What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-11-14 compared with 2025-08-14 · 397 added, 341 removed, 285 unchanged (72% of the section changed)

53 unchanged sentences

account that was opened, the Company received a deposit from the Treasurer at a subsidized interest rate of 0.86%.

Accounts connected with Ohio Homebuyer Plus must be used within five years and the corresponding balance of Treasurer deposits will

fluctuate based upon active customer accounts.

At June 30, 2025, the balance of Sweet Home Ohio accounts totaled $8,419 compared to $6,775 at December 31, 2024.

At June 30, 2025, the amount of Treasurer deposits totaled $77,265 compared to $97,366 at

December 31, 2024.

Since the Treasurer deposits are classified as public funds, which are required to be collateralized, the Company invested the funds in securities to be pledged as collateral to the Treasurer.

At June 30, 2025, the balance of

securities used to collateralize the Treasurer deposits totaled $81,123 compared to $102,871 at December 31, 2024.

In relation to program changes implemented by the Treasurer post implementation, the rate on the matching funds increased to 1.79% for

the third quarter of 2025.

Accounts connected with Ohio Homebuyer Plus must be used within five years and the corresponding balance of Treasurer deposits will fluctuate based upon active customer accounts.

At September 30, 2025, the balance of Sweet

Home Ohio accounts totaled $9,049 compared to $6,775 at December 31, 2024.

At September 30, 2025, the amount of Treasurer deposits totaled $72,507 compared to $97,366 at December 31, 2024.

Since the Treasurer deposits are classified as public funds,

which are required to be collateralized, the Company invested the funds in securities to be pledged as collateral to the Treasurer.

At September 30, 2025, the balance of securities used to collateralize the Treasurer deposits totaled $66,990 compared

to $102,871 at December 31, 2024.

FINANCIAL RESULTS OVERVIEW:

Net income totaled $3,030 during the

second quarter of 2025, an increase of $1,238 from the same period of 2024.

Earnings per share for the second quarter of 2025 finished at $.89 per share, compared to $.63 per share during the second quarter of 2024.

third quarter of 2025, an increase of $311 from the same period of 2024.

Earnings per share for the third quarter of 2025 finished at $.64 per share, compared to $.58 per share during the third quarter of 2024.

Net income totaled $11,646 during the

first six months of 2025, an increase of $2,851 from the same period of 2024.

Earnings per share during the first six months of 2025 finished at $1.83 per share, compared to $1.21 per share during the first six months of 2024.

Earnings were positively

impacted by the growth in average earning assets, which increased 8.3% and 9.5% during both the quarterly and year-to-date periods, respectively.

The increases came primarily from loans and securities, which contributed to a 21.5% and 19.5% increase in

net interest income during both the three and six months ended June 30, 2025, compared to the same periods in 2024, respectively.

Also contributing to higher net earnings were increases in noninterest income, up 5.4% and 1.5%, during both the three and

six months ended June 30, 2025, compared to the same periods in 2024, respectively.

The positive effects from higher net interest and noninterest income were partially offset by higher provision and noninterest expense.

During the second quarter of

2025, provision expense increased $967 in large part due to strong asset growth and higher net charge-offs, which contributed to a 67.8% increase in provision expense on a year-to-date basis.

In addition, noninterest expense increased 1.7% and 1.2%

during both the three and six months ended June 30, 2025, compared to the same periods in 2024, respectively.

Higher net earnings also had a corresponding impact on the Company’s annualized net income to average asset ratio, or return on assets, which

increased 32 basis points to 1.16% during the first six months of 2025, compared to the same period in 2024.

In addition, the Company’s net income to average equity ratio, or return on equity, increased 329 basis points to 11.30% during the first six

months of 2025, compared to the same period in 2024.

During the three months ended June 30, 2025, net interest income increased $2,572, or 21.5%, over the same period in 2024.

During the six months ended June

30, 2025, net interest income increased $4,522, or 19.5%, over the same period in 2024.

Net interest income growth during both the quarterly and year-to-date periods came mostly from an increase in average earning assets, led by securities and loans.

During the three months ended June 30, 2025, average securities increased $103,063 while average loans increased $51,150.

During the six months ended June 30, 2025, average securities increased $99,312 while average loans increased $59,742.

in average securities came in large part due to the increased pledging requirements on public fund deposits as part of the Ohio Homebuyer Plus program.

The growth in average loans was related to the commercial and residential real estate lending

Earnings were further enhanced by a higher net interest margin, increasing 43 basis points during the three months ended June 30, 2025, and 33 basis points during the six months ended June 30, 2025, compared to the same periods in 2024,

first nine months of 2025, an increase of $3,162 from the same period of 2024.

Earnings per share during the first nine months of 2025 finished at $2.47 per share, compared to $1.79 per share during the first nine months of 2024.

Higher net earnings

also had a corresponding impact on the Company’s annualized net income to average asset ratio, or return on assets, which increased 22 basis points to 1.03% during the first nine months of 2025, compared to the same period in 2024.

In addition, the

Company’s net income to average equity ratio, or return on equity, increased 215 basis points to 9.95% during the first nine months of 2025, compared to the same period in 2024.

Earnings were positively impacted by the growth in average earning assets, which increased 7.3% and 8.8% during both the quarterly and year-to-date periods,

respectively.

The increases came primarily from loans and securities, which contributed to a 16.0% and 18.3% increase in net interest income during both the three and nine months ended September 30, 2025, compared to the same periods in 2024,

respectively.

The positive effects from higher net interest income were partially offset by increases in provision and noninterest expense combined with lower noninterest income.

Provision expense increased in large part due to a higher qualitative

risk factor, as well as growth in loans and off-balance sheet commitments.

This contributed to a 20.8% and 44.5% increase in provision expense during both the three and nine months ended September 30, 2025, compared to the same periods in 2024,

respectively.

Earnings were also negatively impacted by higher noninterest expenses and lower noninterest income, which collectively reduced income by 16.4% and 6.5% during both the three and nine months ended September 30, 2025, compared to the same

periods in 2024, respectively.

This was largely impacted by a $1,219 loss on the sale of securities realized during the third quarter of 2025.

During the three months ended September 30, 2025, net interest income increased $2,016, or 16.0%, over the same period in 2024.

During the nine months ended

September 30, 2025, net interest income increased $6,538, or 18.3%, over the same period in 2024.

Net interest income growth during both the quarterly and year-to-date periods was primarily the result of an increase in average earning assets, led by

securities and loans.

During the three months ended September 30, 2025, average securities increased $25,983 while average loans increased $76,514.

During the nine months ended September 30, 2025, average securities increased $74,685 while average

loans increased $65,448.

The growth in average securities was in large part due to the increased pledging requirements on public fund deposits as part of the Ohio Homebuyer Plus program.

The growth in average loans was related to the commercial and

residential real estate lending segments.

Earnings were further enhanced by a higher net interest margin, increasing 29 basis points during the three months ended September 30, 2025, and 32 basis points during the nine months ended September 30, 2025,

compared to the same periods in 2024, respectively.

Margin growth was related to an increase in the yield on earning assets, while the cost of funding sources decreased.

The improvement to earning asset yields was directly related to the growth in higher-yielding securities and loans, and

the accretion of an $817 market discount on purchased loans that was recognized in the second quarter of 2025.

The cost of funding sources decreased as the composition of funding sources shifted to lower cost deposit sources, such as Negotiable Order

of Withdrawal (“NOW”), savings, money market, and checking accounts.

During the three and six months ended June 30, 2025, the Company’s provision for credit loss expense increased $967 and $632, when compared to the same

The improvement to earning asset yields was directly related to the growth in

higher-yielding securities and loans, and the accretion of an $817 market discount on purchased loans that was recognized in the second quarter of 2025.

The cost of funding sources increased only slightly as the composition of funding sources shifted

more to lower cost deposit sources, such as Negotiable Order of Withdrawal (“NOW”), savings, money market, and checking accounts.

During the three and nine months ended September 30, 2025, the Company’s provision for credit loss expense increased $192 and $824, when compared to the same

periods in 2024.

The increases during both periods came primarily from growth in loan balances, higher net charge-offs, and an increase in modeled loss rates in relation to the regression in GDP and unemployment projections.

During the three and six months ended June 30, 2025, noninterest income increased $147, or 5.4%, and $97, or 1.5%, from the same periods in 2024.

increases came mostly from interchange income earned on debit and credit cards, which increased $56 and $60 during the three and six months ended June 30, 2025, when compared to the same periods in 2024.

Other noninterest income also increased $71

during the second quarter of 2025 and $21 during the first half of 2025, when compared to the same periods in 2024.

Increases to other noninterest income came mostly from lower losses related to both other real estate owned (“OREO”) and the pending

sale of premises, while card merchant fees and mortgage application referral fees also increased during both the quarterly and year-to-date periods.

These increases were partially offset by a decline in swap asset revenue.

During the three and six months ended June 30, 2025, noninterest expense increased $186, or 1.7%, and $263, or 1.2%, over the same periods in 2024.

Noninterest expenses were led by increases in data processing and marketing costs, which collectively increased $239, or 23.7%, and $411, or 20.1%, during the three and six months ended June 30, 2025, over the same periods in 2024.

Data processing

expenses were impacted by costs associated with the Company’s debit and credit card platforms.

The increases resulted primarily from an elevated qualitative risk factor, as well as growth in loans and off-balance sheet commitments related to unused commercial lines.

Partially offsetting the increases to provision expense were

lower specific reserves on loans individually evaluated for impairment.

During the three and nine months ended September 30, 2025, noninterest income decreased $1,106, or 38.8%, and $1,009, or 10.9%, from the same periods in

The decreases resulted primarily mostly from a $1,219 loss on the sale of securities realized during the third quarter of 2025 that lowered noninterest income.

The Company sold $11,027 in securities that were yielding 1.32% and replaced them with

securities yielding 4.37%, which is expected to increase future interest income.

Partially offsetting the impact from the sale of securities was higher interchange income earned on debit and credit cards, which increased $91 and $151 during the three

and nine months ended September 30, 2025, when compared to the same periods in 2024.

Other noninterest income also increased $22 during the third quarter of 2025 and $43 during the first nine months of 2025, when compared to the same periods in 2024.

Increases to other noninterest income resulted mostly from lower losses related to the pending sale of premises, while fees from commercial loan servicing and mortgage application referrals increased during both the quarterly and year-to-date periods.

During the three and nine months ended September 30, 2025, noninterest expense increased $269, or 2.4%, and $532, or 1.6%, over the same periods in 2024.

Noninterest expenses were led by increases in data processing and marketing costs, which collectively increased $166, or 15.8%, and $577, or 18.7%, during the three and nine months ended September 30, 2025, over the same periods in 2024.

processing expenses were impacted by costs associated with the Company’s debit and credit card platforms.

Marketing cost increases were impacted by higher donation and advertising budgets for 2025.

The Company’s largest noninterest expense, salaries and employee

benefits, increased $8 during the three months ended June 30, 2025, but decreased $147 during the six months ended June 30, 2025, when compared to the same periods in 2024.

Cost savings in salaries and employee benefits during the first half of 2025

were the direct result of a voluntary early retirement program implemented in 2024.

Other noninterest expense also increased $203 during

the third quarter of 2025 and $162 during the first nine months of 2025, when compared to the same periods in 2024.

Increases to other noninterest expense came mostly from higher costs associated with ATM’s, employee recruiting, and interest rate swap

arrangements.

Partially offsetting increases to noninterest expense were decreases in salaries and employee benefits, which decreased $229 and $376 during the three and nine months ended September 30, 2025, when compared to the same periods in 2024.

Cost savings in salaries and employee benefits during 2025 were the direct result of a voluntary early retirement program implemented in 2024.

The changes in the remaining noninterest expense areas were minimal.

The $328 and $873 increase in the Company’s provision for income taxes during the three and six months ended June 30, 2025, compared to the same periods in

2024, was largely due to the increase in operating income affected by the factors mentioned above, as well as an increase in the effective tax rate.

At June 30, 2025, total assets were $1,510,358, an increase of $6,946 from year-end 2024.

The $138 and $1,011 increase in the Company’s provision for income taxes during the three and nine months ended September 30, 2025, compared to the same

periods in 2024, was largely due to the increase in operating income affected by the factors mentioned above, as well as an increase in the effective tax rate.

At September 30, 2025, total assets were $1,570,043, an increase of $66,631 from year-end 2024.

The increase in assets was primarily the result of a $68,709

increase in loans, which was driven by strong second quarter loan growth of $57,971 that more than offset the $18,529 decrease in loans that occurred during the first quarter.

The first quarter loan decrease was related to a $31,473 decrease in a

warehouse line of credit extended to another mortgage lender.

The second quarter growth in loans occurred primarily in the targeted areas of commercial real estate, commercial and industrial, and residential real estate loans.

This included a $12,777

repurchase of two commercial and industrial loans in June 2025 that had been previously participated out The increase in loans was primarily funded by a $29,581 decrease in interest-bearing balances maintained at the FRB.

Total securities also

decreased by $3,334 in relation to a lower need for securities to be pledged to the Treasurer due to a $20,101 deposit balance decrease from year-end 2024.

At June 30, 2025, total liabilities were $1,349,598, down $3,486 from year-end 2024.

Contributing most to this decrease were lower interest-bearing deposit

balances, down $7,406 from year-end 2024, consisting of lower balances from NOW accounts (-5.6%), and time deposits (-2.2%), partially offset by an increase in savings and money market accounts (+5.8%).

At June 30, 2025, the Company experienced higher

noninterest-bearing demand deposits, increasing $8,990 from year-end 2024.

At June 30, 2025, total shareholders' equity was $160,760, up $10,432 from December 31, 2024.

This increase came primarily from year-to-date net income and

an after-tax increase in net unrealized gains on AFS securities, partially offset by year-to-date cash dividends paid.

increase in loans, which was impacted by strong second and third quarter loan growth of a total of $87,238 that more than offset the $18,529 decrease in loans that occurred during the first quarter.

The first quarter loan decrease was related to a

$31,473 decrease in a warehouse line of credit extended to another mortgage lender.

The second and third quarter growth in loans occurred primarily in the targeted areas of commercial real estate, commercial and industrial, and residential real estate

This included a $12,777 repurchase of two commercial and industrial loans in June 2025 that had been previously participated out.

The increase in loans was primarily funded by a $57,309 increase in deposit balances and net proceeds from a $7,930

decrease in total securities from year-end 2024.

Securities decreased in part due to a lower need for securities to be pledged to the Treasurer due to a $24,859 deposit balance decrease from year-end 2024.

At September 30, 2025, total liabilities were $1,405,626, up $52,542 from year-end 2024.

Contributing most to this increase were higher interest-bearing

deposit balances, up $56,844 from year-end 2024, consisting of higher balances from time deposits (+17.6%) and savings and money market balances (+5.3%), partially offset by a decrease in NOW accounts (-10.2%).

At September 30, 2025, the Company’s

noninterest-bearing demand deposits were relatively stable, increasing $465 from year-end 2024.

At September 30, 2025, total shareholders' equity was $164,417, up $14,089 from December 31, 2024.

This increase came primarily from year-to-date net income

and an after-tax increase in net unrealized gains on AFS securities, partially offset by year-to-date cash dividends paid.

Regulatory capital ratios of the Company remained higher than the "well capitalized" minimums.

Comparison of Financial Condition

at June 30, 2025 and December 31, 2024

The following discussion focuses in more detail on the consolidated financial condition of the Company at June 30, 2025 compared to December 31, 2024.

discussion should be read in conjunction with the interim consolidated financial statements and the notes included in this Form 10‑Q.

at September 30, 2025 and December 31, 2024

The following discussion focuses in more detail on the consolidated financial condition of the Company at September 30, 2025 compared to December 31, 2024.

This discussion should be read in conjunction with the interim consolidated financial statements and the notes included in this Form 10‑Q.

Cash and Cash Equivalents

At June 30, 2025, cash and cash equivalents were $54,627, a decrease of $28,480, or 34.3%, from December 31, 2024.

The decrease came primarily from

interest-bearing deposits with banks, which were down $29,581, or 43.9%, from year-end 2024.

The Company’s interest-bearing FRB clearing account contributed most to the decrease in interest-bearing deposits with banks, representing 68% of cash and cash

equivalents at June 30, 2025.

At September 30, 2025, cash and cash equivalents were $89,316, an increase of $6,209, or 7.5%, from December 31, 2024.

The increase came primarily from

interest-bearing deposits with banks, which were up $4,848, or 7.2%, from year-end 2024.

The Company’s interest-bearing FRB clearing account contributed most to the increase in interest-bearing deposits with banks, representing 80% of cash and cash

equivalents at September 30, 2025.

The Company utilizes its interest-bearing FRB clearing account to manage excess funds, as well as to assist in funding earning asset growth.

The decrease in excess funds during the first six months of 2025 came primarily

from an increase in loans, which were up $39,442 from year-end 2024.

The interest rate paid on both the required and excess reserve balances of the FRB is based on the targeted federal funds rate established by the Federal Open Market Committee, which

remained at a range of 4.25% to 4.50% at June 30, 2025 and December 31, 2024.

The interest-bearing deposit balances in the FRB are 100% secured by the U.S.

The increase in excess funds during the first nine months of 2025 resulted

primarily from growth in total deposits, which were up 4.5% from year-end 2024.

The interest rate paid on both the required and excess reserve balances of the FRB is based on the targeted federal funds rate established by the Federal Open Market

Committee (“FOMC”).

During the third quarter of 2025, the rate associated with the Company’s FRB clearing account decreased 25 basis points due to actions taken by the FOMC to reduce the targeted federal funds rate to a range of 4.00% to 4.25% at

September 30, 2025.

The FRB clearing account rate was reduced again by 25 basis points in October 2025 due to further actions taken by the FOMC that lowered the targeted federal funds rate to a current range of 3.75% to 4.00%.

The interest-bearing

deposit balances in the FRB are 100% secured by the U.S.

As liquidity levels continuously vary based on consumer activities, amounts of cash and cash equivalents can vary widely at any given point

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The Company’s U.S.

Government securities portfolio decreased $63,226 from $168,030 at year-end 2024 to $104,804 at June 30, 2025, impacted by $65,180 in

scheduled maturities.

The Company utilized a portion of its proceeds from maturities of U.S.

Government securities to fund additional purchases in U.S.

Government agency (“Agency”) mortgage-backed securities, which were up $60,295, or 64.0%, from

year-end 2024.

During the first half of 2025, purchases of Agency mortgage-backed securities totaled $67,306, while being partially offset by $10,841 in principal repayments.

The monthly repayment of principal has been the primary advantage of Agency

mortgage-backed securities as compared to other types of investment securities, which deliver proceeds upon maturity or call date.

At June 30, 2025, the Company’s investment securities portfolio was comprised mostly of Agency mortgage-backed securities

at 56.8% of total investments, while U.S.

Government securities portfolio decreased $63,184 from $168,030 at year-end 2024 to $104,846 at September 30, 2025, impacted by

$65,560 in maturities, net of purchases.

The Company utilized its proceeds from net maturities of U.S.

Government securities to help fund additional purchases in U.S.

Government agency (“Agency”) mortgage-backed securities, which were up $55,677, or

59.1%, from year-end 2024.

During the first nine months of 2025, purchases of Agency mortgage-backed securities totaled $78,284, while being partially offset by $17,333 in principal repayments.

The monthly repayment of principal has been the primary

advantage of Agency mortgage-backed securities as compared to other types of investment securities, which deliver proceeds upon maturity or call date.

At September 30, 2025, the Company’s investment securities portfolio was comprised mostly of Agency

mortgage-backed securities at 56.1% of total investments, while U.S.

Government securities represented 39.2%.

Furthermore, during the third quarter of 2025, the Company received proceeds of $9,808 from the sale of three Agency mortgage-backed securities totaling

These securities carrying a weighted average yield of 1.32% were replaced with similar securities at a higher weighted average yield of 4.37%.

While this sale and repurchase of securities resulted in a realized loss of $1,219 with little

change to the balance of earning assets, the Company will benefit from the shift to higher-yielding securities that is expected to increase future income and have a positive impact to the margin.

Included in the factors mentioned above were changes in net unrealized losses associated with AFS securities.

During the first half of 2025, a decrease in

long-term market rates led to a $5,051 increase in the fair value associated with the Company’s AFS securities at June 30, 2025.

The fair value of an investment security moves inversely to interest rates, so as rates decreased, the fair value

increased, causing the unrealized loss in the portfolio to decrease.

These changes in rates are typical and do not impact earnings of the Company as long as the securities are held to full maturity.

During the first nine months of 2025, a

decrease in long-term market rates led to a $7,245 increase in the fair value associated with the Company’s AFS securities at September 30, 2025, of which, $1,219 was related to the realized loss on the sale of securities previously discussed.

value of an investment security moves inversely to interest rates, so as rates decreased, the fair value increased, causing the unrealized loss in the portfolio to decrease.

These changes in rates are typical and do not impact earnings of the Company

as long as the securities are held to full maturity.

The loan portfolio represents the Company’s largest asset category and is its most significant source of interest income.

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relationships it has with certain lenders in those areas where the Company believes it can profitably participate with an acceptable level of risk.

Commercial and industrial loans consist of loans to corporate borrowers primarily in small to mid-sized industrial and commercial companies that include

service, retail, and wholesale merchants.

Collateral securing these loans includes equipment, inventory, and stock.

Residential real estate loans consist of loans to individuals for the purchase of 1-4 family primary residences with repayment primarily through wage or

other income sources of the individual borrower.

The Company’s loss exposure to these loans is dependent on local market conditions for residential properties as loan amounts are determined, in part, by the fair value of the property at origination.

COMMERCIAL REAL ESTATE BY INDUSTRY

As of June 30, 2025

As of September 30, 2025

The following table provides the composition of commercial real estate loans by industry classification (as defined by the North American Industry

5 unchanged sentences

Manufacturing

Commercial and industrial loans consist of loans to corporate borrowers primarily in small to mid-sized industrial and commercial companies that include

service, retail, and wholesale merchants.

Collateral securing these loans includes equipment, inventory, and stock.

Residential real estate loans consist of loans to individuals for the purchase of 1-4 family primary residences with repayment primarily through wage or

other income sources of the individual borrower.

Consumer loans are primarily secured by automobiles, mobile homes, recreational vehicles, and other personal property.

1 unchanged sentence

card receivables are also included as consumer loans.

The Company’s loan balances increased to $1,101,267 at June 30, 2025, representing an increase of $39,442, or 3.7%, as compared to $1,061,825 at December 31,

The increase in loans came primarily from the commercial real estate and commercial and industrial portfolios, partially offset by decreases in the residential real estate and consumer loan portfolios from year-end 2024.

The Company’s loan balances increased to $1,130,534 at September 30, 2025, representing an increase of $68,709, or 6.5%, as compared to $1,061,825 at

December 31, 2024.

The increase in loans came primarily from the commercial real estate and commercial and industrial portfolios, partially offset by a decrease in the consumer loan portfolio, while the residential real estate portfolio was

relatively stable from year-end 2024.

The Company’s commercial loan portfolio increased $83,449, or 15.7%, from year-end 2024.

1 unchanged sentence

balances within the commercial real estate portfolio, which increased $69,520, or 18.6%, from year-end 2024.

At June 30, 2025, commercial real estate loans represented the largest segment of the Company’s total loan portfolio at 38.1%.

from year-end 2025 came primarily from new originations within the owner- and nonowner-occupied loan segments.

At September 30, 2025, commercial real estate loans represented the largest segment of the Company’s total loan portfolio at 39.1%.

increase from year-end 2025 came primarily from new originations within the owner- and nonowner-occupied loan segments.

Commercial loans were also positively impacted by an increase in the commercial and industrial portfolio, which was up $13,929, or 8.8%, from year-end 2024.

5 unchanged sentences

Management will continue to place emphasis on its commercial lending, which generally yields a higher return on investment as compared to other types of loans.

The increase in the Company’s commercial loan portfolio at June 30, 2025 was partially offset by decreases in the residential real estate and consumer loan

The Company’s residential real estate loan portfolio decreased $12,808, or 3.4%, from year-end 2024.

At June 30, 2025, residential real estate loans represented the second largest segment of the Company’s total loan portfolio at 32.7%.

As previously mentioned, the decrease was largely due to a $31,473 paydown in a warehouse line of credit extended to another mortgage lender.

The warehouse

lending line is used by the mortgage lender to make loans for the purchase of one- to four-family residential real estate properties.

The Company’s residential real estate loan portfolio was relatively stable at September 30, 2025 compared to year-end 2024, increasing just $172.

September 30, 2025, residential real estate loans represented the second largest segment of the Company’s total loan portfolio at 33.1%.

change from year-end 2024 was largely due to a $31,473 paydown in a warehouse line of credit extended to another mortgage lender.

The warehouse lending line is used by the mortgage lender to make loans for the purchase of one- to four-family

residential real estate properties.

The mortgage lender eventually sells the loan and repays the Bank.

The paydown was a result of lower mortgage volume

due to higher mortgage rates and the increase in the lead bank’s internal capacity in relation to a capital infusion.

At June 30, 2025, the balance of this line of credit was $0, but may increase in future periods if mortgage volume increases and the

funding needs of the lead bank changes.

The paydown was a result of lower mortgage volume due to higher mortgage rates and the increase in the lead bank’s internal capacity in relation to a

capital infusion.

At September 30, 2025, the balance of this line of credit was $0, but draw downs on the line of credit began again post quarter end.The future balance of the line of credit will depend on mortgage volume and the funding needs of the

lead bank, but it is expected to increase.

The remaining residential real estate loan balances increased $31,645, or 9.3%, from year-end 2024.

Through the first half of 2025, as mortgage rates continued to increase, the Company experienced fewer

opportunities to sell long-term fixed rate loans to the secondary market.

As a result of the elevated mortgage rates, mortgage customers selected more variable rate mortgage products instead of long-term fixed rate mortgage products.

This had a direct

impact on lowering loan volume within the long-term fixed rate loan portfolio (down $2,563) and contributed to a shift into more short-term variable rate mortgages (up $13,970) as of June 30, 2025.

Further decreases in loans came from the Company’s consumer loan portfolio, which was down $11,867, or 7.6%, from year-end 2024.

This change was impacted by

a $7,901, or 15.7%, decrease in automobile loans.

This was directly impacted by management’s strategy to place more emphasis on higher yielding loan portfolios (i.e.

Through the first nine months of 2025, as mortgage rates generally remained at elevated levels during most of

the year, the Company experienced fewer opportunities to sell long-term fixed rate loans to the secondary market.

As a result of the elevated mortgage rates, mortgage customers selected more variable rate mortgage products instead of long-term fixed

rate mortgage products.

This had a direct impact on lowering loan volume within the long-term fixed rate loan portfolio and contributed to a shift into more short-term variable rate mortgages as of September 30, 2025.

The increases in the Company’s commercial and residential real estate loan portfolios at September 30, 2025 were partially offset by a decrease in the

Company’s consumer loan portfolio, which was down $14,912, or 9.5%, from year-end 2024.

This change was impacted by a $10,740, or 21.4%, decrease in automobile loans.

This was directly impacted by management’s strategy to place more emphasis on higher

yielding loan portfolios (i.e.

commercial, and to a smaller extent, residential real estate).

Indirect automobile

loans bear additional costs from dealers that partially offset interest revenue and lower the rate of return.

As a result, the Company exited the indirect lending business for automobiles and recreational vehicles during the fourth quarter of 2024.

Decreases in consumer loans also came from a $7,020, or 10.9%, decrease in other consumer loans from year-end 2024, impacted by principal repayments and payoffs.

Decreases in consumer loans were partially offset by a $3,054, or 7.2%, increase in home

equity lines of credit.

Indirect automobile loans bear additional costs from dealers that partially offset interest revenue and lower the rate of return.

As a result, the Company

exited the indirect lending business for automobiles and recreational vehicles during the fourth quarter of 2024.

Decreases in consumer loans also came from a $9,066, or 14.1%, decrease in other consumer loans from year-end 2024, impacted by principal

repayments and payoffs.

Decreases in consumer loans were partially offset by a $4,894, or 11.5%, increase in home equity lines of credit.

Allowance for Credit Losses

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costs basis is due to credit-related factors or noncredit-related factors.

As of June 30, 2025, the Company determined that all AFS securities that experienced a decline in fair value below the amortized cost basis from year-end 2024 were due to

As of September 30, 2025, the Company determined that all AFS securities that experienced a decline in fair value below the amortized cost basis from year-end 2024 were due to

non-credit related factors.

Furthermore, the Company does not have the intent to sell any of these securities and believes that it is more likely than not that the Company will not have to sell any such securities before a recovery of cost.

no ACL was recorded, and no provision expense was recognized during the three and six months ended June 30, 2025.

no ACL was recorded, and no provision expense was recognized during the three and nine months ended September 30, 2025.

For HTM debt securities, the Company evaluates the securities collectively by major security type at each measurement date to determine expected credit

losses based on issuer’s bond rating, historical loss, financial condition, and timely principal and interest payments.

At June 30, 2025, a $1 ACL was recognized based on a .02% cumulative default rate taken from the S&P and Moody’s bond rating

The $1 ACL for HTM debt securities was unchanged from December 31, 2024, resulting in no provision expense during the three and six months ended June 30, 2025.

At September 30, 2025, a $1 ACL was recognized based on a .02% cumulative default rate taken from the S&P and Moody’s bond

rating index.

The $1 ACL for HTM debt securities was unchanged from December 31, 2024, resulting in no provision expense during the three and nine months ended September 30, 2025.

For loans, the Company’s ACL is management’s estimate of expected lifetime credit losses, measured over the contractual life of a loan, that considers

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determined using the present value of expected future cash flows based upon the loan’s original effective interest rate, at the loan’s observable market price, or if the loan was collateral dependent, at the fair value of the collateral.

As of June 30, 2025, the ACL for loans totaled $10,856, or 0.99%, of total loans.

As of December 31, 2024, the ACL for loans totaled $10,088, or 0.95%, of

As of September 30, 2025, the ACL for loans totaled $11,420, or 1.01%, of total loans.

As of December 31, 2024, the ACL for loans totaled $10,088, or 0.95%,

of total loans.

The $1,332, or 13.2%, increase in the ACL came primarily from loans collectively evaluated.

The increase in ACL reserves was mostly due to a higher historical loss rate within the commercial real estate and commercial and industrial

portfolios, partially offset by a lower historical loss rate within the consumer loan portfolio.

Increases in the ACL were also impacted by a $42 increase in specific reserves on loans individually evaluated for impairment from year-end 2024.

second quarter of 2025, the Company individually evaluated one residential real estate loan for expected credit loss.

After measuring the fair value of the loan’s collateral to the loan’s recorded investment, the Company identified $42 in expected

losses based on the impairment associated with the borrower’s collateral.

This resulted in a corresponding charge to provision expense to establish the specific allocation within the ACL at June 30, 2025.

The Company experienced minimal change in its delinquency levels from year-end 2024.

Nonperforming loans to total loans decreased slightly to 0.45% at June

30, 2025, compared to 0.46% at December 31, 2024, while nonperforming assets to total assets remained unchanged at 0.33%.

The decrease in nonperforming loans to total loans resulted from a $130 decrease in nonaccrual loans, coming mostly from the

commercial real estate and consumer loan portfolios.

Management believes that the ACL at June 30, 2025 was appropriate to absorb expected losses in the loan portfolio.

The increase in ACL reserves from year-end 2024 was mostly impacted by a $68,709 increase in total loans, primarily within the commercial real

estate segment.

Further increases in year-to-date reserves also came from a higher historical loss rate within the commercial and residential real estate portfolios, as well as higher qualitative risk factor adjustments within the commercial real

estate portfolio.

The increases in general reserves were partially offset by a lower historical loss rate within the consumer loan portfolio.

The Company experienced a decreasing trend in its nonperforming levels from year-end 2024.

Nonperforming loans to total loans decreased to 0.42% at September

30, 2025, compared to 0.46% at December 31, 2024, while nonperforming assets to total assets decreased to 0.30% at September 30, 2025, compared to 0.33% at December 31, 2024.

The decrease in nonperforming loans to total loans was the result of a $165

decrease in nonaccrual loans, coming mostly from the commercial real estate and consumer loan portfolios.

While nonperforming levels were down from year-end 2024, total loans past due increased $6,835, or 48.8%.

The increase in higher delinquencies

from year-end 2024 was not considered to be a trending movement, as the increase was primarily related to two commercial loans that were past due 30-59 days at September 30, 2025.

The Company has experienced an increase in loan balances deemed special mention or substabdard, particularly in the commercial real estate segment.

September 30, 2025, commercial real estate loans classified as special mention or substandard totaled $33,563, an increase of $10,266 from December 31, 2024.

The increase was largely related to two loan relationships.

One of these relationships was

downgraded to substandard and collateral dependent based on the customer’s debt service coverage ratio.

Based on the value of the collateral, no specific reserve was required.

The second loan relationship is a construction loan that was downgraded to

special mention due to the project extending past the expected completion date and exceeding estimated construction costs.

Management believes that the ACL at September 30, 2025 was appropriate to absorb expected losses in the loan portfolio.

Changes in the circumstances of

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Deposits continue to be the most significant source of funds used by the Company to support earning assets.

Total deposits at June 30, 2025 increased $1,584, or 0.1%, from year-end 2024.

This minimal change in deposits came primarily from noninterest-bearing deposit balances, which were up by $8,990, or 2.8%, from year-end 2024, while interest-bearing deposits decreased $7,406, or 0.8%, from year-end 2024.

Total deposits at September 30, 2025 increased $57,309, or 4.5%, from year-end

The increase in deposits came primarily from interest-bearing deposit balances, which were up by $56,844, or 6.0%, from year-end 2024, while noninterest-bearing deposits increased $465, or 0.1%, from year-end 2024.

The increase in noninterest-bearing demand deposits was primarily from the Company’s business and incentive-based checking account

The decrease in interest-bearing deposits came primarily from NOW account balances, which decreased $15,411, or 5.6%, from year-end

The decrease was largely from a $20,101 decrease in the Company’s municipal NOW account with the Treasurer in relation to the Homebuyer Plus program.

Excluding this decrease in the Treasurer account balances, the Company would have experienced a

$4,036 increase in its other municipal NOW product balances, particularly within the Gallia County, Ohio, and Mason County, West Virginia, market areas.

Further decreases in interest-bearing deposits came from time deposit balances, which decreased $8,682, or 2.2%, from year-end 2024.

decrease came from wholesale time deposits, which decreased $13,901, or 22.8%, from year-end 2024.

This was the result of $14,270 in brokered CD maturities during the second quarter of 2025.

Retail time deposits increased $5,219 from year-end 2024,

partially offsetting the impact of lower wholesale deposits.

The surge in product rate increases on retail CDs continue to slow during 2025, which has limited the growth in time deposits from year-end 2024 compared to savings and money market deposits.

Partially offsetting the decreases in NOW and time deposit balances were higher savings and money market account balances, which

increased $16,687, or 5.8%, from year-end 2024.

The increase came primarily from money market accounts, which increased $9,101 from year-end 2024, impacted mostly by increases in the Company’s tiered money market product (Money Fund) that was

introduced in 2023 and offers a higher rate on tiered deposit balances.

The increase in interest-bearing deposits came primarily from time deposit balances, which increased $69,423, or 17.6%, from year-end

The increase came from retail time deposits, which increased $55,116 from year-end 2024.

The Company targeted growth in retail CDs by promoting a special CD rate offering during the third quarter of 2025 to assist in funding loan growth.

Company also utilized more wholesale CDs to help fund earning asset demand, which increased $14,307 from year-end 2024.

Further increases in interest-bearing deposits came from savings and money market balances, which increased $15,154, or 5.3%, from

year-end 2024.

The increase came primarily from money market accounts, which increased $11,897 from year-end 2024, impacted mostly by increases in the Company’s tiered money market product (Money Fund) that was introduced in 2023 and offers a higher

rate on tiered deposit balances.

Savings account balances increased $3,257 impacted mostly by the Company’s statement savings account product.

Partially offsetting the increases in time, savings and money market deposit balances were lower NOW account balances, which decreased

$27,733, or 10.2%, from year-end 2024.

The decrease was largely from a $24,859 decrease in the Company’s municipal NOW account with the Treasurer in relation to the Homebuyer Plus program.

Excluding this decrease in the Treasurer account balances, the

Company would have experienced a $2,874 decrease in its other municipal NOW product balances, particularly within the Gallia County, Ohio, and Mason County, West Virginia, market areas.

While facing increased competition for deposits in its market areas, the Company will continue to emphasize growth and retention in its

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Other Borrowed Funds

Other borrowed funds were $37,177 at June 30, 2025, a decrease of $2,563, or 6.4%, from year-end 2024.

The decrease was related to the

scheduled principal amortization for applicable FHLB advances.

While deposits continue to be the primary source of funding for growth in earning assets, management will continue to utilize various wholesale funding sources to help manage interest rate

sensitivity and liquidity.

Other borrowed funds were $36,024 at September 30, 2025, a decrease of $3,716, or 9.4%, from year-end 2024.

The decrease was related to

the scheduled principal amortization for applicable FHLB advances.

While deposits continue to be the primary source of funding for growth in earning assets, management will continue to utilize various wholesale funding sources to help manage interest

rate sensitivity and liquidity.

Shareholders’ Equity

Total shareholders' equity at June 30, 2025 increased $10,432, or 6.9%, to finish at $160,760, as compared to $150,328 at December 31,

This was primarily from year-to-date net income and an increase in the fair value of AFS securities, partially offset by cash dividends paid.

The after-tax increase in fair value on AFS securities totaled $3,937 from year-end 2024, as long-term

market rates decreased during the first half of 2025, causing an increase in the fair value of AFS securities.

Total shareholders' equity at September 30, 2025 increased $14,089, or 9.4%, to finish at $164,417, as compared to $150,328 at December

This was primarily from year-to-date net income and an increase in accumulated other comprehensive income, partially offset by cash dividends paid.

The increase in accumulated other comprehensive income was related to the $4,697, net of tax,

market appreciation of AFS securities due to a decrease in market interest rates and the recognition of a $950, net of tax, realized loss on the sale of securities that was previously unrealized.

Comparison of Results of Operations

For the Three and Six Months Ended

June 30, 2025 and 2024

The following discussion focuses, in more detail, on the consolidated results of operations of the Company for the three and six months

ended June 30, 2025, compared to the same period in 2024.

For the Three and Nine Months Ended

September 30, 2025 and 2024

The following discussion focuses, in more detail, on the consolidated results of operations of the Company for the three and nine months

ended September 30, 2025, compared to the same period in 2024.

This discussion should be read in conjunction with the interim consolidated financial statements and the notes included in this Form 10‑Q.

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assets and interest expense incurred on interest-bearing liabilities.

During the three and six months ended June 30, 2025, net interest income increased $2,572, or 21.5%, and $4,522, or 19.5%, compared to the same periods in 2024, respectively.

quarterly and year-to-date improvement during 2025 came from average earning asset growth and the net interest margin.

The average growth was impacted by a composition shift into higher-yielding loans and securities, combined with a consumer shift to

more lower-cost deposit sources that helped reduce the higher average costs paid on deposits and borrowings.

Total interest and fee income recognized on the Company’s earning assets increased $2,387, or 12.8%, during the second quarter of 2025, and $4,503, or 12.4%,

during the six months ended June 30, 2025, compared to the same periods in 2024, respectively.

The earnings growth was impacted by interest on loans, which increased $1,725, or 11.1%, and $3,072, or 10.2%, during the three and six months ended June 30,

2025, compared to the same periods in 2024, respectively.

During the three and nine months ended September 30, 2025, net interest income increased $2,016, or 16.0%, and $6,538, or 18.3%, compared to the same periods in 2024, respectively.

The quarterly and year-to-date improvement during 2025 came from average earning asset growth and the net interest margin.

The average growth was impacted by a composition shift into higher-yielding loans and securities, combined with a consumer shift

to more lower-cost deposit sources that helped minimize the higher average costs paid on deposits and borrowings.

Total interest and fee income recognized on the Company’s earning assets increased $2,142, or 11.0%, during the third quarter of 2025, and $6,645, or 11.9%,

during the nine months ended September 30, 2025, compared to the same periods in 2024, respectively.

The earnings growth was impacted by interest on loans, which increased $1,898, or 11.8%, and $4,970, or 10.8%, during the three and nine months ended

September 30, 2025, compared to the same periods in 2024, respectively.

This improvement was impacted by increases in both average loan balances and loan yields.

Overall, average loans increased $51,150 during the second quarter of 2025 and $59,742 during the first

half of 2025.

Balance increases were mostly realized within the commercial and residential real estate loan portfolios due to higher commercial loan volume and a consumer preference for short-term, variable rate residential real estate loans.

revenue improvement also came from average loan yields increasing 37 basis points to 6.82% during the second quarter of 2025 and increasing 28 basis points during the first half of 2025, compared to the same periods in 2024.

A portion of the loan yield

improvement came from the recognition of a market discount on two purchased commercial and industrial loans totaling $817 in the second quarter of 2025.

Loan yield increases were mostly impacted by the commercial and residential real estate loan

Total interest on securities increased $1,342, or 136.8%, during the second quarter of 2025, and $2,606, or 137.2%, during the first half of 2025, compared

Overall, average loans increased $76,514 during the third quarter of 2025 and $65,448

during the first nine months of 2025.

estate loans.

Loan revenue improvement also came from average loan yields increasing 24 basis points to 6.69% during the third quarter of 2025 and increasing 27 basis points to 6.68% during the first nine months of 2025, compared to the same periods in

A portion of the loan yield improvement came from the recognition of a market discount on two purchased commercial and industrial loans totaling $817 in the second quarter of 2025.

Loan yield increases were mostly impacted by the commercial and

residential real estate loan portfolios.

Total interest on securities increased $405, or 22.2%, during the third quarter of 2025, and $3,011, or 80.8%, during the first nine months of 2025, compared

to the same periods in 2024.

The earnings growth was primarily from the purchase of $100,497 in U.S.

The earnings growth was primarily related to the purchase of $100,497 in U.S.

Government securities during the third quarter of 2024 as part of the Company’s participation in the state’s Homebuyer Plus program.

The securities

were purchased at a weighted average yield of 4.7% with maturity terms ranging from 6 to 18 months.

securities were purchased at a weighted average yield of 4.7% with maturity terms ranging from 6 to 18 months.

The security purchases were used to collateralize $100,000 in public fund deposits received by the Treasurer as part of the program.

This contributed to

increases in average security balances, which were up $103,063 and $99,312 during the three and six months ended June 30, 2025, compared to the same periods in 2024.

While average securities have grown in large part due to the security purchases from

the Homebuyer Plus program, the Company has placed more emphasis on growing its higher-yielding loan portfolio during 2024 and 2025, utilizing proceeds from various maturities and repayments of securities to help fund loan growth.

Earnings from

securities were positively impacted by increases in the average yield on securities, impacted by the $100,497 purchase of U.S Government securities at a weighted average yield of 4.7% that was higher than the 2.04% average yield on the total securities

portfolio at June 30, 2024.

Average security yields were also positively impacted by the elevated market rate environment during 2024 that continued into 2025.

As a result, average security yields increased 115 basis points to 3.25% during the second

quarter of 2025 and increased 117 basis points to 3.21% during the first half of 2025, compared to the same periods in 2024.

Total interest income from interest-bearing deposits with banks decreased $807, or 55.8%, during the second quarter of 2025, and decreased $1,398, or 48.8%,

during the first half of 2025, compared to the same periods in 2024.

This was largely from average balance decreases with the Company’s interest-bearing FRB clearing account, which decreased $45,937 and $36,766 during the three and six months ended

June 30, 2025, compared to the same periods in 2024, respectively.

contributed to increases in average security balances, which were up $25,983 and $74,685 during the three and nine months ended September 30, 2025, compared to the same periods in 2024.

While average securities have grown in large part due to the

security purchases from the Homebuyer Plus program, the Company has placed more emphasis on growing its higher-yielding loan portfolio during 2024 and 2025, utilizing proceeds from various maturities and repayments of securities to help fund loan

Earnings from securities were positively impacted by increases in the average yield on securities, impacted by the $100,497 purchase of U.S Government securities in the third quarter of 2024 at a weighted average yield of 4.7% that was higher

than the 2.39% average yield on the total securities portfolio at September 30, 2024.

Average security yields were also positively impacted by the elevated market rate environment during 2024 that continued into most of 2025.

As a result, average

security yields increased 32 basis points to 3.21% during the third quarter of 2025 and increased 82 basis points to 3.21% during the first nine months of 2025, compared to the same periods in 2024.

Total interest income from interest-bearing deposits with banks decreased $227, or 28.7%, during the third quarter of 2025, and decreased $1,625, or 44.5%,

during the first nine months of 2025, compared to the same periods in 2024.

This was largely from average balance decreases with the Company’s interest-bearing FRB clearing account, which decreased $4,445 and $25,933 during the three and nine months

ended September 30, 2025, compared to the same periods in 2024, respectively.

FRB clearing balances were used to assist in funding loan growth, which contributed to the average balance decrease of FRB funds during 2025.

Further impacting lower interest income

from the FRB clearing account were short-term rate decreases during 2024.

Between September and December 2024, the FRB took action to reduce the rate associated with the FRB clearing account by 100 basis points due to improvements in inflationary

This action lowered the target federal funds rate to a range of 4.25% to 4.50%, which had a negative impact on the FRB clearing account’s interest earnings.

Total interest expense incurred on the Company’s interest-bearing liabilities decreased $185, or 2.8%, during the second quarter of 2025, and decreased $19,

or 0.1%, during the first half of 2025, compared to the same periods in 2024.

Decreases in interest expense were impacted by a lower cost of funds as the composition of average funding sources shifted from higher cost deposit sources such as time

deposits to lower cost deposit sources such as NOW, savings, and money market deposits.

The decrease in lower cost of funds completely offset the increases in average interest-bearing liabilities, primarily from deposits.

Further impacting lower interest

income from the FRB clearing account were short-term rate decreases during 2024 and 2025.

Between September and December 2024, the FRB took action to reduce the rate associated with the FRB clearing account by 100 basis points due to inflationary

pressures, which lowered the target federal funds rate to a range of 4.25% to 4.50% going into 2025.

In 2025, the FRB again reduced the rate associated with the FRB clearing account by 25 basis points in September and another 25 basis points in

October, due to concerns of a weakening labor market.

This lowered the target federal funds rate to a range of 3.75% to 4.00% as of October 31, 2025.

The decreases in interest rates had a negative impact on the FRB clearing account’s interest earnings.

Total interest expense incurred on the Company’s interest-bearing liabilities was limited to increases of just $126, or 1.8%, during the third quarter of

2025, and $107, or 0.5%, during the first nine months of 2025, compared to the same periods in 2024.

The increase in funding expenses were directly related to the increases in average interest-bearing liabilities, primarily from deposits.

impact from higher average deposit balances was almost completely offset by a lower cost of funds as the composition of average funding sources shifted from higher cost deposit sources such as time deposits to lower cost deposit sources such as NOW,

savings, and money market deposits.

Growth in the Company’s average interest-bearing liabilities came mostly from NOW, savings and money market deposit balances, which increased $33,956 and

$110,624 during both the second quarter and first half of 2025, compared to the same periods in 2024.

A large portion of this growth came from lower-costing NOW and savings account balances related to the Company’s participation in the Homebuyers Plus

With the additions of the municipal NOW Treasurer account and new Home Sweet Home savings accounts during the second half of 2024, this contributed to an average balance increase of $87,013 and $90,804 in interest-bearing deposits during the

three and six months ended June 30, 2025, compared to the same periods in 2024, respectively.

Average interest-bearing deposit growth also came from the Company’s lower-costing tiered money market product (Money Fund), which increased $31,235 and

$31,530 during the three and six months ended June 30, 2025, compared to the same periods in 2024, respectively.

The Company also experienced a $4,557 and $6,083 increase in its average time deposits during both the second quarter and first half of 2025, compared to the

same periods in 2024.

While the movement of higher time deposit balances had a corresponding impact to higher interest expense, the average cost associated with time deposits decreased 44 basis points to 4.23% during the first half of 2025.

2023, rate offerings on retail CDs continued to adjust up as a result of market competition.

The Company had offered various “short-term” CD rate specials with maturity terms of less than one year to attract and retain its core deposit funding during

Since then, product rates on retail CDs have decreased, which has allowed a large portion of those short-term retail CDs to renew at lower rates, or in some cases, be reinvested into lower-costing NOW, savings or money market accounts

(average cost of 1.40%).

Furthermore, the Company’s average wholesale funding balances decreased $19,627 during the first half of 2025, which included the use of brokered CDs (average cost of 4.68%) and FHLB advances (average cost of 4.05%).

Company utilizing the growth in its lower-cost retail deposit sources to fund earning asset growth, the reliance on higher-cost wholesale deposits to fund asset growth decreased, which contributed to lower interest expense during 2025.

As a result of

the rate repricings on retail CDs and the deposit shift into lower-cost funding sources, the Company’s total weighted average costs on interest-bearing liabilities decreased by 17 basis points from 2.15% at June 30, 2025 to 1.98% at June 30, 2024.

$84,877 during both the third quarter and first nine months of 2025, compared to the same periods in 2024.

A large portion of this growth came from lower-costing NOW and savings account balances related to the Company’s participation in the Homebuyers

Plus program.

As a result of the additions of the municipal NOW Treasurer account and new Home Sweet Home savings accounts during the second half of 2024, there was an increase in the average balance of interest-bearing deposits of $17,175 and $66,072

during the three and nine months ended September 30, 2025, respectively, compared to the same periods in 2024.

Average interest-bearing deposit growth also came from the Company’s lower-costing tiered money market product (Money Fund), which increased

$36,503 and $33,217 during the three and nine months ended September 30, 2025, compared to the same periods in 2024, respectively.

The Company also experienced a $45,308 and $19,290 increase in its average time deposits during both the third quarter and first nine months of 2025,

compared to the same periods in 2024.

The surge in average quarterly time deposit balances was the result of a special CD rate offering that began in July 2025 that was successful in raising additional retail deposits used to assist in funding loan

While the movement of higher time deposit balances had a corresponding impact to higher interest expense, the average cost associated with time deposits decreased 52 basis points to 4.15% during the first nine months of 2025.

During 2023, rate

offerings on retail CDs continued to adjust up as a result of market competition.

The Company had offered various “short-term” CD rate specials with maturity terms of less than one year to attract and retain its core deposit funding during this time.

Furthermore, the Company’s average wholesale funding balances decreased $12,723 during the first nine months of 2025, which included the use of brokered CDs (average cost of 4.62%) and FHLB advances (average cost of 4.04%).

With the Company

utilizing the growth in its lower-cost retail deposit sources to fund earning asset growth, the reliance on higher-cost wholesale deposits to fund asset growth decreased, which contributed to lower interest expense during 2025.

As a result of the rate

repricings on retail CDs and the deposit shift into lower-cost funding sources, the Company’s total weighted average costs on interest-bearing liabilities decreased by 14 basis points from 2.13% at September 30, 2024 to 1.99% at September 30, 2025.

The Company’s net interest margin is defined as fully tax-equivalent net interest income as a percentage of average earning assets.

During 2025, the

Company’s second quarter net interest margin increased to 4.17%, compared to 2024’s second quarter net interest margin of 3.74%.

Company’s third quarter net interest margin increased to 4.05%, compared to 2024’s third quarter net interest margin of 3.76%.

The Company’s year-to-date net interest margin increased to 4.03%, compared to 2024’s year-to-date net interest margin of

Positive contributions to margin growth came from the Company’s average earning assets, which increased 8.3% and 9.5% during the second quarter and first half of 2025, respectively, mostly from higher-yielding loans and securities.

Positive contributions to margin growth came from the Company’s average earning assets, which increased 7.3% and 8.8% during the third quarter and first nine months of 2025, respectively, mostly from higher-yielding loans and securities.

improvement was also positively impacted by lower average costs associated with the Bank’s interest-bearing liabilities due to a deposit composition shift into more lower-cost NOW, savings, and money market account deposits.

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Management performs, on a quarterly basis, a detailed analysis of the ACL that encompasses asset portfolio composition, asset quality, loss experience and other relevant economic factors.

For the three months ended June

30, 2025, the Company’s provision for credit losses expense totaled $1,148, an increase of $967 when compared to $181 in provision expense during the three months ended June 30, 2024.

For the six months ended June 30, 2025, the Company’s provision for

credit losses expense totaled $1,564, an increase of $632 when compared to $932 in provision expense during the six months ended June 30, 2024.

The increase in credit loss expense came primarily from loans, which increased $895 during the second quarter of 2025, and increased $514 during the first

half of 2025, compared to the same periods in 2024.

Provision expense on loans during 2025 was impacted primarily by increases in net charge-offs, which were up $385 during the second quarter of 2025 and $410 during the first half of 2025, compared to

the same periods in 2024.

The increases in net charge-offs during 2025 were the result of large recoveries collected on one commercial and industrial borrower during the second quarter of 2024.

Provision expense on loans during 2025 was also impacted by a higher historical loan loss and qualitative risk factor that increased reserves.

The historical

loan loss factor was primarily impacted by a regression in GDP and unemployment projections from year-end 2024.

The qualitative risk factor was impacted by the improvement in residential real estate loan collateral risks that lowered reserves during

2024, that were not as impactful in 2025.

Further increases to provision expense also came from increases in loan balances generally allocated for due to strong loan growth during 2025 that generated

higher general reserves and a corresponding increase to provision expense.

Credit loss expense during 2025 was also impacted by unfunded commitments on off-balance sheet liabilities, which increased $72 during the three months ended

June 30, 2025, and increased $118 during the first half of 2025, compared to the same periods in 2024.

The impact came mostly from an increase in the originations of several new commercial and industrial lines during the second quarter of 2025.

For the three months ended

September 30, 2025, the Company’s provision for credit losses expense totaled $1,112, an increase of $192 when compared to $920 in provision expense during the three months ended September 30, 2024.

For the nine months ended September 30, 2025, the

Company’s provision for credit losses expense totaled $2,676, an increase of $824 when compared to $1,852 in provision expense during the nine months ended September 30, 2024.

The increase in credit loss expense during the quarterly period came primarily from unfunded commitments on off-balance sheet liabilities, which increased

$243 during the three months ended September 30, 2025, and increased $361 during the first nine months of 2025, compared to the same periods in 2024.

The impact came mostly from an increase in the originations of several new commercial and industrial

lines during the second and third quarters of 2025.

The increase in credit loss expense during the year-to-date period came primarily from loans, which decreased $15 during the third quarter of 2025, but

increased $463 during the first nine months of 2025, compared to the same periods in 2024.

Provision expense on loans during 2025 was impacted primarily by a higher qualitative risk factor that increased reserves.

The qualitative risk factor was

impacted by an increase in industry risk associated with hotel and motel loans that elevated reserves during the third quarter of 2025.

Partially offsetting the increase in qualitative risk was a lower historical loan loss factor primarily impacted by

GDP and unemployment projections regressing less during 2025 compared to 2024.

Provision expense on loans during 2025 was also impacted by loan balances generally allocated for due to strong loan growth during 2025 that generated higher

general reserves and a corresponding increase to provision expense, particularly during the third quarter of 2025.

Partially offsetting increases in provision expense during 2025 was a $427 increase in specific reserves during the third quarter of 2024 compared to no

specific reserves in 2025.

This specific allocation from 2024 was associated with a collateral-dependent commercial and industrial loan relationship that required a corresponding provision expense charge of $427 to establish the specific reserve.

Further impacting provision expense were net loan charge-offs, which decreased $127 during the third quarter of 2025, but increased $283 during the first

nine months of 2025, compared to the same periods in 2024.

Lower net charge-offs during the third quarter of 2025 came mostly from the consumer loan portfolio while higher net charge-offs during the first nine months of 2025 were the result of large

recoveries collected on one commercial and industrial borrower during the second quarter of 2024.

Future provisions to the ACL will continue to be based on management’s quarterly in-depth evaluation that is discussed in further detail under the caption

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Noninterest Income

Noninterest income increased $147, or 5.4%, during the three months ended June 30, 2025, and increased $97, or 1.5%, during the six months ended June 30,

2025, compared to the same periods in 2024.

The increases came mostly from interchange income earned on debit and credit cards, which increased $56 and $60 during the three and six months ended June 30, 2025, compared to the same periods in 2024,

respectively.

Noninterest income decreased $1,106, or 38.8%, during the three months ended September 30, 2025, and decreased $1,009, or 10.9%, during the nine months ended

September 30, 2025, compared to the same periods in 2024.

The decrease came primarily from losses associated with the sales of investment securities.

During the third quarter of 2023, the Company received proceeds of $9,808 from the sale of three

securities totaling $11,027 at a weighted average yield of 1.32%.

The lower-yielding securities were replaced with similar securities with a higher weighted average yield of 4.37%.

As a result, the realized losses on the sale of securities totaled

$1,219, which reduced noninterest income during both the three and nine months ended September 30, 2025.

While realized losses were incurred, the transactions are expected to increase future income and have a positive impact to the margin going

Partially offsetting the impact from the loss on sale of securities was growth in interchange income earned on debit and credit cards, which increased $91

and $151 during the three and nine months ended September 30, 2025, compared to the same periods in 2024, respectively.

This was due to an increase in the transaction volume associated with debit and credit cards.

The Company’s other noninterest income also increased $71 and $21 during the three and six months ended June 30, 2025, compared to the same

periods in 2024, respectively.

Other noninterest income was primarily impacted by losses of $54 incurred on OREO properties and the sale of bank premises during the second quarter of 2024 that did not repeat in 2025.

Other noninterest income was also

impacted by increases in card merchant fees and mortgage application referral fees partially offset by decreases in swap asset revenue.

The remaining noninterest income categories increased $20, or 1.6%, during the second quarter of 2025, and increased

$16, or 0.5%, during the first half of 2025, compared to the same periods in 2024.

The Company’s other noninterest income

also increased $22 and $43 during the three and nine months ended September 30, 2025, compared to the same periods in 2024, respectively.

Other noninterest income was primarily impacted by increases in commercial servicing fees, mortgage application

referral fees, and lower losses incurred on the sale of bank premises, which were all partially offset by decreases in swap asset revenue.

The remaining noninterest income categories did not change during the third quarter of 2025, while increasing

$16, or 0.3%, during the first nine months of 2025, compared to the same periods in 2024.

Noninterest Expense

Noninterest expense increased $186, or 1.7%, during the three months ended June 30, 2025, and increased $263, or 1.2%, during the three months ended June 30,

2025, compared to the same periods in 2024.

Contributing most to the increase in noninterest expense were data processing expenses, which increased $181 and $299 during the three and six months ended June 30, 2025, compared to the same periods in 2024,

respectively.

Noninterest expense increased $269, or 2.4%, during the three months ended September 30, 2025, and increased $532, or 1.6%, during the nine months ended

September 30, 2025, compared to the same periods in 2024.

Contributing most to the increase in noninterest expense were data processing expenses, which increased $114 and $413 during the three and nine months ended September 30, 2025, compared to the

same periods in 2024, respectively.

Higher costs in this category were primarily related to debit and credit card processing due to higher transaction volume and conversion costs for the Company’s new reward platform.

Higher noninterest expense also came from marketing expense, which increased $58 during the second quarter of 2025, and $112 during the first half of 2025.

Higher noninterest expense also came from marketing expense, which increased $52 during the third quarter of 2025, and $164 during the first nine months of

Higher costs in this category were the direct result of additional expense added to both the donations and advertising budgets for 2025.

The Company’s largest noninterest expense, salaries and employee benefits, increased $8, or 0.1%, during the three months ended June 30, 2025, but decreased

$147, or 1.2%, during the six months ended June 30, 2025, compared to the same periods in 2024.

The year-to-date decrease was primarily related to the

Company’s full-time equivalent employee base being down ten employees from 245 at June 30, 2024 to 235 at June 30, 2025.

Furthermore, insurance premium costs saw a decrease in 2025, also coinciding with a smaller full-time equivalent employee base.

Total other noninterest expense increased $203 and $162 during the three and nine months ended September 30, 2025, compared to the same periods in 2024,

respectively.

This was impacted primarily from higher ATM costs during the third quarter of 2025, as well as increases in employee recruiting costs, all partially offset by decreases in swap asset expense.

Total occupancy and equipment expenses also increased $55 and $91 during the three and nine months ended September 30, 2025, compared to the same periods in

2024, respectively.

This was impacted by increases in various repair and maintenance costs and higher utility expenses.

The Company’s largest noninterest expense, salaries and employee benefits, decreased $229, or 3.5%, during the three months ended September 30, 2025, and

decreased $376, or 2.0%, during the nine months ended September 30, 2025, compared to the same periods in 2024.

The decreases were primarily related to the

Company’s full-time equivalent employee base being down nine employees from 264 at September 30, 2024 to 255 at September 30, 2025.

Furthermore, insurance premium costs saw a decrease in 2025, also coinciding with a smaller full-time equivalent

employee base.

The primary reason for the decrease in employee base was due to the voluntary early retirement program that was implemented in 2024.

The early retirement program was expected to reduce salary and employee benefit expense.

Partially offsetting the

year-to-date expense savings from the early retirement program were annual merit increases, which contributed to the increase in salaries and employee benefits during the second quarter of 2025.

The remaining noninterest expense categories decreased $61 during the second quarter of 2025, and decreased $1 during the first half of 2025, compared to the

same periods in 2024.

offsetting the year-to-date expense savings from the early retirement program were annual merit increases that were recorded in the second quarter of 2025.

The remaining noninterest expense categories increased $74 during the third quarter of 2025, and increased $78 during the first nine months of 2025, compared

to the same periods in 2024, impacted mostly by higher software and FDIC assessment costs.

The Company’s efficiency ratio is defined as noninterest expense as a percentage of fully tax-equivalent net interest income plus noninterest income.

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Management continues to place emphasis on managing its balance sheet mix and interest rate sensitivity as well as developing more innovative ways to generate noninterest revenue.

Comparing the three and six months ended June 30, 2025 to the same periods in 2024, the Company has benefited from an increase in average earning assets, primarily from higher-yielding loans and securities, a decrease in average costs on

interest-bearing deposits, and a deposit composition shift from higher-costing time deposits to lower-costing savings, NOW, money market and checking account deposits.

Positive earnings growth has not only benefited from an increase in noninterest

income during 2025, but also from the cost savings in salaries and employee benefits that resulted from management’s implementation of a voluntary retirement program in 2024.

This has helped to limit overhead expense to just a 1.7% increase during the

second quarter of 2025, and a 1.2% increase during the first half of 2025, over the same periods in 2024.

With strong growth in net interest income combined with minimal overhead expense pickup from 2024, the Company’s quarterly efficiency number

decreased (improved) to 63.09% during the three months ended June 30, 2025, compared to 73.37% during the three months ended June 30, 2024.

The Company’s year-to-date efficiency number also decreased (improved) to 63.51% during the six months ended

June 30, 2025, compared to 72.41% during the six months ended June 30, 2024.

Comparing the three and nine months ended September 30, 2025 to the same periods in 2024, the Company has benefited from an increase in average earning assets, primarily from higher-yielding loans and securities, and a decrease in average costs on

interest-bearing deposits associated with a deposit composition shift from higher-costing time deposits to lower-costing savings, NOW, money market and checking account deposits.

Also positively impacting earnings were cost savings in salaries and

employee benefits that resulted from management’s implementation of a voluntary retirement program in 2024.

This has helped to limit overhead expense to just a 2.4% increase during the third quarter of 2025, and a 1.6% increase during the first nine

months of 2025, over the same periods in 2024.

These positive effects from lower personnel costs and strong net interest margin growth has more than offset the $1,219 in realized losses from the sale of securities in the third quarter of 2025.

result, the Company’s quarterly efficiency number decreased (improved) to 69.70% during the three months ended September 30, 2025, compared to 72.01% during the three months ended September 30, 2024.

The Company’s year-to-date efficiency number also

decreased (improved) to 65.52% during the nine months ended September 30, 2025, compared to 72.27% during the nine months ended September 30, 2024.

Provision for income taxes

The Company’s income tax provision increased $328 during the three months ended June 30, 2025, and increased $873 during the six months ended June 30, 2025,

compared to the same periods in 2024.

The Company’s income tax provision increased $138 during the three months ended September 30, 2025, and increased $1,011 during the nine months ended

September 30, 2025, compared to the same periods in 2024.

The increase in tax expense was related to increases in operating income and the effective tax rate.

During the second quarter of 2025, operating income increased 43.3% and the associated effective tax rate

increased from 17.9% in 2024 to 18.8% in 2025.

During the first half of 2025, operating income increased 53.1% and the associated effective tax rate increased from 17.8% in 2024 to 19.8% in 2025.

The effective rate increases during both the quarterly

and year-to-date periods of 2025 were primarily from lower tax-exempt earnings.

During the third quarter of 2025, operating income increased 13.6% and the associated

effective tax rate increased from 17.5% in 2024 to 19.1% in 2025.

During the first nine months of 2025, operating income increased 40.5% and the associated effective tax rate increased from 17.7% in 2024 to 19.6% in 2025.

The effective rate increases

during both the quarterly and year-to-date periods of 2025 were primarily from lower tax-exempt earnings.

Capital Resources

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hybrid instruments which do not qualify as Tier 1 capital.

In September 2019, consistent with Section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking

agencies issued a final rule providing simplified capital requirements for certain community banking organizations (banks and holding companies).

Under the rule, a qualifying community banking organization (“QCBO”) is eligible to opt into the Community

Bank Leverage Ratio (“CBLR”) framework in lieu of the Basel III capital requirements if it has less than $10 billion in total consolidated assets, limited amounts of certain trading assets and liabilities, limited amounts of off-balance sheet exposure

and a leverage ratio greater than 9.0%.

The new rule took effect January 1, 2020, and QCBOs were allowed to opt into the new CBLR framework in their Call Report beginning the first quarter of 2020.

A QCBO opting into the CBLR framework must maintain a CBLR of 9.0%, subject to a two-quarter grace period to come back into compliance,

provided that the QCBO maintains a leverage ratio of more than 8.0% during the grace period.

A QCBO failing to satisfy these requirements must comply with the existing Basel III capital requirements as implemented by the banking regulators in July

The Community Bank Leverage Ratio (CBLR) framework provides simplified capital requirements for qualifying community banking organizations

(QCBOs), including banks and holding companies.

To be eligible for the CBLR framework, a QCBO must meet the following criteria:

Have less than $10 billion in total consolidated assets,

Hold limited amounts of certain trading assets and liabilities,

Maintain limited off-balance sheet exposure, and

Achieve a leverage ratio greater than 9.0%.

Under the CBLR framework, a QCBO must maintain a CBLR of at least 9.0%.

If the ratio falls below this threshold, the QCBO has a two-quarter

grace period to restore compliance, provided its leverage ratio remains above 8.0% during this period.

If the QCBO does not meet these requirements, it must comply with the existing Basel III capital requirements.

The Bank opted into the CBLR, and, therefore, is not required to comply with the Basel III capital requirements.

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The Bank’s transition amount during year three of the transitional period totaled $2,276, which resulted in the add-back of $569 to both Tier 1 capital and average assets as part of the CBLR

calculation for June 30, 2025.

As of June 30, 2025, the Bank’s CBLR was 10.27%.

Cash dividends paid by the Company were $2,121 during the first half of 2025.

calculation for September 30, 2025.

As of September 30, 2025, the Bank’s CBLR was 10.18%.

Cash dividends paid by the Company were $3,204 during the first nine months of 2025.

The year-to-date dividends paid totaled $0.68 per share.

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Total cash and cash equivalents, HTM securities maturing within one year, and AFS securities, which totaled $350,907, represented 22.4% of total assets at

June 30, 2025 compared to $352,563 and 23.5% of total assets at December 31, 2024.This decrease in liquid funds went primarily towards the funding of loans, which increased $39,442 from year-end 2024, mostly from the commercial loan portfolio.

funding sources also came from an increase in net proceeds from maturities and paydowns of securities.

Increases in deposits were largely impacted by growth in noninterest-bearing demand deposits and savings and money market deposits, which increased

4.2% from year-end 2024, partially offset by lower interest-bearing demand deposits and time deposits, which decreased 3.6%, from year-end 2024.

September 30, 2025, compared to $352,563 and 23.5% of total assets at December 31, 2024.

This decrease in liquid funds was primarily the result of the funding of loans, which increased $68,709 from year-end 2024, mostly from the commercial loan

Loan funding sources also came from an increase in net proceeds from maturities and paydowns of securities.

Increases in deposits were largely impacted by growth in time, savings, money market, and noninterest-bearing demand deposits which

increased 8.5% from year-end 2024, partially offset by lower interest-bearing demand deposits, which decreased 10.2%, from year-end 2024.

In addition to the on-balance sheet liquidity discussed above, the Bank has established multiple sources of funding to further enhance the Bank’s ability to

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The Bank has pledged collateral to the FHLB and the FRB to establish committed borrowing lines.

At June 30, 2025, the Bank could borrow an additional $111,440 from the FHLB and the borrowing line with the FRB had availability of

At September 30, 2025, the Bank could borrow an additional $116,143 from the FHLB and the borrowing line with the FRB had

availability of $44,597.

For each of these sources, the Bank has established an internal limit of 85% of our borrowing capacity.

In addition to the committed borrowing lines, the Bank has access to several wholesale funding sources, such as, brokered CDs, a $25

million federal funds purchase limit with two correspondent banks, and the ability to bid on available funds from select deposit placement services.

The Bank has established limits for each respective funding source and a collective limit on all

wholesale funding sources.

In addition to the committed borrowing lines, the Bank has access to several wholesale funding sources, such as, brokered

CDs, a $25 million federal funds purchase limit with two correspondent banks, and the ability to bid on available funds from select deposit placement services.

The Bank has established limits for each respective funding source and a collective limit on

all wholesale funding sources.

The Bank’s internal limit on brokered CDs is 10% of total assets.

At June 30, 2025, the amount of brokered CDs outstanding was 2.29% of total assets, as compared to 3.25% at December 31, 2024.

At June 30, 2025, the Bank had

utilized 43.77% of its FHLB capacity, a decrease from 52.21% at December 31, 2024.

At September 30, 2025, the amount of brokered CDs outstanding was 3.96% of total assets, as compared to 3.25% at December 31, 2024.

At September 30, 2025,

the Bank had utilized 44.47% of its FHLB capacity, a decrease from 52.21% at December 31, 2024.

The collective internal limit on all wholesale funding sources is 40% of total assets.

At June 30, 2025, the Bank’s total wholesale funding sources represented 10.02% of

total assets.

Based on the collective internal wholesale funding limit, the Bank had the capacity to borrow an additional $449 million in wholesale funds and the available funding from the respective wholesale funding sources exceeded this amount,

which provides the flexibility to utilize one source more than another due to pricing or availability.

At September 30, 2025, the Bank’s total wholesale funding sources

represented 11.86% of total assets.

Based on the collective internal wholesale funding limit, the Bank had the capacity to borrow an additional $438 million in wholesale funds and the available funding from the respective wholesale funding sources

exceeded this amount, which provides the flexibility to utilize one source more than another due to pricing or availability.

As part of performing liquidity stress tests, the Bank monitors and evaluates the exposure to uninsured deposits.

Of the Company’s $1,332,487 in total

deposit balances at June 30, 2025, only 38.9%, or $496,161, were deemed uninsured as per the $250 FDIC threshold.

deposit balances at September 30, 2025, only 37.4%, or $498,790, were deemed uninsured as per the $250 FDIC threshold.

A portion of these deposits are on behalf of public entity customers, which require the Bank to pledge securities or FHLB letters of

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To the extent these deposits left the Bank, the level of unpledged securities and the borrowing capacity at the FHLB would increase or could be utilized to fund the deposit

The sum of current on-balance sheet liquidity and available wholesale funding sources exceeded the balance of uninsured deposits at June 30, 2025.

The sum of current on-balance sheet liquidity and available wholesale funding sources exceeded the balance of uninsured deposits at September 30, 2025.

Included in on-balance sheet liquidity are AFS securities in an unrealized loss position.

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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