What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-10 compared with 2025-08-11 · 107 added, 193 removed, 409 unchanged (42% of the section changed)

1 unchanged sentence

(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 periods covered by this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2025 (this “Form 10-Q”).

The following is management's discussion and analysis of our financial condition and results of operations for the unaudited periods covered by this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2025 (this “Form 10-Q”).

This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the SEC on March 12, 2025 (the “2024 Annual Report on Form 10-K”) and with the unaudited interim condensed consolidated financial statements and notes, beginning on page 4 of this Form 10-Q.

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There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

• potential recession in the United States and our market areas;

• slower economic growth rates or potential recession in the United States and our market areas;

• the impacts related to or resulting from uncertainty in the banking industry as a whole;

• increased competition for deposits and related changes in deposit customer behavior;

• increased competition for deposits among traditional and nontraditional financial services companies, and related changes in deposit customer behavior;

• the lingering inflationary pressures, and the risk of the resurgence of elevated levels of inflation, in the United States and our market areas, and its impact on market interest rates, the economy and credit quality;

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• business and economic conditions, particularly those affecting our market areas, as well as the concentration of our business in such market areas;

• adverse changes in customer spending and savings habits;

• adverse changes in customer spending, borrowing, and savings habits;

• the impact of pandemics, epidemics, or any other health-related crisis;

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Because of these risks and other uncertainties, our actual future results, performance or achievements, or industry results, may be materially different from the results indicated by the forward-looking statements in this Form 10-Q.

In addition, our past results of operations are not necessarily indicative of our future results.

In addition, our past results of operations are not

necessarily indicative of our future results.

Accordingly, you should not rely on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which such forward-looking statements were made.

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Non-GAAP financial measures do not include operating and other statistical measures or ratios, or statistical measures calculated using exclusively either financial measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.

The non-GAAP financial measures that we discuss in this Quarterly Report on Form 10-Q should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP.

We believe that, from time to time, these non-GAAP financial measures provide additional understanding of ongoing operations, enhance the comparability of our results of operations with prior periods and show the effects of significant gains and charges in the periods presented without the impact of items or events that may obscure trends in our underlying performance.

However, there may be limits in the usefulness of these measures to investors.

The way we calculate the non-GAAP financial measures that we discuss in this Quarterly Report on Form 10-Q may differ from that of other companies reporting measures with similar names.

Investors should understand how such other banking organizations calculate their financial measures similar to, or with names like, the non-GAAP financial measures we have discussed in this Quarterly Report on Form 10-Q when comparing such non-GAAP financial measures.

As a result, the non-GAAP financial measures that we discuss in this Quarterly Report on Form 10-Q should not be considered in isolation or as a substitute for the most directly comparable or other financial measures calculated in accordance with GAAP.

Moreover, the manner in which we calculate the non-GAAP financial measures that we discuss in this report may differ from that of other companies reporting measures with similar names.

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Executive Summary

Comparison of Operating Results for the three and six months ended June 30, 2025, and 2024, unless otherwise noted

Net income in the second quarter of 2025 was $5,031, or $0.68 per diluted share, compared with $3,481, or $0.46 per diluted share, in the same quarter 2024.

The non-GAAP measure of adjusted net income in the second quarter 2025 totaled $4,096, or $0.55 per diluted share, compared to $3,476 or $0.46 per diluted share, in the same quarter of 2024.

Comparison of Operating Results for the three and nine months ended September 30, 2025, and 2024, unless otherwise noted

Net income in the third quarter of 2025 was $5,240, or $0.71 per diluted share, compared with $3,281, or $0.44 per diluted share, in the same quarter of 2024.

Net income for the year-to-date period of 2025 was $14,220, or $1.92 per diluted share, compared with $9,893, or $1.32 per diluted share, in the same period of 2024.

Adjusted net income was $8,350, or $1.13 per diluted share, compared with $6,553, or $0.87 per diluted share, for the respective periods.

Net interest income was $15,129 in the second quarter of 2025 and $13,550 in the same quarter of 2024, representing 3.14% and 2.82% of earning assets, or NIM on an FTE basis, respectively.

The book yield from securities was 2.38% and 2.17% during the second quarters of 2025 and 2024, respectively.

Our yield on loans expanded to 5.71% in the second quarter 2025, up from 5.50% in the same quarter of 2024.

Net interest income was $16,162 in the third quarter of 2025 and $14,488 in the same quarter of 2024, representing 3.15% and 2.96% of earning assets, or NIM on an FTE basis, respectively.

The book yield from securities was 2.42% and 2.17% during the third quarters of 2025 and 2024, respectively.

Our yield on loans expanded to 5.78% in the third quarter of 2025, up from 5.72% in the same quarter of 2024.

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

At the end of the second quarter 2025, approximately 38% of commercial loans were fixed at rates that are lower than current market.

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

Our cost of interest-bearing liabilities in the second quarter 2025 decreased to 2.24% from 2.38% in the second quarter 2024 due to reductions to rates in the money market and certificate of deposit products.

NIM is expected to continue to expand as loans reprice and the cost of interest-bearing liabilities stabilizes.

For the first six months of 2025, net interest income was $29,654 compared with $26,792 in the same period of 2024.

The comparison of NIM and yield on interest earning assets for the six months ending June 30, 2025 were 3.10% and 4.78%, respectively, compared to 2.81% and 4.54%, respectively, for the same period in 2024.

The yield on loans expanded to 5.72%, from 5.45%, and our cost of interest bearing liabilities decreased to 2.25% from 2.33% for the first six months of 2025 and 2024, respectively.

Our cost of interest-bearing liabilities in the third quarter of 2025 decreased to 2.25% from 2.42% in the third quarter of 2024 due to reductions to rates in the money market and certificate of deposit products.

NIM is expected to continue to expand as assets reprice and the cost of interest-bearing liabilities stabilizes.

For the first nine months of 2025, net interest income was $45,816 compared with $41,280 in the same period of 2024.

The comparison of NIM and yield on interest earning assets for the nine months ending September 30, 2025 were 3.12% and 4.80%, respectively, compared to 2.87% and 4.62%, respectively, for the same period in 2024.

The yield on loans expanded to 5.75%, from 5.55%, and our cost of interest bearing liabilities decreased to 2.25% from 2.36% for the first nine months of 2025 and 2024, 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 a credit of $1,099 in the second quarter of 2025, which reflects net recoveries totaling $1,432, partially offset by a $242 increase in the ACL on loans and an increase in the reserve for unfunded commitments.

Recoveries totaled $1,822, of which $1,556 were related to overdrawn deposit accounts from a single customer charged off during the third quarter of 2024.

The provision for loan losses in the same period of 2024 was $170 due to growth in core loans, which excludes advances to mortgage brokers (non-GAAP), and unfunded commitments.

For the first half of 2025, provision for credit losses was a credit of $1,206 compared to a provision of $562 in the same period of 2024.

The drivers of the credit and provision for the six month comparison are consistent with those provided in the three month comparison above.

The provision for credit losses was a credit of $209 in the third quarter of 2025, which reflects a $172 increase in the ACL on loans, net charge offs totaling $74, and an increase in the reserve for unfunded commitments.

The provision for loan losses in the same period of 2024 was $946 due to growth in core loans (non-GAAP), which excludes advances to mortgage brokers, unfunded commitments, and $1,767 in charge offs.

The increase in charge offs was related to overdrawn deposit accounts from a single customer.

For the first nine months of 2025, the provision for credit losses was a credit of $997 compared to a provision of $1,508 in the same period of 2024.

Recoveries totaled $2,147, of which $1,556 were related to the overdrawn deposit accounts from a single customer charged off during the third quarter of 2024.

Credit quality remains strong with low levels of past due and nonaccrual loans and net charge offs.

The Corporation continues to closely monitor credit quality in light of the continued economic uncertainty caused by, among other factors, the interest rate environment, employment data in recent periods, continued uncertainty regarding U.S.

trade and tariff policy and the lingering inflationary pressures, and the risk of the resurgence of elevated levels of inflation, in the United States and our market areas.

trade and tariff policy, and the risk of the resurgence of elevated levels of inflation, in the United States and our market areas.

Accordingly, additional provisions for credit losses may be necessary in future periods.

Noninterest income for the three months ended June 30, 2025 and 2024 was $3,686 and $3,608, respectively.

Noninterest income for the three months ended September 30, 2025 and 2024 was $4,308 and $3,528, respectively.

Service charges and fees increased $219 as a result of profitability initiatives designed to increase fee income.

Wealth management fees grew $36 due to growth in assets under management as compared to the second quarter of 2024.

AUM totaled $678,959, $656,617, and $647,850 as of June 30, 2025, March 31, 2025, and June 30, 2024, respectively.

Wealth management fees grew $71 due to growth in assets under management throughout the year.

Earnings on BOLI policies increased $216 over the prior year quarter due to new investments in a separate account BOLI, which was offset in part by a one-time expense of $120 due to restructuring charges.

For the first six months of 2025, noninterest income was $7,214, compared to $7,076 in the same period of 2024.

Service charges and fees, wealth management fees, and earnings on BOLI policies increased $89, $76, and $176, respectively.

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

Noninterest expenses for the three-month period ended June 30, 2025 increased $850 in comparison to the same period in 2024.

Compensation and benefit expenses increased $526 reflecting annual merit increases in 2025, incentives, and higher medical insurance claims compared to the second quarter of 2024.

Other professional services increased $336 primarily due to $173 in fees related to profitability initiative costs and $47 in legal fees related to our Nasdaq uplisting.

For the first six months of 2025, noninterest expenses were $27,044, compared to $25,571 in the same period of 2024.

Other noninterest income includes a $163 gain on the redemption of a BOLI policy.

For the first nine months of 2025, noninterest income was $11,522, compared to $10,604 in the same period of 2024.

Service charges and fees, wealth management fees, earnings on BOLI policies, and other income increased $308, $147, $392, and $94, respectively.

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

Noninterest expenses for the three-month period ended September 30, 2025 increased $757 in comparison to the same period in 2024.

Compensation and benefit expenses increased $379 reflecting annual merit increases in 2025, incentives, and higher medical insurance claims compared to the third quarter of 2024.

Other professional services increased $263 primarily due to a temporary increase in outsourced services.

For the first nine months of 2025, noninterest expenses were $41,029, compared to $38,799 in the same period of 2024.

Compensation and benefits increased $1,273 for the same reasons as the three month comparison.

Other professional service fees increased $534 principally due to the second quarter profitability initiative costs and $168 in legal fees related to our Nasdaq uplisting.

Income tax expense for the three months ended June 30, 2025 and 2024 was $1,138 and $612 and the ETR was 18% and 15%, respectively.

Other professional service fees increased $797 principally due to $173 of profitability initiative costs, $168 in legal fees related to our Nasdaq uplisting, and temporary increases in outsourced services.

Offsetting these increases was a $407 decline in other losses, largely due to fraudulent related activity.

Income tax expense for the three months ended September 30, 2025 and 2024 was $1,036 and $561 and the ETR was 17% and 15%, respectively.

The increase in the ETR was primarily due to a higher annual forecast of pretax income.

Income tax expense for the first six months of 2025 was $2,050, compared to $1,123 in the same period of 2024 and the ETR was 19% and 15%, respectively.

The ETR in the first six months of 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 first quarter.

Excluding the one-time charge, the ETR was 17%, which is higher than the prior year due to a higher annual forecast of pretax income.

Financial Condition (June 30, 2025 to December 31, 2024 comparison)

Total assets increased $69,927 to $2,156,168 as of June 30, 2025, primarily due to an increase of $72,596 in interest bearing cash, $11,531 increase in AFS securities, and a $10,892 increase in BOLI policies, offset by a $26,058 decrease in gross loans.

Our AFS securities portfolio totaled $500,560 at June 30, 2025, increasing $11,531 at the end of second quarter 2025.

The increase was driven by $51,000 in purchases with a weighted-average yield of 4.63%.

Amortization and maturities of $47,819 offset the increase from purchases.

Net unrealized losses at June 30, 2025 totaled $17,594, or 3.40%, 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:

$28,200 in principal with a weighted-average book yield of 2.36% over the remainder of 2025;

$217,400 at 1.17% in 2026;

and $63,000 at 1.87% in 2027.

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

Gross loans decreased $26,058 to $1,397,513 as of June 30, 2025 totaled $1,397,513.

Income tax expense for the first nine months of 2025 was $3,086, compared to $1,684 in the same period of 2024 and the ETR was 18% and 15%, respectively.

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

Excluding the one-

time charge, the ETR was 17% for the first nine months of 2025, which is higher than the prior year due to a higher annual forecast of pretax income.

Financial Condition (September 30, 2025 to December 31, 2024 comparison)

Total assets increased $173,413 to $2,259,654 as of September 30, 2025, primarily due to an increase of $127,465 in interest bearing cash, a $22,941 increase in AFS securities, and a $10,769 increase in BOLI policies.

Our AFS securities portfolio totaled $511,970 at September 30, 2025, increasing $22,941 at the end of third quarter 2025.

The increase was driven by $62,148 in purchases, offset by amortization and maturities of $52,359.

Net unrealized losses at September 30, 2025 totaled $12,564, or 2.40%, of the portfolio and improved during the quarter due to the treasury portfolio rapidly approaching maturity and an increase in bond prices.

Gross loans increased $8,334 to $1,431,905 as of September 30, 2025.

While core loans (non-GAAP) grew $66,358, advances to mortgage brokers decreased $58,024 due to lower participation demand from our counterparty.

However, the decline in advances to mortgage brokers has provided liquidity to refocus on loans that can be recorded on our balance sheet for longer terms and help to mitigate interest rate risk.

Core loans (non-GAAP) grew $66,358, led by growth in the commercial and industrial and commercial real estate portfolios of $17,509 and $34,924, respectively.

Commercial loan growth during the year was in the real estate, construction, and hospitality industries.

While our commercial pipeline is strong at the beginning of the third quarter, our ability to grow the loan portfolio is subject to uncertainties around timing and funding, customer demand, and overall economic conditions.

Residential mortgages increased $17,796 since year-end 2024 with $11,320 of growth in the second quarter as construction drawdowns and seasonal patterns occurred.

Residential mortgages increased $31,184 since year-end 2024 with $13,388 of growth in the third quarter as construction drawdowns and seasonal patterns occurred.

Most residential originations were adjustable rate products, which are put on the balance sheet rather than sold in the secondary market.

The consumer loan portfolio continues to roll off amid decreasing demand, competition and our adherence to credit quality standards.

The ACL was $12,977 at June 30, 2025, an increase of $82 from $12,895 at December 31, 2024.

The consumer loan portfolio continues to slowly roll off amid decreasing demand, competition, and our adherence to credit quality standards.

The ACL was $13,149 at September 30, 2025, an increase of $254 from $12,895 at December 31, 2024.

The increase is due to core loan growth (non-GAAP), offset by improvement in historical loss experience driven by the recovery of previously charged-off loans during the year.

Nonaccrual loans were $1,164 as of June 30, 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 0.08% at June 30, 2025, compared to 0.40% at year-end 2024.

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

BOLI assets were $45,774 at June 30, 2025, an increase of $10,892 from December 31, 2024.

Nonaccrual loans were $3,443 as of September 30, 2025 compared to $282 at December 31, 2024.

This increase relates to one commercial real estate loan.

Past due and accruing accounts between 30 to 89 days as a percentage of total loans was 0.03% at September 30, 2025, compared to 0.40% at year-end 2024.

Overall, credit quality remains strong.

BOLI assets were $45,651 at September 30, 2025, an increase of $10,769 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.

In the first half of 2025, we also surrendered and/or exchanged $13,721 of existing general account policies and redeployed the funds into a separate account BOLI.

As part of BOLI restructuring, another $914 of general account policies will be exchanged for separate account BOLI, which is expected to be completed by the end of the third quarter of 2025.

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 $102,316 from December 31, 2024, to $1,849,376 at June 30, 2025.

In the first half of 2025, we also surrendered and/or exchanged over $13,000 of existing general account policies and redeployed the funds into a separate account BOLI structure, which yields a higher rate compared to existing general account policies.

Total deposits increased $178,542 from December 31, 2024, to $1,925,602 at September 30, 2025.

The growth was driven by demand and money market deposits.

The $77,104 increase in demand deposits was primarily driven by one customer with large deposits during the second quarter that are expected to be withdrawn by the customer by the end of the year.

Consumer demand for retail certificates of deposit accounts continues based on the rate environment, resulting in a $8,341 increase in the balance during the first six months of 2025.

Total equity was $220,500, or $29.95 per share, at June 30, 2025 compared to $210,276, or $28.32 per share, at year-end 2024.

Our tangible book value per share (non-GAAP) was $23.39 as of June 30, 2025, compared to $21.82 on December 31, 2024.

Net unrealized losses on AFS securities reduced tangible book value per share by $1.90 and $2.82 for the respective periods.

Share repurchases totaled 103,406 during the first six months of 2025 for a value of $2,650 at an average price of $25.63.

Approximately half of the $134,329 increase in money market deposits was driven by one customer with large deposits during the second and third quarters that are expected to be withdrawn by the customer by the end of the year.

Consumer demand for retail certificates of deposit accounts continues based on the rate environment, resulting in a $17,207 increase in the balance during the first nine months of 2025.

Total equity was $227,420, or $30.94 per share, at September 30, 2025 compared to $210,276, or $28.32 per share, at year-end 2024.

Our tangible book value per share (non-GAAP) was $24.37 as of September 30, 2025, compared to $21.82 on December 31, 2024.

Net unrealized losses on AFS securities reduced tangible book value per share (non-GAAP) by $1.36 and $2.82 for the respective periods.

Share repurchases totaled 122,502 during the first nine months of 2025 for a value of $3,259 at an average price of $26.60.

We continue to have robust liquidity levels and capital.

As of June 30, 2025, we had $925,528 of unencumbered sources of liquidity and strong capital ratios;

As of September 30, 2025, we had $975,856 of unencumbered sources of liquidity and strong capital ratios;

the Tier 1 Leverage Ratio was 8.71%, Tier 1 risk-based capital was 12.37%, and Total risk-based capital was 15.20%.

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The Corporation continues to evaluate the OBBBA but does not anticipate that the OBBBA will have a material impact on the Corporation’s Consolidated Financial Statements.

As the legislation was signed into law after the close of the second quarter of 2025, the impacts are not included in the Corporation’s operating results for the three and six months ended June 30, 2025.

Nasdaq Listing

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Certain amounts reported in the interim 2024 consolidated financial statements have been reclassified to conform to the 2025 presentation.

Additionally, certain amounts reported as commercial and industrial loans have been reclassified as commercial real estate loans to conform to the June 30, 2025 presentation.

Subsequent Events

We evaluated subsequent events after June 30, 2025 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 June 30, 2025 and the date our interim condensed consolidated financial statements were issued.

We evaluated subsequent events after September 30, 2025 through the date our interim condensed consolidated financial statements were issued for potential recognition and disclosure.

We determined that no subsequent events require financial statement recognition or disclosure between September 30, 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 Six Months Ended

Three Months Ended Nine Months Ended

2025 March 31

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2024 September 30

2025 September 30

Basic earnings $ 0.71 $ 0.68 $ 0.53 $ 0.54 $ 0.44 $ 1.93 $ 1.32

Diluted earnings 0.71 0.68 0.53 0.54 0.44 1.92 1.32

Adjusted diluted earnings (1)

0.55 0.57 0.52 0.61 0.46 1.13 0.87

Dividends 0.28 0.28 0.28 0.28 0.28 0.84 0.84

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Return on average total assets 0.94 % 0.96 % 0.77 % 0.76 % 0.62 % 0.89 % 0.64 %

Adjusted return on average total assets (1)

0.79 % 0.83 % 0.74 % 0.87 % 0.68 % 0.81 % 0.32 %

Return on average shareholders' equity 9.28 % 9.19 % 7.48 % 7.47 % 6.26 % 8.67 % 6.47 %

Adjusted return on average shareholders' equity (1)

7.48 % 8.05 % 7.29 % 8.70 % 6.96 % 7.76 % 3.24 %

Return on average tangible shareholders' equity (2)

11.83 % 11.78 % 9.65 % 9.66 % 8.15 % 11.12 % 8.48 %

Adjusted return on average tangible shareholders' equity (1)

9.59 % 10.40 % 9.43 % 11.32 % 9.17 % 9.99 % 4.26 %

Net interest margin yield (FTE) 3.15 % 3.14 % 3.06 % 2.98 % 2.96 % 3.12 % 2.87 %

3.14 % 3.06 % 2.98 % 2.96 % 2.82 % 3.10 % 2.81 %

Efficiency ratio 67.51 % 70.53 % 71.73 % 71.08 % 72.30 % 69.80 % 73.65 %

70.53 % 71.73 % 71.08 % 72.30 % 73.93 % 71.12 % 74.37 %

Gross loan to deposit ratio (1)

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Net interest income 16 15 15 15 14 46 41

Provision for credit losses (1) — — 1 — (1) 1

Provision for (reversal of) credit losses — (1) — — 1 (1) 2

Noninterest income 4 4 4 4 4 12 11

Noninterest expenses 14 14 13 13 13 41 39

(1) At end of period.

(2) Non-GAAP financial measure;

refer to the "Reconciliation of Non-GAAP Financial Measures" section of this Form 10-Q.

(2) At end of period.

Average Balances, Interest Rates, and Net Interest Income

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Three Months Ended

June 30, 2025 March 31, 2025 June 30, 2024

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

Interest Average

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Net yield on interest earning assets (FTE) 3.15 % 3.14 % 2.96 %

3.14 % 3.06 % 2.82 %

Six Months Ended

June 30, 2025 June 30, 2024

Nine Months Ended

September 30, 2025 September 30, 2024

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

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Net yield on interest earning assets (FTE) 3.12 % 2.87 %

3.10 % 2.81 %

(1) Includes loans HFS and nonaccrual loans.

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(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.

The following table displays loan balances as of:

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Commercial real estate 626,642 614,383 596,282 591,718 590,255 7.98 % 7.87 %

Advances to mortgage brokers 3,005 3,015 63,080 76,187 39,300 (1.33) % (190.47) %

Advances to mortgage brokers 5,056 3,005 3,015 63,080 76,187 N/M (122.65) %

Agricultural 97,794 96,842 94,359 99,694 96,794 3.93 % (2.54) %

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

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

Balance Percent of Total Balance Percent of Total

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Multifamily 71,148 11.35 % 61,033 10.31 %

All other 173,924 28.31 % 158,739 26.83 %

Real estate 171,139 27.31 % 158,739 26.83 %

Hotels 85,935 13.71 % 83,756 14.15 %

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Nonaccrual loans to gross loans 0.24 % 0.08 % 0.01 % 0.02 % 0.04 %

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

ACL as a % of nonaccrual loans 381.91 % N/M N/M N/M N/M

ALLOWANCE FOR CREDIT LOSSES

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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 28,830 shares or $759 of common stock during the first six months of 2025, as compared to 43,980 shares or $840 of common stock during the same period in 2024.

Pursuant to these authorizations, we issued 36,809 shares or $1,031 of common stock during the first nine months of 2025, as compared to 61,560 shares or $1,190 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 $201 and $279 during the six-month periods ended June 30, 2025 and 2024, respectively.

Pursuant to this plan, we increased shareholders’ equity by $233 and $332 during the nine-month periods ended September 30, 2025 and 2024, respectively.

We also grant restricted stock awards pursuant to the RSP.

Pursuant to this plan, we increased shareholders’ equity by $21 during the first six months of 2025, as compared to $45 during the same period in 2024.

Pursuant to this plan, we increased shareholders’ equity by $45 during the first nine months of 2025, as compared to $71 during the same period in 2024.

We have publicly announced a common stock repurchase program.

Pursuant to this repurchase program, we repurchased 103,406 shares or $2,650 of common stock during the first six months of 2025 and 72,093 shares or $1,402 of common stock during the first six months of 2024.

As of June 30, 2025, we were authorized to repurchase up to an additional 514,823 shares of common stock under the repurchae program.

Pursuant to this repurchase program, we repurchased 122,502 shares or $3,259 of common stock during the first nine months of 2025 and 124,969 shares or $2,419 of common stock during the first nine months of 2024.

As of September 30, 2025, we were authorized to repurchase up to an additional 495,727 shares of common stock under the repurchase program.

The FRB has established minimum risk-based capital guidelines.

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Regulatory capital is divided by the risk adjusted assets with the resulting ratio compared to the minimum standard to determine whether a corporation has adequate capital.

At June 30, 2025, we and the Bank were “well capitalized” under the regulatory framework for prompt corrective action.

Management believes that no conditions or events have occurred since June 30, 2025 that would materially adversely change such capital classifications.

At September 30, 2025, we and the Bank were “well capitalized” under the regulatory framework for prompt corrective action.

Management believes that no conditions or events have occurred since September 30, 2025 that would materially adversely change such capital classifications.

From time to time, we may need to raise additional capital to support our and the Bank’s further growth and to maintain our “well capitalized” status.

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Tier 1 leverage 8.71 % 9.04 % 8.96 % 8.86 % 8.77 %

Community Bank Leverage Ratio

On September 17, 2019, the federal banking agencies jointly finalized a rule to be effective January 1, 2020 and intended to simplify the regulatory capital requirements described above for qualifying community banking organizations that opt into the Community Bank Leverage Ratio (“CBLR”) framework, as required by Section 201 of the EGRRCPA.

The final rule became effective on January 1, 2020, and the CBLR framework became available for banks to use beginning with their March 31, 2020 Call Reports.

Under the final rule, if a qualifying community banking organization opts into the CBLR framework and meets all requirements under the framework, it will be considered to have met the well-capitalized ratio requirements under the “prompt corrective action” regulations described above and will not be required to report or calculate risk-based capital.

In order to qualify for the CBLR framework, a community banking organization must have a tier 1 leverage ratio of greater than 9%, less than $10 billion in total consolidated assets, and limited amounts of off-balance sheet exposures and trading assets and liabilities.

Although the Corporation and the Bank are qualifying community banking organizations, the Corporation and the Bank have elected not to opt in to the CBLR framework at this time and will continue to follow the Basel III capital requirements as described in “Note 6 – Capital Ratios and Shareholders' Equity” of our interim condensed consolidated financial statements included with this Form 10-Q .

Liquidity is monitored regularly by our ALCO, which consists of members of senior management.

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

Cash, cash equivalents and unencumbered AFS securities totaled $453,330, or 21.02% of assets, as of June 30, 2025, compared to $330,876, or 15.86%, as of December 31, 2024.

Cash, cash equivalents and unencumbered AFS securities totaled $487,212, or 21.56% of assets, as of September 30, 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 deposit growth.

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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 June 30, 2025, we had available lines of credit of $376,974.

As of September 30, 2025, we had available lines of credit of $384,555.

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 June 30, 2025, which is illustrated in the following table:

Our liquidity position remained strong at September 30, 2025, which is illustrated in the following table:

2025 March 31

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Coverage ratio of uninsured deposits with total cash and liquidity 134 % 127 % 132 % 120 % 116 %

(1) In cludes estimated unencumbered lendable value of FHLB collateral of $250,000 as of June 30, 2025.

(1) In cludes estimated unencumbered lendable value of FHLB collateral of $230,000 as of September 30, 2025.

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

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As a result, the simulation analysis cannot precisely forecast the impact of rising and falling interest rates on net interest income.

Actual results will differ from simulated results due to many other factors, including changes in balance sheet components, interest rate changes, changes in market conditions, and management strategies.

Actual results will differ from simulated results due to many other factors, including changes in balance

sheet components, interest rate changes, changes in market conditions, and management strategies.

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

The following tables summarize our interest rate sensitivity for 12 and 24 months as of June 30, 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.

June 30, 2025

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 (5.90) % (2.72) % 2.53 % 5.05 % (9.16) % (4.56) % 3.45 % 6.43 %

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.

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Certificates of deposit have penalties that discourage early withdrawals.

We do not believe there has been a material change in the nature or categories of our primary market risk exposure, or the particular markets that present the primary risk of loss.

We do not know of or expect there to be any material change in the general nature of our primary market risk exposure in the near term, and we do not expect to make material changes to our market risk methods in the near term.

We may change those methods in the future to adapt to changes in circumstances or to implement new techniques.

Gap analysis is also utilized as a method to measure interest rate sensitivity.

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We strive to achieve reasonable stability in the net interest margin through periods of changing interest rates.

We do not believe there has been a material change in the nature or categories of our primary market risk exposure, or the particular markets that present the primary risk of loss.

We may change those methods in the future to adapt to changes in circumstances or to implement new techniques.

Contractual Obligations and Loan Commitments

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No significant losses are anticipated as a result of these commitments.

Impact of Inflation

Our consolidated financial statements and related notes included elsewhere in this Form 10-Q have been prepared in accordance with GAAP.

GAAP requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.

The Corporation’s asset and liability structure is substantially different from that of an industrial company in that virtually all assets and liabilities of the Corporation are monetary in nature.

Management believes the impact of inflation on financial results depends upon the Corporation’s ability to react to changes in interest rates and by such reaction, reduce the inflationary impact on performance.

Interest rates do not necessarily move in the same direction, or at the same magnitude, as the prices of other goods and services.

However, other operating expenses do reflect general levels of inflation.

Management seeks to manage the relationship between interest rate-sensitive assets and liabilities in order to protect against wide net interest income fluctuations, including those resulting from inflation.

Various information shown elsewhere in this Form 10-Q will assist in the understanding of how well the Corporation is positioned to react to changing interest rates and inflationary trends.

In particular, additional information related to the Corporation’s interest rate-sensitive assets and liabilities is contained in this Item 2, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q under the heading “Interest Rate Sensitivity and Market Risk.”

Reconciliation of Non-GAAP Financial Measures

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

Three Months Ended Six Months Ended

2025 March 31

2025 December 31

2024 September 30

Net income $ 5,031 $ 3,949 $ 3,996 $ 3,281 $ 3,481 $ 8,980 $ 6,612

Net gains (losses) on foreclosed assets — (55) 74 4 6 (55) 75

Overdraft (charge-off) recoveries (1)

1,556 — 66 (1,622) — 1,556 —

Profitability initiative cost (2)

(173) — (23) — — (173) —

Legal fees related to Nasdaq (2)

(47) (121) — — — (168) —

Income tax impact on items above (281) 37 (25) 340 (1) (244) (16)

Exchange fees on BOLI transfers (3)

(120) — — — — (120) —

Income tax expense on BOLI surrender (4)

— (166) — — — (166) —

Adjusted net income (A) $ 4,096 $ 4,254 $ 3,904 $ 4,559 $ 3,476 $ 8,350 $ 6,553

Noninterest expenses $ 13,745 $ 13,299 $ 13,330 $ 13,228 $ 12,895 $ 27,044 $ 25,571

Amortization of acquisition intangibles — 1 1 — 1 1 1

Non-GAAP expense adjustment 220 121 23 — — 341 —

Adjusted noninterest expense (B) $ 13,525 $ 13,177 $ 13,306 $ 13,228 $ 12,894 $ 27,043 $ 25,570

Net interest income $ 15,129 $ 14,525 $ 14,555 $ 14,488 $ 13,550 $ 29,654 $ 26,792

Tax equivalent adjustment for net interest margin 178 184 213 232 237 362 483

Net interest income (FTE) (C) 15,307 14,709 14,768 14,720 13,787 30,016 27,275

Noninterest income 3,686 3,528 3,972 3,528 3,608 7,214 7,076

Tax equivalent adjustment for efficiency ratio 63 78 54 53 53 141 104

Adjusted revenue (FTE) 19,056 18,315 18,794 18,301 17,448 37,371 34,455

Non-GAAP revenue (loss) adjustment (120) (55) 74 4 6 (175) 75

Adjusted revenue (D) $ 19,176 $ 18,370 $ 18,720 $ 18,297 $ 17,442 $ 37,546 $ 34,380

Efficiency ratio (B/D) 70.53 % 71.73 % 71.08 % 72.30 % 73.93 % 71.12 % 74.37 %

Average earning assets (E) 1,949,129 1,943,633 1,963,986 1,967,552 1,948,173 1,946,396 1,945,965

Net yield on interest earning assets (FTE) (C/E) 3.14 % 3.06 % 2.98 % 2.96 % 2.82 % 3.10 % 2.81 %

Three Months Ended Six Months Ended

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

2025 March 31

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2024 September 30

Average assets (F) 2,092,687 2,085,537 2,094,569 2,095,200 2,067,211 2,089,129 2,066,987

Average shareholders' equity (G) 219,542 214,212 212,912 208,444 200,734 216,893 202,094

Average tangible shareholders' equity (H) 171,260 165,929 164,629 160,161 152.451 168,611 153,810

Average diluted shares outstanding (5)

(I) 7,398,109 7,432,162 7,451,718 7,473,184 7,494,828 7,413,974 7,501,437

Adjusted diluted earnings per share (A/I) $ 0.55 $ 0.57 $ 0.52 $ 0.61 $ 0.46 $ 1.13 $ 0.87

Adjusted return on average assets (A/F) 0.79 % 0.83 % 0.74 % 0.87 % 0.68 % 0.81 % 0.32 %

Adjusted return on average shareholders' equity (A/G) 7.48 % 8.05 % 7.29 % 8.70 % 6.96 % 7.76 % 3.24 %

Adjusted return on average tangible shareholders' equity (A/H) 9.59 % 10.40 % 9.43 % 11.32 % 9.17 % 9.99 % 4.26 %

(1) Includes reversal of provision for credit losses in the first quarter of 2025 and provision for credit losses in the third quarter of 2024 related to overdrawn deposit accounts from a single customer.

(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) Included as a reduction to Earnings on BOLI in the consolidated statements of income.

Gross loans $ 1,431,905 $ 1,397,513 $ 1,367,724 $ 1,423,571 $ 1,424,283

Advances to mortgage brokers 5,056 3,005 3,015 63,080 76,187

Core loans $ 1,426,849 $ 1,394,508 $ 1,364,709 $ 1,360,491 $ 1,348,096

Total shareholders’ equity $ 227,420 $ 220,500 $ 215,556 $ 210,276 $ 212,985

Goodwill and other intangible assets 48,282 48,282 48,282 48,283 48,283

Tangible equity (A) 179,138 172,218 167,274 161,993 164,702

Common shares outstanding (1)

(B) 7,350,567 7,361,684 7,408,010 7,424,893 7,438,720

Tangible book value per share (A/B) $ 24.37 $ 23.39 $ 22.58 $ 21.82 $ 22.14

(1) Whole shares.

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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