Eagle Financial Services Inc: Form 10-Q for the period ended Mar 31, 2025

The purpose of this discussion is to focus on important factors affecting the Company’s financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with the Company’s Consolidated Financial Statements and the Notes to the Consolidated Financial Statements presented in Part I, Item 1, Financial Statements, of this Form 10-Q and Part II, Item 8, Financial Statements and Supplementary Data, of the 2024 Form 10-K.

GENERAL

Eagle Financial Services, Inc. is a bank holding company which owns 100% of the stock of Bank of Clarke (the “Bank” and, collectively with Eagle Financial Services, Inc., the “Company”, “we”, “us” or “our”). Accordingly, the results of operations for the Company are dependent upon the operations of the Bank. The Bank conducts a commercial banking business which consists of attracting deposits from the general public and investing those funds in commercial, consumer and real estate loans and municipal and U.S. government agency securities. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation to the maximum extent permitted by law. At March 31, 2025, the Company had total assets of $1.90 billion, net loans of $1.44 billion, total deposits of $1.61 billion, and shareholders’ equity of $176.5 million. The Company’s net loss was $7.0 million for the three months ended March 31, 2025.

During the first quarter of 2025 the Company executed a balance sheet repositioning of its investment securities portfolio, selling available for sale securities with an amortized cost balance of $99.2 million resulting in a net realized pre-tax loss of $12.4 million and reinvesting $66.0 million into purchases of available for sale securities. Additionally, the Company completed an underwritten public offering of 1,796,875 shares of its common stock at a public offering price of $32.00 per share. Net proceeds from the offering were $53.5 million. These transactions are further described below.

MANAGEMENT’S STRATEGY

The Company strives to be an outstanding financial institution in its market by building solid sustainable relationships with: (1) its customers, by providing highly personalized customer service, a network of conveniently placed branches and ATMs, a competitive variety of products/services and courteous, professional employees, (2) its employees, by providing generous benefits, a positive work environment, advancement opportunities and incentives to exceed expectations, (3) its communities, by participating in local concerns, providing monetary support, supporting employee volunteerism and providing employment opportunities, and (4) its shareholders, by providing sound profits and returns, sustainable growth, regular dividends and committing to its local, independent status.

OPERATING STRATEGY

The Bank is a locally managed financial institution as well as predominately locally owned. While the Company expanded its ownership to institutional investors though a public offering of its common stock in February 2025, its operating strategy remains the same. This operating strategy allows the Bank to be flexible and responsive in the products and services it offers and to further grow by lending funds to local residents and businesses at a competitive price that reflects the inherent risk of lending. The Bank strives to fund these loans through deposits gathered from local residents and businesses. The Bank prices its deposits by comparing alternative sources of funds and selecting the lowest cost available. When deposits are not adequate to fund asset growth, the Bank relies on borrowings, both short and long term. The Bank’s primary source of borrowed funds is the Federal Home Loan Bank of Atlanta which offers numerous terms and rate structures to the Bank.

As interest rates change, the Bank attempts to maintain its net interest margin by changing the price, terms, and mix of its financial assets and liabilities. The Bank also earns fees on services provided through its trust department, secondary market mortgage activities, BOLI, and deposit operations. The Bank also incurs noninterest expenses such as compensating employees, maintaining and acquiring fixed assets, and purchasing goods and services necessary to support its daily operations.

The Bank has a marketing department which seeks to develop new business. This is accomplished through an ongoing calling program whereby account officers visit with existing and potential customers to discuss the products and services offered. The Bank utilizes traditional advertising such as television commercials, radio ads, newspaper ads, and billboards as well as electronic materials, emails, and social media posts.

LENDING POLICIES

Administration and supervision over the lending process is provided by the Bank’s Credit Administration Department. The principal risk associated with the Bank’s loan portfolio is the creditworthiness of its borrowers. In an effort to manage this risk, the Bank’s policy gives loan amount approval limits to individual loan officers based on their position and level of experience. Credit risk is increased or decreased, depending on the type of loan and prevailing economic conditions. In consideration of the different types of loans in the portfolio, the risk associated with real estate mortgage loans, commercial loans and consumer loans varies based on employment levels, consumer confidence, fluctuations in the value of real estate and other conditions that affect the ability of borrowers to repay debt.

The Company has written policies and procedures to help manage credit risk. The Company utilizes a loan review process that includes formulation of portfolio management strategy, guidelines for underwriting standards and risk assessment, procedures for ongoing identification and management of credit deterioration, and regular portfolio reviews to establish loss exposure and to ascertain compliance with the Company’s policies.

The Bank uses a tiered approach to approve credit requests consisting of individual lending authorities, joint approval of Co-Approval officers (Executive, Regional Credit Officer, Small Business Credit Officer), and a director loan committee. Lending limits for individuals are set by the Board of Directors and are determined by loan purpose, collateral type, and internal risk rating of the borrower. The highest individual authority (Executive) is assigned to the Bank’s President/ Chief Executive Officer, Chief Banking Officer and Chief Credit Officer (approval authority only). Two Executive officers may combine their authority to approve loan requests to borrowers with credit exposure up to $10.0 million on a secured basis and $6.0 million unsecured. Three Executive officers may combine to approve loan requests to borrowers with credit exposure up to $15.0 million on a secured basis and $9.0 million unsecured. Consumer Central Lenders are individual lenders who have been assigned to an Approval Category (A through F) based upon their level of experience and job function. Consumer Central Lenders can co-approve consumer, home equity lines of credit and home equity loan requests up to their stated authorities. Officers in Categories A through F have lesser authorities and with approval of an Executive officer may extend loans to borrowers with exposure of $5.0 million on a secured basis and $3.0 million unsecured. Officers in Categories A through F can also utilize the co-approval of the Regional and Small Business Credit Officers to extend loans with exposures up to $2.5 million and $1.5 million respectively on a secured basis, and up to $1 million and $750 thousand respectively on an unsecured basis. Loans exceeding $15.0 million and up to the Bank’s legal lending limit can be approved by the Risk Committee consisting of four directors (three directors constituting a quorum). The Director’s Loan Committee also reviews and approves changes to the Bank’s Loan Policy as presented by management.

The following sections discuss the major loan categories within the total loan portfolio:

One-to-Four-Family Residential Real Estate Lending

Residential lending activity may be generated by the Bank’s loan officer solicitations, referrals by real estate professionals, and existing or new bank customers. Loan applications are taken by a Bank loan officer. As part of the application process, information is gathered concerning income, employment and credit history of the applicant. The valuation of residential collateral is provided by independent fee appraisers who have been approved by the Bank’s Directors Loan Committee. In connection with residential real estate loans, the Bank requires title insurance, hazard insurance and, if applicable, flood insurance. In addition to traditional residential mortgage loans secured by a first or junior lien on the property, the Bank offers home equity lines of credit.

Commercial Real Estate Lending

Commercial real estate loans are secured by various types of commercial real estate in the Bank’s market area, including multi-family residential buildings, commercial buildings and offices, small shopping centers and churches. Commercial real estate loan originations are obtained through broker referrals, direct solicitation of developers and continued business from customers. In its underwriting of commercial real estate, the Bank’s loan to original appraised value ratio is generally 80% or less. Commercial real estate lending entails significant additional risk as compared with residential mortgage lending. Commercial real estate loans typically involve larger loan balances concentrated with single borrowers or groups of related borrowers. Additionally, the repayment of loans secured by income producing properties is typically dependent on the successful operation of a business or a real estate project and thus may be subject, to a greater extent, to adverse conditions in the real estate market or the economy, in general. The Bank’s commercial real estate loan underwriting criteria require an examination of debt service coverage ratios, the borrower’s creditworthiness, prior credit history and reputation, and the Bank typically requires personal guarantees or endorsements of the borrowers’ principal owners.

Construction and Land Development Lending

The Bank makes local construction loans, primarily residential, and land acquisition and development loans. The construction loans are secured by residential houses under construction and the underlying land for which the loan was obtained. The average life of most construction loans is less than one year and the Bank offers both fixed and variable rate interest structures. The interest rate structure offered to customers depends on the total amount of these loans outstanding and the impact of the interest rate structure on the Bank’s overall interest rate risk. There are two characteristics of construction lending which impact its overall risk as compared to residential mortgage lending. First, there is more concentration risk due to the extension of a large loan balance through several lines of credit to a single developer or contractor. Second, there is more collateral risk due to the fact that loan funds are provided to the borrower based upon the estimated value of the collateral after completion. This could cause an inaccurate estimate of the amount needed to complete construction or an excessive loan-to-value ratio. To mitigate the risks associated with construction lending, the Bank generally limits loan amounts to 80% of the estimated appraised value of the finished construction project. The Bank also obtains a first lien on the property as security for its construction loans and typically requires personal guarantees from the borrower’s principal owners. Finally, the Bank performs inspections of the construction projects to ensure that the percentage of construction completed correlates with the amount of draws on the construction line of credit.

Commercial and Industrial Lending

Commercial business loans generally have more risk than residential mortgage loans, but have higher yields. To manage these risks, the Bank generally obtains appropriate collateral and personal guarantees from the borrower’s principal owners and monitors the financial condition of its business borrowers. Residential mortgage loans generally are made on the basis of the borrower’s ability to make repayment from employment and other income and are secured by real estate whose value tends to be readily ascertainable. In contrast, commercial business loans typically are made on the basis of the borrower’s ability to make repayment from cash flow from its business and are secured by business assets, such as commercial real estate, accounts receivable, equipment and inventory. As a result, the availability of funds for the repayment of commercial business loans is substantially dependent on the success of the business itself. Furthermore, the collateral for commercial business loans may depreciate over time and generally cannot be appraised with as much precision as residential real estate.

Consumer Lending

The Bank offers various secured and unsecured consumer loans, which include personal installment loans, personal lines of credit, automobile loans, and credit card loans. The Bank originates its consumer loans within its geographic market area and these loans are generally made to customers with whom the Bank has an existing relationship. Consumer loans generally entail greater risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral on a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. Consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

The underwriting standards employed by the Bank for consumer loans include a determination of the applicant’s payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. The stability of the applicant’s monthly income may be determined by verification of gross monthly income from primary employment, and from any verifiable secondary income. Although creditworthiness of the applicant is the primary consideration, the underwriting process also includes an analysis of the value of the security in relation to the proposed loan amount.

Marine Lending

The Bank’s marine loan portfolio is comprised of retail marine vessel loans originated through August 2023, at which time the Company ceased accepting new marine lending business. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid. Retail loans were generally limited to premium manufacturers with established relationships with the Company which have a vested interest in the secondary market pricing of their respective brand due to the limited inventory available for resale. Consequently, while not contractually committed, manufacturers will often support secondary resale values which can have the effect of reducing losses from non-performing retail marine loans. Retail borrowers generally have very high credit scores, substantial down payments, substantial net worth, personal liquidity, and excess cash flow.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The financial information contained within these statements is, to a significant extent, based on measurements of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. In addition, GAAP itself may change from one previously acceptable method to another method. Although the economics of the transactions would be the same, the timing of events that would impact the transactions could change.

Allowance for Credit Losses on Loans

The Company establishes the allowance for credit losses through charges to earnings in the form of a provision for credit losses. Loan losses are charged against the allowance for credit losses for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance. The allowance represents management’s current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. The measurement of the allowance for credit losses is based in part on forecasts of unemployment, inflation, as well as the consumer price index, and may also consider other factors, which we believe to be indicative of risk factors related to collectability. Management also assesses the risk of credit losses arising from changes in economic conditions; the nature and volume of the loan portfolio; the volume and severity of delinquencies and adversely classified loan balances; lending policy and procedures; credit administration and lending staff; loan review; concentrations of credit and the value of underlying collateral in determining the recorded balance of the allowance for credit losses. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. In evaluating the level of the allowance, we consider a range of possible assumptions and outcomes related to the various factors identified above. Refer to the 2024 Form 10-K for additional detail concerning the determination of the allowance for credit losses on loans.

NON-GAAP FINANCIAL MEASURES

This report refers to certain financial measures that are computed under a basis other than GAAP ("non-GAAP"). The Company uses certain non-GAAP financial measures, including tax-equivalent net interest income and efficiency ratio, to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. The methodology for determining these non-GAAP measures may differ among companies. Non-GAAP measures are supplemental and not a substitute for, or more important than, financial measures prepared in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures which may be presented by other companies.

FORWARD LOOKING STATEMENTS

The Company makes forward looking statements in this report that are subject to risks and uncertainties. These forward looking statements include statements regarding our expectations, intentions or objectives concerning our profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals. The words “believes,” “expects,” “may,” “will,” “should,” "could," “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward looking statements. These forward looking statements are subject to significant uncertainties because they are based upon or are affected by factors including:

• difficult market conditions in our industry;
• the ability to successfully manage growth or implement growth strategies if the Bank is unable to identify attractive markets, locations or opportunities to expand in the future or if the Bank is unable to successfully integrate new branches, business lines or other growth opportunities into its existing operations;
• competition with other banks and financial institutions, and companies outside of the banking industry, including those companies that have substantially greater access to capital and other resources;
• the successful management of interest rate risk;
• risks inherent in making loans such as repayment risks and fluctuating collateral values;
• changes in general economic and business conditions in the Bank’s market area;
• reliance on the Bank’s management team, including the ability to attract and retain key personnel;
• changes in interest rates and interest rate policies;
• maintaining capital levels adequate to support growth;
• maintaining cost controls and asset qualities as new branches are opened or acquired;
• demand, development and acceptance of new products and services;
• deposit flows;
• the Bank's ability to manage liquidity;
• the cost and availability of secondary funding sources;
• effects of soundness of other financial institutions
• problems with technology utilized by the Bank;
• changing trends in customer profiles and behavior;
• geopolitical conditions, including acts or threats of terrorism, international hostilities, or actions taken by the U.S. or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the U.S. and abroad;
• the economic impact of duties, tariffs or other barriers or restrictions on trade, any retaliatory counter measures, or the volatility and uncertainty arising there from;
• the Company's potential exposure to fraud, negligence, computer theft, and cyber-crime;
• potential impact on us of existing and future legislation and regulations;
• changes in accounting policies and banking and other law and regulations; and
• other factors described in Item 1A., "Risk Factors," in the Company's 2024 Form 10-K.

Because of these uncertainties, actual future results may be materially different from the results indicated by these forward looking statements. In addition, past results of operations do not necessarily indicate future results.

RESULTS OF OPERATIONS

Net Income (Loss)

Net income (loss) for the three months ended March 31, 2025, was $(7.0 million) compared to $2.5 million for the three months ended March 31, 2024. (Loss) earnings per share, basic and diluted, were $(1.53) and $0.72 for the three months ended March 31, 2025 and 2024, respectively.

Return on average assets ("ROA") measures how efficiently the Company uses its assets to produce net income. Factors reflected within this efficiency include the Company’s asset mix, funding sources, pricing, fee generation, and cost control. The ROA of the Company, on an annualized basis, for the three months ended March 31, 2025 and 2024 was (1.48)% and 0.58%, respectively.

Return on average equity ("ROE") measures the utilization of shareholders’ equity in generating net income. This measurement is affected by the same factors as ROA with consideration to how much of the Company’s assets are funded by shareholders. The ROE of the Company, on an annualized basis, for the three months ended March 31, 2025 and 2024 was (20.75)% and 9.53%, respectively.

The Company's operating results for the three months ended March 31, 2025 were significantly impacted by the recognized loss on the sale of available for sale securities as part of its balance sheet repositioning strategy. The sale resulted in a net of tax loss of $9.8 million, or $(2.15) per share, and reduced ROA and ROE, on an annualized basis, by 2.07% and 29.21%, respectively, for the three months ended March 31, 2025. Going forward, the repositioning is expected to improve core net income, net interest income, net interest margin, and return on average assets.

Net Interest Income

Net interest income is our primary source of revenue, representing the difference between interest and fees earned on interest-earning assets and the interest paid on deposits and other interest-bearing liabilities. The level of net interest income is impacted primarily by variations in the volume and mix of these assets and liabilities, as well as changes in interest rates. Net interest income was $13.3 million and $12.4 million for the three months ended March 31, 2025 and 2024, respectively, which represents an increase of $921 thousand, or 7.42%. For the three months ended March 31, 2025, net interest income increased from the 2024 period primarily due to an increase in the average balance of interest-earning assets of $148.1 million compared to a $90.9 million increase in the average balance of interest-bearing liabilities, while average yields earned and rates paid were relatively stable period over period. For the three months ended March 31, 2025 and 2024, the average yield on interest-earning assets was 5.25% and 5.28%, respectively and the average rate paid on interest-bearing liabilities was 3.12% and 3.10%, respectively.

The Company's net interest spread and net interest margin decreased five basis points and two basis points, respectively, for the three months ended March 31, 2025 compared to three months ended March 31, 2024.

Total interest and dividend income was $23.5 million and $21.9 million for the three months ended March 31, 2025 and 2024, respectively, which represents an increase of $1.6 million, or 7.30%. The increase in interest income was driven by an increase in the average balance of the interest-earning assets and a 35 basis point increase in the average yield on securities. Average interest-earning assets increased $148.1 million, or 8.86%, when comparing the three months ended March 31, 2024 to the three months ended March 31, 2025, while the average yield on earning assets decreased by three basis points over the same period. While the average yield on total earning assets decreased by three basis points during the three months ended March 31, 2025, the income impact was offset by the average yield earned on securities as well as the overall increase in average balances, which outpaced the increase in average balances on total interest-bearing liabilities. The main driver of the increase in the total average earning asset balances during three months ended March 31, 2025 was interest-bearing deposits in other banks reflecting proceeds received from the capital raise and sales of available for sale securities completed during the first quarter of 2025.

Total interest expense was $10.2 million and $9.5 million for the three months ended March 31, 2025 and 2024, respectively, which represents an increase of $678 thousand, or 7.15%. Growth of higher-paying deposit accounts was the main driver for the increase in interest expense during the three months ended March 31, 2025. Interest expense on deposit accounts increased $1.1 million, or 14.55%, during the three months ended March 31, 2025, of which $1.0 million was attributable to time deposits. During the three months ended March 31, 2025 and 2024 the average balance of interest-bearing deposits was $1.18 billion and $1.05 billion, respectively. Competition for and rates paid on deposit accounts continues to be strong. The average rate paid on interest-bearing deposits for the three months ended March 31, 2025 was 2.92% compared to 2.83% for the three months ended March 31, 2024. Partially offsetting the increase in deposit interest expense was a $402 thousand decrease in interest expense on FHLB advances during the three months ended March 31, 2025. The average balance of FHLB advances was $110.6 million and $145.9 million with an average rate of 4.80% and 4.72% during the three months ended March 31, 2025 and 2024, respectively. The decrease in the average balance of FHLB advances was due to net payoffs during the first quarter of 2025, including a prepayment, reflecting usage of cash from the capital raise to lower borrowings levels.

The net interest margin was 2.98% and 3.00% for the three months ended March 31, 2025 and 2024, respectively. The net interest margin is calculated on a tax-equivalent basis. Tax-equivalent net interest income is calculated by adding the tax benefit on certain securities and loans, whose interest is tax-exempt, to total interest income then subtracting total interest expense. The tax rate used to calculate the tax benefit was 21% for 2025 and 2024.

Net interest margin has primarily declined due to ongoing deposit pricing pressure, the Bank's continued strategy of originating mortgage loans for sale, and an increase in nonaccrual loans during the three months ended March 31, 2025. An $11.5 million loan relationship was placed on nonaccrual status and accrued interest income totaling $202 thousand was reversed. This reduction of interest income had a five basis point impact on net interest margin for the quarter ended March 31, 2025. In conjunction with its completed public offering of 1,796,875 shares at a public offering price of $32.00 per share and net proceeds of $53.5 million, the Company also executed a balance sheet repositioning of its investment securities portfolio. Throughout March 2025, the Company sold available for sale debt securities with an amortized cost balance of $99.2 million (fair value of $86.8 million) and a weighted average yield of 1.72% and reinvested $66.0 million into purchases of available for sale debt securities with a weighted average yield of 4.72%. The repositioning is expected to improve core net income, net interest income, and net interest margin going forward.

The following table shows interest income on earning assets and related average yields as well as interest expense on interest-bearing liabilities and related average rates paid for the three months ended March 31, 2025 and 2024 (dollars in thousands):

(1) Income and yields are reported on a tax-equivalent basis using a federal tax rate of 21% (Non-GAAP).

(2) Annualized.

NM - Not Meaningful

The following table reconciles tax-equivalent net interest income, which is not a measurement under GAAP, to net interest income.

(in thousands)

(1) Tax benefit was calculated using the federal statutory tax rate of 21%.

The tax-equivalent yield on earning assets was 5.25% for the three months ended March 31, 2025 compared to 5.28% for the three months ended March 31, 2024, a decrease of three basis points during the current year period. The tax-equivalent yield on securities increased 35 basis points for the three months ended March 31, 2025, compared to the three months ended March 31, 2024. The tax equivalent yield on loans increased three basis points from 5.54% for the three months ended March 31, 2024 to 5.57% for the same time period in 2025.

The three basis point decrease in the tax-equivalent yield on earning assets for the three months ended March 31, 2025 reflects nominal growth in average loan balances and a reduction in average balances of securities, bolstered by the impact of the proceeds received from the public offering.

The average rate on interest-bearing liabilities increased two basis points to 3.10% from 3.12% for the three months ended March 31, 2025 compared to the 2024 period. The average rate on interest-bearing deposits increased nine basis points during the three months ended March 31, 2025 compared to the same 2024 period, reflecting an increase for money market account deposits. The average rate on Federal Home Loan Bank advances increased eight basis points from 4.72% for the three months ended March 31, 2024 to 4.80% for the three months ended March 31, 2025 due, in part, to the maturity of a $55.0 million advance with a rate 4.42% compared to a weighted average rate of 4.74% on the remaining outstanding advances of $65.0 million at March 31, 2025.

Provision for Credit Losses

The provision for credit losses is based upon management’s estimate of the amount required to maintain an adequate allowance for credit losses. The Company's calculation of the provision for credit losses consists of changes in the allowance for credit losses on loans and the reserve for unfunded loan commitments. The allowance for credit losses on loans represents management’s current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans. This evaluation is inherently subjective because it requires estimates that are susceptible to significant revision as more information becomes available. The amount of provision for credit losses on loans is affected by several factors including the growth rate of loans, net charge-offs (recoveries), and the estimated amount of expected losses within the loan portfolio.

The provision for credit losses for the three months ended March 31, 2025 and 2024 was $1.2 million and $475 thousand, respectively. The provision for credit losses for the three months ended March 31, 2025 resulted largely from a $1.1 million provision against the commercial real estate portfolio due to charge-offs of $971 thousand, and specific reserves on two individually evaluated relationships of $152 thousand as compared to the prior measurement period. Commercial real estate charge-offs of $971 thousand during the three months ended March 31, 2025 reflect one relationship of four loans totaling $11.5 million.

Noninterest Income

Total noninterest (loss) income was $(8.6) million and $3.5 million for the three months ended March 31, 2025 and 2024, respectively. Management reviews the activities which generate noninterest income on an ongoing basis. The following table provides the components of noninterest income for the three months ended March 31, 2025 and 2024, which are included within the respective Consolidated Statements of Operations headings. Variances that the Company believes require explanation are discussed below the table.

(dollars in thousands)

Wealth management fee income increased from 2024 to 2025. Wealth management fee income is comprised of income from fiduciary activities as well as commissions from the sale of non-deposit investment products. The amount of income from fiduciary activities is determined by the number of active accounts and total assets under management which has increased over the 2024 year period. Additionally, per transaction fees for estates and other services have also contributed to the year over year increase in revenue. These increases were partially offset by a decline in investment sales.

The Company executed balance sheet repositioning transactions within its investment securities portfolio during March 2025. The sale of $99.2 million of available for sale debt securities, with a fair value of $86.8 million, resulted in a net pre-tax loss of $12.4 million. Management utilized the proceeds from the public offering capital raise completed in February 2025 to enable the balance sheet repositioning effected during the quarter.

Gain on sale of loans increased during the three months ended March 31, 2025 when compared to the same period in 2024. The Company sold $35.7 million in mortgage loans on the secondary market, consisting of $14.9 million of loans originated for sale and a pool of $18.8 million residential mortgage loans held for investment, and $2.0 million SBA commercial loans during the three months ended March 31, 2025. This compares to loan sales consisting of $10.9 million in mortgage loans during the three months ended March 31, 2024. Loan sales resulted in gains of $429 thousand and $161 thousand during the three months ended March 31, 2025 and 2024, respectively. The Company intends to continue originating mortgage loans for sale, whereas the mortgage portfolio sale was completed early in the 2025 quarter, at par, and ahead of the Company's public offering in order to bolster on-balance sheet liquidity.

Income from holdings in small business investment companies decreased $107 thousand the three months ended March 31, 2025 compared to the same period in 2024. The decreases during the current year period can be mainly attributed to lower cash distributions received, based on the results of their performance and timing of distributions.

Noninterest Expenses

Total noninterest expenses increased $212 thousand, or 1.71% for the three months ended March 31, 2025 compared to the same period in 2024. The following table presents the components of noninterest expense for the three months ended March 31, 2025 and 2024, which are included within the respective Consolidated Statements of Operations headings. Variances that the Company believes require explanation are discussed below the table.

(dollars in thousands)

NM - Not Meaningful

Salaries and employee benefits decreased during the three months ended March 31, 2025 over 2024, reflecting minimal decreases in salaries and bonuses mostly offset by an increase in the annual incentive plan expense. The Company's number of full-time equivalent employees ("FTE's") has decreased from 238 at March 31, 2024 to 233 at March 31, 2025.

Occupancy expenses increased during three months ended March 31, 2025 largely due to the impact of the sales-leaseback transaction of the Company's operating center and branch building in December 2024. Rental expense increased $153 thousand, which was partially offset by a decrease in building depreciation. The increase in rental expense also reflects a new long-term lease executed during the first quarter of 2025 as the Company is moving its current loan production office and establishing a full-service branch in McLean, Viriginia.

Equipment expenses have increased during the three months ended March 31, 2025 compared to the same periods in 2024, reflecting costs for the implementation and build-out of loan origination systems.

Advertising and marketing expenses decreased during the three months ended March 31, 2025 compared to the same period in 2024, reflecting fewer advertising campaigns.

Three repossessed marine vessels were sold during the three months ended March 31, 2025, resulting in the recognition of a $133 thousand loss. There were no sales of repossessed assets during the three months ended March 31, 2024.

FDIC assessment expense, which is based in part on asset size and capital levels, decreased during the three months ended March 31, 2025 over 2024. The decrease in FDIC assessment for the three months ended March 31, 2025 reflects an improvement in the financial ratios portion of the assessment rate, largely due to the decline in the one-year asset growth factor.

Professional fees increased during the three months ended March 31, 2025 and the same period in 2024 primarily due to legal fees related to loan matters.

The efficiency ratio of the Company was 72.20% and 77.73% for the three months ended March 31, 2025 and 2024, respectively. The improvement in the efficiency ratio during 2025 reflects an increase in interest and noninterest income. The efficiency ratio is not a measurement under GAAP. It is calculated by dividing noninterest expense by the sum of tax equivalent net interest income and noninterest income. The Company adjusts for non-recurring items such as gains and losses on the investment portfolio and other gains/losses from OREO, repossessed assets, disposals of bank premises and equipment, etc. The tax rate utilized is 21%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency.

The calculation of the efficiency ratio for the three months ended March 31, 2025 and 2024 was as follows:

(in thousands)

(1) Includes tax-equivalent adjustments on loans and securities using the federal statutory tax rate of 21%.

Income Taxes

An income tax benefit of $2.1 million was recognized during the three months ended March 31, 2025 compared to income tax expense of $495 thousand during the three months ended March 31, 2024. The effective tax rate was 22.85% and 16.27% for the three months ended March 31, 2025 and 2024, respectively. The year over year comparison includes tax-exempt income on investment securities and loans, BOLI income, income tax credits on qualified affordable housing project investments, and qualified rehabilitation credits. Additionally, during the three months ended March 31, 2025, the effective tax rate was also impacted by the balance sheet repositioning transactions. Qualified affordable housing project investments are discussed in Note 11 to the Consolidated Financial Statements.

Business Segments

The Company has three reportable operating segments: community banking, marine lending and wealth management. See Note 15 to the Consolidated Financial Statements.

The following table presents a summarized statement of operations for the community banking business segment for the three months ended March 31, 2025 and 2024:

(dollars in thousands)

Net interest income increased $1.4 million during the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 due to income earned on non-marine loans and higher levels of earning deposit balances in other other banks partially offset by an increase in interest-bearing deposit expense. Higher levels of deposits balances in other banks reflects proceeds received from the capital raise and sales of available for sale securities completed during the first quarter of 2025.

Provision for credit losses increased primarily due to charge-offs totaling $971 thousand related to a $11.5 million commercial real estate loan relationship.

Loss on the sale of securities resulted from the Company's execution of balance sheet repositioning transactions within its investment securities portfolio in March 2025. Available for sale debt securities totaling $99.2 million, with a fair value of $86.8 million, were sold resulting in a net pre-tax loss of $12.4 million.

The decrease in income tax expense was directly related to the recognized loss on the sale of securities.

The following table presents a summarized statement of operations for the marine lending segment for the three months ended March 31, 2025 and 2024:

(dollars in thousands)

51

Marine Lending net revenues declined $512 thousand for the three months ended March 31, 2025 compared to the corresponding period in 2024. This was due to pay downs in the portfolio, which are not being replaced with new loan originations. The marine loan portfolio totaled $203.5 million and $247.0 million at March 31, 2025 and March 31, 2024, respectively.

Provision for credit losses declined during the three months ended March 31, 2025 reflecting declining loan balances compared to the three months ended March 31, 2024 in which the provision was also impacted by charge-offs totaling $453 thousand.

The following table presents a summarized statement of operations for the wealth management segment for the three months ended March 31, 2025 and 2024:

(dollars in thousands)

Net revenue increased during the three months ended March 31, 2025 over the three months ended March 31, 2024 due to increases in trust services income reflecting fees earned on a higher level of assets under management and estate settlements.

FINANCIAL CONDITION

Two significant events impacting the Company's financial condition occurred during the first quarter of 2025. On February 13, 2025, the Company completed an underwritten public offering of 1,796,875 shares of its common stock at a public offering price of $32.00 per share. The net proceeds from the offering were $53.5 million. During March 2025, the Company executed balance sheet repositioning transactions within its investment securities portfolio. The execution of these events was to support continued organic growth and capital generation. These are further described in their corresponding paragraphs below.

Securities

Total securities available for sale were $109.9 million at March 31, 2025, compared to $121.3 million at December 31, 2024. This represents a decrease of $11.4 million, or 9.45%. The Company purchased $75.9 million of securities during the three months ended March 31, 2025. The Company had total maturities, calls, and principal repayments of $3.3 million and sales of $99.2 million during the three months ended March 31, 2025. Note 4 to the Consolidated Financial Statements provides additional details about the Company’s securities portfolio at March 31, 2025 and December 31, 2024. The Company had a net unrealized loss on available for sale securities of $8.4 million at March 31, 2025 as compared to a net unrealized loss of $23.6 million at December 31, 2024. Unrealized gains or losses on available for sale securities are reported within shareholders’ equity, net of the related deferred tax effect, as accumulated other comprehensive income (loss).

During March 2025, balance sheet repositioning transactions were comprised of sales of available for sale debt securities with an amortized cost balance of $99.2 million (fair value of $86.8 million) and a weighted average yield of 1.72%, with proceeds reinvested into purchases of $66.0 million of available for sale debt securities with a weighted average yield of 4.72%. The total sales of $99.2 million represented 68.48% of December 31, 2024 securities balance. The majority of these repositioning sales and purchases consisted of mortgage-backed securities. The sale of debt securities resulted in a net pre-tax realized loss of $12.4 million (after-tax of $9.8 million) that was recognized in the first quarter of 2025. The Company also purchased U.S. Treasury notes totaling $9.9 million prior to the repositioning to maintain pledging levels throughout the repositioning period.

The primary cause of the unrealized losses at March 31, 2025 and December 31, 2024 was changes in market interest rates and other market conditions and not credit concerns of the issuers over the time between purchase and measurement periods. Since the losses can be primarily attributed to changes in market interest rates and conditions and not expected cash flows or an issuer’s financial condition and management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, the Company concluded a credit loss did not exist.

Loan Portfolio

The Company’s primary use of funds is supporting lending activities from which it derives the greatest amount of interest income. Gross loans were $1.45 billion and $1.47 billion at March 31, 2025 and December 31, 2024, respectively. This represents a decrease of $14.8 million, or 1.01%, during the three months ended March 31, 2025. The ratio of gross loans to deposits decreased during the three months ended March 31, 2025 from 93.14% at December 31, 2024 to 89.99% at March 31, 2025 reflecting the decrease in gross loans, compounded by a 2.45% increase in deposits during the same time period.

The loan portfolio consists primarily of loans for owner-occupied single-family dwellings and loans secured by commercial real estate. Note 5 to the Consolidated Financial Statements provides the composition of the loan portfolio at March 31, 2025 and December 31, 2024. During the three months ended March 31, 2025, through the normal course of business, $35.7 million in loans were sold, consisting primarily of mortgage loans. Included in the $35.7 million total loan sales was a pool of pool of residential mortgage loans totaling $18.8 million, which was at par. This pool was sold in January 2025, ahead of the Company's public offering, to bolster on-balance sheet liquidity. Loan sales resulted in net gains of $429 thousand. Loan sales and paydowns within the marine portfolio caused the balance of gross loans to experience a net decline, while being partially offset by modest loans originations, primarily secured by real estate.

Residential real estate loans, consisting of first liens, junior liens and home equity loans, were $344.9 million, or 23.75%, and $361.8 million, or 24.66%, of total loans at March 31, 2025 and December 31, 2024, respectively. The decrease of $16.9 million, or 4.68%, is primarily due to the portfolio loan sale.

Commercial real estate loans (including multifamily loans) were $643.5 million, or 44.31%, and $639.9 million, or 43.62%, of total loans at March 31, 2025 and December 31, 2024, respectively, representing an increase of $3.6 million, or 0.55%, during the three months ended March 31, 2025. Owner occupied commercial real estate loans experienced a $3.2 million decrease during the three months ended March 31, 2025, and non-owner occupied and multifamily commercial real estate loans increased $6.8 million during the same period.

Construction and secured by farmland loans totaled $98.7 million at March 31, 2025 compared to $95.2 million at December 31, 2024, an increase of $3.5 million, or 3.63%.

Marine loans were $203.5 million, or 14.01%, and $210.1 million, or 14.32%, of total loans at March 31, 2025 and December 31, 2024, respectively, representing a decrease of $6.6 million, or 3.16%. The decline in marine loans reflects paydowns and payoffs only as the Company is no longer accepting new marine business. At present, the Company expects to hold the retained outstanding loans until they are ultimately repaid.

Allowance for Credit Losses on Loans

The purpose of, and the methods for, measuring the allowance for credit losses on loans are discussed in the Critical Accounting Policies section in the 2024 Form 10-K. Note 5 to the Consolidated Financial Statements shows the activity within the allowance for credit losses on loans during the three months ended March 31, 2025 and 2024 and the year ended December 31, 2024. Charged-off loans were $1.1 million and $705 thousand for the three months ended March 31, 2025 and 2024, respectively. Of the total charge-offs during the three months ended March 31, 2025, $971 thousand, or 90.29%, was due to one commercial real estate relationship totaling $11.5 million. Recoveries were $185 thousand for the three months ended March 31, 2025 and 2024. This resulted in net charge-offs of $891 thousand and $520 thousand for the three months ended March 31, 2025 and 2024, respectively. The annualized ratio of net charge-offs to average loans was 0.06% and 0.04% for the three months ended March 31, 2025 and 2024, respectively. The allowance for credit losses on loans as a percentage of loans was 1.05% at March 31, 2025 and 1.02% at December 31, 2024. The increase as compared to December 31, 2024 was mainly attributable to net loan charge-offs during the three months ended March 31, 2025.

Management believes that the allowance for credit losses on loans is currently adequate to absorb the current expected losses in the loan portfolio.

Credit Risk, Nonperforming Assets and Other Assets

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes loans individually to classify the loans as to credit risk on a quarterly basis. Loans risk rated as special mention, which exhibit negative trends and potential weaknesses, totaled $47.0 million at March 31, 2025 compared to $50.1 million at December 31, 2024. Loans risk rated as classified, include substandard, doubtful, and loss loans, totaled $18.5 million and $4.5 million at March 31, 2025 and December 31, 2024, respectively. All other loans were classified as pass, exhibiting acceptable history of profits, cash flow ability and liquidity. The increase in classified loans of $14.0 million was primarily due to two large commercial real estate relationships being placed on nonaccrual status during the first quarter of 2025, including a $2.2 million owner-occupied relationship and an $11.5 million non-owner occupied relationship.

Nonperforming assets consist of nonaccrual loans, repossessed assets, OREO (foreclosed properties), and loans past due 90 days or more and still accruing as detailed in the table below.

Nonperforming assets increased by $13.7 million during the three months ended March 31, 2025. Nonaccrual loans were $16.1 million and $2.1 million at March 31, 2025 and December 31, 2024, respectively. There was $0 in OREO and repossessed assets at March 31, 2025 and $514 thousand at December 31, 2024. Loans past due 90 days or more and still accruing at March 31, 2025 totaled $186 thousand and $0 at December 31, 2024. The percentage of nonperforming assets to loans, OREO and repossessed assets was 1.12% at March 31, 2025 and 0.18% at December 31, 2024.

Total past due loans, as disclosed in Note 5 to the Consolidated Financial Statements, increased to $25.8 million at March 31, 2025 compared to $4.5 million at December 31, 2024. The $21.3 million increase in past due loans primarily reflects loans secured by real estate. Two relationships account for $18.6 million of the total increase and included a $7.1 million commercial construction relationship that subsequently paid off in April 2025, and an $11.5 million non-owner occupied commercial real estate relationship. Total past due loans as of March 31, 2025 consist of loans secured by real estate totaling $24.2 million, and consumer and commercial business loans totaling $1.6 million.

During the three months ended March 31, 2025, nonaccrual loans increased by $14.1 million and totaled $16.1 million at March 31, 2025 compared to $2.1 million at December 31, 2024. The increase was primarily due to an $11.5 million non-owner occupied commercial real estate relationship secured by multi-family housing units and a $2.2 million owner-occupied commercial real estate relationship, which are both fully collateralized. Management evaluates the financial condition of borrowers and the value of any collateral on nonaccrual loans. The results of these evaluations are used to estimate the amount of losses which may be realized on the disposition of these nonaccrual loans and are reflected in the allowance for credit losses on loans. At March 31, 2025 there was a $152 thousand specific allocation required on two commercial business loan relationships due to a potential deficiency in collateral value, compared to $248 thousand at December 31, 2024.

Loans are placed on nonaccrual status when collection of principal and interest is doubtful, generally when a loan becomes 90 days past due. There are three negative implications for earnings when a loan is placed on non-accrual status. First, all interest accrued but unpaid at the date that the loan is placed on non-accrual status is either deducted from interest income or written off as a loss. Second, accruals of interest are discontinued until it becomes certain that both principal and interest can be repaid. Finally, there may be actual losses to principal that require additional provisions for credit losses to be charged against earnings.

For real estate loans, upon foreclosure, the balance of the loan is transferred to OREO and carried at the fair value of the property based on current appraisals and other current market trends, less estimated selling costs. If a write down of the OREO property is necessary at the time of foreclosure, the amount is charged-off to the allowance for credit losses. A review of the recorded property value is performed in conjunction with normal quarterly reviews, and if market conditions indicate that the recorded value exceeds the fair value, additional write downs of the property value are charged directly to operations.

Deposits

Total deposits were $1.61 billion and $1.58 billion at March 31, 2025 and December 31, 2024, respectively. This represents an increase of $38.6 million or 2.45% during the three months ended March 31, 2025. Note 6 to the Consolidated Financial Statements provides the composition of total deposits at March 31, 2025 and December 31, 2024. The total increase in deposits was in core accounts, which increased $42.2 million partially offset by a decrease in non-core accounts of $3.6 million. During the first quarter of 2025, noninterest demand deposits experienced an increase of $15.2 million, while savings and interest bearing demand deposits increased $18.3 million. Total time deposits increased $5.1 million during the three months ended March 31, 2025 reflecting increases of $6.3 million for time deposits with balances less than $250,000 and a decrease of $1.2 million in time deposits with balances $250,000 and more. Marketing efforts, including rate specials, have been utilized to maintain maturing accounts and to acquire new time deposit accounts. Core deposits, consisting of checking accounts, NOW accounts, money market accounts, regular savings accounts and time deposits less than $250,000, totaled $1.34 billion, or 83.13% of total deposits at March 31, 2025 compared to $1.30 billion, or 82.49%, of total deposits at December 31, 2024. At March 31, 2025, over 75% of deposits were fully FDIC insured.

CAPITAL RESOURCES

The Bank continues to be a well capitalized financial institution. Total shareholders’ equity at March 31, 2025 was $176.5 million, reflecting a percentage of total assets of 9.27%, as compared to $119.0 million and 6.38% at December 31, 2024. The $57.5 million increase in shareholders’ equity was primarily due to net proceeds of $53.5 million received from the completion of an underwritten public offering of 1,796,875 shares of its common stock at a public offering price of $32.00 per share. An additional increase of $12.0 million is due to a decrease in unrealized losses on the securities available for sale portfolio largely reflecting the impact of the balance sheet repositioning. These increases in shareholders' equity were partially offset by a net operating loss of $7.0 million and $1.1 million in dividends declared for the three months ended March 31, 2025. The Company's net operating loss of $7.0 million was directly impacted by the balance sheet repositioning for which a loss on the sale of securities of $12.4 million was recognized. During the three months ended March 31, 2025 and 2024, the Company declared dividends of $0.31 and $0.30, respectively. The Company has a Dividend Investment Plan that allows shareholders to reinvest dividends in Company stock.

At March 31, 2025, the Bank met all capital adequacy requirements and had regulatory capital ratios in excess of the levels established for well-capitalized institutions. The Bank monitors these ratios on a quarterly basis and has several strategies, including without limitation the issuance of common stock, to ensure that these ratios remain above regulatory minimums. The Bank's capital amounts and ratios are presented using the Federal Reserve's risk-based capital framework.

Effective January 1, 2015, the Federal Reserve issued final risk-based capital rules to align with the Basel III regulatory capital framework and meet certain requirements of the Dodd-Frank Act. The final rules require the Bank to comply with the following minimum capital ratios: (i) a common equity Tier 1 capital ratio of 4.5% of risk-weighted assets; (ii) a Tier 1 capital ratio of 6.0% of risk-weighted assets; (iii) a total capital ratio of 8.0% of risk-weighted assets; and (iv) a leverage ratio of 4.0% of total assets. In addition, a capital conservation buffer requirement of 2.5% was effective January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress. Banking institutions with any ratio (excluding the leverage ratio) above the minimum but below the conservation buffer will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The capital conservation buffer rule requires the Bank to maintain (i) a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 4.5%, plus a 2.5% “capital conservation buffer” (which is added to the 4.5% common equity Tier 1 ratio, effectively resulting in a minimum ratio of common equity Tier 1 to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the 2.5% capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total capital to risk-weighted assets of at least 8.0%, plus the 2.5% capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5%), and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average assets.

At March 31, 2025 and December 31, 2024, the Bank's capital ratios were as follows: Common equity Tier 1 capital was 13.83% and 11.04%, respectively, Tier 1 risk-based capital was 13.83% and 11.04%, respectively, Total risk-based capital was 14.86% and 12.00%, respectively, and Tier 1 leverage was 10.69% and 8.79%, respectively. The increase in the Bank's capital ratios was due to the completion of the Company's public offering in February, 2025.

Pursuant to the Federal Reserve’s Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, qualifying bank holding companies with total consolidated assets of less than $3 billion, such as the Company, are not subject to consolidated regulatory capital requirements.

On March 31, 2022, the Company entered into Subordinated Note Purchase Agreements with certain purchasers pursuant to which the Company issued and sold $30.0 million in aggregate principal amount of its 4.50% Fixed-to-Floating Rate Subordinated Notes due April 1, 2032. See Note 13 to the Consolidated Financial Statements included in this Form 10-Q, for discussion of subordinated debt.

LIQUIDITY

Liquidity management involves meeting the present and future financial obligations of the Company with the sale or maturity of assets or with the occurrence of additional liabilities. Liquidity needs are met with cash on hand, deposits in banks, federal funds sold, unpledged securities classified as available for sale and loans maturing within one year. At March 31, 2025, liquid assets totaled $412.0 million as compared to $335.9 million at December 31, 2024. These amounts represented 23.84% and 19.22% of total liabilities at March 31, 2025 and December 31, 2024, respectively. The increase during the first quarter of 2025 reflects the increased cash on hand from the net proceeds of the capital raise. The Company generally attempts to minimize liquidity demand by primarily utilizing core deposits to fund asset growth. Securities provide a constant source of liquidity through paydowns and maturities. Also, the Company maintains short-term borrowing arrangements, namely federal funds lines of credit, with larger financial institutions as an additional source of liquidity. The Bank’s membership with the Federal Home Loan Bank of Atlanta provides a source of borrowings with numerous rate and term structures. The Company’s senior management monitors the liquidity position regularly and attempts to maintain a position which utilizes available funds most efficiently.

OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS

There have been no material changes in off-balance sheet arrangements and contractual obligations as reported in the 2024 Form 10-K.

There have been no material changes in Quantitative and Qualitative Disclosures about Market Risk as reported in the 2024 Form 10-K.

Disclosure Controls and Procedures

The Company, under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of its disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2025 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

Management is also responsible for establishing and maintaining adequate internal control over the Company’s financial reporting (as defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended). The Company is currently using the 2013 COSO Framework.

There were no changes in the Company’s internal control over financial reporting during the Company’s three months ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There were no material changes to the Company’s risk factors as disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024.