease in the second half of the year.

Change from 2023

9 unchanged sentences

The Company obtains additional funds through securities sold under repurchase agreements, overnight borrowings from the FHLB or other financial institutions, and advances from the FHLB.

Short-term borrowings, consisting of securities sold under repurchase agreements, increased $3 million.

Short-term borrowings, consisting of securities sold under repurchase agreements, decreased $10 million.

Other borrowings, consisting of FHLB advances, decreased $488 thousand as the result of principal repayments.

2 unchanged sentences

Total shareholders’ equity was $114.8 million at December 31, 2024, compared to $107.9 million on December 31, 2023.

This increase was primarily due to net income of $14.8 million and a $2.6 million accumulated other comprehensive gain recognized on the available-for-sale

securities portfolio resulting from decreasing interest rates.

Dividends were paid of $4 million and $1.4 million treasury stock was repurchased in 2023.

This increase was primarily due to net income of $10.0 million and a $1.9 million decrease in the accumulated other comprehensive loss recognized on the available-for-sale securities portfolio, resulting from investment payment and maturities as well as decreasing interest rates.

Dividends were paid of $4.2 million and $762 thousand of common shares were repurchased in 2024.

The Board of Directors approved a Stock Repurchase Program on February 26, 2021, allowing the repurchase of up to 5% of the Company’s then-outstanding common shares.

1 unchanged sentence

On December 31, 2024, approximately 45 thousand shares could still be repurchased under the current authorized program.

Shares repurchased during 2023 totaled 37,638 shares for $1.4 million and shares purchased in 2022 totaled 10,448 shares for $388 thousand.

Shares repurchased during 2024 totaled 19,849 shares for $762 thousand and shares purchased in 2023 totaled 37,638 shares for $1.4 million .

Effective January 1, 2015, the Federal Reserve adopted final rules implementing Basel III and regulatory capital changes required by the Dodd-Frank Act.

9 unchanged sentences

Dividends paid by the Bank to CSB are the primary source of funds available to the Company for payment of dividends to shareholders and for other working capital needs.

The payment of dividends by the Bank to the Company is subject to restrictions by regulatory authorities, which generally limit dividends to current year net income and the prior two (2) years net retained earnings, as defined by regulation.

In addition, dividend payments generally cannot reduce regulatory capital levels below the minimum regulatory guidelines discussed above.

11 unchanged sentences

As summarized in the Consolidated Statements of Cash Flows, the most significant investing activities for the Company in 2024 included net loan originations of $42 million and securities purchases of $15 million, offset by maturities and repayment of securities totaling $54 million.

The Company’s financing activities included a $4 million increase in deposits, $3 million increase in short-term borrowings, and $4 million in cash dividends paid.

The Company’s financing activities included a $17 million increase in deposits, $10 million decrease in short-term borrowings, and $4 million in cash dividends paid.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Management periodically measures and reviews the economic value of equity at risk with the Board.

As of December 31, 2023 and December 31, 2022 the percentage change of the market value of equity was outside of the board policy limit in the -400 basis point scenario.

The technical fails in the declining rate scenarios in 2023 and 2022, are caused by the duration of liabilities remaining high and loan and investment securities prepayment speeds increasing.

The simulation calculates decreases in the market value of equity of (36.5)% as of December 31, 2023 and (39.4)% in the -400 basis point rate scenario as of December 31, 2022.

As of December 31, 2024, the Company was within all policy limits set by the Board.

As of December 31, 2023, the percentage change of the market value of equity was outside of the board policy limit in the -400 basis point scenario.

The technical fail in the declining rate scenario in 2023 was caused by the duration of liabilities remaining high and loan and investment prepayment speeds increasing.

SIGNIFICANT ASSUMPTIONS AND OTHER CONSIDERATIONS

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the strength of current and projected customer loan demand, the Company’s federal funds sold or purchased position, projected cash flows from maturing investment securities, the current and projected market interest rate environment, local and national economic conditions, and customer demand for the Company’s deposit product offerings.

CRITICAL ACCOUNTING POLICIES

CRITICAL ACCOUNTING ESTIMATES

The Company’s Consolidated Financial Statements are prepared in accordance with U.S.

2 unchanged sentences

These estimates, assumptions, and judgments are based upon the information available as of the date of the financial statements.

The most significant accounting policies followed by the Company are presented in Note 1- Summary of Significant Accounting Policies.

The most significant accounting policies followed by the Company are presented in Note 1 to the Consolidated Financial Statements.

These policies, along with the other disclosures presented in the Notes to Consolidated Financial Statements and the 2024 Financial Review, provide information about how significant assets and liabilities are valued in the financial statements and how those values are determined.

Management has identified the allowance for credit losses and goodwill as the accounting areas requiring the most subjective and complex estimates, assumptions, and judgments, and as such, could be the most subject to revision as new information becomes available.

As previously noted in the section entitled Allowance for Credit Losses, management performs an analysis to assess the adequacy of its allowance for credit losses.

As previously noted in the section entitled Allowance for Credit Losses, management performs an analysis to assess the adequacy of its allowance for credit losses using the current expected credit loss (CECL) model.

This analysis encompasses a variety of factors including:

the potential loss exposure for individually reviewed loans, the historical loss experience, changes in delinquent and classified loans, any significant changes in lending or loan review staff, an evaluation of current and future economic conditions, any significant changes in the volume or mix of loans within each category, a review of the significant concentrations of credit, and any legal, competitive, or regulatory concerns.

Potential future earnings volatility is driven by CECL's life of loan loss and economic forecasts of unemployment, recession and future loan loss within the portfolio.

Potential future earnings volatility is driven by CECL's life of credit loss and economic forecasts of unemployment, recession and future credit loss within the portfolio.

Under stress testing performed by the Bank in 2024, the unemployment forecast models as the largest driver of credit loss provision volatility.

When sustained unemployment is significantly increased to 10% over a two-year period, an additional provision of approximately $1.4 million would be required under current model assumptions.

While the weighted average life of the loan portfolio has extended to just under five years, at December 31, 2023, stressing the CRE and residential mortgage portfolio's weighted average lives by less than one year, resulted in a minimal increase of less than $100 thousand to the allowance for credit losses.

While the weighted average life of the loan portfolio has extended to five years, at December 31, 2024, stressing the commercial real estate, lessors of buildings and residential mortgage portfolios' weighted average lives by 10%, or an increase of 6 months, resulted in a minimal increase of $124 thousand to the allowance for credit losses.

The Company accounts for business combinations using the acquisition method of accounting.

32 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis