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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-14 · 123 added, 163 removed, 343 unchanged (45% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

(Dollars in thousands except per share amounts and ratios)

The following is management's discussion and analysis of our financial condition and results of operations for the unaudited three and nine months ended September 30, 2024 and 2023.

(Dollars in thousands except per share amounts and ratios, unless otherwise noted)

The following is management's discussion and analysis of our financial condition and results of operations for the unaudited three months ended March 31, 2025 and 2024.

This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024 and with the unaudited interim condensed consolidated financial statements and notes, beginning on page 4 of this report.

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Executive Summary

Comparison of Operating Results for the three and nine months ended September 30, 2024, and 2023, unless otherwise noted

Net income in the third quarter of 2024 was $3,281, or $0.44 per diluted share, compared with $4,413, or $0.58 per diluted share, in the same quarter 2023.

The non-GAAP measure of adjusted net income in the third quarter 2024 totaled $4,559, or $0.61 per diluted share, compared to $4,354 or $0.58 per diluted share, in the same quarter of 2023.

Adjusted net income in the current year quarter excludes a $1,622 charge-off related to overdrawn deposit accounts from a single customer.

Net income for the year-to-date period of 2024 was $9,893, or $1.32 per diluted share, compared with $14,364, or $1.89 per diluted share, in the same period of 2023.

Adjusted net income was $11,112, or $1.48 per diluted share, compared with $14,193, or $1.87 per diluted share, for the respective periods.

The decrease in adjusted net income primarily reflects lower net interest income due to slower repricing of earning assets as compared to the rising costs of interest bearing liabilities.

The decrease in net income for the comparative periods also included an increase in provision and compensation expenses.

Net interest income was $14,488 in the third quarter of 2024 and $14,302 in the same quarter of 2023 representing 2.98% and 2.99% of earning assets, or NIM on an FTE basis, respectively.

The current year quarter NIM included a 6 basis point benefit due to the recovery of the contractual interest of two previously charged-off commercial loans.

The book yield from securities was 2.21% and 2.23% during the third quarters of 2024 and 2023, respectively.

The weighted average maturity of our U.S.

Treasury portfolio is less than two years, and the future proceeds are expected to be reinvested in market rate loans and securities, or to pay off borrowed funds.

Our yield on loans expanded to 5.73% in the third quarter 2024, up from 5.17% in the same quarter of 2023, which includes an increase of 8 basis points due to the recovery of previously charged-off loans.

Overall, our loan yields continued to expand due to higher rates on new loans and fixed rate commercial loans that have and continue repricing to variable rates.

At the end of the third quarter 2024, approximately 41% of commercial loans are fixed at rates that are lower than current market rates.

Most of those fixed rate loans will contractually reprice to variable rates over the next three to five years.

Our cost of interest bearing liabilities increased to 2.43% from 1.77% in the third quarter 2023 due to several interest rate hikes throughout 2023 and the associated remix from noninterest bearing deposits into higher tier money market and certificate of deposit accounts.

While we have experienced a downward trend in our NIM over the past several quarters, we are seeing a reversal of this trend as NIM has expanded 19 basis points over the last two quarters of 2024 as loans reprice and the cost of interest bearing liabilities stabilize.

For the first nine months of 2024, net interest income was $41,280 compared with $44,332 in the same period of 2023.

The comparison of NIM and yield on interest earning assets for the first nine months of 2024 were 2.87% and 4.62% compared to 3.13%, and 4.11% for the same period 2023.

The yield on loans expanded to 5.55%, from 4.95%, and our cost of interest bearing liabilities increased to 2.37% from 1.39% for the nine months of 2024 and 2023, respectively.

The explanations for the improvement in NIM are consistent with those provided in the year-over-year three-month comparison above.

The provision for credit losses was $946 in the third quarter of 2024, compared to a credit of $292 for the same period in 2023.

The provision for the current year quarter includes the impact from the recovery of the contractual principal of two previously charged-off commercial loans totaling $314.

Given the loan recoveries, our historical loss rate experience improved which provided a benefit of $435 during the quarter.

The benefits were offset by a $1,622 charge-off related to overdrawn deposit accounts from a single customer.

The loans to the customer and related parties are well collateralized, and no additional credit provisioning was necessary in the third quarter.

The credit in the prior year quarter mostly reflects loan recoveries in excess of charge-offs during the period.

For the first nine months of 2024, provision for credit losses was $1,508 and a reversal of $55 in the same period of 2023.

The reasons for the increase in provision for the nine month comparison are the same as the three month comparison.

Net loan charge-offs have been at historic lows for the past five years due to our disciplined underwriting standards.

Noninterest income for the three months ended September 30, 2024 and 2023 was $3,528 and $3,414, respectively.

Wealth management fees grew $145, or 17%, due to an increase in new accounts and higher market valuations.

Customer service fees increased $99 compared to the same quarter of 2023 based on a higher number of transaction accounts.

For the nine months of 2024, noninterest income was $10,604, compared to $10,311 in the same period of 2023.

The reasons for the increase in income for the nine month comparison are the same as the three month comparison.

Noninterest expenses for the three-month period ended September 30, 2024 increased $570, or 4.5%, in comparison to the same period in 2023.

Compensation and benefit expenses increased $612 reflecting annual merit increases in 2024, and higher incentive compensation as compared to the third quarter of 2023.

For the first nine months of 2024, noninterest expenses were $38,799, compared to $37,395 in the same period of 2023.

Annual merit increases and medical claims resulted in a $1,447 increase in compensation and benefit expenses for the first nine months of 2024.

Our year-to-date efficiency ratio is 73.65% in 2024 compared to 67.56% in 2023, which primarily reflects lower NIM and a relatively stable base of noninterest expense.

Financial Condition (September 30, 2024 to December 31, 2023 comparison)

Total assets increased $47,933 to $2,106,901 as of September 30, 2024 due to loan growth funded by growth in deposits during the third quarter.

Excess cash generated during the first nine months of 2024 was used to pay off wholesale borrowings totaling $19,633.

Our AFS securities portfolio totaled $506,806 at September 30, 2024, declining $21,342 due to municipal maturities and principal paydowns on mortgage-related securities.

Net unrealized losses at September 30, 2024 totaled $20,968, or 3.97%, of the portfolio.

The unrealized loss position on our AFS securities portfolio resulted from increases in short-term and intermediate-term benchmark interest rates.

Our bond portfolio has a very short remaining life with $220,000 of the U.S.

Treasury portfolio maturing by the end of 2026.

The $169,339 Collateral Mortgage Obligation portfolio has a projected weighted-average life of 3.5 years and most bonds are bulleted in structure.

Nearly half of the tax-exempt municipal portfolio will mature over the next five years.

Loans outstanding as of September 30, 2024 totaled $1,424,283.

Since December 31, 2023, gross loans have increased $74,820 as a result of growth in commercial loans and increased participation in advances to mortgage brokers.

Additional loan growth came from the residential real estate portfolio due to the slowing of prepayments on steady new volume.

At the end of September, $12.6 million of commercial real estate construction loans were closed and are expected to be funded early in the fourth quarter.

The ACL was $12,635 at September 30, 2024, a decrease of $473 from $13,108 at December 31, 2023.

Most of the decrease is due to improvement in historical loss experience, which was driven by the recovery of two previously charged-off loans during the quarter totaling $314.

Nonaccrual loans were $547 as of September 30, 2024 compared to $926 at December 31, 2023.

Past due and accruing accounts between 30 to 89 days as a percentage of total loans was 0.16% at September 30, 2024, compared to 0.29% at year-end 2023.

Comparison of Operating Results for the three months ended March 31, 2025, and 2024, unless otherwise noted

Net income in the first quarter of 2025 was $3,949, or $0.53 per diluted share, compared with $3,131, or $0.42 per diluted share, in the same quarter 2024.

The non-GAAP measure of adjusted net income in the first quarter 2025 totaled $4,254, or $0.57 per diluted share, compared to $3,076 or $0.41 per diluted share, in the same quarter of 2024.The increase in net income for the comparative periods includes an increase in core loan interest income and a decline in provision for credit losses, offset by an increase in noninterest expenses.

Net interest income was $14,525 in the first quarter of 2025 and $13,242 in the same quarter of 2024, representing 3.06% and 2.79% of earning assets, or NIM on an FTE basis, respectively.

The current year quarter NIM included a four basis point benefit due to the recovery of contractual interest from nonaccruing loans that paid off during the quarter.

The book yield from securities was 2.20% and 2.25% during the first quarters of 2025 and 2024, respectively.

Our yield on loans expanded to 5.71% in the first quarter 2025, up from 5.38% in the same quarter of 2024.

Excluding loan recoveries, the yield on loans was 5.65%.

The expansion in loan yields was a result of higher rates on new loans and variable rate commercial loans that have, and continue to, reprice.

At the end of the first quarter 2025, approximately 39% of commercial loans are fixed at rates that are lower than current market rates.

Most of those fixed rate loans will contractually reprice to variable rates over the next four years.

Our cost of interest-bearing liabilities decreased to 2.26% from 2.28% in the first quarter 2024 due to reductions to rates in the money market and certificate of deposit products.

NIM continues to expand as loans reprice and the cost of interest bearing liabilities stabilizes.

The provision for credit losses was a credit of $107 in the first quarter of 2025, which reflects the $160 change in the allowance for credit losses on loans and net recoveries totaling $52, offset by an increase in the reserve for unfunded commitments.

The provision for loan losses in the same period of 2024 was $392 reflecting $265 for specific reserves and $46 in net charge offs.

Noninterest income for the three months ended March 31, 2025 and 2024 was $3,528 and $3,468, respectively.

Wealth management fees grew $40, or 4%, on relatively flat assets under management as compared to the first quarter of 2024, due to a change in product mix that generated higher administrative fees.

AUM in the first quarter 2025 decreased 0.22% while the S&P 500 declined 4.6% in the same period.

Earnings on BOLI policies increased $129 over the prior year quarter due to new investments in a separate account BOLI.

Other noninterest income in the first quarter included a $55 loss on foreclosed assets, compared to a $69 gain in the first quarter 2024.

Noninterest expenses for the three-month period ended March 31, 2025 increased $623, or 4.9%, in comparison to the same period in 2024.

Compensation and benefit expenses increased $368 reflecting annual merit increases and higher medical insurance claims compared to the first quarter of 2024.

Other professional services included $121 in legal fees related to our previously announced Nasdaq uplisting application.

Income tax expense was $912, compared to $511 in the first quarter of 2024 and the ETR was 19% and 14%, respectively.

The ETR in the first quarter 2025 included a one-time expense totaling $166 due to the taxes owed from the lifetime earnings on BOLI policies that were surrendered during the quarter.

Excluding the one-time charge, the ETR was 15%, which is higher than the prior year quarter on higher pretax income.

Financial Condition (March 31, 2025 to December 31, 2024 comparison)

Total assets increased $16,346 to $2,102,587 as of March 31, 2025, primarily due to an increase of $38,681 in interest bearing cash, $18,997 in gross securities, and $10,951 increase in BOLI assets, offset by a $60,065 decrease in advances to mortgage brokers.

Our AFS securities portfolio totaled $513,040 at March 31, 2025, increasing $24,011 at the end of first quarter 2025.

The increase was driven by $40,362 in purchases of collateralized mortgage obligation securities with a weighted-average yield of 4.56%.

Amortization and maturities of $21,058 partially offset the increase from purchases.

Net unrealized losses at March 31, 2025 totaled $21,473, or 4.02%, of the portfolio and improved during the quarter due to the treasury portfolio rapidly approaching maturity and a decrease in market yields.

The par value and corresponding book yields that are estimated to mature or payoff by year include:

$54,500 in principal with a weighted-average book yield of 2.34% over the remainder of 2025;

$217,400 at 1.17% in 2026;

and $63,400 at 1.86% in 2027.

Some of these securities amortize so the actual principal paydown may differ from these estimates.

Loans outstanding as of March 31, 2025 totaled $1,367,724.

Since December 31, 2024, gross loans have decreased $55,847 as a result of a reduction in advance to mortgage brokers.

However, the decline in this non-core loan product has provided liquidity and the opportunity to refocus on loans that can be recorded on our balance sheet for longer terms and help to mitigate interest rate risk.

Core loans, which excludes advances to mortgage brokers, grew $4,218, driven by the commercial real estate and commercial and industrial loan portfolios of $4,787 and $4,326, respectively.

Loan growth during the first quarter primarily was in the construction, real estate, and hospitality industries.

The commercial pipeline is robust, with some anticipated loan closings in the first quarter extended into the second quarter 2025.

Residential mortgages increased $6,476 as customers are favoring adjustable-rate loans, which are put on the balance sheet rather than sold in the secondary market.

Core loan growth during the quarter was offset by a decline in agricultural and consumer loan portfolios that continue to roll off amid decreasing demand, competition and our adherence to credit quality standards.

The ACL was $12,735 at March 31, 2025, a decrease of $160 from $12,895 at December 31, 2024.

Most of the decline is due to improvement in historical loss experience, driven by the recovery of three previously charged-off loans during the quarter totaling $136, which led to an $88 reduction in the allowance.

Nonaccrual loans were $173 as of March 31, 2025 compared to $282 at December 31, 2024.

Past due and accruing accounts between 30 to 89 days as a percentage of total loans was 0.41% at March 31, 2025, compared to 0.40% at year-end 2024.

Overall, credit quality remains strong, and there are no negative trends.

Total deposits increased $58,137 since December 31, 2023, to $1,781,832 at the end of the third quarter 2024.

Consumer demand for retail certificates of deposit accounts continues based on the rate environment, resulting in a $37,223 increase in the balance during the first nine months of 2024.

Interest bearing demand deposits increased $55,855, while savings and demand deposits declined $27,929 and $7,012, respectively.

Total equity was $212,985 at September 30, 2024 compared to $202,402 at year-end 2023.

Our tangible book value per share was $22.14 as of September 30, 2024, compared to $20.59 on December 31, 2023.

BOLI assets were $45,833 at March 31, 2025, an increase of $10,951 from December 31, 2024.

The growth was mostly driven by a $10,583 investment of new policies in a separate account product at the beginning of January.

The investment transaction included a surrender of $5,431 of existing general account policies and redeployment into a separate account BOLI.

As part of BOLI restructuring, another $9,045 of general account policies will be exchanged for separate account BOLI, which is expected to be completed by the end of the third quarter.

The separate account BOLI currently yields 5.4%, compared to a weighted-average yield of 2.9% from existing general account policies.

Total deposits increased $50,849 from December 31, 2024, to $1,797,909 at March 31, 2025.

The growth was driven by the interest-bearing demand, money market, and savings deposits, collectively increasing $60,380 as we continue to deepen customer relationships.

Consumer demand for retail certificates of deposit accounts continues based on the rate environment, resulting in a $2,648 increase in the balance during the first three months of 2025.

Adversely, demand deposits declined $12,179 during the first quarter 2025.

Total equity was $215,556 at March 31, 2025 compared to $210,276 at year-end 2024.

Our tangible book value per share was $22.58 as of March 31, 2025, compared to $21.82 on December 31, 2024.

Net unrealized losses on AFS securities reduced tangible book value per share by $2.30 and $2.82 for the respective periods.

Share repurchases totaled 124,969 during the first nine months of 2024 for a value of $2,419 at an average price of $19.36.

Share repurchases totaled 45,582 during the first three months of 2025 for a value of $1,145 at an average price of $25.12.

We continue to have robust liquidity levels and capital.

As of September 30, 2024, we had $797,818 of unencumbered sources of liquidity and strong capital ratios;

As of March 31, 2025, we had $907,003 of unencumbered sources of liquidity and strong capital ratios;

the Tier 1 Leverage Ratio was 8.96%, Tier 1 risk-based capital was 12.58%, and Total risk-based capital was 15.50%.

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Subsequent Events

We evaluated subsequent events after September 30, 2024 through the date our interim condensed consolidated financial statements were issued for potential recognition and disclosure.

No subsequent events require financial statement recognition or disclosure between September 30, 2024 and the date our interim condensed consolidated financial statements were issued.

On April 2, 2025, we recovered the full contractual balance of overdrawn deposit accounts from one customer.

These accounts were charged off during the third quarter of 2024 in the amount of $1,622.

Additionally, we collected all legal fees associated with the loss and the full contractual balance of all commercial loans outstanding with this customer.

The recovery of losses and fees will be reflected in our second quarter 2025 results.

We evaluated subsequent events after March 31, 2025 through the date our interim condensed consolidated financial statements were issued for potential recognition and disclosure.

No other subsequent events require financial statement recognition or disclosure between March 31, 2025 and the date our interim condensed consolidated financial statements were issued.

Selected Financial Data (Unaudited)

The following table outlines our results of operations and provides certain performance measures as of, and for the:

Three Months Ended Nine Months Ended

2024 March 31

Three Months Ended

2025 December 31

2024 September 30

2023 September 30

2024 September 30

2024 March 31

Basic earnings $ 0.53 $ 0.54 $ 0.44 $ 0.47 $ 0.42

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Noninterest expenses 13 13 13 13 13

(1) At end of period

(1) Non-GAAP financial measure;

refer to the "Recconcilation of Non-GAAP Financial Measures" section

refer to the "Reconciliation of Non-GAAP Financial Measures" section

(2) At end of period

Average Balances, Interest Rates, and Net Interest Income

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Three Months Ended

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

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

Interest Average

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Interest bearing demand deposits $ 240,860 $ 242 0.41 % $ 232,271 $ 212 0.36 % $ 245,299 $ 201 0.33 %

Savings 599,679 3,437 2.28 % 613,601 3,321 2.18 % 595,372 2,156 1.44 %

Certificates of deposit 375,936 3,899 4.13 % 366,440 3,658 4.01 % 324,399 2,617 3.20 %

Short-term borrowings 48,151 384 3.17 % 40,593 321 3.18 % 46,574 284 2.42 %

FHLB advances 40,588 571 5.60 % 45,510 638 5.64 % 44,429 617 5.51 %

Subordinated debt, net of unamortized issuance costs

29,388 267 3.61 % 29,365 266 3.64 % 29,298 267 3.62 %

Total interest bearing liabilities 1,452,125 8,853 2.43 % 1,438,440 8,538 2.39 % 1,382,247 6,183 1.77 %

NONINTEREST BEARING LIABILITIES AND SHAREHOLDERS' EQUITY

Demand deposits 418,973 411,282 451,123

Other liabilities 15,658 16,755 16,802

Shareholders’ equity 208,444 200,734 190,957

Total liabilities and shareholders’ equity $ 2,095,200 $ 2,067,211 $ 2,041,129

Net interest income (FTE) $ 14,720 $ 13,787 $ 14,552

Net yield on interest earning assets (FTE) (4)

2.98 % 2.85 % 2.99 %

(1) Includes loans HFS and nonaccrual loans

(2) Average balances for AFS securities are based on amortized cost

(3) Includes average interest-bearing deposits with other banks, net of Federal Reserve daily cash letter

(4) Non-GAAP financial measure;

refer to the "Non-GAAP Financial Measures" section

Nine Months Ended

September 30, 2024 September 30, 2023

Average Balance Tax Equivalent Interest Average Yield/Rate Average Balance Tax Equivalent Interest Average Yield/Rate

INTEREST EARNING ASSETS

$ 1,376,122 $ 57,150 5.55 % $ 1,298,316 $ 48,090 4.95 %

AFS securities (2)

546,376 9,153 2.24 % 588,796 10,007 2.27 %

FHLB stock 12,762 472 4.94 % 12,762 226 2.37 %

Fed funds sold 6 — 5.59 % 11 — 5.08 %

17,941 750 5.58 % 30,005 1,029 4.59 %

Total interest earning assets 1,953,207 67,525 4.62 % 1,929,890 59,352 4.11 %

NONEARNING ASSETS

Allowance for credit losses (13,216) (12,786)

Cash and demand deposits due from banks 24,623 25,043

Premises and equipment 27,962 26,300

Other assets 83,878 75,239

Total assets $ 2,076,454 $ 2,043,686

INTEREST BEARING LIABILITIES

Interest bearing demand deposits $ 349,086 $ 1,042 0.40 % $ 356,608 $ 582 0.22 %

Money market deposits 460,663 2,929 2.58 % 436,235 2,970 2.71 % 451,476 3,212 2.86 %

Savings 286,364 538 0.76 % 276,856 446 0.64 % 282,971 333 0.47 %

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The following table displays loan balances as of:

2024 March 31

2025 December 31

2024 September 30

2024 March 31

2024 Annualized Growth %

Quarter to Date Annualized Growth %

Quarter to Date

Commercial and industrial $ 249,220 $ 244,894 $ 240,589 $ 238,245 $ 226,281 7.07 %

Commercial real estate 552,234 547,447 547,038 547,005 561,123 3.50 %

Advances to mortgage brokers 76,187 39,300 29,688 18,541 24,807 N/M N/M

Advances to mortgage brokers 3,015 63,080 76,187 39,300 29,688 N/M

Agricultural 94,359 99,694 96,794 94,996 93,695 (21.41) %

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The following table presents the composition of our commercial real estate portfolio by industry as of:

September 30, 2024 December 31, 2023

March 31, 2025 December 31, 2024

Balance Percent of Total Balance Percent of Total

Non-owner occupied $ 129,595 23.69 % $ 129,016 22.87 %

1-4 family investor $ 87,760 15.89 % $ 86,736 15.84 %

Multifamily 60,846 11.02 % 61,033 11.15 %

Owner occupied 25,395 4.64 % 27,758 4.92 %

All other 153,050 27.71 % 147,566 26.96 %

Hotels 83,511 15.12 % 83,426 15.24 %

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Accommodation services 11,597 2.10 % 11,786 2.15 %

Construction 11,252 2.04 % 10,901 1.99 %

Educational services 11,018 2.00 % 11,160 2.04 %

Wholesale trade 10,720 1.94 % 10,918 1.99 %

Construction 4,056 0.74 % 5,079 0.90 %

Other 33,046 5.99 % 34,757 6.35 %

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The following table displays deposit balances as of:

2024 March 31

2025 December 31

2024 September 30

2024 March 31

2024 Annualized Growth %

Quarter to Date Annualized Growth %

Quarter to Date

Noninterest bearing demand deposits $ 404,194 $ 416,373 $ 421,493 $ 412,193 $ 413,272 (11.70) %

Interest bearing demand deposits 243,939 237,548 228,902 232,660 250,314 10.76 %

Money market deposits 473,138 423,883 471,745 429,150 453,014 46.48 %

Savings 286,399 281,665 276,095 279,847 285,564 6.72 %

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The following table outlines our quarter-to-date asset quality analysis as of, and for the three-month periods ended:

2024 March 31

2025 December 31

2024 September 30

2024 March 31

NONPERFORMING ASSETS

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Nonperforming assets to total assets 0.04 % 0.04 % 0.06 % 0.08 % 0.09 %

ACL as a % of nonaccrual loans 2,309.87 % 1,317.40 % 1,043.65 % 1,334.83 % 2,455.19 %

Nonaccrual loans to gross loans 0.01 % 0.02 % 0.04 % 0.07 % 0.09 %

ACL as a % of nonaccrual loans N/M N/M N/M N/M N/M

ALLOWANCE FOR CREDIT LOSSES

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Net loan charge-offs (recoveries) (52) 102 1,359 393 46

Provision for credit losses - loans 899 98 328 722 (320)

(Reversal of) provision for credit losses - loans (212) 362 899 98 328

Allowance at end of period $ 12,735 $ 12,895 $ 12,635 $ 13,095 $ 13,390

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We are authorized to raise capital through dividend reinvestment, employee and director stock purchases, and shareholder stock purchases.

Pursuant to these authorizations, we issued 61,560 shares or $1,190 of common stock during the first nine months of 2024, as compared to 55,456 shares or $1,208 of common stock during the same period in 2023.

Pursuant to these authorizations, we issued 17,332 shares or $419 of common stock during the first three months of 2025, as compared to 22,456 shares or $447 of common stock during the same period in 2024.

We offer the Directors Plan in which participants purchase stock units through deferred fees, in lieu of cash payments.

Pursuant to this plan, we increased shareholders’ equity by $332 and $477 during the nine-month periods ended September 30, 2024 and 2023, respectively.

Pursuant to this plan, we increased shareholders’ equity by $167 and $218 during the three-month periods ended March 31, 2025 and 2024, respectively.

We also grant restricted stock awards pursuant to the RSP.

Pursuant to this plan, we increased shareholders’ equity by $71 during the first nine months of 2024, as compared to $219 during the same period in 2023.

Pursuant to this plan, we increased shareholders’ equity by $7 during the first three months of 2025, as compared to $25 during the same period in 2024.

We have publicly announced a common stock repurchase plan.

Pursuant to this plan, we repurchased 124,969 shares or $2,419 of common stock during the first nine months of 2024 and 124,320 shares or $2,906 during the first nine months of 2023.

As of September 30, 2024, we were authorized to repurchase up to an additional 145,837 shares of common stock.

Pursuant to this plan, we repurchased 45,582 shares or $1,145 of common stock during the first three months of 2025 and 36,484 shares or $740 during the first three months of 2024.

As of March 31, 2025, we were authorized to repurchase up to an additional 72,647 shares of common stock.

The FRB has established minimum risk-based capital guidelines.

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The following table sets forth our ratios as of:

2024 March 31

2025 December 31

2024 September 30

2024 March 31

Common equity tier 1 capital 12.58 % 12.21 % 12.08 % 12.37 % 12.36 %

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The committee reviews projected cash flows, key ratios, and liquidity available from both primary and secondary sources.

Our primary sources of liquidity are cash and cash equivalents and unencumbered AFS securities.

These categories totaled $340,365, or 16.15% of assets, as of September 30, 2024, compared to $381,417, or 18.52%, as of December 31, 2023.

The decrease in the amount and percentage of primary liquidity is a direct result of an increase in loans and a decrease in unencumbered AFS securities collateralizing non-market funding.

Our primary sources of liquidity are retail deposits, cash and cash equivalents, and unencumbered AFS securities.

Cash, cash equivalents and unencumbered AFS securities totaled $427,091, or 20.31% of assets, as of March 31, 2025, compared to $330,876, or 15.86%, as of December 31, 2024.

The increase in the amount and percentage of primary liquidity is a direct result of an increase in cash, driven by loan payoffs and deposit growth, and an increase in unencumbered AFS securities.

Liquidity is important for financial institutions because of their need to meet loan funding commitments, depositor withdrawal requests, and various other commitments including expansion of operations, investment opportunities, and payment of cash dividends.

Based on these same factors, daily liquidity could vary significantly.

Deposit accounts are our primary source of funds.

Our secondary sources include the ability to borrow from the FHLB, from the FRB, and through various correspondent banks in the form of federal funds purchased and a line of credit.

Our secondary sources include the ability to borrow from the FHLB, from the FRB, and through various correspondent banks in the form of federal funds purchased and lines of credit.

These funding methods typically carry a higher interest rate than traditional market deposit accounts.

Some borrowed funds, including FHLB advances, FRB Discount Window advances, and repurchase agreements, require us to pledge assets, typically in the form of AFS securities or loans, as collateral.

As of September 30, 2024, we had available lines of credit of $360,440.

As of March 31, 2025, we had available lines of credit of $377,824.

We monitor our daily liquidity position to meet our cash flow needs.

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Our liquidity stress testing is designed with consideration of these and other factors that could pose undue risk to liquidity.

Our liquidity position remained strong at September 30, 2024, which is illustrated in the following table:

2024 March 31

Our liquidity position remained strong at March 31, 2025, which is illustrated in the following table:

2025 December 31

2024 September 30

2024 March 31

Total cash and cash equivalents $ 69,179 $ 24,542 $ 27,378 $ 23,559 $ 25,218

11 unchanged sentences

Coverage ratio of uninsured deposits with total cash and liquidity 132 % 120 % 116 % 121 % 126 %

(1) In cludes estimated unencumbered lendable value of FHLB collateral of $200,000 as of September 30, 2024.

(1) In cludes estimated unencumbered lendable value of FHLB collateral of $260,000 as of March 31, 2025.

We utilize fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

21 unchanged sentences

We regularly monitor our projected net interest income sensitivity to ensure that it remains within established limits.

The following table summarizes our interest rate sensitivity for 12 and 24 months as of September 30, 2024.

The results displayed in the table reflect the modeling of immediate shifts in the yield curve and a flat balance sheet and may not reflect actual or expected changes.

September 30, 2024

The following tables summarize our interest rate sensitivity for 12 and 24 months as of March 31, 2025 and December 31, 2024.

The results displayed in the tables reflect the modeling of immediate shifts in the yield curve and a flat balance sheet and do not reflect actual or expected changes.

March 31, 2025

12 Months 24 Months

2 unchanged sentences

constant rate (4.74) % (2.14) % 2.00 % 3.99 % (6.32) % (3.14) % 1.98 % 3.48 %

December 31, 2024

12 Months 24 Months

Immediate basis point change assumption (short-term) -200 -100 100 200 -200 -100 100 200

Percent change in net interest income vs.

constant rate (3.44) % (1.55) % 1.45 % 2.83 % (4.67) % (2.18) % 1.22 % 2.00 %

Gap analysis, the secondary method to measure IRR, measures the cash flows and/or the earliest repricing of our interest-bearing assets and liabilities.

28 unchanged sentences

The following tables provide a detailed analysis, and reconciliation for, our non-GAAP financial measures as of, and for the:

Three Months Ended Nine Months Ended

2024 March 31

Three Months Ended

2025 December 31

2024 September 30

2023 September 30

2024 September 30

2024 March 31

Net income $ 3,949 $ 3,996 $ 3,281 $ 3,481 $ 3,131

Nonrecurring items:

Net gains on sale of AFS securities — — — — — — 67

Net gains (losses) on foreclosed assets (55) 74 4 6 69

Overdraft (charge-off) recoveries (1)

— 66 (1,622) — —

Income tax impact 340 (1) (14) (2) (16) 324 (46)

Total nonrecurring items (1,278) 5 55 6 59 (1,219) 171

Profitability initiative cost — (23) — — —

Legal fees related to Nasdaq (2)

(121) — — — —

Income tax impact on items above 37 (25) 340 (1) (14)

Income tax expense on BOLI surrender (3)

(166) — — — —

Adjusted net income (A) $ 4,254 $ 3,904 $ 4,559 $ 3,476 $ 3,076

9 unchanged sentences

Nonrecurring items

Net gains on sale of AFS securities — — — — — — 67

Net gains (losses) on foreclosed assets (55) 74 4 6 69

4 unchanged sentences

Net yield on interest earning assets (FTE) (C/E) 3.06 % 2.98 % 2.96 % 2.82 % 2.79 %

(1) Provision for credit losses impact of a $1,622 charge-off related to overdrawn deposit accounts from a single customer.

Three Months Ended Nine Months Ended

2024 March 31

2024 December 31

2023 September 30

2024 September 30

Average assets (F) 2,085,537 2,094,569 2,095,200 2,067,211 2,066,757

7 unchanged sentences

Adjusted return on average tangible shareholders' equity (A/H) 10.40 % 9.43 % 11.32 % 9.17 % 7.97 %

(1) Includes provision for credit losses related to overdrawn deposit accounts from a single customer in the third quarter of 2024

(2) Included in Other professional services in the consolidated statements of income

(3) Income tax expense on life to date earnings on BOLI policies surrendered

(4) Whole shares

2 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