# ENB Financial Corp: Form 10-Q for the period ended Mar 31, 2025

- Company: [ENB Financial Corp](/companies/enbp.md) (CIK 1437479)
- Form: 10-Q
- Filed: 2025-05-13
- Accepted by EDGAR: May 13, 2025, 16:05 ET
- Period: 2025-03-31
- Accession: 0001174947-25-000756
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1437479/000117494725000756/enbp-20250331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1437479/000117494725000756/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Income tax | 3 months, 2025-01-01 to 2025-03-31 | $982.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2025-01-01 to 2025-03-31 | $4.3m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2025-01-01 to 2025-03-31 | $0.76 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 3 months, 2025-01-01 to 2025-03-31 | $4.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2025-01-01 to 2025-03-31 | $1.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2025-01-01 to 2025-03-31 | $1.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Cash and equivalents | at 2025-03-31 | $78.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2025-03-31 | $2.22bn | us-gaap:Assets |
| Total liabilities | at 2025-03-31 | $2.09bn | us-gaap:Liabilities |
| Short-term borrowings | at 2025-03-31 | $60.0m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2025-03-31 | $135.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 58,521 characters.

The following discussion and analysis represents management’s view of the financial condition and results of operations of the Corporation. This discussion and analysis should be read in conjunction with the consolidated financial statements and other financial schedules included in this quarterly report, and in conjunction with the 2024 Annual Report to Shareholders of the Corporation. The financial condition and results of operations presented are not indicative of future performance.

### Forward-Looking Statements

The U.S. Private Securities Litigation Reform Act of 1995 provides safe harbor in regards to the inclusion of forward-looking statements in this document and documents incorporated by reference. Forward-looking statements pertain to possible or assumed future results that are made using current information. These forward-looking statements are generally identified when terms such as: “believe,” “estimate,” “anticipate,” “expect,” “project,” “forecast,” and other similar wordings are used. The readers of this report should take into consideration that these forward-looking statements represent management’s expectations as to future forecasts of financial performance, or the likelihood that certain events will or will not occur. Due to the very nature of estimates or predications, these forward-looking statements should not be construed to be indicative of actual future results. Additionally, management may change estimates of future performance, or the likelihood of future events, as additional information is obtained. This document may also address targets, guidelines, or strategic goals that management is striving to reach but may not be indicative of actual results.

Readers should note that many factors affect this forward-looking information, some of which are discussed elsewhere in this document and in the documents that are incorporated by reference into this document. These factors include, but are not limited to, the following:

- National, regional and local economic conditions
- Interest rate and monetary policies of the Federal Reserve Board
- Inflation and monetary fluctuations and volatility
- Instability in the banking system caused by bank failures and continuous financial uncertainty of various banks which may adversely impact the corporation and its securities values, deposit stability, capital adequacy, financial condition, operations, liquidity, and results of operations
- Health of the housing market
- Volatility of the securities markets including the valuation of securities
- Real estate valuations and its impact on the loan portfolio
- Future actions or inactions of the United States government, including a failure to increase the government debt limit, a prolonged shutdown of the federal government, increase in taxes or regulations, or increasing debt balances
- Political changes and the impact of new laws and regulations
- Competitive forces
- Impact of mergers and acquisition activity in the local market and the effects thereof
- Potential impact from continually evolving cybersecurity and other technological risks and attacks, including additional costs, reputational damage, regulatory penalties, and financial losses
- Changes in customer behavior impacting deposit levels and loan demand
- Changes in accounting principles, policies, or guidelines as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standards setters
- Ineffective business strategy due to current or future market and competitive conditions
- Management’s ability to manage credit risk, liquidity risk, interest rate risk, and fair value risk
- Operational, legal, and reputational risk
- Results of the regulatory examination and supervision process
- Possible changes to the capital and liquidity requirements and other regulatory pronouncements, regulations and rules
- Large scale global disruptions such as pandemics, terrorism, trade wars, and armed conflict.
- Local market area disruptions due to flooding, severe weather, or other natural disasters
- The risk that our analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful
- Business and competitive disruptions caused by new market and industry entrants

Readers should be aware if any of the above factors change significantly, the statements regarding future performance could also change materially. The safe harbor provision provides that the Corporation is not required to publicly update or revise forward-looking statements to reflect events or circumstances that arise after the date of this report. Readers should review any changes in risk factors in documents filed by the Corporation periodically with the Securities and Exchange Commission, including Item 1A of Part II of this Quarterly Report on Form 10-Q, Annual Reports on Form 10-K, and Current Reports on Form 8-K.

### Results of Operations

Overview

The Corporation recorded net income of $4,316,000 for the three-month period ended March 31, 2025, a $375,000, or 9.5% increase over the three months ended March 31, 2024. The earnings per share, basic and diluted, were $0.76 for the three months ended March 31, 2025, compared to $0.70 for the same period in 2024.

The Corporation’s net interest income (NII) increased by $2,816,000, or 21.1% for the three months ended March 31, 2025, compared to the same period in 2024. Interest and fees on loans increased by $1,975,000, or 11.4%, and interest income on securities increased by $2,142,000, or 59.4%, for the three months ended March 31, 2025, compared to the same period in 2024. Conversely, interest expense on deposits and borrowings increased by $1,178,000, or 14.4%, for the three months ended March 31, 2025, compared to the same period in the prior year.

The Corporation recorded a provision for credit losses of $486,000 in the first quarter of 2025, compared to a release of provision expense of $644,000 in the first quarter of 2024. The allowance as a percentage of total loans was 1.15% as of March 31, 2025, 1.13% as of December 31, 2024, and 1.06% as of March 31, 2024.

Other income decreased by $382,000, or 8.8% for the three months ended March 31, 2025, compared to the same period in the prior year. This was primarily due to a decrease in trust and investment services income as a gain on sale of trust assets was recorded in the prior year.

Total operating expenses increased by $774,000, or 5.7%, for the three months ended March 31, 2025, compared to the same period in 2024. The largest increase in operating costs was due to higher charge-off expenses recorded on deposit accounts and fraud-related charge-offs which, combined, increased by $236,000, or 311.7%. Several other categories of expenses increased from the prior year including advertising and marketing costs, computer software and data processing costs, and costs related to professional services. Salaries and benefits, the largest component of operating expenses, did not increase in the first quarter of 2025 when comparing it to the first quarter of 2024.

The financial services industry uses two primary performance measurements to gauge performance: return on average assets (ROA) and return on average equity (ROE). ROA measures how efficiently a bank generates income based on the amount of assets or size of a company. ROE measures the efficiency of a company in generating income based on the amount of equity or capital utilized. ROA remained the same and ROE decreased slightly for the quarter-to-date period due to higher levels of capital in 2025.

| Key Ratios | Three Months Ended March 31, 2025 | 2024 |
| --- | ---: | ---: |
| Return on Average Assets | **0.80%** | 0.80% |
| Return on Average Equity | **13.03%** | 13.40% |

The results of the Corporation’s operations are best explained by addressing, in further detail, the five major sections of the income statement, which are as follows:

- Net interest income
- Provision for credit losses
- Other income
- Operating expenses
- Provision for income taxes

The following discussion analyzes each of these five components.

#### Net Interest Income (NII)

NII represents the largest portion of the Corporation’s operating income. In the first three months of 2025, NII generated 80.3% of the Corporation’s revenue stream, which consists of NII and non-interest income. This compared to 75.5% for the first three months of 2024. This increase is a result of higher levels of NII and slightly lower levels of non-interest income in the first three months of 2025 resulting in NII contributing to a larger portion of total revenue. The overall performance of the Corporation is highly dependent on the changes in NII since it comprises such a significant portion of operating income.

The following table shows a summary analysis of NII on a fully taxable equivalent (FTE) basis. For analytical purposes and throughout this discussion, yields, rates, and measurements such as NII, net interest spread, and net yield on interest earning assets are presented on an FTE basis. The FTE NII shown in both tables below will exceed the NII reported on the consolidated statements of income, which is not shown on an FTE basis. The amount of FTE adjustment totaled $107,000 for the three months ended March 31, 2025, compared to $141,000 for the same period in 2024.

NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

|  | Three Months Ended March 31, 2025 $$ | 2024 |
| --- | ---: | ---: |
| Total interest income | **25,565** | 21,571 |
| Total interest expense | **9,377** | 8,199 |
| Net interest income | **16,188** | 13,372 |
| Tax equivalent adjustment | **107** | 141 |
| Net interest income (fully taxable equivalent) | **16,295** | 13,513 |

NII is the difference between interest income earned on assets and interest expense incurred on liabilities. Accordingly, two factors affect NII:

- The rates earned on interest earning assets and paid on interest bearing liabilities
- The average balance of interest earning assets and interest bearing liabilities

NII is impacted by yields earned on assets and rates paid on liabilities. During 2024, asset yields increased due to a higher interest rate environment despite some variable rate assets repricing to lower rates with the several decreases in the Federal Reserve overnight rates. Liability costs increased minimally as rates had increased dramatically in 2023 but then the Corporation was able to reduce deposit costs during 2024 when the Fed first started decreasing rates. Market interest rates stabilized and moderated in 2024 but the Corporation still felt the lingering effects of the prior rate movements as customers continued to move funds to higher yielding deposit products. Higher market rates have helped the Corporation’s asset yields, and the discipline around lowering the cost of funds has enabled the Corporation to increase NIM. Management believes continued improvement will be dependent on the rate at which overnight interest rates change throughout the remainder of 2025.

The Corporation’s net interest margin increased to 3.02% for the quarter ended March 31, 2025, compared to 2.81% for the same quarter in 2024. The Corporation’s NII on a fully taxable equivalent basis increased by $2,782,000, or 20.6%, for the three months ended March 31, 2025, compared to the same period in 2024.

The Corporation’s overall cost of funds rose significantly throughout 2024 but moderated in the first quarter of 2025. Core deposit interest rates and time deposit rates have decreased over the past year. The change in deposit rates from historical lows in prior years has resulted in some movement from low interest bearing core deposits to higher cost time deposits or other higher yielding money market deposits. This resulted in the total cost of deposits increasing by $660,000 for the quarter, compared to the same period in the prior year. The average balance of borrowings was higher for the first quarter compared to 2024, and interest rates were higher, resulting in the total cost of borrowings increasing by $518,000, for the three months ended March 31, 2025, compared to the same period in 2024.

The following table provides an analysis of year-to-date changes in NII on a FTE basis by distinguishing what changes were a result of average balance increases or decreases and what changes were a result of interest rate increases or decreases.

RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

(TAXABLE EQUIVALENT BASIS, DOLLARS IN THOUSANDS)

| INTEREST INCOME | Three Months Ended March 31, 2025 vs. 2024 Increase (Decrease) Due To Change In Average Balances $$ | Interest Rates | Net Increase (Decrease) $ |
| --- | ---: | ---: | ---: |
| Interest on deposits at other banks | **60** | **(188)** | **(128)** |
| Securities available for sale: |  |  |  |
| Taxable | **1,508** | **666** | **2,174** |
| Tax-exempt | **(37)** | **(22)** | **(59)** |
| Total securities | **1,471** | **644** | **2,115** |
| Loans | **576** | **1,375** | **1,951** |
| Regulatory stock | **31** | **(9)** | **22** |
| Total interest income | **2,138** | **1,822** | **3,960** |
| INTEREST EXPENSE |  |  |  |
| Deposits: |  |  |  |
| Demand deposits | **392** | **(423)** | **(31)** |
| Savings deposits | **(3)** | **(1)** | **(4)** |
| Time deposits | **403** | **292** | **695** |
| Total deposits | **792** | **(132)** | **660** |
| Borrowings: |  |  |  |
| Total borrowings | **378** | **140** | **518** |
| Total interest expense | **1,170** | **8** | **1,178** |
| NET INTEREST INCOME | **968** | **1,814** | **2,782** |

The following table shows a more detailed analysis of NII on a FTE basis with all the major elements of the Corporation’s balance sheet, which consists of interest earning and non-interest earning assets and interest bearing and non-interest bearing liabilities.

COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

| ASSETS Interest earning assets: | For the Three Months Ended March 31, 2025 Average Balance $$% | Interest | (c) Annualized Yield/Rate | 2024 Average Balance $$% | Interest | (c) Annualized Yield/Rate |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Federal funds sold and interest on deposits at other banks | **41,065** | **215** | **2.13** | 33,932 | 344 | 4.08 |
| Securities available for sale: |  |  |  |  |  |  |
| Taxable | **513,710** | **5,195** | **4.05** | 352,775 | 3,021 | 3.43 |
| Tax-exempt | **143,853** | **705** | **1.96** | 153,417 | 764 | 1.99 |
| Total securities (d) | **657,563** | **5,900** | **3.59** | 506,192 | 3,785 | 2.99 |
| Loans (a) | **1,436,318** | **19,363** | **5.40** | 1,371,478 | 17,412 | 5.09 |
| Regulatory stock | **10,811** | **194** | **7.14** | 8,596 | 171 | 7.97 |
| Total interest earning assets | **2,145,757** | **25,672** | **4.79** | 1,920,198 | 21,712 | 4.53 |
| Non-interest earning assets (d) | **42,215** |  |  | 49,629 |  |  |
| Total assets | **2,187,972** |  |  | 1,969,827 |  |  |
| LIABILITIES & STOCKHOLDERS' EQUITY |  |  |  |  |  |  |
| Interest bearing liabilities: |  |  |  |  |  |  |
| Demand deposits | **533,450** | **3,250** | **2.47** | 472,598 | 3,281 | 2.79 |
| Savings deposits | **285,061** | **70** | **0.10** | 302,013 | 75 | 0.10 |
| Time deposits | **423,197** | **4,171** | **4.00** | 340,159 | 3,475 | 4.11 |
| Borrowed funds | **180,925** | **1,886** | **4.23** | 139,592 | 1,368 | 3.94 |
| Total interest bearing liabilities | **1,422,633** | **9,377** | **2.67** | 1,254,362 | 8,199 | 2.63 |
| Non-interest bearing liabilities: |  |  |  |  |  |  |
| Demand deposits | **617,706** |  |  | 584,242 |  |  |
| Other | **13,282** |  |  | 12,906 |  |  |
| Total liabilities | **2,053,621** |  |  | 1,851,510 |  |  |
| Stockholders' equity | **134,351** |  |  | 118,317 |  |  |
| Total liabilities & stockholders' equity | **2,187,972** |  |  | 1,969,827 |  |  |
| Net interest income (FTE) |  | **16,295** |  |  | 13,513 |  |
| Net interest spread (b) |  |  | **2.12** |  |  | 1.90 |
| Effect of non-interest bearing deposits |  |  | **0.90** |  |  | 0.91 |
| Net yield on interest earning assets (c) |  |  | **3.02** |  |  | 2.81 |

(a) Includes balances of nonaccrual loans and the recognition of any related interest income. The quarter-to-date average balances include net deferred loan costs of $1,772,000 as of March 31, 2025, and $2,185,000 as of March 31, 2024. Such fees and costs recognized through income and included in the interest amounts totaled $14,000 in 2025, and ($57,000) in 2024.

(b) Net interest spread is the arithmetic difference between the yield on interest earning assets and the rate paid on interest bearing liabilities.

(c) Net yield, also referred to as net interest margin, is computed by dividing NII (FTE) by total interest earning assets.

(d) Securities recorded at amortized cost. Unrealized holding gains and losses are included in non-interest earning assets.

The Corporation’s average balances on securities increased by $151.4 million, or 29.9%, for the three months ended March 31, 2025, compared to the same period in 2024. This increase was related to a strategic decision to add investments during the last six months of 2024 in order to generate higher earnings with no overhead costs while offsetting interest rate risk with off-balance sheet derivative products. The tax equivalent yield on investments increased by 60 basis points for the quarter-to-date period when comparing both years. Interest income on securities increased by $2,115,000, or 55.9%, for the three months ended March 31, 2025, compared to the same period in the prior year.

Average balances on loans increased by $64.8 million, or 4.7%, for the three months ended March 31, 2025, compared to the same period in the prior year. Loan yields increased by 31 basis points for the quarter and loan interest income increased by $1,951,000, or 11.2%, due to the increase in loan balances and higher yields.

The average balance of interest-bearing deposit accounts increased by $126.9 million, or 11.4%, for the three months ended March 31, 2025, compared to the same period in the prior year. The average balance of demand deposits increased by $60.9 million, or 12.9% and the average balance of savings accounts decreased by $17.0 million, or 5.6%. The average balance of savings accounts decreased as funds moved into higher-yielding time deposit accounts. Time deposit balances increased by $83.0 million, or 24.4%, driven by the movement of funds into higher-yielding accounts discussed above. In addition, the Corporation had more brokered time deposits at March 31, 2025, compared to March 31, 2024, as this was the primary source of funding to grow investments. Brokered time deposits increased by $57.9 million, or 148.6%, during this timeframe. The interest rate paid on all interest-bearing deposits decreased minimally from the prior year with the combined rate decreasing by one basis point for the quarter ended March 31, 2025, compared to the same period in the prior year. The combination of these changes resulted in an increase in interest expense on deposits of $660,000, for the three months ended March 31, 2025, compared to the same period in 2024.

The Corporation’s average balance on borrowed funds increased by $41.3 million, or 29.6%, for the three months ended March 31, 2025, compared to the same period in 2024. The Corporation’s borrowed funds consist of FHLB advances as well as subordinated debt issued in December of 2020 and July of 2022 which was used to support capital growth for the Corporation. The rate paid on borrowed funds increased by 29 basis points for the three months ended March 31, 2025, compared to the same period in the prior year.

For the three months ended March 31, 2025, the net interest spread increased by 22 basis points to 2.12%, compared to 1.90% for the three months ended March 31, 2024. The effect of non-interest bearing funds decreased to 90 basis points for the three months ended March 31, 2025, from 91 basis points for the three months ended March 31, 2024. The effect of non-interest bearing funds refers to the benefit gained from deposits on which the Corporation does not pay interest. As rates go higher, the benefit of non-interest bearing deposits increases because there is more difference between non-interest bearing funds and interest bearing liabilities. The Corporation’s NIM for the first quarter of 2025 was 3.02%, compared to 2.81% for the first quarter of 2024.

The Asset Liability Committee (ALCO) carefully monitors the NIM because it indicates trends in NII, the Corporation’s largest source of revenue. For more information on the plans and strategies in place to protect the NIM and moderate the impact of changes in rates, refer to Item 7A: Quantitative and Qualitative Disclosures about Market Risk.

#### Provision for Credit Losses

The provision for credit losses includes a provision for losses on loans, available-for-sale debt securities, and unfunded loan commitments. The provision provides for losses inherent in the financial assets as determined by a quarterly analysis and calculation of various factors related to the financial assets. The amount of the provision reflects the adjustment management determines necessary to ensure the Allowance for Credit Losses (ACL) is adequate to cover any losses inherent in the financial assets. The Corporation recorded a provision expense of $426,000 for credit losses related to loans, a provision expense of $60,000 for unfunded commitments, and $0 related to available-for-sale securities for the first three months of 2025, compared to a release of provision expense of $540,000 related to loans, $104,000 for unfunded commitments, and $0 related to available-for-sale securities for the three months ended March 31, 2024. As of March 31, 2025, the allowance as a percentage of total loans was 1.15%, compared to 1.06% at March 31, 2024. More detail is provided under Allowance for Credit Losses in the Financial Condition section that follows.

#### Other Income

Other income for the first quarter of 2025 was $3,964,000, a decrease of $382,000, or 8.8%, compared to the $4,346,000 earned during the first quarter of 2024. The following table details the categories that comprise other income.

OTHER INCOME

(DOLLARS IN THOUSANDS)

|  | Three Months Ended March 31, 2025 $$ | 2024 | Increase (Decrease) $% |  |
| --- | ---: | ---: | ---: | ---: |
| Trust and investment services | **864** | 1,083 | (219) | (20.2) |
| Service fees | **1,355** | 1,361 | (6) | (0.4) |
| Commissions | **1,012** | 1,017 | (5) | (0.5) |
| Net losses on debt and equity securities | **(333)** | (258) | (75) | 29.1 |
| Gains on sale of mortgages | **439** | 544 | (105) | (19.3) |
| Earnings on bank owned life insurance | **271** | 293 | (22) | (7.5) |
| Other miscellaneous income | **356** | 306 | 50 | 16.3 |
| Total other income | **3,964** | 4,346 | (382) | (8.8) |

Trust and investment services income decreased for the quarter as a result of the gain on sale of a limited number of trust assets sold in the first quarter of 2024. Service fees and commissions remained relatively flat from last year’s first quarter. The Corporation incurred $333,000 of net losses on debt and equity securities in the first quarter of 2025, compared to net losses of $258,000 in the same quarter of the prior year as a result of strategic sales of debt securities to fund higher yielding loan growth. Mortgage gains decreased by $105,000, or 19.3%, in the first quarter of 2025, compared to the first quarter of 2024. This was primarily a result of compressed margins and the Corporation selling the permanent financing for construction loans with points that were recorded as income in the prior year. Earnings on bank owned life insurance were lower by $22,000, or 7.5%, for the three months ended March 31, 2025, compared to the same period in the prior year and other miscellaneous income increased by $50,000, or 16.3%.

Operating Expenses

Operating expenses for the first quarter of 2025 were $14,368,000, an increase of $774,000, or 5.7%, compared to the $13,594,000 for the first quarter of 2024. The following table provides details of the Corporation’s operating expenses for the three month period ended March 31, 2025, compared to the same period in 2024.

OPERATING EXPENSES

(DOLLARS IN THOUSANDS)

|  | Three Months Ended March 31, 2025 $$ | 2024 | Increase (Decrease) $% |  |
| --- | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | **8,280** | 8,335 | (55) | (0.7) |
| Occupancy expenses | **909** | 857 | 52 | 6.1 |
| Equipment expenses | **386** | 303 | 83 | 27.4 |
| Advertising & marketing expenses | **367** | 241 | 126 | 52.3 |
| Computer software & data processing expenses | **1,819** | 1,702 | 117 | 6.9 |
| Bank shares tax | **361** | 357 | 4 | 1.1 |
| Professional services | **843** | 711 | 132 | 18.6 |
| Other operating expenses | **1,403** | 1,088 | 315 | 29.0 |
| Total Operating Expenses | **14,368** | 13,594 | 774 | 5.7 |

35

Salaries and employee benefits are the largest category of operating expenses. For the first quarter of 2025, salaries and benefits decreased $55,000, or 0.7%, compared to the same period in 2024. This was primarily due to lower health insurance costs reflective of fewer claims during the first quarter of 2025. Occupancy and equipment costs were higher by a combined total of $135,000, or 11.6%, related to costs associated with new lease expense and higher equipment costs. Advertising and marketing expenses were higher by $126,000, or 52.3%, for the three months ended March 31, 2025, compared to the prior year. This increase was primarily related to media production costs and sponsorships as the Corporation continues to pursue marketing and sponsorship opportunities in the communities it serves. Computer software and data processing expenses increased by $117,000, or 6.9%, for the three months ended March 31, 2025, as a result of higher costs associated with the core conversion in the prior year as well as other technology initiatives. Shares tax expense is based on the Corporation’s level of shareholders’ equity and has remained relatively flat from 2024 to 2025. Professional services costs increased by $132,000, or 18.6%, related to higher accounting and legal fees as well as increased costs for other outside services. Other operating expenses increased by $315,000, or 29.0%, for the three months ended March 31, 2025, compared to the same period in the prior year due largely to checking account charge-off costs and an increased level of fraud-related charge-offs.

#### Income Taxes

Federal income tax expense was $982,000 for the first quarter of 2025 compared to $827,000 for the same period in 2024. The effective tax rate for the Corporation was 18.5% for the three months ended March 31, 2025, and 17.3% for the three months ended March 31, 2024. Certain items of income are not subject to Federal income tax, such as tax-exempt interest income on loans and securities, and Bank Owned Life Insurance (BOLI) income; therefore, the effective income tax rate for the Corporation is lower than the stated tax rate.

### Financial Condition

#### Investment Securities

The Corporation classifies all of its debt securities as available for sale and reports the portfolio at fair value. As of March 31, 2025, the Corporation had $595.6 million of debt securities available for sale, which accounted for 26.8% of assets, compared to 27.8% as of December 31, 2024, and 22.4% as of March 31, 2024. Based on ending balances, the debt securities portfolio increased 33.3% from March 31, 2024, and decreased 3.4% from December 31, 2024.

The debt securities portfolio was showing a net unrealized loss of $42,454,000 as of March 31, 2025, compared to $47,248,000 as of December 31, 2024, and $44,444,000 as of March 31, 2024. The valuation of the Corporation’s debt securities portfolio is impacted by both the U.S. Treasury rates and the perceived forward direction of interest rates.

Each quarter, management sets portfolio allocation guidelines and adjusts the security portfolio strategy generally based on the following factors:

- ALCO positions as to liquidity, credit risk, interest rate risk, and fair value risk
- Growth of the loan portfolio
- Slope of the U.S. Treasury curve
- Relative performance of the various instruments, including spread to U.S. Treasuries
- Duration and average length of the portfolio
- Volatility of the portfolio
- Direction of interest rates
- Economic factors impacting debt securities

The investment policy of the Corporation establishes guidelines to promote diversification within the portfolio. The diversity specifications provide opportunities to shorten or lengthen duration, maximize yield, and mitigate credit risk.

The Corporation’s U.S. Treasury and U.S. government agency sectors decreased $4.4 million during the first three months of 2025 due to the maturity of a bond in the first quarter. These sectors represent safe credits, but generally carry a lower yield due to the investments made in 2020 and 2021 when rates were lower.

The Corporation’s U.S. agency mortgage-backed securities (MBS) and collateralized mortgage obligations (CMO) have remained stable since December 31, 2024. MBS and CMOs both consist of mortgage instruments that pay monthly interest and principal, however the behavior of the two types vary according to the structure of the mortgage pool or CMO instrument. Management desires to maintain some amount of MBS and CMOs in order to assist in adding to and maintaining a stable five-year ladder of cash flows, which is important in providing stable liquidity and interest rate risk positions. U.S. agency MBS and CMO securities pay contractual monthly principal and interest, but are also subject to additional prepayment of principal. The combined effect of all of these instruments paying monthly principal and interest provides the Corporation with a reasonably stable base cash flow. Cash flows coming off of MBS and CMOs do slow down and speed up as interest rates increase or decrease, which has an impact on the portfolio’s length and yield.

The portfolio of non-agency MBS and CMO securities stood at $144.0 million as of March 31, 2025, or 24.2% of the total portfolio. This sector better structures the portfolio to achieve higher yields and shortens the duration while also protecting in a rates-up environment. The non-agency portfolio stood at $145.2 million at December 31, 2024.

The Corporation’s asset-backed securities declined slightly by $567,000, or 1.0%, from December 31, 2024, to March 31, 2025. Many of the bonds in this sector generate regular monthly principal payments which caused the value to decline. These bonds are primarily floating rate instruments, so in the current higher rate environment, they have added to the overall yield increase for the portfolio.

As of March 31, 2025, the fair value of the Corporation’s corporate bonds decreased by $5.6 million, or 10.5%, from balances at December 31, 2024. This decrease was due to one bond maturing and several bonds being sold during the first quarter. Like any security, corporate bonds have both positive and negative qualities and management must evaluate these securities on a risk versus reward basis. Corporate bonds add diversity to the portfolio and provide strong yields for short maturities; however, by their very nature, corporate bonds carry a high level of credit risk should the entity experience financial difficulties. As a result of the higher level of credit risk taken by purchasing a corporate bond, management has in place procedures to closely analyze the financial health of the company. Financial analysis is conducted prior to every corporate bond purchase with ongoing monitoring performed on all securities held.

Obligations of states and political subdivisions, or municipal bonds, consist of both tax-free and taxable securities. They carry the longest duration on average of any instrument in the securities portfolio. Municipal tax-equivalent yields generally start above other taxable bonds. These instruments also experience significant fair market value gains and losses when interest rates decrease and increase. Municipal securities were purchased throughout 2020 and 2021 due to the levels of excess liquidity experienced due to deposit inflows. The balance of municipal bonds decreased by $9.3 million, or 5.2%, in the first three months of 2025, primarily due to the sale of a number of these bonds during the first quarter. Municipal bonds represented 28.4% of the securities portfolio as of March 31, 2025 and 29.0% as of December 31, 2024.

#### Loans

Net loans outstanding increased by 4.5%, to $1,426.9 million at March 31, 2025, from $1,365.8 million at March 31, 2024. Net loans increased by 1.1%, an annualized rate of 4.4%, from $1,411.1 million at December 31, 2024. The following table shows the composition of the loan portfolio as of March 31, 2025 and December 31, 2024.

LOANS BY MAJOR CATEGORY

(DOLLARS IN THOUSANDS)

|  | March 31, 2025 $% |  | December 31, 2024 $% |  |
| --- | ---: | ---: | ---: | ---: |
| Agriculture | **293,070** | **20.4** | 289,284 | 20.3 |
| Business Loans | **360,975** | **25.0** | 360,805 | 25.3 |
| Consumer | **6,346** | **0.4** | 6,603 | 0.5 |
| Home Equity | **125,173** | **8.7** | 118,329 | 8.3 |
| Non-Owner Occupied CRE | **149,585** | **10.4** | 136,298 | 9.6 |
| Residential Real Estate (a) | **506,525** | **35.1** | 514,120 | 36.0 |
| Total loans | **1,441,674** | **100** | 1,425,439 | 100 |
| Less: |  |  |  |  |
| Deferred loan costs, net | **1,788** |  | 1,830 |  |
| Allowance for credit losses | **(16,537)** |  | (16,122) |  |
| Total net loans | **1,426,925** |  | 1,411,147 |  |

(a) Residential real estate loans do not include mortgage loans serviced for others which totaled $354,440 as of March 31, 2025 and $342,640 as of December 31, 2024.

There was marginal growth in the loan portfolio since December 31, 2024. Agriculture loans, home equity loans, and non-owner occupied CRE loans grew since December 31, 2024, while the other categories of loans remained stagnant or decreased minimally.

The agriculture loan segment increased $3,786,000, or 1.3%, the business loan segment increased nominally, the consumer loan segment decreased $257,000, or 3.9%, the home equity segment increased $6,844,000, or 5.8%, the non-owner occupied CRE segment increased $13,287,000, or 9.7%, and the residential real estate segment decreased $7,595,000, or 1.5% from balances at December 31, 2024. The agriculture segment is concentrated primarily in loans to dairy operators, poultry operators, and crop farmers. Business loans are fairly diverse with small concentrations in lessors of residential buildings and dwellings and lessors of non-residential buildings. These concentrations are less than 10% of the total business loan portfolio.

In the first three months of 2025, mortgage production decreased 30.4% compared to the first three months of 2024. Purchase money origination constituted 95.8% of the Corporation’s mortgage originations for the three months ended March 31, 2025. The held-for-investment production is 55.1% of total originations with construction-only and construction-permanent loans making up 61.3% of the total held-for-investment production. As of March 31, 2025, adjustable-rate mortgage balances were $326.4 million, representing 64.4% of the 1-4 family residential loan portfolio of the Corporation.

#### Non-Performing Assets

Non-performing assets include:

- Nonaccrual loans
- Loans past due 90 days or more and still accruing
- Other real estate owned

NON-PERFORMING ASSETS

(DOLLARS IN THOUSANDS)

|  | March 31, 2025 $$ | December 31, 2024 | March 31, 2024 $ |
| --- | ---: | ---: | ---: |
| Nonaccrual loans | **10,727** | 11,887 | 3,671 |
| Loans past due 90 days or more and still accruing | **—** | — | 660 |
| Total non-performing loans | **10,727** | 11,887 | 4,331 |
| Other real estate owned | **—** | — | — |
| Total non-performing assets | **10,727** | 11,887 | 4,331 |
| Non-performing assets to net loans | **0.75%** | 0.83% | 0.32% |

The total balance of non-performing assets increased by $6,396,000, or 147.7%, over balances at March 31, 2024, and decreased $1,160,000, or 9.8%, from balances at December 31, 2024. The increase from March 31, 2024 was due to the addition of a number of unrelated relationships experiencing payment defaults. The decrease from December 31, 2024 was mostly due to the payoff of a residential loan. Non-accrual loans increased by $7,056,000, or 192.2%, since March 31, 2024, and decreased $1,160,000, or 9.8%, since December 31, 2024. No loans were past due 90 days or more and still accruing interest at March 31, 2025 or December 31, 2024, compared to $660,000 at March 31, 2024. The primary reason for the increase in non-accrual loans from March 31, 2024 was the addition of a commercial loan relationship with balances of $3.6 million, another commercial loan in the amount of $748,000, a residential mortgage loan in the amount of $589,000, an agriculture mortgage in the amount of $619,000, and a number of other smaller loan relationships. The Corporation has taken a more disciplined approach to classifying loans as non-accrual when they hit 90 days past due which is why there are no loans at March 31, 2025 or December 31, 2024, that are 90 days or more past due. While non-performing asset balances have increased as of March 31, 2025 when compared to the prior year, the non-performing asset balances have decreased since December 31, 2024 and the Corporation’s total level of non-performing assets is in line with its peer group.

There was no other real estate owned (OREO) as of March 31, 2025, December 31, 2024, or March 31, 2024.

#### Allowance for Credit Losses

The allowance for credit losses (ACL) is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on total loans. Management reviews the adequacy of the ACL on a quarterly basis. The ACL represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The ACL is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Corporation measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. Additionally, the ACL calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending policies and procedures, loan portfolio trends, lending management experience, asset quality, loan review, underlying collateral, and credit concentrations. Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted for selling costs as appropriate. Based on the quarterly calculation, management will adjust the ACL through the provision for credit losses as necessary.

Strong credit and collateral policies have been instrumental in producing a favorable history of credit losses for the Corporation. The Net Charge-Off table below shows the net charge-offs for each segment of the Corporation’s loan portfolio as of March 31, 2025 and March 31, 2024.

Net Charge-Offs

(DOLLARS IN THOUSANDS)

| Loans charged-off: | March 31, 2025 $$ | March 31, 2024 |
| --- | ---: | ---: |
| Agriculture | **—** | — |
| Business Loans | **—** | — |
| Consumer Loans | **27** | 25 |
| Home Equity | **3** | — |
| Non-Owner Occupied CRE | **—** | — |
| Residential Real Estate | **—** | — |
| Total loans charged-off | **30** | 25 |
| Recoveries of loans previously charged-off |  |  |
| Agriculture | **1** | — |
| Business Loans | **2** | — |
| Consumer Loans | **16** | 5 |
| Home Equity | **—** | — |
| Non-Owner Occupied CRE | **—** | — |
| Residential Real Estate | **—** | — |
| Total recoveries | **19** | 5 |
| Net charge-offs (recoveries) |  |  |
| Agriculture | **(1)** | — |
| Business Loans | **(2)** | — |
| Consumer Loans | **11** | 20 |
| Home Equity | **3** | — |
| Non-Owner Occupied CRE | **—** | — |
| Residential Real Estate | **—** | — |
| Total net charge-offs | **11** | 20 |

The Corporation has historically experienced very low net charge-off percentages due to disciplined credit practices. As of March 31, 2025, there were $30,000 in charge-offs and $19,000 of recoveries, representing a net charge-off position of $11,000 as shown above. As of March 31, 2024, there were $25,000 in charge-offs and $5,000 in recoveries, representing a net charge-off position of $20,000.

Management regularly reviews the overall risk profile of the loan portfolio and the impact that current economic trends have on the Corporation’s loans. The financial industry typically evaluates the quality of loans on a scale with “unclassified” representing healthy loans, “special mention” being the first indication of credit concern, and several successive classified ratings indicating further credit declines of “substandard,” “doubtful,” and, ultimately, “loss.”

The Corporation’s level of classified loans was $28.9 million on March 31, 2025, compared to $14.8 million on March 31, 2024. Total classified loans have increased from the prior year due to the downgrading of a number of unrelated agriculture and business relationships. Having more loans in a classified status could result in a larger allowance as higher amounts of projected historical losses and qualitative factors are attached to these loans.

#### Deposits

The Corporation’s total ending deposits at March 31, 2025, increased by $3.0 million, or 0.2%, from December 31, 2024, and $172.5 million, or 10.0%, from March 31, 2024. Customer deposits are the Corporation’s primary source of funding for loans and securities. The mix of the Corporation’s deposit categories has changed since March 31, 2024, as customers have moved from low-interest bearing accounts into higher yielding checking accounts and time deposits. Since March 31, 2024, there has been a $31.1 million, or 5.2% increase in non-interest bearing demand deposit accounts, a $46.0 million, or 14.6% increase in interest bearing demand balances, a $29.6 million, or 18.8% increase in money market account balances, a $9.0 million, or 3.0% decrease in savings account balances, and a $74.7 million, or 21.5% increase in time deposit balances.

The increase in time deposit balances was partially the result of issuing brokered certificates of deposit in order to fund a leverage strategy coupled with available-for-sale investment securities purchases and interest rate swaps. Brokered CDs grew $58.0 million, from $39.0 million at March 31, 2024, to $97.0 million as of March 31, 2025. The remaining increase in time deposit balances was a result of the increased rate environment and offering promotional rates on specific time deposit terms. Time deposits are typically a more rate-sensitive product, making them a source of funding that is prone to balance variations depending on the interest rate environment and how the Corporation’s time deposit rates compare with the local market rates. Time deposits fluctuate as consumers search for the best rates in the market, with less allegiance to any particular financial institution.

As of March 31, 2025 and 2024, the total uninsured deposits of the Corporation were approximately $224,995,000 and $205,707,000, respectively or 11.9% and 12.0%, of total deposits. Total uninsured deposits is calculated based on regulatory reporting requirements and reflects the portion of any deposit of a customer at an insured depository institution that exceeds the applicable FDIC insurance coverage for that depositor at that institution and amounts in any other uninsured investment or deposit accounts that are classified as deposits and not subject to any federal or state deposit insurance regime.

The Deposits by Major Classification table, shown below, provides the balances of each category for March 31, 2025, December 31, 2024, and March 31, 2024.

DEPOSITS BY MAJOR CLASSIFICATION

(DOLLARS IN THOUSANDS)

|  | March 31, 2025 $$ | December 31, 2024 | March 31, 2024 $ |
| --- | ---: | ---: | ---: |
| Non-interest bearing demand | **634,110** | 631,711 | 602,975 |
| Interest bearing demand | **362,120** | 384,236 | 316,081 |
| Money market deposit accounts | **186,587** | 162,514 | 157,023 |
| Savings accounts | **288,470** | 280,526 | 297,469 |
| Time deposits | **422,200** | 431,456 | 347,463 |
| Total deposits | **1,893,487** | 1,890,443 | 1,721,011 |

The growth and mix of deposits is often driven by several factors including:

- Convenience and service provided
- Current rates paid on deposits relative to competitor rates
- Level of and perceived direction of interest rates
- Financial condition and perceived safety of the institution
- Possible risks associated with other investment opportunities
- Level of fees on deposit products

Borrowings

Total borrowings were $179.1 million, $183.5 million, and $136.6 million as of March 31, 2025, December 31, 2024, and March 31, 2024, respectively. Short-term borrowings with the Federal Home Loan Bank (FHLB) were $60.0 million as of March 31, 2025 and December 31, 2024. There were no short-term borrowings as of March 31, 2024. Short-term funds are used for immediate liquidity needs and are not typically part of an ongoing liquidity or interest rate risk strategy; therefore, they fluctuate more rapidly. When short-term funds are used, they are purchased through correspondent and member bank relationships as overnight borrowings or through the FHLB for terms less than one year.

Total long-term borrowings, borrowings initiated for terms longer than one year, were $79.3 million as of March 31, 2025, $83.8 million as of December 31, 2024, and $97.0 million as of March 31, 2024, respectively. The long-term borrowings for the Corporation were made up entirely of FHLB long-term advances. FHLB advances are used as a secondary source of funding and to mitigate interest rate risk. These long-term funding instruments are typically a more effective funding instrument in terms of selecting the exact amount, rate, and term of funding rather than trying to source the same through deposits. In this manner, management can efficiently meet known liquidity and interest rate risk needs. The Corporation continues to be well under the FHLB maximum borrowing capacity (MBC), which is currently $722.7 million. The Corporation’s internal policy limits are far more restrictive than the FHLB MBC, which is calculated and set quarterly by FHLB.

In addition to the long-term advances funded through the FHLB, on December 30, 2020, the Corporation completed the sale of a subordinated debt note offering. The Corporation sold $20.0 million of subordinated debt notes with a maturity date of December 30, 2030. These notes are non-callable for 5 years and carry a fixed interest rate of 4% per year for 5 years and then convert to a floating rate for the remainder of the term. The notes can be redeemed at par beginning 5 years prior to maturity. The notes are structured to qualify as Tier 2 capital for the Corporation and any funds it invests in the Bank qualify as Tier 1 capital at the Bank. As of March 31, 2025, $16.0 million of funds were invested in the Bank. The Corporation paid an issuance fee of 2% of the total issue that will be amortized to the call date on a pro-rata basis.

On July 22, 2022, the Corporation completed the sale of an additional subordinated debt note offering. The Corporation sold $20.0 million of subordinated debt notes with a maturity date of September 30, 2032. These notes are all non-callable for 5 years and carry a fixed interest rate of 5.75% per year for the 5 years and then convert to a floating rate for the remainder of the term. The notes can be redeemed at par beginning 5 years prior to maturity. The notes are structured to qualify as Tier 2 capital for the Corporation and any funds it invests in the Bank qualify as Tier 1 capital at the Bank. As of March 31, 2025, $17.0 million of funds were invested in the Bank. The Corporation paid an issuance fee of 2% of the total issue that will be amortized to the call date on a pro-rata basis.

Stockholders’ Equity

Federal regulatory authorities require banks to meet minimum capital levels. The Corporation, as well as the Bank, as the solely owned subsidiary of the Corporation, maintains capital ratios well above those minimum levels. The risk-weighted capital ratios are calculated by dividing capital by total risk-weighted assets. Regulatory guidelines determine the risk-weighted assets by assigning assets to specific risk-weighted categories. The calculation of tier I capital to risk-weighted average assets does not include an add-back to capital for the amount of the allowance for credit losses, thereby making this ratio lower than the total capital to risk-weighted assets ratio.

The consolidated asset limit on small bank holding companies is $3 billion and a company with assets under that limit is not subject to the consolidated capital rules but may disclose capital amounts and ratios. The Corporation has elected to disclose those amounts and ratios.

The following tables reflect the capital ratios for the Corporation and Bank compared to the regulatory capital requirements.

REGULATORY CAPITAL RATIOS:

| As of March 31, 2025 Total Capital to Risk-Weighted Assets | Capital Ratios | Regulatory Requirements Adequately Capitalized | Well Capitalized |
| --- | ---: | ---: | ---: |
| Consolidated | **14.8%** | **N/A** | **N/A** |
| Bank | **14.6%** | **8.0%** | **10.0%** |
| Tier 1 Capital to Risk-Weighted Assets |  |  |  |
| Consolidated | **11.1%** | **N/A** | **N/A** |
| Bank | **13.4%** | **6.0%** | **8.0%** |
| Common Equity Tier 1 Capital to Risk-Weighted Assets |  |  |  |
| Consolidated | **11.1%** | **N/A** | **N/A** |
| Bank | **13.4%** | **4.5%** | **6.5%** |
| Tier 1 Capital to Average Assets |  |  |  |
| Consolidated | **7.6%** | **N/A** | **N/A** |
| Bank | **9.2%** | **4.0%** | **5.0%** |
| As of December 31, 2024 |  |  |  |
| Total Capital to Risk-Weighted Assets |  |  |  |
| Consolidated | 14.6% | N/A | N/A |
| Bank | 14.4% | 8.0% | 10.0% |
| Tier I Capital to Risk-Weighted Assets |  |  |  |
| Consolidated | 10.9% | N/A | N/A |
| Bank | 13.2% | 6.0% | 8.0% |
| Common Equity Tier I Capital to Risk-Weighted Assets |  |  |  |
| Consolidated | 10.9% | N/A | N/A |
| Bank | 13.2% | 4.5% | 6.5% |
| Tier I Capital to Average Assets |  |  |  |
| Consolidated | 7.5% | N/A | N/A |
| Bank | 9.1% | 4.0% | 5.0% |
| As of March 31, 2024 |  |  |  |
| Total Capital to Risk-Weighted Assets |  |  |  |
| Consolidated | 14.8% | N/A | N/A |
| Bank | 14.4% | 8.0% | 10.0% |
| Tier 1 Capital to Risk-Weighted Assets |  |  |  |
| Consolidated | 10.9% | N/A | N/A |
| Bank | 13.3% | 6.0% | 8.0% |
| Common Equity Tier 1 Capital to Risk-Weighted Assets |  |  |  |
| Consolidated | 10.9% | N/A | N/A |
| Bank | 13.3% | 4.5% | 6.5% |
| Tier 1 Capital to Average Assets |  |  |  |
| Consolidated | 7.8% | N/A | N/A |
| Bank | 9.5% | 4.0% | 5.0% |

As of March 31, 2025, the Bank’s Tier 1 Leverage Ratio stood at 9.2% while the Corporation’s Tier 1 Leverage Ratio was 7.6%. Tier 1 Capital at the Corporation level was not impacted by the subordinated debt issue since subordinated debt only qualifies as Tier 2 Capital at the corporate level. As such, in terms of the Corporation’s regulatory capital ratios, only the Total Capital to Risk-Weighted Assets ratio was enhanced as a result of the $40 million subordinated debt issue. Most of the marked improvement in capital ratios occurred at the Bank level.

#### Off-Balance Sheet Arrangements

In the normal course of business, the Corporation typically has off-balance sheet arrangements related to loan funding commitments. These arrangements may impact the Corporation’s financial condition and liquidity if they were to be exercised within a short period of time. As discussed in the following liquidity section, the Corporation has in place sufficient liquidity alternatives to meet these obligations. The following table presents information on the commitments by the Corporation as of March 31, 2025.

OFF-BALANCE SHEET ARRANGEMENTS

(DOLLARS IN THOUSANDS)

| Commitments to extend credit: | March 31, 2025 $ |
| --- | ---: |
| Revolving home equity | **268,118** |
| 1-4 family residential contruction loans | **24,481** |
| Commercial real estate, other construction and land development loans | **38,796** |
| Commercial and industrial loans | **106,538** |
| Other | **148,289** |
| Standby letters of credit | **15,323** |
| Total | **601,545** |

#### Significant Legislation

### Dodd-Frank Wall Street Reform and Consumer Protection Act

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was signed into law. Dodd-Frank is intended to affect a fundamental restructuring of federal banking regulation. Among other things, Dodd-Frank creates a new Financial Stability Oversight Council to identify systemic risks in the financial system and gives federal regulators new authority to take control of and liquidate financial firms. Dodd-Frank additionally creates a new independent federal regulator to administer federal consumer protection laws. Among the provisions that have already or are likely to affect the Corporation are the following:

### Holding Company Capital Requirements

Dodd-Frank requires the Federal Reserve to apply consolidated capital requirements to bank holding companies that are no less stringent than those currently applied to depository institutions. Under these standards, trust preferred securities will be excluded from tier I capital unless such securities were issued prior to May 19, 2010, by a bank holding company with less than $15 billion in assets. Dodd-Frank additionally requires that bank regulators issue countercyclical capital requirements so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, are consistent with safety and soundness.

### Deposit Insurance

Dodd-Frank permanently increased the maximum deposit insurance amount for banks, savings institutions, and credit unions to $250,000 per depositor. Additionally, on February 7, 2011, the Board of Directors of the FDIC approved a final rule based on the Dodd-Frank Act that revises the assessment base from one based on domestic deposits to one based on assets. This change, which was effective in April 2011, saved the Corporation a significant amount of FDIC insurance premiums from the significantly higher FDIC insurance premiums placed into effect after the financial crisis.

### Corporate Governance

Dodd-Frank requires publicly traded companies to give stockholders a non-binding vote on executive compensation at least every three years, a non-binding vote regarding the frequency of the vote on executive compensation at least every six years, and a non-binding vote on “golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on by shareholders. The SEC has finalized the rules implementing these requirements which took effect on January 21, 2011. The Corporation was exempt from these requirements until January 21, 2013, due to its status as a smaller reporting company.

### Consumer Financial Protection Bureau

Dodd-Frank created the Consumer Financial Protection Bureau (CFPB), which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy Provisions of the Gramm-Leach-Bliley Act, and certain other statutes. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions will be subject to rules promulgated by the CFPB but will continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB will have authority to prevent unfair, deceptive, or abusive practices in connection with the offering of consumer financial products. Dodd-Frank authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages including a determination of the borrower’s ability to repay. In addition, Dodd-Frank will allow borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB. Dodd-Frank permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

### Interstate Branching

Dodd-Frank authorizes national and state banks to establish branches in other states to the same extent as a bank chartered by that state would be permitted. Previously, banks could only establish branches in other states if the host state expressly permitted out-of-state banks to establish branches in that state. Accordingly, banks will be able to enter new markets more freely.

### Limits on Interstate Acquisitions and Mergers

Dodd-Frank precludes a bank holding company from engaging in an interstate acquisition – the acquisition of a bank outside its home state – unless the bank holding company is both well capitalized and well managed. Furthermore, a bank may not engage in an interstate merger with another bank headquartered in another state unless the surviving institution will be well capitalized and well managed. The previous standard in both cases was adequately capitalized and adequately managed.

## Market risk

As filed, 13,048 characters.

As a financial institution, the Corporation is subject to three primary risks:

- Credit risk
- Liquidity risk
- Interest rate risk

The Board of Directors has established an Asset Liability Management Committee (ALCO) to measure, monitor, and manage these primary market risks. The Asset Liability Policy has instituted guidelines for all of these primary risks, as well as other financial performance measurements with target ranges. The Asset Liability goals and guidelines are consistent with the Strategic Plan goals related to financial performance.

### Credit Risk

For discussion on credit risk refer to the sections in Item 2. Management’s Discussion and Analysis, on securities, non-performing assets, and allowance for credit losses.

### Liquidity Risk

Liquidity refers to having an adequate supply of cash available to meet business needs. Financial institutions must ensure that there is adequate liquidity to meet a variety of funding needs, at a minimal cost. Funding new loans and covering deposit withdrawals are the primary liquidity needs of the Corporation. The Corporation uses a variety of funding sources to meet liquidity needs, such as deposits, loan repayments, cash flows from securities, borrowings, and current earnings.

As noted in the discussion on deposits, customers have historically provided the Corporation with a reliable and steadily increasing source of funds liquidity. The Corporation also has in place relationships with other banking institutions for the purpose of buying and selling Federal funds. The lines of credit with these institutions provide immediate sources of additional liquidity. The Corporation currently has unsecured lines of credit totaling $30 million. This does not include amounts available from member banks such as the Federal Reserve Discount Window or the FHLB of Pittsburgh.

The Corporation regularly reviews its liquidity position by measuring its projected net cash flows at a 30 and 90-day interval. The Corporation stresses the measurements by assuming a level of deposit out-flows that have not historically been realized. In addition to this forecast, other funding sources are reviewed as a method to provide emergency funding if necessary. The objective of this measurement is to identify the amount of cash that could be raised quickly without the need to liquidate assets. The Corporation also stresses its liquidity position utilizing different longer-term scenarios. The varying degrees of stress create pressure on deposit flows in its local market, reduce access to wholesale funding and limit access of funds available through brokered deposit channels. In addition to stressing cash flow, specific liquidity risk indicators are monitored to help identify risk areas. This analysis helps identify and quantify the potential cash surplus/deficit over a variety of time horizons to ensure the Corporation has adequate funding resources. Assumptions used for liquidity stress testing are subjective. Should an evolving liquidity situation or business cycle present new data, potential assumption changes will be considered. The Corporation believes it can meet all anticipated liquidity demands.

Historically, the Corporation has satisfied its liquidity needs from earnings, repayment of loans and amortizing investment securities, maturing investment securities, loan sales, deposit growth and its ability to access existing lines of credit. All investment securities are classified as available for sale; therefore, securities that are unencumbered can be used as collateral for borrowings and are an additional source of readily available liquidity.

The Corporation analyzes the following additional liquidity measurements in an effort to monitor and mitigate liquidity risk:

- *On-hand Liquidity/Total Liabilities –* Net liquid assets as a percentage of total liabilities
- *Non-Core Funding Dependence –* Non-core liabilities minus short-term investments as a percentage of long-term assets
- *Reliance on Wholesale Funding –* Wholesale funding as a percentage of total funding
- *Net Short-term Liabilities/Total Assets –* Short-term liabilities minus short-term assets as a percentage of total assets
- *Loan to Deposit Ratio –* Total loans as a percentage of total deposits
- *Investment Securities to Assets Threshold –* Total investment securities as a percentage of total assets

These measurements are designed to prevent undue reliance on outside sources of funding and to ensure a steady stream of liquidity is available should events occur that would cause a sudden decrease in deposits or large increase in loans or both, which would in turn draw significantly from the Corporation’s available liquidity sources. As of March 31, 2025, the Corporation was in the low-risk range for all of the above measurements except for two ratios that fell in the moderate-risk range: reliance on wholesale funding and the investment securities to assets ratio. Both of these ratios were impacted by the derivative strategy undertaken in 2024 to leverage the balance sheet through wholesale borrowings and investment securities with off-balance sheet interest rate swaps. While this placed the Corporation in the moderate-risk range for the ratios mentioned above, the strategy was analyzed extensively and the risk measured.

The Corporation’s liquidity measurements are tracked and reported quarterly by management to both observe trends and ensure the measurements stay within desired ranges. Management is confident that a sufficient amount of internal and external liquidity exists to provide for significant unanticipated liquidity needs.

Interest Rate Risk

Interest rate risk is measured using two analytical tools:

- Changes in net interest income
- Changes in net portfolio value

Financial modeling is used to forecast net interest income and earnings, as well as net portfolio value, also referred to as fair value. The modeling is generally conducted under nine different interest rate scenarios that can vary according to the present level of interest rates. The scenarios consist of a projection of net interest income if rates remain flat, increase 100, 200, 300, or 400 basis points, or decrease 100, 200, 300, or 400 basis points.

The results obtained through the use of forecasting models are based on a variety of factors. Both the net interest income and fair value forecasts make use of the maturity and repricing schedules to determine the changes to the balance sheet over the course of time. Additionally, there are many assumptions that factor into the results. These assumptions include, but are not limited to, the following:

- Projected forward interest rates
- Slope of the U.S. Treasury curve
- Spreads available on securities over the U.S. Treasury curve
- Prepayment speeds on loans held and mortgage-backed securities
- Anticipated calls on securities with call options
- Deposit and loan balance fluctuations
- Competitive pressures affecting loan and deposit rates
- Economic conditions
- Consumer reaction to interest rate changes

As a result of the many assumptions, this information should not be relied upon to predict future results. Additionally, both of the analyses discussed below do not consider any action that management could take to minimize or offset the negative effect of changes in interest rates. These tools are used to assist management in identifying possible areas of risk in order to address them before a greater risk is posed. Back testing of the model is completed to compare actual results to projections to ensure the validity of the assumptions in the model. The back testing analyses indicate that the model assumptions are reliable.

#### Changes in Net Interest Income

The change in net interest income measures the amount of net interest income fluctuation that would be experienced over one year, assuming interest rates change immediately and remain the same for one year. This is considered to be a short-term view of interest rate risk. The analysis of changes in net interest income due to changes in interest rates is commonly referred to as interest rate sensitivity. The Corporation’s interest rate sensitivity analysis indicates that if interest rates were to change immediately, the Corporation would realize less net interest income in all up and down rate scenarios. In past years, the Corporation was generally showing asset sensitivity meaning in a rates-up environment, assets would reprice faster than liabilities resulting in higher net interest income. In the past year, this increase in net interest income shifted to a decline primarily due to the increased impact from a higher cost of funds if rates continue to rise. While the Corporation would recognize higher interest income on its variable-rate assets, it would also now be repricing liabilities at a much faster pace resulting in increased interest expense that would offset the rise in interest income. Likewise, in the down-rate scenarios, asset yields would decline in conjunction with market rate moves, while deposit repricing would be slower to retain existing deposit balances.

The first quarter 2025 analysis projects net interest income expected in the nine rate scenarios over a one-year time horizon. As of March 31, 2025, the Corporation was within guidelines for the maximum amount of net interest income change in all rate scenarios.

The assumptions and analysis of interest rate risk are based on historical experience during varied economic cycles. Management believes these assumptions to be appropriate; however, actual results could vary significantly. Management uses this analysis to identify trends in interest rate sensitivity and determine if action is necessary to mitigate asset liability risk.

#### Changes in Net Portfolio Value

The change in net portfolio value is considered a tool to measure long-term interest rate risk. The analysis measures the exposure of the balance sheet to valuation changes due to changes in interest rates. The calculation of net portfolio value discounts future cash flows to the present value based on current market rates. The change in net portfolio value estimates the gain or loss in value that would occur on market sensitive instruments given an interest rate increase or decrease in the same nine scenarios mentioned above. As of March 31, 2025, the Corporation was within guidelines for all rate scenarios except the down 300 and 400 basis point scenarios. The Corporation shows a favorable benefit to net portfolio value in the rising rate scenarios, due primarily to the large amount of core deposits on the Corporation’s balance sheet. The non-interest bearing demand deposit accounts and low-interest bearing checking, and money market accounts provide more benefit to the Corporation when interest rates are higher and the difference between the overnight funding costs compared to the average interest bearing core deposit rates are greater. As interest rates increase, the discount rate used to value the Corporation’s interest bearing accounts increases, causing a lower net present value for these interest-bearing deposits. This improves the modeling of the Corporation’s fair value risk to higher interest rates as the liability amounts decrease causing a higher net portfolio value of the Corporation’s balance sheet. However, as interest rates decrease, the discount rate used to value the Corporation’s interest bearing accounts decreases, causing a higher net present value for these interest-bearing deposits.

The analysis shows a valuation loss in the down rate scenarios. Policy allows for a valuation decline of 30% for the down 300 and 35% for the down 400 basis point scenarios and actual projected results show a valuation decline of 44.4% and 65.9%, respectively. While this loss is outside of policy guidelines, it is unlikely that rates would move down immediately by 300 or 400 basis points. The Corporation will continue to monitor these measurements in the down-rate scenarios and adjust balance sheet structure as necessary to prepare for future potential lower rates.

The weakness with the net portfolio value analysis is that it assumes liquidation of the Corporation rather than as a going concern. For that reason, it is considered a secondary measurement of interest rate risk to “Changes in Net Interest Income” discussed above. However, the net portfolio value analysis is a more important tool to measure the impact of interest rate changes to capital. In the current regulatory climate, the focus is on ensuring adequate asset liability modeling is being done to project the impact of very large interest rate increases on capital. The asset liability modeling currently in place measures the impact of such a rate change on the valuation of the Corporation’s loans, securities, deposits, and borrowings, and the resulting impact to capital. Management continues to analyze additional scenario testing to model “worst case” scenarios to adequately plan for the possible severe impact of such events.

## Controls and procedures

As filed, 1,398 characters.

(a) Evaluation of Disclosure Controls and Procedures.

Management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer (Principal Executive Officer) and Treasurer (Principal Financial Officer), of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures (as such term as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2025, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer (Principal Executive Officer) along with the Treasurer (Principal Financial Officer) concluded that the Corporation’s disclosure controls and procedures as of March 31, 2025, are effective to ensure that information required to be disclosed in the reports that the company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

(b) Changes in Internal Controls.

There have been no changes in the Corporation’s internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II – OTHER INFORMATION

March 31, 2025

## Risk factors

As filed, 1,969 characters.

The Corporation continually monitors the risks related to the Corporation’s business, other events, the Corporation’s Common Stock, and the Corporation’s industry. Other than as noted below, there have been no material changes in risk factors applicable to the Corporation from those disclosed in "Risk Factors" in Item 1A of the Corporation's Annual Report on Form 10-K for the year ended December 31, 2024.

***Changes to trade policies and tariffs can have an adverse impact on our business and our customers.***

Changes in trade policies, including the imposition of tariffs or the escalation of a trade war, could negatively impact the economic conditions in the markets we serve. Our customers-particularly local businesses engaged in agriculture, manufacturing, and retail-may face higher costs for imported goods and materials, reduced export demand, and supply chain disruptions due to increased tariffs. These challenges could lead to lower revenues, reduced profitability, and potential layoffs, all of which may impair our customers' ability to meet their financial obligations. Furthermore, prolonged trade tensions and economic uncertainty could lead to market volatility, declining asset values, and weakened consumer confidence. If our customers experience financial stress, we could see an increase in loan delinquencies and credit losses, negatively affecting our asset quality and overall financial performance. Additionally, any decline in local economic activity could reduce loan demand, deposit growth, and fee income, which are critical to our long-term success. While we actively monitor economic and policy developments, we cannot predict the outcome of trade negotiations or the full impact of tariffs and trade restrictions on our business, customers, and the broader economy. Any adverse effects from tariffs or a trade war could materially and negatively impact our financial condition, results of operations, and future growth prospects.

Filed May 13, 2025.
Source: SEC EDGAR, the filing index for accession 0001174947-25-000756. Last ingested by Listed: Oct 24, 2026, 15:08 ET. No prices; not investment advice.