Peoples Financial Services Corp.: Form 10-Q for the period ended Mar 31, 2025

The following discussion and analysis should be read in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this report, and with our audited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in our Annual Report on Form 10-K for the year ended December 31, 2024.

Cautionary Note Regarding Forward-Looking Statements:

This quarterly report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties. These statements are based on assumptions and may describe future plans, strategies and expectations of Peoples Financial Services Corp. and its subsidiaries that are subject to significant risks and uncertainties, and are subject to change based on various factors (some of which are beyond our control). These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. All statements in this report, other than statements of historical facts, are forward-looking statements.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Important factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to: changes in interest rates, including their effect on our investment values; impairment charges relating to our investment portfolio; credit risks in connection with our lending activities; the economic health of our market area; our exposure to commercial and industrial, construction, commercial real estate, and equipment finance loans; our ability to maintain an adequate allowance for credit losses; access to liquidity; the strength of our customer deposit levels; unrealized losses; reliance on our subsidiaries; accounting procedures, policies and requirements; changes in the value of goodwill; future pension plan costs; our ability to retain key personnel; the strength of our disclosure controls and procedures; environmental liabilities; reliance on third-party vendors and service providers; competition from non-bank entities; the development and us of AI in business processes, services, and products; our ability to prevent, detect and respond to cybersecurity threats and incidents; a failure of information technology, whether due to a breach, cybersecurity incident, or ability to keep pace with growth and developments; our ability to comply with privacy and data protection requirements; changes in U.S. or regional economic conditions, including changes due to federal policies and regulations with respect to trade, including tariffs and trade barriers; our ability to compete effectively in our industry; the soundness of other financial institutions; adverse changes in laws and regulations; fiscal and monetary policies of the federal government and its agencies; a failure to meet minimum capital requirements; our ability to realize the anticipated benefits of our merger with FNCB Bancorp, Inc.; future acquisitions or a change in control; and our ability to pay dividends. Additional factors that may affect our results are discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, in Part II, Item 1A of this report and in reports we file with the Securities and Exchange Commission from time to time.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, we do not undertake, and specifically disclaim any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies:

The Company’s consolidated financial statements are prepared in accordance with GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to establish critical accounting policies and make accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during those reporting periods.

An accounting estimate requires assumptions about uncertain matters that could have a material effect on the consolidated financial statements if a different amount within a range of estimates were used or if estimates changed from period to period. Readers of this report should understand that estimates are made considering facts and circumstances at a point in time, and changes in those facts and circumstances could produce results that differ from when those estimates were made. Management is required to make subjective and/or complex judgments about matters that are inherently uncertain and could be subject to revision as new information becomes available. Management has identified that the determination of ACL, impairment of goodwill and business combination are critical estimates that are particularly susceptible to material change within future periods. Actual amounts could differ from those estimates.

For a further discussion of our critical accounting estimates, refer to Note 1 entitled, “Summary of significant accounting policies,” and Note 2 entitled, “Business combination,” in the Notes to Consolidated Financial Statements included in the Company’s 2024 Annual Report on Form 10-K.

Business Combinations:

Assets acquired and liabilities assumed in business combinations are measured at fair value as of the Acquisition Date. In many cases, determining the fair value of the assets acquired and liabilities assumed requires the Company to estimate the timing and amount of cash flows expected to result from these assets and liabilities and to discount these cash flows at appropriate rates of interest, which require the utilization of significant estimates and judgment in accounting for the acquisition.

Goodwill and Other Intangible Assets:

The Company has goodwill with a net carrying value of $76.0 million at March 31, 2025 and December 31, 2024, respectively. The Company's policy is to test goodwill for impairment annually on December 31 or on an interim basis if an event triggering impairment may have occurred. If a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. At March 31, 2025, we performed a qualitative evaluation, which involves determining whether any events occurred or circumstances changed that would more likely than not reduce the Company's fair value below its carrying value. We noted no such matters. There is no assurance that changes in events or circumstances in the future will not result in impairment.

Core deposit intangibles are amortized on an accelerated basis using an estimated life of ten years. The core deposit intangibles are evaluated annually for impairment in accordance with GAAP. An impairment loss will be recognized if the carrying amount of the intangible asset is not fully recoverable and exceeds fair value. The carrying amount of the intangible asset is not considered fully recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset.

We believe that the fair values of our intangible assets were in excess of their carrying amounts and therefore there was no impairment of intangible assets at March 31, 2025.

Review of Financial Position:

Total assets decreased $92.3 million or 7.4% annualized from December 31, 2024, to $5.0 billion at March 31, 2025. The decrease in assets during the three months was primarily due to maturities and payments on the investment portfolio and reductions in federal funds sold to fund seasonal deposit outflows and pay borrowings. Total loans decreased $2.0 million since December 31, 2024 and totaled $4.0 billion at March 31, 2025. Investments decreased $24.7 million to

$582.2 million at March 31, 2025. Cash and cash equivalents decreased $58.8 million to $77.1 million at March 31, 2025 compared to a balance of $135.9 million at December 31, 2024.

Deposits decreased $90.6 million to $4.3 billion at March 31, 2025 from $4.4 billion at December 31, 2024. Interest-bearing deposits decreased $56.5 million to $3.4 billion compared to $3.5 billion at December 31, 2024. Noninterest-bearing deposits decreased $34.1 million to $901.4 million from $935.5 million as of December 31, 2024.

Total short-term borrowings at March 31, 2025 were $14.8 million, a decrease of $1.1 million from $15.9 million at December 31, 2024. Long term debt decreased $10.2 million to $88.4 million from $98.6 million at December 31, 2024. Subordinated debentures remained relatively unchanged at $41.1 million and $41.0 million at March 31, 2025 and December 31, 2024 respectively. Total stockholders’ equity increased $12.9 million from $469.0 million at year-end 2024 to $481.9 million at March 31, 2025 due to net income and a decrease to accumulated other comprehensive loss resulting from a reduction in the unrealized loss on available for sale investment securities, partially offset by dividends paid.

The unrealized losses on the held to maturity portfolio totaled $11.9 million and $13.0 million at March 31, 2025 and December 31, 2024, respectively. For the three months ended March 31, 2025, total assets averaged $5.0 billion, an increase of $1.3 billion from $3.7 billion for the same period of 2024 due to the merger.

Investment Portfolio:

The majority of the investment portfolio is classified as available for sale, which allows for greater flexibility in using the investment portfolio for liquidity purposes by allowing securities to be sold when market opportunities occur. Investment securities available for sale totaled $503.0 million at March 31, 2025, a decrease of $23.3 million, or 4.4% from $526.3 million at December 31, 2024. The decrease was primarily due to maturities, calls and principal payments, partially offset by an increase in fair value due to market value adjustments.

Investment securities held to maturity, which consisted of 85.9% mortgage backed securities and issued or guaranteed by U.S. Government agencies and U.S. Government-sponsored entities and the remainder of tax-exempt municipal securities, totaled $76.7 million at March 31, 2025, a decrease of $1.5 million, or 1.9% from $78.2 million at December 31, 2024. The decrease was primarily due to principal payments. Held to maturity securities had a market value of $64.8 million at March 31, 2025 compared to $65.2 million at December 31, 2024.

The Company also holds a portfolio of equity investments, consisting primarily of publicly traded bank holding companies, which are carried at fair value. Equity investments totaled $2.5 million at March 31, 2025 compared to $2.4 million at December 31, 2024.

For the three months ended March 31, 2025, the investment portfolio book value averaged $643.0 million, an increase of $109.2 million or 20.4% compared to $533.9 million for the same period last year. Average tax-exempt municipal bonds have increased $0.2 million or 0.2% to $87.1 million for the three months ended March 31, 2025 from $86.9 million during the comparable period of 2024, and taxable investments have increased $108.9 million, or 24.4% to $555.9 million from an average of $447.0 million for the three months ended March 31, 2024. The fully tax-equivalent (“FTE”) yield on the investment portfolio, a non-GAAP measure, increased 115 basis points to 2.95% for the three months ended March 31, 2025, from 1.80% for the comparable period of 2024 due primarily to acquiring the investment portfolio of FNCB at the then current market rates.

Securities available for sale are carried at fair value, with unrealized gains or losses net of deferred income taxes reported in the Accumulated Other Comprehensive Loss component of stockholders’ equity. We reported net unrealized losses, included as a separate component of stockholders’ equity of $33.9 million net of a deferred income tax benefit of

$9.5 million at March 31, 2025, and net unrealized losses of $38.3 million, net of deferred income tax benefit of $10.7 million, at December 31, 2024.

Our Asset/Liability Committee (“ALCO”) reviews the performance and risk elements of the investment portfolio quarterly. Through active balance sheet management and analysis of the securities portfolio, we endeavor to maintain sufficient liquidity to satisfy depositor requirements and meet the credit needs of our customers.

Loan Portfolio:

Total loans decreased $2.0 million or 0.20% annualized since December 31, 2024, and totaled $4.0 billion at March 31, 2025.

Commercial and industrial loans, which includes municipal loans, increased $17.0 million to $853.0 million at March 31, 2025, compared to $836.0 million at December 31, 2024.

Commercial real estate loans decreased $18.9 million to $2.3 billion at March 31, 2025, compared to $2.3 billion at December 31, 2024.

Residential real estate loans increased $8.7 million to $560.1 million at March 31, 2025, compared to $551.4 million at December 31, 2024.

Consumer loans, which consists primarily of indirect loans, decreased $9.8 million to $123.0 million at March 31, 2025, compared to $132.9 million at December 31, 2024.

Equipment financing loans increased $1.1 million to $180.2 million at March 31, 2025, compared to $179.1 million at December 31, 2024.

For the three months ended March 31, 2025, total loans averaged $4.0 billion, an increase of $1.1 billion or 39.2% compared to $2.9 billion for the same period of 2024. The FTE yield on the entire loan portfolio was 5.92% for the three months ended March 31, 2025, an 88 basis point increase from the comparable period last year. The increase in yield was due to the impact of effective interest rates on the loans acquired in the FNCB merger, together with new loan volume and legacy loans that have repriced higher during the quarter.

In addition to the risks inherent in our loan portfolio, in the normal course of business, we are also a party to financial instruments with off-balance sheet risk to meet the financing needs of our customers. These instruments include legally binding commitments to extend credit, unused portions of lines of credit and commercial letters of credit made under the same underwriting standards as on-balance sheet instruments, and may involve, to varying degrees, elements of credit risk and interest rate risk (“IRR”) in excess of the amount recognized in the consolidated financial statements.

Unused commitments at March 31, 2025, totaled $780.8 million, consisting of $710.6 million in unfunded commitments of existing loan facilities and $70.2 million in standby letters of credit. Due to fixed maturity dates, specified conditions within these instruments, and the ultimate needs of our customers, many will expire without being drawn upon. We believe that amounts actually drawn upon can be funded in the normal course of operations and, therefore, do not represent a significant liquidity risk to us. In comparison, unused commitments at December 31, 2024 totaled $800.9 million, consisting of $740.6 million in unfunded commitments of existing loans and $60.4 million in standby letters of credit.

Asset Quality:

Distribution of nonperforming assets

(Dollars in thousands, except percents)

Nonperforming assets increased by $0.7 million during the first three months of 2025, to $23.7 million, or 0.47% of total assets at March 31, 2025, an increase from $23.0 million or 0.45% of total assets at December 31, 2024.

Loans on nonaccrual status increased $0.5 million to $23.0 million at March 31, 2025, from $22.5 million at December 31, 2024. Nonaccrual loans acquired in the FNCB merger equaled $8.6 million at March 31, 2025, and $8.5 million at December 31,2024. Of the loans acquired, $5.7 million and $6.4 million were PCD loans at March 31, 2025, and December 31,2024 respectively. There was one foreclosed property at both March 31, 2025 and December 31, 2024 in the amount of $27 thousand.

We pursue a goal of maintaining a high loan-to-deposit ratio in order to drive profitability. However, this objective is superseded by our goal of maintaining strong asset quality. We continued our efforts to maintain sound underwriting standards for both commercial and consumer credit.

The allowance for credit losses equaled $41.1 million or 1.03% of loans, net at March 31, 2025, compared to $41.8 million or 1.05% of loans, net, at December 31, 2024. The decrease resulted primarily from a lower quarterly provision of $0.2 million in the period ending March 31, 2025 versus $3.4 million in the quarter ended December 31, 2024 and net charge-offs totaling $0.9 million in the three months ended March 31,2025 and December 31, 2024. The provision for the first quarter of 2025 declined from the previous quarter due mainly to a reduction in qualitative factors for the equipment finance portfolio as a result of stabilized loan balances along with a decline in the model loss rate primarily driven by a change in economic forecasting during the quarter.

Deposits:

We attract the majority of our deposits from within our market areas through the offering of various deposit instruments including demand deposit accounts, money market deposit accounts, savings accounts, and time deposits, including certificates of deposit and IRAs.

Total deposits decreased $90.6 million or 8.3% annualized to $4.3 billion at March 31, 2025 from $4.4 billion at December 31, 2024. Noninterest-bearing deposits decreased $34.1 million, or 14.8% annualized and interest-bearing deposits decreased $56.5 million, or 6.6% annualized, when comparing March 31, 2025 to December 31, 2024. The decrease in deposits was primarily due to seasonal reductions in municipal deposit balances, coupled with reductions in time deposits, including brokered CDs.

Interest-bearing demand and money market accounts decreased $29.9 million to $2.1 billion at March 31, 2025 from $2.2 billion at December 31, 2024. Savings accounts increased $10.7 million to $502.9 million as of March 31, 2025 from $492.2 million at December 31, 2024. Time deposits less than $250 thousand decreased $21.6 million to $599.1 million at March 31, 2025, from $620.7 million at December 31, 2024. Time deposits $250 thousand or more decreased $15.6 million to $168.4 million at March 31, 2025 from $184.0 million at year end 2024.

The deposit base consisted of 42.0% retail accounts, 35.7% commercial accounts, 16.8% municipal relationships and 5.5% brokered deposits at March 31, 2025. At March 31, 2025, total estimated uninsured deposits were approximately $1.3 billion, or 30.0% of total deposits; as compared to approximately $1.4 billion, or 31.3% of total deposits at December 31, 2024.

For the three months ended March 31, interest-bearing deposits averaged $3.4 billion in 2025 compared to $2.6 billion in 2024, an increase of $843.5 million due primarily to the merger with FNCB. The cost of interest-bearing deposits was 2.46% for the first quarter of 2025 compared to 2.90% for the same period last year. The overall cost of interest bearing liabilities, including the cost of borrowed funds was 2.58% for the three months ended March 31, 2025 and 2.96% for the same period in 2024. The lower costs are due primarily to decreases in the interest rate environment versus the same period in 2024 and the Company’s actions to reduce deposit costs.

Borrowings:

Peoples Bank utilizes borrowings as a secondary source of liquidity for its asset/liability management. Advances are available from the FHLB provided certain standards related to credit worthiness have been met. Repurchase and term agreements are also available from the FHLB. In addition, Peoples Bank may borrow from the Federal Reserve utilizing the Discount Window.

Overall, total borrowings were $144.3 million at March 31, 2025, which included short-term borrowings, long-term debt and subordinated debt, compared to $155.6 million at December 31, 2024, a decrease of $11.3 million. At March 31, 2025, short-term borrowings, which was comprised solely of cash collateral pledged by derivative counterparties to offset interest rate exposure, totaled $14.8 million compared to $15.9 million at December 31, 2024. Lower market interest rates resulted in reduced exposure, and in a decrease to pledged cash collateral. Long-term debt was $88.4 million at March 31, 2025 compared with $98.6 million at year end 2024. Long term debt is comprised exclusively of advances from the Federal Home Loan Bank of Pittsburgh. Junior subordinated debt, which was acquired as part of the FNCB merger and reported net of discount, totaled $8.1 million and $8.0 million at March 31, 2025 and December 31, 2024, respectively. Subordinated debt outstanding was unchanged at $33.0 million at March 31, 2025 and December 31, 2024.

Market Risk Sensitivity:

Market risk is the risk to our earnings or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. Our exposure to market risk is primarily IRR associated with our lending, investing and deposit-gathering activities. During the normal course of business, we are not exposed to foreign exchange risk or commodity price risk. Our exposure to IRR can be explained as the potential for change in our reported earnings and/or the market value of our net worth. Variations in interest rates affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. Interest rate changes also affect the underlying economic value of our assets, liabilities and off-balance sheet items. These changes arise because the present value of future cash flows, and often the cash flows themselves, change with interest rates. The effects of the changes in these present values reflect the change in our underlying economic value and provide a basis for the expected change in future earnings related to interest rates. IRR is inherent in the role of banks as financial intermediaries. However, a bank with a high degree of IRR may experience lower earnings, impaired liquidity and capital positions, and most likely, a greater risk of insolvency. Therefore, banks must carefully evaluate IRR to promote safety and soundness in their activities.

IRR and effectively managing it are important to both bank management and regulators. Bank regulations require us to develop and maintain an IRR management program, overseen by our Board of Directors and senior management, that involves a comprehensive risk management process in order to effectively identify, measure, monitor and control risk. Should bank regulatory agencies identify a material weakness in our risk management process or high exposure relative to our capital, bank regulatory agencies may take action to remedy these shortcomings. Moreover, the level of IRR exposure and the quality of our risk management process is a determining factor when evaluating capital adequacy.

The ALCO, comprised of members of our board of directors, senior management and other appropriate officers, oversees our IRR management program. Specifically, ALCO analyzes economic data and market interest rate trends, as well as competitive pressures, and utilizes computerized modeling techniques to reveal potential exposure to IRR. This allows us to monitor and attempt to control the influence these factors may have on our rate-sensitive assets (“RSA”) and rate-sensitive liabilities (“RSL”), and overall operating results and financial position. One such technique utilizes a static gap model that considers repricing frequencies of RSA and RSL in order to monitor IRR. Gap analysis attempts to measure our interest rate exposure by calculating the net amount of RSA and RSL that reprice within specific time intervals. A positive gap occurs when the amount of RSA repricing in a specific period is greater than the amount of RSL repricing within that same time frame and is indicated by an RSA/RSL ratio greater than 1.0. A negative gap occurs when the amount of RSL repricing is greater than the amount of RSA and is indicated by an RSA/RSL ratio of less than 1.0. A positive gap implies that earnings will be impacted favorably if interest rates rise and adversely if interest rates fall during the period. A negative gap tends to indicate that earnings will be affected inversely to interest rate changes.

Our cumulative one-year RSA/RSL ratio equaled 1.13% at March 31, 2025, an increase from 0.82% at December 31, 2024. As previously mentioned, a positive gap indicates that if interest rates increase, our earnings would likely be favorably impacted. The overall focus of ALCO is to maintain a well-balanced interest rate risk position in order to safeguard future earnings. The current position at March 31, 2025, indicates that the amount of RSA repricing within one year would exceed that of RSL, thereby causing net interest income to increase as market rates increase. However, these forward-looking statements are qualified in the aforementioned section entitled “Cautionary Note Regarding Forward-Looking Statements” in this Management’s Discussion and Analysis.

Static gap analysis, although a standard measuring tool, does not fully illustrate the impact of interest rate changes on future earnings. First, market rate changes normally do not equally or simultaneously affect all categories of assets and liabilities. Second, assets and liabilities that can contractually reprice within the same period may not do so at the same time or to the same magnitude. Third, the interest rate sensitivity analysis presents a one-day position. Variations occur daily as we adjust our rate sensitivity throughout the year. Finally, assumptions must be made in constructing such an analysis.

As the static gap report fails to address the dynamic changes in the balance sheet composition or prevailing interest rates, we utilize a simulation model to enhance our asset/liability management. This model is used to create pro forma net interest income scenarios under various interest rate shocks. Simulation model results at March 31, 2025, produced results similar to those indicated by the one-year static gap position. In addition, parallel and instantaneous shifts in interest rates under various interest rate shocks resulted in changes in net interest income that were well within ALCO policy limits during the first year of simulation. We will continue to monitor our IRR throughout 2025 and endeavor to employ deposit and loan pricing strategies and direct the reinvestment of loan and investment repayments in order to manage our IRR position.

Financial institutions are affected differently by inflation than commercial and industrial companies that have significant investments in fixed assets and inventories. Most of our assets are monetary in nature and change correspondingly with variations in the inflation rate. It is difficult to precisely measure the impact inflation has on us, however we believe that our exposure to inflation can be mitigated through asset/liability management.

Liquidity:

Liquidity management is essential to our continuing operations and enables us to meet financial obligations as they come due, as well as to take advantage of new business opportunities as they arise. Financial obligations include, but are not limited to, the following:

• Funding new and existing loan commitments;
• Payment of deposits on demand or at their contractual maturity;
• Repayment of borrowings as they mature;
• Payment of lease obligations; and
• Payment of operating expenses.

These obligations are managed daily, thus enabling us to effectively monitor fluctuations in our liquidity position and to adapt that position according to market influences and balance sheet trends. Future liquidity needs are forecasted and strategies are developed to ensure adequate liquidity at all times.

Historically, core deposits have been the primary source of liquidity because of their stability and lower cost, in general, than other types of funding. Providing additional sources of funds are loan and investment payments and prepayments and the ability to sell both available for sale securities and mortgage loans held for sale.

Our ALCO generally meets quarterly, and most recently met in February to review our IRR profile, capital adequacy and liquidity. On March 31, 2025, the Company’s cash and cash equivalents balances were $77.1 million. Our maximum borrowing capacity with the FHLB as of March 31, 2025, was $1.6 billion, of which $507.1 million was outstanding in the form of borrowings and irrevocable standby letters of credit, and the remaining $1.1 billion is available. Additionally, the Company maintains $583.2 million of availability at the Federal Reserve Bank’s Discount Window, through the pledging of securities and through a borrower-in-custody of collateral arrangement, which enables us to pledge certain loans not being used as collateral elsewhere. Additional sources of credit with corresponding banks total $18.0 million, none of which is currently utilized. The Company also maintains an available for sale investment securities portfolio, comprised primarily of highly liquid U.S. Treasury securities, highly-rated municipal securities and U.S. agency-backed mortgage backed securities. This portfolio serves as an additional source of liquidity and capital. At March 31, 2025, the Company’s available for sale investment portfolio totaled $503.0 million, $167.6 million of which were unencumbered. We believe our liquidity is adequate to meet both present and future financial obligations and commitments on a timely basis.

We employ a number of analytical techniques in assessing the adequacy of our liquidity position. One such technique is the use of ratio analysis to determine the extent of our reliance on noncore funds to fund our investments and loans maturing after March 31, 2025. Our noncore funds at March 31, 2025, were comprised of time deposits in denominations of $100 thousand or more, brokered deposits and other borrowings. These funds are not considered to be a strong source of liquidity because they are very interest rate sensitive and are considered to be highly volatile. On March 31, 2025, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was 13.2%, while our net short-term noncore funding dependence ratio, noncore funds maturing within one-year, less short-term investments to long-term assets equaled 8.2%. Comparatively, our overall noncore dependence ratio at year-end 2024 was 12.7% and our net short-term noncore funding dependence ratio was

6.6%, indicating that our reliance on noncore funds has increased overall as a result of decreases to our longer-term assets such as loans and investments and a decrease in our federal funds balances.

The Consolidated Statements of Cash Flows present the changes in cash and cash equivalents from operating, investing and financing activities. Cash and cash equivalents, consisting of cash on hand, cash items in the process of collection, deposit balances with other banks and federal funds sold, decreased $58.7 million during the three months ended March 31, 2025. Cash and cash equivalents decreased $77.4 million for the same period last year. For the three months ending March 31, 2025, net cash outflows of $108.5 million, from financing activities, were offset by $40.7 million provided by investing activities and $9.1 million received from operating activities. For the same period of 2024, net cash outflows of $75.3 million from financing activities and $5.3 million from investing activities were partially offset by net cash inflows of $3.2 million from operating activities.

Operating activities provided net cash of $9.1 million for the three months ended March 31, 2025, and provided $3.2 million for the corresponding three months of 2024. Net income, adjusted for the effects of gains and losses along with noncash transactions such as depreciation and the provision for credit losses, is the primary source of funds from operations.

Investing activities primarily include lending activities, and investment portfolio transactions. Investing activities provided net cash of $40.7 million for the three months ended March 31, 2025, compared to using net cash of $5.3 million for the same period of 2024. Proceeds from principal repayments of investments securities was the primary factor causing the net inflow, followed by a reduction in loan balance.

Financing activities used net cash of $108.5 million for the three months ended March 31, 2025, and used net cash of $75.3 million for the corresponding three months of 2024. In 2025, deposit outflows was the largest source of the net cash outflow, followed by repayment of borrowings. The year ago period amount was primarily the result of deposit outflow. While a portion of the outflows are seasonal, we continue to seek deposits from new markets and customers as well as existing customers, including municipalities and school districts.

We believe that our future liquidity needs will be satisfied through maintaining an adequate level of cash and cash equivalents, by maintaining readily available access to traditional funding sources, and through proceeds received from the investment and loan portfolios. We believe that our current sources of funds will enable us to meet all cash obligations as they come due.

Capital:

Stockholders’ equity totaled $481.9 million or $48.21 per share at March 31, 2025, compared to $469.0 million or $46.94 per share at December 31, 2024. Stockholders’ equity increased during the three-month period ended March 31, 2025 primarily due to earnings, and a decrease in other comprehensive loss due to changes in market values of available for sale securities, partially offset by a dividend payout of $6.2 million.

Dividends declared equaled $0.6175 per share for the three months ended March 31, 2025 and $0.41 per share for the same period of 2024. The Company has paid cash dividends since its formation as a bank holding company in 1986. The Company’s board of directors declared on April 25, 2025 a second quarter dividend of $0.6175 per share payable on June 13, 2025 to shareholders of record as of May 30, 2025. The increase to the quarterly cash dividend, which began in the third quarter of 2024, was contemplated as part of the Merger Agreement between the Company and FNCB. It is the present intention of the Company’s board of directors to continue this dividend payment policy. Further dividends, however, must necessarily depend upon earnings, financial condition, appropriate legal restrictions and other factors relevant at the time the board of directors considers payment of dividends.

Current rules, which implemented the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act, call for the following capital requirements: (i) a minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5%; (ii) a minimum ratio of tier 1 capital to risk-weighted assets of 6%; (iii) a minimum ratio of total capital to risk-weighted assets of 8%; and (iv) a minimum leverage ratio of 4%. In addition, the final rules establish a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets applicable to all banking organizations. If a banking organization fails to hold capital above the minimum capital ratios and the capital conservation buffer, it will be subject to certain restrictions on capital distributions and discretionary bonus payments.

The adequacy of capital is reviewed on an ongoing basis with reference to the size, composition and quality of resources and regulatory guidelines. We seek to maintain a level of capital sufficient to support existing assets and anticipated asset growth, maintain favorable access to capital markets, and preserve high quality credit ratings. At March 31, 2025, Peoples Bank’s Tier 1 capital to total average assets was 8.92% as compared to 8.37% at December 31, 2024. Peoples Bank’s Tier 1 capital to risk weighted asset ratio was 11.38% and the total capital to risk weighted asset ratio was 12.45% at March 31, 2025. These ratios were 10.95% and 12.04% at December 31, 2024. Peoples Bank’s common equity Tier 1 to risk weighted asset ratio was 11.38% at March 31, 2025 compared to 10.95% at December 31, 2024. Peoples Bank met all capital adequacy requirements and was deemed to be well-capitalized under regulatory standards at March 31, 2025.

Review of Financial Performance:

Peoples reported net income of $15.0 million or $1.49 per diluted share for the three months ended March 31, 2025, an increase of $11.5 million when compared to net income of $3.5 million or $0.49 per share for the comparable period of 2024. Quarterly net income included a higher net interest income of $20.2 million due primarily to increases in the volume of earning assets due to the FNCB merger and the $3.7 million net accretion impact of purchase accounting marks on loans, deposits and borrowings acquired and assumed in the FNCB merger. The higher net interest income increased the net interest margin to 3.50% in the current period. Noninterest income was $6.3 million, up from $3.4 million in the year ago period. Noninterest expenses increased by $9.3 million, which included higher overall expenses due to the FNCB merger. Provision for income tax increased by $2.8 million on higher earnings.

Return on average assets (“ROA”) measures our net income in relation to total assets. Our annualized ROA was 1.22% for the first quarter of 2025 compared to 0.38% for the same period of 2024. Return on average equity (“ROE”) indicates how effectively we can generate net income on the capital invested by stockholders. Our annualized ROE was 12.70% for the first quarter of 2025 compared to 4.09% for the comparable period in 2024. The increases in our annualized ROA and ROE were due primarily to a higher level of net income resulting from improved margins, lower non-recurring charges related to the FNCB merger, and positive effects from the net accretion impact of purchase accounting marks on loans, deposits, and borrowings.

Non-GAAP Financial Measures:

The following are non-GAAP financial measures which provide useful insight to the reader of the consolidated financial statements but should be supplemental to GAAP used to prepare Peoples’ consolidated financial statements and should not be read in isolation or relied upon as a substitute for GAAP measures. In addition, Peoples’ non-GAAP measures may not be comparable to non-GAAP measures of other companies. The tax rate used to calculate the fully-taxable equivalent (FTE) adjustment was 21% for 2025 and 2024.

The following table reconciles the non-GAAP financial measures of FTE net interest income for the three months ended March 31, 2025 and 2024:

(Dollars in thousands)

The efficiency ratio is noninterest expenses, less amortization of intangible assets and acquisition related expenses, as a percentage of FTE net interest income plus noninterest income less gains on equity securities and gains on sale of assets. Management monitors the efficiency ratio to determine how well it is managing its operating expenses; a lower efficiency ratio is generally preferable as it indicates the Company is spending less to generate income. The Company is continuing to pursue opportunities to reduce expenses as a percentage of operating revenues.

The following table reconciles the non-GAAP financial measures of the efficiency ratio to GAAP for the three months ended March 31, 2025 and 2024:

(Dollars in thousands, except percents)

Net Interest Income:

Net interest income is the fundamental source of earnings for commercial banks. Fluctuations in the level of net interest income can have the greatest impact on net profits. Net interest income is defined as the difference between interest revenue, interest and fees earned on interest-earning assets, and interest expense, the cost of interest-bearing liabilities supporting those assets. The primary sources of earning assets are loans and investment securities, while interest-bearing deposits, short-term and long-term borrowings, and subordinated debt comprise interest-bearing liabilities. Net interest income is impacted by:

• Variations in the volume, rate and composition of earning assets and interest-bearing liabilities;
• Changes in general market rates; and
• The level of nonperforming assets.

Changes in net interest income are measured by the net interest spread and net interest margin. Net interest spread, the difference between the average yield earned on earning assets and the average rate incurred on interest-bearing liabilities, illustrates the effects changing interest rates have on profitability. Net interest margin, net interest income as a percentage of earning assets, is a more comprehensive ratio, as it reflects not only the spread, but also the change in the composition of interest-earning assets and interest-bearing liabilities. Tax-exempt loans and investments carry pre-tax yields lower than their taxable counterparts. Therefore, in order to make the analysis of net interest income more comparable, tax-exempt income and yields are reported herein on a FTE basis, as FTE net interest income using the prevailing federal statutory tax rate of 21.0% in 2025 and 2024.

For the three months ended March 31, 2025, the average balances include $4.0 billion in loans, $643.0 million of investments, $3.4 billion in interest bearing deposits, $159.0 million in borrowings, which includes $33.0 million in subordinated debt and, and $8.1 million in junior subordinated debt. For the three months ended March 31, FTE net interest income, a non-GAAP measure, increased $20.5 million to $40.3 million in 2025 from $19.8 million in 2024. The net interest spread increased to 2.92% for the three months ended March 31, 2025 from 1.60% for the three months ended March 31, 2024 as the earning asset yield increased 94 basis points while the average rate paid on interest-bearing liabilities decreased 38 basis points. The FTE net interest margin increased to 3.50% for the first quarter of 2025 from 2.29% for the comparable period of 2024. The increase in tax-equivalent net interest margin from the year ago period was primarily from a higher volume of earning assets and the net accretion impact of purchase accounting marks on loans, deposits and borrowings acquired and assumed in the FNCB merger, which totaled $3.7 million of net interest income, and represented 32 basis points of tax-equivalent net interest margin.

For the three months ended March 31, FTE interest income on earning assets, a non-GAAP measure, increased $23.6 million to $63.1 million in 2025 as compared to $39.5 million in 2024. The overall yield on earning assets, on a FTE basis, increased 94 basis points for the three months ended March 31, 2025 to 5.50% as compared to 4.56% for the three months ended March 31, 2024. The increase to FTE interest income is due to the increase in rates for newly acquired assets, and an increase in our earning asset base, including those acquired from the FNCB merger and repricing of lower-yielding assets into higher yields. The overall yield earned on investments increased 115 basis points in the first quarter of 2025 to 2.95% from 1.80% for the first quarter of 2024 primarily as a result of a restructured portfolio mix and acquiring the investment portfolio in the merger with FNCB, at fair value, based on current market rates. Average investment balances were $109.1 million higher when comparing the current and year ago quarter. The yield on loans increased 88 basis points in the first quarter of 2025 to 5.92% from 5.04% for the first quarter of 2024 as a result of loans acquired in the FNCB merger, new loans originated at higher portfolio rates, floating and adjustable loans repricing higher, and the net accretion of the loan marks from the impact of purchase accounting which benefited the yield by 42 basis points. Average loan balances were $1.1 billion higher when compared to the same quarter in 2024. Average federal funds sold decreased $55.0 million to $26.0 million for the three months ended March 31, 2025 and yielded

4.45%, as compared to $81.0 million and a yield of 5.60% in the year ago period. We expect an increased level of uncertainty regarding asset yields as changing recessionary metrics influence any FOMC action to cut rates.

Total interest expense increased $3.2 million to $22.9 million for the three months ended March 31, 2025 from $19.7 million for the three months ended March 31, 2024. The total cost of funds decreased 38 basis points for the three months ended March 31, 2025 to 2.58% as compared to 2.96% in the year ago period. The decrease in costs was primarily due to lower rates paid on both interest-bearing deposits and short term borrowings, partially offset by amortization of the purchase accounting marks both on the time deposits and borrowings, which added 5 basis points to the funding costs. Average rates paid on deposits decreased as the result of reduced market rates.

Net interest income changes due to rate and volume for the three months ended March 31

(Dollars in thousands)

FTE net interest income, a non-GAAP measure, was $40.3 million in the three months ended March 31, 2025 and $19.8 million in the comparable period last year. There was a positive volume and rate variance. The growth in average interest-bearing assets exceeded that of the growth in earning liabilities, and resulted in higher FTE net interest income, a non-GAAP measure, of $4.0 million. A positive rate variance resulted in an increase in net interest income of $16.4 million.

Average earning assets increased $1.2 billion to $4.7 billion for the three months ended March 31, 2025 and accounted for a $15.8 million increase in interest income. Average taxable loans increased $1.1 billion, which caused interest income to increase $15.1 million. Average tax-exempt loans increased $55.3 million which caused interest income to increase $0.5 million. Average taxable investments increased $108.9 million comparing 2025 and 2024, which resulted in increased interest income of $0.5 million while average tax-exempt investments increased $0.2 million, which resulted in a negligible change to interest income. Average interest-bearing deposits with banks increased $2.2 million which resulted in an increase of $0.1 million to interest income. Average federal funds sold decreased $55.0 million for the three months ended March 31, 2025 which resulted in a decrease of $0.4 million to interest income.

Average interest-bearing liabilities rose $924.9 million to $3.6 billion for the three months ended March 31, 2025 from $2.7 billion for the three months ended March 31, 2024 resulting in a net increase in interest expense of $11.7 million. Non-maturity interest-bearing deposit accounts, including demand, money market, and savings accounts increased $689.4 million which resulted in a total increase in interest expense of $8.2 million. In addition, large denomination time deposits averaged $139.0 million more in the current period and caused interest expense to increase $1.8 million. An increase of $15.2 million in average time deposits less than $100 thousand which included higher priced callable brokered CDs, resulted in an increase to interest expense of $0.7 million. Short-term borrowings averaged $0.5 million lower which had a negligible effect on interest expense while long-term borrowing increased $72.8 million and resulted in an increase to interest expense of $0.9 million.

For the three months ended March 31, 2025, a favorable rate variance occurred, as the FTE yield on earning assets increased 94 basis points while there was a 38 basis point decrease in the cost of funds. As a result, FTE net interest income increased $16.4 million for the three months ended March 31, 2025. The FTE yield on earning assets was 5.50% in the 2025 period compared to 4.56% in 2024 resulting in an increase in interest income of $7.9 million. The yield on the taxable investment portfolio increased 132 basis points to 3.05% during the three months ended March 31, 2025 from 1.73% in the year ago period, resulting in an increase of $1.7 million in interest income. The yield on the tax- exempt investment portfolio increased 15 basis points to 2.33% from 2.18% in the year ago period with a negligible effect to interest income. The FTE yield on the loan portfolio increased 88 basis points to 5.92% in 2024 from 5.04% in 2024 and resulted in an increase to interest income of $6.7 million.

The yield on interest bearing deposits decreased 44 basis points to 2.46% from 2.90% in the year ago period resulting in a decrease in interest expense of $8.6 million. The yield on long term borrowings increased 54 basis points to 4.88% from 4.34% in the year ago period but had a negligible effect to interest expense. The yield on short term borrowings decreased 83 basis points to 4.52% from 5.35% in the year ago period and resulted in a $0.1 million decrease to interest expense.

The average balances of assets and liabilities, corresponding interest income and expense and resulting average yields or rates paid are summarized as follows. Averages for earning assets include nonaccrual loans. Investment averages include available for sale securities at amortized cost. Income on investment securities and loans is adjusted to a FTE basis using the prevailing federal statutory tax rate of 21%.

Provision for Credit Losses:

Effective January 1, 2023 the Company transitioned to ASU 2016-13 Financial Instruments - Credit Losses (Topic 326), commonly referred to as CECL. Based on our most current evaluation, we believe that the allowance is adequate to absorb any known and inherent losses in the portfolio as of March 31, 2025.

For the three months ended March 31, 2025, $0.2 million was recorded to the provision for credit losses compared to $0.7 million in the year ago period. The current and prior period provisions are the result of the application of model loss rates, changes to mix and size of the loan portfolio, actual performance vs. peers, and qualitative adjustments.

Noninterest Income:

Noninterest income for the three months ended March 31, 2025 and 2024 was $6.3 million and $3.4 million, respectively. The increase was primarily due to higher levels of income related to higher service charges, fees, and commissions, up $1.4 million due to deposit growth, higher wealth management income, up $0.3 million, increases in life insurance investment income, up $0.2 million, all due in part to the merger with FNCB, and gains on the sale of fixed assets of $0.7 million due primarily from the sale of our former headquarters property.

Noninterest Expenses:

In general, noninterest expense is categorized into three main groups: employee-related expenses, occupancy and equipment expenses, and other expenses. Employee-related expenses are costs associated with providing salaries, including payroll taxes and benefits, to our employees. Occupancy and equipment expenses, the costs related to the maintenance of facilities and equipment, include depreciation, general maintenance and repairs, real estate taxes, rental expense offset by any rental income, and utility costs. Other expenses include general operating expenses such as advertising, contractual services, insurance, including FDIC assessment, provision for unfunded commitments, other taxes and supplies. Several of these costs and expenses are variable while the remainder are fixed. We utilize budgets and other related strategies in an effort to control the variable expenses.

Noninterest expense increased $9.3 million to $27.4 million for the three months ended March 31, 2025, from $18.1 million for the same period a year ago. Primary drivers of the increase were salaries and employee benefits, up $4.6 million on merger related increases in head count, occupancy and equipment expenses up $1.9 million on increased properties under management, amortization expenses of $1.7 million on merger related intangible assets, FDIC expenses up $0.5 million on a higher assessment base, and professional services expenses up $0.3 million on increases related to audit and advisory services.

Income Taxes:

We recorded an income tax expense of $3.2 million or 17.8% of pre-tax income for the three months ended March 31, 2025. This compares to $0.5 million, or 12.1% of pretax income compared for the three month period ended March 31, 2024. Higher income tax expense was due to higher pre-tax income for the three months ended March 31, 2025.

Market risk is the risk to our earnings and/or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. Our exposure to market risk is primarily interest rate risk (“IRR”), which arises from our lending, investing and deposit gathering activities. Our market risk sensitive instruments consist of derivative and non-derivative financial instruments, none of which are entered into for trading purposes. During the normal course of business, we are not exposed to foreign exchange risk or commodity price risk. Our exposure to IRR can be explained as the potential for change in reported earnings and/or the market value of net worth. Variations in interest rates affect the underlying economic value of assets, liabilities and off-balance sheet items. These changes arise because the present value of future cash flows, and often the cash flows themselves, change with interest rates. The effects of the changes in these present values reflect the change in our underlying economic value, and provide a basis for the expected change in future earnings related to interest rates. Interest rate changes affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. IRR is inherent in the role of banks as financial intermediaries.

A bank with a high degree of IRR may experience lower earnings, impaired liquidity and capital positions, and most likely, a greater risk of insolvency. Therefore, banks must carefully evaluate IRR to promote safety and soundness in their activities. Interest rate risk is the risk of loss to future earnings due to changes in interest rates. The Asset Liability Management Committee (“ALCO”) is responsible for establishing policy guidelines on liquidity and acceptable exposure to interest rate risk. Generally quarterly, ALCO reports on the status of liquidity and interest rate risk matters to the Company’s board of directors. The objective of the ALCO is to manage assets and funding sources to produce results that are consistent with the Company’s liquidity, capital adequacy, growth, risk and profitability goals and are within policy limits.

The Company utilizes the pricing and structure of loans and deposits, the size and duration of the investment securities portfolio, the size and duration of the wholesale funding portfolio, and off-balance sheet interest rate contracts to manage interest rate risk. The off-balance sheet interest rate contracts may include interest rate swaps, caps and floors. These interest rate contracts involve, to varying degrees, credit risk and interest rate risk. Credit risk is the possibility that a loss may occur if a counterparty to a transaction fails to perform according to terms of the contract. The notional amount of the interest rate contracts is the amount upon which interest and other payments are based. The notional amount is not exchanged, and therefore, should not be taken as a measure of credit risk. See Note 13 to the Audited Consolidated Financial Statements contained in Part II, Item 8 of our Annual Report on Form 10-K for the period ended December 31, 2024 and Note 11 to the unaudited consolidated interim financial statements contained in Part I, Item 1 of this report for additional information.

The ALCO uses income simulation to measure interest rate risk inherent in the Company’s on-balance sheet and off-balance sheet financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 24-month horizon and a 60-month horizon. The simulations assume that the size and general composition of the Company’s balance sheet remain static over the simulation horizons, with the exception of certain deposit mix shifts from low-cost time deposits to higher cost time deposits in selected interest rate scenarios. Additionally, the simulations take into account the specific repricing, maturity, call options, and prepayment characteristics of differing financial instruments that may vary under different interest rate scenarios. The characteristics of financial instrument classes are typically reviewed by the ALCO on a quarterly basis to ensure their accuracy and consistency.

The ALCO reviews simulation results to determine whether the Company’s exposure to a decline in net interest income remains within established tolerance levels over the simulation horizons and to develop appropriate strategies to manage this exposure. As of March 31, 2025 and December 31, 2024, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Company. All changes are measured in comparison to the projected net interest income that would result from an “unchanged” rate scenario where both interest rates and the composition of the Company’s balance sheet remain stable for a 24-month and 60-month period. In addition to measuring the change in net interest income as compared to an unchanged interest rate scenario, the ALCO also measures the trend of both net interest income and net interest margin over a 24-month and 60-month horizon to ensure the stability and adequacy of this source of earnings in different interest rate scenarios.

Model results at March 31, 2025 indicated a higher starting level of net interest income (“NII”) compared to the December 31, 2024 model due to a higher earning asset yield coupled with lower deposit costs. During the current period asset cashflows repriced higher and management implemented a strategy to reduce deposit costs.

Our interest rate risk position exhibits a relatively well-matched position to both rising and falling interest rate environments in the first twelve months of the simulation while a sustained falling rate and parallel downward shifting yield curve presents the greatest potential risk to NII over the long-term horizon. A steeper yield curve mitigates a portion of the exposure to falling rates. After the first eighteen months of the model simulation, the benefit to NII increases in a rising rate environment as a result of the higher assumed replacement rates on assets repricing while funding costs stabilize. This position at March 31, 2025 is similar to our December 31, 2024 model results.

The ALCO regularly reviews a wide variety of interest rate shift scenario results to evaluate interest rate risk exposure, including scenarios showing the effect of steepening or flattening changes in the yield curve as well as parallel changes in interest rates of up to 400 basis points. Because income simulations assume that the Company’s balance sheet will remain static over the simulation horizon, the results do not reflect adjustments in strategy that the ALCO could implement in response to rate shifts.

Since September 2024, the FOMC has decreased the federal funds target rate by 75 basis points which has resulted in our floating rate loans repricing lower and negatively impacting NII. Management commenced reducing deposit rates prior to the FOMC actions and continued to reduce rates during the three months ended March 31, 2025 to mitigate the impact on interest income from the asset side of the balance sheet. Management expects cash flow from the investment portfolio to reprice higher than current portfolio rates, adjustable rate loans to reprice higher than current portfolio rates and new loan originations be added at higher than current portfolio rates to mitigate the lower interest from the floating rate loans. If we experience an outflow of deposits due to lower rates which could result in a shift to higher costing funding sources, expected levels of NII will be reduced.

The projected impacts of instantaneous changes in interest rates on our net interest income and economic value of equity at March 31, 2025, based on our simulation model, as compared to our ALCO policy limits are summarized as follows:

Our simulation model creates pro forma net interest income scenarios under various interest rate shocks. Given instantaneous and parallel shifts in general market rates of plus 100 basis points, our projected net interest income for the 12 months ending March 31, 2025, would decrease 0.9% from model results using current interest rates. Additional disclosures about market risk are included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024, and in Part I, Item 2 of this quarterly report, in each case under the heading “Market Risk Sensitivity,” and are incorporated into this Item 3 by reference.

(a) Evaluation of disclosure controls and procedures.

At March 31, 2025, the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon that evaluation, the CEO and CFO concluded that the disclosure controls and procedures, at March 31, 2025, were effective to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to the CEO and CFO to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting.

Effective on July 1, 2024, Peoples completed its merger with FNCB. The Company is working to integrate FNCB into its overall internal control over financial reporting processes. Except for changes made in connection with this integration of FNCB, there were no changes in the Company’s internal control over financial reporting in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the fiscal quarter ended March 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Our Annual Report on Form 10-K for the year ended December 31, 2024 (2024 Form 10-K) describes market, credit, and business operations risk factors that could affect our business, results of operations or financial condition. There have been no material changes from the risk factors as previously disclosed in our 2024 Form 10-K.