What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-07 compared with 2025-08-08 · 165 added, 168 removed, 663 unchanged (33% 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 six months ended June 30, 2025 the ACL-Loans decreased by $42,000, the ACL-Off-Balance Commitments increased by $132,000 and the ACL-HTM Securities increased by $2,000.

In the nine months ended September 30, 2025 the ACL-Loans increased by $207,000, the ACL-Off-Balance Commitments increased by $154,000 and the ACL-HTM Securities decreased by $10,000.

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 June 30, 2025 the fair value of AFS securities increased by $3.6 million and the fair value of HTM securities decreased by $2.5 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.

As of September 30, 2025 the fair value of AFS securities decreased by $1.2 million and the fair value of HTM securities increased by $1.6 million from that of December 31, 2024.

The decrease in the fair value of AFS securities is attributable to a combination of rate-driven market price adjustments for the underlying securities, principal returned via maturity, call, or amortization, and new purchases.

The increase in the fair value of HTM securities is primarily attributable to rate-driven price adjustments for the underlying securities.

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.

17 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.

Risks and Uncertainties.

Global markets have calmed somewhat after experiencing heightened volatility amidst an escalation of trade disputes, and the continuing impacts of ongoing conflicts between Russia and Ukraine, and Israel and Hamas, as well as other conflicts globally.

All have the potential to reignite leading to economic uncertainty and geopolitical instability.

Domestically, a budget package which featured spending reforms and renewal of 2017 tax cuts, that had been scheduled to sunset, has been met favorably by markets, further lessening volatility.

The future economic outlook continues to be clouded pending the outcome of threatened tariffs amidst trade negotiations.

The FOMC has cited the potential for tariff induced rekindling of inflation in keeping interest rates unchanged year-to-date.

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

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.

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 six months ended June 30, For the quarter ended June 30,

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

Dollars in thousands

7 unchanged sentences

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

For the six months ended June 30, For the quarter ended June 30,

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

Dollars in thousands

12 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 six months ended June 30, For the quarter ended June 30,

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

Dollars in thousands

3 unchanged sentences

Average tangible shareholders' common equity $ 232,845 $ 216,643 $ 239,505 $ 223,084

To provide period-to-period comparison of operating results prior to consideration of credit loss provision and income taxes, the non-GAAP measure of Pre-Tax, Pre-Provision Net Income is presented.

To provide period-to-period comparison of operating results prior to consideration of credit loss provision and income taxes, the non-GAAP measure of PTPP Net Income is presented.

The following table provides a reconciliation to Net Income:

For the six months ended June 30, For the quarter ended June 30,

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

Dollars in thousands 2025 2024 2025 2024

4 unchanged sentences

Executive Summary

Net income for the six months ended June 30, 2025 was $15.1 million, up $2.9 million or 24.2% from the same period in 2024.

Earnings per common share on a fully diluted basis were $1.35 for the six months ended June 30, 2025, up $0.26 or 23.6% from the $1.10 posted for the same period in 2024.

Net income for the nine months ended September 30, 2025 was $24.2 million, up $4.5 million or 22.6% from the same period in 2024.

Earnings per common share on a fully diluted basis were $2.16 for the nine months ended September 30, 2025, up $0.39 or 21.5% from the $1.78 posted for the same period in 2024.

Dividends totaling $1.10 per share have been declared year-to-date, representing a payout to our shareholders of 50.3% of basic earnings per share for the period.

For the quarter ended June 30, 2025, net income was $8.1 million, up $1.9 million or 30.7% from the same period in 2024.

Earnings per common share on a fully diluted basis were $0.72 for the quarter ended June 30, 2025, up $0.17 or 30.0% from the $0.55 posted for the same period in 2024.

Net interest income on a tax-equivalent basis was up $6.3 million or 20.1% in the six months ended June 30, 2025 compared to the same period in 2024.

The tax equivalent net interest margin for the six months ended June 30, 2025, was 2.50%, up from 2.21% for the same period in 2024.

For the quarter ended September 30, 2025, net income was $9.1 million, up $1.5 million or 20.0% from the same period in 2024.

Earnings per common share on a fully diluted basis were $0.81 for the quarter ended September 30, 2025, up $0.13 or 19.3% from the $0.68 posted for the same period in 2024.

On a PTPP basis, earnings for the nine months ended September 30, 2025 were $31.1 million, up $7.8 million, or 33.6% from the prior year.

Net interest income on a tax-equivalent basis was up $10.0 million or 20.6% in the nine months ended September 30, 2025 compared to the same period in 2024.

The tax equivalent net interest margin for the nine months ended September 30, 2025, was 2.57%, up from 2.25% for the same period in 2024.

The period-to-period change in net interest income and net interest margin is attributable to favorable changes on both sides of the balance sheet as an increase in tax equivalent yield on earning assets was coupled with decrease in the cost of total liabilities.

For the quarter ended June 30, 2025, net interest income on a tax-equivalent

basis increased $3.3 million or 21.2% compared to the same period in 2024, with the net interest margin at 2.52% compared to 2.21% for the same period in 2024.

Non-interest income for the six months ended June 30, 2025 was $8.1 million, up $334,000 or 4.3%, from the six months ended June 30, 2024.

For the quarter ended September 30, 2025, net interest income on a tax-equivalent basis increased $3.7 million or 21.4% compared to the same period in 2024, with the net interest margin at 2.70% compared to 2.32% for the same period in 2024.

Non-interest income for the nine months ended September 30, 2025 was $12.6 million, up $687,000 or 5.8%, from the nine months ended September 30, 2024.

As compared to the prior year, service charges on deposit accounts were up $50,000, or 3.2%, and debit card revenue decreased $25,000 , or 0.6%.

Revenue at First National Wealth Management increased $305,000 or 8.3% over the same period and mortgage banking revenue increased $123,000 or 24.0%.

Non-interest expense for the six months ended June 30, 2025 was $25.0 million, up $2.0 million or 8.8% from the six months ended June 30, 2024.

Non-interest expense for the nine months ended September 30, 2025 was $37.8 million, up $2.8 million or 8.0% from the nine months ended September 30, 2024.

FDIC insurance premiums increased $331,000 from the same period in 2024, salaries and employee benefits increased 11.4% and other operating expense increased 2.0% over the same period.

Asset quality continues to be strong and stable.

Non-performing assets stood at 0.19% of total assets as of June 30, 2025, unchanged from December 31, 2024 and up modestly from 0.09% of total assets as of June 30, 2024.

Total past-due loans remain low and were 0.23% of total loans as of June 30, 2025, down from 0.40% and up from 0.15% of total loans as of December 31, 2024 and June 30, 2024, respectively.

The provision for credit losses on loans for the first six months of 2025 was $744,000, up from the $638,000 provisioned in the same period in 2024.

Net charge-offs for the six months ended June 30, 2025 were $786,000 or 0.067% of average loans on an annualized basis, compared to net recoveries of $25,000 or 0.002% as of the six months ended June 30, 2024.

The ACL for loans decreased $42,000 between December 31, 2024 and June 30, 2025, and now stands at 1.04% of loans outstanding as of June 30, 2025, as compared to 1.06% at December 31, 2024 and 1.10% at June 30, 2024.

The Company's balance sheet continued to expand in the first six months of 2025 as total assets increased $42.5 million or 1.3% year-to-date.

The loan portfolio increased $53.1 million or 2.3% in the six months ended June 30, 2025 and $146.3 million or 6.5% from a year ago.

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

Commercial loans increased by $31.4 million during the period, led by increases in owner-occupied commercial real estate of $12.7 million, non-owner occupied commercial real estate of $20.7 million, commercial & industrial loans of $15.6 million and multifamily of $28.2 million, and partially offset by a decrease of $46.6 million in the construction segment.

Residential term increased by $13.5 million and home equity loans increased by $11.2 million in the first six months of 2025.

The investment portfolio increased $2.3 million year-to-date and decreased $4.3 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 $19.9 million, or 0.7%, year-to-date to $2.71 billion.

Low-cost deposits (Demand, NOW, Savings) followed typical seasonal patterns and decreased $95.5 million in the period, money market balances increased $11.6 million, and local CDs decreased $3.6 million, year-to-date.

To balance this activity and to support earning asset growth, wholesale CDs have increased $67.7 million year-to-date and borrowings have increased by $49.9 million.

Non-performing assets stood at 0.30% of total assets as of September 30, 2025, up from 0.14% as of December 31, 2024 and up from 0.08% of total assets as of September 30, 2024.

Total past-due loans remain low and were 0.69% of total loans as of September 30, 2025, up from 0.40% and up from 0.14% of total loans as of December 31, 2024 and September 30, 2024, respectively.

The provision for credit losses on loans for the first nine months of 2025 was $1.4 million, up from the $58,000 provisioned in the same period in 2024.

Net charge-offs for the nine months ended September 30, 2025 were $1.2 million or 0.069% of average loans on an annualized basis, compared to net charge-offs of $89,000 or 0.005% as of the nine months ended September 30, 2024.

The ACL for loans increased $207,000 between December 31, 2024 and September 30, 2025, and now stands at 1.05% of loans outstanding as of September 30, 2025, as compared to 1.06% at December 31, 2024 and 1.04% at September 30, 2024.

The Company's balance sheet continued to expand in the first nine months of 2025 as total assets increased $41.5 million or 1.3% year-to-date.

The loan portfolio increased $57.6 million or 2.5% in the nine months ended September 30, 2025 and $91.3 million or 4.0% from a year ago.

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

Commercial loans increased by $21.4 million during the period, led by increases in owner-occupied commercial real estate of $16.7 million, non-owner occupied commercial real estate of $10.6 million, commercial & industrial loans of $11.1 million and multifamily of $27.8 million, and partially offset by a decrease of $48.0 million in construction loan balances.

Residential term loans increased by $19.8 million and home equity loans increased by $14.0 million in the first nine months of 2025.

The investment portfolio has decreased $8.6 million year-to-date and decreased $26.1 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 have increased $12.3 million, or 0.5%, in the nine months ended September 30, 2025 to $2.74 billion.

Low-cost deposits (Demand, NOW, Savings) have decreased $26.2 million year-to-date while money market balances have increased $81.8 million, and local CDs have increased $14.3 million.

Wholesale CDs have decreased $57.6 million year-to-date while borrowings have increased by $6.7 million.

Remaining well capitalized is a top priority for The Company.

The Company's total risk-based capital ratio was 13.31% as of June 30, 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 0.96% and return on average tangible common equity of 13.31% for the six months ended June 30, 2025 compared to 0.82% and 11.49%, 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 54.63% for the six months ended June 30, 2025 compared to 58.70% for the same period in 2024, the change being attributable primarily to higher levels of net interest income.

The Company's total risk-based capital ratio was 13.56% as of September 30, 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 1.02% and return on average tangible common equity of 13.91% for the nine months ended September 30, 2025 compared to 0.87% and 12.19%, respectively, for the same period in 2024.

The Company's PTPP return of average assets for the nine months ended September 30, 2025 was 1.30% compared to 1.03% in the prior year period.

Our non-GAAP efficiency ratio continues to be an important component in the Company's overall performance and stood at 53.12% for the nine months ended September 30, 2025 compared to 57.88% 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 $78.5 million for the six months ended June 30, 2025 was an increase of $7.0 million or 9.8% compared to total interest income of $71.5 million for the same period of 2024.

Total interest income of $119.5 million for the nine months ended September 30, 2025 was an increase of $9.7 million or 8.8% compared to total interest income of $109.8 million for the same period of 2024.

Nearly 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 $42.3 million for the six months ended June 30, 2025, was an increase of $735,000 or 1.8% compared to total interest expense for the six months ended June 30, 2024.

The increase was concentrated within borrowed funds expense which was up $734,000 based mostly in higher utilization of FHLB funding as compared to the prior year.

As a result, net interest income of $36.2 million for the six months ended June 30, 2025 was an increase of $6.3 million or 20.9% compared to net interest income of $30.0 million for the same period ended June 30, 2024.

The Company's net interest margin on a tax-equivalent basis for the six months ended June 30, 2025 was 2.50%, up from 2.21% for the first six months of 2024.

Tax-exempt interest income amounted to $5.3 million for the six months ended June 30, 2025 compared to $5.1 million for the six months ended June 30, 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 six months and quarters ended June 30, 2025 and 2024.

Total interest expense of $63.3 million for the nine months ended September 30, 2025, was a decrease of $203,000 or 0.3% compared to total interest expense for the nine months ended September 30, 2024.

Interest expense on deposits fell $737,000 year-to-date as compared to prior year on lower funding rates, partially countered by and increase in borrowed funds expense, up $534,000 year-to-date attributable to higher utilization of short-term FHLB funding as compared to the prior year.

As a result, net interest income of $56.3 million for the nine months ended September 30, 2025 was an increase of $9.9 million or 21.4% compared to net interest income of $46.4 million for the same period ended September 30, 2024.

The Company's net interest margin on a tax-equivalent basis for the nine months ended September 30, 2025 was 2.57%, up from 2.25% for the first nine months of 2024.

Tax-exempt interest income amounted to $8.0 million for the nine months ended September 30, 2025 compared to $7.8 million for the nine months ended September 30, 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 nine months and quarters ended September 30, 2025 and 2024.

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

For the six months ended

June 30, 2025 June 30, 2024

For the nine months ended

September 30, 2025 September 30, 2024

Dollars in thousands

7 unchanged sentences

Interest expense

Deposits 38,994 3.25 % 38,993 3.42 %

58,374 3.23 % 59,112 3.43 %

Other borrowings 4,899 3.51 % 4,365 3.48 %

3 unchanged sentences

Net interest margin 2.57 % 2.25 %

1 Prior period 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

June 30, 2025 June 30, 2024

September 30, 2025 September 30, 2024

Dollars in thousands

14 unchanged sentences

Net interest margin 2.70 % 2.32 %

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 six months and quarters ended June 30, 2025 compared to 2024.

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 nine months and quarters ended September 30, 2025 compared to 2024.

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

For the six months ended June 30, 2025 compared to 2024

For the nine months ended September 30, 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 June 30, 2025 compared to 2024

For the quarter ended September 30, 2025 compared to 2024

Dollars in thousands

11 unchanged sentences

Change in net interest income $ 1,025 $ 2,544 $ 97 $ 3,666

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

Average Daily Balance Sheets

The following table shows the Company's average daily balance sheets for the six months and quarters ended June 30, 2025 and 2024:

For the six months ended For the quarters ended

The following table shows the Company's average daily balance sheets for the nine months and quarters ended September 30, 2025 and 2024:

For the nine months ended For the quarters ended

Dollars in thousands

June 30, 2025 June 30, 2024 June 30, 2025 June 30, 2024

September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024

Cash and cash equivalents $ 26,033 $ 24,797 $ 28,404 $ 26,371

Interest-bearing deposits in other banks 6,368 5,102 10,704 5,568

Securities available for sale (includes tax exempt securities of $36,342 and $36,483 at June 30, 2025 and 2024, respectively)

Securities available for sale (includes tax exempt securities of $36,335 and $36,473 at September 30, 2025 and 2024, respectively)

276,153 274,732 273,897 278,609

Securities to be held to maturity, net of ACL (included tax exempt securities of $250,865 and $252,892 at June 30, 2025 and 2024, respectively)

Securities to be held to maturity, net of ACL (included tax exempt securities of $250,491 and $252,516 at September 30, 2025 and 2024, respectively)

367,375 379,438 364,847 377,361

28 unchanged sentences

Net unrealized loss on securities transferred from available for sale to held to maturity (48) (52) (51) (50)

Net unrealized gain on cash flow hedging derivative instruments 106 684 76 912

Net unrealized gain (loss) on cash flow hedging derivative instruments 52 592 (55) 410

Net unrealized gain on postretirement benefit costs 287 303 287 303

2 unchanged sentences

Non-Interest Income

Non-interest income of $8.1 million for the six months ended June 30, 2025 is an increase of $334,000 compared to the same period in 2024.

Service charges on deposit accounts were up $29,000, or 2.8%, debit card revenue was down $63,000, or 2.5%, and revenue at First National Wealth Management increased $196,000 or 8.0%.

Over the same period, Mortgage banking revenue was up $97,000, or 30.4%.

Non-interest income of $4.1 million for the quarter ended June 30, 2025 is a decrease of $28,000 compared to the same period in 2024.

Non-interest income of $12.6 million for the nine months ended September 30, 2025 is an increase of $687,000 compared to the same period in 2024.

Service charges on deposit accounts were up $50,000, or 3.2%, mortgage banking revenue was up $123,000, or 24.0%, revenue at First National Wealth Management increased $305,000 or 8.3%, and fee income derived from loan derivative transactions increased $204,000.

Over the same period, debit card revenue was down a modest $25,000, or 0.6%.

Non-interest income of $4.5 million for the quarter ended September 30, 2025 is an increase of $353,000 compared to the same period in 2024.

Non-Interest Expense

Non-interest expense of $25.0 million for the six months ended June 30, 2025 is an increase of 8.8% or $2.0 million compared to non-interest expense of $23.0 million for the same period in 2024.

Non-interest expense of $37.8 million for the nine months ended September 30, 2025 is an increase of 8.0% or $2.8 million compared to non-interest expense of $35.0 million for the same period in 2024.

Salaries and employee benefits increased $2.0 million, or 11.4%, attributable to a combination of salary adjustments, incentive compensation accruals, increased benefit costs, and several one-time expenses resulting from retirements.

1 unchanged sentence

FDIC insurance premiums increased by $331,000 due to balance sheet expansion.

Non-interest expense of $12.2 million for the quarter ended June 30, 2025 is an increase of 8.4% compared to non-interest expense of $11.3 million for the same period in 2024 due to the reasons mentioned.

Income taxes on operating earnings were $3.3 million for the six months ended June 30, 2025, up $728,000 from the same period in 2024.

The carrying value of the Company's investment portfolio increased by $2.3 million between December 31, 2024 and June 30, 2025 from $651.6 million to $653.9 million.

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

As of June 30, 2025, mortgage-backed securities had a carrying value of $274.9 million and a fair value of $264.8 million.

Non-interest expense of $12.8 million for the quarter ended September 30, 2025 is an increase of 6.3% compared to non-interest expense of $12.0 million for the same period in 2024 due to the reasons mentioned.

Income taxes on operating earnings were $5.3 million for the nine months ended September 30, 2025, up $1.1 million from the same period in 2024.

The carrying value of the Company's investment portfolio decreased by $8.6 million between December 31, 2024 and September 30, 2025 from $651.6 million to $643.0 million.

The change in value of the portfolio is attributable to lack of like-kind re-investment of incoming cash flow from amortizing investments and limited new purchases, partially countered by positive effects of interest rate movement on the fair value of AFS holdings.

As of September 30, 2025, mortgage-backed securities had a carrying value of $268.9 million and a fair value of $259.5 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 $60,000 at June 30, 2025.

This compares to $47,000 and $51,000, net of taxes, at December 31, 2024 and June 30, 2024, respectively.

The remaining unamortized balance of the net unrealized losses for the securities transferred from AFS to HTM was $40,000 at September 30, 2025.

This compares to $47,000 and $49,000, net of taxes, at December 31, 2024 and September 30, 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 June 30, 2025 and 2024 and December 31, 2024.

The following table sets forth the Company's investment securities at their carrying amounts as of September 30, 2025 and 2024 and December 31, 2024.

Dollars in thousands

June 30, 2025 December 31, 2024 June 30, 2024

September 30, 2025 December 31, 2024 September 30, 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 $198,000 as of June 30, 2025, $196,000 as of December 31, 2024 and $149,000 June 30, 2024.

The total ACL for HTM securities was $186,000 as of September 30, 2025, $196,000 as of December 31, 2024 and $224,000 September 30, 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 June 30, 2025.

The following table sets forth yields and contractual maturities of the Company's investment securities as of September 30, 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 June 30, 2025 amounted to $47.6 million, or 14.64% 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 September 30, 2025 amounted to $42.9 million, or 13.56% 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 June 30, 2025, the Company had AFS debt securities in an unrealized loss position with a fair value of $240.9 million and unrealized losses of $47.6 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 $228.9 million as of June 30, 2025, compared with $234.1 million at December 31, 2024.

As of September 30, 2025, the Company had AFS debt securities in an unrealized loss position with a fair value of $238.1 million and unrealized losses of $42.9 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 $232.9 million as of September 30, 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 June 30, 2025:

The following table summarizes AFS debt securities in an unrealized loss position for which an ACL has not been recorded at September 30, 2025:

Less than 12 months 12 months or more Total

12 unchanged sentences

Government-sponsored agencies & enterprises.

As of June 30, 2025, there were $5.5 million of unrealized losses on these securities compared to $6.2 million at December 31, 2024.

As of September 30, 2025, there were $5.2 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 June 30, 2025, there were $34.7 million of unrealized losses on these securities compared with $41.0 million at December 31, 2024.

As of September 30, 2025, there were $31.8 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 June 30, 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.

Management believes that the unrealized losses at September 30, 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 June 30, 2025, there were $7.4 million of unrealized losses on these securities compared to $6.9 million at December 31, 2024.

As of September 30, 2025, there were $5.9 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 June 30, 2025, all municipal bond issuers were current on contractually obligated interest and principal payments.

The Company attributes the unrealized losses at June 30, 2025 to changes in prevailing market yields and pricing spreads since the date the underlying securities were purchased, combined with general market conditions.

At September 30, 2025, all municipal bond issuers were current on contractually obligated interest and principal payments.

The Company attributes the unrealized losses at September 30, 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 June 30, 2025, there were $16,000 of unrealized losses on these securities compared with none at December 31, 2024.

As of September 30, 2025, there were $31,000 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 June 30, 2025, the Bank's investment in FHLBB stock totaled $6.7 million.

This compares to $6.2 million as of December 31, 2024 and $6.1 million as of June 30, 2024.

As of September 30, 2025, the Bank's investment in FHLBB stock totaled $5.9 million.

This compares to $6.2 million as of December 31, 2024 and $5.4 million as of September 30, 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 June 30, 2025.

No impairment losses have been recorded through September 30, 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 June 30, 2025 and 2024, and December 31, 2024.

The Bank's investment in FRBB stock totaled $1.0 million at September 30, 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 June 30, 2025.

No impairment losses have been recorded through September 30, 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 June 30, 2025 and 2024 and December 31, 2024.

As of September 30, 2025, the Bank had $333,000 in loans

held for sale.

This compares to no loans held for sale at December 31, 2024 and September 30, 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 six months of 2025, with total loans at $2.39 billion at June 30, 2025, up $53.1 million or 2.3% from total loans of $2.34 billion at December 31, 2024.

Commercial loans increased $31.4 million or 2.3% between December 31, 2024 and June 30, 2025, municipal loans increased $1.1 million or 1.8%, residential term loans increased $13.5 million, and home equity lines of credit increased $11.2 million.

The loan portfolio increased during the first nine months of 2025, with total loans at $2.40 billion at September 30, 2025, up $57.6 million or 2.5% from total loans of $2.34 billion at December 31, 2024.

Commercial loans increased $21.4 million or 1.5% between December 31, 2024 and September 30, 2025, municipal loans increased $6.8 million or 10.9%, residential term loans increased $19.8 million, and home equity lines of credit increased $14.0 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 June 30, 2025 and 2024 and December 31, 2024.

The following table summarizes the loan portfolio, by class, at September 30, 2025 and 2024 and December 31, 2024.

Dollars in thousands

June 30, 2025 December 31, 2024 June 30, 2024

September 30, 2025 December 31, 2024 September 30, 2024

Real estate owner occupied $ 375,263 15.6 % $ 358,588 15.3 % $ 348,287 15.1 %

10 unchanged sentences

Total loans $ 2,398,510 100.0 % $ 2,340,940 100.0 % $ 2,307,253 100.0 %

The following table sets forth certain information regarding the contractual maturities of the Bank's loan portfolio as of June 30, 2025.

The following table sets forth certain information regarding the contractual maturities of the Bank's loan portfolio as of September 30, 2025.

Dollars in thousands

12 unchanged sentences

Total loans $ 171,454 $ 518,195 $ 178,965 $ 1,529,896 $ 2,398,510

The following table provides a listing of loans by class, between variable and fixed rates as of June 30, 2025.

The following table provides a listing of loans by class, between variable and fixed rates as of September 30, 2025.

Fixed-Rate Adjustable-Rate Total

14 unchanged sentences

Loan Concentrations

As of June 30, 2025, the Bank had one concentration of loans in one particular industry that exceeded 10% of its total loan portfolio:

As of September 30, 2025, the Bank had one concentration of loans in one particular industry that exceeded 10% of its total loan portfolio:

(1) loans to lessors of residential buildings and dwellings, totaling $265.1 million, or 11.05% of total loans.

This compares to two concentrations of loans in one particular industry that exceeded 10% of its total loan portfolio:

(1) loans to hotels (except Casino hotels) and motels, totaling $246.0 million, or 10.95% of total loans, and (2) loans to lessors of residential buildings and dwellings, $243.3 million, or 10.83% of total loans, as of June 30, 2024.

This compares to two concentrations of loans in two particular industries that exceeded 10% of its total loan portfolio as of September 30, 2024:

(1) loans to hotels (except Casino hotels) and motels, totaling $243.6 million, or 10.56% of total loans, and (2) loans to lessors of residential buildings and dwellings, $255.5 million, or 11.07% of total loans, .

Credit Risk Management and Allowance for Credit Losses on Loans

22 unchanged sentences

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 June 30, 2025, IAL with specific reserves totaled $729,000 and the amount of such reserves was $326,000.

At September 30, 2025, IAL with specific reserves totaled $1.3 million and the amount of such reserves was $826,000.

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 June 30, 2025 is considered by Management to be appropriate to address the potential for credit losses inherent in the loan portfolio at that date.

The total ACL on loans at September 30, 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 June 30, 2025 and 2024 and December 31, 2024.

The following table summarizes the allocation of allowance by loan class as of September 30, 2025 and 2024 and December 31, 2024.

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

Dollars in thousands

June 30, 2025 December 31, 2024 June 30, 2024

September 30, 2025 December 31, 2024 September 30, 2024

Real estate owner occupied $ 5,130 15.6 % $ 5,045 15.3 % $ 5,119 15.1 %

10 unchanged sentences

Total $ 25,078 100.0 % $ 24,871 100.0 % $ 23,999 100.0 %

A breakdown of the ACL on loans as of June 30, 2025, by loan class and allowance element, is presented in the following table:

A breakdown of the ACL on loans as of September 30, 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 $744,000 for the first six months of 2025 and $638,000 the first six months of 2024.

Net charge-offs were $786,000 in the first six months of 2025, compared to net recoveries of $25,000 in the first six months of 2024.

The ACL as a percentage of outstanding loans was 1.04% as of June 30, 2025, down slightly from 1.06% as of December 31, 2024, and down from 1.10% as of June 30, 2024.

The following table summarizes the activities in the ACL for the six months ended June 30, 2025 and 2024 and for the year ended December 31, 2024:

The provision for credit losses to maintain the allowance was $1.4 million for the first nine months of 2025 and $58,000 the first nine months of 2024.

Net charge-offs were $1.2 in the first nine months of 2025, compared to net charge-offs of $89,000 in the first nine months of 2024.

The ACL as a percentage of outstanding loans was 1.05% as of September 30, 2025, down slightly from 1.06% as of December 31, 2024, and up slightly from 1.04% as of September 30, 2024.

The following table summarizes the activities in the ACL for the nine months ended September 30, 2025 and 2024 and for the year ended December 31, 2024:

Dollars in thousands

June 30, 2025 December 31, 2024 June 30, 2024

September 30, 2025 December 31, 2024 September 30, 2024

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

22 unchanged sentences

Total 113 284 252

Net loans charged off (recovered) 786 463 (25)

Net loans charged off 1,227 463 89

Credit loss expense 1,434 1,304 58

Balance at end of period $ 25,078 $ 24,871 $ 23,999

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

Ratio of net loans charged off to average loans outstanding 1

0.069 % 0.021 % 0.005 %

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 $846,000 as of June 30, 2025.

The ACL for unfunded commitments is reported on the Company's consolidated balance sheets within other liabilities and totaled $868,000 as of September 30, 2025.

Nonperforming Loans

9 unchanged sentences

All payments made on non-accrual loans are applied to the principal balance of the loan.

Nonperforming loans, expressed as a percentage of total loans, totaled 0.25% at June 30, 2025 compared to 0.18% at December 31, 2024 and 0.11% at June 30, 2024.

The following table shows the distribution of nonperforming loans by class as of June 30, 2025 and 2024 and December 31, 2024:

Nonperforming loans, expressed as a percentage of total loans, totaled 0.40% at September 30, 2025 compared to 0.18% at December 31, 2024 and 0.11% at September 30, 2024.

The following table shows the distribution of nonperforming loans by class as of September 30, 2025 and 2024 and December 31, 2024:

Dollars in thousands

June 30, 2025 December 31, 2024 June 30, 2024

September 30, 2025 December 31, 2024 September 30, 2024

Real estate owner occupied $ 3,891 553 $ 367

13 unchanged sentences

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

As of June 30, 2025, loans 90 or more days past due and still accruing interest totaled $457,000, compared to $1.0 million at December 31, 2024 and $87,000 at June 30, 2024.

As of September 30, 2025, loans 90 or more days past due and still accruing interest totaled $1.5 million, compared to $1.0 million at December 31, 2024 and $405,000 at September 30, 2024.

Loan Modifications Made to Borrowers Experiencing Financial Difficulty

2 unchanged sentences

Past Due Loans

The Bank's overall loan delinquency ratio was 0.23% at June 30, 2025 compared to 0.40% at December 31, 2024 and 0.15% at June 30, 2024.

Loans 90 or more days delinquent and accruing decreased from $1.0 million at December 31, 2024 to $457,000 as of June 30, 2025.

The following table sets forth loan delinquencies as of June 30, 2025 and 2024 and December 31, 2024:

The Bank's overall loan delinquency ratio was 0.69% at September 30, 2025 compared to 0.40% at December 31, 2024 and 0.14% at September 30, 2024.

Loans 90 or more days delinquent and accruing increased from $1.0 million at December 31, 2024 to $1.5 million as of September 30, 2025.

The following table sets forth loan delinquencies as of September 30, 2025 and 2024 and December 31, 2024:

Dollars in thousands

June 30, 2025 December 31, 2024 June 30, 2024

September 30, 2025 December 31, 2024 September 30, 2024

Real estate owner occupied $ 4,204 $ 549 $ 162

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 June 30, 2025, there were two potential problem loans reported with a balance of $106,000 or 0.004% of total loans.

At September 30, 2025, there were 11 potential problem loans reported with a balance of $5.4 million or 0.227% 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 June 30, 2025, there were two residential loans in the process of foreclosure totaling $859,000.

As of September 30, 2025, there were three residential loans in the process of foreclosure totaling $935,000 and one home equity line of credit totaling $63,000.

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 June 30, 2025, there were no commercial loans in the process of foreclosure.

As of September 30, 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.

7 unchanged sentences

There were no issues requiring management attention in the most recent review.

Servicing for others includes loans sold to

FHLMC, FNMA, and the FHLBB through its MPF program.

Servicing for others includes loans sold to FHLMC, FNMA, and the FHLBB through its MPF program.

The Bank follows the published guidelines of each investor.

6 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 June 30, 2025 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, and June 30, 2024, when there was one OREO property with a balance of 208,000, with no allowance for losses.

The table below presents the composition of OREO at June 30, 2025 and 2024, and December 31, 2024:

At September 30, 2025 there were no OREO properties and no allowance for losses.

This compares to December 31, 2024 and September 30, 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 September 30, 2025 and 2024, and December 31, 2024:

Dollars in thousands

June 30, 2025 December 31, 2024 June 30, 2024

September 30, 2025 December 31, 2024 September 30, 2024

Carrying Value

8 unchanged sentences

Consumer — — —

Total — 35 35

Term — 173 173

4 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 85.0% of total average assets in the first six months of 2025, down slightly from 85.7% 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 nine months of 2025, down slightly from 85.3% 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.

3 unchanged sentences

Management has developed quantitative models to estimate needs for contingent funding that could result from unexpected outflows of funds in excess of "business as usual" cash flows.

Management's estimation, risks are concentrated amongst several major categories:

In Management's estimation, risks are concentrated amongst several major categories:

runoff of in-market deposit balances, an inability to renew wholesale sources of funding, and materially increased utilization of available credit lines by borrowers.

9 unchanged sentences

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

As of June 30, 2025, the Bank had primary sources of contingent liquidity of $872.0 million or 27.5% of its total assets.

As of September 30, 2025, the Bank had primary sources of contingent liquidity of $970.0 million or 30.6% 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 six-month periods ended June 30, 2025 and 2024 the Bank declared dividends to the Company of $8.2 million and $7.9 million, respectively.

For the nine-months periods ended September 30, 2025 and 2024 the Bank declared dividends to the Company of $12.3 million and $11.9 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 six months of 2025, total deposits decreased by $19.9 million or 0.7% from December 31, 2024 levels.

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

In the first six months of 2025 low-cost deposits (demand, NOW, and savings accounts) decreased by $95.5 million or 7.7% .

Money market deposits increased $11.6 million or 3.1%, and certificates of deposit increased $64.0 million or 5.7% as depositors shifted balances to higher cost product types and brokered certificates of deposit were issued to support earning asset growth.

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

Between June 30, 2024 and June 30, 2025, total deposits increased by $127.3 million or 4.9%.

Low-cost deposits decreased by $10.9 million or 1.0%, money market accounts increased $71.1 million or 22.4%, and certificates of deposit increased $67.1 million or 6.0%.

Estimated uninsured deposits totaled $479.3 million or 17.7% of total deposits as of June 30, 2025, and $506.2 million or 18.6% of total deposits as of December 31, 2024.

During the first nine months of 2025, total deposits increased by $12.3 million or 0.5% from December 31, 2024 levels.

In the first nine months of 2025 low-cost deposits (demand, NOW, and savings accounts) decreased by $26.2 million or 2.1%, money market deposits increased $81.8 million or 21.7%, and certificates of deposit decreased $43.3 million or 3.9%.

Between September 30, 2024 and September 30, 2025, total deposits increased by $34.8 million or 1.3%.

Low-cost deposits decreased by $25.7 million or 2.1%, money market accounts increased $114.3 million or 33.2%, and certificates of deposit decreased $53.8 million or 4.8%.

Over both the year-to-date and year-over-year periods, management has observed a modest shift of low-cost deposits to higher cost money market deposits.

The reduction in certificate of deposit balances is principally the result of redemption of non-local time deposits.

Estimated uninsured deposits totaled $538.2 million or 19.7% of total deposits as of September 30, 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 $347.7 million and $349.8 million as of June 30, 2025 and December 31, 2024, respectively.

these amounts were $365.4 million and $349.8 million as of September 30, 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 six months ended June 30, 2025, total borrowed funds increased $49.9 million.

This change consisted of a $36.1 million increase in short-term FHLBB advances and a $13.8 million increase in customer repurchase agreement balances;

long-term borrowings from FHLBB were unchanged.

Between June 30, 2024 and June 30, 2025, total borrowed funds decreased by $34.5 million centered in redemption of a $25.0 million advance from FRBB under the Bank Term Financing Program.

During the nine months ended September 30, 2025, total borrowed funds increased $6.7 million;

between September 30, 2024 and September 30, 2025, total borrowed funds increased by $1.9 million.

For both the year-to-date and year-over-year periods, the change in borrowed funds outstanding is mostly attributable to changes in customer repurchase agreement balances.

FRBB borrowings were zero as of each date and FHLBB borrowings increased by $500,000 in the third quarter of 2025.

Capital Resources

Shareholders' equity as of June 30, 2025 was $265.5 million, compared to $252.5 million as of December 31, 2024 and $244.7 million as of June 30, 2024.

The Company's earnings in the first six months of 2025, net of dividends declared, added $7.0 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 $37.2 million as of June 30, 2025 and was $42.7 million as of December 31, 2024.

Shareholders' equity as of September 30, 2025 was $274.6 million, compared to $252.5 million as of December 31, 2024 and $256.8 million as of September 30, 2024.

The Company's earnings in the first nine months of 2025, net of dividends declared, added $11.9 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 $33.5 million as of September 30, 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 $0.37 per share was declared in the second quarter of 2025.

The dividend payout ratio, which is calculated by dividing dividends declared per share by basic earnings per share, was 53.40% for the first six months of 2025 compared to 64.31% for the same period in 2024.

A cash dividend of $0.37 per share was declared in the third quarter of 2025.

The dividend payout ratio, which is calculated by dividing dividends declared per share by basic earnings per share, was 50.34% for the first nine months of 2025 compared to 59.81% 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 June 30, 2025.

The following tables indicate the capital ratios for the Bank and the Company at June 30, 2025 and December 31, 2024:

As of June 30, 2025 Leverage Common Equity Tier 1 Tier 1 Total Risk-Based

The Company met each of the well-capitalized ratio guidelines at September 30, 2025.

The following tables indicate the capital ratios for the Bank and the Company at September 30, 2025 and December 31, 2024:

As of September 30, 2025 Leverage Common Equity Tier 1 Tier 1 Total Risk-Based

Bank 8.62 % 12.33 % 12.33 % 13.50 %

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 June 30, 2025, the Bank had one outstanding off-balance sheet, derivative instrument, designated as a cash flow hedge and three 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 $110.0 million, respectively, and an unrealized loss of $365,000, net of taxes.

At September 30, 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.

Notional principal amounts totaled $75.0 million for the cash flow hedge and $160.0 million for the fair value hedges, with a cumulative unrealized loss of $573,000, net of taxes.

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 June 30, 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.

At September 30, 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 and interest rate cap agreements were entered into by the Bank to limit its exposure to rising interest rates.

The Bank also enters into swap arrangements with qualified loan customers as a means to provide these customers with access to long-term fixed interest rates for borrowings, and simultaneously enters into a swap contract with an approved third- party financial institution.

3 unchanged sentences

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

As of June 30, 2025, the Bank had 12 loan swap agreements in place with a total notional value of $115.4 million.

As of September 30, 2025, the Bank had 17 loan swap agreements in place with a total notional value of $138.3 million.

Contractual Obligations

The following table sets forth the contractual obligations of the Company as of June 30, 2025:

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