What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2025-05-15 compared with 2024-11-08 · 459 added, 609 removed, 1250 unchanged (46% of the section changed)

3 unchanged sentences

(Dollars in thousands, except share and per share data)

September 30,

Cash and due from banks

24 unchanged sentences

Preferred stock, par value $ 2.00 per share;

authorized 1,000,000 shares as of September 30, 2024 and December 31, 2023;

issued 0 as of September 30, 2024 and December 31, 2023

authorized 1,000,000 shares as of March 31, 2025 and December 31, 2024;

issued 0 as of March 31, 2025 and December 31, 2024

Common stock, par value $ 2.00 per share;

authorized 20,000,000 shares as of September 30, 2024 and December 31, 2023;

issued 6,417,006 as of September 30, 2024 and 6,352,665 as of December 31, 2023;

outstanding 6,185,395 as of September 30, 2024 and 6,121,054 as of December 31, 2023

authorized 20,000,000 shares as of March 31, 2025 and December 31, 2024;

issued 6,450,392 as of March 31, 2025 and 6,450,392 as of December 31, 2024;

outstanding 6,218,781 as of March 31, 2025 and 6,218,781 as of December 31, 2024

Retained earnings

Accumulated other comprehensive loss

Treasury stock, at cost, 231,611 shares as of September 30, 2024 and December 31, 2023

Treasury stock, at cost, 231,611 shares as of March 31, 2025 and December 31, 2024

TOTAL STOCKHOLDERS’ EQUITY

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements (unaudited).

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

2 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

INTEREST INCOME

11 unchanged sentences

Net interest income

Provision (credit) for credit losses

Provision for credit losses

Net interest income after provision for credit losses

5 unchanged sentences

Net gains on sales of mortgage loans

Net securities gains (losses)

Net securities losses

Gains from life insurance proceeds

Total non-interest income

11 unchanged sentences

Total non-interest expense

Income (loss) before income tax expense (benefit)

Income tax expense (benefit) expense

Income (loss) before income tax (benefit) expense

Income tax (benefit) expense

NET INCOME (LOSS)

2 unchanged sentences

Dividends per share

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements (unaudited).

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

Three Months Ended

September 30,

Net income (loss)

Other comprehensive income (loss):

Unrealized net holding gains (losses) on debt securities available-for-sale arising during the period, net of income taxes of $ 2,670 and $( 1,711 ), respectively

Fair value adjustment on derivatives, net of income tax expense of $ 1,506 and $ 0 , respectively

Total other comprehensive income (loss)

Unrealized net holding gain (loss) on debt securities available-for-sale arising during the period, net of income taxes of $ 427 and $( 177 ), respectively

Fair value adjustment on derivatives, net of income taxes of $( 316 ) and $ 586 , respectively

Total other comprehensive income

Total comprehensive income (loss)

(Dollars in thousands)

Nine Months Ended

September 30,

Net (loss) income

Other comprehensive income (loss):

Unrealized net holding gains (losses) on debt securities available-for-sale arising during the period, net of income taxes of $ 1,617 and $( 1,679 ), respectively

Less reclassification adjustment for net gains included in net income, net of income taxes of $ 0 and $( 21 ), respectively (a) (b)

Fair value adjustment on derivatives, net of income tax expense of $ 753 and $ 0 , respectively

Total other comprehensive income (loss)

Total comprehensive loss

_____________________________

(a) Gross amounts are included in net securities losses on the consolidated statements of income in non-interest income.

(b) Income tax amounts are included in income tax expense (benefit) on the consolidated statements of income.

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements (unaudited).

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

THREE MONTHS ENDED MARCH 31, 2025 AND 2024

(Dollars in thousands, except

2 unchanged sentences

Stockholders’

Shares Issued

Balance at January 1, 2025

3 unchanged sentences

Balance at March 31, 2025

Other comprehensive loss, net of taxes

Issuance of common stock under dividend reinvestment plan

Dividends - $ 0.28 per share

Balance at June 30, 2024

Other comprehensive income, net of taxes

Issuance of common stock under dividend reinvestment plan

Dividends - $ 0.28 per share

Balance at September 30, 2024

(Dollars in thousands, except

per share data)

Comprehensive

Stockholders’

Balance at January 1, 2024

Cumulative effect of adoption of ASU No.

Other comprehensive income, net of taxes

2 unchanged sentences

Balance at March 31, 2024

Other comprehensive loss, net of taxes

Issuance of common stock under dividend reinvestment plan

Dividends - $ 0.28 per share

Balance at June 30, 2023

Other comprehensive loss, net of taxes

Issuance of common stock under dividend reinvestment plan

Dividends - $ 0.28 per share

Balance at September 30, 2023

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements (unaudited).

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

THREE MONTHS ENDED MARCH 31, 2025 AND 2024

(Dollars in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net (loss) income

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Provision (credit) for credit losses on loans

Provision for credit losses on unfunded commitments

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Provision for credit losses on loans

(Recapture) provision for credit losses on unfunded commitments

Goodwill impairment

1 unchanged sentence

Net premium amortization on securities

Deferred income tax (benefit) expense

Common stock issued

Deferred income tax benefit

Net gains on sales of mortgage loans

4 unchanged sentences

Increase in cash surrender value of bank owned life insurance

Gains from life insurance proceeds

Net losses on disposals of premises and equipment

1 unchanged sentence

Amortization of investment in low-income housing partnerships

(Decrease) increase in accrued interest payable

Increase (decrease) in other liabilities

Increase in accrued interest payable

(Decrease) Increase in other liabilities

NET CASH PROVIDED BY OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sales of equity securities and debt securities available-for-sale

Proceeds from maturities and redemptions of debt securities available-for-sale

1 unchanged sentence

Net change in restricted investment in bank stocks

Net increase in loans

Net (increase) decrease in loans

Proceeds from bank-owned life insurance

Purchase of premises and equipment

Purchase of investment in real estate venture

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES

NET CASH USED IN INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase (decrease) in deposits

Net (decrease) increase in deposits

Net increase in short-term borrowings

Repayment of finance lease obligations

Repayment of long-term borrowings

Common stock issued

Dividends paid

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

INCREASE IN CASH AND CASH EQUIVALENTS

NET CASH PROVIDED BY FINANCING ACTIVITIES

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING

4 unchanged sentences

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES

Purchased securities settling after year-end

Common stock subscription receivable

Right-of-use assets obtained in exchange for lease liabilities

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements (unaudited).

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

2 unchanged sentences

The consolidated financial statements include the accounts of First Keystone Corporation (the “Corporation”) and its wholly owned subsidiary First Keystone Community Bank (the “Bank”) (collectively the “Company”).

All significant intercompany accounts and transactions have been eliminated.

All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

3 unchanged sentences

In the opinion of management, all adjustments considered necessary for fair presentation have been included.

Operating results for the three and nine months ended September 30, 2024, are not necessarily indicative of the results for the year ending December 31, 2024.

Operating results for the three months ended March 31, 2025, are not necessarily indicative of the results for the year ending December 31, 2025.

For further information, refer to the consolidated financial statements and notes thereto included in First Keystone Corporation’s Annual Report on Form 10-K for the year ended December 31, 2024.

Subsequent Events

The Company has evaluated events and transactions occurring subsequent to the consolidated balance sheet date of September 30, 2024 for items that should potentially be recognized or disclosed in these consolidated financial statements.

The Company has evaluated events and transactions occurring subsequent to the consolidated balance sheet date of March 31, 2025 for items that should potentially be recognized or disclosed in these consolidated financial statements.

The evaluation was conducted through the date these consolidated financial statements were issued.

1 unchanged sentence

Adopted ASUs:

There were no ASUs adopted during the nine months ended September 30, 2024.

There were no ASUs adopted during the three months ended March 31, 2025.

Pending ASUs:

In December of 2023, the FASB issued ASU No.

In December of 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

ASU 2023-09 requires enhanced income tax disclosures related to the rate reconciliation and information related to income taxes paid.

The ASU was issued to enhance transparency and decision usefulness of income tax disclosures.

The standard requires:

consistent categories and greater disaggregation of information in the rate reconciliation, and 2.

income taxes paid, net of refunds received, disaggregated by jurisdiction based on an established threshold.

The amendments in this ASU will be applied on a prospective basis and retrospective application is permitted.

The amendments in this update are effective for public business entities for fiscal years, and interim periods within those fiscal years beginning after December 15, 2024.

Early adoption is permitted for all entities in any interim period.

ASU 2023-09 was issued to improve the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the rate reconciliation table, as well as income taxes paid disaggregated by jurisdiction.

The amendments in this ASU should be applied prospectively with an option of retrospective application to prior periods presented.

The amendments in this update are effective for public business entities for annual reporting periods beginning after December 15, 2024.

The Company is currently evaluating the provisions of ASU 2023-09 and does not expect the adoption of the standard to have a material impact on the Company’s financial statements.

In November 2024, the FASB issued ASU No.

2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses .

ASU 2024-03 requires disclosure of specified information about certain costs and expenses in the notes to the financial statements.

The amendments in this update are effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027.

The requirements will be applied prospectively with the option for retrospective application.

Early adoption is permitted.

The Company is currently evaluating the impact that the new guidance will have on the Company’s financial statements.

NOTE 3 — SECURITIES

4 unchanged sentences

Securities classified as Held-to-Maturity are carried at cost adjusted for amortization of premium and accretion of discount to maturity.

At September 30, 2024 and December 31, 2023, all debt securities held were classified as available-for-sale.

At March 31, 2025 and December 31, 2024, all debt securities held were classified as available-for-sale.

Debt securities not classified as Held-to-Maturity are included in the Available-for-Sale category and are carried at fair value.

5 unchanged sentences

The cost of securities sold, redeemed or matured is based on the specific identification method.

The Corporation invests in various forms of agency debt including residential and commercial mortgage-backed

securities and callable debt.

The Company invests in various forms of agency debt including residential and commercial mortgage-backed securities and callable debt.

The mortgage-backed agency securities are issued by Federal Home Loan Mortgage

3 unchanged sentences

The municipal securities consist of general obligations and revenue bonds.

Asset-backed securities consist of private (non-agency) student loan pools backed by the Federal Family Education LoanProgram (“FFELP”) which carry a 97% federal government guarantee.

Asset-backed securities consist of private (non-agency) student loan pools backed by the Federal Family Education Loan Program (“FFELP”) which carry a 97% federal government guarantee.

Corporate debt securities consist of senior debt and subordinated debt holdings.

There was no allowance for credit losses for Available-For-Sale debt securities as of September 30, 2024;

There was no allowance for credit losses for Available-For-Sale debt securities as of March 31, 2025;

therefore, it is not present in the table below.

The amortized cost, related estimated fair value, and unrealized gains and losses for debt securities classified as Available-For-Sale were as follows at September 30, 2024 and December 31, 2023:

The amortized cost, related estimated fair value, and unrealized gains and losses for debt securities classified as Available-For-Sale were as follows at March 31, 2025 and December 31, 2024:

Debt Securities Available-for-Sale

(Dollars in thousands)

September 30, 2024:

March 31, 2025:

Treasury securities

17 unchanged sentences

Corporate debt securities

Debt securities Available-for-Sale with an aggregate fair value of $ 272,130,000 at September 30, 2024 and $ 249,114,000 at December 31, 2023, were pledged to secure public funds, trust funds, securities sold under agreements to repurchase and the Federal Discount Window aggregating $ 217,142,000 at September 30, 2024 and $ 182,050,000 at December 31, 2023.

The amortized cost and estimated fair value of debt securities, by contractual maturity, are shown below at September 30, 2024.

Debt securities Available-for-Sale with an aggregate fair value of $ 211,047,000 at March 31, 2025 and $ 251,961,000 at December 31, 2024, were pledged to secure public funds, trust funds, securities sold under agreements to repurchase and the Federal Discount Window aggregating $ 170,877,000 at March 31, 2025 and $ 192,671,000 at December 31, 2024.

The amortized cost and estimated fair value of debt securities, by contractual maturity, are shown below at March 31, 2025.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

September 30, 2024

March 31, 2025

Debt Securities Available-For-Sale

11 unchanged sentences

Mortgage-backed securities are allocated for maturity reporting at their original maturity date.

At September 30, 2024 and December 31, 2023, the Corporation had holdings of securities from the following issuers in excess of ten percent of consolidated stockholders’ equity (excluding holdings of the U.S.

At March 31, 2025 and December 31, 2024, the Corporation had holdings of securities from the following issuers in excess of ten percent of consolidated stockholders’ equity (excluding holdings of the U.S.

Government and U.S.

1 unchanged sentence

(Dollars in thousands)

September 30, 2024:

March 31, 2025:

Sallie Mae Bank

1 unchanged sentence

Nelnet Student Loan Trust

Navient Student Loan Trust

(Dollars in thousands)

1 unchanged sentence

Sallie Mae Bank

Velocity Commercial Capital

Nelnet Student Loan Trust

Navient Student Loan Trust

There were no proceeds from sales of Debt Securities Available-For-Sale for the three months ended September 30, 2024 and 2023.

There were no proceeds from sales of Debt Securities Available-For-Sale for the three months ended March 31, 2025 and 2024.

Therefore, there were no gains or losses realized during these periods.

Proceeds from sales of Debt Securities Available-For-Sale for the nine months ended September 30, 2024 and 2023 were $ 0 and $ 23,230,000 , respectively.

Gross gains realized on these sales were $ 0 and $ 447,000 , respectively.

Gross losses on these sales were $ 0 and $ 348,000 respectively.

The summary below shows the gross unrealized losses and fair value of the Company’s debt securities.

Totals are aggregated by investment category where individual securities have been in a continuous loss position for less than 12 months or 12 months or more as of September 30, 2024 and December 31, 2023:

September 30, 2024

Totals are aggregated by investment category where individual securities have been in a continuous loss position for less than 12 months or 12 months or more as of March 31, 2025 and December 31, 2024:

March 31, 2025

(Dollars in thousands)

23 unchanged sentences

Corporate debt securities

There were 169 individual debt securities in an unrealized loss position as of September 30, 2024, with a combined decline in value representing 5.88 % of the debt securities portfolio.

There were 166 individual debt securities in an unrealized loss position as of March 31, 2025, with a combined decline in value representing 7.10 % of the debt securities portfolio.

There were 167 individual debt securities in an unrealized loss position as of December 31, 2024, with their combined decline in value representing 7.36 % of the debt securities portfolio.

3 unchanged sentences

The credit loss component would be recognized through the provision for credit losses and the creation of an allowance for credit losses.

Consideration is given to (1) the financial condition and near-term prospects of the issuer, (2) the outlook for receiving the contractual cash flows of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees, and (8) collateral values.

Consideration is given to (1) the financial condition and near-term prospects of

the issuer, (2) the outlook for receiving the contractual cash flows of the investments, (3) the length of time and the extent to which the fair value has been less than cost, (4) our intent and ability to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value or whether it is more-likely-than-not that we will be required to sell the debt security prior to recovering its fair value, (5) the anticipated outlook for changes in the general level of interest rates, (6) credit ratings, (7) third party guarantees, and (8) collateral values.

In analyzing an issuer’s financial condition, management considers whether the debt securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, the results of reviews of the issuer’s financial condition, and the issuer’s anticipated ability to pay the contractual cash flows of the debt securities.

3 unchanged sentences

The Company made a policy election to exclude accrued interest receivable from the amortized cost basis of debt securities available for sale.

Accrued interest receivable on debt securities available for sale is reported as a component of accrued interest receivable on the Company’s consolidated balance sheet and totaled $ 2,226,000 as of September 30, 2024.

Accrued interest receivable on debt securities available for sale is excluded from the estimate of credit losses.

All debt securities available for sale in an unrealized loss position, as of September 30, 2024, continue to perform as scheduled and we do not believe that there is a credit loss or that a provision for credit losses is necessary.

Also, as part of our evaluation of our intent and ability to hold debt securities for a period of time sufficient to allow for any anticipated recovery in the market, we consider our investment strategies, cash flow needs, liquidity position, capital

adequacy and interest rate risk position.

All debt securities available for sale in an unrealized loss position, as of March 31, 2025, continue to perform as scheduled and we do not believe that there is a credit loss or that a provision for credit losses is necessary.

We do not currently intend to sell the debt securities within the portfolio and it is not more-likely-than-not that we will be required to sell the debt securities.

3 unchanged sentences

In accordance with ASC 321-10, equity securities with readily determinable fair values are stated at fair value with realized and unrealized gains and losses reported in income.

Equity securities without readily determinable fair values are recorded at cost less impairment, if any.

At September 30, 2024 and December 31, 2023, the Company had $ 1,434,000 and $ 1,482,000 , respectively, in equity securities recorded at fair value.

The following is a summary of realized gains and losses recognized in net income on equity securities during the nine months ended September 30, 2024 and 2023:

Equity securities without readily determinable fair values are recorded at cost, adjusted for observable price changes and impairments, if any.

At March 31, 2025 and December 31, 2024, the Company had $ 1,501,000 and $ 1,587,000 , respectively, in equity securities recorded at fair value.

The following is a summary of realized gains and losses recognized in net income on equity securities during the three months ended March 31, 2025 and 2024:

(Dollars in thousands)

Nine months ended

September 30, 2024

September 30, 2023

Net losses from market value fluctuations recognized during the period on equity securities

Three months ended

March 31, 2025

March 31, 2024

Net gains (losses) from market value fluctuations recognized during the period on equity securities

Net gains recognized during the period on equity securities sold during the period

Net losses recognized during the reporting period on equity securities still held at the reporting date

Net gains (losses) recognized during the reporting period on equity securities still held at the reporting date

Management evaluates equity securities for impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

Equity securities without readily determinable fair values are generally evaluated for impairment under FASB ASC 321, Equity Securities.

In determining impairment under the FASB ASC 321 model, management considers many factors, including (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, (3) whether the market decline was affected by macroeconomic conditions, and (4) whether the entity has the intent to sell the equity security or more likely than not will be required to sell the equity security before its anticipated recovery.

security or more likely than not will be required to sell the equity security before its anticipated recovery.

The assessment of whether an impairment exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time.

2 unchanged sentences

The Company monitors the equity securities portfolio monthly with particular attention given to securities in a continuous loss position of at least ten percent for over twelve months.

Based on the factors described above, management did not consider any equity securities to be impaired at September 30, 2024 or December 31, 2023.

Based on the factors described above, management did not consider any equity securities to be impaired at March 31, 2025 or December 31, 2024.

NOTE 4 — LOANS AND ALLOWANCE FOR CREDIT LOSSES

19 unchanged sentences

most of the residential mortgages held in the Company’s residential real estate portfolio have maximum terms of twenty years .

Generally, the majority of the Company’s residential mortgage loans originate with a loan-to-value of eighty percent or less, or those with private mortgage insurance at ninety-five percent or less.

Generally, the majority of the Company’s

residential mortgage loans originate with a loan-to-value of eighty percent or less, or those with private mortgage insurance at ninety-five percent or less.

Home equity term loans are secured by the borrower’s primary residence and typically have a maximum loan-to-value of eighty percent and a maximum term of fifteen years .

8 unchanged sentences

These loans are sold without recourse.

Loans held for sale amounted to $ 426,000 and $ 214,000 at September 30, 2024 and December 31, 2023, respectively.

Loans held for sale amounted to $ 559,000 and $ 737,000 at March 31, 2025 and December 31, 2024, respectively.

Agricultural Lending

24 unchanged sentences

Government) on all principal and the balance of interest accruing through ninety days beyond the date that demand is made to the originating bank for repurchase of the loan.

As of September 30, 2024, the Company's balance of GGLs was $ 4,338,000 , compared to $ 4,470,000 at December 31, 2023.

As of March 31, 2025, the Company's balance of GGLs was $ 4,267,000 , compared to $ 4,306,000 at December 31, 2024.

Consumer Lending

22 unchanged sentences

Delinquent notices are generated automatically when a loan is 10 or 15 days past-due, depending on loan type.

Collection efforts continue on past-due loans that have not been brought current, when it is believed that some chance exists for improvement in the status of the loan.

Collection efforts continue on past-due loans that have not been brought current, when it is believed that some chance

exists for improvement in the status of the loan.

Past-due loans are continually evaluated with the determination for charge-off being made when no reasonable chance remains that the status of the loan can be improved.

Commercial and industrial loans and real estate loans issued for commercial purpose are charged off in whole or in part when they become sufficiently delinquent based upon the terms of the underlying loan contract and when a collateral deficiency exists.

Because all or part of the contractual cash flows are not expected to be collected, the loan is considered to be impaired, and the Company estimates the impairment based on its analysis of the cash flows or collateral estimated at fair value less cost to sell.

Because all or part of the contractual cash flows are not expected to be collected, the loan is designated for individual evaluation to determine expected credit losses based on an analysis of the cash flows or collateral estimated at fair value less cost to sell.

Should a GGL default, demand is made to the originating bank for repurchase of the loan.

15 unchanged sentences

The allowance for credit losses (“ACL”) is an estimate of losses arising from borrowers’ inability to make loan payments as required, which is calculated via a valuation account that is deducted from the amortized cost basis to present the net amount expected to be collected on the loan portfolio.

The Company completed a one-time adjustment on January 1, 2023 to decrease the ACL at the adoption of ASU 2016-13 through retained earnings, but all subsequent adjustments will be established through provisions for credit losses charged against income.

All adjustments will be established through provisions for credit losses charged against income.

Loans deemed to be uncollectible are charged against the ACL and subsequent recoveries, if any, are credited to the allowance.

4 unchanged sentences

Modeling of the ACL uses sophisticated statistical techniques to arrive at reasonable and supportable forecasts of expected losses.

The Company has contracted with a third-party vendor to assist in developing models for the ACL related to the Company’s loan portfolio under ASU 2016-13.

The Company has contracted with a third-party vendor to assist in developing models for the ACL related to the Company’s loan portfolio under ASC 326.

The Company has opted to utilize the Weighted Average Remaining Maturity (“WARM”) method to calculate the ACL which uses an average annual charge-off rate.

This average annual charge-off rate contains loss content over several vintages and is used as a foundation for estimating the credit loss content for loans by segmented pools at the balance sheet date and is used to determine a historical charge-off rate.

When estimating expected credit losses, the Company considers forward-looking information that is reasonable, supportable, and relevant to assessing the collectability of cash flows.

10 unchanged sentences

Management considers qualitative factors that are relevant to the Company as of the reporting date, which may include but are not limited to:

1) changes in lending policies and procedures, including changes in underwriting standards and collection,

charge-off, and recovery practices not considered elsewhere;

1) changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere;

2) changes in international, national, regional, and local economic and business conditions and developments that affect the collectability of the loan portfolio, including the condition of various market segments;

28 unchanged sentences

Management may evaluate loans on an individual basis even when no specific expectation of collectability is in place.

Loans deemed to be impaired are specifically identified and measured for impairment.

A loan is deemed to be impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the loan agreement.

Loans to be considered for impairment include all non-accrual loans or any other selected loans where full collection is unlikely.

Factors considered by management in determining impairment include payment status and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior

payment record, and the amount of the shortfall in relation to the principal and interest owed.

Once identified as impaired, the loans are measured individually for impairment based on one of the following methods:

The present value of expected cash flows, discounted at the loan’s effective interest rate (i.e.

the contractual interest rate adjusted for any net deferred loan fees or costs, premium, or discount existing at the origination or acquisition of the loan)

The loan’s observable market price

The fair value of the collateral if the loan is deemed to be collateral dependent.

A loan is collateral dependent if the repayment of the loan is expected to be provided solely by the liquidation of the underlying collateral and there are no other available and reliable sources of repayment.

Management will consider estimated costs to sell, on a discounted basis, in the measurement of impairment if these costs are expected to reduce the cash flows available to repay the loan.

Any portion of the recorded investment for a collateral dependent loan (including any capitalized accrued interest, net deferred loan fees or costs, and unamortized premium or discount) exceeding the fair value of the collateral that can be identified as uncollectible is deemed a confirmed loss and will be charged off against the ACL

Loans that have been individually measured for impairment may have a portion of the allowance allocated to cover the calculated amount of impairment as determined by the methods listed above, referred to as a specific allocation.

Loans individually evaluated for impairment may also have a zero specific allocation if the loans are deemed to have no impairment, or if the amount of the impairment will be charged off.

ASU 2022-02, Loan Modifications Experiencing Financial Difficulty, eliminated the accounting guidance for Troubled Debt Restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty.

Loans for which individual evaluation has been deemed necessary are then analyzed to determine if a reserve is required for the loan.

A loan would be individually evaluated under the following circumstances (a) if it is on non-accrual status, (b) if a distressed loan is determined to be collateral dependent, or (c) if the Company has other concerns regarding the viability of the loan.

Once identified as a loan requiring individual evaluation, the loan is analyzed based on the fair market value of the underlying collateral.

Loans that have been individually evaluated for expected credit losses may have a portion of the reserve allocated to cover the calculated collateral deficiency or the amount of the collateral deficiency may be charged off.

Loans individually evaluated for expected credit losses may have zero specific allocation if the evaluation/analysis shows that no collateral deficiency exists for the loan and no loss is expected.

ASC 326-20, Loan Modifications Experiencing Financial Difficulty, eliminated the accounting guidance for Troubled Debt Restructurings (“TDRs”) while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty.

In accordance with the new guidance, the Company no longer evaluates loans with modifications made to borrowers experiencing financial difficulty individually for impairment, nor establishes a related specific reserve for such loans, but rather these loans are included in their respective portfolio segment and evaluated collectively for impairment to establish an allowance for credit losses.

13 unchanged sentences

A loan that is fully secured by cash or cash equivalents, such as a certificate of deposit issued by the lending institution, would likely have zero credit loss expectations.

Similarly, the guaranteed portion of an SBA loan purchased on the secondary market through the SBA’s fiscal and transfer agent would likely have zero credit loss expectations because these financial assets are unconditionally guaranteed by the U.S.

ASC Topic 326 introduces the concept of purchased credit deteriorated (“PCD”) assets.

PCD assets are acquired financial assets that, at acquisition, have experienced more-than-insignificant deterioration in credit quality since origination, as determined by the Company’s assessment.

The Company does not possess loans classified as purchased credit deterioration at this time.

Should the Company acquire purchased loans, these loans will be evaluated to determine if they are PCD.

Similarly, the guaranteed portion of an SBA loan purchased

on the secondary market through the SBA’s fiscal and transfer agent would likely have zero credit loss expectations because these financial assets are unconditionally guaranteed by the U.S.

A reserve for unfunded lending commitments is provided for possible credit losses on off-balance sheet credit exposures.

1 unchanged sentence

The reserve for unfunded lending commitments represents management’s estimate of losses inherent in its unfunded loan commitments and, if necessary, is recorded in other liabilities on the consolidated balance sheets.

As of September 30, 2024 and December 31, 2023, the amount of the reserve for unfunded lending commitments was $ 173,000 and $ 166,000 , respectively.

As of March 31, 2025 and December 31, 2024, the amount of the reserve for unfunded lending commitments was $ 89,000 and $ 102,000 , respectively.

The Company made a policy election to exclude accrued interest receivable from the amortized cost basis of loans.

Accrued interest receivable on loans is reported as a component of accrued interest receivable on the Company’s consolidated balance sheet and totaled $ 2,542,000 as of September 30, 2024 compared to $ 2,476,000 at December 31, 2023.

Accrued interest receivable on loans is reported as a component of accrued interest receivable on the Company’s consolidated balance sheets and totaled $ 2,685,000 as of March 31, 2025 compared to $ 2,575,000 at December 31, 2024.

Accrued interest receivable on loans is excluded from the estimate of credit losses.

38 unchanged sentences

Loans are graded doubtful if they contain weaknesses so serious that collection or liquidation in full is questionable.

The following tables present the classes of the loan portfolio summarized by risk rating and year of origination and year-to-date gross charge-offs by loan portfolio summarized by year of origination as of September 30, 2024 and December 31, 2023.

The following table presents outstanding loan balances by loan class prior to allocation of net deferred fees and costs, as well as the balance of total gross loans after allocation of net deferred fees and costs and net loans after allocation of the allowance for credit losses as of March 31, 2025 and December 31, 2024.

(Dollars in thousands)

As of September 30, 2024:

Commercial and Industrial

State and Political Subdivisions

Net Deferred Fees and Costs

Allowance for Credit Losses

March 31, 2025:

(Dollars in thousands)

7 Special Mention

35 unchanged sentences

Total Gross Charge Offs

(Dollars in thousands)

As of December 31, 2024:

(Dollars in thousands)

7 Special Mention

35 unchanged sentences

Total Gross Charge Offs

State and Political Subdivision Loans include loans categorized as tax-free in the amount of $ 24,408,000 at September 30, 2024 and $ 26,181,000 at December 31, 2023.

Commercial and Industrial Loans include $ 4,338,000 of GGLs as of September 30, 2024 and $ 4,470,000 of GGLs as of December 31, 2023.

Loans held for sale are included in the Real Estate Loans category and amounted to $ 426,000 at September 30, 2024 and $ 214,000 at December 31, 2023.

The activity in the allowance for credit losses by loan class is summarized below for the three and nine months ended September 30, 2024 and 2023 and the year ended December 31, 2023.

State and Political Subdivision Loans include loans categorized as tax-free in the amount of $ 24,633,000 at March 31, 2025 and $ 22,147,000 at December 31, 2024.

Commercial and Industrial Loans include $ 4,267,000 of GGLs as of March 31, 2025 and $ 4,306,000 of GGLs as of December 31, 2024.

Loans held for sale are included in the Real Estate Loans category and amounted to $ 559,000 at March 31, 2025 and $ 737,000 at December 31, 2024.

The activity in the allowance for credit losses by loan class is summarized below for the three months ended March 31, 2025 and 2024 and the year ended December 31, 2024.

(Dollars in thousands)

and Industrial

As of and for the three months ended September 30, 2024:

As of and for the three months ended March 31, 2025:

Allowance for Credit Losses:

Beginning balance

Ending Balance

(Dollars in thousands)

and Industrial

As of and for the nine months ended September 30, 2024:

Beginning balance January 1, 2025

13 unchanged sentences

and Industrial

As of and for the three months ended September 30, 2023:

Allowance for Loan Losses:

Beginning balance

(Credit) Provision

Ending Balance

(Dollars in thousands)

and Industrial

As of and for the nine months ended September 30, 2023:

As of and for the three months ended March 31, 2024:

Allowance for Credit Losses:

Beginning balance December 31, 2022

CECL adoption adjustment

Beginning balance January 1, 2024

(Credit) Provision

Ending Balance

14 unchanged sentences

Allowance for Credit Losses:

Balance at December 31, 2022

CECL adoption adjustment

Beginning balance January 1, 2024

(Credit) Provision

Ending Balance

10 unchanged sentences

evaluated for impairment

The Company's activity in the allowance for credit losses on unfunded commitments for the nine months ended September 30, 2024 and 2023 was as follows:

(Dollars in thousands)

Balance at December 31

CECL adoption adjustment

Reserve for credit losses on unfunded commitments

Balance at September 30

The following table presents outstanding loan balances by loan class prior to allocation of net deferred fees and costs, as well as the balance of net loans after allocation of net deferred fees and costs, derivative fair value adjustment, and the allowance for credit losses as of September 30, 2024 and December 31, 2023.

(Dollars in thousands)

September 30,

Commercial and Industrial

State and Political Subdivisions

Net Deferred Fees and Costs

Allowance for Credit Losses

During the nine months ended September 30, 2024, two modifications were granted on loans to borrowers experiencing financial difficulty which carried a combined post modification recorded investment of $ 9,575,000 .

One modification of a loan to a borrower experiencing financial difficulty was granted during the three months ended September 30, 2024 to extend the maturity date of the loan by ten months .

The loan carried a post modification recorded investment of $ 120,000 .

The other loan modification granted on a loan to a borrower experiencing financial difficulty during the nine months ended September 30, 2024 was completed during the first quarter of 2024 and consisted of a payment modification which allowed a period of interest-only payments of six months.

This loan carried a post modification recorded investment of $ 9,455,000 .

There were no loan modifications granted to borrowers experiencing financial difficulty during the three or nine months ended September 30, 2023.

The outstanding recorded investment of loans to borrowers experiencing financial difficulty was $ 9,547,000 at September 30, 2024, compared to $ 0 at December 31, 2023.

There were no unfunded commitments on modified loans to borrowers experiencing financial difficulty as of September 30, 2024.

The following table presents the outstanding recorded investment of loans to borrowers experiencing financial difficulty at September 30, 2024.

There were no loan modifications granted to borrowers experiencing financial difficulty as of December 31, 2023.

The Company's activity in the allowance for credit losses on unfunded commitments for the three months ended March 31, 2025 and 2024 was as follows:

(Dollars in thousands)

September 30,

Balance at January 1

(Recapture) provision for credit losses on unfunded commitments

Balance at March 31

During the three months ended March 31, 2025, there were no modifications granted on loans to borrowers experiencing financial difficulty.

There was one loan modification granted on a loan to a borrower experiencing financial difficulty during the three months ended March 31, 2024 which was completed to allow a period of interest-only payments of six months and carried a post modification recorded investment of $ 9,455,000 .

The outstanding recorded investment of loans to borrowers experiencing financial difficulty was $ 10,193,000 at December 31, 2024.

There were no unfunded commitmenst on modified loans to borrowers experiencing financial difficulty as of December 31, 2024.

At December 31, 2024, there were no modifications of loans to borrowers experiencing financial difficulty that were not in compliance with the terms of there restructure.

There were no modifications granted on loans to borrowers experiencing financial difficulty during the three months ended March 31, 2025.

The following table presents the outstanding recorded investment and number of modifications of loans to borrowers experiencing financial difficulty at December 31, 2024.

December 31, 2024

Modifications of Loans to Borrowers Experiencing Financial Difficulty:

At September 30, 2024 there were no modifications of loans to borrowers experiencing financial difficulty that were not in compliance with the terms of their restructure.

Of the modifications of loans to borrowers experiencing financial difficulty that were completed during the twelve months preceding September 30, 2024, the loan carrying a post modification recorded investment of $ 9,455,000 experienced a payment default during the nine months ended September 30, 2024, but the loan was paid current by the customer as of September 30, 2024.

There were no payment defaults on modifications of loans to borrowers experiencing financial difficulty during the three months ended September 30, 2024.

The following table presents information regarding modifications of loans to borrowers experiencing financial difficulty that were completed during the three and nine months ended September 30, 2024.

There were no modifications of loans to borrowers experiencing financial difficulty completed during the three or nine months ended September 30, 2023.

(Dollars in thousands)

For the Three Months Ended September 30, 2024

Pre-Modification

Post-Modification

Recorded Investment

Subtotal - Real Estate:

Of the modifications of loans to borrowers experiencing difficulty that were completed during the twelve months preceding March 31, 2025, two loans experienced payment defaults during the three months ended March 31, 2025.

One loan carrying a balance of $ 120,000 experienced a payment default during the three months ended March 31, 2025 but was paid current by the customer as of March 31, 2025.

A loan carrying a balance of $ 425,000 experienced a payment default during the three months ended March 31, 2025 and remained in past due status as of March 31, 2025.

Of the modifications of loans to borrowers experiencing financial difficulty that were completed during the twelve months preceding March 31, 2024, one loan carrying a balance of $ 9,455,000 experienced a payment default during the three months ended March 31, 2024 but was paid current by the customer as of March 31, 2024.

The following table presents information regarding modifications of loans to borrowers experiencing financial difficulty that were completed during the three months ended March 31, 2024.

There were no modifications of loans to borrowers experiencing financial difficulty completed during the three months ended March 31, 2025.

(Dollars in thousands)

For the Nine Months Ended September 30, 2024

For the Three Months Ended March 31, 2024

Pre-Modification

Post-Modification

The following table provides detail regarding the types of loan modifications made for borrowers experiencing financial difficulty during the three and nine months ended September 30, 2024.

There were no modifications of loans to borrowers experiencing financial difficulty completed during the three or nine months ended September 30, 2023.

For the Three Months Ended September 30, 2024

For the Nine Months Ended September 30, 2024

The recorded investment, unpaid principal balance, and the related allowance of the Company’s non-accrual loans are summarized below at September 30, 2024 and December 31, 2023:

The following table provides detail regarding the types of loan modifications made for borrowers experiencing financial difficulty during the three months ended March 31, 2024.

There were no modifications of loans to borrowers experiencing financial difficulty completed during the three months ended March 31, 2025.

For the Three Months Ended March 31, 2024

The recorded investment, unpaid principal balance, and the related allowance of the Company’s non-accrual loans are summarized below at March 31, 2025 and December 31, 2024:

(Dollars in thousands)

September 30, 2024

Commercial and Industrial

March 31, 2025

(Dollars in thousands)

December 31, 2024

Commercial and Industrial

The recorded investment represents the loan balance reflected on the consolidated balance sheets net of any charge-offs.

The unpaid balance is equal to the gross amount due on the loan.

The average recorded investment and interest income recognized for the Company’s non-accrual loans are summarized below for the three and nine months ended September 30, 2024 and 2023:

(Dollars in thousands)

For the Three Months Ended September 30, 2024

Commercial and Industrial

(Dollars in thousands)

For the Nine Months Ended September 30, 2024

Commercial and Industrial

(Dollars in thousands)

For the Three Months Ended September 30, 2023

Commercial and Industrial

(Dollars in thousands)

For the Nine Months Ended September 30, 2023

Commercial and Industrial

The following table presents the Company’s individually evaluated, collateral-dependent loans by segment as of September 30, 2024 and December 31, 2023.

The following table presents the Company’s individually evaluated, collateral-dependent loans by segment as of March 31, 2025 and December 31, 2024.

(Dollars in thousands)

September 30, 2024

Commercial and Industrial

March 31, 2025

Loan Segment/Collateral Type

1-4 Family Real Estate

Multifamily Real Estate

Owner Occupied, Non-Farm, Non-Residential Real Estate

Subtotal - Real Estate:

Agricultural:

Subtotal - Agricultural:

(Dollars in thousands)

December 31, 2024

Commercial and Industrial

At September 30, 2024 and December 31, 2023, there were no commitments to lend additional funds with respect to individually evaluated loans.

Total non-performing assets (which includes loans receivable on non-accrual status, foreclosed assets held for resale and loans past-due 90 days or more and still accruing interest) as of September 30, 2024 and December 31, 2023 were as follows:

Loan Segment/Collateral Type

1-4 Family Real Estate

Multifamily Real Estate

Owner Occupied, Non-Farm, Non-Residential Real Estate

Subtotal - Real Estate:

Agricultural:

Subtotal - Agricultural:

At March 31, 2025 and December 31, 2024, there were no commitments to lend additional funds with respect to individually evaluated loans.

Total non-performing assets (which includes loans receivable on non-accrual status, foreclosed assets held for resale and loans past-due 90 days or more and still accruing interest) as of March 31, 2025 and December 31, 2024 were as follows:

(Dollars in thousands)

September 30,

Commercial and Industrial

4 unchanged sentences

Total non-performing assets

There were no foreclosed assets held for resale at September 30, 2024 or December 31, 2023.

Consumer mortgage loans secured by residential real estate for which the Company has entered into formal foreclosure proceedings but for which physical possession has yet to be obtained amounted to $ 134,000 at September 30, 2024 and $ 138,000 at December 31, 2023.

These balances were not included in foreclosed assets held for resale at September 30, 2024 or December 31, 2023.

The following tables present the classes of the loan portfolio, including individually evaluated loans, summarized by past-due status at September 30, 2024 and December 31, 2023.

There were no foreclosed assets held for resale at March 31, 2025 or December 31, 2024.

When applicable, consumer mortgage loans secured by residential real estate for which the Company has entered into formal foreclosure proceedings but for which physical possession has yet to be obtained are not included in foreclosed asset balances.

The following tables present the classes of the loan portfolio, including individually evaluated loans, summarized by past-due status at March 31, 2025 and December 31, 2024.

(Dollars in thousands)

September 30, 2024:

March 31, 2025:

Commercial and Industrial

5 unchanged sentences

NOTE 5 — DEPOSITS

Major classifications of deposits at September 30, 2024 and December 31, 2023 consisted of:

Major classifications of deposits at March 31, 2025 and December 31, 2024 consisted of:

(Dollars in thousands)

September 30,

Non-interest bearing demand

3 unchanged sentences

Total deposits

Total deposits increased $ 39,470,000 to $ 1,019,909,000 as of September 30, 2024 due to increases in non-interest bearing demand deposits, interest bearing demand deposits and time deposits.

The increase in deposits was mainly the result of increased time deposits as the result of new higher rate CD promotions during the first nine months of 2024 which increased the balance of retail CDs by $ 33,251,000 and an increase of $ 4,930,000 in brokered CDs during the nine months ended September 30, 2024.

There was also a $ 22,277,000 increase in municipal deposits in 2024, offset by a decrease of $ 15,994,000 in savings during the nine months ended September 30, 2024.

NOTE 6 — BORROWINGS

1 unchanged sentence

Short-term borrowings include federal funds purchased, securities sold under agreements to repurchase, the Federal Discount Window, and Federal Home Loan Bank of Pittsburgh (“FHLB”) advances, which generally represent overnight or less than 30-day borrowings.

Short-term borrowings and weighted–average interest rates at September 30, 2024 and December 31, 2023 are as follows:

Short-term borrowings and weighted–average interest rates at March 31, 2025 and December 31, 2024 are as follows:

(Dollars in thousands)

September 30, 2024

March 31, 2025

December 31, 2024

13 unchanged sentences

The counterparty has the right to sell or repledge the investment securities.

The following table presents the short-term borrowings subject to an enforceable master netting arrangement or repurchase agreements as o September 30, 2024 and December 31, 2023.

The following table presents the repurchase agreements subject to enforceable master netting arrangements as of March 31, 2025 and December 31, 2024.

(Dollars in thousands)

Gross Amounts Not Offset in the Consolidated Balance Sheet

of Liabilities

September 30, 2024

Offset in the

Balance Sheet

March 31, 2025

Repurchase agreements (a)

1 unchanged sentence

Repurchase agreements (a)

(a) As of September 30, 2024 and December 31, 2023, the fair value of securities pledged in connection with repurchase agreements was $ 35,004,000 and $ 28,902,000 , respectively.

The following table presents the remaining contractual maturity of the master netting arrangement or repurchase agreements as of September 30, 2024:

(a) As of March 31, 2025 and December 31, 2024, the fair value of securities pledged in connection with repurchase agreements was $ 35,662,000 and $ 36,216,000 , respectively.

The following table presents the remaining contractual maturity of the master netting arrangement or repurchase agreements as of March 31, 2025:

(Dollars in thousands)

Remaining Contractual Maturity of the Agreements

September 30, 2024:

March 31, 2025:

Repurchase agreements and repurchase-to-maturity transactions:

3 unchanged sentences

The Company’s long-term borrowings consist of notes at fixed interest rates.

Upon any default, under the terms of a master agreement, FHLB may declare all indebtedness of the Company immediately due.

In addition, FHLB shall not be required to fund advances under any outstanding commitments.

As of September 30, 2024 and December 31, 2023, the Company’s long-term borrowings outstanding with the FHLB amounted to $ 102,000,000 and $ 122,000,000 , respectively.

Upon any default, under the terms of a master agreement, the FHLB may declare all indebtedness of the Company immediately due.

In addition, the FHLB shall not be required to fund advances under any outstanding commitments.

As of March 31, 2025 and December 31, 2024, the Company had $ 106,000,000 in long-term borrowings outstanding with the FHLB.

Irrevocable standby letters of credit may be issued to a customer/beneficiary by the FHLB on the Company’s behalf in order to secure public/municipal unit deposits, provide credit enhancement to certain transaction types, or to support payment obligations to third parties.

These irrevocable standby letters of credit are supported by an irrevocable and independent guarantee by the FHLB for the Company’s pledging obligation to secure public/municipal unit deposits which eliminates the need for the Company to pledge collateral in the amount necessary to secure these funds.

There were no irrevocable standby letters of credit which could be drawn on through FHLB’s close of business on September 30, 2024.

There were no irrevocable standby letters of credit which could be drawn on through the FHLB’s close of business on March 31, 2025 or December 31, 2024.

Any irrevocable standby letters of credit are issued as necessary in an amount appropriate to secure specific public/municipal unit deposits.

Under terms of a blanket agreement, collateral for the FHLB loans and letters of credit consists of certain qualifying assets of the Corporation’s banking subsidiary.

Under terms of a blanket agreement, collateral for the FHLB loans and letters of credit consists of certain qualifying assets of the Bank.

Principal qualifying assets are certain real estate mortgages and investment securities.

As of September 30, 2024, loans of $ 740,039,000 were pledged to FHLB which resulted in a FHLB maximum borrowing capacity of $ 517,200,000 .

As of September 30, 2024, no securities were pledged as collateral to FHLB to secure FHLB loans and letters of credit.

As of March 31, 2025, loans of $ 766,289,000 were pledged to the FHLB which resulted in a FHLB maximum borrowing capacity of $ 534,842,000 .

As of March 31, 2025, no securities were pledged as collateral to the FHLB to secure FHLB loans and letters of credit.

NOTE 7 — SUBORDINATED DEBT

11 unchanged sentences

The Company currently leases two branch banking facilities and one parcel of land under operating leases.

At September 30, 2024, right-of-use assets and lease liabilities were recorded related to these operating leases totaling $ 1,427,000 and $ 1,943,000 , respectively.

At March 31, 2025, right-of-use assets and lease liabilities were recorded related to these operating leases totaling $ 1,407,000 and $ 1,931,000 , respectively.

At December 31, 2024, right-of-use assets and lease liabilities stood at $ 1,400,000 and $ 1,920,000 , respectively, in the consolidated balance sheets.

Options to extend or terminate a lease may be included in our lease agreements.

When it is reasonably certain that we will exercise those options, the right-of-use asset and lease liability will reflect the renewal or termination option.

Options to extend or terminate a lease may be included in the Company’s lease agreements.

When it is reasonably certain that the Company will exercise those options, the right-of-use asset and lease liability will reflect the renewal or termination option.

No significant assumptions or judgements were made in determining whether a contract contained a lease or in the consideration of lease versus non-lease components.

None of the leases contained an implicit rate;

therefore, our incremental borrowing rate was used for each of the leases.

The Company recognized total operating lease costs for the nine months ended September 30, 2024 and 2023 of $ 142,000 and $ 167,000 , respectively.

therefore, the Company’s incremental borrowing rate was used for each of the leases.

The Company recognized total operating lease costs for the three months ended March 31, 2025 and 2024 of $ 48,000 and $ 53,000 , respectively.

Operating lease costs are included in occupancy, net in the accompanying statements of income.

Cash payments totaled $ 132,000 and $ 155,000 , respectively, for the nine months ended September 30, 2024 and 2023.

The following table displays the weighted-average term and discount rates for operating leases outstanding as of September 30, 2024 and December 31, 2023.

September 30,

Cash payments totaled $ 44,000 and $ 49,000 , respectively, for the three months ended March 31, 2025 and 2024.

The following table displays the weighted-average term and discount rates for operating leases outstanding as of March 31, 2025 and December 31, 2024.

Weighted-average term (years)

2 unchanged sentences

(Dollars in thousands)

September 30,

Minimum Lease Payments due:

13 unchanged sentences

The Company entered into four swap contracts effective September 20, 2023 and one additional swap contract effective September 4, 2024.

Fair Values of Derivative Instruments on the Statement of Financial Condition

The tables below present the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023:

Net Fair Values of Derivative Instruments on the Statement of Financial Condition

The tables below present the net fair value of the Company’s derivative financial instruments as well as the classification on the Consolidated Balance Sheets as of March 31, 2025 and December 31, 2024:

(Dollars in thousands)

September 30, 2024

March 31, 2025

Derivative Assets

10 unchanged sentences

Other Liabilities

The following table presents the derivative liabilities subject to an enforceable master netting arrangement as of September 30, 2024 and December 31, 2023:

The following table presents the derivative liabilities subject to an enforceable master netting arrangement as of March 31, 2025 and December 31, 2024:

Gross Amounts Not Offset in the Consolidated Balance Sheet

of Liabilities

(Dollars in thousands)

September 30, 2024

Offset in the

Presented in the

Balance Sheet

March 31, 2025

December 31, 2024

The following table presents the remaining contractual maturity of the master netting arrangements as of September 30, 2024:

The following table presents the remaining contractual maturity of the master netting arrangements as of March 31, 2025:

Remaining Contractual Maturity of the Agreements

(Dollars in thousands)

September 30, 2024:

March 31, 2025:

Derivative Assets

Derivative Liabilities

Total net derivatives

Fair Value Hedges of Interest Rate Risk

3 unchanged sentences

Such derivatives are used to hedge the changes in fair value of certain of its pools of fixed rate assets.

As of September 30, 2024, the Company had a total of two interest rate swaps with a combined notional amount of $ 50,000,000 hedging fixed-rate available-for-sale debt securities and one interest rate swap with a notional amount of $ 75,000,000 hedging fixed-rate loans.

As of September 30, 2024 and December 31, 2023, the following amounts were recorded on the balance sheet related to the cumulative basis adjustment for fair value hedges:

As of March 31, 2025, the Company had a total of two interest rate swaps with a combined notional amount of $ 50,000,000 hedging fixed-rate available-for-sale debt securities and one interest rate swap with a notional amount of $ 75,000,000 hedging fixed-rate loans.

As of March 31, 2025 and December 31, 2024, the following amounts were recorded on the balance sheet related to the cumulative basis adjustment for fair value hedges:

(Dollars in thousands)

September 30,

Carrying amount of hedged assets:

6 unchanged sentences

(Dollars in thousands)

September 30,

Cumulative amount of fair value hedging adjustment included in the carrying amount of assets:

2 unchanged sentences

Available-for-sale - MBS

The table below presents the pre-tax effects of the Company’s derivative instruments designated as fair value hedges on the Consolidated Statements of Income for the year-to-date periods ended September 30, 2024 and 2023:

(Dollars in thousands)

September 30,

Amount of loss recognized in other comprehensive loss

4 unchanged sentences

These interest rate products are designated as cash flow hedges.

As of September 30, 2024, the Company had a total of two interest rate swaps with a combined notional amount of $ 100,000,000 hedging specific short-term wholesale funding positions.

As of March 31, 2025, the Company had a total of two interest rate swaps with a combined notional amount of $ 100,000,000 hedging specific short-term wholesale funding positions.

For derivatives designated as cash flow hedges, the gain or loss on the derivatives is recorded in other comprehensive loss and subsequently reclassified into interest expense in the same period during which the hedged transaction affects earnings.

2 unchanged sentences

For cash flow hedges on the Company's short-term wholesale funding positions, amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s hedged variable rate short-term wholesale funding positions.

During the year-to-date period ended September 30, 2024, the Company reclassified $ 757,000 as a reduction in interest expense.

The table below presents the pre-tax effects of the Company’s derivative instruments designated as cash flow hedges on the Consolidated Statements of Income for the year-to-date periods ended September 30, 2024 and 2023:

During the year-to-date period ended March 31, 2025, the Company reclassified $ 1,000 as a reduction in interest expense.

(Dollars in thousands)

September 30,

Amount of loss recognized in other comprehensive loss

5 unchanged sentences

counterparty.

As of September 30, 2024 and December 31, 2023, the Company’s derivatives were in a net liability position resulting in the Company having collateral in the amount of $ 6,570,000 posted with the counterparty at September 30, 2024 and collateral in the amount of $ 4,650,000 posted with the counterparty at December 31, 2023.

As of March 31, 2025 and December 31, 2024, the Company’s derivatives were in a net liability position resulting in the Company having collateral in the amount of $ 6,570,000 posted with the counterparty at March 31, 2025 and December 31, 2024.

NOTE 10 — FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

8 unchanged sentences

The Company may require collateral or other security to support financial instruments with off-balance sheet credit risk.

The contract or notional amounts at September 30, 2024 and December 31, 2023 were as follows:

The contract or notional amounts at March 31, 2025 and December 31, 2024 were as follows:

(Dollars in thousands)

September 30, 2024

March 31, 2025

December 31, 2024

15 unchanged sentences

The ability of the majority of the Company’s customers to honor their contractual loan obligations is dependent on the economy and real estate market in this area.

At September 30, 2024, the Company had $ 836,213,000 in loans secured by real estate, which represented 89.5 % of total loans.

At March 31, 2025, the Company had $ 863,664,000 in loans secured by real estate, which represented 89.6 % of total loans.

The real estate loan portfolio is largely secured by lessors of residential buildings and dwellings, lessors of non-residential buildings, and lessors of hotels/motels.

As of September 30, 2024 and December 31, 2023, management is of the opinion that there were no concentrations exceeding 10% of total loans with regard to loans to borrowers who were engaged in similar activities that were similarly impacted by economic or other conditions.

As of March 31, 2025 and December 31, 2024, management is of the opinion that there were no concentrations exceeding 10% of total loans with regard to loans to borrowers who were engaged in similar activities that were similarly impacted by economic or other conditions.

As all financial instruments are subject to some level of credit risk, the Company requires collateral and/or guarantees for all loans.

25 unchanged sentences

Financial Assets Measured at Fair Value on a Recurring Basis

At September 30, 2024 and December 31, 2023, securities measured at fair value on a recurring basis and the valuation methods used are as follows:

At March 31, 2025 and December 31, 2024, securities measured at fair value on a recurring basis and the valuation methods used are as follows:

(Dollars in thousands)

September 30, 2024

March 31, 2025

Debt Securities Available-for-Sale:

39 unchanged sentences

There were no transfers between valuation levels in 2025 and 2024.

Individually evaluated loans measured at fair value on a nonrecurring basis as of September 30, 2024 and December 31, 2023 are as follows:

Individually evaluated loans measured at fair value on a nonrecurring basis as of March 31, 2025 and December 31, 2024 are as follows:

(Dollars in thousands)

Assets at September 30, 2024

Assets at March 31, 2025

Individually evaluated loans:

Commercial and Industrial

Total individually evaluated loans

2 unchanged sentences

Individually evaluated loans:

Commercial and Industrial

Total individually evaluated loans

Nonfinancial Assets Measured at Fair Value on a Nonrecurring Basis

There were no foreclosed assets held for resale measured at fair value on a nonrecurring basis at September 30, 2024 and December 31, 2023.

There were no foreclosed assets held for resale measured at fair value on a nonrecurring basis at March 31, 2025 and December 31, 2024.

The Company’s foreclosed asset valuation procedure requires an appraisal or a Certificate of Inspection, which considers the sales prices of similar properties in the proximate vicinity, to be completed periodically with the exception of those cases in which the Bank has obtained a sales agreement.

4 unchanged sentences

Quantitative Information about Level 3 Fair Value Measurements

September 30, 2024

March 31, 2025

Valuation Technique

20 unchanged sentences

(Dollars in thousands)

Fair Value Measurements at September 30, 2024

Fair Value Measurements at March 31, 2025

FINANCIAL ASSETS:

4 unchanged sentences

Accrued interest receivable

Derivative Assets

FINANCIAL LIABILITIES:

23 unchanged sentences

NOTE 12 — REVENUE RECOGNITION

In accordance with ASU 2014-09 Revenue from Contracts with Customers – Topic 606, and all subsequent ASUs that modified ASC 606, the main types of revenue contracts included in non-interest income within the consolidated statements of income are as follows:

In accordance with ASC 606, the main types of revenue contracts included in non-interest income within the consolidated statements of income are as follows:

Deposits related fees and service charges

Service charges and fees on deposits, which are included as liabilities in the consolidated balance sheets, consist of fees related to monthly fees for various retail and business checking accounts, automated teller machine (“ATM”) fees (charged for withdrawals by our deposit customers from other bank ATMs) and insufficient funds fees (“NSF”) (which are charged when customers overdraw their accounts beyond available funds).

Service charges and fees on deposits, which are included as liabilities in the consolidated balance sheets, consist of fees related to monthly fees for various retail and business checking accounts, ATM fees (charged for withdrawals by our deposit customers from other bank ATMs) and insufficient funds fees (“NSF”) (which are charged when customers overdraw their accounts beyond available funds).

All deposit liabilities are considered to have one-day terms and therefore related fees are recognized in income at the time when the services are provided to the customers.

The Company elected to adopt the practical expedient related to incremental costs of obtaining deposit contracts.

As such, any costs associated with acquiring the deposits, except for time deposits with maturities in excess of one year, are recognized as an expense within non-interest expense in the consolidated statements of income when incurred as the amortization period of the deposit liabilities that otherwise would have been recognized is one year or less.

As such, any costs associated with acquiring the deposits, except for certificate of deposits (“CDs”) with maturities in excess of one year, are recognized as an expense within non-interest expense in the consolidated statements of income when incurred as the amortization period of the deposit liabilities that otherwise would have been recognized is one year or less.

Wealth/Asset/Trust Management Fees

6 unchanged sentences

Wealth management fees are included within non-interest income in the consolidated statements of income.

As of September 30, 2024 and December 31, 2023, the fair value of

trust assets under management was $ 117,696,000 and $ 109,064,000 , respectively.

As of March 31, 2025 and December 31, 2024, the fair value of trust assets under management was $ 120,315,000 and $ 120,857,000 , respectively.

The costs of acquiring asset management customers are incremental and recognized within non-interest expense in the consolidated statements of income.

6 unchanged sentences

All expenses related to the settlement of debit card transactions (both point-of-sale and ATM) are recognized on a monthly basis and included in non-interest expense on the consolidated statements of income.

NOTE 13 — (LOSSES) EARNINGS PER SHARE

Basic (losses) earnings per share is computed by dividing net (loss) income by the weighted-average number of common shares outstanding for the period.

Diluted (losses) earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Corporation.

At September 30, 2024 and 2023, there were no potential common shares outstanding.

The following table sets forth the computation of basic and diluted (losses) earnings per share.

NOTE 13 — EARNINGS (LOSSES) PER SHARE

Basic earnings (losses) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period.

Diluted earnings (losses) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Corporation.

At March 31, 2025 and 2024, there were no potential dilutive common shares outstanding.

The following table sets forth the computation of basic and diluted earnings (losses) per share.

(In thousands, except earnings per share)

Three Months Ended

September 30,

Weighted-average common shares outstanding

Basic and diluted earnings per share

(In thousands, except earnings per share)

Nine Months Ended

September 30,

Net (loss) income

Net income (loss)

Weighted-average common shares outstanding

Basic and diluted (losses) earnings per share

Basic and diluted earnings (losses) per share

NOTE 14 — GOODWILL

2 unchanged sentences

In accordance with current accounting standards, goodwill is not amortized.

Goodwill totaled $ 0 at September 30, 2024 and $ 19,133,000 at December 31, 2023.

Impairment testing is performed on an annual basis, using either a qualitative or quantitative approach.

Goodwill totaled $ 0 at March 31, 2025 and December 31, 2024.

When applicable, impairment testing is performed on an annual basis, using either a qualitative or quantitative approach.

The assumptions used in the impairment test of goodwill are susceptible to change based on changes in economic conditions and other factors, including our stock price.

2 unchanged sentences

Due primarily to the decrease in the Company’s stock price during the first quarter of 2024 as a triggering event, management evaluated the need for an interim goodwill impairment analysis.

decrease prompted the Company to assess its goodwill utilizing a quantitative impairment test and determined it was more likely than not the fair value of the Company was less than the carrying amount as of March 31, 2024.

The decrease prompted the Company to assess its goodwill utilizing a quantitative impairment test and determined it was more likely than not the fair value of the Company was less than the carrying amount as of March 31, 2024.

Based on the results of the impairment test, the Company recorded a goodwill impairment charge of $ 19,133,000 effective March 31, 2024.

42 unchanged sentences

RESULTS OF OPERATIONS

Quarter ended September 30, 2024 compared to quarter ended September 30, 2023

First Keystone Corporation realized earnings for the three months ended September 30, 2024 of $1,507,000, an increase of $224,000 from the third quarter of 2023.

The increase in net income for the three months ended September 30, 2024 was primarily due to an increase in income from interest and fees on loans and interest and dividend income on securities.

On a per share basis, for the three months ended September 30, 2024, net income was $0.25 versus earnings of $0.21 for the same three month period of 2023.

Quarterly regular cash dividends amounted to $0.28 per share for the three months ended September 30, 2024 and 2023.

NET INTEREST INCOME

The major source of operating income for the Company is net interest income, defined as interest and loan fee income less interest expense.

In the three months ended September 30, 2024, interest income amounted to $18,242,000, an increase of $4,005,000 or 28.1% from the three months ended September 30, 2023, while interest expense amounted to $10,088,000 in the three months ended September 30, 2024, an increase of $2,735,000 or 37.2% from the three months ended September 30, 2023.

As a result, net interest income increased $1,270,000 or 18.4% to $8,154,000 from $6,884,000 for the same period in 2023.

The Company’s net interest margin for the three months ended September 30, 2024 was 2.42% compared to 2.23% for the same period in 2023.

The increase in net interest margin was primarily a result of increased interest and fees on loans and increased income on taxable securities.

PROVISION FOR CREDIT LOSSES

The provision for credit losses for the three months ended September 30, 2024 was $718,000, compared to the three months ended September 30, 2023, when the provision carried a credit balance of $370,000.

The increase in the provision for credit losses resulted from the Company’s analysis of the current loan portfolio, including historic losses, past-due trends, current economic conditions, loan portfolio growth, and other relevant factors.

The provision for credit losses for the three months ended September 30, 2024 is also reflective of management’s assessment of the continued credit risk associated with the uncertainty surrounding geopolitical and economic concerns.

Charge-off and recovery activity in the allowance for credit losses resulted in net charge-offs of $748,000 and net recoveries of $30,000 for the three months ended September 30, 2024 and 2023, respectively.

The increase in net charge-offs for the three months ended September 30, 2024 was mainly the result of $741,000 in aggregate charge-offs completed on four loans to a plastic processing company focused on non-post-consumer recycling.

See Allowance for Credit Losses on page 54 for further discussion.

NON-INTEREST INCOME

Total non-interest income was $1,860,000 for the three months ended September 30, 2024, as compared to $1,476,000 for the same period in 2023, an increase of $384,000, or 26.0%.

Net securities gains (losses) increased $233,000 to $146,000 for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

The increase in net securities gains (losses) was the result of recognizing $146,000 in net gains on held equity securities in the third quarter of 2024 compared to recognizing $87,000 in net losses on held equity securities during the same period in 2023.

Trust department income increased $9,000 or 3.9% to $240,000 for the three months ended September 30, 2024 as compared to the same period in 2023.

Service charges and fee income was $593,000 for the third quarter of 2024, an increase of $37,000 or 6.7% from the third quarter of 2023.

ATM fees and debit card income increased $18,000 or 3.2% to $574,000 for the three months ended September 30, 2024.

Bank owned life insurance income increased $15,000 or 10.0% for the three months ended September 30, 2024 mainly due to increased interest rates on the related policies.

Net gains on sales of mortgage loans was $40,000 for the third quarter of 2024, an increase of $30,000 or 300.0% as compared to the same period in 2023.

The increase was due to more loans sold and at a higher average gain in the third quarter of 2024 as compared to the third quarter of 2023.

Other non-interest income increased $42,000 or 79.2% to $95,000 for the three months ended September 30, 2024 due to higher retail investment income as a result of more income from annuities.

NON-INTEREST EXPENSE

Total non-interest expense was $7,820,000 for the three months ended September 30, 2024, as compared to $7,420,000 for the three months ended September 30, 2023.

Salaries and benefits amounted to $4,375,000 or 55.9% of total non-interest expense for the three months ended September 30, 2024, as compared to $4,020,000 or 54.2% for the three months ended September 30, 2023.

The increase was mainly due to increased salaries in the third quarter of 2024 as compared to the same period in 2023 in an effort to offer more competitive wages in our various markets, increase retention and support the Company’s growth, plus increased costs associated with employee health insurance.

Net occupancy, furniture and equipment, and computer expense amounted to $1,048,000 for the three months ended September 30, 2024, a decrease of $54,000 or 4.9% which was mainly due to decreased maintenance on software costs in the third quarter of 2024 as the result of various software systems no longer being in use in 2024 along with software implementation fees recognized in the third quarter of 2023.

Professional services increased $10,000 or 3.0% to $346,000 as of the quarter ended September 30, 2024 versus the same quarter of 2023.

Pennsylvania shares tax expense amounted to $314,000 for the three months ended September 30, 2024, an increase of $125,000 or 66.1% as compared to the three months ended September 30, 2023.

The increase was mainly due to the Company recording a true-up for Pennsylvania shares tax expense for the 2023 shares tax return in the third quarter of 2024 which resulted in $70,000 net expense, as compared to receiving a shares tax refund of $52,000 for the 2022 tax return in the third quarter of 2023.

Federal Deposit Insurance Corporation (“FDIC”) insurance expense amounted to $271,000 for the three months ended September 30, 2024, an increase of $96,000 or 54.9% as compared to the same period in 2023.

FDIC insurance expense varies with changes in net asset size, risk ratings, and FDIC derived assessment rates.

ATM and debit card fees expense amounted to $245,000 for the three months ended September 30, 2024, a decrease of $38,000 or 13.4% as compared to the three months ended September 30, 2023.

This decrease was a result of lower electronic funds transfer fees and the application of vendor credits in the third quarter of 2024 as compared to the same period in 2023.

Data processing expenses amounted to $232,000 for the three months ended September 30, 2024 as compared to $544,000 for the same period of 2023, a decrease of $312,000 or 57.4% mainly due to lower internet banking expenses as the result of a new vendor relationship for online banking and the application of vendor relationship credits resulting from contract negotiations.

Advertising expense amounted to $155,000 in the third quarter of 2024, an increase of $3,000 or 2.0% as compared to the three months ended September 30, 2023.

Other non-interest expense amounted to $834,000 for the three months ended September 30, 2024, an increase of $215,000 or 34.7% as compared to the three months ended September 30, 2023.

The increase was mainly the result of monthly amortization of a new low income housing partnership beginning in the fourth quarter of 2023.

Income tax benefit amounted to $31,000 for the three months ended September 30, 2024, as compared to income tax expense of $27,000 for the three months ended September 30, 2023, a decrease of $58,000.

The effective total income tax rate was (2.1)% for the three months ended September 30, 2024 as compared to 2.1% for the three months ended September 30, 2023.

The decrease in the effective tax rate was mainly due to more low-income housing tax credits.

The Company recognized $210,000 and $58,000 of tax credits from low-income housing partnerships in the three months ended September 30, 2024 and 2023, respectively.

Nine months ended September 30, 2024 compared to nine months ended September 30, 2023

First Keystone Corporation realized a loss for the nine months ended September 30, 2024 of $15,490,000, a decrease of $19,269,000 from the same period in 2023.

The decrease in net income for the nine months ended September 30, 2024 was primarily due to the Company recognizing a full goodwill impairment of $19,133,000 in the first quarter of 2024 as well as increases in interest paid on deposits, interest paid on long-term borrowings through the Federal Home Loan Bank, and increases in salaries and benefits expenses.

On a per share basis, net losses were $2.52 for the nine months ended September 30, 2024 versus earnings of $0.62 for the same period in 2023.

Cash dividends amounted to $0.84 per share for the nine months ended September 30, 2024 and 2023.

Quarter ended March 31, 2025 compared to quarter ended March 31, 2024

First Keystone Corporation realized earnings for the three months ended March 31, 2025 of $1,053,000, an increase of $19,430,000 from the first quarter of 2024.

The increase in net income for the three months ended March 31, 2025 was primarily due to the Company recognizing goodwill impairment expense of $19,133,000 during the first quarter of 2024.

On a per share basis, for the three months ended March 31, 2025, net income was $0.17 compared to a net loss of $3.00 per share for the same three month period of 2024.

Quarterly regular cash dividends amounted to $0.28 per share for the three months ended March 31, 2025 and 2024.

NET INTEREST INCOME

The major source of operating income for the Company is net interest income, defined as interest and loan fee income less interest expense.

For the nine months ended September 30, 2024, interest income amounted to $52,781,000, an increase of $11,586,000 or 28.1% from the nine months ended September 30, 2023, while interest expense amounted to $29,151,000 in the nine months ended September 30, 2024 an increase of $9,752,000 or 50.3% from the nine months ended September 30, 2023.

In the three months ended March 31, 2025, interest income amounted to $18,210,000, an increase of $1,264,000 or 7.5% from the three months ended March 31, 2024, while interest expense amounted to $9,440,000 in the three months ended March 31, 2025, a decrease of $31,000 or 0.3% from the three months ended March 31, 2024.

As a result, net interest income increased $1,295,000 or 17.3% to $8,770,000 from $7,475,000 for the same period in 2024.

The increase was primarily due to growth in commercial real estate loans and the purchase of higher yielding securities, offset by higher levels of interest paid to depositors to retain and grow deposit relationships as well as higher levels of long-term borrowings and brokered CDs leveraged for a balance sheet strategy.

The Company’s net interest margin for the nine months ended September 30, 2024 was 2.35% compared to 2.41% for same period in 2023.

The decrease in net interest margin was primarily a result of increased rates paid on deposit products, repurchase agreements, and long-term borrowings.

The Company’s net interest margin for the three months ended March 31, 2025 was 2.58% compared to 2.25% for the same period in 2024.

The increase in net interest margin was primarily a result of increased interest and fees on loans.

PROVISION FOR CREDIT LOSSES

The provision for credit losses for the nine months ended September 30, 2024 was $1,492,000, compared to the nine months ended September 30, 2023, when the provision carried a credit balance of $336,000.

The provision for credit losses for the three months ended March 31, 2025 and 2024 was $751,000 and $264,000, respectively.

The provision for credit losses for the nine months ended September 30, 2024 is also reflective of management’s assessment of the continued credit risk associated with the uncertainty surrounding geopolitical and economic concerns.

Charge-off and recovery activity in the allowance for credit losses resulted in net charge-offs of $760,000 and $2,000 for the nine months ended September 30, 2024 and 2023, respectively.

The increase in net charge-offs for the nine months ended September 30, 2024 was mainly the result of $741,000 in aggregate charge-offs completed during the third quarter of 2024 on four

loans to a plastic processing company focused on non-post-consumer recycling.

The provision for credit losses for the three months ended March 31, 2025 is also reflective of management’s assessment of the continued credit risk associated with the uncertainty surrounding geopolitical and economic concerns.

Charge-off and recovery activity in the allowance for credit losses resulted in net charge-offs of $355,000 and net recoveries of $7,000 for the three months ended March 31, 2025 and 2024, respectively.

The increase in net charge-offs for the three months ended March 31, 2025 was mainly the result of two charge-offs completed during the first quarter of 2025.

A charge-off of $116,000 was completed on a loan to a trucking transportation business and $245,000 was charged off on a loan to a manufacturer of hemp-based biodegradable plastic food containers.

See Allowance for Credit Losses on page 49 for further discussion.

NON-INTEREST INCOME

Total non-interest income was $4,825,000 for the nine months ended September 30, 2024, as compared to $4,467,000 for the same period in 2023, an increase of $358,000, or 8.0%.

ATM fees and debit card income increased $2,000 or 0.1% to $1,656,000 for the nine months ended September 30, 2024.

Service charges and fee income increased $34,000 or 2.1% for the nine months ended September 30, 2024.

Gains on sales of mortgage loans increased $24,000 or 54.5% due to more loans sold and at a higher average gain on individual loans sold in the first nine months of 2024 as compared to the same period in 2023.

Trust department income was $738,000 for the nine months ended September 30, 2024 an increase of $29,000 or 4.1% as compared to the same period in 2023 due to more new account openings in 2024.

Net securities gains (losses) increased $164,000 or 77.4% to net losses of $48,000 for the nine months ended September 30, 2024 as compared to net losses of $212,000 for the nine months ended September 30, 2023.

The increase was due to the Company recognizing $48,000 in net losses on held equity securities in the nine months ended September 30, 2024 as compared to recognizing $311,000 in net losses on held equity securities and $99,000 in net gains on the sales of debt securities in the nine months ended September 30, 2023.

Total non-interest income was $1,759,000 for the three months ended March 31, 2025, as compared to $1,344,000 for the same period in 2024, an increase of $415,000, or 30.9%.

Net securities losses decreased $98,000 to $86,000 for the three months ended March 31, 2025 as compared to $184,000 for the three months ended March 31, 2024.

The decrease in net securities losses was the result of an improvement in the mark-to-market adjustment on held equity securities during the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024.

Trust department income increased $17,000 or 7.0% to $261,000 for the three months ended March 31, 2025 as compared to the same period in 2024.

Service charges and fee income was $546,000 for the first quarter of 2025, an increase of $21,000 or 4.0% from the first quarter of 2024.

ATM fees and debit card income increased $26,000 or 5.0% to $543,000 for the three months ended March 31, 2025.

Bank owned life insurance income increased $3,000 or 1.9% for the three months ended March 31, 2024.

There were also gains from life insurance proceeds in the first quarter of 2025 in the amount of $235,000 as compared the first quarter of 2024 when no gains from life insurance proceeds were recognized.

Net gains on sales of mortgage loans were $20,000 for the first quarter of 2025, an increase of $9,000 or 81.8% as compared to the same period in 2024.

The increase was due to more loans sold in the first quarter of 2025 as compared to the first quarter of 2024.

Other non-interest income increased $6,000 or 8.7% to $75,000 for the three months ended March 31, 2025.

NON-INTEREST EXPENSE

Total non-interest expense was $42,631,000 for the nine months ended September 30, 2024, as compared to $22,330,000 for the nine months ended September 30, 2023.

Non-interest expense increased $20,301,000 or 90.9%.

Salaries and benefits amounted to $13,082,000 or 30.7% of total non-interest expense for the nine months ended September 30, 2024, as compared to $12,139,000 or 54.4% for the nine months ended September 30, 2023.

The increase was mainly due to a $481,000 increase in salaries in the first nine months of 2024 as compared to the same period in 2023 in an effort to offer more competitive wages in our various markets, increase retention and support the Company’s growth, plus increased costs associated with employee health insurance which were $291,000 greater for the nine months ended September 30, 2024, compared to the same period in 2023.

Net occupancy, furniture and equipment, and computer expense amounted to $3,160,000 for the nine months ended September 30, 2024, a decrease of $106,000 or 3.2%.

The decrease was mainly due to decreased maintenance on software costs in the first nine months of 2024 as the result of various software systems no longer being used in 2024 and software implementation fees recognized in the same period of 2023.

Professional services increased $128,000 or 11.5% to $1,245,000 for the nine months ended September 30, 2024.

The increase was mainly the result of increased annual audit fees and audit expenses relating to the adoption of CECL and goodwill impairment.

Pennsylvania shares tax expense amounted to $764,000 for the nine months ended September 30, 2024, an increase of $93,000 or 13.9% as compared to the nine months ended September 30, 2023.

This increase was mainly due to the Company recording a true-up for Pennsylvania shares tax expense for the 2023 shares tax return in the third quarter of 2023 which resulted in $70,000 net expense, as compared to receiving a shares tax refund of $52,000 in 2023 for the 2022 tax return.

FDIC insurance expense increased $148,000 or 28.0% for the nine months ended September 30, 2024.

Total non-interest expense was $8,649,000 for the three months ended March 31, 2025, as compared to $27,145,000 for the three months ended March 31, 2024.

The large decrease in total non-interest expense was due to a one-time goodwill impairment charge recognized by the Company in the first quarter of 2024 in the amount of $19,133,000.

Salaries and benefits amounted to $4,630,000 or 53.5% of total non-interest expense for the three months ended March 31, 2025, as compared to $4,554,000 or 16.8% of total non-interest expense for the three months ended March 31, 2024.

The increase was mainly due to increased salaries in the first quarter of 2025 as compared to the same period in 2024 in an effort to offer more competitive wages in our various markets, increase retention and support the Company’s growth.

Net occupancy, furniture and equipment, and computer expense amounted to $1,215,000 for the three months ended March 31, 2025, an increase of $129,000 or 11.9% which was mainly due to increased depreciation on furniture and equipment resulting from the replacement of the Bank’s ATM fleet and an increase in disaster recovery expense as the Bank put new disaster recovery systems in place in late 2024.

Professional services decreased $55,000 or 12.7% to $378,000 as of the quarter ended March 31, 2025 compared to the same quarter of 2024.

The decrease was due to higher audit expense recognized in the first quarter of 2024 related to the adoption of CECL and the goodwill impairment analysis.

Pennsylvania shares tax expense amounted to $221,000 for the three months ended March 31, 2025, an increase of $15,000 or 7.3% as compared to the three months ended March 31, 2024.

Federal Deposit Insurance Corporation (“FDIC”) insurance expense amounted to $309,000 for the three months ended March 31, 2025, an increase of $121,000 or 64.4% as compared to the same period in 2024.

FDIC insurance expense varies with changes in net asset size, risk ratings, and FDIC derived assessment rates.

ATM and debit card fees expense amounted to $725,000 for the nine months ended September 30, 2024, a decrease of $143,000 or 16.5% as compared to the nine months ended September 30, 2023.

This decrease was a result of lower electronic funds transfer expenses, decreased ATM fraud and the application of vendor credits in the first nine months of 2024 as compared to the same period in 2023.

Data processing expenses amounted to $756,000 for the nine months ended September 30, 2024, a decrease of $457,000 or 37.7% as compared to the nine months ended September 30, 2023.

This decrease was the result of lower internet banking expenses as the result of a new vendor

relationship for online banking and the application of vendor relationship credits in 2024 resulting from contract negotiations, along with implementation fees recognized in 2023.

Advertising expense increased $42,000 or 11.1% during the nine months ended September 30, 2024.

This increase was mainly due to the Bank marketing the new full-service Bethelehem branch, along with utilizing more television, digital and social media and billboard advertising in the first nine months of 2024 as compared to the same period of 2023.

The Company recognized goodwill impairment in the amount of $19,133,000 during the first nine months of 2024.

This was the result of goodwill impairment testing performed due to the decrease of the Company’s stock price during the first quarter of 2024 as a triggering event.

The goodwill impairment has no impact on regulatory capital ratios, liquidity or the Company’s cash balances.

Other non-interest expense amounted to $2,667,000 for the nine months ended September 30, 2024, an increase of $520,000 or 24.2% as compared to the nine months ended September 30, 2023.

The increase was mainly the result of monthly amortization of a new low income housing partnership beginning in the fourth quarter of 2023.

Management of the Company believes that investors’ understanding of the Company’s performance is enhanced by disclosing non-GAAP financial measures without the effects of the impairment as a reasonable basis for comparison of the Corporation’s ongoing results of operations.

ATM and debit card fees expense amounted to $247,000 for the three months ended March 31, 2025, an increase of $25,000 or 11.3% as compared to the three months ended March 31, 2024.

The increase was mainly due to increased electronic funds transfer fees and an increase in debit card loss expense in the first quarter of 2025.

Data processing expenses amounted to $357,000 for the three months ended March 31, 2025 as compared to $289,000 for the same period of 2024, an increase of $68,000 or 23.5% mainly due to increases in internet banking and core service fees.

Advertising expense amounted to $105,000 in the first quarter of 2025, an increase of $1,000 or 1.0% as compared to the three months ended March 31, 2024.

Other non-interest expense amounted to $1,187,000 for the three months ended March 31, 2025, an increase of $257,000 or 27.6% as compared to the three months ended March 31, 2024.

The increase was mainly the result of $307,000 related to a fraud write-off in the first quarter of 2025.

These non-GAAP measures should not be considered a substitute for GAAP-basis measures and results.

Our non-GAAP measures may not be comparable to non-GAAP measures of other companies.

The Company’s non-GAAP measures may not be comparable to non-GAAP measures of other companies.

The following Non-GAAP Reconciliation Schedule provides a reconciliation of these non-GAAP financial measures to the most closely analogous measure determined in accordance with GAAP.

NON-GAAP RECONCILIATION SCHEDULE

FIRST KEYSTONE CORPORATION AND SUBSIDIARY

FIRST KEYSTONE AND SUBSIDIARY

Three Months Ended

(Dollars in thousands)

September 30, 2024

September 30, 2023

Net interest income after provision for credit losses

1 unchanged sentence

Total non-interest expense

Income tax benefit (expense)

Net (loss) income

Income tax (expense) benefit

Net income (loss)

Other expense:

Goodwill impairment

Income tax expense

Income tax (expense) benefit

After tax adjustment to GAAP

Adjusted net income

Income tax benefit amounted to $178,000 for the nine months ended September 30, 2024, as compared to income tax expense of $490,000 for the nine months ended September 30, 2023, a decrease of $668,000.

The effective total income tax rate was 1.1% for the nine months ended September 30, 2024 as compared to 11.5% for the nine months ended September 30, 2023.

The decrease in the effective tax rate was mainly due to the goodwill impairment, as discussed in Note 14, which is nondeductible for tax purposes, offset by the tax benefit of tax-exempt income earned on securities and more low-income housing tax credits.

The Company recognized $630,000 and $174,000 of tax credits from low-income housing partnerships in the nine months ended September 30, 2024 and 2023, respectively.

Income tax expense amounted to $76,000 for the three months ended March 31, 2025, as compared to income tax benefit of $213,000 for the three months ended March 31, 2024, an increase of $289,000.

The effective total income tax rate was 6.7% for the three months ended March 31, 2025 as compared to 1.1% for the three months ended March 31, 2024.

The increase in the effective tax rate was mainly due to higher overall operating income in relation to tax-exempt income.

The Company recognized $210,000 of tax credits from low-income housing partnerships in the three months ended March 31, 2025 and 2024.

FINANCIAL CONDITION

Total assets increased to $1,438,693,000 as of September 30, 2024, an increase of $22,823,000 from year-end 2023.

Total assets increased to $1,435,230,000 as of March 31, 2025, an increase of $6,647,000 from year-end 2024.

Total assets as of December 31, 2024 amounted to $1,428,538,000.

Total debt securities available-for-sale increased $12,113,000 or 3.1% to $405,081,000 as of September 30, 2024 from December 31, 2023 mainly due to the execution of a balance sheet leverage strategy.

The increase was mainly due to the purchase of several higher yielding securities in the combined amount of $61,439,000 offset by calls, maturities, and principal paydowns during 2024.

Total loans increased $23,521,000 or 2.6% to $934,599,000 as of September 30, 2024 from December 31, 2023.

Real estate loans, the largest segment of the Company’s loan portfolio, increased by $24,720,000 during the nine months ended September 30, 2024.

This was offset by a decrease in State and Political loans of $1,773,000 during the nine months ended September 30, 2024 mainly due to a large paydown completed on a state and political loan.

Total deposits increased $39,470,000 or 4.0% to $1,019,909,000 as of September 30, 2024 from December 31, 2023.

The increase was mainly due to an increase in time deposits as the result of new higher rate CD promotions during the nine months ended September 30, 2024 which increased the balance of retail CDs by $33,251,000 and an increase of $4,930,000 in brokered CDs during the nine months ended September 30, 2024.

There was also a $22,277,000 increase in municipal deposits, offset by a decrease of $15,994,000 in savings during the nine months ended September 30, 2024.

Total debt securities available-for-sale decreased $11,141,000 or 2.9% to $379,147,000 as of March 31, 2025 from $390,288,000 at December 31, 2024 mainly due to $13,126,000 in maturities, paydowns, and calls completed during the three months ended March 31, 2025, offset by $1,988,000 in securities purchased during the same period.

Total loans increased $15,730,000 or 1.7% to $964,181,000 as of March 31, 2025 from December 31, 2024.

Real estate loans, the largest segment of the Company’s loan portfolio, increased by $11,863,000 during the three months ended March 31, 2025.

Total deposits decreased $487,000 or 0.1% to $1,045,393,000 as of March 31, 2025 from December 31, 2024, mainly due to a decrease of $6,088,000 in interest bearing deposits, offset by an increase of $5,601,000 in non-interest bearing deposits.

The Company continues to maintain and manage its asset growth.

The Company’s strong equity capital position provides an opportunity to further leverage its asset growth.

Total borrowings decreased in the nine months ended September 30, 2024 by $5,993,000 to $269,475,000 from $275,468,000 as of December 31, 2023.

Borrowings decreased mainly due to the maturity of a $20,000,000 long-term note in the third quarter of 2024 offset by higher balances of repurchase accounts which increased by $12,732,000 during the first nine months of 2024.

Total stockholders’ equity amounted to $107,344,000 at September 30, 2024, a decrease of $14,271,000 or 11.7% from December 31, 2023 due to a decrease in retained earnings as a result of the Company recognizing goodwill impairment of $19,133,000 in the first quarter of 2024.

Accumulated other comprehensive loss was $24,122,000 as of September 30, 2024, compared to $29,645,000 at December 31, 2023, an improvement of $5,523,000.

Total borrowings increased in the three months ended March 31, 2025 by $5,862,000 to $246,288,000 from $240,426,000 as of December 31, 2024.

Borrowings increased mainly due to the $15,730,000 in loan growth offset by the $11,141,000 decrease in debt securities available-for-sale of which the net impact was not supported by growth in the deposit portfolio.

Total stockholders’ equity amounted to $106,484,000 at March 31, 2025, a decrease of $298,000 or 0.3% from December 31, 2024 mainly due to a decrease in retained earnings of $688,000, offset by an improvement of $390,000 in accumulated other comprehensive loss.

SEGMENT REPORTING

3 unchanged sentences

By maintaining a healthy asset utilization rate, i.e., the volume of earning assets as a percentage of total assets, the Company maximizes income.

The earning asset ratio (average interest earning assets divided by average total assets) equaled 94.4% at September 30, 2024 and 93.1% at September 30, 2023.

The earning asset ratio (average interest earning assets divided by average total assets) equaled 95.0% at March 31, 2025 and 93.6% at March 31, 2024.

This indicates that the management of earning assets is a priority and non-earning assets, primarily cash and due from banks, fixed assets and other assets, are maintained at minimal levels.

The primary earning assets are loans and securities.

Our primary earning asset, total loans, increased to $934,599,000 as of September 30, 2024, up $23,521,000 or 2.6% since year-end 2023.

Our primary earning asset, total loans, increased to $964,181,000 as of March 31, 2025, up $15,730,000 or 1.7% since year-end 2024.

The loan portfolio continues to be well diversified.

Non-performing assets decreased since year-end 2023, and overall asset quality has remained consistent.

Total non-performing assets were $5,390,000 as of September 30, 2024, a decrease of $291,000, or 5.1% from $5,681,000 reported in non-performing assets as of December 31, 2023.

Total allowance for credit losses to total non-performing assets was 142.06% as of

September 30, 2024 and 121.90% at December 31, 2023.

Although non-performing assets increased since year-end 2024, overall asset quality has remained consistent.

Total non-performing assets were $5,930,000 as of March 31, 2025, an increase of $960,000, or 19.3% from $4,970,000 reported in non-performing assets as of December 31, 2024.

Total allowance for credit losses to total non-performing assets was 136.05% as of March 31, 2025 and 154.37% at December 31, 2024.

See the Non-Performing Assets section on page 50 for more information.

In addition to loans, another primary earning asset is our overall securities portfolio, which increased in size from December 31, 2023 to September 30, 2024 mainly due to the execution of a balance sheet leverage strategy.

Debt securities available-for-sale amounted to $405,081,000 as of September 30, 2024, an increase of $12,113,000 from year-end 2023.

The increase in debt securities available-for-sale is mainly due to the purchase of debt securities in the amount of $61,439,000, offset by calls and maturities of debt securities in the amount of $14,855,000 and paydowns on debt securities in the amount of $41,894,000 during the first three quarters of 2024.

Interest-bearing deposits in other banks increased as of September 30, 2024, to $10,087,000 from $7,551,000 at year-end 2023 due to increased balances due from the Federal Reserve Bank and the Federal Home Loan Bank, and increased balances held at PNC for derivative margin collateral.

Total loans increased to $934,599,000 as of September 30, 2024 as compared to $911,078,000 as of December 31, 2023.

In addition to loans, another primary earning asset is our overall securities portfolio, which decreased in size from December 31, 2024 to March 31, 2025 mainly due to normal activity in the securities portfolio.

Debt securities available-for-sale amounted to $379,147,000 as of March 31, 2025, a decrease of $11,141,000 from year-end 2024.

The decrease in debt securities available-for-sale is mainly due to $13,126,000 in principal paydowns, maturities, and calls, offset by $1,988,000 in securities purchased during the three months ended March 31, 2025.

Interest-bearing deposits in other banks increased as of March 31, 2025, to $8,308,000 from $7,321,000 at year-end 2024 mainly due to increased balances held at PNC for derivative margin collateral.

Total loans increased to $964,181,000 as of March 31, 2025 as compared to $948,451,000 as of December 31, 2024.

The table on page 20 provides data relating to the composition of the Company’s loan portfolio on the dates indicated.

Total loans increased by $15,730,000 or 1.7%.

The Real Estate portfolio increased $24,720,000 or 3.0% from $811,493,000 at December 31, 2023 to $836,213,000 at September 30, 2024.

The increase in the Real Estate portfolio for the nine months ended September 30, 2024 was mainly the result of an increase in utilization of existing real estate lines of credit of $11,425,000 and $73,603,000 in new loan originations, which were offset by loan payoffs of $29,443,000, along with regular principal payments and other typical fluctuations in the Real Estate portfolio.

The Agricultural portfolio increased $337,000 or 50.2% from $671,000 at December 31, 2023 to $1,008,000 at September 30, 2024.

The increase in the Agricultural portfolio for the nine months ended September 30, 2024 was mainly the result of four loans totaling $275,000 that were reclassed from the Commercial and Industrial portfolio to the Agricultural portfolio during the nine months ended September 30, 2024 and an increase of $65,000 in utilization of existing agricultural lines of credit, offset with regular principal payments and other typical fluctuations in the Agricultural portfolio.

During the nine months ended September 30, 2024, there was two new agricultural loans originated with an aggregate balance of $64,000 and one agricultural loan paid off with a balance of $46,000.

The Commercial and Industrial portfolio decreased $105,000 or 0.2% from $66,909,000 at December 31, 2023 to $66,804,000 at September 30, 2024.

The decrease was attributable to a decrease of $4,000,000 in utilization of existing commercial and industrial lines of credit, loan payoffs of $2,735,000, and regular principal payments and other typical amortization in the Commercial and Industrial portfolio, offset by $5,601,000 in new loan originations.

The Consumer portfolio increased $342,000 or 5.9% from $5,824,000 at December 31, 2023 to $6,166,000 at September 30, 2024.

The increase is mainly attributable to new loan originations of $2,246,000 and an increase of $9,000 in utilization of existing consumer lines of credit, offset by loan payoffs of $824,000 and regular principal payments.

The State and Political Subdivisions portfolio decreased $1,773,000 or 6.8% from $26,181,000 at December 31, 2023 to $24,408,000 at September 30, 2024.

The decrease is mainly the result of regular principal payments on state and political subdivisions loans completed during the nine months ended September 30, 2024, which were offset by an increase of $123,000 in the balance of an existing state and political subdivision line of credit resulting from a draw of $500,000 net with a paydown of $377,000, both completed during the nine months ended September 30, 2024.

The Real Estate portfolio increased $11,863,000 or 1.4% from $851,801,000 at December 31, 2024 to $863,664,000 at March 31, 2025.

The increase in the Real Estate portfolio for the three months ended March 31, 2025 was mainly the result of an increase of $33,233,000 in new loan originations, which were offset by a decrease in utilization of existing real estate lines of credit of $7,982,000 and loan payoffs of $13,190,000, along with regular principal payments and other typical fluctuations in the Real Estate portfolio.

The Agricultural portfolio increased $178,000 or 19.0% from $939,000 at December 31, 2024 to $1,117,000 at March 31, 2025.

The increase in the Agricultural portfolio for the three months ended March 31, 2025 was mainly the result of one new loan origination in the amount of $29,000 and two loans totaling $236,000 that were reclassed from the Commercial and Industrial portfolio to the Agricultural portfolio during the three months ended March 31, 2025, offset with a decrease of $38,000 in utilization of existing agricultural lines of credit and regular principal payments and other typical fluctuations in the Agricultural portfolio.

The Commercial and Industrial portfolio increased $1,118,000 or 1.7% from $67,105,000 at December 31, 2024 to $68,223,000 at March 31, 2025.

The increase was attributable to an increase of $2,172,000 in new loan originations and $2,219,000 in utilization of existing commercial and industrial lines of credit, offset by loan payoffs of $1,010,000 and regular principal payments and other typical amortization in the Commercial and Industrial portfolio.

The Consumer portfolio increased $85,000 or 1.3% from $6,459,000 at December 31, 2024 to $6,544,000 at March 31, 2025.

The increase is mainly attributable to new loan originations of $819,000, offset by a decrease of $70,000 in utilization of existing consumer lines of credit, loan payoffs of $274,000 and regular principal payments.

The State and Political Subdivisions portfolio increased $2,486,000 or 11.2% from $22,147,000 at December 31, 2024 to $24,633,000 at March 31, 2025.

The increase is mainly the result of two new loan originations totaling $2,571,000, offset by regular principal payments on state and political subdivisions loans completed during the three months ended March 31, 2025.

The Company continues to originate and sell certain long-term fixed rate residential mortgage loans, which conform to secondary market requirements, when the market pricing is favorable.

6 unchanged sentences

and $0 are graded Doubtful.

The rating is intended to represent the best assessment of risk available at a given point in time, based upon a review of the borrower’s financial statements, credit analysis, payment history with the

Bank, credit history and lender knowledge of the borrower.

See Note 4 — Loans and Allowance for Credit Losses for risk grading tables.

Overall, non-pass grades decreased $2,145,000 to $21,947,000 at September 30, 2024, as compared to $24,092,000 at December 31, 2023.

Real Estate non-pass grades decreased $1,594,000 to $21,790,000 as of September 30, 2024 as compared to $23,384,000 as of December 31, 2023.

Commercial and Industrial non-pass grades decreased $503,000 to $147,000 as of September 30, 2024 as compared to $650,000 as of December 31, 2023.

Consumer non-pass grades decreased $48,000 to $10,000 as of September 30, 2024 as compared to $58,000 as of December 31, 2023.

There were no Agricultural or State and Political Subdivision non-pass grades at September 30, 2024 or December 31, 2023.

Overall, non-pass grades decreased $632,000 to $27,202,000 at March 31, 2025, as compared to $27,834,000 at December 31, 2024.

Real Estate non-pass grades decreased $213,000 to $27,158,000 as of March 31, 2025 as compared to $27,371,000 as of December 31, 2024.

Commercial and Industrial non-pass grades decreased $423,000 to $34,000 as of March 31, 2025 as compared to $457,000 as of December 31, 2024.

Consumer non-pass grades increased $4,000 to $10,000 as of March 31, 2025 as compared to $6,000 as of December 31, 2024.

There were no Agricultural or State and Political Subdivision non-pass grades at March 31, 2025 or December 31, 2024.

The Company continues to internally underwrite each of its loans to comply with prescribed policies and approval levels established by its Board of Directors.

(Dollars in thousands)

September 30,

Commercial and Industrial

2 unchanged sentences

The allowance for credit losses constitutes the amount available to absorb losses within the loan portfolio.

As of September 30, 2024, the allowance for credit losses was $7,657,000 as compared to $6,925,000 as of December 31, 2023.

As of March 31, 2025, the allowance for credit losses was $8,068,000 as compared to $7,672,000 as of December 31, 2024.

The allowance for credit losses is established through a provision for credit losses charged to expenses.

9 unchanged sentences

On a quarterly basis, management evaluates the qualitative factors utilized in the calculation of the Company’s allowance for credit losses and various adjustments are made to these factors as deemed necessary at the time of evaluation.

During the first quarter of 2024, qualitative factors related to delinquency trends were decreased by eight basis points related to loans (a) secured by first liens, (b) secured by owner-occupied, non-farm, non-residential properties, and (c) other revolving credit plans.

Qualitative factors related to volume trends were increased by eight basis points related to loans secured by junior liens and decreased by eight basis points related to other revolving credit plans.

Qualitative factors related to collateral values were also increased by four basis points related to commercial and industrial loans during the first quarter of 2024.

During the second quarter of 2024, qualitative factors related to delinquency trends were increased by four basis points related to (a) loans secured by first liens and (b) loans secured by owner occupied, non-farm, non-residential properties, as well as increased by sixteen basis points related to (c) loans secured by other non-farm, non-residential properties.

Qualitative factors related to volume trends were also decreased by four basis points related to (a) other revolving credit plans and (b) automobile

loans during the second quarter of 2024.

During the third quarter of 2024, qualitative factors related to delinquency trends were increased by 4 basis points related to (a) revolving open-end loans and (b) other revolving credit plans, and increased by 8 basis points related to (c) automobile loans.

Qualitative factors related to delinquency trends were decreased by 4 basis points related to (a) loans secured by multifamily residential properties, (b) loans for agricultural production and other loans to farmers, (c) commercial and industrial loans, and (d) other consumer loans.

Qualitative factors related to volume trends decreased by 4 basis points related to (a) loans secured by farmland, (b) loans secured by junior liens, (c) loans secured by owner occupied, non-farm, non-residential properties, (d) loans secured by other non-farm non-residential properties, (e) other revolving credit plans, and (f) automobile loans.

The Analysis of Allowance for Credit Losses table contains an analysis of the allowance for credit losses indicating charge-offs and recoveries for the nine months ended September 30, 2024 and 2023.

Net charge-offs as a percentage of average loans was 0.08% and 0.00% for the nine months ended September 30, 2024 and 2023, respectively.

Net charge-offs amounted to $760,000 and $2,000 for the nine months ended September 30, 2024 and 2023, respectively.

The increase in net charge-offs for the nine months ended September 30, 2024 was mainly the result of $741,000 in aggregate charge-offs completed during the third quarter of 2024 on four loans to a plastic processing company focused on non-post-consumer recycling.

For the nine months ended September 30, 2024, the provision for credit losses was $1,492,000, compared to the nine months ended September 30, 2023, when the provision carried a credit balance of $336,000.

The following table summarizes the qualitative factor adjustments made during the quarter ended March 31, 2025.

Quarter Ended March 31, 2025:

Qualitative Factor

Basis Point Increase (Decrease)

Loans secured by first liens

Delinquency Trends

Loans secured by owner occupied, non-farm, non-residential properties

Delinquency Trends

Loans secured by other non-farm, non-residential properties

Delinquency Trends

Commercial and industrial loans

Delinquency Trends

Other revolving credit plans

Delinquency Trends

Automobile loans

Delinquency Trends

Other revolving credit plans

Volume Trends

Obligations of states and political subdivisions

Volume Trends

The Analysis of Allowance for Credit Losses table contains an analysis of the allowance for credit losses indicating charge-offs and recoveries for the three months ended March 31, 2025 and 2024.

Net charge-offs as a percentage of average loans was 0.037% for the three months ended March 31, 2025, compared to net recoveries of 0.001% for the three months endede March 31, 2024.

Net charge-offs amounted to $355,000 for the three months ended March 31, 2025 and net recoveries amounted to $7,000 for the three months ended March 31, 2024.

The increase in net charge-offs for the three months ended March 31, 2025 was mainly the result of two charge-offs completed during the three months ended March 31, 2025, one in the amount of $116,000 on a loan to a trucking transportation business and $245,000 on a loan to a manufacturer of hemp-based biodegradable plastic food containers and utensils.

For the three months ended March 31, 2025, the provision for credit losses was $751,000, compared to the three months ended March 31, 2024, when the provision carried a balance of $264,000.

The provision, net of charge-offs and recoveries, resulted in the quarter end allowance for credit losses of $8,068,000, of which 93.9% was attributed to the Real Estate component, 0.0% attributed to the Agricultural component, 4.2% attributed to the Commercial and Industrial component, 1.2% attributed to the Consumer component, and 0.7% attributed to the State and Political Subdivisions component (refer to the activity in Note 4 – Loans and Allowance for Credit Losses on page 13).

1 unchanged sentence

(Dollars in thousands)

September 30,

As of and for the nine months ended:

Balance at prior year-end

CECL adoption adjustment

As of and for the year ended:

Beginning Balance

13 unchanged sentences

A detailed quarterly analysis to determine the adequacy of the Company’s allowance for credit losses is reviewed by the Board of Directors.

With the Bank’s manageable level of net charge-offs and recoveries along with the additions to the reserve from the provision out of operations, the allowance for credit losses as a percentage of year-to-date average loans amounted to 0.84% and 0.79% at September 30, 2024 and 2023, respectively.

With the Bank’s manageable level of net charge-offs and recoveries along with the additions to the reserve from the provision out of operations, the allowance for credit losses as a percentage of year-to-date average loans amounted to 0.844% and 0.793% at March 31, 2025 and 2024, respectively.

NON-PERFORMING ASSETS

1 unchanged sentence

Generally, a loan is classified as non-accrual and the accrual of interest on such a loan is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest.

A loan may remain on accrual status if it is in the process of

collection and is either guaranteed or well secured.

When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against current period income.

A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured.

When a loan is placed on non-accrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against current period

Foreclosed assets held for resale represent property acquired through foreclosure, or considered to be an in-substance foreclosure.

Total non-performing assets amounted to $5,390,000 as of September 30, 2024, as compared to $5,681,000 as of December 31, 2023.

The economic growth for the third quarter of 2024 was higher than expected.

Total non-performing assets amounted to $5,930,000 as of March 31, 2025, as compared to $4,970,000 as of December 31, 2024.

The economic growth for the first quarter of 2025 was higher than expected.

Consumer spending remains at high levels.

The inflation rate dropped to 2.5%, still above the Federal Reserve Board’s desired rate of 2.0%.

Business sentiment saw a slight rise as rates were lowered during the third quarter.

However, there is still much consternation regarding the looming Presidential election.

The inflation rate remained high in March at 2.4%, above the Federal Reserve Board’s desired rate of 2.0%.

Business sentiment saw a slight improvement as rates were lowered during the fourth quarter of 2024.

This was stalled in the first quarter of 2025, as inflation remained high and imposed tariffs threatened to push inflation higher.

Additionally, mass layoffs from the federal government increased unemployment levels.

Many economists and influential thinkers still believe that the economy is moving forward in spite of certain forecasts and predictors.

The thought of a recession, however, has lessened.

Inflation is receding, although not as fast as the Federal Reserve would like.

The general thought is that the Federal Reserve will cut rates two more times during the remainder of 2024 by 25 basis points and then continue the rate cuts into 2025.

This will all depend on continued decline of the inflation rate, the results of the election, and the unemployment landscape.

The concern of a recession, however, has lessened.

Inflation had been receding in the middle of 2024, although it has seen a slow but steady rise in the last few quarters.

This has the Federal Reserve looking very cautiously at their next move.

This will all depend on which direction inflation and unemployment rates are trending.

The war between Ukraine and Russia continues to deeply pierce the landscape of the world.

The heightened conflict with Israel and Palestine has caused much hostility throughout the world and is becoming increasingly more volatile.

This has only fueled the college campuses and centers of influence throughout the US with protests that have become heated and violent.

The heightened conflict with Israel and Palestine has caused much hostility throughout the world.

The continuing dispute over whether to continue US support of Ukraine and Israel in ongoing efforts has been a strain on the economy.

5 unchanged sentences

Labor continues to remain costly and unpredictable.

The pending Presidential election has proven to be very divisive.

These forces have had a direct effect on the Corporation’s non-performing assets.

The Corporation is closely monitoring all segments of its loan portfolio because of the current uncertain economic environment.

Non-accrual loans totaled $3,559,000 as of September 30, 2024, as compared to $4,616,000 as of December 31, 2023.

There were no foreclosed assets held for resale as of September 30, 2024 and December 31, 2023.

There were seven loans past-due 90 days or more and still accruing interest at September 30, 2024 that carried a balance of $1,831,000, compared to December 31, 2023 when there were five loans past-due 90 days or more and still accruing interest which carried an aggregate balance of $1,065,000.

The loans past-due 90 days or more and still accruing interest as of September 30, 2024 were secured by commercial and residential real estate, all of which were well secured and in the process of collection.

Non-performing assets to total loans was 0.58% at September 30, 2024 and 0.62% at December 31, 2023.

Non-performing assets to total assets was 0.37% at September 30, 2024 and 0.40% at December 31, 2023.

The allowance for credit losses to total non-performing assets was 142.06% as of September 30, 2024 as compared to 121.90% as of December 31, 2023.

These forces have had a direct effect on the Company’s non-performing assets.

The Company is closely monitoring all segments of its loan portfolio because of the current uncertain economic environment.

Non-accrual loans totaled $4,718,000 as of March 31, 2025, as compared to $4,214,000 as of December 31, 2024.

There were no foreclosed assets held for resale as of March 31, 2025 and December 31, 2024.

There were ten loans past-due 90 days or more and still accruing interest at March 31, 2025 that carried an aggregate balance of $1,212,000, compared to December 31, 2024 when there were six loans past-due 90 days or more and still accruing interest which carried an aggregate balance of $756,000.

The loans past-due 90 days or more and still accruing interest as of March 31, 2025 were secured by commercial real estate, residential real estate, and other commercial business assets, all of which were well secured and in the process of collection.

Non-performing assets to total loans was 0.62% at March 31, 2025 and 0.52% at December 31, 2024.

Non-performing assets to total assets was 0.41% at March 31, 2025 and 0.35% at December 31, 2024.

The allowance for credit losses to total non-performing assets was 136.05% as of March 31, 2025 as compared to 154.37% as of December 31, 2024.

Additional detail can be found on page 53 in the Non-Performing Assets and Individually Evaluated Loans table and page 28 in the Non-Performing Assets table.

1 unchanged sentence

Performing substandard loans, which have not been designated for individual evaluation to determine expected credit losses, have characteristics that cause management to have doubts regarding the ability of the borrower to perform under present loan repayment terms and which may result in reporting these loans as non-performing loans in the future.

Performing substandard loans not designated for individual impairment amounted to $16,416,000 at September 30, 2024 and $19,418,000 at December 31, 2023.

Individually evaluated loans were $3,868,000 at September 30, 2024, compared to $4,925,000 at December 31, 2023.

The largest individually evaluated loan relationship at September 30, 2024 consisted of a non-performing loan to a student housing holding company which is secured by commercial real estate.

At September 30, 2024, the loan carried a balance of $1,953,000, net of $1,989,000 that had been charged off to date.

The second largest individually evaluated loan relationship at September 30, 2024 consisted of a non-performing loan to the owner of a golf course and catering venue which is secured by commercial real estate.

At September 30, 2024, the loan carried a balance of $582,000.

third largest individually evaluated loan relationship at September 30, 2024 consisted of a commercial term loan for agriculture purpose which is secured by stock.

At September 30, 2024, the loan carried a balance of $309,000.

Performing substandard loans not designated for individual evaluation amounted to $20,928,000 at March 31, 2025 and $20,080,000 at December 31, 2024.

Individually evaluated loans were $5,027,000 at March 31, 2025, compared to $4,523,000 at December 31, 2024.

The largest individually evaluated loan relationship at March 31, 2025 consisted of a non-performing loan to a student housing holding company which is secured by commercial real estate.

At March 31, 2025, the loan carried a balance of $1,603,000, net of $1,989,000 that had been charged off to date.

The second largest individually evaluated loan relationship at March 31, 2025 consisted of two non-performing loans granted to an individual for the purpose of renovating a multi-use property slated to be converted into apartments and a retail storefront.

Both loans are secured by commercial real estate, and carried an aggregate balance of $1,441,000 at March 31, 2025.

The third largest individually evaluated loan relationship at March 31, 2025 consisted of a non-performing loan to the owner of a golf course and catering venue which is secured by commercial real estate.

At March 31, 2025, the loan carried a balance of $582,000.

The Company determines the need for individual evaluation of loans based on its analysis of the cash flows or collateral estimated at fair value less cost to sell.

For collateral dependent loans, the estimated appraisal or other qualitative adjustments and cost to sell percentages are determined based on the market area in which the real estate securing the loan is located, among other factors, and therefore, can differ from one loan to another.

Of the $3,868,000 in individually evaluated loans at September 30, 2024, none were located outside of the Company’s primary market area.

The outstanding recorded investment of modified loans to borrowers experiencing financial difficulty as of September 30, 2024 amounted to $9,547,000 and was classified in the Real Estate portfolio.

There were no loan modifications completed with respect to borrowers experiencing financial difficulty during the year ended December 31, 2023.

The loan modifications to borrowers experiencing financial difficulty as of September 30, 2024 consisted of a payment modification which allowed a period of interest-only payments of six months and term modification which allowed the extension of the maturity date of a loan by ten months.

There were no unfunded commitments on modified loans to borrowers experiencing financial difficulty and all modified loans to borrowers experiencing financial difficulty were in compliance with restructure terms as of September 30, 2024.

Of the modifications of loans to borrowers experiencing financial difficulty that were completed during the twelve months preceding September 30, 2024, a loan carrying a post modification recorded investment of $9,455,000 experienced a payment default during the nine months ended September 30, 2024, but the loan was paid current by the customer as of September 30, 2024.

Of the $5,027,000 in individually evaluated loans at March 31, 2025, none were located outside of the Company’s primary market area.

There were no modifications of loans to borrowers experiencing financial difficulty completed during the three months ended March 31, 2025.

The outstanding recorded investment of modified loans to borrowers experiencing financial difficulty as of December 31, 2024 amounted to $10,193,000, with $10,019,000 classified in the Real Estate portfolio and $174,000 classified in the Commercial and Industiral portfolio.

The loan modifications to borrowers experiencing financial difficulty as of December 31, 2024 consisted of term modifictions on two loans which allowed an extension of the maturity date for each respective loan, one payment modification which allowed a period of interest-only payments on the loan, and one loan experienced the release of a piece of collateral securing the loan.There were no unfunded commitments on modified loans to borrowers experiencing financial difficulty as of December 31, 2024.

At December 31, 2024, there were no modifications of loans to borrowers experiencing financial difficulty that were not in compliance with the terms of their restructure.

Of the modifications of loans to borrowers experiencing financial difficulty that were completed during the twelve months preceding March 31, 2025, there were two loans that experienced payment defaults during the three months ended March 31, 2025.

One loan carrying a balance of $120,000 experienced a payment default during the three months ended March 31, 2025 but was paid current by the customer as of March 31, 2025.

A loan carrying a balance of $425,000 experienced a payment default during the three months ended March 31, 2025 and remained in past due status as of March 31, 2025.

Of the modifications of loans to borrowers experiencing financial difficulty that were completed during the twelve months preceding March 31, 2024, one loan carrying a balance of $9,455,000 experienced a payment default during the three months ended March 31, 2024, but the loan was paid current by the customer as of March 31, 2024.

The Company’s non-accrual loan valuation procedure for any loans greater than $250,000 requires an appraisal to be obtained and reviewed annually at year end, unless the Board of Directors waives such requirement for a specific loan, in favor of obtaining a Certificate of Inspection instead, defined as an internal evaluation completed by the Company.

3 unchanged sentences

The Company actively works with borrowers to resolve credit problems and will continue its close monitoring efforts in 2025.

Excluding the assets disclosed in the Non-Performing Assets and Individually Evaluated Loans table below, management is not aware of any information about borrowers’ possible credit problems which cause serious doubt as to their ability to comply with present loan repayment terms.

Excluding the assets disclosed in the Non-Performing Assets and Individually Evaluated Loans table below and the Non-Performing Assets table in Note 4 – Loans and Allowance for Credit Losses, management is not aware of any information about borrowers’ possible credit problems which cause serious doubt as to their ability to comply with present loan repayment terms.

In addition, regulatory authorities, as an integral part of their examinations, periodically review the allowance for possible loan losses.

1 unchanged sentence

The economic climate remains unstable.

The war between Ukraine and Russia moves into its third year and the Israeli conflict in the Gaza strip has intensified and incited worldwide hostilities.

Inflationary pressures remain elevated;

although they are moving closer to the Federal Reserve’s bench mark rate.

This continues to create much debate and concern regarding the appropriate steps to be taken to overcome the effects of monetary policy adjustments that have been and will be made to affect the change.

The looming Presidential election and the legal issues that permeate the leading Presidential candidates, along with the intense political turmoil, commodity prices have remained high even as inflationary pressures have eased, gas prices fluctuating widely from week to week, small businesses closing, larger corporations cutting jobs, unprecedented weather conditions seen around the world, and the uncertainty of where the Federal Reserve may go from here in regards of rate reductions or increases have all exacerbated the difficulties in the national and state economy.

The war between Ukraine and Russia moves into its fourth year and the Israeli conflict in the Gaza strip has intensified and incited worldwide hostilities.

Inflationary pressures remain elevated and have seen an increase in the last few months based in large part on newly enacted presidential policies.

This continues to create much debate, speculation, and concern regarding the appropriate actions to be taken to overcome the effects of monetary policy adjustments, tariffs, and mass federal layoffs, that have been and will be made to affect the change.

Intense political turmoil, commodity prices remaining high, gas prices fluctuating widely from week to week, small businesses closing, larger corporations cutting jobs, unprecedented weather conditions seen around the world, and

the uncertainty of where the Federal Reserve may go from here in regards to rates have all exacerbated the difficulties in the national and state economy.

Experts at all levels continue to ascertain the intermediate or long term effects of such issues.

The Corporation may experience difficulties collecting payments on time from its borrowers, and certain types of loans may need to be modified, which could cause a rise in the level of individually evaluated loans, non-performing

assets, charge-offs, and delinquencies.

Should such metrics increase, additions to the balance of the Corporation’s allowance for credit losses could be required.

The extent of the impact of these stressors on the Corporation’s operational and financial performance will depend on certain developments including reactions to inflationary controls enacted, the labor force, the longevity of the wars, the ongoing political landscape and Presidential election, and the looming worldwide discord, and any after-effects of these factors.

These factors may not immediately impact the Corporation’s operational and financial performance, as the effects of these factors may lag into the future.

The Corporation is also susceptible to the impact of economic and fiscal policy factors that may evolve in the current economic environment.

The Company may experience difficulties collecting payments on time from its borrowers, and certain types of loans may need to be modified, which could cause a rise in the level of individually evaluated loans, non-performing assets, charge-offs, and delinquencies.

Should such metrics increase, additions to the balance of the Company’s allowance for credit losses could be required.

The extent of the impact of these stressors on the Company’s operational and financial performance will depend on certain developments including reactions to inflationary controls enacted, the labor force, the longevity of the wars, the ongoing political landscape, and the looming worldwide discord, and any after-effects of these factors.

These factors may not immediately impact the Company’s operational and financial performance, as the effects of these factors may lag into the future.

The Company is also susceptible to the impact of economic and fiscal policy factors that may evolve in the current economic environment.

A concentration of credit exists when the total amount of loans to borrowers, who are engaged in similar activities that are similarly impacted by economic or other conditions, exceed 10% of total loans.

As of September 30, 2024 and December 31, 2023, management is of the opinion that there were no loan concentrations exceeding 10% of total loans.

As of March 31, 2025 and December 31, 2024, management is of the opinion that there were no loan concentrations exceeding 10% of total loans.

Non-Performing Assets and Individually Evaluated Loans

(Dollars in thousands)

September 30,

Non-performing assets

18 unchanged sentences

Allowance for credit losses to total non-performing assets

Real estate mortgages comprise 89.5% of the loan portfolio as of September 30, 2024, as compared to 89.1% as of December 31, 2023.

Real estate mortgages comprise 89.6% of the loan portfolio as of March 31, 2025, as compared to 89.8% as of December 31, 2024.

Real estate mortgages consist of both loans secured by residential and commercial real estate.

4 unchanged sentences

The Company’s loss exposure on its individually evaluated loans continues to be mitigated by collateral positions on these loans.

The allocated allowance for credit losses associated with individually evaluated loans is generally computed based upon the related collateral value of the loans.

The allocated allowance for credit losses associated with

individually evaluated loans is generally computed based upon the related collateral value of the loans.

The collateral values are determined by recent appraisals or Certificates of Inspection, but are generally discounted by management based on historical dispositions, changes in market conditions since the last valuation and management’s expertise and knowledge of the borrower and the borrower’s business.

DEPOSITS, OTHER BORROWED FUNDS AND SUBORDINATED DEBT

Consumer and commercial retail deposits are attracted primarily by the Bank’s nineteen full service office locations and through its internet banking presence.

The Bank offers a broad selection of deposit products and continually evaluates its interest rates and fees on deposit products.

The Bank regularly reviews competing financial institutions’ interest rates, especially when establishing interest rates on certificates of deposit and municipal deposits.

Total deposits increased $39,470,000 to $1,019,909,000 as of September 30, 2024 as non-interest bearing deposits increased by $13,468,000 and interest bearing deposits increased by $26,002,000 from year-end 2023.

The increase in deposits was mainly the result of an increase in time deposits of $33,251,000 as the result of new higher rate CD promotions during the first nine months of the year and an increase of $4,930,000 in brokered CDs, along with a $22,277,000 increase in municipal deposits.

This was offset by a decrease in savings of $15,994,000 during the first nine months of 2024.

Total short-term and long-term borrowings decreased to $269,475,000 as of September 30, 2024, from $275,468,000 at year-end 2023, a decrease of $5,993,000 or 2.2%.

Total borrowings decreased as a result of increased deposit balances since year-end.

Consumer and commercial retail deposits are attracted primarily by the Company’s nineteen full service office locations and through its internet banking presence.

The Company offers a broad selection of deposit products and continually evaluates its interest rates and fees on deposit products.

The Company regularly reviews competing financial institutions’ interest rates, especially when establishing interest rates on certificates of deposit and municipal deposits.

Total deposits decreased $487,000 to $1,045,393,000 as of March 31, 2025 as non-interest bearing deposits increased by $5,601,000 and interest bearing deposits decreased by $6,088,000 from year-end 2024.

The overall decrease in interest bearing deposits was mainly the result of a decrease in interest bearing demand deposits of $28,439,000 and a decrease of $9,355,000 in savings deposits, offset by an increase of $31,493,000 in the balance of time deposits as the result of new higher rate CD promotions during the first three months of 2025.

Total short-term and long-term borrowings increased to $246,288,000 as of March 31, 2025, from $240,426,000 at year-end 2024, an increase of $5,862,000 or 2.4%.

Total borrowings increased mainly as a result of the lack of growth in the deposit portfolio from year-end 2024.

On December 10, 2020, the Corporation issued $25,000,000 aggregate principal amount of Subordinated Notes due December 31, 2030 (the “2020 Notes”).

3 unchanged sentences

Normal increases in capital are generated by net income, less dividends paid out.

During the nine months ended September 30, 2024, net loss and continued payment of dividends decreased capital by $20,659,000.

During the three months ended March 31, 2025, continued payment of dividends net against net income for the period decreased capital by $688,000.

Accumulated other comprehensive loss derived from net unrealized gains on debt securities available-for-sale and interest rate derivatives also impacts capital.

At December 31, 2024 accumulated other comprehensive loss was $25,630,000.

Accumulated other comprehensive loss stood at $24,122,000 at September 30, 2024, an improvement of $5,523,000.

Accumulated other comprehensive loss stood at $25,240,000 at March 31, 2025, an improvement of $390,000.

Fluctuations in interest rates have regularly impacted the gain/loss position in the Bank’s securities portfolio, as well as its decision to sell securities at a gain or loss.

The fluctuations from net unrealized gains on debt securities available-for-sale and derivatives do not affect regulatory capital, as the Bank elected to opt-out of the inclusion of this item with the filing of the March 31, 2015 Call Report.

The Company held 231,611 shares of common stock as treasury stock at September 30, 2024 and December 31, 2023, respectively.

This had an effect of reducing our total stockholders’ equity by $5,709,000 as of September 30, 2024 and December 31, 2023.

Total stockholders’ equity was $107,344,000 as of September 30, 2024, and $121,615,000 as of December 31, 2023.

At September 30, 2024 the Bank met the definition of a “well-capitalized” institution under the regulatory framework for prompt corrective action and the minimum capital requirements under Basel III.

The following table presents the Bank’s capital ratios as of September 30, 2024 and December 31, 2023:

The Company held 231,611 shares of common stock as treasury stock at March 31, 2025 and December 31, 2024, respectively.

This had an effect of reducing our total stockholders’ equity by $5,709,000 as of March 31, 2025 and December 31, 2024.

Total stockholders’ equity was $106,484,000 as of March 31, 2025, and $106,782,000 as of December 31, 2024.

At March 31, 2025 the Bank met the definition of a “well-capitalized” institution under the regulatory framework for prompt corrective action and the minimum capital requirements under Basel III.

The following table presents the Bank’s capital ratios as of March 31, 2025 and December 31, 2024:

Minimum Capital

September 30,

Adequacy with

8 unchanged sentences

The capital buffer requirement effectively raises the minimum required common equity Tier 1 capital ratio to 7.0%, the Tier 1 capital ratio to 8.5%, and the total capital ratio to 10.5% on a fully phased-in basis as of January 1, 2019.

As of September 30, 2024, the Bank meets all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis.

As of March 31, 2025, the Bank meets all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis.

The Corporation’s capital ratios are not materially different than those of the Bank.

8 unchanged sentences

● Brokered CDs.

At September 30, 2024 the Company had $517,200,000 in maximum borrowing capacity at FHLB (inclusive of the outstanding balances of FHLB long-term notes, FHLB short-term borrowings, and irrevocable standby letters of credit issued by FHLB);

At March 31, 2025, the Company had $534,842,000 in maximum borrowing capacity at FHLB (inclusive of the outstanding balances of FHLB long-term notes, FHLB short-term borrowings, and irrevocable standby letters of credit issued by FHLB);

the maximum borrowing capacity at ACBB was $15,000,000 and the maximum borrowing capacity of the Federal Discount Window was $7,767,000.

2 unchanged sentences

As a result, the repurchase agreements are accounted for as collateralized financing agreements (secured borrowings) and act as an additional source of liquidity.

Securities sold under agreements to repurchase were $32,440,000 at September 30, 2024.

Securities sold under agreements to repurchase were $32,438,000 at March 31, 2025.

Asset liquidity is provided by securities maturing in one year or less, other short-term investments, federal funds sold, and cash and due from banks.

2 unchanged sentences

Also, short-term borrowings provide funds to meet liquidity needs.

Net cash flows provided by operating activities were $7,429,000 and $2,812,000 for the nine months ended September 30, 2024 and 2023.

Net loss amounted to $15,490,000 for the nine months ended September 30, 2024, compared to net income of $3,779,000 for the nine months ended September 30, 2023.

The goodwill impairment recorded during the first quarter of 2024 was a non-cash charge and amounted to $19,133,000 for the nine months ended September 30, 2024;

therefore, had no effect on liquidity.

For the nine months ended September 30, 2023, there was no goodwill impairment.

During the nine months ended September 30, 2024 and 2023, net premium amortization on securities amounted to $276,000 and $1,196,000, respectively.

Net gains on sales of mortgage loans amounted to

$68,000 for the nine months ended September 30, 2024 and $44,000 for the nine months ended September 30, 2023.

Originations of mortgage loans originated for resale exceeded proceeds (net of gains/losses) from sales of mortgage loans originated for resale by $146,000 for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023 when proceeds (net of gains/losses) from sales of mortgage loans originated for resale exceeded originations of mortgage loans originated for resale by $114,000.

Net securities losses amounted to $48,000 and $212,000 for the nine months ended September 30, 2024 and 2023, respectively.

Accrued interest receivable increased by $58,000 and $224,000 for the nine months ended September 30, 2024 and 2023, respectively.

Accrued interest payable decreased by $233,000 for the nine months ended September 30, 2024 and increased by $1,097,000 for the nine months ended September 30, 2023.

Amortization of investment in real estate ventures amounted to $614,000 for the nine months ended September 30, 2024 and $158,000 for the nine months ended September 30, 2023.

Other assets increased $277,000 for the nine months ended September 30, 2024, compared to an increase of $0 for the nine months ended September 30, 2023.

Other liabilities increased $1,079,000 during the nine months ended September 30, 2024, compared to a decrease of $4,848,000 during the nine months ended September 30, 2023.

Investing activities used cash of $30,071,000 during the nine months ended September 30, 2024 and provided cash of $7,007,000 during the nine months ended September 30, 2023.

Net activity in the available-for-sale securities portfolio (including proceeds from sale, maturities, and redemptions, net against purchases) used cash of $4,690,000 during the nine months ended September 30, 2024 and provided cash of $33,337,000 during the nine months ended September 30, 2023.

Changes in restricted investment in bank stocks provided cash of $120,000 and $119,000 during the nine months ended September 30, 2024 and 2023, respectively.

Net cash used to originate loans amounted to $24,067,000 for the nine months ended September 30, 2024 and $22,641,000 for the nine months ended September 30, 2023.

Purchases of premises and equipment used cash of $1,424,000 and $1,442,000 during the nine months ended September 30, 2024 and 2023, respectively.

Purchase of investment in real estate ventures used cash of $10,000 and $2,366,000 during the nine months ended September 30, 2024 and 2023, respectively.

Financing activities provided cash of $29,653,000 and used cash of $7,920,000 during the nine months ended September 30, 2024 and 2023, respectively.

Deposits increased by $39,470,000 during the nine months ended September 30, 2024 and decreased by $1,196,000 during the nine months ended September 30, 2023.

Short-term borrowings increased by $14,007,000 and $1,358,000 during the nine months ended September 30, 2024 and 2023, respectively.

Repayment of long-term borrowings used cash of $20,000,000 and $3,000,000 for the nine months ended September 30, 2024 and 2023, respectively.

Dividends paid amounted to $3,824,000 for the nine months ended September 30, 2024, compared to $5,075,000 for the nine months ended September 30, 2023.

Net cash flows provided by operating activities were $308,000 for the three months ended March 31, 2025, compared to net cash flows provided by operating activities of $2,048,000 for the three months ended March 31, 2024.

Net income amounted to $1,053,000 for the three months ended March 31, 2025, compared to a net loss of $18,377,000 for the three months ended March 31, 2024.

The goodwill impairment recorded during the first quarter of 2024 was a non-cash charge and amounted to $19,133,000 for the three months ended March 31, 2024;

therefore, it had no effect on liquidity.

For the three months ended March 31, 2025, there was no goodwill impairment.

During the three months ended March 31, 2025 and 2024, net premium amortization on securities amounted to $50,000 and $251,000, respectively.

Net gains on sales of mortgage loans amounted to $20,000 for the three months ended March 31, 2025 and $11,000 for the three months ended March 31, 2024.

Proceeds (net of gains/losses) from sales of mortgage loans originated for sale exceeded originations of mortgage loans originated for resale by $192,000 and $115,000 for the three months ended March 31, 2025 and 2024, respectively.

Net securities losses amounted to $86,000 and $184,000 for the three months ended March 31, 2025 and 2024, respectively.

Accrued interest receivable increased by $76,000 and $90,000 for the three months ended March 31, 2025 and 2024, respectively.

Accrued interest payable increased by $386,000 for the three months ended March 31, 2025 and increased by $286,000 for the three months ended March 31, 2024.

Amortization of investment in real estate ventures amounted to $214,000 for the three months ended March 31, 2025 and $205,000 for the three months ended March 31, 2024.

Other assets increased $1,734,000 for the three months ended March 31, 2025, compared to an increase of $500,000 for the three months ended March 31, 2024.

Other liabilities decreased $345,000 during the three months ended March 31, 2025, compared to a increase of $338,000 during the three months ended March 31, 2024.

Investing activities used cash of $2,404,000 and $16,135,000 during the three months ended March 31, 2025 and 2024, respectively.

Net activity in the available-for-sale securities portfolio (including proceeds from sale, maturities, and redemptions, net against purchases) provided cash of $13,126,000 during the three months ended March 31, 2025 and used cash of $17,134,000 during the three months ended March 31, 2024.

Changes in restricted investment in bank stocks used cash of $351,000 and $65,000 during the three months ended March 31, 2025 and 2024, respectively.

Net cash used to originate loans amounted to $16,257,000 for the three months ended March 31, 2025, compared to net cash provided from a decrease in loans of $1,510,000 for the three months ended March 31, 2024.

Proceeds from bank-owned life insurance provided cash of $1,229,000 for the three months ended March 31, 2025, compared to the three months ended March 31, 2024 when there were no proceeds from bank-owned life insurance.

Purchases of premises and equipment used cash of $141,000 and $446,000 during the three months ended March 31, 2025 and 2024, respectively.

Purchase of investment in real estate ventures used cash of $10,000 and $0 during the three months ended March 31, 2025 and 2024, respectively.

Financing activities provided cash of $3,634,000 and $12,315,000 during the three months ended March 31, 2025 and 2024, respectively.

Deposits decreased by $487,000 during the three months ended March 31, 2025 and increased by $1,212,000 during the three months ended March 31, 2024.

Short-term borrowings increased by $5,862,000 and $12,817,000 during the three months ended March 31, 2025 and 2024, respectively.

Dividends paid amounted to $1,741,000 for the three months ended March 31, 2025, compared to $1,714,000 for the three months ended March 31, 2024.

Managing liquidity remains an important segment of asset/liability management.

10 unchanged sentences

Generally, the fair value of fixed-rate instruments fluctuates inversely with changes in interest rates.

As a result, increases in interest rates could result in further decreases in the fair value of the Company’s interest-earning

assets, which could adversely affect the Company’s results of operations if sold, or, in the case of interest-earning assets classified as available-for-sale, the Company’s stockholders’ equity, if retained.

As a result, increases in interest rates could result in further decreases in the fair value of the Company’s interest-earning assets, which could adversely affect the Company’s results of operations if sold, or, in the case of interest-earning assets classified as available-for-sale, the Company’s stockholders’ equity, if retained.

Under FASB ASC 320-10, Investments – Debt Securities , changes in the unrealized gains and losses, net of taxes, on debt securities classified as available-for-sale are reflected in the Company’s stockholders’ equity.

9 unchanged sentences

This position would contribute positively to net interest income in a falling rate environment.

The Company’s cumulative gap at one year indicates the Company is liability sensitive at September 30, 2024.

The Company’s cumulative gap at one year indicates the Company is liability sensitive at March 31, 2025.

Earnings at Risk

17 unchanged sentences

The earnings simulation model projects net interest income would decrease 1.05%, 1.49%, and 1.64% in the 100, 200 and 300 basis point increasing rate scenarios presented.

In addition, the earnings simulation model projects net interest income would increase 4.24%, 6.90%, and 7.46% in the 100, 200 and 300 basis point decreasing rate scenarios presented.

In addition, the earnings simulation model projects net interest income would decrease 0.23%, 3.15%, and 6.15% in the 100, 200 and 300 basis point decreasing rate scenarios presented.

All of the forecasts in the increasing and decreasing rate scenarios presented are within the Company’s policy guidelines.

2 unchanged sentences

However, the Company’s interest-sensitive assets are able to decline by these amounts.

For the nine months ended September 30, 2024 the cost of interest-bearing liabilities averaged 3.55%, and the yield on interest-earning assets, on a fully taxable equivalent basis, averaged 5.25%.

For the three months ended March 31, 2025 the cost of interest-bearing liabilities averaged 3.40%, and the yield on interest-earning assets, on a fully taxable equivalent basis, averaged 5.36%.

Net Present Value Estimation

1 unchanged sentence

The net present value of the balance sheet is defined as the discounted present value of asset cash flows minus the discounted present value of liability cash flows.

At September 30, 2024, net present value is projected to decrease 3.66%, 7.48%, and 12.98% in the 100, 200, and 300 basis point immediate increase scenarios, respectively.

At March 31, 2025, net present value is projected to increase 0.83% in the 100 basis point immediate increase scenario and decrease 0.61%, and 3.47% in the 200, and 300 basis point immediate increase scenarios, respectively.

Additionally, the 100, 200 and 300 basis point immediate decreases in rates are estimated to affect net present value with decreases of 3.06%, 11.50%, and 26.78%.

3 unchanged sentences

Effect of Change in Interest Rates

March 31, 2025:

Projected Change

18 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 1. Financial Statements