What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-05-09 compared with 2024-11-08 · 158 added, 214 removed, 627 unchanged (37% of the section changed)

28 unchanged sentences

Similarly, the use of different estimates or assumptions could produce different provisions for credit losses which would likely result in changes to the Company's net income.

In the nine months ended September 30, 2024 the ACL-Loans decreased by $31,000, the ACL-Off-Balance Commitments decreased by $487,000 and the ACL-HTM Securities decreased by $210,000.

In the three months ended March 31, 2025 the ACL-Loans increased by $243,000, the ACL-Off-Balance Commitments decreased by $5,000 and the ACL-HTM Securities increased by $1,000.

Further discussion of the ACL may be found in Note 2, "Investment Securities", Note 3, "Loans", and Note 4, "Allowance for Credit Losses", to the consolidated financial statements contained in Item 1 of the Form 10-Q.

7 unchanged sentences

A finding that the Company's methodology for valuation of its investment securities is materially incorrect could result in changes to the carrying value of securities on its balance sheet and corresponding changes in shareholders equity position.

As of September 30, 2024 the fair value of AFS securities increased by $3.0 million and the fair value of HTM securities decreased by $5.0 million from that of December 31, 2023.

These changes are due to a combination of rate-driven market price adjustments for the underlying securities and reinvestment of incoming cash flow to other segments of the balance sheet.

As of March 31, 2025 the fair value of AFS securities increased by $6.1 million and the fair value of HTM securities decreased by $2.2 million from that of December 31, 2024.

The increase in the fair value of AFS securities is attributable to a combination of rate-driven market price adjustments for the underlying securities and new purchases.

The decrease in the fair value of HTM securities in attributable to reinvestment of incoming cash flow to other segments of the balance sheet.

Further discussion of the fair value of securities may be found in Note 2, "Investment Securities", to the consolidated financial statements contained in Item 1 of the Form 10-Q.

10 unchanged sentences

On the date a derivative contract is entered into, the derivative is designated as a hedge of either a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), or a held for trading instrument (“trading instrument”).

The relationships between hedging instruments and hedged items is formally documented, as is the risk management objective and strategy for undertaking various hedge transactions.

The relationships between hedging instruments and hedged items is formally documented, as is the risk management objectives and strategy for undertaking various hedge transactions.

Both at the hedge’s inception and on an ongoing basis, determination is made as to whether the derivatives that are used in hedging transactions are effective in offsetting changes in cash flows or fair values of hedged items.

4 unchanged sentences

Among the factors that may influence the fair value of a derivative instrument are changes in market interest rates, changes in the time remaining to maturity of the instrument, or credit quality of the counter-party.

Further information, including period-to-period changes in the fair value of derivatives, may be found in Note 10, "Financial Derivative Instruments", to the consolidated financial statements contained in Item 1 of the Form 10-Q.

Further information, including period-to-period

changes in the fair value of derivatives, may be found in Note 10, "Financial Derivative Instruments", to the consolidated financial statements contained in Item 1 of the Form 10-Q.

Risks and Uncertainties.

The nation's economy continues to demonstrate areas of strength and areas of weakness.

The high inflation experienced post-pandemic has moderated, yet continues to run above the FOMC's 2% target.

The labor market remains resilient with continued low but rising rates of unemployment and continued strong but slowing job creation;

wage pressures which had contributed to to inflationary pressure appear to be softening.

To address the inflation problem, FOMC aggressively increased short-term interest rates throughout 2022 and into 2023, then paused.

Rate reductions were signaled, beginning later in 2024 and the FOMC acted with a 1/2% rate cut in September.

The timing and depth of further rate action is uncertain.

If the FOMC has not increased rates enough or begins rate cuts too early, it risks an ongoing inflation problem;

an overshoot on maintaining elevated interest rates risks entering the economy into a recession.

Concern continues to be expressed nationally on the commercial real estate market given high vacancy numbers and lower property valuation in some metro locations.

The ongoing conflicts between Russia and Ukraine, and Israel, Hamas and Hezbollah, continue to contribute to geopolitical instability and add to economic uncertainty.

Geopolitical tensions could also result in increased threat from cyberattacks or other disruptive activity.

Any or all of these factors could have negative downstream effects on the Company's operating results, the extent of which is indeterminable at this time.

Global markets have experienced heightened volatility amidst an escalation of trade disputes, the outcome of which is yet to be determined.

The ongoing conflicts between Russia and Ukraine, and Israel and Hamas, as well as other conflicts globally, have the potential to further increase economic uncertainty and geopolitical instability.

Finally, the 2024 U.S.

election resulted in single party control of the executive and legislative branches of the federal government, with pledges to reign in government spending and reform numerous policies including immigration, and business regulation.

Any or all could ultimately have negative downstream effects on the Company's operating results, the extent of which is indeterminable at this time.

Use of Non-GAAP Financial Measures

15 unchanged sentences

A Federal Income Tax rate of 21.0% was used in 2025 and 2024.

For the nine months ended September 30, For the quarter ended September 30,

For the three months ended March 31,

Dollars in thousands

2024 2023 2024 2023

Net interest income as presented $ 17,799 $ 14,880

5 unchanged sentences

The following table provides a reconciliation between the GAAP and non-GAAP efficiency ratio:

For the nine months ended September 30, For the quarter ended September 30,

For the three months ended March 31,

Dollars in thousands

2024 2023 2024 2023

Non-interest expense, as presented $ 12,844 $ 11,761

10 unchanged sentences

The following table provides a reconciliation of average tangible common equity to the Company's consolidated financial statements, which have been prepared in accordance with GAAP:

For the nine months ended September 30, For the quarter ended September 30,

For the three months ended March 31,

Dollars in thousands

2024 2023 2024 2023

Average shareholders' equity as presented $ 257,807 $ 244,083

3 unchanged sentences

The following table provides a reconciliation to Net Income:

For the nine months ended September 30, For the quarter ended September 30,

For the three months ended March 31,

Dollars in thousands 2025 2024

4 unchanged sentences

Executive Summary

Net income for the nine months ended September 30, 2024 was $19.8 million, down $3.1 million or 13.5% from the same period in 2023 due primarily to a decrease in net interest income resulting from higher funding costs.

Earnings per common share on a fully diluted basis were $1.78 for the nine months ended September 30, 2024, down $0.29 or 13.9% from the $2.06 posted for the same period in 2023.

Net income for the three months ended March 31, 2025 was $7.1 million, up $1.1 million or 17.5% from the same period in 2024.

Earnings per common share on a fully diluted basis were $0.63 for the three months ended March 31, 2025, up $0.09 or 17.0% from the $0.54 posted for the same period in 2024.

Dividends totaling $0.36 per share have been declared year-to-date, representing a payout to our shareholders of 56.3% of basic earnings per share for the period.

For the quarter ended September 30, 2024, net income was $7.6 million, up $97,000 or 1.3% from the same period in 2023.

Earnings per common share on a fully diluted basis were $0.68 for the quarter ended September 30, 2024, up $0.01 or 0.7% from the $0.67 posted for the same period in 2023.

Net interest income on a tax-equivalent basis was down $2.9 million or 5.6% in the nine months ended September 30, 2024 compared to the same period in 2023.

The tax equivalent net interest margin for the nine months ended September 30, 2024, was 2.25%, down from 2.54% for the same period in 2023.

The period-to-period change in net interest income and net interest margin is primarily attributable to increased funding costs, mitigated by earning asset growth.

For the quarter ended

September 30, 2024, net interest income on a tax- equivalent basis increased $480,000 or 2.9% compared to the same period in 2023 as volume effects from earning asset growth outpaced rate effects from a contracted margin.

Net interest margin for the quarter was 2.32% compared to 2.40% for the same period in 2023.

Non-interest income for the nine months ended September 30, 2024 was $11.9 million, up $589,000 or 5.2%, from the nine months ended September 30, 2023.

As compared to the prior year, service charges on deposit accounts were up $153,000, or 10.9%, and debit card revenue increased $41,000, or 1.1%.

Revenue at First National Wealth Management increased $174,000 or 5.0% over the same period.

Mortgage banking revenue decreased $99,000 or 16.2% on lower volume of mortgage sales and negative marks taken against mortgage servicing rights valuation.

Non-interest expense for the nine months ended September 30, 2024 was $35.0 million, up $2.4 million or 7.5% from the nine months ended September 30, 2023.

Net interest income on a tax-equivalent basis was up $3.0 million or 19.0% in the three months ended March 31, 2025 compared to the same period in 2024.

The tax equivalent net interest margin for the three months ended March 31, 2025, was 2.48%, up from 2.22% for the same period in 2024.

The period-to-period change in net interest income and net interest margin is primarily attributable to an increase in the tax equivalent yield on earning assets coupled with decrease in the cost of total liabilities.

Non-interest income for the three months ended March 31, 2025 was $4.0 million, up $362,000 or 9.9%, from the three months ended March 31, 2024.

As compared to the prior year, service charges on deposit accounts were up $32,000, or 6.4%, and debit card revenue decreased $16,000, or 1.3%.

Revenue at First National Wealth Management increased $129,000 or 10.9% over the same period and mortgage banking revenue increased $65,000 or 50.0%.

Non-interest expense for the three months ended March 31, 2025 was $12.8 million, up $1.1 million or 9.2% from the three months ended March 31, 2024.

FDIC insurance premiums increased $130,000 from the same period in 2024, salaries and employee benefits increased 13.1% and other operating expense increased 2.6% over the same period.

Asset quality continues to be strong and stable.

Non-performing assets stood at 0.08% of total assets as of September 30, 2024, up slightly from 0.07% of total assets as of December 31, 2023 and down slightly from 0.09% of total assets as of September 30, 2023.

Total past-due loans remain low and were 0.14% of total loans as of September 30, 2024, down from 0.18% and up from 0.10% of total loans as of December 31, 2023 and September 30, 2023, respectively.

The provision for credit losses on loans for the first nine months of 2024 was $58,000, down from the $419,000 provisioned in the same period in 2023.

A reverse provision for credit losses on loans of $580,000 was recorded in the third quarter of 2024.

Models implemented in the third quarter introduced post-pandemic experience into the Bank's discounted cash flow based estimates, a period of strong asset quality for the Bank.

This change, coupled with a refresh of peer groups used in our analysis, led to the modest reversal for the period.

Net charge-offs for the nine months ended September 30, 2024 were $89,000 or 0.005% of average loans on an annualized basis, compared to net charge-offs of $30,000 or 0.002% as of the nine months ended September 30, 2023.

The ACL for loans decreased $31,000 between December 31, 2023 and September 30, 2024, and now stands at 1.04% of loans outstanding as of September 30, 2024, as compared to 1.13% at December 31, 2023 and 1.12% at September 30, 2023.

The Company's balance sheet continued to expand in the first nine months of 2024 as total assets increased $195.9 million or 6.6% year-to-date.

The loan portfolio increased $177.8 million or 8.3% in the nine months ended September 30, 2024 and $227.4 million or 10.9% from a year ago.

Loan growth in the first nine months of 2024 was centered in the commercial and residential portfolios.

Non-performing assets stood at 0.19% of total assets as of March 31, 2025, up slightly from 0.14% of total assets as of December 31, 2024 and up from 0.09% of total assets as of March 31, 2024.

Total past-due loans remain low and were 0.33% of total loans as of March 31, 2025, down from 0.40% and up from 0.09% of total loans as of December 31, 2024 and March 31, 2024, respectively.

The provision for credit losses on loans for the first three months of 2025 was $396,000, up from the $99,000 provisioned in the same period in 2024.

Net charge-offs for the three months ended March 31, 2025 were $153,000 or 0.026% of average loans on an annualized basis, compared to net recoveries of $78,000 or 0.015% as of the three months ended March 31, 2024.

The ACL for loans increased $243,000 between December 31, 2024 and March 31, 2025, and now stands at 1.05% of loans outstanding as of March 31, 2025, as compared to 1.06% at December 31, 2024 and 1.11% at March 31, 2024.

The Company's balance sheet continued to expand in the first three months of 2025 as total assets increased $30.4 million or 1.0% year-to-date.

The loan portfolio increased $42.2 million or 1.8% in the three months ended March 31, 2025 and $209.4 million or 9.6% from a year ago.

Loan growth in the first three months of 2025 was centered in the commercial and residential portfolios.

Commercial loans increased by $30.9 million during the period, led by increases in owner-occupied commercial real estate of $11.9 million, non-owner occupied commercial real estate of $9.6 million, commercial & industrial loans of $14.0 million and multifamily of $22.3 million.

Residential term loans increased by $23.2 million in the first nine months of 2024 and residential construction loans increased by $2.3 million during the same period.

The investment portfolio decreased $1.6 million year-to-date and decreased $7.1 million from a year ago based upon cash flow of amortizing securities, limited reinvestment or new purchases, and changes in the carrying value of AFS securities.

On the liability side of the balance sheet, total deposits increased $103.1 million, or 4.0%, year-to-date to $2.70 billion.

Low-cost deposits (Demand, NOW, Savings) have increased $9.8 million, and money market balances have increased $38.2 million year-to-date, while local CDs have decreased $2.8 million.

Residential term and home equity loans each increased by $8.5 million in the first three months of 2025.

The investment portfolio increased $5.3 million year-to-date and decreased $3.0 million from a year ago based upon cash flow of amortizing securities, limited reinvestment or new purchases, and changes in the carrying value of AFS securities.

On the liability side of the balance sheet, total deposits decreased $13.9 million, or 0.5%, year-to-date to $2.71 billion.

Low-cost deposits (Demand, NOW, Savings) followed typical seasonal patterns and decreased $91.0 million in the period, money market balances increased $22.3 million, and local CDs decreased $5.5 million, year-to-date.

To balance this activity and to support earning asset growth, wholesale CDs have increased $60.2 year-to-date and borrowings have increased by $39.2 million.

Remaining well capitalized is a top priority for The Company.

The Company's total risk-based capital ratio was 13.11% as of September 30, 2024, solidly above the well-capitalized threshold of 10.0% set by the FDIC, the FRBB, and the OCC.

Among the Company's operating ratios, the return on average assets was 0.87% and return on average tangible common equity of 12.19% for the nine months ended September 30, 2024 compared to 1.08% and 14.97%, respectively, for the same period in 2023.

Our non-GAAP efficiency ratio continues to be an important component in the Company's overall performance and stood at 57.88% for the nine months ended September 30, 2024 compared to 51.88% for the same period in 2023, the change being attributable primarily to lower levels of net interest income.

The Company's total risk-based capital ratio was 13.12% as of March 31, 2025, solidly above the well-capitalized threshold of 10.0% set by the FDIC, the FRBB, and the OCC.

Among the Company's operating ratios, the return on average assets was 0.91% and return on average tangible common equity of 12.64% for the three months ended March 31, 2025 compared to 0.82% and 11.36%, respectively, for the same period in 2024.

Our non-GAAP efficiency ratio continues to be an important component in the Company's overall performance and stood at 56.93% for the three months ended March 31, 2025 compared to 61.15% for the same period in 2024, the change being attributable primarily to higher levels of net interest income.

Net Interest Income

Total interest income of $109.8 million for the nine months ended September 30, 2024 was an increase of $16.5 million or 17.7% compared to total interest income of $93.4 million for the same period of 2023.

Growth in earning assets coupled with higher interest rates resulted in the period-to-period increase.

Higher market interest rates resulting from FOMC actions coupled with changing customer product preferences to higher cost money market and CD products led to total interest expense of $63.5 million for the nine months ended September 30, 2024, an increase of $19.5 million or 44.3% compared to total interest expense for the nine months ended September 30, 2023.

As a result, net interest income of $46.4 million for the nine months ended September 30, 2024 was a decrease of $3.0 million or 6.1% compared to net interest income of $49.4 million for the same period ended September 30, 2023.

The Company's net interest margin on a tax-equivalent basis for the nine months ended September 30, 2024 was 2.25%, down from 2.54% for the first nine months of 2023.

Tax-exempt interest income amounted to $7.8 million for the nine months ended September 30, 2024 compared to $7.4 million for the nine months ended September 30, 2023.

The following tables present the amount of interest earned or paid, as well as the average yield or rate on an annualized basis, for each major category of assets or liabilities for the nine months and quarters ended September 30, 2024 and 2023.

Total interest income of $38.7 million for the three months ended March 31, 2025 was an increase of $3.7 million or 10.6% compared to total interest income of $35.0 million for the same period of 2024.

All of the increase is attributable to the loan portfolio which benefited from both greater volume and higher average yields as compared to the prior year.

Total interest expense of $20.9 million for the three months ended March 31, 2025, was an increase of $802,000 or 4.0% compared to total interest expense for the three months ended March 31, 2024.

The increase was concentrated within borrowed funds expense which was up $710,000 based mostly in higher utilization of FHLB funding as compared to the prior year.

As a result, net interest income of $17.8 million for the three months ended March 31, 2025 was an increase of $2.9 million or 19.6% compared to net interest income of $14.9 million for the same period ended March 31, 2024.

The Company's net interest margin on a tax-equivalent basis for the three months ended March 31, 2025 was 2.48%, up from 2.22% for the first three months of 2024.

Tax-exempt interest income amounted to $2.7 million for the three months ended March 31, 2025 compared to $2.5 million for the three months ended March 31, 2024.

The following table presents the amount of interest earned or paid, as well as the average yield or rate on an annualized basis, for each major category of assets or liabilities for the three months ended March 31, 2025 and 2024.

Tax-exempt income is calculated on a tax-equivalent basis, using a 21.0% Federal Income Tax rate.

For the nine months ended

September 30, 2024 September 30, 2023

For the three months ended

March 31, 2025 March 31, 2024

Dollars in thousands

7 unchanged sentences

Interest expense

59,112 3.43 % 42,384 2.62 %

Other borrowings 4,365 3.48 % 1,614 1.93 %

Total interest expense 63,477 3.44 % 43,998 2.58 %

Net interest income $ 48,429 $ 51,319

Interest rate spread 1.75 % 2.14 %

Net interest margin 2.25 % 2.54 %

1 Amount of interest of 59,112 will not tie to Interest on deposits in the Consolidated Statements of Income and Comprehensive Income due to rounding.

For the quarters ended

September 30, 2024 September 30, 2023

Dollars in thousands

interest Average

Yield/Rate Amount of

interest Average

Interest on earning assets

Interest-bearing deposits $ 56 4.00 % $ 211 5.49 %

Investments 5,261 3.16 % 5,249 3.12 %

Loans held for sale — 0.00 % — 0.00 %

Loans 33,687 5.90 % 28,479 5.45 %

Total interest-earning assets 39,004 5.28 % 33,939 4.89 %

Interest expense

Deposits 19,269 3.25 % 19,177 3.37 %

4 unchanged sentences

Net interest margin 2.48 % 2.22 %

The following tables present changes in interest income and expense attributable to changes in interest rates and volume for interest-earning assets and liabilities for the nine months and quarters ended September 30, 2024 compared to 2023.

The following table presents changes in interest income and expense attributable to changes in interest rates and volume for interest-earning assets and liabilities for the three months ended March 31, 2025 compared to 2024.

Tax-exempt income is calculated on a tax-equivalent basis, using a 21% Federal Income Tax rate.

For the nine months ended September 30, 2024 compared to 2023

For the three months ended March 31, 2025 compared to 2024

Dollars in thousands

12 unchanged sentences

1 Represents the change attributable to a combination of change in rate and change in volume.

For the quarter ended September 30, 2024 compared to 2023

Dollars in thousands

Volume Rate Rate/Volume 1

Interest on earning assets

Interest-bearing deposits $ (134) $ (58) $ 37 $ (155)

Investment securities (32) 44 — 12

Loans held for sale — — — —

Loans 2,725 2,266 217 5,208

Change in interest income 2,559 2,252 254 5,065

Interest expense

Deposits 645 2,390 91 3,126

Other borrowings 323 555 581 1,459

Change in interest expense 968 2,945 672 4,585

Change in net interest income $ 1,591 $ (693) $ (418) $ 480

Average Daily Balance Sheets

The following table shows the Company's average daily balance sheets for the nine months and quarters ended September 30, 2024 and 2023:

For the nine months ended For the quarters ended

The following table shows the Company's average daily balance sheets for the three months ended March 31, 2025 and 2024:

For the three months ended

Dollars in thousands

September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

March 31, 2025 March 31, 2024

Cash and cash equivalents $ 23,567 $ 23,520

Interest-bearing deposits in other banks 4,177 5,704

Securities available for sale (includes tax exempt securities of $36,473 and $36,623 at September 30, 2024 and 2023, respectively)

Securities available for sale (includes tax exempt securities of $36,342 and $36,483 at March 31, 2025 and 2024, respectively)

276,770 275,897

Securities to be held to maturity, net of ACL (included tax exempt securities of $252,516 and $256,464 at September 30, 2024 and 2023, respectively)

Securities to be held to maturity, net of ACL (included tax exempt securities of $250,855 and $253,342 at March 31, 2025 and 2024, respectively)

369,126 382,899

28 unchanged sentences

Net unrealized loss on securities transferred from available for sale to held to maturity (46) (55)

Net unrealized gain (loss) on cash flow hedging derivative instruments 592 (58) 410 901

Net unrealized gain on cash flow hedging derivative instruments 136 455

Net unrealized gain on postretirement benefit costs 287 303

2 unchanged sentences

Non-Interest Income

Non-interest income of $11.9 million for the nine months ended September 30, 2024 is an increase of $589,000 compared to the same period in 2023.

Service charges on deposit accounts were up $153,000, or 10.9%, debit card revenue was up $41,000, or 1.1%, and revenue at First National Wealth Management increased $174,000 or 5.0%.

Over the same period, Mortgage banking revenue was down $99,000, or 16.2%;

the decrease is attributable to a year-to-year decrease in mortgage origination activity and marks against mortgage servicing rights.

Non-interest income of $4.1 million for the quarter ended September 30, 2024 is an increase of $231,000 compared to the same period in 2023, due primarily to a 21.6% increase in other operating income, coupled with increases in investment management fees and service charges consistent with year-to-date performance.

Non-interest income of $4.0 million for the three months ended March 31, 2025 is an increase of $362,000 compared to the same period in 2024.

Service charges on deposit accounts were up $32,000, or 6.4%, debit card revenue was down $16,000, or 1.3%, and revenue at First National Wealth Management increased $129,000 or 10.9%.

Over the same period, Mortgage banking revenue was up $65,000, or 50.0%.

Non-Interest Expense

Non-interest expense of $35.0 million for the nine months ended September 30, 2024 is an increase of 7.5% or $2.4 million compared to non-interest expense of $32.6 million for the same period in 2023.

Salaries and employee benefits increased $1.3 million or 8.2%, furniture and equipment expense was up $173,000 or 4.3% on higher software costs, and and other operating expense increased $548,000 or 6.7%.

FDIC insurance premiums increased by $333,000 due to a change in base assessment rate which became effective in the second quarter of 2023 and balance sheet expansion.

Non-interest expense of $12.0 million for the quarter ended September 30, 2024 is increase of 9.0% compared to non-interest expense of $11.0 million for the same period in 2023 due to the reasons mentioned.

Income taxes on operating earnings were $4.1 million for the nine months ended September 30, 2024, down $632,000 from the same period in 2023.

The carrying value of the Company's investment portfolio decreased by $1.6 million between December 31, 2023 and September 30, 2024 from $670.7 million to $669.1 million.

Non-interest expense of $12.8 million for the three months ended March 31, 2025 is an increase of 9.2% or $1.1 million compared to non-interest expense of $11.8 million for the same period in 2024.

Salaries and employee benefits increased $793,000, or 13.1%, attributable to a combination of salary adjustments, incentive compensation accruals, increased benefit costs, and several one-time expenses resulting from retirements.

Furniture and equipment expense was up $73,000 or 5.3% on higher software costs, and other operating expense increased $76,000 or 2.6%.

FDIC insurance premiums increased by $130,000 due to balance sheet expansion.

Income taxes on operating earnings were $1.5 million for the three months ended March 31, 2025, up $237,000 from the same period in 2024.

The carrying value of the Company's investment portfolio increased by $5.3 million between December 31, 2024 and March 31, 2025 from $651.6 million to $656.8 million.

The change in value of the portfolio is attributable to a combination of incoming cash flow from amortizing investments, limited re-investment or new purchases, and the effects of interest rate movement on the fair value of AFS holdings.

As of September 30, 2024, mortgage-backed securities had a carrying value of $280.7 million and a fair value of $271.5 million.

As of March 31, 2025, mortgage-backed securities had a carrying value of $278.5 million and a fair value of $268.1 million.

Of this total, securities with a fair value of $74.8 million or 28.7% of the mortgage-backed portfolio were issued by GNMA and securities with a fair value of $185.7 million or 71.3% of the mortgage-backed portfolio were issued by FHLMC and FNMA.

15 unchanged sentences

The amortization of the net unrealized loss reported in AOCI will offset the effect on interest income of the discount for the transferred securities.

The remaining unamortized balance of the net unrealized losses for the securities transferred from AFS to HTM was $49,000 at September 30, 2024.

This compares to $56,000 and $58,000, net of taxes, at December 31, 2023 and September 30, 2023, respectively.

The remaining unamortized balance of the net unrealized losses for the securities transferred from AFS to HTM was $45,000 at March 31, 2025.

This compares to $47,000 and $54,000, net of taxes, at December 31, 2024 and March 31, 2024, respectively.

These securities were transferred as a part of the Company's overall investment and balance sheet strategies.

The following table sets forth the Company's investment securities at their carrying amounts as of September 30, 2024 and 2023 and December 31, 2023.

The following table sets forth the Company's investment securities at their carrying amounts as of March 31, 2025 and 2024 and December 31, 2024.

Dollars in thousands

September 30, 2024 December 31, 2023 September 30, 2023

March 31, 2025 December 31, 2024 March 31, 2024

Securities available for sale

19 unchanged sentences

In conjunction with adoption, holdings of AFS Securities and HTM securities were evaluated to determine the need to establish an ACL, if any.

The total ACL for HTM securities was $224,000 as of September 30, 2024, $434,000 as of December 31, 2023 and $432,000 September 30, 2023.

The total ACL for HTM securities was $197,000 as of March 31, 2025, $196,000 as of December 31, 2024 and $182,000 March 31, 2024.

Further details are included in Note 2 of the accompanying financial statements.

The following table sets forth yields and contractual maturities of the Company's investment securities as of September 30, 2024.

The following table sets forth yields and contractual maturities of the Company's investment securities as of March 31, 2025.

Yields on tax-exempt securities have been computed on a tax-equivalent basis using a tax rate of 21%.

35 unchanged sentences

AFS Debt Securities in an Unrealized Loss Position

The securities portfolio contains certain AFS securities where the amortized cost of which exceeds fair value, which at September 30, 2024 amounted to $44.0 million, or 13.40% of the amortized cost of the total securities portfolio.

The securities portfolio contains certain AFS securities where the amortized cost of which exceeds fair value, which at March 31, 2025 amounted to $49.4 million, or 14.98% of the amortized cost of the total securities portfolio.

At December 31, 2024, this amount was $54.2 million, or 16.48% of the amortized cost of total securities portfolio.

6 unchanged sentences

Estimating future cash flows is a quantitative and qualitative process that incorporates information received from third party sources along with certain internal assumptions and judgments regarding the future performance of the underlying collateral.

As of September 30, 2024, the Company had AFS debt securities in an unrealized loss position with a fair value of $253.8 million and unrealized losses of $44.0 million, as identified in the table below.

AFS Securities in a continuous unrealized loss position more than twelve months amounted to a fair value of $249.0 million as of September 30, 2024, compared with $257.7 million at December 31, 2023.

As of March 31, 2025, the Company had AFS debt securities in an unrealized loss position with a fair value of $247.7 million and unrealized losses of $49.4 million, as identified in the table below.

AFS Securities in a continuous unrealized loss position for more than twelve months amounted to a fair value of $232.6 million as of March 31, 2025, compared with $234.1 million at December 31, 2024.

The Company has concluded that these securities are fully collectible and that no charge against the allowance is required.

This conclusion was based on the issuer's continued satisfaction of the securities obligations in accordance with their contractual terms and the expectation that the issuer will continue to do so, Management's intent and ability to hold these securities for a period of time sufficient to allow for any anticipated recovery in fair value which may be at maturity, the expectation that the Company will receive 100% of future contractual cash flows, as well as the evaluation of the fundamentals of the issuer's financial condition and other objective evidence.

The following table summarizes AFS debt securities in an unrealized loss position for which an ACL has not been recorded at September 30, 2024:

The following table summarizes AFS debt securities in an unrealized loss position for which an ACL has not been recorded at March 31, 2025:

Less than 12 months 12 months or more Total

6 unchanged sentences

State and political subdivisions 4,862 (172) 27,720 (7,196) 32,582 (7,368)

Asset-backed securities 1,173 (6) — — 1,173 (6)

$ 15,009 $ (283) $ 232,643 $ (49,100) $ 247,652 $ (49,383)

3 unchanged sentences

Government-sponsored agencies & enterprises.

As of September 30, 2024, there were $5.3 million of unrealized losses on these securities compared to $6.2 million at December 31, 2023.

As of March 31, 2025, there were $5.6 million of unrealized losses on these securities compared to $6.2 million at December 31, 2024.

All of these securities were credit rated "AAA" or "AA+" by the major credit rating agencies.

5 unchanged sentences

Government-sponsored enterprises.

As of September 30, 2024, there were $33.0 million of unrealized losses on these securities compared with $38.5 million at December 31, 2023.

As of March 31, 2025, there were $36.4 million of unrealized losses on these securities compared with $41.0 million at December 31, 2024.

All of these securities were credit rated "AAA" or "AA+" by the major credit rating agencies.

2 unchanged sentences

Government-sponsored enterprises have minimal credit risk, as these agencies and enterprises play a vital role in the nation's financial markets.

Management believes that the unrealized losses at September 30, 2024 were attributable to changes in current market yields and spreads since the date the underlying securities were purchased, and that 100% of the amounts contractually due will be realized.

Management believes that the unrealized losses at March 31, 2025 were attributable to changes in current market yields and spreads since the date the underlying securities were purchased, and that 100% of the amounts contractually due will be realized.

The Company also has the ability and intent to hold these securities until a recovery of their amortized cost, which may be at maturity.

AFS Obligations of state and political subdivisions.

As of September 30, 2024, there were $5.7 million of unrealized losses on these securities compared to $5.7 million at December 31, 2023.

As of March 31, 2025, there were $7.4 million of unrealized losses on these securities compared to $6.9 million at December 31, 2024.

Municipal securities are supported by the general taxing authority of the municipality or a dedicated revenue stream, and, in the case of school districts, are generally supported by state aid.

At September 30, 2024, all municipal bond issuers were current on contractually obligated interest and principal payments.

The Company attributes the unrealized losses at September 30, 2024 to changes in prevailing market yields and pricing spreads since the date the underlying securities were purchased, combined with general market conditions.

At March 31, 2025, all municipal bond issuers were current on contractually obligated interest and principal payments.

The Company attributes the unrealized losses at March 31, 2025 to changes in prevailing market yields and pricing spreads since the date the underlying securities were purchased, combined with general market conditions.

The Company has the ability and intent to hold these securities until a recovery of their amortized cost, which may be at maturity, and believes that 100% of the amounts contractually due will be realized.

AFS Asset-backed securities.

As of September 30, 2024, there was no unrealized loss on these securities compared to $9,000 at December 31, 2023.

As of March 31, 2025, there were $6,000 of unrealized losses on these securities compared with none at December 31, 2024.

These securities consist of U.S.

4 unchanged sentences

The Bank uses the FHLBB for a portion of its wholesale funding needs.

As of September 30, 2024, the Bank's investment in FHLBB stock totaled $5.4 million.

This compares to $2.3 million as of December 31, 2023 and $2.8 million as of September 30, 2023.

As of March 31, 2025, the Bank's investment in FHLBB stock totaled $6.5 million.

This compares to $6.2 million as of December 31, 2024 and $4.9 million as of March 31, 2024.

FHLBB stock is a non-marketable equity security and therefore is reported at cost, subject to adjustments for any observable market transactions on the same or similar instruments of the investee.

No impairment losses have been recorded through September 30, 2024.

No impairment losses have been recorded through March 31, 2025.

The Bank is also a member of the FRBB.

1 unchanged sentence

The Bank uses FRBB for certain correspondent banking services and maintains borrowing capacity at its discount window.

The Bank's investment in FRBB stock totaled $1.0 million at September 30, 2024 and 2023, and December 31, 2023.

The Bank's investment in FRBB stock totaled $1.0 million at March 31, 2025 and 2024, and December 31, 2024.

The Company periodically evaluates its investment in FHLBB and FRBB stock for impairment based on, among other factors, the capital adequacy of the Banks and their overall financial condition.

No impairment losses have been recorded through September 30, 2024.

No impairment losses have been recorded through March 31, 2025.

The Bank will continue to monitor its investment in these restricted equity securities.

1 unchanged sentence

Loans held for sale are carried at the lower of cost or market value.

There were no loans held for sale as of September 30, 2024 and 2023 and December 31, 2023.

There were no loans held for sale as of March 31, 2025 and 2024 and December 31, 2024.

The Company provides loans to customers within our market area, the State of Maine, with very limited exposures outside of Maine.

Loans are originated primarily via our network of branch offices, along with an online channel for residential mortgage loans.

The loan portfolio increased during the first nine months of 2024, with total loans at $2.31 billion at September 30, 2024, up $177.8 million or 8.3% from total loans of $2.13 billion at December 31, 2023.

Commercial loans increased $127.4 million or 10.2% between December 31, 2023 and September 30, 2024, municipal loans increased $11.5 million or 22.4%, residential term loans increased $23.2 million, residential construction increased $2.3 million, and home equity lines of credit increased $13.0 million.

The loan portfolio increased during the first three months of 2025, with total loans at $2.38 billion at March 31, 2025, up $42.2 million or 1.8% from total loans of $2.34 billion at December 31, 2024.

Commercial loans increased $30.9 million or 2.2% between December 31, 2024 and March 31, 2025, municipal loans decreased $6.7 million or 10.9%, and both residential term loans and home equity lines of credit increased $8.5 million.

The loan portfolio is segmented into eleven classes.

5 unchanged sentences

Further descriptions of each class, and the risk factors associated with each, are included in Note 4 of the accompanying financial statements.

The following table summarizes the loan portfolio, by class, at September 30, 2024 and 2023 and December 31, 2023.

The following table summarizes the loan portfolio, by class, at March 31, 2025 and 2024 and December 31, 2024.

Dollars in thousands

September 30, 2024 December 31, 2023 September 30, 2023

March 31, 2025 December 31, 2024 March 31, 2024

Real estate owner occupied $ 370,465 15.5 % $ 358,588 15.3 % $ 327,496 15.1 %

10 unchanged sentences

Total loans $ 2,383,150 100.0 % $ 2,340,940 100.0 % $ 2,173,746 100.0 %

The following table sets forth certain information regarding the contractual maturities of the Bank's loan portfolio as of September 30, 2024.

The following table sets forth certain information regarding the contractual maturities of the Bank's loan portfolio as of March 31, 2025.

Dollars in thousands

12 unchanged sentences

Total loans $ 115,657 $ 486,736 $ 177,923 $ 1,602,834 $ 2,383,150

The following table provides a listing of loans by class, between variable and fixed rates as of September 30, 2024.

The following table provides a listing of loans by class, between variable and fixed rates as of March 31, 2025.

Fixed-Rate Adjustable-Rate Total

14 unchanged sentences

Loan Concentrations

As of September 30, 2024, the Bank had two concentration of loans in two particular industries that exceeded 10% of its total loan portfolio:

(1) loans to hotels (except Casino hotels) and motels, totaling $255.5 million, or 11.07% of total loans;

and (2) loans to lessors of residential buildings and dwellings, totaling $243.6 million, or 10.56% of total loans.

This compares to one concentration of loans in one particular industry that exceeded 10% of its total loan portfolio, hotels (except Casino hotels) and motels, totaling $226.4 million, or 10.88% of total loans, as of September 30, 2023.

As of March 31, 2025 and 2024, the Bank had two concentration of loans in two particular industries that exceeded 10% of its total loan portfolio:

(1) loans to hotels (except Casino hotels) and motels, totaling $253.4 million, or 10.63% and $231.5 million, or 10.65% of total loans, respectively;

and (2) loans to lessors of residential buildings and dwellings, totaling $266.7 million, or 11.19% and $229.5 million, or 10.56% of total loans, respectively.

Credit Risk Management and Allowance for Credit Losses on Loans

20 unchanged sentences

The ACL includes reserve amounts assigned to IAL.

This includes loans with balances of $250,000 or more that have either been placed into non-accrual or are loans identified by management as having characteristics that may impact ultimate collectibility and therefore merit individual analysis.

This includes loans with balances of $250,000 or more that have been placed into non-accrual or are loans identified by management as having characteristics that may impact ultimate collectibility and therefore merit individual analysis.

A specific reserve is allocated to an individual loan when the amount of a probable loss is estimable on the basis of its collateral value, the present value of anticipated future cash flows, or its net realizable value.

At September 30, 2024, IAL with specific reserves totaled $592,000 and the amount of such reserves was $245,000.

This compares to IAL with specific reserves of $919,000 at December 31, 2023 and the amount of such reserves was $264,000.

The total ACL on loans at September 30, 2024 is considered by Management to be appropriate to address the potential for credit losses inherent in the loan portfolio at that date.

At March 31, 2025, IAL with specific reserves totaled $1.3 million and the amount of such reserves was $1.0 million.

This compares to IAL with specific reserves of $1.7 million at December 31, 2024 and the amount of such reserves was $1.0 million.

The total ACL on loans at March 31, 2025 is considered by Management to be appropriate to address the potential for credit losses inherent in the loan portfolio at that date.

However, determination of the appropriate allowance level is based upon a number of assumptions made about future events, which management believes are reasonable, but which may or may not prove valid.

Thus, there can be no assurance charge-offs in future periods will not exceed the ACL or that additional increases in the ACL will not be necessary.

The following table summarizes the allocation of allowance by loan class as of September 30, 2024 and 2023 and December 31, 2023.

The following table summarizes the allocation of allowance by loan class as of March 31, 2025 and 2024 and December 31, 2024.

The percentages are the portion of each loan class to total loans.

Dollars in thousands

September 30, 2024 December 31, 2023 September 30, 2023

March 31, 2025 December 31, 2024 March 31, 2024

Real estate owner occupied $ 5,189 15.5 % $ 5,045 15.3 % $ 5,180 15.1 %

10 unchanged sentences

Total $ 25,114 100.0 % $ 24,871 100.0 % $ 24,207 100.0 %

The ACL totaled $24.0 million at September 30, 2024, compared to $24.0 million as of December 31, 2023 and $23.3 million as of September 30, 2023.

A breakdown of the ACL on loans as of September 30, 2024, by loan class and allowance element, is presented in the following table:

A breakdown of the ACL on loans as of March 31, 2025, by loan class and allowance element, is presented in the following table:

Dollars in thousands

13 unchanged sentences

Based upon Management's evaluation, provisions are made to maintain the allowance as a best estimate of expected losses within the portfolio.

The provision for credit losses to maintain the allowance was $58,000 for the first nine months of 2024 and $419,000 the first nine months of 2023.

Net charge-offs were $89,000 in the first nine months of 2024, compared to net charge-offs of $30,000 in the first nine months of 2023.

The ACL as a percentage of outstanding loans was 1.04% as of September 30, 2024, down from 1.13% as of December 31, 2023, and down from 1.12% as of September 30, 2023.

The following table summarizes the activities in the ACL for the nine months ended September 30, 2024 and 2023 and for the year ended December 31, 2023:

The provision for credit losses to maintain the allowance was $396,000 for the first three months of 2025 and $99,000 the first three months of 2024.

Net charge-offs were $153,000 in the first three months of 2025, compared to net recoveries of $78,000 in the first three months of 2024.

The ACL as a percentage of outstanding loans was 1.05% as of March 31, 2025, down slightly from 1.06% as of December 31, 2024, and down from 1.11% as of March 31, 2024.

The following table summarizes the activities in the ACL for the three months ended March 31, 2025 and 2024 and for the year ended December 31, 2024:

Dollars in thousands

September 30, 2024 December 31, 2023 September 30, 2023

March 31, 2025 December 31, 2024 March 31, 2024

Balance at the beginning of period $ 24,871 $ 24,030 $ 24,030

18 unchanged sentences

Municipal — — —

Term 30 14 10

Construction — — —

2 unchanged sentences

Total 55 284 174

Net loans charged off 89 233 30

Net loans charged off (recovered) 153 463 (78)

Credit loss expense 396 1,304 99

Adoption of ASU No.

2016-13 — 6,210 6,210

Balance at end of period $ 25,114 $ 24,871 $ 24,207

Ratio of net loans charged off to average loans outstanding 1

Ratio of net loans charged off (recovered) to average loans outstanding 1

0.026 % 0.021 % (0.015) %

4 unchanged sentences

Utilization assumptions are based upon an independent analysis of the Bank's historical data.

The ACL for unfunded commitments is reported on the Company's consolidated balance sheets within other liabilities and totaled $768,000 as of September 30, 2024.

The ACL for unfunded commitments is reported on the Company's consolidated balance sheets within other liabilities and totaled $709,000 as of March 31, 2025.

Nonperforming Loans

9 unchanged sentences

All payments made on nonaccrual loans are applied to the principal balance of the loan.

Nonperforming loans, expressed as a percentage of total loans, totaled 0.11% at September 30, 2024 compared to 0.10% at December 31, 2023 and 0.12% at September 30, 2023.

The following table shows the distribution of nonperforming loans by class as of September 30, 2024 and 2023 and December 31, 2023:

Nonperforming loans, expressed as a percentage of total loans, totaled 0.25% at March 31, 2025 compared to 0.18% at December 31, 2024 and 0.12% at March 31, 2024.

The following table shows the distribution of nonperforming loans by class as of March 31, 2025 and 2024 and December 31, 2024:

Dollars in thousands

September 30, 2024 December 31, 2023 September 30, 2023

March 31, 2025 December 31, 2024 March 31, 2024

Real estate owner occupied $ 545 553 $ —

13 unchanged sentences

These are loans for which we expect to collect all amounts due, including past-due interest.

As of September 30, 2024, loans 90 days or more day past due and still accruing interest totaled $405,000, compared to $429,000 at December 31, 2023 and $11,000 at September 30, 2023.

As of March 31, 2025, loans 90 or more days past due and still accruing interest totaled $695,000, compared to $1.0 million at December 31, 2024 and $50,000 at March 31, 2024.

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

2 unchanged sentences

Past Due Loans

The Bank's overall loan delinquency ratio was 0.14% at September 30, 2024 compared to 0.18% at December 31, 2023 and 0.10% at September 30, 2023.

Loans 90 days delinquent and accruing decreased from $429,000 at December 31, 2023 to $405,000 as of September 30, 2024.

The following table sets forth loan delinquencies as of September 30, 2024 and 2023 and December 31, 2023:

The Bank's overall loan delinquency ratio was 0.33% at March 31, 2025 compared to 0.40% at December 31, 2024 and 0.09% at March 31, 2024.

Loans 90 or more days delinquent and accruing decreased from $1.0 million at December 31, 2024 to $695,000 as of March 31, 2025.

The following table sets forth loan delinquencies as of March 31, 2025 and 2024 and December 31, 2024:

Dollars in thousands

September 30, 2024 December 31, 2023 September 30, 2023

March 31, 2025 December 31, 2024 March 31, 2024

Real estate owner occupied $ 195 $ 549 $ 447

18 unchanged sentences

Based on historical experience, the credit quality of some of these loans may improve due to improvements in the economy as well as changes in collateral values or the financial condition of the borrowers, while the credit quality of other loans may deteriorate, resulting in some amount of loss.

At September 30, 2024, there were nine potential problem loans reported with a balance of $303,000 or 0.01% of total loans.

This compares to three potential problem loans with a balance of $180,000 or 0.01% of total loans at December 31, 2023.

As of September 30, 2024, there were two residential loans in the process of foreclosure totaling $127,000.

At March 31, 2025, there were two potential problem loans reported with a balance of $18,000 or 0.001% of total loans.

This compares to one potential problem loan with a balance of $84,000 or 0.004% of total loans at December 31, 2024.

As of March 31, 2025, there were four residential loans in the process of foreclosure totaling $1.2 million.

The Bank's residential foreclosure process begins when a loan becomes 75 days past due at which time a Demand/Breach Letter is sent to the borrower.

3 unchanged sentences

A foreclosure auction date is then set 30 days from the POR expiration date if the default is not cured.

As of September 30, 2024, there were no commercial loans in the process of foreclosure.

As of March 31, 2025, there were no commercial loans in the process of foreclosure.

The Bank's commercial foreclosure process begins when a loan becomes 60 days past due, at which time a default letter is issued.

16 unchanged sentences

Real estate acquired through foreclosure is carried at the lower of fair value less estimated cost to sell or the cost of the asset and is not included as part of the ACL totals.

At September 30, 2024 there was one property owned with an OREO balance of $173,000, net of an allowance for OREO losses of $35,000.

This compares to December 31, 2023, and September 30, 2023, when there were no OREO properties and no allowance for losses.

The table below presents the composition of OREO at September 30, 2024 and 2023, and December 31, 2023:

At March 31, 2025 and 2024, there were no OREO properties and no allowance for losses.

This compares to December 31, 2024, when there was one OREO property with a balance of $173,000, net of an allowance for OREO losses of $35,000.

The table below presents the composition of OREO at March 31, 2025 and 2024, and December 31, 2024:

Dollars in thousands

September 30, 2024 December 31, 2023 September 30, 2023

March 31, 2025 December 31, 2024 March 31, 2024

Carrying Value

13 unchanged sentences

Liquidity is the ability of a financial institution to meet maturing liability obligations, depositor withdrawal requests, and customer loan demand.

The Bank's lead source of liquidity is deposits, including brokered deposits, which funded 85.3% of total average assets in the first nine months of 2024, down slightly from 86.9% a year ago.

The Bank's lead source of liquidity is deposits, including brokered deposits, which funded 85.0% of total average assets in the first three months of 2025, down slightly from 86.5% a year ago.

Other sources of funding include discretionary use of purchased liabilities (e.g., FHLBB term or overnight advances, and other borrowings), cash flows from the securities portfolio and loan repayments.

15 unchanged sentences

Government or Agency bond collateral, available capacity at FHLBB, and available authorized brokered deposit issuance capacity.

As of September 30, 2024, the Bank had primary sources of contingent liquidity of $886.0 million or 28.5% of its total assets.

As of March 31, 2025, the Bank had primary sources of contingent liquidity of $881.0 million or 27.9% of its total assets.

It is Management's opinion that this is an appropriate level.

5 unchanged sentences

As the sole shareholder of the Bank, the Company is entitled to such dividends when and as declared by the Bank's Board of Directors from legally available funds.

For the nine-months periods ended September 30, 2024 and 2023 the Bank declared dividends to the Company of $11.9 million and $11.0 million, respectively.

For the three-months periods ended March 31, 2025 and 2024 the Bank declared dividends to the Company of $4.0 million and $3.9 million, respectively.

The Bank's regulator, the OCC, may limit the amount of dividends declared and paid in a calendar year based upon certain factors.

Further discussion may be found in Shareholder's Equity below.

During the first nine months of 2024, total deposits increased by $103.1 million or 4.0% from December 31, 2023 levels.

Low-cost deposits (demand, NOW, and savings accounts) increased by $9.8 million or 0.8% in the first nine months of 2024.

During the first three months of 2025, total deposits decreased by $13.9 million or 0.5% from December 31, 2024 levels.

The Bank generally experiences a modest decline in deposit balances in the first quarter of each year due to seasonal effects.

In the first three months of 2025 low-cost deposits (demand, NOW, and savings accounts) decreased by $91.0 million or 7.4% .

Money market deposits increased $22.3 million or 5.9%, and certificates of deposit increased $54.7 million or 4.9% as depositors shifted balances to higher cost product types and brokered certificates of deposit were issued to support earning asset growth.

The increase in total deposits for the period was consistent with Management's estimates based upon historical seasonal deposit behaviors.

Between September 30, 2023 and September 30, 2024, total deposits increased by $102.8 million or 4.0%.

The decrease in low-cost deposits for the period was consistent with Management's estimates based upon historical seasonal deposit behaviors.

Between March 31, 2024 and March 31, 2025, total deposits increased by $162.3 million or 6.4%.

Low-cost deposits decreased by $18.9 million or 1.6%, money market accounts increased $77.1 million or 24.0%, and certificates of deposit increased $104.1 million or 9.8%.

Estimated uninsured deposits totaled $470.9 million or 17.4% of total deposits as of September 30, 2024, and $407.4 million or 15.7% of total deposits as of December 31, 2023.

Estimated uninsured deposits totaled $476.8 million or 17.6% of total deposits as of March 31, 2025, and $506.2 million or 18.6% of total deposits as of December 31, 2024.

The company has pledged assets as collateral covering certain deposits;

these amounts were $344.3 million and $340.5 million as of September 30, 2024 and December 31, 2023, respectively.

these amounts were $351.9 million and $349.8 million as of March 31, 2025 and December 31, 2024, respectively.

Borrowed Funds

1 unchanged sentence

This funding may also be used to balance seasonal deposit flows or to carry out interest rate risk management strategies, and may be used to replace or supplement other sources of funding, including core deposits and certificates of deposit.

During the nine months ended September 30, 2024, borrowed funds increased $81.4 million.

This change consisted of a $95.0 million increase in long-term FHLBB advances, a $6.5 million increase in customer repurchase agreement balances, and a $20.1 million decrease in short-term advances from the FHLBB.

Between September 30, 2023 and September 30, 2024, borrowed funds increased by $68.0 million.

During the three months ended March 31, 2025, borrowed funds increased $39.2 million.

This change consisted of a $59.9 million increase in short-term FHLBB advances, a $4.3 million increase in customer repurchase agreement balances, and a $25.0 million decrease in long-term advances from the FHLBB.

Between March 31, 2024 and March 31, 2025, borrowed funds increased by $30.7 million.

Capital Resources

Shareholders' equity as of September 30, 2024 was $256.8 million, compared to $243.1 million as of December 31, 2023 and $226.7 million as of September 30, 2023.

The Company's earnings in the first nine months of 2024, net of dividends declared, added $7.8 million to shareholders' equity.

The net unrealized loss on AFS securities, net of tax, presented in accordance with FASB ASC Topic 320 "Investments – Debt and Equity Securities" stands at $34.4 million as of September 30, 2024 and was $39.6 million as of December 31, 2023.

Shareholders' equity as of March 31, 2025 was $259.7 million, compared to $252.5 million as of December 31, 2024 and $242.6 million as of March 31, 2024.

The Company's earnings in the first three months of 2025, net of dividends declared, added $3.0 million to shareholders' equity.

The net unrealized loss on AFS securities, net of tax, presented in accordance with FASB ASC Topic 320 "Investments – Debt and Equity Securities" stands at $38.7 million as of March 31, 2025 and was $42.7 million as of December 31, 2024.

Additional information about the net unrealized loss on AFS securities was provided in Note 2 of the Consolidated Financial Statements and in the AFS Debit Securities section of Management's Discussion and Analysis of Financial Condition and Results of Operations.

A cash dividend of $0.36 per share was declared in the third quarter of 2024.

The dividend payout ratio, which is calculated by dividing dividends declared per share by basic earnings per share, was 59.81% for the first nine months of 2024 compared to 50.00% for the same period in 2023.

A cash dividend of $0.36 per share was declared in the first quarter of 2025.

The dividend payout ratio, which is calculated by dividing dividends declared per share by basic earnings per share, was 56.34% for the first three months of 2025 compared to 63.64% for the same period in 2024.

In determining future dividend payout levels, the Board of Directors carefully analyzes capital requirements and earnings retention, as set forth in the Company's Dividend Policy.

6 unchanged sentences

In order to avoid limitations on capital distributions, including dividend payments, the Company must hold a capital conservation buffer of 2.5% above the adequately capitalized risk-based capital ratios.

The Company met each of the well-capitalized ratio guidelines at September 30, 2024.

The following tables indicate the capital ratios for the Bank and the Company at September 30, 2024 and December 31, 2023:

As of September 30, 2024 Leverage Common Equity Tier 1 Tier 1 Total Risk-Based

The Company met each of the well-capitalized ratio guidelines at March 31, 2025.

The following tables indicate the capital ratios for the Bank and the Company at March 31, 2025 and December 31, 2024:

As of March 31, 2025 Leverage Common Equity Tier 1 Tier 1 Total Risk-Based

Bank 8.40 % 11.91 % 11.91 % 13.07 %

19 unchanged sentences

Derivative instruments that Management periodically uses as part of its interest rate risk management strategy may include interest rate swap agreements, interest rate floor agreements, and interest rate cap agreements.

At September 30, 2024, the Bank had one outstanding off-balance sheet, derivative instrument, designated as a cash flow hedge and four off-balance sheet, derivative instruments, designated as fair value hedges.

These derivative instruments were interest rate swap agreements, with notional principal amounts totaling $75.0 million and $150.0 million, respectively, and an unrealized loss of $2.1 million, net of taxes.

At March 31, 2025, the Bank had one outstanding off-balance sheet, derivative instrument, designated as a cash flow hedge and four off-balance sheet, derivative instruments, designated as fair value hedges.

The notional amounts and net unrealized gain (loss) of the financial derivative instruments do not represent exposure to credit loss.

1 unchanged sentence

The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that Management believes to be creditworthy and by limiting the amount of exposure to each counter-party.

At September 30, 2024, the Bank's derivative instrument counterparties had a composite credit rating of “A-” based upon the ratings of several major credit rating agencies.

At March 31, 2025, the Bank's derivative instrument counterparties had a composite credit rating of “A-” based upon the ratings of several major credit rating agencies.

The interest rate swap agreements were entered into by the Bank to limit its exposure to rising interest rates.

4 unchanged sentences

Credit risk is mitigated by prudent underwriting of the loan customer and financial institution counterparties.

As of September 30, 2024, the Bank had eight loan swap agreements in place with a total notional value of $85.3 million.

As of March 31, 2025, the Bank had 12 loan swap agreements in place with a total notional value of $116.3 million.

Contractual Obligations

The following table sets forth the contractual obligations of the Company as of September 30, 2024:

The following table sets forth the contractual obligations of the Company as of March 31, 2025:

Dollars in thousands

6 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis